Does anyone recalculate their SWR withdrawal annually?

[TheTimeLord]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

[toddthebod]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

[snackdog]

This would increase your risk of sequence of returns calamity.

[bertilak]

I am always aware of what I have vs. what I need, even if I do not use any decimal points (everything is ballpark).

[sailaway]

If this was your goal, why wouldn't you use a variable rate calculator?

[quantAndHold]

No, but once a year, I do check my actual spending for the previous year against what I would get if I used VPW, to make sure I’m not overspending. The first couple of years of retirement, our spending was high and we came in just under the wire, but some lower spending years and a few years of stock market growth has changed the annual recalculation into more of a curiosity than anything else.

[Ben Mathew]

I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The rate may not change much from year to year in the early years of retirement. But it does change a lot over the course of retirement as the remaining horizon shrinks. I calculated SWR for different horizons in this post.

SWR
@ 40 years left = 3.4%
@ 30 years left = 3.9%
@ 20 years left = 4.8%
@ 10 years left = 8.7%
@ 5 years left = 18.2%
@ 1 year left = 100%

As the portfolio is depleted over time, a higher rate is being applied to a smaller portfolio balance. The net effect is still generally increasing withdrawals over time. Historically, withdrawals in late retirement would have been much higher on average than withdrawals in early retirement. So this would have been a very conservative strategy with high precautionary savings. It's less conservative now given lower yields.

This is a variable withdrawal strategy constructed using SWR. The alternative is to use Amortization Based Withdrawals (ABW) to calculate variable withdrawals. That allows for better control over precautionary savings and gives more coherent withdrawals.

[EnjoyIt]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The way we handle this:
We still make a bit of income which means we have been withdrawing less than 4% to pay our expenses. That means our portfolio has grown over the years. As it has grown so has our discretionary expenses. When the portfolio dropped in 2022 our discretionary expenses decreased appropriately.

I will describe what we do with an example with simple
Math. We will use a retiree who retired with $3million and the plan to spend $120k/yr or $10k/month. Let’s say the discretionary budget is $4k/month. From this point the retiree can set up thresholds of $300k. For every $300k change the retiree can increase or decrease their discretionary budget by $12k/yr or $1k per month. Portfolio reaches $3.3million they can spend $11k/month. Portfolio drops to $2.7 million and spending drops to $9k/month. I want to point out just because one’s discretionary budget increases by $1k/month doesn’t mean the retiree must spend it.

Sounds like we are using a variable withdrawal strategy without the awesome longinvest spreadsheet with a lower withdrawal rate than what the spreadsheet dictates. I’m just not comfortable spending 4.5%

[Marseille07]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

If you do that it is no longer SWR. SWR is "constant-dollar," intended to provide a constant income stream after inflation, for 30 years (this obviously depends on which cell on the table you choose).

If you don't care about a constant income stream and want to "re-retire" then you should be looking at a different method.

[Ben Mathew]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The way we handle this:
We still make a bit of income which means we have been withdrawing less than 4% to pay our expenses. That means our portfolio has grown over the years. As it has grown so has our discretionary expenses. When the portfolio dropped in 2022 our discretionary expenses decreased appropriately.

I will describe what we do with an example with simple
Math. We will use a retiree who retired with $3million and the plan to spend $120k/yr or $10k/month. Let’s say the discretionary budget is $4k/month. From this point the retiree can set up thresholds of $300k. For every $300k change the retiree can increase or decrease their discretionary budget by $12k/yr or $1k per month. Portfolio reaches $3.3million they can spend $11k/month. Portfolio drops to $2.7 million and spending drops to $9k/month. I want to point out just because one’s discretionary budget increases by $1k/month doesn’t mean the retiree must spend it.

Sounds like we are using a variable withdrawal strategy without the awesome longinvest spreadsheet with a lower withdrawal rate than what the spreadsheet dictates. I’m just not comfortable spending 4.5%

Do you adjust for remaining horizon in some way? Or do you plan to use the 4% benchmark at all ages?

[EnjoyIt]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The way we handle this:
We still make a bit of income which means we have been withdrawing less than 4% to pay our expenses. That means our portfolio has grown over the years. As it has grown so has our discretionary expenses. When the portfolio dropped in 2022 our discretionary expenses decreased appropriately.

