2% withdrawal rate

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skime
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2% withdrawal rate

Post by skime » Wed May 29, 2019 3:18 pm

I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?

thx1138
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Re: 2% withdrawal rate

Post by thx1138 » Wed May 29, 2019 3:32 pm


welsie
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Re: 2% withdrawal rate

Post by welsie » Wed May 29, 2019 3:34 pm

I would assume for most portfolios this is less than the dividend/interest rate for a stock/bond fund. So yeah, if you are taking less than the dividend/interest of your holdings, they will continue to grow over the long term.

They is not just "prudent", it is probably overly conservative, unless your goal is to wealth build for someone who is not you!

ENT Doc
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Re: 2% withdrawal rate

Post by ENT Doc » Wed May 29, 2019 3:41 pm

Disagree. First, it depends on how you define success. Also depends on years lived, social security, pension benefit, asset allocation, sequence of returns risk, inheritance, flexibility with other income, account diversification, family support, variable vs fixed expenses, etc. 2% is very conservative. Success, on the average, can likely found at higher rates of withdrawal. Success = not outliving your retirement money.

jdilla1107
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Re: 2% withdrawal rate

Post by jdilla1107 » Wed May 29, 2019 3:42 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
2% is generally considered a safe withdrawal to last forever. So, this would be very conservative. You will likely end up with a large amount of money in the end.

What percent do you think would be prudent at age 65? (Then ask yourself how much money do you need to get from 50 to 65.)

Gill
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Re: 2% withdrawal rate

Post by Gill » Wed May 29, 2019 3:45 pm

At 2% you could hold everything in a checking account or under the mattress and withdraw for 50 years. Overly conservative, for sure.
Gill
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Re: 2% withdrawal rate

Post by xenial » Wed May 29, 2019 3:56 pm

Gill wrote:
Wed May 29, 2019 3:45 pm
At 2% you could hold everything in a checking account or under the mattress and withdraw for 50 years. Overly conservative, for sure.
I also believe a 2% withdrawal rate is too conservative, but the mattress approach will only work if there's no inflation. The money would indeed last 50 years if the retiree invested only in inflation protected securities paying a 0% real interest rate.

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willthrill81
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Re: 2% withdrawal rate

Post by willthrill81 » Wed May 29, 2019 4:06 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Do you have data to support your opinion?

Historically, the perpetual withdrawal rate (i.e. would at least maintain inflation-adjusted spending forever) for balanced portfolios has been around 3%, which is 50% higher than what you're proposing.

Do you believe that the immediate future will be worse than the worst of the past, and if so, why?
“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

longinvest
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Re: 2% withdrawal rate

Post by longinvest » Wed May 29, 2019 4:08 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

Topic Author
skime
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Re: 2% withdrawal rate

Post by skime » Wed May 29, 2019 4:43 pm

willthrill81 wrote:
Wed May 29, 2019 4:06 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Do you have data to support your opinion?

Historically, the perpetual withdrawal rate (i.e. would at least maintain inflation-adjusted spending forever) for balanced portfolios has been around 3%, which is 50% higher than what you're proposing.

Do you believe that the immediate future will be worse than the worst of the past, and if so, why?
No data per say Will, just life experience. Long before any FIRE movement, I was saving a huge percentage of my income because of the need to weather unexpected bombs dropped on my life. Sure enough, that's exactly what happened. I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.

When I got to early retirement, I decided to approach it the same way. My thought was that if the accepted rate was 3 or 4 percent, I'm going to go with 2.

I haven't had anything nuclear, but I have had some hits that I wasn't expecting. They were easily dealt with from a financial perspective.

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willthrill81
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Re: 2% withdrawal rate

Post by willthrill81 » Wed May 29, 2019 4:52 pm

skime wrote:
Wed May 29, 2019 4:43 pm
willthrill81 wrote:
Wed May 29, 2019 4:06 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Do you have data to support your opinion?

Historically, the perpetual withdrawal rate (i.e. would at least maintain inflation-adjusted spending forever) for balanced portfolios has been around 3%, which is 50% higher than what you're proposing.

