The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

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TheBogleWay
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The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

Post by TheBogleWay » Sat May 26, 2018 2:31 am

I am close to somebody who is "retiring" in their mid 70s. They don't have any retirement, but may finally have a small nest egg after selling their home and their net worth if all goes well should be about $300-400k.

At their age, would you still recommend a 4% withdrawl rate? Assuming it's $350,000, a 4% withdrawl rate with some taxes taken out may equal about $1,000/month in addition to social security. Every little bit helps.

Would it be smart to recommend the 4% withdrawl rate to this person? Their goal would be comfortable living, while it would be great to pass that onto their kids, it's not entirely necessary. Let me know if you think a 4% withdrawl rate at their age may mean anything left over for their kids.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Raybo » Sat May 26, 2018 3:33 am

How much are this person’s monthly expenses?

Are we talking meeting minimal life expenses or splurging with the extra $1,000/month?

If due to overspending early on are there places to cutback if necessary in later years?

The less you spend, the longer the nest egg will last. But, at mid-70s, no reason to skimp unless you have to.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by TheBogleWay » Sat May 26, 2018 3:49 am

Raybo wrote:
Sat May 26, 2018 3:33 am
How much are this person’s monthly expenses?

Are we talking meeting minimal life expenses or splurging with the extra $1,000/month?

If due to overspending early on are there places to cutback if necessary in later years?

The less you spend, the longer the nest egg will last. But, at mid-70s, no reason to skimp unless you have to.
They have to. No net worth outside of this upcoming chunk. No luxuries. That's why I'm making this thread trying to determine what withdrawal rate makes sense.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Sheepdog » Sat May 26, 2018 4:05 am

How much is invested? How much income do they expect from that? 2% CDs or stocks and bonds at whatever allocation? How much do they spend each year for normal expenses? Only from that can they, or any of us, make a reasonable estimate of their withdrawal rate.

They can decide on any rate they wish, but if they aren't earning anything, they will just run out in time.

I hit retirement at 65 with the plan to take out an average of 4.5% each year with no inflation increase. Let investment growth take care of inflation. At 75, withdrawals remained at 4.5% average. At my present 85 it is still that 4.5% average. I can't guess what they should do.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by TheBogleWay » Sat May 26, 2018 4:18 am

Sheepdog wrote:
Sat May 26, 2018 4:05 am
How much is invested? How much income do they expect from that? 2% CDs or stocks and bonds at whatever allocation? How much do they spend each year for normal expenses? Only from that can they, or any of us, make a reasonable estimate of their withdrawal rate.

They can decide on any rate they wish, but if they aren't earning anything, they will just run out in time.

I hit retirement at 65 with the plan to take out an average of 4.5% each year with no inflation increase. Let investment growth take care of inflation. At 75, withdrawals remained at 4.5% average. At my present 85 it is still that 4.5% average. I can't guess what they should do.
They have nothing now, will hopefully have around $350k shortly after home sale and the idea is to stretch that so invest it. They need every penny as they have no other income or retirement savings.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by vineviz » Sat May 26, 2018 4:27 am

Presumably they have some social security income?

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by IowaFarmBoy » Sat May 26, 2018 4:43 am

The 4% rate was developed with the goal of having a safe inflation adjusted income for 30 years and was based on a mixed portfolio with the expected returns at that time. If any of these factors are different, the safe rate could change. For example, many believe returns will be lower than what was originally used in that study so they are advocating a lower rate.

In this case, since they are retiring in their mid 70s, 30 years would take them to 105ish. Few of us will live this long. So they will have less years of withdrawals and not as much inflation as was used in developing this rule. If they were to put their money in a checking account and not earn any return on it, 4% would allow them to withdraw for 25 years, albeit without an inflation bump. 25 years would take them to 100ish.

