I agree and have linked to most of the articles in ERN’s series via The Sunday Best. He recently released the 13th post in the SWR series.
The lower your stock allocation and the longer your time frame, and the higher the starting valuations (CAPE, etc…) the more likely 4% could fail you. The key is to be flexible and have contingency plans. You could start with a lower withdrawal rate OR ratchet spending down in a market downturn, OR earn income as a retiree, plan on social security helping, etc…
I have been increasingly researching the 5% withdrawal rate. That is, withdrawing (up to) 5% of the portfolio annually. I accidentally stumbled across it on portfolio visualizer, when I could not seem to run out of money with the “4% SWR”, even up to 10%.
This is not the same as the Trinity Study SWR, where you withdraw 4% (or whichever) the starting value of your portfolio and increase that number annually with inflation.
I am referring to withdrawing 5% of the January 1 balance each year (or at least having the ability to do so). Some years that number will be higher than others, but so long as your balance starts high enough, and you can be flexible with your discretionary spending, it seems logical to do so.
Just came across this simulation. Thought it would be helpful for any FIRE types here planning on long retirements. Doesn’t look like the 4% rule is necessarily safe – especially if you want money left over to pass on in an estate. Thoughts from the FIRE community?
https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/
I’m curious if ERN can run simulation on a japanese citizen retiring in 1989 (right before their big crash) if they had lets say 75% of their retirement in the Nekkei (rest lets say international). What is their SWR?
Not doom and gloom, I’m genuinely interested.
I’m curious if ERN can run simulation on a japanese citizen retiring in 1989 (right before their big crash) if they had lets say 75% of their retirement in the Nekkei (rest lets say international). What is their SWR?
Not doom and gloom, I’m genuinely interested.
Looks like a 50:50 stock:bond SWR was 0.25% for Japan (apparently between 1900 and 2014) using domestic assets, and 2.2% using a global 50:50 portfolio (with returns measured in local currency): https://www.advisorperspectives.com/articles/2014/03/04/does-international-diversification-improve-safe-withdrawal-rates.
I’m curious if ERN can run simulation on a japanese citizen retiring in 1989 (right before their big crash) if they had lets say 75% of their retirement in the Nekkei (rest lets say international). What is their SWR?
Not doom and gloom, I’m genuinely interested.
Looks like a 50:50 stock:bond SWR was 0.25% for Japan (apparently between 1900 and 2014) using domestic assets, and 2.2% using a global 50:50 portfolio (with returns measured in local currency): https://www.advisorperspectives.com/articles/2014/03/04/does-international-diversification-improve-safe-withdrawal-rates.
Nice. Sign me up. This would never happen in the USA …because we are better than everyone?
I have been increasingly researching the 5% withdrawal rate. That is, withdrawing (up to) 5% of the portfolio annually. I accidentally stumbled across it on portfolio visualizer, when I could not seem to run out of money with the “4% SWR”, even up to 10%.
This is not the same as the Trinity Study SWR, where you withdraw 4% (or whichever) the starting value of your portfolio and increase that number annually with inflation.
I am referring to withdrawing 5% of the January 1 balance each year (or at least having the ability to do so). Some years that number will be higher than others, but so long as your balance starts high enough, and you can be flexible with your discretionary spending, it seems logical to do so.
Just seems like a lot to pull out. I’d imagine a 4% SWR would be a bit high for those who plan to start pulling it in their 40s.
I don’t even hold half a million in cash like some people I read about online. ?
I just read this article over at Mr. Money Mustache and he seems to still feel that the 4% rule is generally safe and has a pretty convincing argument with historical data to back it up. Worth a read and very relevant to this discussion…
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/
I just read this article over at Mr. Money Mustache and he seems to still feel that the 4% rule is generally safe and has a pretty convincing argument with historical data to back it up. Worth a read and very relevant to this discussion…
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/
The essence of his argument is:
“The trinity study assumes a retiree will:
- never earn any more money through part-time work or self-employment projects
- never collect a single dollar from social security or any other pension plan
- never adjust spending to account for economic reality like a huge recession
- never substitute goods to compensate for inflation or price fluctuation (vacation in a closer place one year during an oil price spike, or switch to almond milk in the event of a dairy milk embargo).
- never collect any inheritance from the passing of parents or other family members
- and never do what most old people tend to do according to studies – spend less as they age”
But these don’t have anything to do with the question. The question is: How much of your portfolio can you spend without depleting it?
The question is not: How can I avoid living under a bridge if I deplete my portfolio? (The answer to that question involves going back to work, or reducing annual spend as the portfolio shrinks, etc.)
Tweet
Comment