Do you believe that the immediate future will be worse than the worst of the past, and if so, why?
No data per say Will, just life experience. Long before any FIRE movement, I was saving a huge percentage of my income because of the need to weather unexpected bombs dropped on my life. Sure enough, that's exactly what happened. I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.

When I got to early retirement, I decided to approach it the same way. My thought was that if the accepted rate was 3 or 4 percent, I'm going to go with 2.

I haven't had anything nuclear, but I have had some hits that I wasn't expecting. They were easily dealt with from a financial perspective.
Then not to be rude at all, it sounds like you're unlikely to change your view. Just keep in mind that if you shoot for a 2% withdrawal rate, your portfolio will need to be 50% larger than if you used a 3% withdrawal rate (i.e. 50 times your desired withdrawals instead of 33.3 times). It could easily take 10 years to increase your portfolio by 50%. Whether the opportunity cost of that 'lost time' is worth your desired benefit of security on top of security is up to you.

And by the way, 3% was the lowest the perpetual withdrawal rate has been in decades. Generally, it's been significantly higher than that, so 3% is already a very conservative number.
“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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SevenBridgesRoad
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Re: 2% withdrawal rate

Post by SevenBridgesRoad » Wed May 29, 2019 5:03 pm

longinvest wrote:
Wed May 29, 2019 4:08 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Retired 2018 | Every day I choose how I spend my energy | One Vanguard TDF except for bunch of individual stocks...still recovering from my Fidelity AUM days years ago | Now sleeping well at night

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willthrill81
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Re: 2% withdrawal rate

Post by willthrill81 » Wed May 29, 2019 5:06 pm

SevenBridgesRoad wrote:
Wed May 29, 2019 5:03 pm
longinvest wrote:
Wed May 29, 2019 4:08 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Keep in that the "mid 3%" you're referring to is a percentage of what is in the portfolio. What the OP is probably referring to is a fixed 2% withdrawal rate, although virtually no one actually uses a fixed withdrawal, nor should they.
“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

WhiteMaxima
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Re: 2% withdrawal rate

Post by WhiteMaxima » Wed May 29, 2019 5:08 pm

Then Uncle Sam will withdraw 20% from your estate.

esteen
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Re: 2% withdrawal rate

Post by esteen » Wed May 29, 2019 5:10 pm

skime wrote:
Wed May 29, 2019 4:43 pm
willthrill81 wrote:
Wed May 29, 2019 4:06 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Do you have data to support your opinion?

Historically, the perpetual withdrawal rate (i.e. would at least maintain inflation-adjusted spending forever) for balanced portfolios has been around 3%, which is 50% higher than what you're proposing.

Do you believe that the immediate future will be worse than the worst of the past, and if so, why?
No data per say Will, just life experience. Long before any FIRE movement, I was saving a huge percentage of my income because of the need to weather unexpected bombs dropped on my life. Sure enough, that's exactly what happened. I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.

When I got to early retirement, I decided to approach it the same way. My thought was that if the accepted rate was 3 or 4 percent, I'm going to go with 2.

I haven't had anything nuclear, but I have had some hits that I wasn't expecting. They were easily dealt with from a financial perspective.
3% is the lowest of the low that I have seen in any studies, that consider all financial calamities throughout the modern history of the markets. So it's not an average, it's the most conservative by default. However, if you want to withdraw less, it won't hurt (except for the extra years needed to have a necessarily larger portfolio). There isn't data that shows an objective need, but psychological needs are important too. Just try not to mortgage your present too much for this "nuclear-proof" future.

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Re: 2% withdrawal rate

Post by Call_Me_Op » Wed May 29, 2019 5:25 pm

2% will definitely work, but is very conservative.
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averagedude
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Re: 2% withdrawal rate

Post by averagedude » Wed May 29, 2019 5:27 pm

If you are under 50, you have human capital to fall back on if you foresee that a 4% withdrawal rate won't work. Im sure if you work an extra 15 years to be 100% certain, and then find yourself to have a major health condition that will shorten your life span, you will have regrets for working way longer due to your conservative estimates. Humans in the past that have seen their glass half full have been rewarded well, and in my opinion will be rewarded in the future. Every generation thinks that they will have it worse than past generations, but the opposite has been true.