I think a 4% rate would be a safe starting point. Whether they have any left for their kids is largely a function of how long they live and what their returns are like. I would probably go very conservative but with a small stock component, something like 75% bonds and 25% stocks but that is for them to decide.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by vineviz » Sat May 26, 2018 5:08 am

The research suggests that for most people, following a RMD-type of withdrawal strategy (even if the assets aren’t in an account that requires it) is the most likely to succeed. This would allow a withdrawal of slightly more than 4% now and guarantee the portfolio isn’t depleted until after age 110.

But . . . .

Without strong investment returns, inflation will eat away at their standard of living. This means that a solid equity allocation now (eg 50 to 60%) that INCREASES as they age is probably imperative.

The combination of RMD-like withdrawals and a rising equity allocation through retirement is the strategy that IMHO is the most likely to provide a comfortable retirement for people who don’t have much financial buffer.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by strafe » Sat May 26, 2018 5:18 am

This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities). You can get quotes at immediateannuities.com.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Nate79 » Sat May 26, 2018 5:22 am

They could put the money in CDs and high yield savings account and they could withdraw 4% for 25 years plus whatever interest and their portfolio will deplete to zero. If they want inflation adjustment TIPS could work.

So yes, because their time horizon is likely less than 25 years they could easily do this without any need for a stock allocation.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Tamarind » Sat May 26, 2018 5:33 am

strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities). You can get quotes at immediateannuities.com.
Seconded. Look into COLAd annuities as an option.

It may be a lot for someone who didn't invest before to get into now, so keep advice very simple. A focus on automating income streams via annuity and automatic withdrawals will probably yield best results psychologically. You particularly want to avoid setting this person up to panic and sell stocks low the next time there is a big drop, since this person has little time to recover.

If you can, a gentle nudge to invest in creating or updating estate planning documents, including fPoA, would also be a good idea.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by ResearchMed » Sat May 26, 2018 6:07 am

Tamarind wrote:
Sat May 26, 2018 5:33 am
strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities). You can get quotes at immediateannuities.com.
Seconded. Look into COLAd annuities as an option.

It may be a lot for someone who didn't invest before to get into now, so keep advice very simple. A focus on automating income streams via annuity and automatic withdrawals will probably yield best results psychologically. You particularly want to avoid setting this person up to panic and sell stocks low the next time there is a big drop, since this person has little time to recover.

If you can, a gentle nudge to invest in creating or updating estate planning documents, including fPoA, would also be a good idea.
I'd recommend something along these lines.

But first, as was asked above... what are the monthly expenses/needs, and how much is Social Security?

Without knowing exact age, I checked www.immediateannuities.com and found:

For 75 yo male (arbitrary state of residence selected), it would cost about $125k to get an SPIA that generated $1k/month for life, but this is without any inflation adjustment.
However, SS would have that COLA.
And obviously, ~$250k would generate twice that.
And the person could set aside something like $50+k to get another two *smaller* SPIA's in the future, for a sort of COLA of their own.

If hoping to leave something is really important, then for approx $150k, one could get $1k/monthly for life -> with an SPIA with cash refund (any of the amount paid initially that is not received in the monthly payments, would be returned to heir(s).
Or the person could just set aside some amount not annuitized, in hopes it wouldn't be needed.

Again, this all depends upon what the needs actually are.

One might want to double check state rules about Medicaid and if turning some of the money into SPIA's would be allowed, etc.

If you give us a bit more info, we could all be more helpful with specifics.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by vineviz » Sat May 26, 2018 6:19 am

strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities).
I also agree that an immediate annuity (with inflation adjustment) is definitely something to strongly consider in this kind of situation, replacing up to the entirety of what would otherwise be the bond allocation.

