## Withdrawal rate for an early retirement

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nptit
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### Withdrawal rate for an early retirement

I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!

Edit:

I am asking this question on behalf of my wife. She is on the conservative side regarding retirement planning. I believe 3-3.5% is safe enough, wife wants 2% so we won’t run out of money in any circumstance, and we could have some remaining left for children and grandchildren.

Thanks for everyone’s opinion. This helps my wife assure our plan is on track.
Last edited by nptit on Tue Nov 24, 2020 11:15 pm, edited 1 time in total.
JoMoney
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### Re: Withdrawal rate for an early retirement

Personally, the methods I like to us is 1 divided your expected life expectancy
A life expectancy table would suggest a 45 yo has 38.8 years
https://www.fidelity.com/content/apps/m ... -Table.pdf

1/38.8 = 2.57%

Without expecting to earn anything on the money, one could reasonably expect to spend 2.57% a year for the remainder of their life without running out. If the money was put into TIPS they could expect to take that with an inflation adjustment. When they got towards the later end of their life they could likely take the remaining portfolio and purchase a Single Premium Immediate Annuity that would guarantee income the rest of their life (without an inflation adjustment) and possibly have Social Security income as well (SS would offer an inflation adjustment)

Another method would be to simply price out what an immediate annuity bought today could provide in guaranteed income
https://www.immediateannuities.com/
Not necessarily to actually buy one, but just to see ball-park what an insurance company believes they could safely guarantee you for the rest of your life (bear in mind SPIA doesn't offer any inflation adjustments).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Marseille07
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### Re: Withdrawal rate for an early retirement

Similar situation here, my approach would simply be 2~2.5% "constant-percentage." I'm not a big fan of SWR + inflation because (imo) it's nonsensical to withdraw the same amount after a year like 2008. Constant-percentage would automatically adjust for such events.
David Jay
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### Re: Withdrawal rate for an early retirement

2.5% has been described as a perpetual withdrawal rate - the portfolio is not being depleted. So that is a safe number, a few tenths higher is probably justifiable.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
geerhardusvos
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### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
There is no reason to plan for anything lower than 3% withdrawal rate with anything above 50% equities. 70/30 is a great asset allocation. You will likely be fine with a 3.5% or 4% WR. Perpetual withdrawal rate for your asset allocation is around 3.25%. Your \$4 million portfolio will easily sustain \$120,000 per year, And can almost certainly be increased over time even past inflation rates. We will retire at age 32 or 33 and will start at around 3.5% withdrawal rate.

https://portfoliocharts.com/2016/12/09/ ... etirement/

Last edited by geerhardusvos on Sat Nov 28, 2020 12:03 am, edited 1 time in total.
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Marseille07
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### Re: Withdrawal rate for an early retirement

geerhardusvos wrote: Tue Nov 17, 2020 11:06 pm
nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
There is no reason to plan for anything lower than 3% withdrawal rate with anything above 50% equities. 70/30 is a great asset allocation. You will likely be fine with a 3.5% or 4% WR. Perpetual withdrawal rate for your acid allocation is around 3.25%. Your \$4 million portfolio will easily sustain \$120,000 per year, And can almost certainly be increased over time even past inflation rates. We will retire at age 32 or 33 and will start at around 3.5% withdrawal rate.

https://portfoliocharts.com/2016/12/09/ ... etirement/

I know this chart is quoted a lot, but it's very dangerous if you read the fine print: "The success criterion is a final asset value of zero as in the Trinity Study."

So OP's 4MM portfolio having \$1 left after 30 years is considered "success" based on the study. Sure, the OP didn't run out of money...but is it really success? It's highly debatable in my opinion.
geerhardusvos
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Tue Nov 17, 2020 11:25 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:06 pm
nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
There is no reason to plan for anything lower than 3% withdrawal rate with anything above 50% equities. 70/30 is a great asset allocation. You will likely be fine with a 3.5% or 4% WR. Perpetual withdrawal rate for your acid allocation is around 3.25%. Your \$4 million portfolio will easily sustain \$120,000 per year, And can almost certainly be increased over time even past inflation rates. We will retire at age 32 or 33 and will start at around 3.5% withdrawal rate.

https://portfoliocharts.com/2016/12/09/ ... etirement/

I know this chart is quoted a lot, but it's very dangerous if you read the fine print: "The success criterion is a final asset value of zero as in the Trinity Study."

