2.5% Withdrawal for 50 Years With 50/50 Portfolio?

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Random Poster
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2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Mon Apr 16, 2018 1:32 pm

Background:

* Assume that you have $3,000,000 invested, with $2,275,000 in a taxable account and $725,000 in a mix of IRAs (Roth, Traditional, and Rollover) and a 401k.

* Assume that your total portfolio is invested 40% Total Stock Market, 10% Total International Stock Market, 23% in Intermediate Term Tax Exempt Bonds, and 27% in Total Bond Market.

* Assume that you are around 40 years of age.

* Assume that you want your investments to last at least 50 years.

Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.

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Pajamas
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Pajamas » Mon Apr 16, 2018 1:35 pm

Yes, I would feel fine about that.

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JoMoney
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by JoMoney » Mon Apr 16, 2018 1:41 pm

Yes.
$75,000 x 50years = $3,750,000

Starting with $3,000,000 you would need to earn less than 1% a year to guarantee you could do that.
I haven't done the math, but from eyeballing current rates on TIPS I would bet you could get pretty close to guaranteeing $75,000 real/inflation adjusted with TIPS... and although it's not guaranteed, I would think the portfolio suggested would do even better than the guaranteed TIPS return.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

PhilosophyAndrew
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by PhilosophyAndrew » Mon Apr 16, 2018 1:53 pm

Yes, absolutely, I would feel comfortable doing that.

Andy.

CoAndy
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by CoAndy » Mon Apr 16, 2018 1:56 pm

The only way I would feel comfortable in such a scenario would be if I also had a little extra money (say, $150k) in a high yield savings account or CD ladder to pull from for a few months in certain years in which the markets are choppy.

bigred77
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by bigred77 » Mon Apr 16, 2018 2:37 pm

I absolutely would feel secure.

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Mlm
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Mlm » Mon Apr 16, 2018 2:42 pm

I would be fine with that.

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HomerJ
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by HomerJ » Mon Apr 16, 2018 2:44 pm

Of course. That's basically just spending dividends.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by letsgobobby » Mon Apr 16, 2018 2:48 pm

Random Poster wrote:
Mon Apr 16, 2018 1:32 pm
Background:

* Assume that you have $3,000,000 invested, with $2,275,000 in a taxable account and $725,000 in a mix of IRAs (Roth, Traditional, and Rollover) and a 401k.

* Assume that your total portfolio is invested 40% Total Stock Market, 10% Total International Stock Market, 23% in Intermediate Term Tax Exempt Bonds, and 27% in Total Bond Market.

* Assume that you are around 40 years of age.

* Assume that you want your investments to last at least 50 years.

Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.
yes

Random Poster
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Mon Apr 16, 2018 2:54 pm

HomerJ wrote:
Mon Apr 16, 2018 2:44 pm
Of course. That's basically just spending dividends.
Well, yes, I suppose, except that a portion of the dividends are being generated within the retirement accounts and are thus not easily accessible, and so I figure that one will have to sell some portion of the principal within the taxable account in order to obtain the $75K a year.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by MotoTrojan » Mon Apr 16, 2018 2:58 pm

Random Poster wrote:
Mon Apr 16, 2018 2:54 pm
HomerJ wrote:
Mon Apr 16, 2018 2:44 pm
Of course. That's basically just spending dividends.
Well, yes, I suppose, except that a portion of the dividends are being generated within the retirement accounts and are thus not easily accessible, and so I figure that one will have to sell some portion of the principal within the taxable account in order to obtain the $75K a year.
Yes. Cost-basis on the taxable account will play into things a little, but this withdrawal rate is plenty low to not worry. I'd put more focus on making sure your estimated costs are reasonable (health-care, vacations, children).

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HomerJ
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by HomerJ » Mon Apr 16, 2018 2:59 pm

Random Poster wrote:
Mon Apr 16, 2018 2:54 pm
HomerJ wrote:
Mon Apr 16, 2018 2:44 pm
Of course. That's basically just spending dividends.
Well, yes, I suppose, except that a portion of the dividends are being generated within the retirement accounts and are thus not easily accessible, and so I figure that one will have to sell some portion of the principal within the taxable account in order to obtain the $75K a year.
Potayto, Potahto :)

Da5id
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Da5id » Mon Apr 16, 2018 3:00 pm

My answer is clearly yes.