Vanguard offers income annuities, so you might be able to one-stop-shop the entire investment decision https://investor.vanguard.com/annuity/fixed-income.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by naha66 » Sat May 26, 2018 6:30 am

Speaking just to a safe withdrawal for a 75 year old. Tom Kitces wrote a paper back in 2012 where he came up with 5.3% for a 20 time frame. 4% is for 30 years. If you want a margin of error 4.75% would probably work. You can always adjust the % depending on returns of your portfolio.

https://www.kitces.com/blog/adjusting-s ... e-horizon/

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by strafe » Sat May 26, 2018 6:36 am

vineviz wrote:
Sat May 26, 2018 6:19 am
strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities).
I also agree that an immediate annuity (with inflation adjustment) is definitely something to strongly consider in this kind of situation, replacing up to the entirety of what would otherwise be the bond allocation.

Vanguard offers income annuities, so you might be able to one-stop-shop the entire investment decision https://investor.vanguard.com/annuity/fixed-income.
True inflation adjusted annuities have a very steep price tag because they rely on underlying TIPS.

Mathematically, it's better to hold back some of the principal (invest in equities) to buy additional non-inflation adjusted SPIAs in the future as needed to keep up with inflation. (Also gives a cushion, for example, to pay for unexpected medical expenses. Though Medicaid means testing might affect this decision).

Simplicity is key here. A compromise might be to buy one with a fixed annual adjustment (say, 3%).

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by strafe » Sat May 26, 2018 6:39 am

No one has mentioned the Vanguard Managed Payout fund. It might work, though probably focuses too much on capital preservation for someone retiring in their 70s. I still think the SPIA would be better.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Tdubs » Sat May 26, 2018 6:45 am

I would think they should try to withdraw less. Have they factored into their thinking that somebody has to go first, and one of them is going to be alone for a number of years at the end? That the last one will see their SS check shrink when the first one dies? That the last one will need to increase withdrawals due to added expenses as they grow more infirm?

This money is all they have in the world. They are at a very high risk of being wiped out completely. I'd guard it, and consider an annuity for part.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by ColoRetiredGirl » Sat May 26, 2018 7:18 am

I am not as savvy as the other responders but with a SPIA, how would a SPIA be helpful if they need additional funds for unexpected medical expenses? It would be very helpful to know more information such as SS income, monthly expenses and possible need to fund out of pocket medical expenses. IMHO, knowing these things would give me at least a better picture to assist the OP.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by ResearchMed » Sat May 26, 2018 7:22 am

ColoRetiredGirl wrote:
Sat May 26, 2018 7:18 am
I am not as savvy as the other responders but with a SPIA, how would a SPIA be helpful if they need additional funds for unexpected medical expenses? It would be very helpful to know more information such as SS income, monthly expenses and possible need to fund out of pocket medical expenses. IMHO, knowing these things would give me at least a better picture to assist the OP.
As you mention, it's difficult to help here, without knowing expenses and SS benefits, at least approximately.

As for "what about unexpected medical expenses" (or other emergencies), that's why it's almost always recommended that one *not* annuitize "everything". Keep at least some cash aside (but don't spend it frivolously!) for sudden, unexpected needs, things one doesn't ordinarily budget for.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by naha66 » Sat May 26, 2018 8:54 am

Come on people answer the question. The OP asked if the 4% would apply to someone who retires in their mid 70's, not how to invest it. A 20 year retirement could handle 5% if going by history, as everyone seems to think the next 10 years will be lower than normal maybe 4.5- 4.75 would work. I would stick with 5-5.5% if it were me and adjust as needed. :beer

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by dbr » Sat May 26, 2018 9:01 am

Sure, the answer is no. The answer produced by the analysis of safe withdrawal rate depends on assuming a length of time for which the possibility of success or failure is determined. The shorter the time funds are needed the higher the withdrawal rate can be. Most analysis that produces a 4% result for 30 years approach an asymptote of about 2.5% for unlimited time and rise considerably above 4% for shorter time. The SWR for one year is 100%.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by michaeljc70 » Sat May 26, 2018 9:12 am

A lot of responses seem to leave out a key element of the Trinity study (or any SWR discussion) which is the AA. You cannot say you can withdraw for X year Y % and leave it at that. This update of the study ( https://www.forbes.com/sites/wadepfau/2 ... 65ac7e6860 ) has charts that show you the SWR, time period, AA and chance of success (based on backtesting). Anyone can play with that to accommodate their comfort level. If you go 50/50 for 20 years, you have a 99% chance of a 5% SWR working. There is a 79% chance of 6% working using the same 50/50 and 20 years. Of course, you can use tools like FIRECalc too.