So OP's 4MM portfolio having \$1 left after 30 years is considered "success" based on the study. Sure, the OP didn't run out of money...but is it really success? It's highly debatable in my opinion.
What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
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Marseille07
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### Re: Withdrawal rate for an early retirement

geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
geerhardusvos
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Tue Nov 17, 2020 11:55 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
A little bit above 3% withdrawal rate is essentially perpetual for US market, meaning you will never run out of money historically over any length of time. What else are you looking for in success?
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stocknoob4111
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### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
4% is safe. Kitces and many others have confidence about it which is enough for me.
4% was the worst case scenario, it isn't the median scenario which is higher. Bengen himself says the current environment supports 5%.

So it makes no sense to discount the 4% SWR as it's already discounted taking into account the worst periods in history (high inflation periods in the 60s/70s which were much worse than low bond yields). Also if there is high inflation then the interest rates will increase and bond yields will go up so you can't have everything all the worst case which is what many are trying to do.

Personally I am shooting for 3%, but I have faith in 4% as well.
Marseille07
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### Re: Withdrawal rate for an early retirement

geerhardusvos wrote: Tue Nov 17, 2020 11:59 pm
Marseille07 wrote: Tue Nov 17, 2020 11:55 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
A little bit above 3% withdrawal rate is essentially perpetual for US market, meaning you will never run out of money historically over any length of time. What else are you looking for in success?
Maybe I'm in the minority but personally I look for portfolio growth. If perpetual WR is 3.25% then I'd go lower than that for this very reason. Retirement planning isn't one-size-fits-all and I think it's fine to have different approaches. This is not to say 4% SWR isn't safe or wrong.
geerhardusvos
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Wed Nov 18, 2020 12:09 am
geerhardusvos wrote: Tue Nov 17, 2020 11:59 pm
Marseille07 wrote: Tue Nov 17, 2020 11:55 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
A little bit above 3% withdrawal rate is essentially perpetual for US market, meaning you will never run out of money historically over any length of time. What else are you looking for in success?
Maybe I'm in the minority but personally I look for portfolio growth. If perpetual WR is 3.25% then I'd go lower than that for this very reason. Retirement planning isn't one-size-fits-all and I think it's fine to have different approaches. This is not to say 4% SWR isn't safe or wrong.
Did you know that historically with a 3.25% withdrawal rate and at least 50% in US equities you are pretty likely to end a 30 year retirement with double or more your beginning portfolio value, even with inflation adjustments?
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Marseille07
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### Re: Withdrawal rate for an early retirement

geerhardusvos wrote: Wed Nov 18, 2020 12:13 am Did you know that historically with a 3.25% withdrawal rate and at least 50% in US equities you are pretty likely to end a 30 year retirement with double or more your beginning portfolio value, even with inflation adjustments?
Yes, but again each situation is different. I've done my homework and I'm sure you've done yours. If we have different approaches, to each their own.
geerhardusvos
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Wed Nov 18, 2020 12:18 am
geerhardusvos wrote: Wed Nov 18, 2020 12:13 am Did you know that historically with a 3.25% withdrawal rate and at least 50% in US equities you are pretty likely to end a 30 year retirement with double or more your beginning portfolio value, even with inflation adjustments?
Yes, but again each situation is different. I've done my homework and I'm sure you've done yours. If we have different approaches, to each their own.
To each their own, but a 4% wr and ERN study is “very dangerous” right? Do you think your “homework” comes close to his?

