Author Topic: Anyone actually doing a 5% WR or higher ?  (Read 29509 times)

pa2016

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Anyone actually doing a 5% WR or higher ?
« on: March 14, 2017, 08:25:32 PM »
Some posts here seem to indicate the 4% SWR is too conservative. I am curious as to if anyone here is actually doing a 5% withdrawal rate or even higher, especially during the early years of FIRE ? I am thinking that this is actually OK especially if current expenses include mortgage and that chunk of expenses will be gone after the mortgage is paid off. Plus SS will also then kick in...
Would like to hear from you if you are doing a >4% WR !

Financial.Velociraptor

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #1 on: March 14, 2017, 09:41:32 PM »
I started out close to 10% and am now at 5.38%.  I posted about my 8% concept here: http://velociraptor.cc/blog/2017/02/13/the-8-percent-safe-withdrawal-rate/
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Half Stached

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #2 on: March 14, 2017, 09:53:11 PM »
We haven't retired yet, but our target retirement WR is 4.4%. The way we got here was to assume the regular 4% rule, but then figure in the amount we have for projected social security. Given that our target retirement date has me at age 47 and my wife at 56, social security can actually play a meaningful part. So, while we aren't aiming for over 5%, we are aiming higher than 4.

steveo

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #3 on: March 14, 2017, 11:20:19 PM »
I started out close to 10% and am now at 5.38%.  I posted about my 8% concept here: http://velociraptor.cc/blog/2017/02/13/the-8-percent-safe-withdrawal-rate/

I'm game but 10% is really pushing it. Did you retain that spending level. To be clear did you spend less when you retired and therefore your WR declined easily or did you retain the same spending. I don't think that I can decrease my spending much when I retire as I have 3 kids. I read your article and with all due respect I'm not a fan of trying to beat the market to lower your WR.

For me personally my lowest figure is about a 5.7% WR. I'm not sure if we will retire on that figure because I have two tranches of money - one prior to 60 and one post 60. I think we will have more than that but I don't think we will retire on much less than 5%.

« Last Edit: March 14, 2017, 11:24:55 PM by steveo »

DeskJockey2028

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #4 on: March 15, 2017, 08:05:37 AM »
Not yet retired, so take this with a grain of salt. We plan on starting around 10% until my wife's pension kicks in (2-3 years after we retire). Then it'll drop to about 8%. Then SS benefits kick in for her dropping it to about 5%. Then they kick in for me, dropping it to below 3%.

We also know we're up for some kind of inheritance from her parents but have no idea how much (most likely north of $100k) which would change our plans if/when it happened. For obvious reasons, the later the better on that one.

Financial.Velociraptor

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #5 on: March 15, 2017, 08:31:42 AM »
I started out close to 10% and am now at 5.38%.  I posted about my 8% concept here: http://velociraptor.cc/blog/2017/02/13/the-8-percent-safe-withdrawal-rate/

I'm game but 10% is really pushing it. Did you retain that spending level. To be clear did you spend less when you retired and therefore your WR declined easily or did you retain the same spending. I don't think that I can decrease my spending much when I retire as I have 3 kids. I read your article and with all due respect I'm not a fan of trying to beat the market to lower your WR.

For me personally my lowest figure is about a 5.7% WR. I'm not sure if we will retire on that figure because I have two tranches of money - one prior to 60 and one post 60. I think we will have more than that but I don't think we will retire on much less than 5%.

Spending came down about 25% or so (ballpark).  Most of the change in WR comes from growth of stache.
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lthenderson

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #6 on: March 15, 2017, 08:46:02 AM »
Some posts here seem to indicate the 4% SWR is too conservative.

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40.  Many of these comments contradict experts who have studied SWR rates longer than some commentors have been alive. Many people also assume SS and pensions will still be around when they retire and yet I live among friends who have had their pensions cut to fractions of what they were and depending on who you believe, there is a chance SS may be bankrupt with a decade.

Your SWR in an individual calculation depending on how much you have saved up and how many years you are expecting to live. I may have millions saved up and don't expect to live but 20 more years so 10% is a SWR for me however there is a good chance it might not be for you.

TheAnonOne

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #7 on: March 15, 2017, 08:52:32 AM »
Some posts here seem to indicate the 4% SWR is too conservative.

