Author Topic: A question about 4 % withdrawal  (Read 3597 times)

Miss Prim

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A question about 4 % withdrawal
« on: May 12, 2018, 06:58:04 AM »
Hi all.  My husband and I retired 3 years ago and I am 64 and he is 68.  At the time we retired, we had 1.3 mil. Since than, our stash has grown to over 1.5 mil. because we have not pulled out much due to selling a cottage one year and selling a rental property the next year.  We have been using the funds from those to live, travel a lot, rent a place in Florida for the winter, give substantial money gifts to children, etc.  Also, my husband still runs a small commercial cleaning business that is subcontracted out, so minimal work on his part, mostly just ordering supplies in and billing. 

Do you think with our ages we could safely adjust our 4% withdrawal based on 1.5 mil?  I'm guessing yes, but just want confirmation that it would be ok to do.  I would like to continue all of the things that we have been doing while we are still young enough to enjoy life and to do that I would help to have a bit more money. 

I have been so glad to have found this site as it made it that much easier to decide to retire a little earlier than my peers (61) and not worry about money.  We actually were very frugal in our youth and managed to amass our stash although we never made a lot of money.

Thanks,  Miss Prim

sokoloff

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Re: A question about 4 % withdrawal
« Reply #1 on: May 12, 2018, 07:14:32 AM »
Do you think with our ages we could safely adjust our 4% withdrawal based on 1.5 mil?  I'm guessing yes, but just want confirmation that it would be ok to do.
Imagine that you had worked for the last 3 years and retired today. Upon what figure would you base your withdrawals? $1.5MM, right? So, in that naive analysis, it's absolutely "yes".

The 4% isn't an ironclad number. It's a great number for modeling and targeting. If you experience the worst case outcomes, do you have the flexibility to rein in your spending a little bit? If do, then you can freely spend up to the higher number.

dude

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Re: A question about 4 % withdrawal
« Reply #2 on: May 12, 2018, 07:58:14 AM »
agree with sokoloff, yes.  just be aware that you are beginning 4% withdrawals in a historically overvalued market, thus increasing the likelihood of a negative sequence of returns, and be ready to adjust your spending/withdrawals accordingly if/when the market drops. Are either of you taking Social Security yet?

thriftycanadian

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Re: A question about 4 % withdrawal
« Reply #3 on: May 12, 2018, 08:22:23 AM »
Unless there is a depression era style economic downturn, with a 4% withdrawal rate, you will very likley end up with substantially more money at the end of your life.  Add in some flexibility in bear markets to reduce your sending slightly, and you are pretty much bullet proof to never run out of money.

This is assuming a mix of low cost stock and bond indexes - rebalanced annually.

DreamFIRE

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Re: A question about 4 % withdrawal
« Reply #4 on: May 12, 2018, 09:16:16 AM »
1.5M and I assume SS as well, you should be able to live it up a little.  Enjoy!

reeshau

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Re: A question about 4 % withdrawal
« Reply #5 on: May 12, 2018, 05:07:34 PM »
just be aware that you are beginning 4% withdrawals in a historically overvalued market, thus increasing the likelihood of a negative sequence of returns, and be ready to adjust your spending/withdrawals accordingly if/when the market drops.

dude brings up a good caution.  I would say, yes you could increase, if you also are willing to adjust down your withdrawals, should the market take a big downturn.  If you are looking to make this your new "floor," through a home upgrade, another car, etc. then you should view this as cushion to your plan, and not adjust.

Live by the sword, die by the sword.

Alternatively, if you don't have a large emergency fund, that could be a goal for this windfall, too:  adjust to 4% of $1.4M, and put $100k into cash or a very conservative investment.  That would help you weather whatever the next storm is.  Look out for tax implications if you make big changes to your investments, though.


Miss Prim

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Re: A question about 4 % withdrawal
« Reply #6 on: May 13, 2018, 05:52:53 AM »
Thank you all for the replies!  Yes, I guess I want to pretend that I just retired this year and use 1.5 as my number.  My husband started SS. at 66 and I took it at 64 because I was not getting a subsidy for the ACA due to the unfortunate timing of selling two large assets which for reasons had to be sold.  We would be more than able to adjust our spending in a down market because we would just travel less and give lower gifts, so no problem there. 

The absolute wierdest thing is that we now have more money coming in than we ever made in our entire lives!  We always saved about 20% of our income and some years I only worked part-time and husbands income was kind of erratic too.  But, as my husband says, "its hard to beat the cheap out me" as I have to constantly remind him that "we have the money for that!"

                                                               Miss Prim

Livingthedream55

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Re: A question about 4 % withdrawal
« Reply #7 on: May 16, 2018, 10:16:43 AM »
Thank you all for the replies!  Yes, I guess I want to pretend that I just retired this year and use 1.5 as my number.  My husband started SS. at 66 and I took it at 64 because I was not getting a subsidy for the ACA due to the unfortunate timing of selling two large assets which for reasons had to be sold.  We would be more than able to adjust our spending in a down market because we would just travel less and give lower gifts, so no problem there. 

