Quote:
Originally Posted by jrkliny
You are mixing up two issues which is leading to foggy thinking. We have been discussing the SWR. That means just what it says. That is the rate of withdrawals that can last. It is based on withdrawals that are inflation adjusted but otherwise constant.
Having resources to handle unexpected large bills or emergencies is something completely different. I have always been a big believer in having an emergency fund. I have needed and partially used mine numerous times. At this time in life those emergencies might include major medical costs. We have done what we can with LTC insurance and planning. We have pretty much every important insurance in place including a large umbrella policy. I have a large emergency fund which is not part of my fund for regular spending. I recommend that everyone who retires consider this. It is something I started before the age of 20 and it has grown appropriately over time. How big that should be is a separate consideration based on risk tolerance and what we can afford. As with a SWR, there can be circumstances none of us can ever consider covering.

no , it is not two different issues because there are different ways to arrive at a safe withdrawal rate .. a safe withdrawal rate is a floor that can be counted on WITH A HIGH RATE OF SUCCESS , not a max . IT CAN BE PRONE TO FAILURE IF RUN UP AT THE LIMITS .
the max can be all over the place depending on the withdrawal method used . you are looking only at one method called constant spending , but there are other method ...you will have a bigger or smaller balance and different protection and success rates as more or less of the excess is drawn off .
the bob clyatt dynamic method i use generates a safe withdrawal rate amount too and it is different from the recalculating method or the ratcheting up method .
it too is based on 4% .
you are losing sight of the fact a safe withdrawal rate is a floor not a max day one of retirement ..no matter what method you use in practice they are likely going to be more than you started with over time.
there are advantages and disadvantages to all the methods of taking raises .
recalculating moves the pointer back to square one with a success rate that will be less than 100% over 30 years at 4% but makes you susceptible once again to the proverbial getting whacked day one and getting hurt exposure .
that is because it reduces the cushion you had that no longer made you susceptible to the general problems you can hit .
the ratcheting up method keeps more with the house and gives you less of a draw ..it does not reset your pointer to day one of retirement and it is unaffected by the usual problems a retirement can see because it has a bigger balance and is passed the danger point in time .
i use a dynamic draw ... it rewards me when markets are up but cuts me very little when down ... all inflation adjusting is automatically built in .
it can never fail so it is not susceptible to failing under worst case outcomes . but the disadvantage is it does give a pay cut in bad times although capped at 5% .
so you see , you are losing sight of the fact a safe withdrawal rate is not locked in to one method or number ... in fact there is a tab in firecalc for using other methods .
here are the results for 3 methods of determining a SAFE WITHDRAWAL RATE ..all have different draws , success rates and balances .
using 50/50 , 1 million and 30 years you have 3 different methods of finding a safe withdrawal rate and all have different draws , balances and success rates .
this is my 95/5
FIRECalc Results
Following the "95% Rule," from Work Less, Live More, each subsequent annual withdrawal will be the greater of 95% of your previous year's withdrawal, or 4.0% of your current portfolio, with no adjustment for inflation (unlike the normal FIRECalc behavior, which uses your starting portfolio, and makes adjustments for inflation). Although the calculations are based on unadjusted withdrawals, the charted withdrawals are shown using 2019 dollars.
FIRECalc looked at the 119 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 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $526,538 to $2,280,399, with an average at the end of $1,091,168. (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.)
In other models in FIRECalc, "failure" means the portfolio drops to zero. Since you are limiting spending to a percentage of your remaining portfolio, the total balance should never reach zero — but it could become pretty small in some situations. Pay attention to the spending graph, below. Since we can't use portfolio failure as a metric, FIRECalc is following the lead of the 95% Rule from Work Less, Live More, in which one of the goals is for the portfolio to be as big (after adjustment for inflation) at the end of the 30 years as it was when you started. FIRECalc found that 48.7% of the time, the portfolio you would have left behind exceeded the portfolio you started with.
this is constant spending , the traditional method
FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 119 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 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $223,952 to $4,145,063, with an average at the end of $1,146,780. (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 6 cycles failed, for a success rate of 95.0%.
this is bernicke's method
FIRECalc Results
Following the "Reality Retirement Plan" as described by Ty Bernicke,
FIRECalc looked at the 119 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 119 cycles. The lowest and highest portfolio balance at the end of your retirement was $351,581 to $4,605,255, with an average at the end of $1,581,340. (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 0 cycles failed, for a success rate of 100.0%.