"Safe" Withdrawal Rate for Early Retirees (or any retiree)

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Rowan Oak
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"Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Rowan Oak » Mon Oct 08, 2018 9:35 am

Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
  • A withdrawal rate of 3.5% can be considered the floor, no matter how long the retirement time horizon
  • The sequence of real returns matters more than average returns or nominal returns
  • The real returns during the first decade of retirement are most predictive of withdrawal rate success
  • When you’re about to retire, take a look at the Safe Withdrawal Rate indicator to see an approximation of the current SWR
  • After retirement, remain flexible, embrace challenges, don’t stress out about things you can’t control, adjust spending when necessary, and enjoy life :)
Also, a good podcast interview with Michael Kitces.

https://www.madfientist.com/michael-kitces-interview/
Highlights
  • Why Michael began researching safe withdrawal rates
  • What the Shiller CAPE is and how it can be used to determine a better safe withdrawal rate
  • Why the initial criticism of the 4% rule was that it was too low
  • What would be a safe withdrawal rate to use today, considering current market valuations
  • Human capital vs. financial capital and the advantages of having both
  • How to find a financial advisor and what Michael would do if a client came to him with early retirement plans
  • The biggest wild card that early retirees need to be concerned with that standard retirees don’t
Last edited by Rowan Oak on Mon Oct 08, 2018 10:06 am, edited 1 time in total.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 9:41 am

I entirely agree with his assessment, with the possible exception that 3% may be the real floor for perpetual withdrawals.

But again, the '4% rule' is only used in such discussions because it is mathematically easy to backtest. In reality, virtually no sane person maintains their inflation-adjusted spending when the markets are tanking. To some extent, almost everyone uses variable withdrawals of some kind. But modeling this flexibility in a realistic manner can be challenging.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by dcabler » Mon Oct 08, 2018 9:44 am

willthrill81 wrote:
Mon Oct 08, 2018 9:41 am
I entirely agree with his assessment, with the possible exception that 3% may be the real floor for perpetual withdrawals.

But again, the '4% rule' is only used in such discussions because it is mathematically easy to backtest. In reality, virtually no sane person maintains their inflation-adjusted spending when the markets are tanking. To some extent, almost everyone uses variable withdrawals of some kind. But modeling this flexibility in a realistic manner can be challenging.
Yep, backtesting an ad-hoc sort of flexibility is quite challenging, especially since it's hard to backtest your emotions when things are going south. Though I bet some smart person here on BH has figured that out. :D

On the other hand, systematic variable withdrawals are quite backtest-able - VPW, Guyton-Klinger, fixed % of portfolio, etc..

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 1:16 pm

Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
Was not is. The problem is figuring out how much the future will resemble the past.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by livesoft » Mon Oct 08, 2018 1:25 pm

Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".
That is from 2015.

For the mostest on Early Retirement SWR:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
with articles from late 2016 to summer 2018 so far.

The series is an absolute must-read for early retiree wannabees. Otherwise, they might end up in the CRAP category: Can't Retire As Planned.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by JoMoney » Mon Oct 08, 2018 1:48 pm

If you're looking specifically at a 30 year time period, 4% should seem pretty safe. It's literally an expectation of earning 0.66% above inflation and you can get pretty close to that guaranteed with TIPS. You could withdraw 3.33% for 30 years only expecting to earn inflation ( i.e. 1/30 =3.33% ).
4% is also the rate suggested by using a single life expectancy table divisor for someone age 60.
I would suggest using the same idea for an early retiree to use as a floor SWR (divide current assets by divisor in IRS provided life table similar to RMD withdrawals), and realize that bumping up the percentages is relying on earning something extra that may be reasonable, but certainly can't be guaranteed.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 08, 2018 2:12 pm

randomguy wrote:
Mon Oct 08, 2018 1:16 pm
Was not is. The problem is figuring out how much the future will resemble the past.
Right. This is one problem. The other is that I find that the cost of the stuff that I pay for goes up by more than the official inflation rate.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 2:29 pm

JoMoney wrote:
Mon Oct 08, 2018 1:48 pm
If you're looking specifically at a 30 year time period, 4% should seem pretty safe. It's literally an expectation of earning 0.66% above inflation and you can get pretty close to that guaranteed with TIPS.
Actually, 30 year TIPS have a current yield of 1.18%.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by JoMoney » Mon Oct 08, 2018 2:38 pm

willthrill81 wrote:
Mon Oct 08, 2018 2:29 pm
JoMoney wrote:
Mon Oct 08, 2018 1:48 pm
If you're looking specifically at a 30 year time period, 4% should seem pretty safe. It's literally an expectation of earning 0.66% above inflation and you can get pretty close to that guaranteed with TIPS.
Actually, 30 year TIPS have a current yield of 1.18%.
True, but to do it right and guarantee the income though, you would need a ladder of them including some shorter term maturities... (For the record though, I'm not suggesting that as an actual investment, just as a thought exercise of possible options available now that would guarantee a SWR)
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 2:40 pm