That said, hopefully you have in the $75K budget a nice cushion for your health care costs growing significantly during the long gap to Medicare (and who knows what the health care landscape, government or otherwise, will be in 25 years anyway).

RetireBy55
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by RetireBy55 » Mon Apr 16, 2018 3:03 pm

You could essentially put the $3M in 2.5% (or greater) CDs and do this with zero risk - AND< have the entire $3M left at the end. (Albeit, the $3M will be worth "less" but you can live off cash dividends if $75K is the goal and starting principal is $3M).

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Da5id » Mon Apr 16, 2018 3:06 pm

RetireBy55 wrote:
Mon Apr 16, 2018 3:03 pm
You could essentially put the $3M in 2.5% (or greater) CDs and do this with zero risk - AND< have the entire $3M left at the end. (Albeit, the $3M will be worth "less" but you can live off cash dividends if $75K is the goal and starting principal is $3M).
You have to assume he means $75K real rather than nominal. Discussing spending plans that aren't in real dollars doesn't make much sense.

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cfs
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by cfs » Mon Apr 16, 2018 3:07 pm

Doable. Go for it. Muchas gracias por leer ~cfs~
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gr7070
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by gr7070 » Mon Apr 16, 2018 3:38 pm

Yes.

My question would be is $75,ooo per year enough 30, 40, 50 years from now. I highly doubt it is, if 75k is appropriate today.

I'm guessing you're planning on adjusting for inflation or using a 2.5% withdrawal rate - not a static 75k???

The answer would still be yes.

marcopolo
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by marcopolo » Mon Apr 16, 2018 4:58 pm

Random Poster wrote:
Mon Apr 16, 2018 1:32 pm
Background:

* Assume that you have $3,000,000 invested, with $2,275,000 in a taxable account and $725,000 in a mix of IRAs (Roth, Traditional, and Rollover) and a 401k.

* Assume that your total portfolio is invested 40% Total Stock Market, 10% Total International Stock Market, 23% in Intermediate Term Tax Exempt Bonds, and 27% in Total Bond Market.

* Assume that you are around 40 years of age.

* Assume that you want your investments to last at least 50 years.

Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.
Those are close enough to my numbers (age 51, planning to age 100, so 49 year horizon; targeted 3% withdrawal, currently sitting at 2.5% based on anticipated expense, recently started living off portfolio) that this is not a theoretical question for me.

I am taking a leap of faith (or as much "evidence" as historical back-testing can provide), and planning to do just what you described.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by MikeG62 » Mon Apr 16, 2018 5:12 pm

OP, I think you are good to go.
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Nate79 » Mon Apr 16, 2018 5:20 pm

No I would not feel comfortable. I would only feel comfortable taking out more by taking some extra vacations..... You only live once.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by midareff » Mon Apr 16, 2018 5:27 pm

Nate79 wrote:
Mon Apr 16, 2018 5:20 pm
No I would not feel comfortable. I would only feel comfortable taking out more by taking some extra vacations..... You only live once.
Life expenses are not a straight line of withdrawal rates. My first four years were an average of 3% (retired at 64 in 2012) out of deference to the sequence of returns risk. I'm now at 5.5%, and may go higher while I can still travel internationally comfortably. Truth be told, pension and SS can pay the necessities so there is no cat food and living under a bridge as a mistake penalty. OTOH, I have a younger wife who is a Thai National with daughter's there and a grand baby, and is now a US Citizen. I will leave her enough to get a nice place to live there and a new car for cash.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Rob1 » Mon Apr 16, 2018 5:43 pm

Yep, I’d feel 100% comfortable with 2.5%

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by lazydavid » Mon Apr 16, 2018 6:52 pm

I would have no qualms whatsoever about taking an inflation-adjusted $75k/yr from a $6M nest egg. Well one qualm....I could easily afford a much higher standard of living.

In all seriousness, I would hold 3-5 years of expenses in "riskless" cash equivalents (CDs, short-term treasuries, iBonds, whatever suits you), and live off of that money. In years where the market returns aren't horrid (define this metric for yourself), I would replenish the "living expenses fund" by selling off some of what's been performing best. If there's a major downturn, I'd probably skip or reduce the withdrawal that year and let the fund dwindle a bit.

Random Poster
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Mon Apr 16, 2018 7:03 pm

marcopolo wrote:
Mon Apr 16, 2018 4:58 pm
Those are close enough to my numbers (age 51, planning to age 100, so 49 year horizon; targeted 3% withdrawal, currently sitting at 2.5% based on anticipated expense, recently started living off portfolio) that this is not a theoretical question for me.