Keep in mind, most of us will have a variable withdrawal rate, meaning we won’t always withdrawl the same amount every year as it will depend on market performance
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Marseille07
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### Re: Withdrawal rate for an early retirement

geerhardusvos wrote: Wed Nov 18, 2020 12:21 am To each their own, but a 4% wr and ERN study is “very dangerous” right? Do you think your “homework” comes close to his?

Keep in mind, most of us will have a variable withdrawal rate, meaning we won’t always withdrawl the same amount every year as it will depend on market performance
I said believing the table is dangerous because the success criteria they've defined is rather loose. If you have a table that defined "success" as preserving the initial principal, I'd be very interested to look at it.

And yes, some form of percentage-based withdrawal is a given.
stocknoob4111
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### Re: Withdrawal rate for an early retirement

one of the issues is what constitutes equities? Unfortunately I have a 90/10 portfolio but 20% of my equities are in International equities and I have read that International due to it's poor long term performance does not support a SWR more than 2-2.5%.
aristotelian
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Wed Nov 18, 2020 12:09 am Maybe I'm in the minority but personally I look for portfolio growth. If perpetual WR is 3.25% then I'd go lower than that for this very reason. Retirement planning isn't one-size-fits-all and I think it's fine to have different approaches. This is not to say 4% SWR isn't safe or wrong.
OP asked for Safe. You are recommending well beyond Safe. OP did not ask for what you feel is right for your goals, he asked what is safe for his goal, which is early retirement.
Last edited by aristotelian on Wed Nov 18, 2020 12:27 am, edited 1 time in total.
Marseille07
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### Re: Withdrawal rate for an early retirement

stocknoob4111 wrote: Wed Nov 18, 2020 12:25 am one of the issues is what constitutes equities? Unfortunately I have a 90/10 portfolio but 20% of my equities are in International equities and I have read that International due to it's poor long term performance does not support a SWR more than 2-2.5%.
Anything preventing you from switching the 90% to all US?
Marseille07
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### Re: Withdrawal rate for an early retirement

aristotelian wrote: Wed Nov 18, 2020 12:26 am
Marseille07 wrote: Wed Nov 18, 2020 12:09 am Maybe I'm in the minority but personally I look for portfolio growth. If perpetual WR is 3.25% then I'd go lower than that for this very reason. Retirement planning isn't one-size-fits-all and I think it's fine to have different approaches. This is not to say 4% SWR isn't safe or wrong.
OP asked for Safe. You are recommending well beyond Safe. OP did not ask for what you feel is right for your goals, he asked what is safe for his goal, which is early retirement.
I'm not gonna argue with you on what's safe vs what's very safe and what's extremely safe. The OP initially said 4MM and 2%, which already accomplishes early retirement despite the WR way below perpetual.
stocknoob4111
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Wed Nov 18, 2020 12:26 am Anything preventing you from switching the 90% to all US?
this is in my taxable so I would have to pay taxes on the gains... not contributing anything more to International so the percentage will go down on it's own with time. I really hate to sell anything in my portfolio.
Marseille07
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### Re: Withdrawal rate for an early retirement

stocknoob4111 wrote: Wed Nov 18, 2020 12:31 am
Marseille07 wrote: Wed Nov 18, 2020 12:26 am Anything preventing you from switching the 90% to all US?
this is in my taxable so I would have to pay taxes on the gains... not contributing anything more to International so the percentage will go down on it's own with time. I really hate to sell anything in my portfolio.
Makes sense. Your WR might have to be lower than 4% then.

EDIT: actually, if international's been struggling then your tax won't be much, either. And given how strong US has outperformed international, it might be worthwhile to close international and switch. It's your call though.
klaus14
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### Re: Withdrawal rate for an early retirement

stocknoob4111 wrote: Wed Nov 18, 2020 12:25 am one of the issues is what constitutes equities? Unfortunately I have a 90/10 portfolio but 20% of my equities are in International equities and I have read that International due to it's poor long term performance does not support a SWR more than 2-2.5%.
i would say "did not support", not "does not". same for US, no one knows what lies ahead.
Past SWR for international is bad due to WW2.
Currently return expectations for international is higher (based on forward P/E) which would predict a higher SWR.
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### Re: Withdrawal rate for an early retirement