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Crushtheturtle
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Re: 2% withdrawal rate

Post by Crushtheturtle » Wed May 29, 2019 5:33 pm

If you have the flexibility, a constant percentage withdrawal strategy might be more "prudent" over a fixed dollar withdrawal, at any percentage.
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randomguy
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Re: 2% withdrawal rate

Post by randomguy » Wed May 29, 2019 5:43 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I can't think of any statement that includes "is the only prudent way" that is correct when talking about financial matters. So I am guessing your wrong:)

You know that number is off in insanely conservative land. You have to chose if you want to pay the price to go that far to the right. Most prudent people would stop in the 3-3.5% range but you aren't most people. You have to make the choices that make you happy.

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SevenBridgesRoad
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Re: 2% withdrawal rate

Post by SevenBridgesRoad » Wed May 29, 2019 6:13 pm

willthrill81 wrote:
Wed May 29, 2019 5:06 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 5:03 pm
longinvest wrote:
Wed May 29, 2019 4:08 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Keep in that the "mid 3%" you're referring to is a percentage of what is in the portfolio. What the OP is probably referring to is a fixed 2% withdrawal rate, although virtually no one actually uses a fixed withdrawal, nor should they.
I was going by this: "I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50." I don't understand your correction, but would like to.
Retired 2018 | Every day I choose how I spend my energy | One Vanguard TDF except for bunch of individual stocks...still recovering from my Fidelity AUM days years ago | Now sleeping well at night

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willthrill81
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Re: 2% withdrawal rate

Post by willthrill81 » Wed May 29, 2019 6:16 pm

SevenBridgesRoad wrote:
Wed May 29, 2019 6:13 pm
willthrill81 wrote:
Wed May 29, 2019 5:06 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 5:03 pm
longinvest wrote:
Wed May 29, 2019 4:08 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Keep in that the "mid 3%" you're referring to is a percentage of what is in the portfolio. What the OP is probably referring to is a fixed 2% withdrawal rate, although virtually no one actually uses a fixed withdrawal, nor should they.
I was going by this: "I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50." I don't understand your correction, but would like to.
I might be wrong, but I take the OP's "2% withdrawal rate" to be something akin to the '4% rule', meaning a fixed real withdrawal rate. The VPW utilizes flexible withdrawal rates (i.e. a percentage-of-portfolio approach). If the portfolio drops in value significantly, it could be that something like 3.5% of the portfolio could be equivalent in terms of dollars withdrawn that year to the OP's 2% fixed real withdrawal rate.
“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

Broken Man 1999
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Re: 2% withdrawal rate

Post by Broken Man 1999 » Wed May 29, 2019 6:22 pm

As others have said, 2% is conservative.

However, if you can live the lifestyle you desire on a 2% withdrawal rate, knock yourself out!

Spending is a very personal thing, do what works for you.

A 2% rate might very well be the the only prudent way to draw on one's portfolio for retirement before the age of 50 for YOU.

Others have different opinions. That's OK.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

retiredjg
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Re: 2% withdrawal rate

Post by retiredjg » Wed May 29, 2019 6:57 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree.

No doubt that 2% or less is prudent. Likely more than prudent. But it is probably not the ONLY prudent approach to draw from a portfolio if retiring before 50.

But that question and that answer is not really all that relevant. What is is that you really want to know?

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corn18
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Re: 2% withdrawal rate

Post by corn18 » Wed May 29, 2019 7:07 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I don't want to work until I'm dead in order to get to 2%, so I am targeting 4% and will use VPW.
Don't do something, just stand there!