I will describe what we do with an example with simple
Math. We will use a retiree who retired with $3million and the plan to spend $120k/yr or $10k/month. Let’s say the discretionary budget is $4k/month. From this point the retiree can set up thresholds of $300k. For every $300k change the retiree can increase or decrease their discretionary budget by $12k/yr or $1k per month. Portfolio reaches $3.3million they can spend $11k/month. Portfolio drops to $2.7 million and spending drops to $9k/month. I want to point out just because one’s discretionary budget increases by $1k/month doesn’t mean the retiree must spend it.

Sounds like we are using a variable withdrawal strategy without the awesome longinvest spreadsheet with a lower withdrawal rate than what the spreadsheet dictates. I’m just not comfortable spending 4.5%

Do you adjust for remaining horizon in some way? Or do you intend to use the 4% benchmark at all ages?

We have no IPS plans for horizons. We are 20+ years from Social Security though I expect we will likely spend more once we get to SS age.

[EnjoyIt]

I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The rate may not change much from year to year in the early years of retirement. But it does change a lot over the course of retirement as the remaining horizon shrinks. I calculated SWR for different horizons in this post.

SWR
@ 40 years left = 3.4%
@ 30 years left = 3.9%
@ 20 years left = 4.8%
@ 10 years left = 8.7%
@ 5 years left = 18.2%
@ 1 year left = 100%

As the portfolio is depleted over time, a higher rate is being applied to a smaller portfolio balance. The net effect is still generally increasing withdrawals over time. Historically, withdrawals in late retirement would have been much higher on average than withdrawals in early retirement. So this would have been a very conservative strategy with high precautionary savings. It's less conservative now given lower yields.

This is a variable withdrawal strategy constructed using SWR. The alternative is to use Amortization Based Withdrawals (ABW) to calculate variable withdrawals. That allows for better control over precautionary savings and gives more coherent withdrawals.

The problem I have with ABW is that I don’t know how long we will live. I would find it a failure if our portfolio is approaching closer and closer to $0 but we are still alive to watch it dwindle. If this was going on we would be forced to annuitize just to keep some sanity.

[TheTimeLord]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

I would assume the answer would be no if you were being guided by the "4% Rule".

[TheTimeLord]

This would increase your risk of sequence of returns calamity.

How?

[like2read]

Yes.

See actuarial approach - a variable withdrawal methodology.

http://howmuchcaniaffordtospendinretire ... gspot.com/

[Ben Mathew]

I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

The rate may not change much from year to year in the early years of retirement. But it does change a lot over the course of retirement as the remaining horizon shrinks. I calculated SWR for different horizons in this post.

SWR
@ 40 years left = 3.4%
@ 30 years left = 3.9%
@ 20 years left = 4.8%
@ 10 years left = 8.7%
@ 5 years left = 18.2%
@ 1 year left = 100%

As the portfolio is depleted over time, a higher rate is being applied to a smaller portfolio balance. The net effect is still generally increasing withdrawals over time. Historically, withdrawals in late retirement would have been much higher on average than withdrawals in early retirement. So this would have been a very conservative strategy with high precautionary savings. It's less conservative now given lower yields.

This is a variable withdrawal strategy constructed using SWR. The alternative is to use Amortization Based Withdrawals (ABW) to calculate variable withdrawals. That allows for better control over precautionary savings and gives more coherent withdrawals.

The problem I have with ABW is that I don’t know how long we will live. I would find it a failure if our portfolio is approaching closer and closer to $0 but we are still alive to watch it dwindle. If this was going on we would be forced to annuitize just to keep some sanity.

You can handle this in ABW by building a life expectancy cushion. Update horizon based on remaining life expectancy + a few extra years. So if life expectancy is 15 years, amortize over 20 years. Cushion could be as large as you want, keeping you as far away as you want from zero.

You can also schedule an extra withdrawal in the final year to serve as cushion.

[TheTimeLord]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

If you do that it is no longer SWR. SWR is "constant-dollar," intended to provide a constant income stream after inflation, for 30 years (this obviously depends on which cell on the table you choose).