JoMoney wrote:
Mon Oct 08, 2018 2:38 pm
willthrill81 wrote:
Mon Oct 08, 2018 2:29 pm
JoMoney wrote:
Mon Oct 08, 2018 1:48 pm
If you're looking specifically at a 30 year time period, 4% should seem pretty safe. It's literally an expectation of earning 0.66% above inflation and you can get pretty close to that guaranteed with TIPS.
Actually, 30 year TIPS have a current yield of 1.18%.
True, but to do it right and guarantee the income though, you would need a ladder of them including some shorter term maturities... (For the record though, I'm not suggesting that as an actual investment, just as a thought exercise of possible options available now that would guarantee a SWR)
Correct. I would find it very hard to believe, however, that one couldn't get enough positive real returns out of TIPS over 30 years to make the 4% rule work though.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Jeff Albertson » Mon Oct 08, 2018 2:49 pm

Never heard of "Mad Fientist", but Bill Bernstein has this to say:
Below the age of 65, 2% spending rate is bulletproof, 3% is probably safe, and 4% is taking chances. Above 5%, you're taking an increasing serious risk of dying poor. (For each five years above 65, add perhaps half a percentage point to those numbers).
https://www.amazon.com/Ages-Investor-Cr ... f+investor

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 2:57 pm

Jeff Albertson wrote:
Mon Oct 08, 2018 2:49 pm
Never heard of "Mad Fientist", but Bill Bernstein has this to say:
Below the age of 65, 2% spending rate is bulletproof, 3% is probably safe, and 4% is taking chances. Above 5%, you're taking an increasing serious risk of dying poor. (For each five years above 65, add perhaps half a percentage point to those numbers).
https://www.amazon.com/Ages-Investor-Cr ... f+investor
The moment anyone starts talking about withdrawal rates below 3% for a 65 year old, my 'hyper-conservative' warning klaxon starts going off.

This quote of Bernstein's insinuates that 3% is only 'probably safe' when it has never failed for a globally diversified portfolio in the historic record. And when you take life expectancy into account, a 5% withdrawal rate presents far from a "serious risk of dying poor," partly due to retirees' strong tendency to not spend down their portfolios much at all.

Further, the difference between a 2% and a 4% withdrawal rate is huge. You need double the assets to support a 2% withdrawal rate. It could easily take an extra decade or more to double one's portfolio. That's a guaranteed loss of time that could be spent doing more enjoyable things. Now if a person just loves their career so much that they don't want to leave it or they want to leave behind a huge sum for heirs or charity, that's fine, but otherwise, this is a terrible idea.
Last edited by willthrill81 on Mon Oct 08, 2018 3:05 pm, edited 1 time in total.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by longinvest » Mon Oct 08, 2018 3:03 pm

Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".
...
I think that the SWR method doesn't match the first principle of our philosophy.

Here's a post I wrote about it:
Michael Kitces 4% rule podcast on Madfientist
longinvest wrote:
Sun Sep 03, 2017 9:10 am
The first principle of our Philosophy is to Develop a workable plan. One of the best features of a workable plan is that it helps us relax.

Threads about SWR seem to exhibit a lot of anxiety. I think that this is because SWR does not qualify as a workable retirement withdrawal plan.

SWR is a withdrawal method which lets most of its adopters die as the richest people in the graveyard, while bankrupting most of the rest. Its risk of failure includes not only the possibility of premature portfolio depletion, but also the possibility of excessive underspending.

Flying by the seat of one's pants to decide how much to cut withdrawals during a crisis, to avoid premature portfolio depletion, is definitely not a workable plan.
  • Beyond the odds of hitting a rough patch, there are the consequences of loss to consider.
    -- Prof. Zvi Bodie, Risk Less and Prosper, 2012.
In the above citation, Prof. Bodie was right. Consequences are important. When SWR fails (in the traditional sense, through premature depletion), it completely fails. It leaves the retiree bankrupt. It's no wonder that even the smallest probability of failure generates so much anxiety.

Anyway, this whole concept of probabilistic success rate analysis is illogical from a single retiree point of view. Let me explain. My goal isn't to maximize the number of retirements where I don't end up bankrupt, living under a bridge eating cat food, over a hypothetical future 1,000 lives! I've got a single life and a single retirement to hopefully enjoy. I just can't afford to mess it up.

I must elaborate a workable plan, one which will work even if markets are uncooperative or crash at an inopportune time in the future.

One approach to build a workable retirement plan is [... snip!...]
I've cut the post short. I invite readers to simply go read the entire post and the many replies it got.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 3:08 pm

randomguy wrote:
Mon Oct 08, 2018 1:16 pm
Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
Was not is. The problem is figuring out how much the future will resemble the past.
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 3:12 pm

Something to understand for most of us here.