I like the table as a helpful guide. I agree 2% rate would be ultra safe based on history. I would argue you have more “life” risk retiring early. Such as increased expenses from unknowns— think healthcare/kids/grandkids/etc that you can’t plan for far in advance.
RovenSkyfall
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### Re: Withdrawal rate for an early retirement

You should check out Uncorrelated's post here. I found it to be an interesting approach and makes more sense to me. Also as you had mention ERN has a lot of information as well. Read through and make a decision on your own would be my suggestion. Obviously no one has the answers, but if your are RE then I think it makes sense to stay conservative until you get though the early years.
cockersx3
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### Re: Withdrawal rate for an early retirement

For those questioning ERN's safe withdrawal rate chart because it leaves \$0 at the end, ERN wrote a post that covers this exact use case. The article contains a chart with SWR's for various percentages of assets left at the end of the simulation period. (I'd copy that table right into this post if I could, but just don't know how )

Bottom line is that the SWR doesn't really drop below 3% for moderate levels of assets at the end of the simulation period. Would recommend that the OP read the entire SWR series - it's probably the best source of info out there for retirees targeting 40+ year retirement periods.

We are aiming to retire for a max of 45 years, and we're trying to aim for an SWR of approx 3.5% with 70% equities. Figure that we'll have maxed out our social security for most of the 35 year lookback period, which (even if it gets cut) will serve as a good buffer.
JoeRetire
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### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Seems reasonable.

If you sense that things are going awry, you can always withdraw less.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Marseille07
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### Re: Withdrawal rate for an early retirement

cockersx3 wrote: Wed Nov 18, 2020 3:21 pm For those questioning ERN's safe withdrawal rate chart because it leaves \$0 at the end, ERN wrote a post that covers this exact use case. The article contains a chart with SWR's for various percentages of assets left at the end of the simulation period. (I'd copy that table right into this post if I could, but just don't know how )

Bottom line is that the SWR doesn't really drop below 3% for moderate levels of assets at the end of the simulation period. Would recommend that the OP read the entire SWR series - it's probably the best source of info out there for retirees targeting 40+ year retirement periods.

We are aiming to retire for a max of 45 years, and we're trying to aim for an SWR of approx 3.5% with 70% equities. Figure that we'll have maxed out our social security for most of the 35 year lookback period, which (even if it gets cut) will serve as a good buffer.
Thank you. These tables are exactly what I was looking for.
fortunefavored
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### Re: Withdrawal rate for an early retirement

2% is fine.. 3.5% is fine.. 4%+ is also probably fine.

The real question is how much longer you have to work for the perceived security of a lower withdrawal rate.

If you need to work a decade (or two) to go from 3.5% to 2%.. that doesn't seem like a good trade to me. 1 or 2 years? Knock yourself out.

(I will be 70/30 with 3.5% max in my late 40s, but will likely be lower the first few years in case a nasty sequence shows up.)
marcopolo
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### Re: Withdrawal rate for an early retirement

fortunefavored wrote: Wed Nov 18, 2020 5:05 pm 2% is fine.. 3.5% is fine.. 4%+ is also probably fine.

The real question is how much longer you have to work for the perceived security of a lower withdrawal rate.

If you need to work a decade (or two) to go from 3.5% to 2%.. that doesn't seem like a good trade to me. 1 or 2 years? Knock yourself out.