If you don't care about a constant income stream and want to "re-retire" then you should be looking at a different method.

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

[toddthebod]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

I would assume the answer would be no if you were being guided by the "4% Rule".

So you will recalculate your 4% withdrawal every time your portfolio grows by >4% in a year, but not recalculate when the portfolio drops in value? That seems like a surefire path to disaster.

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

The 4% rule is derived from/tested against historic stock market returns and results in an estimated probability of not running out of money over the course of your retirement. It has never been postulated that you would be 100% successful following the 4% rule. In your example, withdrawing less money will give you a better chance of not running out of money than withdrawing more money.

[TheTimeLord]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

I would assume the answer would be no if you were being guided by the "4% Rule".

So you will recalculate your 4% withdrawal every time your portfolio grows by >4% in a year, but not recalculate when the portfolio drops in value? That seems like a surefire path to disaster.

Why? I don't understand what your portfolio growing by 4% has to do with it. I am assuming in a world with no inflation all your portfolio would have to do is grow it get a higher withdrawal amount, but I believe in my example your portfolio needs to have grown larger than its inflation adjusted original value to yield a higher withdrawal amount. Sorry not following your logic in your response. But I am open to the possibility I am wrong and this is a dumb idea.

[Marseille07]

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

There are a couple of reasons why you don't do that.

a) 4% SWR means you want an inflation-adjusted constant stream of income. Spending more as your portfolio increases is a different agenda. You want to pick a method that's consistent with what you want.

b) Elevated SORR. Let's say the 4% rule broke down for the 1966 retirees but worked for the 1965 retirees. The market went up by 25% in 1965 (I'm just making it up, didn't check). So now, this 1965 retiree is spending 50K/year instead of 40K/year AND follows the same sequence as the 1966 retiree, just that their horizon is one year shorter. While I didn't backtest what would have happened, there is no question the 1965 retirees face a much bigger risk of failed retirement because of elevated spending.

[toddthebod]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

I would assume the answer would be no if you were being guided by the "4% Rule".

So you will recalculate your 4% withdrawal every time your portfolio grows by >4% in a year, but not recalculate when the portfolio drops in value? That seems like a surefire path to disaster.

Why? I don't understand what your portfolio growing by 4% has to do with it. I am assuming in a world with no inflation all your portfolio would have to do is grow it get a higher withdrawal amount, but I believe in my example your portfolio needs to have grown larger than its inflation adjusted original value to yield a higher withdrawal amount. Sorry not following your logic in your response. But I am open to the possibility I am wrong and this is a dumb idea.

Here's your proposal:

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise.

I countered, paraphrasing, if the value of your assets fall, would you recalculate down?

You said, no.

I said, that's a terrible idea.

As far as my comment about the portfolio growing by 4%, I guess I assumed if your portfolio grew by 1% and you withdrew 4%, you wouldn't recalculate 4% based on the new lower value.

[EnjoyIt]

This would increase your risk of sequence of returns calamity.

How?

Because 4% has a risk of failure. If you re-retire to 4% every year that risk becomes additive. Unless of course you decrease spending by re-retiring at 4% during the down years as well. But then your not really using a SWR but are using constant percentage of a variable withdrawal rate.

For us, the 4% was a guideline of can we retire and about how much can we spend. As someone who spent their whole life living below my means, 4% is the means and we spend below that.

[TheTimeLord]

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

There are a couple of reasons why you don't do that.

a) 4% SWR means you want an inflation-adjusted constant stream of income. Spending more as your portfolio increases is a different agenda. You want to pick a method that's consistent with what you want.

b) Elevated SORR. Let's say the 4% rule broke down for the 1966 retirees but worked for the 1965 retirees. The market went up by 25% in 1965 (I'm just making it up, didn't check). So now, this 1965 retiree is spending 50K/year instead of 40K/year AND follows the same sequence as the 1966 retiree, just that their horizon is one year shorter. While I didn't backtest what would have happened, there is no question the 1965 retirees face a much bigger risk of failed retirement because of elevated spending.