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SevenBridgesRoad
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Re: 2% withdrawal rate

Post by SevenBridgesRoad » Wed May 29, 2019 7:20 pm

willthrill81 wrote:
Wed May 29, 2019 6:16 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 6:13 pm
willthrill81 wrote:
Wed May 29, 2019 5:06 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 5:03 pm
longinvest wrote:
Wed May 29, 2019 4:08 pm


I disagree. I would consider using our wiki's Variable percentage withdrawal (VPW) method which allows the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Our wiki explains how to use VPW during retirement.
Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Keep in that the "mid 3%" you're referring to is a percentage of what is in the portfolio. What the OP is probably referring to is a fixed 2% withdrawal rate, although virtually no one actually uses a fixed withdrawal, nor should they.
I was going by this: "I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50." I don't understand your correction, but would like to.
I might be wrong, but I take the OP's "2% withdrawal rate" to be something akin to the '4% rule', meaning a fixed real withdrawal rate. The VPW utilizes flexible withdrawal rates (i.e. a percentage-of-portfolio approach). If the portfolio drops in value significantly, it could be that something like 3.5% of the portfolio could be equivalent in terms of dollars withdrawn that year to the OP's 2% fixed real withdrawal rate.
OK, I see what you are thinking. We each read the same post and assumed something different. I assumed OP meant 2% withdrawal from the portfolio each year and you assumed OP changed the "4% rule" into a 2% rule, initial 2% then that initial dollar amount adjusted for inflation each year. Either assumption seems reasonable; or maybe we both are wrong. Maybe the OP can clarify.

You and I are in agreement that a variable rate makes the most sense. I like the VPW method because it is an entire system: not only adjusted for age and AA, but assumes SS, pension and annuities. Even a SPIA is part of the system at age 80. I realize you know all this, but the OP may not know the VPW is more than a percent.
Retired 2018 | Every day I choose how I spend my energy | One Vanguard TDF except for bunch of individual stocks...still recovering from my Fidelity AUM days years ago | Now sleeping well at night

averagedude
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Re: 2% withdrawal rate

Post by averagedude » Wed May 29, 2019 7:22 pm

I think that a 2% safe withdrawal strategy is optimal and the prudent choice for those that absolutely love their jobs.

quantAndHold
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Re: 2% withdrawal rate

Post by quantAndHold » Wed May 29, 2019 7:31 pm

The biggest risk with 2% is never getting enough saved to actually retire.

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willthrill81
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Re: 2% withdrawal rate

Post by willthrill81 » Wed May 29, 2019 7:35 pm

quantAndHold wrote:
Wed May 29, 2019 7:31 pm
The biggest risk with 2% is never getting enough saved to actually retire.
At a 20% gross savings rate and a 5% real return, it would take about 49 years to retire. At a 40% savings rate, it would take about 32 years (vs. the 22 years it would take to achieve 4% withdrawals). So with a high savings rate, it is doable, but the opportunity cost seems very high.
“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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skime
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Re: 2% withdrawal rate

Post by skime » Wed May 29, 2019 7:36 pm

SevenBridgesRoad wrote:
Wed May 29, 2019 7:20 pm
willthrill81 wrote:
Wed May 29, 2019 6:16 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 6:13 pm
willthrill81 wrote:
Wed May 29, 2019 5:06 pm
SevenBridgesRoad wrote:
Wed May 29, 2019 5:03 pm

Further, in using the Variable Withdrawal Method, your withdrawal rate is never lower than the mid 3%'s, more evidence your current approach is way too conservative, even starting at a young retirement age.
Keep in that the "mid 3%" you're referring to is a percentage of what is in the portfolio. What the OP is probably referring to is a fixed 2% withdrawal rate, although virtually no one actually uses a fixed withdrawal, nor should they.
I was going by this: "I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50." I don't understand your correction, but would like to.
I might be wrong, but I take the OP's "2% withdrawal rate" to be something akin to the '4% rule', meaning a fixed real withdrawal rate. The VPW utilizes flexible withdrawal rates (i.e. a percentage-of-portfolio approach). If the portfolio drops in value significantly, it could be that something like 3.5% of the portfolio could be equivalent in terms of dollars withdrawn that year to the OP's 2% fixed real withdrawal rate.
OK, I see what you are thinking. We each read the same post and assumed something different. I assumed OP meant 2% withdrawal from the portfolio each year and you assumed OP changed the "4% rule" into a 2% rule, initial 2% then that initial dollar amount adjusted for inflation each year. Either assumption seems reasonable; or maybe we both are wrong. Maybe the OP can clarify.

You and I are in agreement that a variable rate makes the most sense. I like the VPW method because it is an entire system: not only adjusted for age and AA, but assumes SS, pension and annuities. Even a SPIA is part of the system at age 80. I realize you know all this, but the OP may not know the VPW is more than a percent.
I was replacing the Trinity methodology with 2% and assuming that someone retires before 50.