I am taking a leap of faith (or as much "evidence" as historical back-testing can provide), and planning to do just what you described.
Is your asset allocation similar to the 50/50 split that I posted above?

How difficult has it been for you to take the leap of faith and live off of your portfolio?

Random Poster
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Mon Apr 16, 2018 7:04 pm

lazydavid wrote:
Mon Apr 16, 2018 6:52 pm
I would have no qualms whatsoever about taking an inflation-adjusted $75k/yr from a $6M nest egg. Well one qualm....I could easily afford a much higher standard of living.

In all seriousness, I would hold 3-5 years of expenses in "riskless" cash equivalents (CDs, short-term treasuries, iBonds, whatever suits you), and live off of that money. In years where the market returns aren't horrid (define this metric for yourself), I would replenish the "living expenses fund" by selling off some of what's been performing best. If there's a major downturn, I'd probably skip or reduce the withdrawal that year and let the fund dwindle a bit.
Ummmm....where are you getting a $6M nest egg from the information provided?

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by VictoriaF » Mon Apr 16, 2018 7:09 pm

No, I would not be comfortable. The stock market has helped me to accumulate the assets. But I would not rely on it paying my living expenses for the rest of my life.

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Random Poster
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Mon Apr 16, 2018 7:10 pm

gr7070 wrote:
Mon Apr 16, 2018 3:38 pm
Yes.

My question would be is $75,ooo per year enough 30, 40, 50 years from now. I highly doubt it is, if 75k is appropriate today.

I'm guessing you're planning on adjusting for inflation or using a 2.5% withdrawal rate - not a static 75k???

The answer would still be yes.
Somewhere between $40k to $50k is the current spending amount, so $75k would be living a life of luxury in my view. Honestly, I'm not sure that we (being my wife and I) could spend $75k a year. But just in case we could, or did, I'm trying to figure out if others would be comfortable doing so based on the information provided.

Over the past 5 years, our annual expenses have been trending downward, so increasing the spending amount for inflation might not be needed, at least for a while.

But who knows what the future will bring?

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by smitcat » Mon Apr 16, 2018 7:19 pm

Random Poster wrote:
Mon Apr 16, 2018 7:10 pm
gr7070 wrote:
Mon Apr 16, 2018 3:38 pm
Yes.

My question would be is $75,ooo per year enough 30, 40, 50 years from now. I highly doubt it is, if 75k is appropriate today.

I'm guessing you're planning on adjusting for inflation or using a 2.5% withdrawal rate - not a static 75k???

The answer would still be yes.
Somewhere between $40k to $50k is the current spending amount, so $75k would be living a life of luxury in my view. Honestly, I'm not sure that we (being my wife and I) could spend $75k a year. But just in case we could, or did, I'm trying to figure out if others would be comfortable doing so based on the information provided.

Over the past 5 years, our annual expenses have been trending downward, so increasing the spending amount for inflation might not be needed, at least for a while.

But who knows what the future will bring?
I would guess that most 40 year old couples would have a much larger budget for healthcare that would raise that $40-$50K per year a good deall. Healtcare, plus housing, plus, utilities and insurances , plus food etc.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by dwickenh » Mon Apr 16, 2018 8:35 pm

Based on the limited information provided, I would say you are good to go.
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by dknightd » Mon Apr 16, 2018 8:38 pm

Give me your $3m. I'll give it a try. I suspect it will be fine! So, my answer would be yes.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by jminv » Mon Apr 16, 2018 8:48 pm

I would be very comfortable with that choice.

marcopolo
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by marcopolo » Mon Apr 16, 2018 9:02 pm

Random Poster wrote:
Mon Apr 16, 2018 7:03 pm
marcopolo wrote:
Mon Apr 16, 2018 4:58 pm
Those are close enough to my numbers (age 51, planning to age 100, so 49 year horizon; targeted 3% withdrawal, currently sitting at 2.5% based on anticipated expense, recently started living off portfolio) that this is not a theoretical question for me.

I am taking a leap of faith (or as much "evidence" as historical back-testing can provide), and planning to do just what you described.
Is your asset allocation similar to the 50/50 split that I posted above?

How difficult has it been for you to take the leap of faith and live off of your portfolio?
I am very close to 50/50 split at this time. A big chunk of that is ear marked for building our retirement home later this year and is sitting in no-penalty CDs. If i don't include that, we are closer to 60/40. When we then sell our current home, I will have to make a decision what to with that cash. I plan to stay somewhere between 50-60% equities.