"Failure" means you only get to take 2 trips a year instead of 4. Or maybe you eat out twice a week instead of four times a week.

If 4% is bare-bones survival, maybe one should try to work longer.

If 4% has any normal discretionary spending, "failure" just means you have to spend less (probably just for a few years until the market comes back).

No one on this board is going to be eating cat food under a bridge because a 4% withdrawal rate "failed".

So you might think a 5% chance of "failure" is too high, but when the consequences of "failure" are fairly mild, 5% isn't nearly as scary.

(Plus you're probably be dead anyway).
Last edited by HomerJ on Mon Oct 08, 2018 3:16 pm, edited 1 time in total.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 3:15 pm

HomerJ wrote:
Mon Oct 08, 2018 3:12 pm
Something to understand for most of us here.

"Failure" means you only get to take 2 trips a year instead of 4. Or maybe you eat out twice a week instead of four times a week.

If 4% is bare-bones survival, maybe one should try to work longer.

If 4% has any normal discretionary spending, "failure" just means you have to spend less for a few years until the market comes back.

No one on this board is going to be eating cat food under a bridge because a 4% withdrawal rate "failed".
:thumbsup

That's why I think the word "failure" should be purged from discussions of withdrawal strategies. It's little more than an artifact of (usually flawed) Monte Carlo analyses returning a "likelihood of failure" based on a set of assumptions. In reality, few retirees even spend down their portfolios, much less bankrupt themselves with aggressive portfolio withdrawals.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 08, 2018 3:17 pm

HomerJ wrote:
Mon Oct 08, 2018 3:08 pm
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
The aspect that bothers me more is the withdrawal increases. If I increase my withdrawals based on the actual rise in my costs (which is higher than the official inflation), things suddenly don't look so safe.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 3:22 pm

visualguy wrote:
Mon Oct 08, 2018 3:17 pm
HomerJ wrote:
Mon Oct 08, 2018 3:08 pm
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
The aspect that bothers me more is the withdrawal increases. If I increase my withdrawals based on the actual rise in my costs (which is higher than the official inflation), things suddenly don't look so safe.
That doesn't jive with research which indicates that traditional (i.e. ~65 year old) retirees' inflation-adjusted spending drops an average of 1-2% per year throughout retirement.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 3:25 pm

visualguy wrote:
Mon Oct 08, 2018 3:17 pm
HomerJ wrote:
Mon Oct 08, 2018 3:08 pm
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
The aspect that bothers me more is the withdrawal increases. If I increase my withdrawals based on the actual rise in my costs (which is higher than the official inflation), things suddenly don't look so safe.
Well, I don't plan to religiously increase my spending every year by the inflation rate.

If I start pulling $80,000, I'll probably stick with that for a few years. If my accounts have grown, I'll bump it to $85k or even $90k at some point, if my accounts are down, I'll cut back.

Not sure you can know what the actual rise in your costs will be in retirement at this point in your life, can you? (Are you already retired, and tracking that closely?)
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by RAchip » Mon Oct 08, 2018 3:38 pm

The unprecedented low interest rates over the last decade are ending. MMF rates are now about 2.2% and rising. With the projected fed rate increases the rest os this year and next year I expect MMF rates to at least get up to 3% so you can certainly pull out 3% for the tome being even if you are ultra conservative.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 08, 2018 4:09 pm

HomerJ wrote:
Mon Oct 08, 2018 3:25 pm
Not sure you can know what the actual rise in your costs will be in retirement at this point in your life, can you? (Are you already retired, and tracking that closely?)
Not retired yet, but I track some of the relevant costs... Health insurance and other health-related costs. Car-related costs. Utilities. Travel. Fixing things around the house. Even the food that we buy. Most of my costs are increasing at rates higher than 2%. I don't have the exact overall number, but 2% wouldn't come anywhere near covering the cost increases that I see. The official inflation rates don't reflect the actual overall price increases that I see on the stuff that I spend money on... Note that I'm not talking about increasing consumption. I'm talking about consuming products and services at the same level with costs growing at rates of more than 2% a year overall.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Ron Scott » Mon Oct 08, 2018 4:20 pm

Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
  • A withdrawal rate of 3.5% can be considered the floor, no matter how long the retirement time horizon
  • The sequence of real returns matters more than average returns or nominal returns
  • The real returns during the first decade of retirement are most predictive of withdrawal rate success
  • When you’re about to retire, take a look at the Safe Withdrawal Rate indicator to see an approximation of the current SWR
  • After retirement, remain flexible, embrace challenges, don’t stress out about things you can’t control, adjust spending when necessary, and enjoy life :)
Also, a good podcast interview with Michael Kitces.

https://www.madfientist.com/michael-kitces-interview/
Highlights
  • Why Michael began researching safe withdrawal rates
  • What the Shiller CAPE is and how it can be used to determine a better safe withdrawal rate
  • Why the initial criticism of the 4% rule was that it was too low
  • What would be a safe withdrawal rate to use today, considering current market valuations
  • Human capital vs. financial capital and the advantages of having both
  • How to find a financial advisor and what Michael would do if a client came to him with early retirement plans
  • The biggest wild card that early retirees need to be concerned with that standard retirees don’t
Gotta love the moniker Mad Fientist. It epitomizes the quality of marketing hype the financial-advice industry has embraced.

FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.

But I do find the comment on human capital interesting as I believe the greatest asset most people have is the ability to earn money through working. Earning and saving are better tools for retirement planning than predicting and hoping.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by ENT Doc » Mon Oct 08, 2018 4:28 pm

I second the Early Retirement Now series.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 4:29 pm

Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 4:30 pm

HomerJ wrote:
Mon Oct 08, 2018 3:08 pm
randomguy wrote:
Mon Oct 08, 2018 1:16 pm
Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
Was not is. The problem is figuring out how much the future will resemble the past.
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
Of course. That is part of the definition of SWR as it is obviously set by the limiting years (1966 or 1929 depending on your exact definition). Is 1966-1981 the worst possible outcome? Seems unlikey. Seems like it is wholely possible for that period to stretch out another 2-5 years (or the rebound be a bit slower) and drop your SWR to 3.5%. The sub 2% world tends to require revolution;). It is tough to say if the 1929-1940, 1966-1981, 2000-9 were 1:30 events (about what we saw), 1:10 events (we were really lucky) or 1:100 events (we were really unlucky). Our sample size isn't big enough. Through in that it is a dynamic system (i.e have the odds changed over the years which changes in monetary policy and willingess of governments to intervene) and we are all making guesses. I am sure 90%+ of the retirees going forward will get 4%+. I have no clue if the bottom 10% are getting 4.5%,4%, 3.5% or 3%.

As far as discretionary spending, it depends. A person making 100k can cut spending by 50% and still live ok. It is a lot harder to cut 50% when your living on 30k/year. Most of the sub 30k budgets don't have a ton of slop in them and unexpected changes (medicaid and aca qualifications change) could dramatically increase your spending. If my health insurance premium goes from 6k to 12k, It is a <10% change in the budget. If root of good has to spend 10k to insure his family, he is looking at almost a 50% increase. Now if you are able and willing to go back to work, low expenses are great. It is pretty easy for 2 people to make 30k flipping burgers. It is a lot tricker to make 150k/year. And of course when SS kicks in, the lower the income the more SS will replace your portfolio spending.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 4:34 pm

willthrill81 wrote:
Mon Oct 08, 2018 4:29 pm
Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 4:37 pm

randomguy wrote:
Mon Oct 08, 2018 4:34 pm
willthrill81 wrote:
Mon Oct 08, 2018 4:29 pm
Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.
I agree. However, there's a lot of space between "the past may be indicative of the future but be cautious and flexible if you can" and "they can't predict the future, so disregard anything they say."
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by marcopolo » Mon Oct 08, 2018 4:51 pm

randomguy wrote:
Mon Oct 08, 2018 4:34 pm
willthrill81 wrote:
Mon Oct 08, 2018 4:29 pm
Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 4:57 pm

randomguy wrote:
Mon Oct 08, 2018 4:30 pm
HomerJ wrote:
Mon Oct 08, 2018 3:08 pm
randomguy wrote:
Mon Oct 08, 2018 1:16 pm
Rowan Oak wrote:
Mon Oct 08, 2018 9:35 am
Very detailed blog post by the "Mad Fientist".

Safe Withdrawal Rate for Early Retirees
  • The 4% rule is actually very safe for a 30-year retirement
Was not is. The problem is figuring out how much the future will resemble the past.
Note that 4% is for the WORST case scenarios. Normal times in the past, you could pull 5%, 6%, even 7% and be fine. During the BAD times though, 5%-7% withdrawals could bankrupt you. So 4% became the "safe" withdrawal rate because it worked even in the WORST times.

So the future doesn't have to resemble the past too closely. 4% is a bet that the next 30 years won't be WORST 30-year period in U.S. history.

And even if it is, 4% should have SOME discretionary spending in there, like eating out and travel. So even if you go with 4%, and we do hit the Great Depression II, you will probably still survive fairly comfortably, even if you don't get to go to Europe every year.
Of course. That is part of the definition of SWR as it is obviously set by the limiting years (1966 or 1929 depending on your exact definition). Is 1966-1981 the worst possible outcome? Seems unlikey. Seems like it is wholely possible for that period to stretch out another 2-5 years (or the rebound be a bit slower) and drop your SWR to 3.5%. The sub 2% world tends to require revolution;). It is tough to say if the 1929-1940, 1966-1981, 2000-9 were 1:30 events (about what we saw), 1:10 events (we were really lucky) or 1:100 events (we were really unlucky). Our sample size isn't big enough. Through in that it is a dynamic system (i.e have the odds changed over the years which changes in monetary policy and willingess of governments to intervene) and we are all making guesses. I am sure 90%+ of the retirees going forward will get 4%+. I have no clue if the bottom 10% are getting 4.5%,4%, 3.5% or 3%.