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

[Marseille07]

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

It's not though. The 1965 sequence worked assuming 40K/year. But with your scheme, this retiree does 40K/year in Year 1, then 50K/year thereafter for 29 years. This is not at all what the 4% rule promised to deliver.

[EnjoyIt]

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

If you do that it is no longer SWR. SWR is "constant-dollar," intended to provide a constant income stream after inflation, for 30 years (this obviously depends on which cell on the table you choose).

If you don't care about a constant income stream and want to "re-retire" then you should be looking at a different method.

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

Nothing wrong with that plan as long as you’re willing to decrease spending during bad times as well. Then it becomes what I described above and a variable withdrawal plan.

[smitcat]

Let me ask this another way. As an example if you retired two years ago with $1,000,000 and applied the "4% rule" then you would get an inflation adjusted $40,000 as your annual withdrawal amount. But say today your portfolio is worth $1,250,000 so if you applied the "4% rule" you would get $50,000. Why wouldn't you use the larger of the 2 results (if you believe the "4% rule" is valid), either the $50,000 or whatever the inflation adjusted $40,000 would be after 2 years? Not to mention the calculation you do today lengthens the time horizon by 2 years. Of course this only applies if you have extreme confidence in the reliability of the "4% rule" or whatever method you were using to calculate your SWR.

Hopefully this clarifies what I am asking. But there may be very good reasons not to do this.

There are a couple of reasons why you don't do that.

a) 4% SWR means you want an inflation-adjusted constant stream of income. Spending more as your portfolio increases is a different agenda. You want to pick a method that's consistent with what you want.

b) Elevated SORR. Let's say the 4% rule broke down for the 1966 retirees but worked for the 1965 retirees. The market went up by 25% in 1965 (I'm just making it up, didn't check). So now, this 1965 retiree is spending 50K/year instead of 40K/year AND follows the same sequence as the 1966 retiree, just that their horizon is one year shorter. While I didn't backtest what would have happened, there is no question the 1965 retirees face a much bigger risk of failed retirement because of elevated spending.

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

Absolutely - it all comes back to how valuable it is utilizing the past to predict the future.
Spending inordinate amounts of time trying to perfect future methods based on assumptions will never yield finite answers.

[TheTimeLord]

You should review this page: https://www.bogleheads.org/wiki/Withdrawal_methods

Considering your specific question, what would you do if you retired in the mid-2000s and the GFC happened? Would you "re-retire" and cut your spending by half somehow?

I would assume the answer would be no if you were being guided by the "4% Rule".

So you will recalculate your 4% withdrawal every time your portfolio grows by >4% in a year, but not recalculate when the portfolio drops in value? That seems like a surefire path to disaster.

Why? I don't understand what your portfolio growing by 4% has to do with it. I am assuming in a world with no inflation all your portfolio would have to do is grow it get a higher withdrawal amount, but I believe in my example your portfolio needs to have grown larger than its inflation adjusted original value to yield a higher withdrawal amount. Sorry not following your logic in your response. But I am open to the possibility I am wrong and this is a dumb idea.

Here's your proposal:

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise.

I countered, paraphrasing, if the value of your assets fall, would you recalculate down?

You said, no.

I said, that's a terrible idea.

As far as my comment about the portfolio growing by 4%, I guess I assumed if your portfolio grew by 1% and you withdrew 4%, you wouldn't recalculate 4% based on the new lower value.

If you believe the 4% Rule is valid and works why would you recalculate down? There is no requirement in the 4% Rule I am aware of that calls for a recalculation because value of your assets decreased as long as you continue to use the original inflation adjusted withdrawal amount. Again this is all dependent on your beliefs around the validity/reliability of the 4% Rule

[toddthebod]

If you believe the 4% Rule is valid and works why would you recalculate down? There is no requirement in the 4% Rule I am aware of that calls for a recalculation because value of your assets decreased as long as you continue to use the original inflation adjusted withdrawal amount. Again this is all dependent on your beliefs around the validity/reliability of the 4% Rule

But that's not what you are suggesting!

[Marseille07]

Again this is all dependent on your beliefs around the validity/reliability of the 4% Rule

It isn't. As explained earlier, elevating spending can cause *otherwise successful years* to fail, like when 1965 was a passing year but now a failing year.

