5% Withdrawal Rate Recommended by US News Columnist

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BluesH
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5% Withdrawal Rate Recommended by US News Columnist

Post by BluesH » Mon Sep 09, 2019 2:09 pm

Have any of you seen this article from US News & World Report columnist Masood Vojdani?

https://money.usnews.com/money/blogs/th ... retirement

A 5% withdrawal rate seems pretty out there in today's environment, especially in light of recent discussions from people advocating 3.5%, 3%, or even 2%. But the article goes on:

"If you don't have children or other beneficiaries and want to spend your hard-earned money, consider withdrawing more. Some people are adamant that they want to spend most of their money before they pass away, and then distribute whatever is left to their favorite charitable causes.

If you and your financial advisor agree that you truly have more than enough money to last for what is an increasingly long life expectancy in the United States, and you are not concerned about drawing down your portfolio's assets, you can consider increasing your annual withdrawal to 7% or even 8% based on your level of wealth, lifestyle and expenses."

7 to 8% Really? That's downright reckless - unless you're in your 80s or 90s.

Comments?

Bob

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by randomguy » Mon Sep 09, 2019 2:17 pm

BluesH wrote:
Mon Sep 09, 2019 2:09 pm

If you and your financial advisor agree that you truly have more than enough money to last for what is an increasingly long life expectancy in the United States, and you are not concerned about drawing down your portfolio's assets, you can consider increasing your annual withdrawal to 7% or even 8% based on your level of wealth, lifestyle and expenses."

7 to 8% Really? That's downright reckless - unless you're in your 80s or 90s.

Comments?

Bob
I don't think he is talking about SWR. I thinking he is talking about percentage of portfolio per year. Historically 7% has been pretty close to the number that works out for that. But there are no details in the article. This is an ad for you to go pay money to a financial advisor.

Stoic9
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by Stoic9 » Mon Sep 09, 2019 2:22 pm

Sounds like a 'can't take it with you' plan. Say I live beyond 'average' life exp. Live it up now. I can always pull back and live off SS in old old age. My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free. She does have some good stories of how she 'lived it up' after her husband died when she was 77.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by nisiprius » Mon Sep 09, 2019 2:27 pm

Yes, it seems verging on irresponsible to me.

1) Does it seem odd to you that the words "inflation" and "real" do not occur anywhere in this article?

2) Consider that there's a kind of built-in competition. Which advisor would you go with, one that says "follow my advice and you 'might' be able to withdraw 3%," one that says "follow my advice and you 'might' be able to withdraw 4%," or one that says "follow my advice and you 'might' be able to withdraw 5%?"

3) Its easy to move the number up by never being too explicit about risks, and assuming that your client is willing to take a little more risk and accept a slightly higher failure rate than the studies assumed. And of course it's easy to move the number up if you assume that the client is willing to cut back at any time. And it's easy to move the needle up more by assuming the client is willing to cut back more.

4) The risk of an aggressive suggestion is pretty small... for the advisor. For example, in the original Trinity study, a 5% withdrawal rate with a 75/25 portfolio had an 83% survival rate. That means that an advisor who suggested it would have an 83% chance that the client would succeed and be happy. If it failed, say two decades later, what are the chances that the advisor would get into any trouble for making that suggestion?
Last edited by nisiprius on Mon Sep 09, 2019 2:33 pm, edited 1 time in total.
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by nisiprius » Mon Sep 09, 2019 2:31 pm

randomguy wrote:
Mon Sep 09, 2019 2:17 pm
...I don't think he is talking about SWR. I thinking he is talking about percentage of portfolio per year.
Indeed. But I would not say "I think he is talking about..." I would say that a big problem in the article is that you simply cannot tell what he is talking about. The details are completely vague. It's not our job to try to read his mind, or to put an interpretation on his words in order to make them true.
...But there are no details in the article.
There sure aren't.
This is an ad for you to go pay money to a financial advisor.
It's not blatant, but I agree.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by BluesH » Mon Sep 09, 2019 2:33 pm