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JoMoney
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Re: 2% withdrawal rate

Post by JoMoney » Wed May 29, 2019 7:38 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
It's hard to argue to someone that is excessively prudent that something lesser is still "prudent".
... But I'm pretty sure plenty of otherwise "prudent" people would disagree that a higher withdrawal rate is reckless. Most people on the "FIRE" bandwagon are probably targeting a higher rate than that.
I would at least look at a life expectancy table and see what one could expect if they divided the portfolio out over their life expectancy.
If a 40 year old is expected to live 43.6 years, 1/43.6 would be about 2.3% ... So it seems entirely reasonable to me that the 40 year old would assume almost no risk by putting the entire balance into TIPS and could withdraw 2.3% + inflation for the remainder of their expected life. In the later years they could likely use the remaining balance to buy a SPIA, that wouldn't adjust for inflation, but would guarantee payments for their remaining lifespan no longer how long they live... coupled with Social Security (that is inflation adjusted)...
Would you argue there's anything reckless with that scenario? Seems about as close to bullet-proof as one can get to me.

Since relative to others on here I'm a bit of a stock bull, I don't see it as being unfounded to expect to do better than TIPS with some allocation to stocks (there's just no guarantee of that - and one has to understand and be willing to accept the risk).
"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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SevenBridgesRoad
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Re: 2% withdrawal rate

Post by SevenBridgesRoad » Wed May 29, 2019 7:54 pm

Since this comes down to the OP use of the word "prudent", here's a dictionary definition: "acting with or showing care and thought for the future".

A bit subjective, but I think OP is well beyond prudent and into strange territory for most of the folks here.
Retired 2018 | Every day I choose how I spend my energy | One Vanguard TDF except for bunch of individual stocks...still recovering from my Fidelity AUM days years ago | Now sleeping well at night

marcopolo
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Re: 2% withdrawal rate

Post by marcopolo » Wed May 29, 2019 8:32 pm

Stick around awhile.
I am sure someone will come along and make the argument that 2% is way too risky given today's valuations, low interest rates, decline of US dominance, demographic changes, etc. You are just taking a small step on the ever decreasing spiral to lower "Safe" Withdrawal Rates.

How long ago was it that we had the "3% is the new 4%" thread?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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JoMoney
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Re: 2% withdrawal rate

Post by JoMoney » Wed May 29, 2019 9:01 pm

marcopolo wrote:
Wed May 29, 2019 8:32 pm
Stick around awhile.
I am sure someone will come along and make the argument that 2% is way too risky given today's valuations, low interest rates, decline of US dominance, demographic changes, etc. You are just taking a small step on the ever decreasing spiral to lower "Safe" Withdrawal Rates.

How long ago was it that we had the "3% is the new 4%" thread?
Well if you're looking at Jeremy Grantham/GMO's forecasts of negative returns, you might as well be spending your money as soon as you get it (maybe even borrowing as much debt as you can get)...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

MnD
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Re: 2% withdrawal rate

Post by MnD » Wed May 29, 2019 9:19 pm

I'm loving the SWR limbo! How low can we go????
Way less competition for my favorite beach house rentals, 1st class upgrades and preferred restaurant tables - so it's all good.

Hopefully the adult kids won't cheap out on the nursing home they pick for you to goose their inheritance even further when you are sitting on $XX million when debilitated and in advanced age. I've seen that happen actually - very sad.

lostdog
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Re: 2% withdrawal rate

Post by lostdog » Wed May 29, 2019 9:24 pm

You'll win the wealthiest guy in the grave yard award. Grats.
I don't invest looking in the rear view mirror and I know absolutely nothing about the future.

bhsince87
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Re: 2% withdrawal rate

Post by bhsince87 » Wed May 29, 2019 9:34 pm

If you're invested in 100% treasuries and retire at age 35, then, yes, maybe 2% is a good rule of thumb for a target.