There is a thread on the updated study here: viewtopic.php?f=10&t=247050

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by zwzhang » Sat May 26, 2018 9:16 am

Interesting!
Can we think it in a simpler way? How about a 25 year TIP ladder? If the guy is 75 years old now, it will cover the expenses until he is 100 years. To me, this is safe enough.

So let's see, the $300 - 400K will buy roughly $15,0000 - 20,000 TIP (strip) per year in the 25 years ladder. Easily meets the $1000/month goal.

Why bother so much?

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by dbr » Sat May 26, 2018 9:24 am

zwzhang wrote:
Sat May 26, 2018 9:16 am
Interesting!
Can we think it in a simpler way? How about a 25 year TIP ladder? If the guy is 75 years old now, it will cover the expenses until he is 100 years. To me, this is safe enough.

So lets see, the $300 - 400K will buy roughly $15,0000 - 20,000 TIP per year in the 25 years ladder. Easily meets the $1000/month goal.

Why bother so much?
Because it is overkill. This individual could easily spend more. But that decision is a matter of objectives. SWR already leaves a huge amount of unspent wealth most of the time. That could be fine if a person wants lots of money to go to legacies.

An alternative is that an inflation indexed SPIA at age 75 might pay out 5%, meaning $12,000/year needs only $240,000. A big difference between that and the TIPS ladder is that by probabilities most of that TIPS ladder will go to someone else.

So, what does this person really want to do?

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Tdubs » Sat May 26, 2018 9:43 am

I'm pretty surprised how many people think retirees have the same needs year after year. That we all stay healthy to the bitter end. We and our spouse will kick the bucket at the same time, and so 4 percent or more will be just fine.

These folks we are discussing have a high risk of economic failure unless everything goes just right.
Last edited by Tdubs on Sat May 26, 2018 11:26 am, edited 1 time in total.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by dbr » Sat May 26, 2018 9:52 am

Tdubs wrote:
Sat May 26, 2018 9:43 am
I pretty surprised how many people think retirees have the same needs year after year. That we all stay healthy to the bitter end. We and our spouse will kick the bucket at the same time, and so 4 percent or more will be just fine.

These folks we are discussing have a high risk of economic failure unless everything goes just right.
Well, this goes back to the fact that all this 4% estimating is an estimate of feasibility and not a plan. People try to make that point until they are blue in the face and every new thread ignores it and people just get tired of having to bring it up again. It isn't that hard to test the plan by introducing increased expenses or large lump sum costs to see what happens. A person needs to look expected expenses including realistic increases or decreases in spending over time.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by arcticpineapplecorp. » Sat May 26, 2018 9:56 am

since annuities and medicaid was brought up a couple times I'll offer my 2 cents:

You don't mention if this is a spousal situation or not. That does make a difference in terms of medicaid, so if it's a spousal and not a single let us know. There's more information regarding that in terms of some money that can be preserved for the benefit of a community spouse (one who's not living in a nursing home in the event the other does need nursing home care).

That being said, you're assuming this single retiree's expenses will stay the same over the course of his/her lifetime. I wouldn't assume that. In fact, the older s/he gets the more likely it is that s/he'll need nursing care which is very expensive ($120,000 a year or more). That can quickly wipe out one's savings. In order to qualify for Medicaid, one needs to spend down one's assets, because medicaid is the payer of last resort, not first resort.