As far as discretionary spending, it depends. A person making 100k can cut spending by 50% and still live ok. It is a lot harder to cut 50% when your living on 30k/year. Most of the sub 30k budgets don't have a ton of slop in them and unexpected changes (medicaid and aca qualifications change) could dramatically increase your spending. If my health insurance premium goes from 6k to 12k, It is a <10% change in the budget. If root of good has to spend 10k to insure his family, he is looking at almost a 50% increase. Now if you are able and willing to go back to work, low expenses are great. It is pretty easy for 2 people to make 30k flipping burgers. It is a lot tricker to make 150k/year. And of course when SS kicks in, the lower the income the more SS will replace your portfolio spending.
Excellent post, and I agree with almost everything you said. It is indeed true our sample size isn't big enough. However, the Great Depression was pretty bad. It's hard to go too much lower than a 90% drop in stocks. :) But I guess the next 30 years could see a 90% drop in stocks, AND high inflation or something.

I do agree that 4% withdrawals is not a good idea if it's barebones survival.

But since 4% is worst-case estimate in the past, AND if you can cut spending easily if times going forward are even WORSE, then I think 4% is fairly reasonable.

For early retirees, I'd say 3%. They also have the option of probably being able to go back to work if needed. Maybe not their same high-pay work, but something.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 5:03 pm

marcopolo wrote:
Mon Oct 08, 2018 4:51 pm
randomguy wrote:
Mon Oct 08, 2018 4:34 pm
willthrill81 wrote:
Mon Oct 08, 2018 4:29 pm
Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
it isnt useless. But you cant pretend it contains all possible outcomes. Hence in error factor. It is an educated guess based on the distributions of other countries and montr carlo simulations.

After a certain point, the effect of reducing your SWR doesnt do much to help your portfolio survival. 10% and 1% had the same sucess in 1917 russia😁

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by livesoft » Mon Oct 08, 2018 5:06 pm

marcopolo wrote:
Mon Oct 08, 2018 4:51 pm
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
I'll guess it has to do with how long one will live.

If one will live only 10 more years, then one can withdraw 10% every year ignoring gains, losses, and inflation.
If one will live only 25 more years, then one can withdraw 4% ....

When one is younger, one believes they will live forever. When one is older, reality starts to shade one's view of the future.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by marcopolo » Mon Oct 08, 2018 5:14 pm

livesoft wrote:
Mon Oct 08, 2018 5:06 pm
marcopolo wrote:
Mon Oct 08, 2018 4:51 pm
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
I'll guess it has to do with how long one will live.

If one will live only 10 more years, then one can withdraw 10% every year ignoring gains, losses, and inflation.
If one will live only 25 more years, then one can withdraw 4% ....

When one is younger, one believes they will live forever. When one is older, reality starts to shade one's view of the future.
Well sure, but we typically think about spending real dollars.
There is no way to know if we will have inflation like Zimbabwe, in which that 4% withdrawal over 25% might not buy you much in year 10
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 5:17 pm

HomerJ wrote: It is indeed true our sample size isn't big enough. However, the Great Depression was pretty bad. It's hard to go too much lower than a 90% drop in stocks. :) But I guess the next 30 years could see a 90% drop in stocks, AND high inflation or something.

I
the great depreasion had a pretty quick recovery. By I think 1935 it was within a couple points of total recovery in real terms. And then they screwed up cause they were worried about deficit and caused another recession😁 Have only a 60% drop but have it take 10 years to bottom out might be worse.

I am pretty happy with the 4% but it is important to remember it is just an observation and not a law

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by marcopolo » Mon Oct 08, 2018 5:23 pm

randomguy wrote:
Mon Oct 08, 2018 5:03 pm
marcopolo wrote:
Mon Oct 08, 2018 4:51 pm
randomguy wrote:
Mon Oct 08, 2018 4:34 pm
willthrill81 wrote:
Mon Oct 08, 2018 4:29 pm
Ron Scott wrote:
Mon Oct 08, 2018 4:20 pm
FWIW, neither he nor Kitces have the slightest idea what the future holds for market returns and therefore has little standing to be advising anyone how much to save or spend based on their guesses.
So because they both admit that they don't have working crystal balls, they shouldn't be giving any advice regarding withdrawals?? :oops:
Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
it isnt useless. But you cant pretend it contains all possible outcomes. Hence in error factor. It is an educated guess based on the distributions of other countries and montr carlo simulations.