(I will be 70/30 with 3.5% max in my late 40s, but will likely be lower the first few years in case a nasty sequence shows up.)
The odd thing is that people who advocate needing a really low SWR because returns could be very poor also seem to often claim its no big deal because you can achieve that in just a few years because they assume returns will be pretty good

To be consistent, it seems you should consider similar poor returns, and then decide if working another decade(?) is worth hedging against the small risk of portfolio depletion, or reduced spending.
Once in a while you get shown the light, in the strangest of places if you look at it right.
rkhusky
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### Re: Withdrawal rate for an early retirement

One additional thing to note is the the ERN chart percentages are not the probability of not running out of money in retirement, they are the fraction of years in the past where a given AA and withdrawal rate did not run out of money. The reader needs to guess whether the future will be better or worse or the same as the past. Will we see another Depression or WWII or 70's inflation or 90's tech boom/bust or 2008 recession or 2016+ large cap boom?
TheNightsToCome
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### Re: Withdrawal rate for an early retirement

JoMoney wrote: Tue Nov 17, 2020 10:38 pm If the money was put into TIPS they could expect to take that with an inflation adjustment.
The "inflation adjustment" is currently negative all the way out to 30 years:

https://www.treasury.gov/resource-cente ... =realyield
TheNightsToCome
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### Re: Withdrawal rate for an early retirement

Marseille07 wrote: Tue Nov 17, 2020 11:55 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
Karsten has done this at ERN. He has tables with historical success rates out to 60 years, not only with asset depletion but with varying percentages of the portfolio remaining at the end of the period. In his case, he is planning for a retirement much longer than 30 years, and he wants to leave something for his children.

Edit: I see others have already mentioned this above.
TheNightsToCome
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### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
A 2% withdrawal rate should work.

I recommend you read this: https://retirementresearcher.com/4-rule ... und-world/

Also, note that the historical record contains few (probably no) data points relevant to our current circumstance: PE10 of about 32.43 https://www.multpl.com/shiller-pe, and record low yields across the curve https://www.wsj.com/market-data/bonds?m ... subsection.
Soon2BXProgrammer
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### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
https://www.kitces.com/blog/the-problem ... ing-rules/

The challenge is, sequence of returns cuts both ways, and typically if you don't have the worst sequence, you wont run out of money. From multiple research sources 3.5 seems to be mostly reasonable for 50+ years especially if you have some flexibility to cut (for a while) or earn if you have a really really bad sequence.

The bigger issue is even at 3.5, if you have a decent return, you have probably shorted yourself in the first 10 years of retirement, before you realize you have way too much money.
Firemenot
Posts: 465
Joined: Wed Apr 01, 2020 8:48 pm

### Re: Withdrawal rate for an early retirement

OP. Check out other websites as well (e.g., Kitces.com). Most Bogleheads are on the far side of financial conservatism and what constitutes “risky”.
Marseille07
Posts: 1220
Joined: Fri Nov 06, 2020 1:41 pm

### Re: Withdrawal rate for an early retirement

TheNightsToCome wrote: Sat Nov 21, 2020 9:09 am
Marseille07 wrote: Tue Nov 17, 2020 11:55 pm
geerhardusvos wrote: Tue Nov 17, 2020 11:49 pm What’s more dangerous, using historical data to reasonably support decisions, or asking people to save up a couple million dollars more than they have to?

I’m not really sure you know what “very dangerous” means in this situation... an 8% withdrawal rate over 30 years has been doable before, but it’s probably pretty risky. A 4% withdrawal rate for a high equity portfolio over almost all 30 year periods hasn’t been depleted and in many cases maintained or had more than you began even with inflation adjustment. I think it’s dangerous if you don’t ground yourself in reality and data, right?
No one's asking anyone to do anything. I was just suggesting that the "success" criteria used by the ERN study is rather loose. It'd give us a much clearer picture if we defined success as "maintained or had more than you began even with inflation adjustment," and I would love to see that data if anyone has it somewhere.
Karsten has done this at ERN. He has tables with historical success rates out to 60 years, not only with asset depletion but with varying percentages of the portfolio remaining at the end of the period. In his case, he is planning for a retirement much longer than 30 years, and he wants to leave something for his children.