[TheTimeLord]

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

It's not though. The 1965 sequence worked assuming 40K/year. But with your scheme, this retiree does 40K/year in Year 1, then 50K/year thereafter for 29 years. This is not at all what the 4% rule promised to deliver.

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

[Marseille07]

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

No, the 1966 retiree could NOT spend 50K/year for 30 years is the point (a failed year).

[EnjoyIt]

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

It's not though. The 1965 sequence worked assuming 40K/year. But with your scheme, this retiree does 40K/year in Year 1, then 50K/year thereafter for 29 years. This is not at all what the 4% rule promised to deliver.

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

This isn’t confidence. This is historical math. 4% failed in 1966. So if 4% in 1965 is good and then you upgrade your spending to 4% in 1966 you now fail.

[Marseille07]

This isn’t confidence. This is historical math. 4% failed in 1966. So if 4% in 1965 is good and then you upgrade your spending to 4% in 1966 you now fail.

Correct, or at least you'd be more at risk of failing. We'd need to actually backtest it because the 1965 peeps have a 29-year horizon in 1966 instead of 30.

[TheTimeLord]

If you believe the 4% Rule is valid and works why would you recalculate down? There is no requirement in the 4% Rule I am aware of that calls for a recalculation because value of your assets decreased as long as you continue to use the original inflation adjusted withdrawal amount. Again this is all dependent on your beliefs around the validity/reliability of the 4% Rule

But that's not what you are suggesting!

Actually it is exactly what I am suggesting, but original means the calculation originally used to determine the withdrawal amount, not the first or only calculation. But this all depends on your faith/belief/confidence in the validity of the 4% rule.

[TheTimeLord]

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

No, the 1966 retiree could NOT spend 50K/year for 30 years is the point (a failed year).

Okay, I believe something like 3.75% works for all years. But can we agree it was as valid for someone retiring in 1966 with $1,250,000 as it would have been for someone already retired with $1,250,000?

[Marseille07]

Okay, I believe something like 3.75% works for all years. But can we agree it was as valid for someone retiring in 1966 with $1,250,000 as it would have been for someone already retired with $1,250,000?

I don't understand what you mean by valid. If you agree that the 4% rule failed for the 1966 retirees, what's the meaning of valid here? We don't know if 1965's retirement would have succeeded, whether you call it valid or invalid.

[riverant]

While some may think this strategy “makes sense,” but it can easily result in a higher withdrawal rate than intended.

[TheTimeLord]

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

It's not though. The 1965 sequence worked assuming 40K/year. But with your scheme, this retiree does 40K/year in Year 1, then 50K/year thereafter for 29 years. This is not at all what the 4% rule promised to deliver.

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

This isn’t confidence. This is historical math. 4% failed in 1966. So if 4% in 1965 is good and then you upgrade your spending to 4% in 1966 you now fail.

Cherry picking aside the OP was about reapplying whatever method you were using to determine your withdrawal amount not the 4% Rule if your assets had increased in value. Obviously since none of us know the future pretty much any method we use for estimating a SWR has the potential for failure.

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

[TheTimeLord]

Okay, I believe something like 3.75% works for all years. But can we agree it was as valid for someone retiring in 1966 with $1,250,000 as it would have been for someone already retired with $1,250,000?

I don't understand what you mean by valid. If you agree that the 4% rule failed for the 1966 retirees, what's the meaning of valid here? We don't know if 1965's retirement would have succeeded, whether you call it valid or invalid.

As in using the 4% Rule would have been a valid approach had it existed in 1966. Or invalid approach if that is your belief.

[Marseille07]

As in using the 4% Rule would have been a valid approach had it existed in 1966. Or invalid approach if that is your belief.

It's valid in the sense you're describing. Heck, it probably would have been a 4.2% rule because 4% breaking down wasn't known in 1966.

But that's not really the point. The point is, ratcheting up would endanger 1965, not 1966, when 1965 would otherwise have been fine without ratcheting up.

[EnjoyIt]

That just seems to be a matter of how valid or invalid you believe the 4% Rule is.