After a certain point, the effect of reducing your SWR doesnt do much to help your portfolio survival. 10% and 1% had the same sucess in 1917 russia😁
Based on other countries, that is past data right? How can you base your "error factor" on that if the past does not give any info about the future? Educated guess? What do you base that on, other than past experiences? Monte Carlo sims are nothing magical, they rely on input parameters, what do you base those on, other than past experience?

I completely understand people saying, "I understand the historical studies, but choose to be a little more conservative just to be safe", I actually do that myself. And maybe that is what you are saying, and I am misinterpreting it?

What I don't understand is when people say you can't rely on the past to plan for the future, what else is there?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 5:24 pm

livesoft wrote:
Mon Oct 08, 2018 5:06 pm
marcopolo wrote:
Mon Oct 08, 2018 4:51 pm
I don't understand how the people who say the SWR studies based on past data should not be used to make any plans about the future, then go and say that a slightly lower SWR is fine/reasonable. What are you basing that lower number on? How do you know 3%, 2% (or even 1%) will work if you discount any past experience as being useless data?
I'll guess it has to do with how long one will live.

If one will live only 10 more years, then one can withdraw 10% every year ignoring gains, losses, and inflation.
If one will live only 25 more years, then one can withdraw 4% ....

When one is younger, one believes they will live forever. When one is older, reality starts to shade one's view of the future.
Do you have a crystal ball that tells you how long you will live?
The J stands for Jay

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by livesoft » Mon Oct 08, 2018 5:37 pm

HomerJ wrote:
Mon Oct 08, 2018 5:24 pm
Do you have a crystal ball that tells you how long you will live?
Of course not, but when I am 60, I can say I won't live to 70 more years. And when I am 100, I can say I won't live 30 more years. But when I am 45, what can I say?
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by HomerJ » Mon Oct 08, 2018 5:45 pm

livesoft wrote:
Mon Oct 08, 2018 5:37 pm
HomerJ wrote:
Mon Oct 08, 2018 5:24 pm
Do you have a crystal ball that tells you how long you will live?
Of course not, but when I am 60, I can say I won't live to 70 more years. And when I am 100, I can say I won't live 30 more years. But when I am 45, what can I say?
You range was 10-25, with very different numbers (10% withdrawals or 4% withdrawals). There are a lot of ages where one can reasonably wonder if they are going to live 10 or 25 more years. With both being possible.

Heck, even my FIL, who is 84, still won't spend his money, because, and I quote, "What if I live another 20 years?"
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Grt2bOutdoors » Mon Oct 08, 2018 6:35 pm

HomerJ wrote:
Mon Oct 08, 2018 5:45 pm
livesoft wrote:
Mon Oct 08, 2018 5:37 pm
HomerJ wrote:
Mon Oct 08, 2018 5:24 pm
Do you have a crystal ball that tells you how long you will live?
Of course not, but when I am 60, I can say I won't live to 70 more years. And when I am 100, I can say I won't live 30 more years. But when I am 45, what can I say?
You range was 10-25, with very different numbers (10% withdrawals or 4% withdrawals). There are a lot of ages where one can reasonably wonder if they are going to live 10 or 25 more years. With both being possible.

Heck, even my FIL, who is 84, still won't spend his money, because, and I quote, "What if I live another 20 years?"
There's a really good chance he's not spending it because he's planning to leave it to his heirs - spouse, kids, grandkids, maybe you?
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Dandy » Mon Oct 08, 2018 6:35 pm

In general there is no set it and forget it "safe" withdrawal rate of 4% adjusted upward for inflation. 2 or 3% seems very safe but a lot depends on your allocation, how many years you live, unplanned expenses and the behavior of the markets. Back testing can be reassuring but the future is unknown. Anyone know of anyone who predicted negative interest rates? Does the "safe" withdrawal cover the unplanned but likely to happen lump expenses e.g. new roof, car, dental expenses, do I dare say Long term care, etc?

I understand the desire to maximize withdrawals without risking running out of money. But using the label "safe" can be misleading?

Most people will adjust their withdrawals and spending when the portfolio takes a big hit. It is fine to have a plan to start with e.g. 3, 3.5 or even 4% but understand that they are reasonable starting points but not necessarily bullet proof -no matter how great the back tested results were.

Try to keep in mind the retiree loss of human capital, there are no do overs and if 4% turns out to not be safe there is no bail out. The pot is all you've got so keep an eye on it and set a withdrawal rate but don't forget it.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by marcopolo » Mon Oct 08, 2018 6:40 pm

Dandy wrote:
Mon Oct 08, 2018 6:35 pm

But using the label "safe" can be misleading?
Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by visualguy » Mon Oct 08, 2018 7:01 pm

Dandy wrote:
Mon Oct 08, 2018 6:35 pm
In general there is no set it and forget it "safe" withdrawal rate of 4% adjusted upward for inflation. 2 or 3% seems very safe but a lot depends on your allocation, how many years you live, unplanned expenses and the behavior of the markets. Back testing can be reassuring but the future is unknown. Anyone know of anyone who predicted negative interest rates? Does the "safe" withdrawal cover the unplanned but likely to happen lump expenses e.g. new roof, car, dental expenses, do I dare say Long term care, etc?