Edit: I see others have already mentioned this above.
Yeah I love the follow-up ERN article on capital preservation vs capital depletion. That's exactly what I was looking for, as leaving more than \$0 isn't my definition of 'success.'
luckyducky99
Posts: 163
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### Re: Withdrawal rate for an early retirement

TheNightsToCome wrote: Sat Nov 21, 2020 9:05 am
JoMoney wrote: Tue Nov 17, 2020 10:38 pm If the money was put into TIPS they could expect to take that with an inflation adjustment.
The "inflation adjustment" is currently negative all the way out to 30 years:

https://www.treasury.gov/resource-cente ... =realyield
Minor point, but the expected real yield is different from the inflation adjustment. So you're not buying bonds with negative inflation adjustments baked in. The inflation adjustment for any future period isn't known yet -- it will be updated based on measured inflation as time passes.

The expected real yield is negative because people are paying more for these bonds than they expect to receive from them, based on the coupon and expected inflation. Future actual inflation adjustments could be positive, but with a real return still less than zero. Or if inflation sufficiently outpaces expectations (is more than the inflation breakeven rate), real return could be positive.
EnjoyIt
Posts: 5373
Joined: Sun Dec 29, 2013 8:06 pm

### Re: Withdrawal rate for an early retirement

nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
I think 2% is ridiculously low unless your goal is to die with a lot more money than you started. There are some very conservative Bogleheads on this thread. 3.5% is plenty and still has a high likelihood of ending up with way more money than you started.

We are set up for 4% with >50% of that being discretionary and easily cut back on for a few years if needed.
TheNightsToCome
Posts: 675
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### Re: Withdrawal rate for an early retirement

luckyducky99 wrote: Sat Nov 21, 2020 12:29 pm
TheNightsToCome wrote: Sat Nov 21, 2020 9:05 am
JoMoney wrote: Tue Nov 17, 2020 10:38 pm If the money was put into TIPS they could expect to take that with an inflation adjustment.
The "inflation adjustment" is currently negative all the way out to 30 years:

https://www.treasury.gov/resource-cente ... =realyield
Minor point, but the expected real yield is different from the inflation adjustment. So you're not buying bonds with negative inflation adjustments baked in. The inflation adjustment for any future period isn't known yet -- it will be updated based on measured inflation as time passes.

The expected real yield is negative because people are paying more for these bonds than they expect to receive from them, based on the coupon and expected inflation. Future actual inflation adjustments could be positive, but with a real return still less than zero. Or if inflation sufficiently outpaces expectations (is more than the inflation breakeven rate), real return could be positive.
What I meant was that TIPS purchased today will lock in a negative real return.

The inflation adjustments will probably be positive (just my expectation), but the real return will still be negative if you purchase today. That will be true whether future inflation is greater than or less than current expectations.
Marseille07
Posts: 1220
Joined: Fri Nov 06, 2020 1:41 pm

### Re: Withdrawal rate for an early retirement

EnjoyIt wrote: Sat Nov 21, 2020 12:34 pm
nptit wrote: Tue Nov 17, 2020 9:58 pm I am doing some planning/simulation regarding early retirement say 45 years old.
What would be a safe withdrawal rate for a bogleheads portfolio with an allocation of 70% (US and Intl stocks) and 30% (Bonds)?
I am targeting 4 MM portfolio size with a 2% withdrawal rate yielding 80K of income each year.
Do you think 2% is the appropriate withdrawal rate for an early retirement if possible to attain this at around 45 years old or what would be the withdrawal rate to target?
Thanks!
I think 2% is ridiculously low unless your goal is to die with a lot more money than you started. There are some very conservative Bogleheads on this thread. 3.5% is plenty and still has a high likelihood of ending up with way more money than you started.

We are set up for 4% with >50% of that being discretionary and easily cut back on for a few years if needed.
If the OP can do 4MM and 2% by 45, that seems fine to me. There's little point withdrawing 4% (160K/year) unless you actually spend that much. If you don't, then the net effect is lowered effective WR anyway.
TravelforFun
Posts: 2270
Joined: Tue Dec 04, 2012 11:05 pm

### Re: Withdrawal rate for an early retirement

Use a SWR of 3% on a 60/40 portfolio and your money would be bigger at the end of your retirement than at the beginning regardless of how long your retirement is. Here is back of envelope math:

Average annual returns for stocks and bonds, and inflation rate are 10%, 5%, and 3.5%, respectively.

