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So I ran the numbers. For $2M and 25 years remaining in retirement, the 90% safety level would be mean a current safe withdrawal of $92K. The Kitces guidelines would mean the OP would have increased for inflation and would now be able to add 20% in addition due to the doubling of the portfolio. That would mean a withdrawal of $54K. Clearly that is a long, long way from what is allowed by Firecalc. It seems Kitces shot from the hip without any analysis or data.
Here is a defense of starting the clock again at age 71 and taking $80K out of a now 2 Million Dollar Portfolio:
1) I am now older and have fewer years on earth to support myself than ten years ago when I retired.
2) What if I would have stayed working until I was 71 and just retired today at age 71 and had 2 million dollars? I would have been told to take 4% out of my investment portfolio, which would be $80K
3) I could put all my money in a CD paying 3% a year and even with a 3% inflation increase each year, that money would last 25 years and I would be dead by then. Remember, I am old!
I like the 4% rule for say 20 to the 50's. But it does have some flaws that you have to consider.
Lets say you retire today with 2,000,000 but your neighbor, with the same portfolio and same age as you, retires a year latter after a stock market crash to 1,000,000. No reason to think you can take 80,000 out but your neighbor can only tax 40,000 out even though your both now have a 1,000,000 portfolio.
The reason I said you can start over is the point you made, you could have worked longer than you did.
It is not a "flaw". The safe withdrawal rate is based on 90-95% probability. There is always a small risk of needing to reduce withdrawals due to absolute worst case situations. Second, how often does the stock market drop in half and stay there for any significant period of time? Next, Firecalc and the 4% rule default to a more typical 60:40 allocation. So a stock market crash to half of the previous value means a drop in the portfolio of about half of that amount. Anyone who established a 4% withdrawal before the recession and continued at the same rate was OK with no long term risk to falling short.
I earned a top school MBA with concentrations in finance and statistics, learning from the researchers who had demolished earlier "rules of thumb" and common trading practices in their careers. They also developed the theoretical frameworks that are followed by many fund managers and highly successful investors to this day.
This is why I find some of the discussion here a bit painful.
JMHO
Instead of being silent and in pain, why not make some more detailed contributions to the discussion.
As should be obvious, most of us who are about to retire or who are retired struggle with this issue. It is hard to understand what we can safely withdraw. The 4% rule is a simple starting point but that really only seems to help at the start of retirement. Later on when the economy has changed, when our portfolios have done better or worst than expected, or when we have gained or lost assets, it is even more difficult to readjust and decide what makes sense.
Instead of being silent and in pain, why not make some more detailed contributions to the discussion.
As should be obvious, most of us who are about to retire or who are retired struggle with this issue. It is hard to understand what we can safely withdraw. The 4% rule is a simple starting point but that really only seems to help at the start of retirement. Later on when the economy has changed, when our portfolios have done better or worst than expected, or when we have gained or lost assets, it is even more difficult to readjust and decide what makes sense.
That is so very true. Twelve years in retirement and things are good But that good still needs to be sorted out and how will the next twelve compare to the first twelve. Age perspective has to be personally developed and can’t always be FireCalc driven.
So I ran the numbers. For $2M and 25 years remaining in retirement, the 90% safety level would be mean a current safe withdrawal of $92K. The Kitces guidelines would mean the OP would have increased for inflation and would now be able to add 20% in addition due to the doubling of the portfolio. That would mean a withdrawal of $54K. Clearly that is a long, long way from what is allowed by Firecalc. It seems Kitces shot from the hip without any analysis or data.
you keep saying the same thing but you are not following why there are two different outcomes ....
recalculating can potentially leave you broke under worst case outcomes the same as anytime you run a success rate and start from day 1 as that is what you are doing , you are resetting the pointer to day one again . , the same as day 1 of retirement , either poor outcomes OR EXCESSIVE SPENDING BECAUSE OF UNEXPECTED LARGE BILLS can do you you in as always ..
if you entered retirement based on having a certain amount , like that 1 million and set your lifestyle , and down the road you are 50% a head of where you started , you pretty much cleared the ever going broke issue pretty much as well as have a huge reserve for unexpected emergencies and unplanned spending ...
so his plan has you taking more money over time keeping that juicy buffer in place and ruling out any failure , even getting hit day one with the bear since you already built up a nice cushion.
recalculating does not leave that big buffer nor are your protected against a failure like you would be with a more controlled slower draw down .
so one way you are setting your self back to ground zero where a nasty early on hit can hurt you as well as you have not cleared the poor outcome if you are the poster child for being like the 1966 retiree .
the ratchet method preserves your large buffer and rules out pretty much any failure while not giving you as large a draw ....
the choice is yours.... if you want to give up some of the cushion and protection you built up that ruled out any failure at all then take a much larger draw and recalculate and start the clock ticking again . .
Last edited by mathjak107; 07-16-2019 at 06:16 PM..
I like the 4% rule for say 20 to the 50's. But it does have some flaws that you have to consider.
Lets say you retire today with 2,000,000 but your neighbor, with the same portfolio and same age as you, retires a year latter after a stock market crash to 1,000,000. No reason to think you can take 80,000 out but your neighbor can only tax 40,000 out even though your both now have a 1,000,000 portfolio.
The reason I said you can start over is the point you made, you could have worked longer than you did.
it is not a flaw .... this is what we are discussing .... the 4% draw rate works fine but under certain conditions it needs raises taken . it was never meant to be a spending plan , only setting a floor ..so raises are important . either by recalculating or by using the ratcheting up method.
the fellow who retired after the drop will have his options for taking raises ... how much of a raise you take will depend on how much of the cushion you have you want to keep with the house ruling out any failure at all as well as providing a bigger buffer for emergency and unexpected spending ... or go back and recalulate as if you are just starting to retire with your new portfolio amount and set the clock ticking again taking a larger draw but being exposed to failure again as all new retirements are and giving back some of the buffer too.
it all depends how much you want to keep with the house .
Last edited by mathjak107; 07-16-2019 at 06:20 PM..
That is so very true. Twelve years in retirement and things are good But that good still needs to be sorted out and how will the next twelve compare to the first twelve. Age perspective has to be personally developed and can’t always be FireCalc driven.
Firecalc and the 4% rules seem to be a good starting point. As simple as they are, it is clear from this discussion that we really don't know how to use them. I have also found little help from the typical sources. The investment houses work to get us to save and invest but they don't provide much useful guidance on withdrawals. My advisor from TIAA helps with allocations but seems to know a lot less than I do about withdrawals.
I do not know what you mean by "age perspective". At this point I have looking at a higher rate of expenditures and I want to know what makes sense. For the past 5 years we have been splitting housing costs with my daughter and her family. We own the house and cover way more than half the costs. My wife and I also have less than half the space and are crowded. That seemed a worthwhile compromise to have grandkids nearby and also to have some backup help as we age. My daughter wants her own place and will be moving out soon. We can become landlords with a illegal apartment or we can sell the place and move or we can stay, spread out and spend more for housing. So we need to look at the numbers and what makes sense.
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