I understand the desire to maximize withdrawals without risking running out of money. But using the label "safe" can be misleading?

Most people will adjust their withdrawals and spending when the portfolio takes a big hit. It is fine to have a plan to start with e.g. 3, 3.5 or even 4% but understand that they are reasonable starting points but not necessarily bullet proof -no matter how great the back tested results were.

Try to keep in mind the retiree loss of human capital, there are no do overs and if 4% turns out to not be safe there is no bail out. The pot is all you've got so keep an eye on it and set a withdrawal rate but don't forget it.
There are indeed too many unknowns. It's hard to know when you can "safely" retire in the vast majority of cases, particularly when considering early retirement. My view is that it doesn't make sense to obsess about it too much. Instead, focus your energy on keeping your career going and making sure your investments are sane. Don't get distracted by reaching some milestone of 25X or 33X unless you really can't tolerate your career anymore, or you figured out something amazingly awesome to do in retirement which you simply can't resist.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by randomguy » Mon Oct 08, 2018 7:16 pm

marcopolo wrote:
Mon Oct 08, 2018 5:23 pm


Based on other countries, that is past data right? How can you base your "error factor" on that if the past does not give any info about the future? Educated guess? What do you base that on, other than past experiences? Monte Carlo sims are nothing magical, they rely on input parameters, what do you base those on, other than past experience?

I completely understand people saying, "I understand the historical studies, but choose to be a little more conservative just to be safe", I actually do that myself. And maybe that is what you are saying, and I am misinterpreting it?

What I don't understand is when people say you can't rely on the past to plan for the future, what else is there?
I am saying we have no way of knowing if the last 100 years was good, bad or average. There is some pretty decent evidence that it was above average (i.e. there are only a handful of countries that did remotely as well. And monte carlo simulations based on that data generate a lot of worse cases. And yes monte carlos suffer the garbage in/garbage out problem and are only as good as the model).

The main complaint is strictly about tense. You can't say 4% IS safe. That requires knowing what the future will be. You can say 4% WAS safe. Heck I could easily see argueing for 5%. After all are we going to make the same economic mistakes as we did in the great depression and in the stagflation years. Probably not. Who knows if the new ones will be as bad:)

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 9:17 pm

marcopolo wrote:
Mon Oct 08, 2018 6:40 pm
Dandy wrote:
Mon Oct 08, 2018 6:35 pm

But using the label "safe" can be misleading?
Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
In Bengen's study, the first examining the topic, he referred to 'safe withdrawal rates'. In the later Trinity study, they used the term 'sustainable withdrawal rate.' So 'safe' was first.

Here's a recent post about it.
viewtopic.php?f=10&t=260729#p4153704
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by marcopolo » Mon Oct 08, 2018 10:04 pm

willthrill81 wrote:
Mon Oct 08, 2018 9:17 pm
marcopolo wrote:
Mon Oct 08, 2018 6:40 pm
Dandy wrote:
Mon Oct 08, 2018 6:35 pm

But using the label "safe" can be misleading?
Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
In Bengen's study, the first examining the topic, he referred to 'safe withdrawal rates'. In the later Trinity study, they used the term 'sustainable withdrawal rate.' So 'safe' was first.

Here's a recent post about it.
viewtopic.php?f=10&t=260729#p4153704
I stand corrected. But, maintain that it is not truly "safe" looking forward. Then again, I am not searching for guarantees.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 10:22 pm

marcopolo wrote:
Mon Oct 08, 2018 10:04 pm
willthrill81 wrote:
Mon Oct 08, 2018 9:17 pm
marcopolo wrote:
Mon Oct 08, 2018 6:40 pm
Dandy wrote:
Mon Oct 08, 2018 6:35 pm

But using the label "safe" can be misleading?
Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
In Bengen's study, the first examining the topic, he referred to 'safe withdrawal rates'. In the later Trinity study, they used the term 'sustainable withdrawal rate.' So 'safe' was first.

Here's a recent post about it.
viewtopic.php?f=10&t=260729#p4153704
I stand corrected. But, maintain that it is not truly "safe" looking forward. Then again, I am not searching for guarantees.
Right, we only know what is safe in retrospect. It is human nature to crave surety, but this world offers only two.
Last edited by willthrill81 on Mon Oct 08, 2018 11:16 pm, edited 1 time in total.
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by MP123 » Mon Oct 08, 2018 11:03 pm

willthrill81 wrote:
Mon Oct 08, 2018 10:22 pm
marcopolo wrote:
Mon Oct 08, 2018 10:04 pm
willthrill81 wrote:
Mon Oct 08, 2018 9:17 pm
marcopolo wrote:
Mon Oct 08, 2018 6:40 pm
Dandy wrote:
Mon Oct 08, 2018 6:35 pm

But using the label "safe" can be misleading?
Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
In Bengen's study, the first examining the topic, he referred to 'safe withdrawal rates'. In the later Trinity study, they used the term 'sustainable withdrawal rate.' So 'safe' was first.

