4% Rule (pay, accounts, increase, Florida)

[mathjak107]

don't be confused .

take how much you need to live on and subtract out all income other then the portfolio income .

so lets say you need 100k . you get 60k in social security and rental income .

you need 40k from your portfolio .

that is a 4% draw .

your portfolio has to produce enough gains over time to not only provide that 4% but an inflation raise each year .

depending on your allocation the chances of doing that at a minimum of a 90% success rate vary .

so using a 50/50 mix you can see that over THE WORST SCENARIO'S to date looking at every rolling 30 year period you would have had a 96% success rate .

75% equity's did that 100% of the time but for most of us that is to volatile so 40-60% seems to be the normal range for retirees as well as target date funds for retirees .

using 25%-28% equity's and bonds gives you only a 80%-82% chance of doing that historically so that will likely be a poor choice .

i ran 28% eauity's in firecalc and it failed 19 rolling 30 year time frames we already had .


remember these results are already based on the worst scenarios and do not use any kind of average returns since sequence risk is the biggest factor .


here are firecalcs results for 28% equity which the mis-informed big bucks thinks is a good allocation for a retiree .

.FIRECalc looked at the 115 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 115 cycles. The lowest and highest portfolio balance at the end of your retirement was $-225,032 to $3,294,124, with an average at the end of $630,433. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 19 cycles failed, for a success rate of 83.5%.
that is an unacceptable failure rate .

this chart is the result of testing every 30 year rolling period since 1926 , that is 115 cycles .

[Fedupwiththis]

I think the key to retirement is finding something you can do that you truly enjoy. I'll want to travel a lot, but on the average day to day I'll be bored out of my mind if I don't have some type of "job". Figure out something you'd love to do and do it part time for extra $. I picture myself working part time for the state at a state park counting how many bird boxes are actually being used. Some completely stress free fun job 15-20hrs a week. If you're making $800 a month and you have no other major bills or debt you should be good to go till you can't stand up anymore.

[mathjak107]

we have so much to do daily we are never bored . our photography hobby gets us out of the house almost daily . if the weather is nice we are try to get out biking at some point in the day . we are at the gym daily by 7am . i also got back in to my drumming again so practice takes 2 hours a day .

in fact there is rarely enough time to do everything we want .

i do technical training 2 days a month at my old firm and that is all i would want to work .

[Fedupwiththis]

Originally Posted by mathjak107

we have so much to do daily we are never bored . our photography hobby gets us out of the house almost daily . if the weather is nice we are out biking . we are at the gym daily . i also got back in to my drumming again so practice takes 2 hours a day .

in fact there is rarely enough time to do everything we want .

i do technical training 2 days a month at my old firm and that is all i would want to work .

I'm sure I'd be able to keep busy most days. But 3 days a week putting in a 5 hour shift doing something I enjoy stress free.. I'd have no problem with that at all. Or maybe start a small little business doing something I like, maybe woodworking and sell the stuff I make on etsy and ebay. Who knows.. But I just know I'd always want to have some form of income

[mathjak107]

what ever you enjoy doing , isn't work if you earn money off it . we love doing some commercial photography sometimes .

in fact i enjoy teaching the 2 days a month . i look forward to it . i interact with other people and see my work buddy's .

i used to be a pro drummer and gave it up . i went back to playing after 3 decades just recently . maybe i will even do a few gigs at some point .

[rjm1cc]

Originally Posted by tbill

Old thread-With all of the discussion of 4% (or now 3%) withdrawal rate, does this include the earnings within the account?

Example: If one starts with $100,000 and withdraw 4%, that equal $4,000 per year. But what about the earnings on the fund (say $3,500 in the 1st year)

Are the published commentaries including the earnings as the new base or do they leave it out of the equations, so that the number of years with a balance actually expand past 25?

If one took the $4,000 but $140 came from the earnings ($3500.*.04) then one would only need to withdraw $3,860 from the beginning balance.

I realize this does not make much of a difference on a $100,000 fund, but it would at 1M or 2M.

The rule includes all. Let say the stock market went up 10% or 10,000. You also got dividends of 1,000. At the end of the year you took out 4,000. You balance is now 107,000. Next year you would take out 4,000 plus inflation.

[JustMike77]

Thank you for unearthing this old thread. I've always wondered if they mean 4% of the principle PLUS that year's returns. Otherwise, if you're earning 4% on your investments and you take out 4% a year, the account would never go down.

[mathjak107]

it is always 4% of the initial balance plus inflation adjusting .

personally i do not use a fixed withdrawal rate . i use a dynamic one that changes a bit yearly but just a bit .

i take my actual account balance on dec 31 and figure 4% . if markets are up from the year before i get 4% of a bigger balance .

if they are down instead , i take 4% of the balance or 5% less then the previous year , which ever is higher , no matter how far we are down . if the following year is down a lot again i take another 5% cut .

that avoids big changes in income and in back testing it never ever ran out of money since it is dynamic .

in practice no financial adviser ever hands a client the 4% rule which was never meant to be a rule and goes here , have a nice life . thins can be far more complex then that

[Mr. Lee]

The thought of 4% causing my funds to run out in 30 years on a 50/50 is troubling for me since my wife probably will need money many years past 30 years as she is much younger, that is why I have been looking into annuities for maybe half of my portfolio and getting more aggressive with the other half, say into a balanced fund, any thoughts on that scenario and any suggestions for funds that are middle of the road security wise, I now have some extra money in the Fidelity Balanced Fund FBALX?

Also, as for keeping busy, I am a advanced class Amateur Radio Operator (Ham) and I highly recommend people getting involved in that as a hobby, as it can keep you as busy as you wish to be and you get to meet all types of people and even people from different countries, if you wish to. Then besides that, I am an administrator on another forum and a moderator on yet another forum, and a member of another forum besides this one, all those others are about the Philippines, so they keep me busy dealing with all the spammers, keeping the posts in the proper sections, and occasionally having to deal with members, and reading on the one I am not staff on, then the most important is we are always going out with friends when in Florida and also when in the Philippines. I always wonder when I had time for work, back when I was working, lol.

Retirement is great, the hardest part is trying to make sure there will always be enough money to keep doing the things we enjoy doing and enough money left over for my wife, thus the 4% rule is a consideration to me...

[leastprime]

I'm looking at 5-5 1/2% but taxes will take 1-1 1/2% to make ~4%.