Stoic9 wrote:
Mon Sep 09, 2019 2:22 pm
Sounds like a 'can't take it with you' plan. Say I live beyond 'average' life exp. Live it up now. I can always pull back and live off SS in old old age. My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free. She does have some good stories of how she 'lived it up' after her husband died when she was 77.
Anecdotes are fine, and illustrative; but they're not a plan. I have my own anecdote:

My mom is about to turn 98. Thought she'd live to 90-93 (longevity genes). She's about to run out of money. But at her age, she can't fend for herself without help for her ADLs. Caretakers are expensive; much more than what's supportable via her smallish SS check. She should be in assisted living, but refuses. Family is in a quandary, trying to decide what to do...

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by jibantik » Mon Sep 09, 2019 2:34 pm

8% is fine if you can get a guaranteed return of 12% with Dave Ramsey's "smart"vestor pros :P

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by Quirkz » Mon Sep 09, 2019 3:51 pm

I remember the first time I ran through a retirement plan, maybe a year or two after college, I figured a 5% rate was a good baseline. Of course, that's what CDs were paying back then, so it was an interest-only system.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by SGM » Mon Sep 09, 2019 4:03 pm

This is poor advice. 7 or 8% is ridiculous unless you have very few years left to live.

The author states you should ask your advisor if you have debt. Don't most people know if they have debt?

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by mptfan » Mon Sep 09, 2019 4:04 pm

I generally agree with the point of the article, a 4% withdrawal rate is very safe, but it often means that your portfolio holds its value or sometimes increases in value over time, and that's very conservative. Nothing wrong with being conservative, but there's nothing wrong with being a little less conservative also, and 5% sounds pretty reasonable to me given the right circumstances. And the older you get, I see nothing wrong with going even higher, especially if you have not experienced sequence of return risk in earlier years.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by mptfan » Mon Sep 09, 2019 4:05 pm

SGM wrote:
Mon Sep 09, 2019 4:03 pm
This is poor advice. 7 or 8% is ridiculous unless you have very few years left to live.
Right. And many retirees have few years left to live, so it's not ridiculous for them.

The average life expectancy for someone at age 65 is about age 85. So if you are say 80 years old, it's not ridiculous to spend 7-8% of your savings especially if you have a comfortable cushion. If you have enough income outside of your portfolio to pay most or all of your expenses (social security or a pension or an annunity) then it may be reasonable to spend (gasp) 9 or 10%.
Last edited by mptfan on Mon Sep 09, 2019 4:22 pm, edited 3 times in total.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 4:05 pm

I agree that there aren't enough details to really understand what is being proposed here.

If he is talking about 5% as a fixed percentage of the portfolio each year, that's perfectly reasonable as long as the retirees are comfortable with their withdrawals being as volatile as their portfolio's performance.

If he is talking about 5% as a fixed real dollar withdrawal strategy (which is what it seems to me that he is), that could be perfectly plausible. What if the retiree only has a 20 year horizon, for instance? What if most or all of their essential spending is covered by SS benefits, a pension, etc.?

For those that think that a 5% fixed real dollar withdrawal strategy is a ridiculously high starting point, I'll just say that since 1970, the 30 year SWR for a portfolio with 20% total stock market / 10% small-cap value / 30% ex-U.S. / 40% intermediate-term Treasuries was....wait for it....exactly 5.0% (according to Portfolio Charts). Some might say that that is mere backtesting, which it is, but I would humbly remind those same people that the '4% rule' is also mere backtesting.
Last edited by willthrill81 on Mon Sep 09, 2019 6:14 pm, edited 1 time in total.
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by delamer » Mon Sep 09, 2019 4:17 pm

If you only withdraw 5% of your portfolio value each year, you’ll never deplete your portfolio. That’s just true mathematically. Same with 7% or 8%.