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40.  Many of these comments contradict experts who have studied SWR rates longer than some commentors have been alive. Many people also assume SS and pensions will still be around when they retire and yet I live among friends who have had their pensions cut to fractions of what they were and depending on who you believe, there is a chance SS may be bankrupt with a decade.

Your SWR in an individual calculation depending on how much you have saved up and how many years you are expecting to live. I may have millions saved up and don't expect to live but 20 more years so 10% is a SWR for me however there is a good chance it might not be for you.
Anyone looking at real data will know that SS in the 2030s will pay out 75% of benefits assuming no changes.

75% of ss benefits is such an extreme windfall for the early retiree's portfolio it's frankly amazing. Let alone 100%


That being said, for people like myself looking to fire in their early 30s, SS is so far out it's hard to use it in any meaningful way.

There is, admittedly, a high aversion to work here. So, I see the want to have a higher than 4% WR.

I personally want to hit 4% but that's another 4 to 5 years out. It just seems to drag on.... if I had a way to get some side income passively I would cut the cord a lot faster. Though, I have not come up with one yet.

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Eric

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #8 on: March 15, 2017, 10:22:23 AM »
If you retired at the end of 2012 with a 5% WR of your initial balance, you'd be down to 3.5% WR of your current balance.  Doesn't seem so risky all of a sudden, huh?

(note, rough numbers based on S&P 500 return only, not inflation adjusted)
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TheAnonOne

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #9 on: March 15, 2017, 10:23:06 AM »
Yea, it certainly has an element of timing involved...

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Eric

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #10 on: March 15, 2017, 10:25:49 AM »
Some posts here seem to indicate the 4% SWR is too conservative.

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40.  Many of these comments contradict experts who have studied SWR rates longer than some commentors have been alive. Many people also assume SS and pensions will still be around when they retire and yet I live among friends who have had their pensions cut to fractions of what they were and depending on who you believe, there is a chance SS may be bankrupt with a decade.

Your SWR in an individual calculation depending on how much you have saved up and how many years you are expecting to live. I may have millions saved up and don't expect to live but 20 more years so 10% is a SWR for me however there is a good chance it might not be for you.

The only way for SS to go bankrupt is if the whole US gov't goes bankrupt.  Surely you should expect some changes, but there's no reason for the fearmongering.

Also note that the SWRs are worst case scenarios.  Median WRs are 50% higher.  So you have to ask yourself:

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Slee_stack

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #11 on: March 15, 2017, 10:38:11 AM »
The flip side of being too conservative is over-saving and/or working/earning longer than you need.  Its a nicer scenario than running out of money, but it would still chafe.

Besides, 'retirement' isn't a one way street unless you choose it to be.  If shit really hits the fan, than you can un-retire.

What is your personal risk tolerance?

My situation is not unlike deskjockey's (minus inheritance).  Multiple income streams hitting at different times does adds to complication.

If I stick to an overall 4%, I will likely retire and have a >>4% WR for the first stage (first 5 years?), ~4% WR for the second (years 5 - 10), and likely <4% WR after all income sources are flowing.

Hotstreak

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #12 on: March 15, 2017, 11:46:17 AM »
Anyone looking at real data will know that SS in the 2030s will pay out 75% of benefits assuming no changes.

75% of ss benefits is such an extreme windfall for the early retiree's portfolio it's frankly amazing. Let alone 100%


That being said, for people like myself looking to fire in their early 30s, SS is so far out it's hard to use it in any meaningful way.

...

This is such an important point that often gets overlooked when people are projecting for retirement income.  Someone retiring in their 30's needs to have a 4% withdrawal rate to have the level of retirement safety generally associated with an SWR, since they have 30+ years before most social security or pensions would kick in (plenty of time for portfolio failure).  On the other hand, someone retiring at 50 or even 40 has many fewer years before safety nets kick in, which in addition to a shorter timeline before payments, also means they are looking at a shorter timeline for any sort of legislation which would significantly reduce their SS benefits (or shorter timeline for their company or State to bankrupt, if looking at a pension).

lthenderson

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #13 on: March 15, 2017, 12:04:22 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?

TheAnonOne

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #14 on: March 15, 2017, 12:22:52 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
People also use the 4% rule******** here..

*I can cut spending if markets are down
**HELOC
***Side income
****Owns a rental or highly appreciated property
*****ect
******ect2


So people jumping at 4% here are, in reality, not only not withdrawing 4%, they also sometimes are adding to savings.