But still, like with the 4% number, flexibility is as important as the actual target number.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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SevenBridgesRoad
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Re: 2% withdrawal rate

Post by SevenBridgesRoad » Wed May 29, 2019 10:37 pm

MnD wrote:
Wed May 29, 2019 9:19 pm
I'm loving the SWR limbo! How low can we go????
Solid contender for response of the year. :sharebeer
Retired 2018 | Every day I choose how I spend my energy | One Vanguard TDF except for bunch of individual stocks...still recovering from my Fidelity AUM days years ago | Now sleeping well at night

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HomerJ
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Re: 2% withdrawal rate

Post by HomerJ » Wed May 29, 2019 10:40 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I disagree with this opinion because of math.

2% is spending less than dividends from a 50/50 stock/bond portfolio. That is not the "only" prudent way to pull money from a portfolio when retiring before the age of 50.
The J stands for Jay

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Peter Foley
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Re: 2% withdrawal rate

Post by Peter Foley » Wed May 29, 2019 10:44 pm

3% is prudent enough based on the Trinity study.

I've not seen it mentioned for a while but there is also a 4% with "guardrails" approach that is equally prudent (Guyton?). One "guardrail" approach consists of not taking an inflationary increase in down market years and limiting inflationary increases to 5% maximum (if I recall correctly).

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Re: 2% withdrawal rate

Post by SoonerD » Wed May 29, 2019 10:54 pm

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Your statement is egregious; since it is your claim that the entire community of retirement industry experts, academics and practitioners are wrong (imprudent) the burden of proof is on you.

I see you responded to Willthrill that you don't have a scientific or research based approach; you're just winging it out of fear. You're trading considerable time at work to satisfy your fear. If I were you I would dive into the industry research before committing to an extra decade (or more) of income based work. But as Will noted it's highly unlikely you will change your approach so I won't try to convince you. Only you can convince you. The research is in front of you, will you read it?

EnjoyIt
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Re: 2% withdrawal rate

Post by EnjoyIt » Thu May 30, 2019 1:27 am

How do I direct Valuethinker to this thread of "too conservative?"

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skime
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Re: 2% withdrawal rate

Post by skime » Thu May 30, 2019 3:17 am

Thanks for all of the responses. I'm just curious, how many of you that responded are actually currently retired? If you are retired, what withdrawal rate are you using?

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skime
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Re: 2% withdrawal rate

Post by skime » Thu May 30, 2019 3:21 am

SoonerD wrote:
Wed May 29, 2019 10:54 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
Your statement is egregious; since it is your claim that the entire community of retirement industry experts, academics and practitioners are wrong (imprudent) the burden of proof is on you.

I see you responded to Willthrill that you don't have a scientific or research based approach; you're just winging it out of fear. You're trading considerable time at work to satisfy your fear. If I were you I would dive into the industry research before committing to an extra decade (or more) of income based work. But as Will noted it's highly unlikely you will change your approach so I won't try to convince you. Only you can convince you. The research is in front of you, will you read it?
Sooner - I'm not currently trading time at work. I'm retired. I've just decided to use 2% instead of 3 or 4. If things work out as I get older, I may increase the rate.

iamlucky13
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Re: 2% withdrawal rate

Post by iamlucky13 » Thu May 30, 2019 4:17 am

That was an odd way to pose the question.

Your membership date is over a year ago, so I assume you've seen enough of the forum to recognize that most withdrawal rate discussions focus on the 3-4% range. I would have thought it would be obvious that few people would agree that 2% is the "only prudent" rate even for those retiring under 50.

A more understandable question, in my opinion, would have been "Do you think there are situations when it is prudent to plan for a 2% withdrawal rate?"

In your case, you want to be prepared against financial "nuclear bombs." I'd say there is a level of prudence that can include that, but most will choose to accept the low risk of 3% or more due to limited ability or willingness to manage the high cost. Likewise, the same is true of literal nuclear bombs. It is prudent to recognize that there is a risk of a nuclear war, and it is therefore not imprudent to make preparations to increase your likelihood of survival. The cost relative to the risk, however, means most people do not find it to be a necessary level of prudence, much less the minimum level of prudence.