What he doesn’t say is that your income will be all over the place. But at least you’ll always have money in your account. :D

The analysis is so poor — and so poorly written — that it is misleading.

And what’s the obsession with debt? You can only withdraw 5% if you have no debt?

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 4:24 pm

delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by randomguy » Mon Sep 09, 2019 4:26 pm

SGM wrote:
Mon Sep 09, 2019 4:03 pm
This is poor advice. 7 or 8% is ridiculous unless you have very few years left to live.

The author states you should ask your advisor if you have debt. Don't most people know if they have debt?
7% of a portfolio has historically has given a pretty flat income stream for a 60/40 type portfolio. In the really bad times you can get portfolio depletion but on average it does fine. Remember we are talking about 7% of the portfolio not a 7% SWR. This is the old Peter Lynch way of looking at the problem versus Bengen& company that everyone else in the world has switched to. I have no clue why he is focused on debt. Maybe the need to service it?

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by retiredflyboy » Mon Sep 09, 2019 4:32 pm

Why not just purchase a single premium immediate annuity and call it a day. I think, depending on age of course, you can get about a 5% return.
Facts are stubborn things. Everything works until it doesn’t.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by PhilosophyAndrew » Mon Sep 09, 2019 4:37 pm

This is hardly shocking or dangerous advice: “[If you]truly have more than enough money to last for what is an increasingly long life expectancy in the United States, and you are not concerned about drawing down your portfolio's assets, you can consider increasing your annual withdrawal....”

Those who truly have more than they need can indeed consider some different more than those who just have enough, especially if there is no bequest motive and one is okay with spending down one’s portfolio.

Andy.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by randomguy » Mon Sep 09, 2019 4:38 pm

retiredflyboy wrote:
Mon Sep 09, 2019 4:32 pm
Why not just purchase a single premium immediate annuity and call it a day. I think, depending on age of course, you can get about a 5% return.
Cause you die broke instead of having all most of the money you started with to pass on to you kids.:) And note that 5 or 6% from an annuity isn't the same as a SWR or the 5 or 7% that this guy appears to be talking about.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by Jags4186 » Mon Sep 09, 2019 4:38 pm

If you have more money, much more money, than you need then there is no reason not to take out 5%, 6%, 7%, even 8% of your portfolio. What matter’s most is what this money is used for. If you, for example have $100,000 in annual expenses and $10,000,000 why can’t you give $500,000 to charity a year? Give away money until it gets to the point you can’t give away money. Or if the markets perform spectacularly give away more.

If you need your $1,000,000 portfolio to generate $80,000/yr...well best of luck.
Last edited by Jags4186 on Mon Sep 09, 2019 4:40 pm, edited 2 times in total.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by delamer » Mon Sep 09, 2019 4:39 pm

willthrill81 wrote:
Mon Sep 09, 2019 4:24 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 4:49 pm

delamer wrote:
Mon Sep 09, 2019 4:39 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:24 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
That would merely change the risk from sequence of returns risk to sequence of income risk. Debt payments do not go down even if your income does. Retirees could see their withdrawals shrink to the point that making their debt payments and funding their other spending needs becomes untenable. The more flexible your spending is, the more that a percentage of portfolio withdrawal strategy makes sense.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by delamer » Mon Sep 09, 2019 4:59 pm

willthrill81 wrote:
Mon Sep 09, 2019 4:49 pm
delamer wrote:
Mon Sep 09, 2019 4:39 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:24 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
That would merely change the risk from sequence of returns risk to sequence of income risk. Debt payments do not go down even if your income does. Retirees could see their withdrawals shrink to the point that making their debt payments and funding their other spending needs becomes untenable. The more flexible your spending is, the more that a percentage of portfolio withdrawal strategy makes sense.
That’s the problem with a fixed percent of each year’s portfolio plan. Income is unpredictable, and may not be enough to cover debt and/or other expenses.