If we want to be sticklers about it, once you retire you get 4% a year + inflation and ABSOLUTELY NO adjustments to spending, extra income, geographic arbitrage, or other tactics.

This is why 4% actually works BETTER than the trinity study shows because people have the above options.

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Mr. Green

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #15 on: March 15, 2017, 02:01:26 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
In that example I think you'd find that people's spending will creep as their portfolios get bigger. For those that encounter problems due to sequence of returns risk, they have to make adjustments (withdraw less, work, etc.). For those that retire in their 30's on, say, a million dollars and find their stash to have doubled or more by the time their 50, I believe the majority of them would adjust their spending upward. This is certainly what I plan to do. I would never lock myself into a higher spending rate via fixed expenses but I would definitely take advantage of my good fortune by spending more. Maybe it would be different kinds of travel or donating more money while I'm younger but it will definitely go over the initial 4% target.

I also know that unless my stash is in absolute dire straits (imminent exhaustion), the boost that SS will give my spending, provided it hasn't increased, will be enough to stave off all but the worst scenarios. Suddenly having 50% of your spending come from a source outside of your portfolio will more or less save anyone, provided failure isn't already imminent. It might not recover a stash completely but it will extend the longevity by decades.

Edit: clarity
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steveo

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #16 on: March 15, 2017, 02:12:28 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?

There is a lot more to it than just looking at the 4% SWR. Is that a forum where they really minimise their spending/budget ? If so they probably have less buffer than someone who optimises their budget but has some leeway. Do they increase their spending in retirement ? Are they really young ? Do they honestly expect never to get a cent from anywhere ever again ? These anecdotal examples can work against you when it comes to a 4% WR.

For me personally I think that I have a lot of buffer and can go higher than a 4% WR if I choose to because the assumptions of the 4% SWR are fairly rigid and on the conservative side. No social security, no inheritance, no decrease in spending, no money from downsizing your house, no extra income from going back to work simply because you may like too.

I'd look at the data and come to your own conclusion. I think the 4% SWR is relatively too safe based on my personal situation. You might be different.

dividendman

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #17 on: March 15, 2017, 02:21:56 PM »
I'm pretty sure most of us are going to feel like idiots for having any stache at all, so it's all going to feel like overkill. Why?

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CDP45

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #18 on: March 15, 2017, 02:48:08 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
In that example I think you'd find that people's spending will creep as their portfolios get bigger. For those that encounter problems due to sequence of returns risk, they have to make adjustments (withdraw less, work, etc.). For those that retire in their 30's on, say, a million dollars and find their stash to have doubled or more by the time their 50, I believe the majority of them would adjust their spending upward. This is certainly what I plan to do. I would never lock myself into a higher spending rate via fixed expenses but I would definitely take advantage of my good fortune by spending more. Maybe it would be different kinds of travel or donating more money while I'm younger but it will definitely go over the initial 4% target.

I also know that unless my stash is in absolute dire straits (imminent exhaustion), the boost that SS will give my spending, provided it hasn't increased, will be enough to stave off all but the worst scenarios. Suddenly having 50% of your spending come from a source outside of your portfolio will more or less save anyone, provided failure isn't already imminent. It might not recover a stash completely but it will extend the longevity by decades.

Edit: clarity

Wrong: http://blogs.wsj.com/experts/2016/02/02/why-the-conventional-wisdom-about-retirement-spending-is-wrong/

  • " For every $1 people spent at age 65, they were only spending about $0.80 at age 85 (adjusted for inflation) if the initial target retirement income level was $50,000."


CDP45

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #19 on: March 15, 2017, 02:48:37 PM »
I'm pretty sure most of us are going to feel like idiots for having any stache at all, so it's all going to feel like overkill. Why?

Universal Basic Income is coming sooner than we think.

Very Wrong

Mr. Green

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #20 on: March 15, 2017, 03:11:02 PM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
In that example I think you'd find that people's spending will creep as their portfolios get bigger. For those that encounter problems due to sequence of returns risk, they have to make adjustments (withdraw less, work, etc.). For those that retire in their 30's on, say, a million dollars and find their stash to have doubled or more by the time their 50, I believe the majority of them would adjust their spending upward. This is certainly what I plan to do. I would never lock myself into a higher spending rate via fixed expenses but I would definitely take advantage of my good fortune by spending more. Maybe it would be different kinds of travel or donating more money while I'm younger but it will definitely go over the initial 4% target.