A 60/40 portfolio should have an average return of (.6 x 1.1)+(.4 x 1.05) - 1 = 8%

Since 3.5% inflation +3% withdrawal is 6.5%, your portfolio should grow 1.5% a year (8% - 6.5%). If stock market goes down, take money from bonds to live on; if stock market goes up, take it from stocks. Your bonds should support 11 years of down markets (40% portfolio divided by 3% SWR) but on average, bear markets only last 14 months. The shortest bear is three months and longest is five years.

TravelforFun
TheNightsToCome
Posts: 675
Joined: Fri Jun 30, 2017 11:48 pm

### Re: Withdrawal rate for an early retirement

TravelforFun wrote: Sat Nov 21, 2020 9:13 pm The shortest bear is three months and longest is five years.
The longest bear market was 20 years:

Summary Statistics Over Period(s)
Length of Investment: 40 Years 30 Years 20 Years 10 Years

Minimum Return 3.187 % 1.894 % -0.219 % -5.925 %

https://dqydj.com/sp-500-historical-return-calculator/
TravelforFun
Posts: 2270
Joined: Tue Dec 04, 2012 11:05 pm

### Re: Withdrawal rate for an early retirement

TheNightsToCome wrote: Sat Nov 21, 2020 9:21 pm
TravelforFun wrote: Sat Nov 21, 2020 9:13 pm The shortest bear is three months and longest is five years.
The longest bear market was 20 years:
This article from Fidelity says between 1929 and 2018, longest bear is 61 months.

https://www.fidelity.com/viewpoints/mar ... -explained

TravelforFun
TheNightsToCome
Posts: 675
Joined: Fri Jun 30, 2017 11:48 pm

### Re: Withdrawal rate for an early retirement

TravelforFun wrote: Sat Nov 21, 2020 9:38 pm
TheNightsToCome wrote: Sat Nov 21, 2020 9:21 pm
TravelforFun wrote: Sat Nov 21, 2020 9:13 pm The shortest bear is three months and longest is five years.
The longest bear market was 20 years:
This article from Fidelity says between 1929 and 2018, longest bear is 61 months.

https://www.fidelity.com/viewpoints/mar ... -explained

TravelforFun
Your total real return is what determines your purchasing power. If you define a bear market as a period that provides a negative total real return, then bear markets have lasted much longer than 5 years.
snackdog
Posts: 961
Joined: Wed Nov 12, 2014 4:57 am

### Re: Withdrawal rate for an early retirement

Depends on how safe you can afford to get. 4% is safe, so 3 and 2% are correspondingly safer. If you can live comfortably on 1% SWR, then you should do that and earmark any leftover for charity.
vineviz
Posts: 8600
Joined: Tue May 15, 2018 1:55 pm

### Re: Withdrawal rate for an early retirement

stocknoob4111 wrote: Wed Nov 18, 2020 12:25 am one of the issues is what constitutes equities? Unfortunately I have a 90/10 portfolio but 20% of my equities are in International equities and I have read that International due to it's poor long term performance does not support a SWR more than 2-2.5%.
That’s backwards. Including international stocks as at least 20% of the portfolio has historically INCREASED the SWR for US investors, not reduced it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
vineviz
Posts: 8600
Joined: Tue May 15, 2018 1:55 pm

### Re: Withdrawal rate for an early retirement

JoMoney wrote: Tue Nov 17, 2020 10:38 pm Personally, the methods I like to us is 1 divided your expected life expectancy
A life expectancy table would suggest a 45 yo has 38.8 years
https://www.fidelity.com/content/apps/m ... -Table.pdf

1/38.8 = 2.57%

Without expecting to earn anything on the money, one could reasonably expect to spend 2.57% a year for the remainder of their life without running out.
This calculation is wrong because it doesn’t account for the price volatility of the invested assets nor does it reasonably protect against longevity risk.