I have only been retired since early February, so it is probably too early to tell. But, I did sign all the paperwork for my negotiated separation package on January 26, which was the near-term peak in the market, only to see the market immediately go into (just barely) correction territory!

So far, I have not been worried about finances, but I am sure there will be bigger market gyrations. I like to think i am prepared for them both financially, and mentally, but tie will tell.

One thing that is helping is that i had been planning for (for several years) to retire in 2019 with a planned 3% withdrawal rate. Due to market run up the last few years, and a very generous severance package I negotiated when I had the opportunity to take a voluntary separation during a company re-structuring, I ended up at a 2.5% WR to meet anticipated needs. Doing a lot of research/reading during the planning process, and convinced myself I would be OK with a 3% WR makes living with a 2.5% rate all that more comforting.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by ausgenf » Mon Apr 16, 2018 9:34 pm

I am 44, my AA is 50/50, my WR is slightly above 2.5, and I feel pretty secure about it. I have quite a bit of discretionary spending built into my budget and I could dial back my withdrawals if need be (core spending is around 1.5% of portfolio).

And for full disclosure, I do have other assets that could be liquidated if I needed to raise extra cash. But I am not counting on those assets for my planning.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by lazydavid » Tue Apr 17, 2018 4:48 am

Random Poster wrote:
Mon Apr 16, 2018 7:04 pm
Ummmm....where are you getting a $6M nest egg from the information provided?
By double-counting :oops: $3M + $2.2M + $725k.

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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by scone » Tue Apr 17, 2018 5:27 am

Yes, I'd be fine with this withdrawal rate. It's not far from what I am doing. You do need to think about inflation and real returns over the very long run, however.
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IlliniDave
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by IlliniDave » Tue Apr 17, 2018 6:34 am

I'm assuming you are talking about retiring and living solely on $75K minus whatever income taxes apply. I realize that might not be the case, you don't say, but it's the more conservative assumption.

I'd be cautious about it if it were me, but that's a highly personal thing. 50 years is a long time.

I think the portfolio would probably support the $75K annual withdrawal, I'd tend to wonder if a "$75K less taxes lifestyle" is something I could maintain for 50 years, which really wasn't your question. I've seen arguments that for 50 years 2% is a better number, but haven't really delved into that due to the probable inapplicability of that length of a horizon for me.

What I am comfortable with is ~1.7% for 30 years supplemented by outside retirement income That happens to be my current forecast for my plan, not some magic number I somehow derived. I'd probably be okay with 2.5% for 30 years, but probably not 50. YMMV, that's not intended as me advising you what to do, just as context for my other remarks--I'm a little on the financially conservative side. 8-)
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JoMoney
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by JoMoney » Tue Apr 17, 2018 6:48 am

IlliniDave wrote:
Tue Apr 17, 2018 6:34 am
I'm assuming you are talking about retiring and living solely on $75K minus whatever income taxes apply. I realize that might not be the case, you don't say, but it's the more conservative assumption.

I'd be cautious about it if it were me, but that's a highly personal thing. 50 years is a long time.

I think the portfolio would probably support the $75K annual withdrawal, I'd tend to wonder if a "$75K less taxes lifestyle" is something I could maintain for 50 years, which really wasn't your question. I've seen arguments that for 50 years 2% is a better number, but haven't really delved into that due to the probable inapplicability of that length of a horizon for me.

What I am comfortable with is ~1.7% for 30 years supplemented by outside retirement income That happens to be my current forecast for my plan, not some magic number I somehow derived. I'd probably be okay with 2.5% for 30 years, but probably not 50. YMMV, that's not intended as me advising you what to do, just as context for my other remarks--I'm a little on the financially conservative side. 8-)
:shock: To each their own I guess, but I'm amazed that someone could think that's just 'conservative'.
There are bank accounts earning more than 1.7% right now.
x/30years = 3.33% . You wouldn't have to make a dime on the money to guarantee it would last 30 years. You could put it in a bank account earning no interest, spend the principal (tax free assuming it's post tax money) and it would last 30 years withdrawing 3.33% of the initial balance. You could put it into TIPS guaranteed by the treasury to match an inflation index + a small amount of interest and do even better.