I also know that unless my stash is in absolute dire straits (imminent exhaustion), the boost that SS will give my spending, provided it hasn't increased, will be enough to stave off all but the worst scenarios. Suddenly having 50% of your spending come from a source outside of your portfolio will more or less save anyone, provided failure isn't already imminent. It might not recover a stash completely but it will extend the longevity by decades.

Edit: clarity

Wrong: http://blogs.wsj.com/experts/2016/02/02/why-the-conventional-wisdom-about-retirement-spending-is-wrong/

  • " For every $1 people spent at age 65, they were only spending about $0.80 at age 85 (adjusted for inflation) if the initial target retirement income level was $50,000."
eh? That article has nothing to do with my comment? I'm confused.

Perhaps you were referring to my comments about spending creep? If so, I was referring to intentional spending, prior to old age, like travel or charity giving in your 50's and early 60's before SS kicks in and people start hitting that age limit where they don't want to travel as much.

That article actually helps my case by showing people statistically spend less in old age. So couple SS as a new income source with a downward trend in spending and you have a serious prop for any portfolio that is in trouble but not yet in imminent danger of exhaustion.
« Last Edit: March 15, 2017, 03:16:26 PM by Mr. Green »
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lthenderson

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #21 on: March 16, 2017, 07:57:06 AM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
People also use the 4% rule******** here..

*I can cut spending if markets are down
**HELOC
***Side income
****Owns a rental or highly appreciated property
*****ect
******ect2

I think these sorts of things makes it hard to get an answer about a SWR on this forum. Many people on here say they are "retired" yet they are willing to take loans (add risk) in times when their spending exceeds their WR, they are willing to go back to work part time for another income, deal with rental property for an income, etc. While others such as myself want to know the SWR for retiring and not having to work or earn another cent for the rest of my days and never having to worry about cutting my spending during market downturns. Both ways are entirely acceptable but unless the poster inquiring about the SWR specifies their idea of retirement, it is hard for them to get a reliable answer.

TheAnonOne

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #22 on: March 16, 2017, 08:12:37 AM »

I'm always amazed at the faith people put in SWR comments in a anonymous forum where the average age of the participants is probably between ages 20 to 40. 

I guess this was my main point. I belong to another forum where the large majority of people are currently retired and their the general consensus is that 4% as a SWR is the maximum one should take and many aim for less. They've been there and done that so I'm inclined to believe those personal experiences versus what is said about the subject on this forum with a much much younger crowd and longer projected retirement time frames with little end point data.  I would very much like to see some Mustachians who are 40+ years into retirement that had a WR of more than 4%. How many of wish they had saved more earlier so they didn't have to go back to work to supplement the shortfall?
People also use the 4% rule******** here..

*I can cut spending if markets are down
**HELOC
***Side income
****Owns a rental or highly appreciated property
*****ect
******ect2

I think these sorts of things makes it hard to get an answer about a SWR on this forum. Many people on here say they are "retired" yet they are willing to take loans (add risk) in times when their spending exceeds their WR, they are willing to go back to work part time for another income, deal with rental property for an income, etc. While others such as myself want to know the SWR for retiring and not having to work or earn another cent for the rest of my days and never having to worry about cutting my spending during market downturns. Both ways are entirely acceptable but unless the poster inquiring about the SWR specifies their idea of retirement, it is hard for them to get a reliable answer.
The younger you are the more flexible you need to be. If someone is 50, SS is "right around the corner" and counts as "a job" as far as income is concerned.

If you're FIRE @ 30 with a 0 tolerance plan for work or earning income, yea, you might have issues in certain circumstances.

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Bruizer

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #23 on: March 16, 2017, 08:26:59 AM »
Some posts here seem to indicate the 4% SWR is too conservative. I am curious as to if anyone here is actually doing a 5% withdrawal rate or even higher, especially during the early years of FIRE ? I am thinking that this is actually OK especially if current expenses include mortgage and that chunk of expenses will be gone after the mortgage is paid off. Plus SS will also then kick in...
Would like to hear from you if you are doing a >4% WR !

We will start out at 6-7% WR for a few years when I retire later this year at 57.  I expect our expenses to go down as three of our adult children move out, now that they're finished with college.  It may take a few years for them to move out, but we can manage with a higher WR even with a poor market since SS will kick in for me in 13 years.   Also, we're carrying a mortgage which will be paid off in 15 years unless we choose to accelerate it.   Since our mortgage rate is 3.75% and we can still get the mortgage interest deduction after I retire due to this and other deductions, it makes sense to not accelerate the payments.