It's not though. The 1965 sequence worked assuming 40K/year. But with your scheme, this retiree does 40K/year in Year 1, then 50K/year thereafter for 29 years. This is not at all what the 4% rule promised to deliver.

So the 4% Rule calculation for 1965 is valid but a 4% Rule calculation for 1966 would be invalid? Can you explain this to me, why could someone retiring in 1966 with $1,250,000 use the 4% Rule to get a $50,000 inflation adjusted annual withdrawal for 30 years, but someone already retired with $1,250,000 can't?

Sorry if I am being dense but this all seems to me to boil down to the confidence you have in how valid or invalid the 4% Rule is for determining how much someone can withdraw in retirement.

This isn’t confidence. This is historical math. 4% failed in 1966. So if 4% in 1965 is good and then you upgrade your spending to 4% in 1966 you now fail.

Cherry picking aside the OP was about reapplying whatever method you were using to determine your withdrawal amount not the 4% Rule if your assets had increased in value. Obviously since none of us know the future pretty much any method we use for estimating a SWR has the potential for failure.

I believe I have seen discussion in the past of people recalculating their Safe Withdrawal Amount using the "4% rule" or a calculator like Firecalc to make sure they aren't under withdrawing when the value their assets rise. I believe this is referred to as re-retiring. I have an idea of how I think this works but would appreciate feedback from anyone who actually does this on the mechanics they use to calculate their Safe Withdrawal Amount. I am using the term Safe Withdrawal Amount because I don't think the rate actually changes to any great degree but the amount does because it is being applied to a larger portfolio balance.

Understand that SWR is based on a fluctuating portfolio. What you are talking about doing is a constant percent withdrawal which is fine if you’re willing to cut expenses significantly during down years.

Again, look at my example above on how we handle your question. It is basically what you are doing. But we use tiers and spend less than budget allows.

[TheTimeLord]

As in using the 4% Rule would have been a valid approach had it existed in 1966. Or invalid approach if that is your belief.

It's valid in the sense you're describing. Heck, it probably would have been a 4.2% rule because 4% breaking down wasn't known in 1966.

But that's not really the point. The point is, ratcheting up would endanger 1965, not 1966, when 1965 would otherwise have be fine without ratcheting up.

Two questions, in what year would have 1966 retirees using 4% rule portfolios failed because the 1965 retiree who recalculated really need 29 more years not 30. And in what other years besides 1966 did the 4% Rule fail retirees?

As a personal note, I would likely use something like Firecalc with a 100% success rate for my recalculation. This would not guarantee success but little does.

[toddthebod]

If you believe the 4% Rule is valid and works why would you recalculate down? There is no requirement in the 4% Rule I am aware of that calls for a recalculation because value of your assets decreased as long as you continue to use the original inflation adjusted withdrawal amount. Again this is all dependent on your beliefs around the validity/reliability of the 4% Rule

But that's not what you are suggesting!

Actually it is exactly what I am suggesting, but original means the calculation originally used to determine the withdrawal amount, not the first or only calculation. But this all depends on your faith/belief/confidence in the validity of the 4% rule.

The 4% rule does not guarantee success. In fact, a 1% rule cannot guarantee success, we can only say that historically it would have been. All I can tell you is that if you recalculate the whatever withdrawal rule you are using to be more aggressive after a good year in the market, you will increase the risk that you will run out of money. But yes, as you mention in another comment, if using a lower SWR, you can get away with increasing your withdrawal after a good year in the market without significantly increasing your likelihood of running out of money.

[Marseille07]

Two questions, in what year would have 1966 retirees using 4% rule portfolios failed because the 1965 retiree who recalculated really need 29 more years not 30. And in what other years besides 1966 did the 4% Rule fail retirees?

As a personal note, I would likely use something like Firecalc with a 100% success rate for my recalculation. This would not guarantee success but little does.

I do not have answers, but the risk of ratcheting up could actually be even greater than 1965 vs 1966. Remember, 1966's failure of 4% assumed no ratcheting up besides COLA...but still failed. A 1965 retiree ratcheting up in 1966, then again in 1970, then 1982 etc etc...could very well be in a much worse position than a straight up 1966 retiree.

