Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
swr certainly applies to fixed income . even bank accounts have spending down during negative real return years causing excessive spending in years you don't keep up with your personal cost of living .
here is exactly how the success rate of portfolio survival (swr) shapes up with or without equities ...
you can see trying to draw just 3% of your portfolio value from fixed income , with no equities has already failed to last 20% of all 116 30 year periods to date and is not considered a safe draw from that portfolio and allocation .. so for comparison purposes the worst case scenario's we have had already destroyed that draw to many times . while 25% equities did better it still has not passed the stress testing .
while we can't predict the future , we certainly can use something that survived the worst of the past . then all the other income we bring from other sources as well as our own spending patterns and life expectancy can add to that allowing a bigger cushion for the awe craps .
but a safe withdrawal rate is only a comparative for getting to the gate . it was never designed for being a life long spending method as we don't spend like robots .
it is a comparison eliminating human intervention so an industry standard method of comparison can be had between various portfolio allocations , draws and years on the portfolio portion of your income only . . .
we have less expenses at times and far greater ones at other times and life is filled with emergencies and unexpected spending . .
but i still would no have used fixed income for a 3% draw no matter what so these stress tests do mean something . they grade the portfolio portion for the max you can safely pull initially from your portfolio to add to your other income sources .
Last edited by mathjak107; 05-23-2017 at 07:44 AM..
so how does social security figure in to the stress testing when delaying ?
lets take a million dollars , a 100k a year need for income and 50k in ss cutting in at 70 .
so a calculator like fire calc will stress test the first 8 years drawing a 100k a year inflation adjusted each year for 8 years under worst case scenarios since you are making up the total amount .
it will then take your balance under worst cases at the 8th year and stress test your portfolio for 50k a year in draw for 22 years inflation adjusted .
under worst case scenario's it will see if you have money left at the 30th year and if not how many times did you all ready deplete the portfolio trying to provide its 1/2 of the 100k to combine with the ss .
if 90% of the 116 time frames you had money left ,you are initially okay in the standardized testing . in this case it will likely give you a failing grade since 100k draw for 8 years and 50k draw for the balance is more than that portfolio could support in theory . it may be prudent to plan on less from the portfolio in this case unless things pan out better than worst case as time goes on .
a safe withdrawal rate is not just based on 30 years . you can calculate it over any amount of time ,some of us have 35 or 40 year retirements . it just means it is bench tested against the worst of the rolling 35 or 40 year time frames
Last edited by mathjak107; 05-23-2017 at 08:10 AM..
Exactly my point as well! I did not think Firecalc could do that. I will have to re-examine it. Common sense tells you your example would fail. 50k would be a 5% withdrawal rate on a million, which we all know fails a pretty high percentage of thr time, much less with 8/30 years at 100k!!
it was just an example of how it would come back if you tried to over do the draw as well as how it is done . .
yes firecalc does it . so does fidelity . they ask you for a start date for ss then recalculate your lower starting balance and the remaining years at the lower draw .
Unless you are talking about totally stable and risk free returns, how can you predict a SWR when you don't know what the economy will bring? People have lost half their paper worth with market crashes three times in my lifetime, and real estate busts twice, and run away inflation eroded the value of money once. Nine years ago when I retired my 401K was earning $17,000 per year. Today it is earning $3,000 a year. Luckily I reinvested all of it and still do. If I needed those returns and some of the principal to live on I would be in bad shape, and in about 10 years from now it would all be gone. No earnings, no principal. This year I start my mandatory withdrawals, which will last 26 years. My pension and SS and mandatory withdrawals are all good for life, and pass to my wife when I die. No way I'm going to make it to 79, never mind 97, but my wife will be covered, and our kids can have whatever is left.
But if it hits the fan I still have my home and savings to live on and no debt. There's no way to predict the future, either for the economy, or for yourself. As a retiree, enjoy every day the best you can, but don't dig yourself into a hole with speculations and dubious projections. There's not enough time to get out of it.
Quote:
Originally Posted by Perryinva
That was a terrible analogy. Your other explanations were fine. SWR is defined as the rate of withdrawal, using a specific method of withdrawal from an account that predicts that acount lasts for a defined number of years.
a safe withdrawal rate is based on the absolute worst conditions we have ever had .anything better is a plus .
we have had nothing worse in 51 years for any retiree group than those worst case scenarios a safe withdrawal rate is based on . .
sure a worse perfect storm can strike than 1965/1966 retirees saw but it is easy enough to monitor .
you need to maintain a 2% real return average over the first 15 years of a 30 year retirement to have a 4% swr hold with at least 35-40 equities .
if you are 5 or 6 years in and below that average real return , a red flag should go up that a spending cut may be needed and that portfolio may not be able to contribute as much as you are trying to take ..
a safe withdrawal rate has little to do with average returns and what the economy does .
all that matters is we don't see anything worse than those worst cases we had which so far have not been equaled , not 2000 not 2008 .
only bad investor behavoir would have hurt someone since 1966 , not markets . .
Last edited by mathjak107; 05-24-2017 at 03:37 PM..
excellent look at just what safe withdrawal rate's are actually based on by michael kitces . michael is one of the most respected voices in modern day retirement research .
the industry moves on much of what he shows us .
here is a summary :
EXECUTIVE SUMMARY
As retirees and their planners adjust to the ‘new normal’ – a world of lower-than-average returns for the foreseeable future, many have questioned whether the historical safe withdrawal rate research is still valid. After all, if returns will be below average in the coming years, doesn’t that imply safe withdrawal rates must be below average as well?
In point of fact, though, safe withdrawal rates do not depend on average returns in the first place; the worst safe withdrawal rates in history that we rely upon are actually associated with 15-year real returns of less than 1%/year from a balanced portfolio! Accordingly, given current bond yields, dividend yields, and inflation, if the current environment for today’s retirees will result in a “new record low” safe withdrawal rate, the S&P 500 would still have to be no higher in 2027 than it was in 2007 or even 2000! On the other hand, merely projecting equities to recover to new highs by the end of the decade or generating a mid-single-digits return would actually represent an upside surprise, allowing for higher retirement spending than 4.5% safe withdrawal rates!
The inspiration for today’s blog post is some recent conversations I’ve had with other planners, who have questioned whether the safe withdrawal rate research is still relevant in today’s low return environment. “In the ‘new normal'”, the planner usually states, “returns are likely to be lower than historical averages for both stocks and bonds. Doesn’t that mean historical safe withdrawal rates are unrealistic?”
“Not at all,” I reply, “Because historical safe withdrawal rates aren’t based on historical averages. They’re based on historical worst case scenarios.”
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