Are you talking about a 'safe withdrawal rate', or are you talking about trying to not spend principal and leave the biggest legacy you can?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

jeroly
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by jeroly » Tue Apr 17, 2018 6:50 am

Random Poster wrote:
Mon Apr 16, 2018 1:32 pm
Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.
It's fascinating to see the answers here.

Elsewhere on this and other financial forums I've seen debates on whether a 7%/5%/4.5%/4%/3.5% withdrawal rate is safe... and we still see hesitation over a 2.5% withdrawal rate!

Personally, I 'retired' at 41 with a withdrawal rate of approx. 5% (now approx. 3% thanks to the markets) and felt good about it.

I think that you may want to ask yourself the following question:

Under what circumstances will my withdrawal rate not be 'safe' and is there an alternative w/d strategy that would work under those circumstances?

For your w/d strategy to fail, you're looking at a course of events worse than what we've ever seen in the US in the last 100 or so years.
The stock markets would have to tank so badly that they'd be at something like 50% of retirement-age value, or less, twenty years after retirement age.
You might be looking at a post-nuclear, collapse-of-the-financial-system, anarchical environment in order to get things that fouled up... in which case you probably wouldn't have done any better if you had a different stock/bond asset allocation (they might all be worthless), retirement age (there might not be any work to be found at all), or withdrawal amount (we're talking about government collapse here - why think that hyperinflation etc haven't made fiat currency meaningless?) would make any difference.

If you really want to protect against these worst-case scenarios, possibly consider putting 10% or so of assets into alternatives like real estate (avoid the coasts! earthquakes / hurricanes / rising sea levels; avoid tornado alley! avoid the south - zombie apocalypses!), gold (in normal times not a good asset but might buy you some protection in these worst-case scenarios, and with your planned withdrawal amount you have a LOT of cushion for normal cases), cybercurrency (pick one of the more robust ones e.g ethereum rather than bitcoin - again, not an asset I'd recommend under normal circumstances but might provide cover in scenarios where the financial system collapses), cans of tuna fish, etc.

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tennisplyr
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by tennisplyr » Tue Apr 17, 2018 6:58 am

Yes, you have many options and to some extent time on your side:
-you could get a job
-cut back spending
-downsize
-get an annuity
-etc

As you know, this is not a locked in concrete decision...be happy, be healthy, be flexible live life!
Last edited by tennisplyr on Tue Apr 17, 2018 7:11 am, edited 1 time in total.
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by gr7070 » Tue Apr 17, 2018 7:02 am

Random Poster wrote:
Mon Apr 16, 2018 7:10 pm
gr7070 wrote:
Mon Apr 16, 2018 3:38 pm
Yes.

My question would be is $75,ooo per year enough 30, 40, 50 years from now. I highly doubt it is, if 75k is appropriate today.

I'm guessing you're planning on adjusting for inflation or using a 2.5% withdrawal rate - not a static 75k???

The answer would still be yes.
Somewhere between $40k to $50k is the current spending amount, so $75k would be living a life of luxury in my view. Honestly, I'm not sure that we (being my wife and I) could spend $75k a year. But just in case we could, or did, I'm trying to figure out if others would be comfortable doing so based on the information provided.

Over the past 5 years, our annual expenses have been trending downward, so increasing the spending amount for inflation might not be needed, at least for a while.

But who knows what the future will bring?
My main point was you need to consider inflation and not look at a static amount. 50 years is a long time and if 75k was appropriate today there was no way it would be enough in 3 or 4 decades from now.

It appears you've done that, to some degree.

As I said, though, I'd still be perfectly ok with a 2.5% withdrawal rate.

Dandy
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Dandy » Tue Apr 17, 2018 7:26 am

The basic math works assuming reasonable assumptions. The longer the time period the greater the risk that reasonable assumptions may not be so reasonable. e.g. war, tax changes, inflation, negative interest rates, flu pandemic, climate change, ??, etc. Also, personal issues related to your own health, health insurance/expense, personal inflation rate, fraud, casualty losses, etc.

I think the time period length is underappreciated as far as risk, especially if the goal is not to continue earnings, job skills etc. You don't want to go down that path and then at age 60 find out the plan is in danger and your decent employment opportunities are minimal.