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climber2020
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Re: 2% withdrawal rate

Post by climber2020 » Thu May 30, 2019 5:47 am

skime wrote:
Wed May 29, 2019 4:43 pm
I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.
What were some of these financial bombs? The big ones I can think of are health, disability, home, and auto issues, all of which should be covered by sufficient insurance. It'd be good to hear of other stuff I might not even have thought of.

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Re: 2% withdrawal rate

Post by AlohaJoe » Thu May 30, 2019 5:51 am

climber2020 wrote:
Thu May 30, 2019 5:47 am
skime wrote:
Wed May 29, 2019 4:43 pm
I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.
What were some of these financial bombs? The big ones I can think of are health, disability, home, and auto issues, all of which should be covered by sufficient insurance. It'd be good to hear of other stuff I might not even have thought of.
Divorce, children dying in an auto accident and you being left as guardian for your grandchildren, son-in-law becomes a drug addict and steals your daughter's life savings, serious dental issues, and many many more things that cannot be insured against.

JoeRetire
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Re: 2% withdrawal rate

Post by JoeRetire » Thu May 30, 2019 6:34 am

skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.
The only prudent way?

Sorry, that makes no sense.

JoeRetire
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Re: 2% withdrawal rate

Post by JoeRetire » Thu May 30, 2019 6:39 am

skime wrote:
Wed May 29, 2019 4:43 pm
No data per say Will, just life experience. Long before any FIRE movement, I was saving a huge percentage of my income because of the need to weather unexpected bombs dropped on my life. Sure enough, that's exactly what happened. I've had a few nearly nuclear bombs dropped on me. My savings rate allowed me to weather those and then some.
So clearly your savings rate has nothing to do with your proposed withdrawal rate.
When I got to early retirement, I decided to approach it the same way. My thought was that if the accepted rate was 3 or 4 percent, I'm going to go with 2.

I haven't had anything nuclear, but I have had some hits that I wasn't expecting. They were easily dealt with from a financial perspective.
So because your "unexpected bombs" and "nearly nuclear bombs" frightened you (even though you apparently survived nicely enough to retire early), you have decided that you are afraid of "the accepted rate" and 1/2 to 2/3 of that rate (or less) is the only prudent withdrawal rate.

Okay. I'll pass.

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Re: 2% withdrawal rate

Post by azanon » Thu May 30, 2019 7:22 am

corn18 wrote:
Wed May 29, 2019 7:07 pm
skime wrote:
Wed May 29, 2019 3:18 pm
I'm of the opinion that a 2% withdrawal rate or less is the only prudent way to draw on one's portfolio for retirement before the age of 50.

Does anyone disagree with this opinion? If so, why?
I don't want to work until I'm dead in order to get to 2%, so I am targeting 4% and will use VPW.
Put me down for this too. I think VPW hang's the moon cause it checks all the boxes - can't fail, maximizes withdrawals, is systematic.

........

skime, i think you're the perfect candidate for a trustworthy, and reasonable financial advisor of some sort. You could bring all of your theoretical concerns to them and they could give you and help implement professional ideas to address your concerns, and the fee you pay for that should be considerably cheaper than the "fee" of 2% withdrawals for life. Even if you technically have the financial knowledge, I'm suspecting you'd benefit from the human element of someone to give you support with a more reasonable plan.

msk
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Re: 2% withdrawal rate

Post by msk » Thu May 30, 2019 7:34 am

This is a portfolio using Shiller's reconstructed SP data from 1871 to the present, 100% stocks, undergoing a withdrawal of 5% of (portfolio+dividends less 15% tax on dividends) balance each year and deflated with whatever the CPI was in each month. I assumed the dividends were taxed at 15% I.e. the remaining portfolio balance is shown in REAL terms. Note how substantially the remaining balance would have grown since 1871:
Image

And this is a plot of the cash out in REAL terms. Notice how dividends protect the depths of the plunges following market collapses. Fortuitously, market collapses are preceded by market booms. It does look like we are in boom times :mrgreen: I think whatever withdrawal rates we aspire to, it is important to cap the percentage (5% used here) of the (portfolio+dividends) and not just go blindly adjusting for inflation. Without a dividend tax of 15% that I used here one would get a similar inflation-beating REAL terms on-average withdrawal by using 5.5%.
Image

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