The real return of risk-free assets (TIPS) is negative and the longest maturity bonds are only 30 years.

Given current real yields and equity valuations, the expected SWR for a 50-year period using a 70/30 portfolio is less than 2.3%
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
typical.investor
Posts: 2410
Joined: Mon Jun 11, 2018 3:17 am

### Re: Withdrawal rate for an early retirement

vineviz wrote: Sun Nov 22, 2020 7:47 am
JoMoney wrote: Tue Nov 17, 2020 10:38 pm Personally, the methods I like to us is 1 divided your expected life expectancy
A life expectancy table would suggest a 45 yo has 38.8 years
https://www.fidelity.com/content/apps/m ... -Table.pdf

1/38.8 = 2.57%

Without expecting to earn anything on the money, one could reasonably expect to spend 2.57% a year for the remainder of their life without running out.
This calculation is wrong because it doesn’t account for the price volatility of the invested assets nor does it reasonably protect against longevity risk.

The real return of risk-free assets (TIPS) is negative and the longest maturity bonds are only 30 years.

Given current real yields and equity valuations, the expected SWR for a 50-year period using a 70/30 portfolio is less than 2.3%
Are you using only US equities?

In any case, how are you projecting 50 year returns using today’s valuations.

Granted returns may be low for 10 or 20 years at today’s US valuations, but are we really looking at 50 years of poor returns until valuations are low enough to offer attractive returns again?

I mean RAFI has the MSCI ACWI at an expected REAL return of 2.7% at today’s valuations and at 3.8% when only looking at yield and growth (and ignoring valuation changes).

2.3% seems low to me.
vineviz
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Joined: Tue May 15, 2018 1:55 pm

### Re: Withdrawal rate for an early retirement

typical.investor wrote: Sun Nov 22, 2020 8:02 am
vineviz wrote: Sun Nov 22, 2020 7:47 am
JoMoney wrote: Tue Nov 17, 2020 10:38 pm Personally, the methods I like to us is 1 divided your expected life expectancy
A life expectancy table would suggest a 45 yo has 38.8 years
https://www.fidelity.com/content/apps/m ... -Table.pdf

1/38.8 = 2.57%

Without expecting to earn anything on the money, one could reasonably expect to spend 2.57% a year for the remainder of their life without running out.
This calculation is wrong because it doesn’t account for the price volatility of the invested assets nor does it reasonably protect against longevity risk.

The real return of risk-free assets (TIPS) is negative and the longest maturity bonds are only 30 years.

Given current real yields and equity valuations, the expected SWR for a 50-year period using a 70/30 portfolio is less than 2.3%
Are you using only US equities?

In any case, how are you projecting 50 year returns using today’s valuations.

Granted returns may be low for 10 or 20 years at today’s US valuations, but are we really looking at 50 years of poor returns until valuations are low enough to offer attractive returns again?

I mean RAFI has the MSCI ACWI at an expected REAL return of 2.7% at today’s valuations and at 3.8% when only looking at yield and growth (and ignoring valuation changes).

2.3% seems low to me.
The real return of stocks during the period 1966-1995 was over 6%, and THAT produced a SWR of less than 4%.

The SWR doesn’t decrease 1-to-1 with a decrease in real returns but it does decrease.

And remember the SWR is calculated using worse-than-expected sequences of returns: usually 5th or 10th percentile outcomes. That’s why the “S” is sometimes said to stand for “safe” instead of “sustainable”.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
RyeBourbon
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Location: NJ/Philly

### Re: Withdrawal rate for an early retirement

JoMoney wrote: Tue Nov 17, 2020 10:38 pm Personally, the methods I like to us is 1 divided your expected life expectancy
A life expectancy table would suggest a 45 yo has 38.8 years
https://www.fidelity.com/content/apps/m ... -Table.pdf

1/38.8 = 2.57%
How is Life Expectancy defined for this table? Is it the median, meaning half would live less than 38.8 years and half longer than 38.8 years?

If so, is it really a good value to use for a "safe" withdrawal rate?