Ocinfo

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Anyone actually doing a 5% WR or higher ?
« Reply #24 on: March 16, 2017, 08:53:26 AM »
I'll likely scale back to part-time once I'm between an 8 to 10% WR in the next 5 years (mid thirties). This is mainly because I can still make more than double my annual spend and my wife makes enough to cover expenses. Truth be told, I'll probably keep working for a while as the work is easy for me and the pay is high. I think this is the case for a lot of us on here. Many of us are highly paid professionals that spend relatively little so, barring a major  recession, it's pretty easy for us to get jobs that cover expenses if the market doesn't do as well as we all hope. I'm aware that I am very lucky in this regard.


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Eric

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #25 on: March 16, 2017, 09:48:06 AM »

People also use the 4% rule******** here..

*I can cut spending if markets are down
**HELOC
***Side income
****Owns a rental or highly appreciated property
*****ect
******ect2

I think these sorts of things makes it hard to get an answer about a SWR on this forum. Many people on here say they are "retired" yet they are willing to take loans (add risk) in times when their spending exceeds their WR, they are willing to go back to work part time for another income, deal with rental property for an income, etc. While others such as myself want to know the SWR for retiring and not having to work or earn another cent for the rest of my days and never having to worry about cutting my spending during market downturns. Both ways are entirely acceptable but unless the poster inquiring about the SWR specifies their idea of retirement, it is hard for them to get a reliable answer.

I think you're looking for certainty where there is none.  The safe withdrawal rates are NOT guaranteed.  They are just what has worked in the past.  There's no way to truly know what will happen in the future.  Which is why we talk as much about flexibility as we do actual withdrawals.

I'll also add that basically no one actually follows a strict withdrawal scenario, such as Trinity Study methodology.  So while many people use 4% as a nice guideline, even those that think it's rock solid don't end up withdrawing exactly 4% every year.  There's a number of posts here where people talk about in it actuality:

https://forum.mrmoneymustache.com/post-fire/fire-on-4/
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itchyfeet

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #26 on: March 16, 2017, 10:38:11 AM »
^^^^+1

If you want certainty you need to take an indexed annuity, but even then the issuer could go bankrupt, so no real guarantee there either

The 4% rule is just a probability based approach to retirement that says based on the past it would seem that your chances of spending in line with the strict rules implied by the 4% rule,and having your stash last 30 years, should be ok.

It's impossible to predict the future, and at some point if you want to stop work you are going to just have to say enough is enough and deal with the hand you are dealt from that day on.

Mr. Green

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #27 on: March 16, 2017, 11:24:20 AM »
I think these sorts of things makes it hard to get an answer about a SWR on this forum. Many people on here say they are "retired" yet they are willing to take loans (add risk) in times when their spending exceeds their WR, they are willing to go back to work part time for another income, deal with rental property for an income, etc. While others such as myself want to know the SWR for retiring and not having to work or earn another cent for the rest of my days and never having to worry about cutting my spending during market downturns. Both ways are entirely acceptable but unless the poster inquiring about the SWR specifies their idea of retirement, it is hard for them to get a reliable answer.
I think you're looking for certainty where there is none.  The safe withdrawal rates are NOT guaranteed.  They are just what has worked in the past.  There's no way to truly know what will happen in the future.  Which is why we talk as much about flexibility as we do actual withdrawals.

I'll also add that basically no one actually follows a strict withdrawal scenario, such as Trinity Study methodology.  So while many people use 4% as a nice guideline, even those that think it's rock solid don't end up withdrawing exactly 4% every year.  There's a number of posts here where people talk about in it actuality:

https://forum.mrmoneymustache.com/post-fire/fire-on-4/
+2

Someone could elect to work until he had a 2% withdrawal rate and there could still be some future scenario where it's not enough. It is literally impossible. No matter what solution we came up with it could be defeated by economics somewhere. Stuff $2 million under your mattress? Inflation could still potentially cause a failure.

One of the things I notice about the makeup of this forum is that a high percentage of members are analytical, engineer-types that are used to the idea of working a problem for a certain solution. I'm in that boat. The only way to be certain on this would be to know the future, and even then I think most of us would prefer to not know the ending to their story decades (or maybe not) in advance.
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RetirementInvestingToday

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #28 on: March 16, 2017, 04:27:13 PM »
...
Someone could elect to work until he had a 2% withdrawal rate and there could still be some future scenario where it's not enough. It is literally impossible. No matter what solution we came up with it could be defeated by economics somewhere. Stuff $2 million under your mattress? Inflation could still potentially cause a failure.