[EnjoyIt]

As in using the 4% Rule would have been a valid approach had it existed in 1966. Or invalid approach if that is your belief.

It's valid in the sense you're describing. Heck, it probably would have been a 4.2% rule because 4% breaking down wasn't known in 1966.

But that's not really the point. The point is, ratcheting up would endanger 1965, not 1966, when 1965 would otherwise have be fine without ratcheting up.

Two questions, in what year would have 1966 retirees using 4% rule portfolios failed because the 1965 retiree who recalculated really need 29 more years not 30. And in what other years besides 1966 did the 4% Rule fail retirees?

As a personal note, I would likely use something like Firecalc with a 100% success rate for my recalculation. This would not guarantee success but little does.

29 years or 30 years left on a spreadsheet is all great, but doesn’t account for your actual real life and when you and the spouse won’t be around anymore.

[TheTimeLord]

Two questions, in what year would have 1966 retirees using 4% rule portfolios failed because the 1965 retiree who recalculated really need 29 more years not 30. And in what other years besides 1966 did the 4% Rule fail retirees?

As a personal note, I would likely use something like Firecalc with a 100% success rate for my recalculation. This would not guarantee success but little does.

I do not have answers, but the risk of ratcheting up could actually be even greater than 1965 vs 1966. Remember, 1966's failure of 4% assumed no ratcheting up...but still failed. A 1965 retiree ratcheting up in 1966, then again in 1970, then 1982 etc etc...could very well be in much worse position than a straight up 1966 retiree.

How unless those years also failed retirees? Remember the amount calculated in 1965 is being adjusted by inflation every year and it is the inflation adjusted amount you would be comparing to. Essentially all I am asking is if a method is valid for someone retiring in a given year to calculate what they can withdraw annually in retirement then wouldn't it be just as valid if applied to a retirees portfolio?

[Marseille07]

How unless those years also failed retirees? Remember the amount calculated in 1965 is being adjusted by inflation every year and it is the inflation adjusted amount you would be comparing to. Essentially all I am asking is if a method is valid for someone retiring in a given year to calculate what they can withdraw annually in retirement then wouldn't it be just as valid if applied to a retirees portfolio?

Because ratcheting up could be a lot.

For example, say you have 1M in 1965 and inflation is 5%, markets go up by 25%.

If you use the 4% rule as is, you'd be drawing 42K in 1966. If you ratchet up instead, you'd be drawing 50K. How do you even adjust for inflation after 50K? Do you track 1965-dollars 40K/year separately for 30 years and use that as your floor?

[Artsdoctor]

Christine Benz just did an interview on this topic. Multiple ways of taking withdrawals were discussed and at least two of them use recalculations annually (like the guardrail approach or the RMD approach). Any variable withdrawal method will use reassessing what you have each year. But the take home message was that the best tool a retiree has is flexibility.

[Marseille07]

Christine Benz just did an interview on this topic. Multiple ways of taking withdrawals were discussed and at least two of them use recalculations annually (like the guardrail approach or the RMD approach). Any variable withdrawal method will use reassessing what you have each year. But the take home message was that the best tool a retiree has is flexibility.

While I agree, flexibility is an antithesis of SWR whose primary purpose is to provide an inflation-adjusted constant stream of income. That's anything but flexible when you think about it. And some retirees actually want this inflexibility rather than facing income ups and downs.

[TheTimeLord]

How unless those years also failed retirees? Remember the amount calculated in 1965 is being adjusted by inflation every year and it is the inflation adjusted amount you would be comparing to. Essentially all I am asking is if a method is valid for someone retiring in a given year to calculate what they can withdraw annually in retirement then wouldn't it be just as valid if applied to a retirees portfolio?

Because ratcheting up could be a lot.

For example, say you have 1M in 1965 and inflation is 5%, markets go up by 25%.

If you use the 4% rule as is, you'd be drawing 42K in 1966. If you ratchet up instead, you'd be drawing 50K. How do you even adjust for inflation after 50K? Do you track 1965-dollars 40K/year separately for 30 years and use that as your floor?

I think the answers are in the highlighted portion of my pervious post. I think all this discussion of the 4% Rule has derailed the intent of the OP.