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I retired in 2010 and have been pulling about 4% out of my 401k each and every year. The experts told me I should be about 60% total stock market and 40% Total Bonds/Cash. The experts also told me that I should pull out about 4% each year from my retirement portfolio, based on my starting figure, and increase that amount each year 2-3% to cover inflation. I have been following the advice of these experts for almost 8 years.
Now after almost 8 years in retirement my starting million dollars in retirement savings in my 401k is now $1.7 million. (Due to the Bull Market.) Can I restart the clock and start pulling 4% out of my current 401k assets of 1.7 million (instead of my starting figure of One Million) now so I can spend more money and enjoy life more? What do the experts say?
Last edited by always thinking; 09-15-2018 at 03:49 AM..
I retired in 2010 and have been pulling about 4% out of my 401k each and every year. The experts told me I should be about 60% total stock market and 40% Total Bonds/Cash. The experts also told me that I should pull out about 4% each year from my retirement portfolio, based on my starting figure, and increase that amount each year 2-3% to cover inflation. I have been following the advice of these experts for almost 8 years.
Now after almost 8 years in retirement my starting million dollars in retirement savings in my 401k is now $1.7 million. (Due to the Bull Market.) Can I restart the clock and start pulling 4% out of my current 401k assets of 1.7 million (instead of my starting figure of One Million) now so I can spend more money and enjoy life more? What do the experts say?
the general rule of thumb is if your balance is 50% larger than the day you started take a 10% increase in addition to an inflation raise .
repeat every 3 years if the balance is still 50% above your initial starting point . other wise you will leave to much money left over in anything better than worst case outcomes .
the idea of waiting 3 years in between each raise is to avoid taking to much to fast .
so i would say you have at least 2 10% raises due you plus inflation adjusting if you are still 50% above where you started .
Last edited by mathjak107; 09-15-2018 at 03:47 AM..
If you do some reading on the 4% rule you will find a lot of adjustments to it. I think it is a good rule as you start your career but you have to adjust it to the market.
Yes you can start over since you have been doing this for a few years. Remember it is designed to get you through the worst market. If the first half of your retirement has a rising market you have a lot less of a problem with a falling market at the end of retirement.
I hope your bonds are individual and not mutual funds as interest rates should increase.
You might try the IRS MRD tables. These consider the market. Do a back test for your case.
Remember the 4% rule has a large number of years of falling interest rates so the history is not matching the expected future. It also uses a 30 year life which maybe too short.
For safety make sure you have a couple of years of your cash needs in something (CD's) that you can cash in if the market crashes.
Sticking with the 4% rule figure out your cash needs from your investments and multiply by 25 (4% in disguise). Say you need 50,000. That would say you need 1,250,000 in savings for 30 years in the worst market SEQUENCE. That means that you could splurge with your excess assets.
I assume you are increasing the 4% for inflation each year
the easiest way to handle real world draws i find is to use a dynamic system .
you don't ever want to use anything like basing it on variable an rmd schedule though. . another 2008 balance crushing event would leave you unlikely to pay bills with a large market fall as that income using the variable rmd chart would be anything but consistent ..
don't forget the whole idea of a safe withdrawal rate is a consistent income you can plan around in good and bad times . an rmd schedule is anything but that . it varies yearly greatly in dollars .
it is also the reverse of what we want. we want more to spend early on when we are able to do more .
rmd's increase the percentage draw as you age .
but there are other dynamic systems that keep income in a tighter range yet adjust each year with the markets .
i use bob clyatt's 95/5 system . it allows a bit higher draw in good years without crushing reductions in down years .
Last edited by mathjak107; 09-15-2018 at 07:32 AM..
I don't think there is a satisfactory answer to this issue. I analyzed my withdrawals and also retired at the end of 2010. In addition when I retired, my wife and I sold the house and took off in an RV. RV travel was cheap compared with living in a house in a high COL area. Anyway for the first years of retirement we pulled much less than 4%. I have also maintained a fairly high stock allocation for my investments. Now my portfolio has grown almost 3x.
I have used Firecalc to try to understand what is reasonable. If I reapply Firecalc for 25 years instead of the initial 30 years, I supposedly have a 98% success rate in "resetting" my withdrawals. I certainly would not feel safe resetting the clock. That 98% success rate is an average. We have had a long run of decent investment returns. Sooner or later we are going to see a recession. We might also see a prolonged period with little or no returns on investments. Personally, I am just splitting the difference. If we have a couple more good years on returns, I might increase withdrawals again. If the economy has a set back, I should not have to reduce withdrawals and I will be happy I did not overspend when times were looking good.
under average outcomes a safe withdrawal rate is 6.50% . but since we don't plan safe withdrawal rates around anything but worst outcomes it is important to take raises every so often if things leave you more than 50% above where you started .
otherwise 90% of the time you will die 30 years later with more than you started .
over 30 years a 10% raise plus inflation adjusting every 3 years if you are still up that much to allow it would be a 100% increase besides inflation adjusting .
I wish I had known when I was younger my investments were going to do so well. I lived a very conservative life since retirement and did not do many of the things I had dreamed about when I first planned my retirement. Now I am old and soon I will be so tired that just leaving the house will be a challenge.
I could have pulled out 8-9% of my starting portfolio since I retired and still have more money today than I started with. What I could have done during those years of relative health!!!! (If I only knew)
however markets spend 80% of their time between the last low and last high . so until the next part of the cycle completes what we all have ain't what we will have for the next ride up from the low . bull markets have an evil twin . the problem is it does not matter how many up years you have . all that matters is the damage in the down cycle when it happens when spending down
Last edited by mathjak107; 09-15-2018 at 02:23 PM..
I don't think there is a satisfactory answer to this issue. I analyzed my withdrawals and also retired at the end of 2010. In addition when I retired, my wife and I sold the house and took off in an RV. RV travel was cheap compared with living in a house in a high COL area. Anyway for the first years of retirement we pulled much less than 4%. I have also maintained a fairly high stock allocation for my investments. Now my portfolio has grown almost 3x.
I have used Firecalc to try to understand what is reasonable. If I reapply Firecalc for 25 years instead of the initial 30 years, I supposedly have a 98% success rate in "resetting" my withdrawals. I certainly would not feel safe resetting the clock. That 98% success rate is an average. We have had a long run of decent investment returns. Sooner or later we are going to see a recession. We might also see a prolonged period with little or no returns on investments. Personally, I am just splitting the difference. If we have a couple more good years on returns, I might increase withdrawals again. If the economy has a set back, I should not have to reduce withdrawals and I will be happy I did not overspend when times were looking good.
A 98% success rate is not an average at all. it means if it is a 30 year retirement than you would have already survived 98% of the 118 30 year retirement periods to date. You may have ended with a dollar but you passed to the end
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