Here's a recent post about it.
viewtopic.php?f=10&t=260729#p4153704
I stand corrected. But, maintain that it is not truly "safe" looking forward. Then again, I am not searching for guarantees.
Right, we only what is safe in retrospect. It is human nature to crave surety, but this world offers only two.
Well, we did just get a tax cut :happy

But there is the other certainty...

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by willthrill81 » Mon Oct 08, 2018 11:16 pm

MP123 wrote:
Mon Oct 08, 2018 11:03 pm
willthrill81 wrote:
Mon Oct 08, 2018 10:22 pm
marcopolo wrote:
Mon Oct 08, 2018 10:04 pm
willthrill81 wrote:
Mon Oct 08, 2018 9:17 pm
marcopolo wrote:
Mon Oct 08, 2018 6:40 pm


Agreed.
I believe in the original research, the "S" in SWR stood for "sustainable", not "safe".
In Bengen's study, the first examining the topic, he referred to 'safe withdrawal rates'. In the later Trinity study, they used the term 'sustainable withdrawal rate.' So 'safe' was first.

Here's a recent post about it.
viewtopic.php?f=10&t=260729#p4153704
I stand corrected. But, maintain that it is not truly "safe" looking forward. Then again, I am not searching for guarantees.
Right, we only what is safe in retrospect. It is human nature to crave surety, but this world offers only two.
Well, we did just get a tax cut :happy
A reduction yes, but very, very far from an elimination.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Slacker
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Slacker » Mon Oct 08, 2018 11:20 pm

We've come to the following as being the plan that we can live with (and die with) for our portfolios:

1. We will retire when our portfolio * 2.5% = our basic necessities (housing, food, utilities, taxes, healthcare, home maintenance).
2. We will then proceed to withdraw 5% of the portfolios value each year to spend as we see fit.

As the portfolio gets smaller, we can essentially withstand the portfolio dropping by 50% and still pay our basic bills to live. As the portfolio grows larger, we spend more, give to charity more, give to family more.

As the final backstop, we have pensions that kick in starting at 57 (with a big decrease in pension value) up to 62 (full pension value) and some form of Social Security available from 62 to 70.

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tennisplyr
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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by tennisplyr » Tue Oct 09, 2018 7:00 am

Well the good news in all of this is we do have control. If the market has been great we can easily take 5-7% while if things get bleak we can go 1-2% or lower. We live in a time of hypercommunication, we can make decisions that positively affect our lives in a timely manner. It's not all that complicated.
Those who move forward with a happy spirit will find that things always work out.

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Re: "Safe" Withdrawal Rate for Early Retirees (or any retiree)

Post by Roothy » Tue Oct 09, 2018 8:55 am

randomguy wrote:
Mon Oct 08, 2018 4:34 pm
Of course. That is part of the definition of SWR as it is obviously set by the limiting years (1966 or 1929 depending on your exact definition). Is 1966-1981 the worst possible outcome? Seems unlikey. Seems like it is wholely possible for that period to stretch out another 2-5 years (or the rebound be a bit slower) and drop your SWR to 3.5%. The sub 2% world tends to require revolution;). It is tough to say if the 1929-1940, 1966-1981, 2000-9 were 1:30 events (about what we saw), 1:10 events (we were really lucky) or 1:100 events (we were really unlucky). Our sample size isn't big enough. Through in that it is a dynamic system (i.e have the odds changed over the years which changes in monetary policy and willingess of governments to intervene) and we are all making guesses. I am sure 90%+ of the retirees going forward will get 4%+. I have no clue if the bottom 10% are getting 4.5%,4%, 3.5% or 3%.
and
randomguy wrote:
Mon Oct 08, 2018 4:34 pm

Of course not. But you have to be careful how you phrase it. The past doesn't control the future.. The worst period of the past 100 years might not be the worst period of the next 100. It is easy to say 4.5% SWR (for a fund with small value, S&P 500 and bonds) never failed historically. But that is no guarantee that it will not fail in the future. 3-4.5% is a reasonable guess for a SWR when talking 40+ years. The more flexible you are, the more aggressive you can be. Can't ever cut 1 penny of spending? You should be down at 3%. Can cut spending by 50%? 5% is fine.
I read these kinds of threads obsessively, and it's hard to say something new. You did, and it was really helpful. Thanks, randomguy.

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