The whole analysis in the article makes no sense.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 5:07 pm

delamer wrote:
Mon Sep 09, 2019 4:59 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:49 pm
delamer wrote:
Mon Sep 09, 2019 4:39 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:24 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
That would merely change the risk from sequence of returns risk to sequence of income risk. Debt payments do not go down even if your income does. Retirees could see their withdrawals shrink to the point that making their debt payments and funding their other spending needs becomes untenable. The more flexible your spending is, the more that a percentage of portfolio withdrawal strategy makes sense.
That’s the problem with a fixed percent of each year’s portfolio plan. Income is unpredictable, and may not be enough to cover debt and/or other expenses.
That's why debt nearly always increases one's risk in retirement, regardless of the withdrawal method being used.
delamer wrote:
Mon Sep 09, 2019 4:59 pm
The whole analysis in the article makes no sense.
There's virtually no real analysis in the article at all.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by H-Town » Mon Sep 09, 2019 5:11 pm

BluesH wrote:
Mon Sep 09, 2019 2:09 pm
Have any of you seen this article from US News & World Report columnist Masood Vojdani?

https://money.usnews.com/money/blogs/th ... retirement

A 5% withdrawal rate seems pretty out there in today's environment, especially in light of recent discussions from people advocating 3.5%, 3%, or even 2%. But the article goes on:

"If you don't have children or other beneficiaries and want to spend your hard-earned money, consider withdrawing more. Some people are adamant that they want to spend most of their money before they pass away, and then distribute whatever is left to their favorite charitable causes.

If you and your financial advisor agree that you truly have more than enough money to last for what is an increasingly long life expectancy in the United States, and you are not concerned about drawing down your portfolio's assets, you can consider increasing your annual withdrawal to 7% or even 8% based on your level of wealth, lifestyle and expenses."

7 to 8% Really? That's downright reckless - unless you're in your 80s or 90s.

Comments?

Bob
Someone sends this guy a book to read about SWR.

Life is far more complex than 4% or 5%. In any given year, you'll face a big bill for a house repair, a new car, or a surgery/medical bill. That'll exceed your 5% for sure. And then the types of expenses you have during your 70s - 90s are completely different than those when you are 40 - 60 age group. Medical expenses, long term care, the condition of your health and your loved ones are up in the air.

With that said, 4% SWR rule is a good starting point to plan for retirement saving. The more you save, the more wiggle room you have to make sure that you're not running out of money.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by ionball » Mon Sep 09, 2019 5:21 pm

willthrill81 wrote:
Mon Sep 09, 2019 4:05 pm
<snip>
For those that think that a 5% fixed real dollar withdrawal strategy is a ridiculously high starting point, I'll just say that since 1970, the 30 year SWR for a portfolio with 20% total stock market / 10% small-cap value / 20% ex-U.S. / 40% intermediate-term Treasuries was....wait for it....exactly 5.0% (according to Portfolio Charts). Some might say that that is mere backtesting, which it is, but I would humbly remind those same people that the '4% rule' is also mere backtesting.
willthrill81-
Are there another 10% of assets in that portfolio?

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 5:58 pm

ionball wrote:
Mon Sep 09, 2019 5:21 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:05 pm
<snip>
For those that think that a 5% fixed real dollar withdrawal strategy is a ridiculously high starting point, I'll just say that since 1970, the 30 year SWR for a portfolio with 20% total stock market / 10% small-cap value / 20% ex-U.S. / 40% intermediate-term Treasuries was....wait for it....exactly 5.0% (according to Portfolio Charts). Some might say that that is mere backtesting, which it is, but I would humbly remind those same people that the '4% rule' is also mere backtesting.
willthrill81-
Are there another 10% of assets in that portfolio?
Sorry! Yes, 30% in ex-U.S. rather than 20%.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by jdilla1107 » Mon Sep 09, 2019 6:01 pm

delamer wrote:
Mon Sep 09, 2019 4:17 pm
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
The problem with this interpretation is that the article starts with:
Established in 1994 by financial advisor William Bengen, the rule stipulates that you should be able to withdraw 4% of your retirement savings each year without running out of money during your lifetime.