The absolute wierdest thing is that we now have more money coming in than we ever made in our entire lives!  We always saved about 20% of our income and some years I only worked part-time and husbands income was kind of erratic too.  But, as my husband says, "its hard to beat the cheap out me" as I have to constantly remind him that "we have the money for that!"

                                                               Miss Prim


Ha ha!! You guys are going to be just fine! Congrats!!!   : 0 )

soccerluvof4

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Re: A question about 4 % withdrawal
« Reply #8 on: May 19, 2018, 04:11:28 AM »
I'd say your in great shape. As others mentioned I would keep a little large cash stash aside like someone said 100k and definitely adjust as your return allow. I think of 4% as my center point. I might do 5% one year and 3% another.  But I keep a little more cash on the side for market drops, times i dont want to withdrawal etc..

Roadrunner53

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Re: A question about 4 % withdrawal
« Reply #9 on: May 28, 2018, 05:29:50 AM »

MDM

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Re: A question about 4 % withdrawal
« Reply #10 on: May 28, 2018, 10:50:16 AM »
Use this calculator: https://www.mycalculators.com/ca/retcalc1m.html
Or don't, because that one does not consider sequence of returns, and thus makes the same mistake Bengen and the Trinity professors addressed years ago.

Dicey

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Re: A question about 4 % withdrawal
« Reply #11 on: May 28, 2018, 11:32:48 AM »
just be aware that you are beginning 4% withdrawals in a historically overvalued market, thus increasing the likelihood of a negative sequence of returns, and be ready to adjust your spending/withdrawals accordingly if/when the market drops.

dude brings up a good caution.  I would say, yes you could increase, if you also are willing to adjust down your withdrawals, should the market take a big downturn.  If you are looking to make this your new "floor," through a home upgrade, another car, etc. then you should view this as cushion to your plan, and not adjust.

Live by the sword, die by the sword.


Alternatively, if you don't have a large emergency fund, that could be a goal for this windfall, too:  adjust to 4% of $1.4M, and put $100k into cash or a very conservative investment.  That would help you weather whatever the next storm is.  Look out for tax implications if you make big changes to your investments, though.
@reeshau, care to elaborate on the bolded part? I see no evidence that our Miss Prim needs such admonishment.

reeshau

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Re: A question about 4 % withdrawal
« Reply #12 on: May 28, 2018, 06:51:05 PM »
Dicey,
My point was somewhat like MDM's:  if you are going to take a very short-term view of your nest egg and adjust due to short-term differences, you need to be prepared to adjust down with the same alacrity / criteria as you adjust up.  If not, you are setting yourself up for maximum chances of sequence of returns risk:  that is, if you continue to adjust up as your balances increase, you will eventually end up like someone who retires just before a recession.  This was exactly the case that drove Bengen's 4% SAFEMAX rate: retirees in the mid-sized to late- sixties who faced the 1973-74 recession and high inflation following.  That combination is very dangerous to someone living on stock investments.

maizeman

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Re: A question about 4 % withdrawal
« Reply #13 on: May 28, 2018, 07:21:25 PM »
Use this calculator: https://www.mycalculators.com/ca/retcalc1m.html
Or don't, because that one does not consider sequence of returns, and thus makes the same mistake Bengen and the Trinity professors addressed years ago.

Yikes. In addition to not considering sequence of returns risk, that calculator asks to to enter the "number of years you plan to be retired."

If I knew which year I was going to die, this whole retirement process would be a lot easier to plan for.

Dicey

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Re: A question about 4 % withdrawal
« Reply #14 on: May 28, 2018, 11:17:42 PM »
Dicey,
My point was somewhat like MDM's:  if you are going to take a very short-term view of your nest egg and adjust due to short-term differences, you need to be prepared to adjust down with the same alacrity / criteria as you adjust up.  If not, you are setting yourself up for maximum chances of sequence of returns risk:  that is, if you continue to adjust up as your balances increase, you will eventually end up like someone who retires just before a recession.  This was exactly the case that drove Bengen's 4% SAFEMAX rate: retirees in the mid-sized to late- sixties who faced the 1973-74 recession and high inflation following.  That combination is very dangerous to someone living on stock investments.
Thanks for the details, but the proverb you used still seems...odd.

Gone Fishing

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Re: A question about 4 % withdrawal
« Reply #15 on: May 29, 2018, 12:28:42 AM »
How are you invested?

reeshau

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Re: A question about 4 % withdrawal
« Reply #16 on: May 29, 2018, 08:00:06 AM »

Thanks for the details, but the proverb you used still seems...odd.

OK, let's try it this way:  be careful about adjusting to your (annual) balance--this is not rebalancing, as you did when you were saving.  If you are going to do this, annually or otherwise, you need to do it *down* as well as *up*, or you will get in trouble--it is nowhere near the conservatism that someone professing to follow the 4% rule is actually living by.

Perhaps you would think "what adjustments giveth, they taketh away" would be better?

BTDretire

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Re: A question about 4 % withdrawal
« Reply #17 on: May 29, 2018, 09:08:28 AM »
"its hard to beat the cheap out me"
 Yep, I agree with that and I'm using that line now!
 I'll use air quotes to respect the source :-)
« Last Edit: May 30, 2018, 07:16:41 AM by BTDretire »