This might increase the need for an annuity, but as was brought up already, the question is "Will that affect eligibility for medicaid if the need for long term care arises?" Possibly. It depends on when the annuity is purchased. If someone requests medicaid and purchased an annuity within 5 years of needing medicaid, then the beneficiary (on the annuity) would need to be changed to the state in which s/he resides. Otherwise, a penalty would be imposed on the amount "given away" (in the form of an annuity for the benefit of a family member who is likely the beneficiary). If an annuity is purchased outside the lookback period (more than 5 years from needing medicaid) no such change to beneficiary is needed.

If the annuity that's purchased is not a SPIA but some other annuity that allows for a cash surrender, it is not considered irrevocable and would likely be considered a countable asset that would disqualify the person for medicaid, unless surrendered and spent down to qualify for medicaid. Early withdrawal penalties and/or taxes are not a sufficient reason to exclude such an annuity from being surrendered.

This goes without saying, but it also needs to be actuarily sound, meaning the payments should be equal or less to the person's actual life expectancy. If it's not actuarily sound, it could result in a penalty imposed by medicaid (especially if it's irrevocable, meaning no cash value is surrenderable).

So, this may be have been more than you're interested in knowing, but annuities can affect eligibility for medicaid and should be carefully considered.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Leif » Sat May 26, 2018 11:19 am

At 75 or so the MRD would be 4.37%, which is very conservative. Life expectancy is an important factor to consider. If you estimate 90 as a joint life that gives another 15 years. Based on the Coach Potato book 15 years can support 7.9%/year. Vanguard estimates with 15 years and an 85% chance of success and 40/60 portfolio that will support 7.25% withdrawal. The same with a 75% chance of success is 8.75% withdrawal.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by randomguy » Sat May 26, 2018 11:29 am

naha66 wrote:
Sat May 26, 2018 8:54 am
Come on people answer the question. The OP asked if the 4% would apply to someone who retires in their mid 70's, not how to invest it. A 20 year retirement could handle 5% if going by history, as everyone seems to think the next 10 years will be lower than normal maybe 4.5- 4.75 would work. I would stick with 5-5.5% if it were me and adjust as needed. :beer
If you have a 20 year time frame, you can get 5%+ by investing in TIPS today. Just don't live to year 21.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by qwertyjazz » Sat May 26, 2018 11:31 am

The advice so far is for an ‘average’ 70 something. That makes no sense in an individual if life expectancy can be better estimated and choices related to having funds for later medical expenses vs earlier spending. For sake of explanation, if there is a 95% mortality in the next 5 years and no preference for timing of spending for ease of explanation, then the ‘safe withdrawal rate’ is 20% with a 95% chance of not running out of money at an extreme. So think of life expectancy and goals of spending before swr
My two cents
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by michaeljc70 » Sat May 26, 2018 11:39 am

naha66 wrote:
Sat May 26, 2018 8:54 am
Come on people answer the question. The OP asked if the 4% would apply to someone who retires in their mid 70's, not how to invest it. A 20 year retirement could handle 5% if going by history, as everyone seems to think the next 10 years will be lower than normal maybe 4.5- 4.75 would work. I would stick with 5-5.5% if it were me and adjust as needed. :beer
How the money is invested will drastically affect the SWR. Putting it in a money market vs. a 50/50 portfolio will yield completely different results.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by michaeljc70 » Sat May 26, 2018 11:43 am

randomguy wrote:
Sat May 26, 2018 11:29 am
naha66 wrote:
Sat May 26, 2018 8:54 am
Come on people answer the question. The OP asked if the 4% would apply to someone who retires in their mid 70's, not how to invest it. A 20 year retirement could handle 5% if going by history, as everyone seems to think the next 10 years will be lower than normal maybe 4.5- 4.75 would work. I would stick with 5-5.5% if it were me and adjust as needed. :beer
If you have a 20 year time frame, you can get 5%+ by investing in TIPS today. Just don't live to year 21.
How do you do that? How are you able to predict inflation?