But if you are a long-term investor who has maintained a diversified portfolio throughout your accumulation years, you might instead consider increasing your withdrawals to 5% each year.
That section is referencing the study that says it is an inflation adjusted result. The author is referencing the study that says "4% inflation adjusted of the original value".

My conclusion is that the author is confused. We can only guess as to what they really mean.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Mon Sep 09, 2019 6:17 pm

randomguy wrote:
Mon Sep 09, 2019 4:38 pm
retiredflyboy wrote:
Mon Sep 09, 2019 4:32 pm
Why not just purchase a single premium immediate annuity and call it a day. I think, depending on age of course, you can get about a 5% return.
Cause you die broke instead of having all most of the money you started with to pass on to you kids.:)
And you sacrifice all upside potential.

And you permanently lose access to the annuitized funds.

And if your insurance company goes broke and your state's guaranty association doesn't cover for them, you're broke.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by delamer » Mon Sep 09, 2019 8:22 pm

jdilla1107 wrote:
Mon Sep 09, 2019 6:01 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
The problem with this interpretation is that the article starts with:
Established in 1994 by financial advisor William Bengen, the rule stipulates that you should be able to withdraw 4% of your retirement savings each year without running out of money during your lifetime.

But if you are a long-term investor who has maintained a diversified portfolio throughout your accumulation years, you might instead consider increasing your withdrawals to 5% each year.
That section is referencing the study that says it is an inflation adjusted result. The author is referencing the study that says "4% inflation adjusted of the original value".

My conclusion is that the author is confused. We can only guess as to what they really mean.
And he is confusing others rather than educating them. The biggest issue is that the article was written for a general audience and the nuances of the Bengen study aren’t explained.

The article author never uses the word “inflation.”

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by bhsince87 » Tue Sep 10, 2019 12:51 am

It is a terribly written article.

However.....

If I use the advanced VPW worksheet, which is advocated by many people here, at age 54, it gives me 5.1%.
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by JoeRetire » Tue Sep 10, 2019 6:17 am

Stoic9 wrote:
Mon Sep 09, 2019 2:22 pm
I can always pull back and live off SS in old old age.
Can you? I couldn't.
My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free.
I guess I'm expecting to do more than ride the senior center bus and play cards all day.

But if you are willing to settle for that in your old age, then you could be fine.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by smitcat » Tue Sep 10, 2019 8:24 am

JoeRetire wrote:
Tue Sep 10, 2019 6:17 am
Stoic9 wrote:
Mon Sep 09, 2019 2:22 pm
I can always pull back and live off SS in old old age.
Can you? I couldn't.
My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free.
I guess I'm expecting to do more than ride the senior center bus and play cards all day.

But if you are willing to settle for that in your old age, then you could be fine.
"Can you? I couldn't."
What level of SS are you utilizing to compare the expenses to?

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by wolf359 » Tue Sep 10, 2019 8:43 am

jibantik wrote:
Mon Sep 09, 2019 2:34 pm
8% is fine if you can get a guaranteed return of 12% with Dave Ramsey's "smart"vestor pros :P
Dave Ramsey does not use the word "guaranteed." He says that you are responsible for the decisions and the outcome. If you don't get 12% return, it's YOUR fault.

But he still pitches that getting 12% return is easy. Just pick one of the funds that's already done it. (If it doesn't continue to get that return in the future, don't pick that one.)

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by donaldfair71 » Tue Sep 10, 2019 9:01 am

Merriman talks about and endorses this strategy IF you have substantially more than you'll ever need (defined on safely being able to live on 1-2% withdrawal, I believe).

Basically, take 5% out each and every year of the account value on a certain date. With that amount, live/give/do whatever you want. In a deep bear market you take out much less, but still within safety because you don't need much at all from the portfolio. In a bull, life is great. In a bear, cut back.

