question about safe withdrawal rate (move, conversation, best, return)
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Thank you so much, guys! So it is the percent of the starting amount in one method, and then there are the alternates like the Bob Clyatt book.
Note to self, get this book and read it.
I came with 3 because I want to take the minimum I can, be safe with longevity, and leave something to children and grandchildren.
It depends on your allocation… 4% with 40-60% equities is so conservative that it left you with more than you started with 90% of the 121 rolling 30 year retirement time frames to date .
67% of the time it left you with more than 2x what you started with .
On the other hand fixed income with no equities has failed to last at 4% 60% of all the time frames we have already had, so that would be way to high
Yeah I'm good with a rate that works 90% of the time.
A question I have always wondered, and MJ touched on it earlier, is what rate do you take in a down market? Say you start with a million and take $40,000. The next year the market is down and your balance is now $912,000. Do you withdraw 4% from the $912, 000 figure leaving you with a $36,480 withdraw and a $3,520 pay cut? Or do you stay with the $40,000 withdraw which drops your balance considerably below a million dollars?
I think that is what he is saying the Clyatt book is about? You have a formula to deal with this? It
's dynamic, but it's not based on the 912000 figure.
Yeah I'm good with a rate that works 90% of the time.
A question I have always wondered, and MJ touched on it earlier, is what rate do you take in a down market? Say you start with a million and take $40,000. The next year the market is down and your balance is now $912,000. Do you withdraw 4% from the $912, 000 figure leaving you with a $36,480 withdraw and a $3,520 pay cut? Or do you stay with the $40,000 withdraw which drops your balance considerably below a million dollars?
If you are using the regular 4% swr then the whole idea is no cut is needed in down years …..you still take what you did last year and inflation adjust it too ..
A few down years don’t matter …the worst of times were based on 20 flat years in equities , double digit inflation..nothing has come close to 1965/1966 which is the worst to date for a retiree.
A cut is only needed if it does not look like you are averaging a real return of at least 2%- 8 to ten years in to retirement
With any withdrawal plan the risk is that you live too long and or the market crashes for a long period of time.
For the market crash you should have a reserve of "cash" so you do not have to sell equities in a down market.
For a simple approach I would use the RMD's as long as the market was not crashing. If the RMD gives you more than you need (up markets and you are getting older) then save that or do not remove the funds from the account if you are not required to take RMD's
With any withdrawal plan the risk is that you live too long and or the market crashes for a long period of time.
For the market crash you should have a reserve of "cash" so you do not have to sell equities in a down market.
For a simple approach I would use the RMD's as long as the market was not crashing. If the RMD gives you more than you need (up markets and you are getting older) then save that or do not remove the funds from the account if you are not required to take RMD's
More a myth then fact …..any extended crash longer then a few years would run out of cash anyway .or the weight of holding way to much cash would make that worse then the portfolio holding less cash and having higher up years .
Even spending down in good and bad times over the 121 30 year retirement periods we have had has had 100% equites failed just one more time frame then 50/50 did
Any crash’s less then 3-5 years wouldn’t likely matter.
So cash buckets are more a mental thing then a financial thing
As kitces found
EXECUTIVE SUMMARY
As baby boomers continue into their retirement transition, two portfolio-based strategies are increasingly popular to generate retirement income: the systematic withdrawal strategy, and the bucket strategy.
While the former is still the most common approach, the latter has become increasingly popular lately, viewed in part as a strategy to help work around difficult and volatile market environments.
Yet while the two strategies approach portfolio construction very differently, the reality is that bucket strategies actually produce asset allocations almost exactly the same as systematic withdrawal strategies; their often-purported differences amount to little more than a mirage!
Nonetheless, bucket strategies might actually still be a superior strategy, not because of the differences in portfolio construction, but due to the ways that the client psychologically connects with and understands the strategy!
With any withdrawal plan the risk is that you live too long and or the market crashes for a long period of time.
For the market crash you should have a reserve of "cash" so you do not have to sell equities in a down market.
For a simple approach I would use the RMD's as long as the market was not crashing. If the RMD gives you more than you need (up markets and you are getting older) then save that or do not remove the funds from the account if you are not required to take RMD's
rmds dont account for inflation ..
rising inflation may hae markets return positive years but not enough to keep up with inflation .
exceptionally good years , especially early on can have rmds over drawing more then you should . so it can get complex as to what to do each year . it leads to an overly complex plan doing different things at different times
Percent of people in the US over 65 is 16%. Percent of the 16% that is over 90 is 5%. 5% of 16% is 0.8% (less than 1%). So, if you're 60 you likely don't need the money to last 40 to 50 years.
Basic math will tell you that if you have 1,000,000 and you do not have it in any risk asset you could just divide the amount by your number of remaining years; use 30 and you could spend 33,333.33 a year (with no inflation adjustments so that money is worth less as time goes by). The average rate of inflation since 1990 is 2.39%. So, in 30 years that money would be worth 50% less.
If you put $1,000,000 in a money market fund earning 1% per year in Year 1 you would earn $10,000 in interest and withdraw $30,000;
by Year 20
564,144.2 Balance Beg. of Year
5.2605% 3% with 3% per year inflation
29,676.9 Withdrawal
5,641.4 Interest Earned
540,108.7 End of Year Balance
This is what would happen if you don't put your money at risk.
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