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by randomguy » Sat May 26, 2018 11:45 am

strafe wrote:
Sat May 26, 2018 6:36 am
vineviz wrote:
Sat May 26, 2018 6:19 am
strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities).
I also agree that an immediate annuity (with inflation adjustment) is definitely something to strongly consider in this kind of situation, replacing up to the entirety of what would otherwise be the bond allocation.

Vanguard offers income annuities, so you might be able to one-stop-shop the entire investment decision https://investor.vanguard.com/annuity/fixed-income.
True inflation adjusted annuities have a very steep price tag because they rely on underlying TIPS.

Mathematically, it's better to hold back some of the principal (invest in equities) to buy additional non-inflation adjusted SPIAs in the future as needed to keep up with inflation. (Also gives a cushion, for example, to pay for unexpected medical expenses. Though Medicaid means testing might affect this decision).

Simplicity is key here. A compromise might be to buy one with a fixed annual adjustment (say, 3%).
And what happens if stocks plummet. Imagine you are the 2000 retiree. You buy a spia and plan on buying another one in 8 years. You invest you 500k in the market. It is now 2009 and you are ready to buy the 2nd SPIA. Is having 700k to buy a SPIA really better than what you would have gotten by investing 1 million dollars 8 years earlier? What about the fact that SPIAs are paying out at much lower rates due to interest rates drops? Mortality redits get you some of the money back but it isn't going to be enough make up for losing money and lower rates. Gambling that inflation will not be much of a factor over the time period (say 15 years) might be a reasonable way to go. A lot of people's spending naturally drops during retirement up until the last couple years.

On average you will do better by investing than buying SPIAs up until your late 80s. But that is just average. You have to take on risks to get the benefits. It doesn't help the worst cases in general.

In the OP case, you would need to look at the whole situation to see how much SS will cover of their expense and how much of a shortfall they have. I have a feeling this is the case where an aggressive SWR early (say 7-8%) with plans to downsize to SS/medicaid level of spending at 90+ is probably the way to go. Leaving money to the kids is a crap shoot and will depend on when and how they die. If you end up in a nursing home, odds are the money will be spend on care. Something like a 4% SWR will leave money when they die, but in reality they are likely to have large medical expenses at the end which will burn through a bunch of the money.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by HomerJ » Sat May 26, 2018 11:51 am

TheBogleWay wrote:
Sat May 26, 2018 2:31 am
I am close to somebody who is "retiring" in their mid 70s. They don't have any retirement, but may finally have a small nest egg after selling their home and their net worth if all goes well should be about $300-400k.

At their age, would you still recommend a 4% withdrawl rate? Assuming it's $350,000, a 4% withdrawl rate with some taxes taken out may equal about $1,000/month in addition to social security. Every little bit helps.

Would it be smart to recommend the 4% withdrawl rate to this person? Their goal would be comfortable living, while it would be great to pass that onto their kids, it's not entirely necessary. Let me know if you think a 4% withdrawl rate at their age may mean anything left over for their kids.
At that age, I'd use half to get a 8% annuity, and then take 4% from the rest... Giving you an effective 6% withdrawal (But half the money is gone forever, so less for inheritance)
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by columbia » Sat May 26, 2018 11:59 am

Where does one get an 8% annuity?

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by ResearchMed » Sat May 26, 2018 12:01 pm

columbia wrote:
Sat May 26, 2018 11:59 am
Where does one get an 8% annuity?
It depends upon age and gender, and what the annuity terms are (survivorship if 2 annuitants, guarantee period, etc.).

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by dbr » Sat May 26, 2018 12:02 pm

columbia wrote:
Sat May 26, 2018 11:59 am
Where does one get an 8% annuity?
That would be close for current quotes on a fixed SPIA.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by columbia » Sat May 26, 2018 12:06 pm

dbr wrote:
Sat May 26, 2018 12:02 pm
columbia wrote:
Sat May 26, 2018 11:59 am
Where does one get an 8% annuity?
That would be close for current quotes on a fixed SPIA.
Yes, I now see that:
https://annuities.blueprintincome.com/l ... ent-rates/

Thanks

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by Dottie57 » Sat May 26, 2018 12:23 pm

strafe wrote:
Sat May 26, 2018 5:18 am
This is a case where I would explore buying a single premium immediate annuity for a large portion of the portfolio (perhaps up to half, with the remainder in equities). You can get quotes at immediateannuities.com.