Not saying I advocate it, but he has mentioned this often on his podcast.

In practice I don't see it really happening. The same kind of people who live frugally or save 50X expenses are probably gonna have a hard time taking out and spending 5% of the portfolio.

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Sandtrap
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by Sandtrap » Tue Sep 10, 2019 9:52 am

delamer wrote:
Mon Sep 09, 2019 4:59 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:49 pm
delamer wrote:
Mon Sep 09, 2019 4:39 pm
willthrill81 wrote:
Mon Sep 09, 2019 4:24 pm
delamer wrote:
Mon Sep 09, 2019 4:17 pm
And what’s the obsession with debt? You can only withdraw 5% if you have no debt?
The author might realize that debt in retirement increases retirees' sequence of returns risk.
The way the article is written, he is talking about a 5% withdrawal of each year’s portfolio value. Not an inflation-adjusted 5% of the initial value.
That would merely change the risk from sequence of returns risk to sequence of income risk. Debt payments do not go down even if your income does. Retirees could see their withdrawals shrink to the point that making their debt payments and funding their other spending needs becomes untenable. The more flexible your spending is, the more that a percentage of portfolio withdrawal strategy makes sense.
That’s the problem with a fixed percent of each year’s portfolio plan. Income is unpredictable, and may not be enough to cover debt and/or other expenses.

The whole analysis in the article makes no sense.
+1
Good Point.
And, for the uninformed retiree, misleading.

I know at least 2 retirees that have fallen for this from their "helpful" FA's/Wealth Managers".

Said to me yesterday, "My Advisor has given me 5% per year on my money for years. That's good enough for me. He said that I can always tap into a HELOC and later a Reverse Mortgage to keep my retirement going. It's great. 5%"

This reminds me of "closers" at car dealers who focus on affordable monthly payments vs total dollar cost to customers. :happy

j :happy
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LilyFleur
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by LilyFleur » Tue Sep 10, 2019 10:23 am

It is all such a gamble.

We are very focused on SWR.

Who knows how long we will live? The life expectancy calculators don't consider a great many factors. Except for one, my grandparents (farmers) lived longer than the next generation. Some say sitting is the new smoking.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Tue Sep 10, 2019 10:26 am

LilyFleur wrote:
Tue Sep 10, 2019 10:23 am
Who knows how long we will live? The life expectancy calculators don't consider a great many factors.
I've tried several of the life expectancy calculators. Some of them are very specific. They predict my life expectancy to be anywhere between 93 and 101. One of them told me that I need to drink more, two drinks per week, to increase my life expectancy a tiny bit.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by RadAudit » Tue Sep 10, 2019 10:39 am

LilyFleur wrote:
Tue Sep 10, 2019 10:23 am
It is all such a gamble.
+1

One thing I picked up from this site - "there is no approach that will guarantee that you won't go broke." May be correct.

YMMV
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by AlwaysaQ » Tue Sep 10, 2019 10:46 am

VPW for 30/70 stock bond is 5% at 72 years. I'm in my late 70s and Vanguard recommends a 30/65/5 asset allocation for me.
Uniform Lifetime Table RMD is 5.1% at 79 years.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by ohai » Tue Sep 10, 2019 11:14 am

I seem to have missed the part of the article that actually explains why 5% is ok.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by CurlyDave » Tue Sep 10, 2019 12:34 pm

Before we get into too much of an uproar, I suggest everyone who doubts the 5% withdrawal number should go back and actually read the Trinity Study update. Try this link: https://www.onefpa.org/journal/Pages/Po ... 0Line.aspx . Try reading the black words on the white page -- do not insert your own prejudices or beliefs. And, read the whole thing, not just the parts you agree with.

The bottom line is that 4% inflation-adjusted is about right, but 7% non-adjusted is also just as good.

Somehow we all get fixated on the 4%, ignoring and criticizing the 7% advice, even though it is the very same study and authors.