It is also possible that your low withdrawal rate coupled with a reasonable rosy future will allow you initial 3 million to grow substantially despite withdrawals.

marcopolo
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by marcopolo » Tue Apr 17, 2018 7:38 am

Dandy wrote:
Tue Apr 17, 2018 7:26 am
The basic math works assuming reasonable assumptions. The longer the time period the greater the risk that reasonable assumptions may not be so reasonable. e.g. war, tax changes, inflation, negative interest rates, flu pandemic, climate change, ??, etc. Also, personal issues related to your own health, health insurance/expense, personal inflation rate, fraud, casualty losses, etc.

I think the time period length is underappreciated as far as risk, especially if the goal is not to continue earnings, job skills etc. You don't want to go down that path and then at age 60 find out the plan is in danger and your decent employment opportunities are minimal.

It is also possible that your low withdrawal rate coupled with a reasonable rosy future will allow you initial 3 million to grow substantially despite withdrawals.
Living is risky.

A lot of the imagined dangers that would throw a 2.5% WR in to trouble would do the same for a 2%, or 1% withdrawal rate. What is the option, work till you die? For some of the risks (health problems), that may not be an option either.

You could just simply work longer, accumulating a bigger pile of money, but I think many people underestimate the risk of dying at a younger age than their planning horizon. You could just as easily find yourself working till age 65 to make sure you have "enough" to make it to 100 "safely", only to die at age 70.

The challenge is to find the right balance, it will be different for everyone.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Random Poster
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by Random Poster » Tue Apr 17, 2018 8:06 am

Thanks to all who have responded. I appreciate the comments.

TN_Boy
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by TN_Boy » Tue Apr 17, 2018 8:15 am

Random Poster wrote:
Mon Apr 16, 2018 1:32 pm
Background:

* Assume that you have $3,000,000 invested, with $2,275,000 in a taxable account and $725,000 in a mix of IRAs (Roth, Traditional, and Rollover) and a 401k.

* Assume that your total portfolio is invested 40% Total Stock Market, 10% Total International Stock Market, 23% in Intermediate Term Tax Exempt Bonds, and 27% in Total Bond Market.

* Assume that you are around 40 years of age.

* Assume that you want your investments to last at least 50 years.

Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.
I could not tell from the original post or the followups if you really meant 75K every year, or 75k + inflation adjustments. Over your time frame, substantial inflation adjustments will be necessary.

In a followup you added:

"Somewhere between $40k to $50k is the current spending amount, so $75k would be living a life of luxury in my view. Honestly, I'm not sure that we (being my wife and I) could spend $75k a year. But just in case we could, or did, I'm trying to figure out if others would be comfortable doing so based on the information provided.

Over the past 5 years, our annual expenses have been trending downward, so increasing the spending amount for inflation might not be needed, at least for a while."


Do your spending estimates include periodic purchases of new cars, car repairs, major home repairs, federal and state taxes, and of course health insurance without the benefit of employer insurance? Do the estimates include an occasional nice vacation, etc. I'd figure health insurance alone would easily be 12k.

Do you know what you would be doing with your time if you fully retired?? Aside from the fact I'm not convinced your spending estimates are high enough (per my questions above, but perhaps you have factored all that in), I think the biggest risk you have is that your interests might change over such a long time frame and you might want more money to support those interests. Well, there is also health care insurance risk also.

To answer your specific question, I would be very comfortable with a 2.5% withdrawal rate, adjusted for inflation, for 50 years with a low cost diversified portfolio. I might want a higher equity percentage -- more like 60/40 than 50/50. I gather you would have no other income? If one retired at 40, SS benefits would be modest, of course. You should try to go ahead and see what those benefits would be for you and your spouse, small though they might be.

HongKonger
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by HongKonger » Tue Apr 17, 2018 8:15 am

Yes. Not far off what I am doing. Pulled the plug 5 years ago aged 40. Have higher net worth now than I started with. Agree with other posters who mention holding x years expenses in CDs in case the markets tanks.

panhead
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by panhead » Tue Apr 17, 2018 8:17 am

Random Poster wrote:
Mon Apr 16, 2018 1:32 pm
Background:

* Assume that you have $3,000,000 invested, with $2,275,000 in a taxable account and $725,000 in a mix of IRAs (Roth, Traditional, and Rollover) and a 401k.

* Assume that your total portfolio is invested 40% Total Stock Market, 10% Total International Stock Market, 23% in Intermediate Term Tax Exempt Bonds, and 27% in Total Bond Market.

* Assume that you are around 40 years of age.

* Assume that you want your investments to last at least 50 years.

Question:

Would you feel comfortable withdrawing $75,000 a year from the above portfolio for at least 50 years?