+1 Put 200k into SPIA and he will get between 17 and 18 thousand extra per year. The SPIA is a winner at this point.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by aj76er » Sat May 26, 2018 12:51 pm

Consider using the VPW method with the following inputs:

Start Year: 2019
Start Age: 75
Last Withdrawal Age: 105
Depletion Years: 31 (<--- conservative)
U.S. Stocks: 15%
International Stocks: 15%
Domestic Bonds: 70%
Stocks Estimated Real Growth: 4.0% (<--- conservative)
Bonds Estimated Real Growth: 0.0% (<--- conservative)

which results in the following withdrawal schedule:

Year Age Percentage Balance Withdrawal
2019 75 3.8% $350,000 $13,300 (<--- Starting withdrawal meets needs)
2020 76 3.9%
2021 77 4.1%
2022 78 4.2%
2023 79 4.3%
2024 80 4.4%
2025 81 4.6%
2026 82 4.8%
2027 83 4.9%
2028 84 5.1%
2029 85 5.4%
2030 86 5.6%
2031 87 5.8%
2032 88 6.1%
2033 89 6.5%
2034 90 6.8%
2035 91 7.2%
2036 92 7.7%
2037 93 8.3%
2038 94 8.9%
2039 95 9.6%
2040 96 10.5% (<-- If a bequest is desired, cap withdrawals at ~10% moving forward)
2041 97 11.6%
2042 98 13.0%
2043 99 14.8%
2044 100 17.2%
2045 101 20.5%
2046 102 25.4%
2047 103 33.7%
2048 104 50.3%
2049 105 100.0%

The easiest way to manage this would be buy the following four funds at Vanguard:

$52,500 (15%) in VTSAX - U.S. Total Stock Market
$52,500 (15%) in VTIAX - International Total Stock Market
$122,500 (35%) in VWIUX - Intermediate Term Tax-exempt Bonds
$122,500 (35%) in VMLUX - Short Term Tax-exempt Bonds

Once a year, withdraw the amount according to the VPW table posted above. Then re-balance the portfolio back to target (15%,15%,35%,35%).

If managing the above AA is too much, then throw it all into VASIX (Life Strategy Conservative) or VTMFX (Tax-managed Balanced) as a one-fund solution, and then simply withdraw the annual % per the VPW table.

Circling back to the original question, you can see from the above VPW table that you can start withdrawing ~$1,100 per month safely, which is roughly 3.8% starting SWR. And keep in mind that is with conservative longevity and return estimates.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by SGM » Sat May 26, 2018 1:20 pm

I assume there will be no capital gains on the sale of the house.

Suggestions to partially annuitize with serial SPIAs seems like the best plan to make the $350k last. It seems to me that the house owner is in the situation where SPIAs can be very helpful.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by BeBH65 » Sat May 26, 2018 1:36 pm

Maybe you can olug the numbers in https://www.firecalc.com/ to check the % of failures.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by NoHeat » Sat May 26, 2018 1:57 pm

ResearchMed wrote:
Sat May 26, 2018 6:07 am
Without knowing exact age, I checked www.immediateannuities.com and found:

For 75 yo male (arbitrary state of residence selected), it would cost about $125k to get an SPIA that generated $1k/month for life, but this is without any inflation adjustment.
However, SS would have that COLA.
And obviously, ~$250k would generate twice that.
And the person could set aside something like $50+k to get another two *smaller* SPIA's in the future, for a sort of COLA of their own.
I think this is the way to go. Except that I would disperse all funds immediately into annuities, because someone who didn't save a penny for retirement might not have the discipline and ability to manage financial accounts. Nothing uncommon about that.