Personally, I see a lot of advantages in the 7% non-adjusted plan. And, it is every bit as valid and tested as the 4% plan.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by mptfan » Tue Sep 10, 2019 2:54 pm

CurlyDave wrote:
Tue Sep 10, 2019 12:34 pm
Before we get into too much of an uproar, I suggest everyone who doubts the 5% withdrawal number should go back and actually read the Trinity Study update.
Good advice. Here is a quote from the study...

"We conclude that if 75 percent or better portfolio success rates form the feasible set of portfolio success rates, clients could plan to withdraw a fixed amount of 7 percent of the initial value of portfolios composed of at least 50 percent large-company common stocks. For shorter payout periods of 15 or 20 years, the sustainable withdrawal rate with 75 percent success or better is as much as 8 percent for portfolios of 50 percent or more large-company common stocks. The sample data suggest that clients who plan to make annual inflation adjustments to withdrawals should also plan lower initial withdrawal rates in the 4 percent to 5 percent range, again, from portfolios of 50 percent or more large-company common stocks, in order to accommodate future increases in withdrawals."

So a fixed amount of 7-8% is recommended, and an inflation adjusted amount of 4-5% is recommended.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by JoeRetire » Tue Sep 10, 2019 3:47 pm

smitcat wrote:
Tue Sep 10, 2019 8:24 am
JoeRetire wrote:
Tue Sep 10, 2019 6:17 am
Stoic9 wrote:
Mon Sep 09, 2019 2:22 pm
I can always pull back and live off SS in old old age.
Can you? I couldn't.
My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free.
I guess I'm expecting to do more than ride the senior center bus and play cards all day.

But if you are willing to settle for that in your old age, then you could be fine.
"Can you? I couldn't."
What level of SS are you utilizing to compare the expenses to?
I'm not exactly sure what "what level" means in this context.

We aren't collecting SS yet. When I reach 70, I'll start.
Together, my wife and I will be getting about $70k/year from SS. Our expenses will run about $100k/year.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by delamer » Tue Sep 10, 2019 3:54 pm

mptfan wrote:
Tue Sep 10, 2019 2:54 pm
CurlyDave wrote:
Tue Sep 10, 2019 12:34 pm
Before we get into too much of an uproar, I suggest everyone who doubts the 5% withdrawal number should go back and actually read the Trinity Study update.
Good advice. Here is a quote from the study...

"We conclude that if 75 percent or better portfolio success rates form the feasible set of portfolio success rates, clients could plan to withdraw a fixed amount of 7 percent of the initial value of portfolios composed of at least 50 percent large-company common stocks. For shorter payout periods of 15 or 20 years, the sustainable withdrawal rate with 75 percent success or better is as much as 8 percent for portfolios of 50 percent or more large-company common stocks. The sample data suggest that clients who plan to make annual inflation adjustments to withdrawals should also plan lower initial withdrawal rates in the 4 percent to 5 percent range, again, from portfolios of 50 percent or more large-company common stocks, in order to accommodate future increases in withdrawals."

So a fixed amount of 7-8% is recommended, and an inflation adjusted amount of 4-5% is recommended.
I didn’t know about the 7-8% recommendation in the original study.

But the article never refers to either 4% (inflation adjusted) or 7% (not adjusted) of the initial portfolio value.

The references are to “each year” which can be easily interpreted as the current year.

Again, very misleading.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by DaftInvestor » Tue Sep 10, 2019 3:59 pm

BluesH wrote:
Mon Sep 09, 2019 2:09 pm
Have any of you seen this article from US News & World Report columnist Masood Vojdani?

https://money.usnews.com/money/blogs/th ... retirement

A 5% withdrawal rate seems pretty out there in today's environment, especially in light of recent discussions from people advocating 3.5%, 3%, or even 2%. But the article goes on:

"If you don't have children or other beneficiaries and want to spend your hard-earned money, consider withdrawing more. Some people are adamant that they want to spend most of their money before they pass away, and then distribute whatever is left to their favorite charitable causes.