I'm not asking what FireCalc or any other similar calculator or simulator is saying.

Instead, I'm asking if you personally would feel secure in taking $75K a year, for at least 50 years, from a portfolio whose initial balance is $3.0M and whose composition is as set forth above.

Thank you.

One of the posters on this board proposed (or presented anyway), a way to determine if you have enough money to retire. The idea is simple: price an inflation adjusted annuity (SPIA) with your specifics. If I do this and assume you and your wife are both 40, an annuity with a cpi adjustment pays out at a 2.22% rate, so your $3M could arguably support $66k per year with inflation adjustments for the rest of your joint lives. If you start with this WR, I'd say it is about as rock solid a plan you could hope for, and there is no need to go lower. Now, embedded in the insurance quote, there is a profit margin, so your plan at 2.5% with a little flexibility to lower withdrawals in bad times would appear just as, and maybe safer than the annuity. Highly unlikely this would fail.

As an alternative, a non-cpi annuity is paying almost $11k/month on $3M, so you would get $132k/year. Spend your $75 and invest the rest for future inflation. Of course, the money in the retirement accounts at 40 years old would be an issue.

All that to say yes, i'd be very comfortable. I would not buy an annuity at your age, this was just a tool to show what an insurance company thinks about your plan. I would keep open the option of buying an annuity later in life if the markets didn't cooperate, and hopefully you will get some social security at some point.

*Edited to clarify annuity type
Last edited by panhead on Tue Apr 17, 2018 8:55 am, edited 1 time in total.

TN_Boy
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by TN_Boy » Tue Apr 17, 2018 8:20 am

VictoriaF wrote:
Mon Apr 16, 2018 7:09 pm
No, I would not be comfortable. The stock market has helped me to accumulate the assets. But I would not rely on it paying my living expenses for the rest of my life.

Victoria
It's very reassuring to have SS and/or a good pension for part of retirement expenses, but do you really think a 2.5% withdrawal rate is unsafe, even for a long retirement? If so, why do you think that?

MikeG62
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by MikeG62 » Tue Apr 17, 2018 8:21 am

marcopolo wrote:
Tue Apr 17, 2018 7:38 am

...A lot of the imagined dangers that would throw a 2.5% WR in to trouble would do the same for a 2%, or 1% withdrawal rate. What is the option, work till you die?
^This
Real Knowledge Comes Only From Experience

JBTX
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by JBTX » Tue Apr 17, 2018 8:25 am

No I would not be comfortable.

Yes I understand mathematically that would easily survive any historical US scenario, but I would not be comfortable going 50-60 years not working, when you just can’t predict the future.

JBTX
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Re: 2.5% Withdrawal for 50 Years With 50/50 Portfolio?

Post by JBTX » Tue Apr 17, 2018 8:34 am

marcopolo wrote:
Tue Apr 17, 2018 7:38 am
Dandy wrote:
Tue Apr 17, 2018 7:26 am
The basic math works assuming reasonable assumptions. The longer the time period the greater the risk that reasonable assumptions may not be so reasonable. e.g. war, tax changes, inflation, negative interest rates, flu pandemic, climate change, ??, etc. Also, personal issues related to your own health, health insurance/expense, personal inflation rate, fraud, casualty losses, etc.

I think the time period length is underappreciated as far as risk, especially if the goal is not to continue earnings, job skills etc. You don't want to go down that path and then at age 60 find out the plan is in danger and your decent employment opportunities are minimal.

It is also possible that your low withdrawal rate coupled with a reasonable rosy future will allow you initial 3 million to grow substantially despite withdrawals.
Living is risky.

A lot of the imagined dangers that would throw a 2.5% WR in to trouble would do the same for a 2%, or 1% withdrawal rate. What is the option, work till you die? For some of the risks (health problems), that may not be an option either.

You could just simply work longer, accumulating a bigger pile of money, but I think many people underestimate the risk of dying at a younger age than their planning horizon. You could just as easily find yourself working till age 65 to make sure you have "enough" to make it to 100 "safely", only to die at age 70.

The challenge is to find the right balance, it will be different for everyone.
I disagree. You could plausibly come up with a Japan scenario or extended stagflation that would strain a long term 2.5% scenario. Long term it would Probably work itself out but if you are 50 and only have half of your original principle in real terms it wouldn’t feel very good. OTOH if I had $10 million I’d be very comfortable living on 1%. The only way that fails is a complete collapse of the entire economic system.

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