Maybe allocated like this:
80% immediate annuity to produce about $28k per year for a lifetime.
20% deferred income annuity (longevity insurance) timed to kick in after 8 or 10 years, to synthesize a COLA.

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Re: The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

Post by SeeMoe » Sat May 26, 2018 6:12 pm

I’m in my mid 70’s and the G.I. Doctor tells this will be your last colonoscopy at your age if it’s ok like the last one. The Urologist Doctor also says my latest PSA is ok , and not to worry about prostate concerns anymore. So , based on those facts of life, I see no reason not to go for the Olde 4% withdrawal rule from now on. Not that I will since good pensions cover our expenses very comfortably...But if I wanted to, I would not hesitate taking 4% out of the investments annually.

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Re: The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

Post by AtlasShrugged? » Mon May 28, 2018 6:13 am

I thought 'aj76er' had this right. The couple's situation seems tailor made for VPW. Is there SS or not. I don't think there was an answer to that question.
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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by tibbitts » Mon May 28, 2018 10:01 am

naha66 wrote:
Sat May 26, 2018 8:54 am
Come on people answer the question. The OP asked if the 4% would apply to someone who retires in their mid 70's, not how to invest it. A 20 year retirement could handle 5% if going by history, as everyone seems to think the next 10 years will be lower than normal maybe 4.5- 4.75 would work. I would stick with 5-5.5% if it were me and adjust as needed. :beer
Agree not all the posts have been addressing the original question.

So given than 3% (or less) is the new 4%, the answer would be that for a lifespan ending at 100 you could maybe chop a few years off the 30 and come up with maybe 3.25%.

Or as some have said buy an annuity for a portion of the funds.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by freebeer » Mon May 28, 2018 10:08 am

zwzhang wrote:
Sat May 26, 2018 9:16 am
Interesting!
Can we think it in a simpler way? How about a 25 year TIP ladder? If the guy is 75 years old now, it will cover the expenses until he is 100 years. To me, this is safe enough.

So let's see, the $300 - 400K will buy roughly $15,0000 - 20,000 TIP (strip) per year in the 25 years ladder. Easily meets the $1000/month goal.

Why bother so much?
Isn't responsive to what sounds like a bit more need for income... OP did not say $1000/moth was the goal.

I would just recommend a 50/50 allocation and 5% annual withdrawal and call it good. Life expectancy is not linear and at age 75 the chances will be extremely low that they will outlive this and the chances of leaving a substantial inheritance will still be reasonably high.

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Re: The "4% withdrawl rate" - would it apply to someone "retiring" in their 70s?

Post by willthrill81 » Mon May 28, 2018 10:31 am

tibbitts wrote:
Mon May 28, 2018 10:01 am
So given than 3% (or less) is the new 4%
I must have missed that memo. Year 2000 retirees had the roughest go of it of any retirees in more than twenty years, yet those who adhered to the '4% rule' are doing fine.

One could almost make it to 30 years with nothing more than a TIPS ladder.
Last edited by willthrill81 on Mon May 28, 2018 10:32 am, edited 1 time in total.
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Re: The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

Post by BeBH65 » Mon May 28, 2018 10:32 am

The first few years of withdrawal are the most risky.

Is there any special precaution one should take during the first years of this particular case?
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Re: The "4% withdrawal rate"- would it apply to someone "retiring" in their 70s?

Post by Leif » Mon May 28, 2018 10:38 am

BeBH65 wrote:
Mon May 28, 2018 10:32 am
The first few years of withdrawal are the most risky.

Is there any special precaution one should take during the first years of this particular case?
I'm drawing from a CD ladder until SS@70.
Investors should diversify across many asset-classes so that whatever happens, we will not have all our investments in underperforming asset classes and thereby fail to meet our goals-Taylor Larimore

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