If you and your financial advisor agree that you truly have more than enough money to last for what is an increasingly long life expectancy in the United States, and you are not concerned about drawing down your portfolio's assets, you can consider increasing your annual withdrawal to 7% or even 8% based on your level of wealth, lifestyle and expenses."

7 to 8% Really? That's downright reckless - unless you're in your 80s or 90s.

Comments?

Bob
Read the underlined part. This underlined part makes the whole statement kind of silly. If you "are not concerned about drawing down your portfolio's assets" you could consider an annual withdrawal of 20% for 5 year and really live it up in case you die young. If you have pension and SS that sustains you - perhaps living it up for the early part of retirement might be the way some want to go.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by pdavi21 » Tue Sep 10, 2019 4:31 pm

The 4% withdrawal rate is conservative because it assumes a 95% success rate (caveat being that it's based on backtesting).

In my opinion, a withdrawal rate that has a 50% success rate is optimal. 50% you made the wrong choice and worked too hard / 50% you made the wrong choice and have to work too hard later (or beg on the street while eating dog food or whatever).

Unfortunately, your success rate is incalculable. And even if it was, there are optimists who will underestimate expenses and pessimists who will underestimate pensions/SS/inheritance/etc.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by smitcat » Tue Sep 10, 2019 5:15 pm

JoeRetire wrote:
Tue Sep 10, 2019 3:47 pm
smitcat wrote:
Tue Sep 10, 2019 8:24 am
JoeRetire wrote:
Tue Sep 10, 2019 6:17 am
Stoic9 wrote:
Mon Sep 09, 2019 2:22 pm
I can always pull back and live off SS in old old age.
Can you? I couldn't.
My neighbor is 91, thought she'd live to 80, ran out of money at 87. Now she lives on SS and is fine, she can get a ride to the senior center and play cards etc for free.
I guess I'm expecting to do more than ride the senior center bus and play cards all day.

But if you are willing to settle for that in your old age, then you could be fine.
"Can you? I couldn't."
What level of SS are you utilizing to compare the expenses to?
I'm not exactly sure what "what level" means in this context.

We aren't collecting SS yet. When I reach 70, I'll start.
Together, my wife and I will be getting about $70k/year from SS. Our expenses will run about $100k/year.
"Together, my wife and I will be getting about $70k/year from SS. Our expenses will run about $100k/year."
$70 out of $100 not to bad at all.

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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Tue Sep 10, 2019 5:21 pm

RadAudit wrote:
Tue Sep 10, 2019 10:39 am
LilyFleur wrote:
Tue Sep 10, 2019 10:23 am
It is all such a gamble.
+1

One thing I picked up from this site - "there is no approach that will guarantee that you won't go broke." May be correct.

YMMV
SS benefits are extremely unlikely to vanish. SPIA payouts probably aren't as secure as SS benefits but can be very secure, especially if the annuitized assets are not greater than the amount your state's guaranty association will cover. A percentage of portfolio withdrawal approach can never prematurely deplete your portfolio, although the withdrawals could become too small over time.

Personal life events (e.g. divorce, financially irresponsible children/parents/etc., a spendthrift spouse) are far more likely to make you go broke than your investing/withdrawal plans are.
“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: 5% Withdrawal Rate Recommended by US News Columnist

Post by DanMahowny » Tue Sep 10, 2019 5:47 pm

Dave Ramsey would ponder why so low? He recommends 12% or some crap.
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Re: 5% Withdrawal Rate Recommended by US News Columnist

Post by willthrill81 » Tue Sep 10, 2019 5:50 pm

DanMahowny wrote:
Tue Sep 10, 2019 5:47 pm
Dave Ramsey would ponder why so low? He recommends 12% or some crap.
He's a lot more conservative than that. He says that 8% is safe. :twisted:
“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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