One of the things I notice about the makeup of this forum is that a high percentage of members are analytical, engineer-types that are used to the idea of working a problem for a certain solution. I'm in that boat. The only way to be certain on this would be to know the future, and even then I think most of us would prefer to not know the ending to their story decades (or maybe not) in advance.
Thoughtful post.  I'm FI, at current valuations will be just under 2% WR when I FIRE in just a few short months and agree with everything you say.  I want the option of never having to work again (am heading to the Mediterranean to decompress and we'll go from there) but at the same time realise that a black swan event/s could turn that on it's head.  The 2% WR just means it has to be a larger black swan/s than the 4% WR punter.
45 years of age, UK based (for now) and FI.  Will FIRE in mid-2018.  A lot more detail on my blog http://www.retirementinvestingtoday.com/

Clean Shaven

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #29 on: March 16, 2017, 04:52:01 PM »
We aren't retired from full-time work yet, but I suppose you could say that our plans include a WR higher than 4% -- but it's hard to pinpoint an exact %, due to several factors.

1) Anticipated stash at "retirement" (defined as quit the full-time work for spouse + me):  about $1.35MM
2) Anticipated initial WR: $60-65K/ year.  This is approx. 4.5-5%.
3) Both spouse and I have worked enough to receive SS.  We are guesstimating SS annual payouts at age 70 at 20K + 24K apiece (guesstimating a reduced % payout for each of us -- I think it is likely underestimating).

Items 1-3 alone get us to around a 95% success rate.

4) Additional influx of $:  spouse doesn't want to fully retire, plans on working part time (roughly 1/2 time) for another year or two.  I need a little time off from the grind, but may return to a part time gig too.  (Cue Internet Retirement Police.)  We don't need this $, but this has been one of those items that helps get spouse into the FIRE mindset.  She's not entirely convinced that we can really retire this early...
5) Additional influx of $:  will sell facepunchy house in another 12-14 years, downsize, invest the excess.  Expect around $500K in today's dollars from that.  (It's facepunchy, but it's paid off.)
6) Additional influx of $:  will likely receive some inheritance from my parents.  Not sure how much exactly, as I don't like thinking about this and am not counting on it in any way, but it's probably $200-300K.

When I play with the calculators, items 1-3 + 5 suggest that we could push the initial WR up to 70-80K and have a high probability of success.  However, due to the less-certain nature of #5 (amount + timing), I don't want  to push it that much.  So it's kind of hard to calculate what our real WR % is going to be, as we may not really know the initial WR until many years in the future, when we can look back at the beginning.

Peter Gibbons

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #30 on: March 17, 2017, 06:35:02 AM »
Some posts here seem to indicate the 4% SWR is too conservative. I am curious as to if anyone here is actually doing a 5% withdrawal rate or even higher, especially during the early years of FIRE ? I am thinking that this is actually OK especially if current expenses include mortgage and that chunk of expenses will be gone after the mortgage is paid off. Plus SS will also then kick in...
Would like to hear from you if you are doing a >4% WR !

I'm FIRE and choosing not to pay off my mortgage because I have a sweet 2.9% rate with 6 years left to payoff and don't want to deplete my small pot of after-tax investments as most of my stache is in retirement accounts. 

My plan is to live on a 4.5% SWR that is calculated based on my net liquid assets (investment portfolio assets minus mortgage debt balance).  But if I look at it as an overall WR using my current annual withdrawals divided by my investment portfolio assets, it currently comes out to 5.7%.

Metric Mouse

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #31 on: March 20, 2017, 06:14:29 AM »
I started out close to 10% and am now at 5.38%.  I posted about my 8% concept here: http://velociraptor.cc/blog/2017/02/13/the-8-percent-safe-withdrawal-rate/

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Car Jack

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #32 on: March 24, 2017, 08:15:05 AM »
Social Security does not have to go bankrupt and that's not what the 2034 depletion of the SS trust fund means.  Presently, the SS trust fund (big pile of extra money over what's paid out) is dwindling because those paying in are lower in number and those taking out are getting bigger in number.  On top of this, SS is broken.  Why do I say this?  When SS was first created, a man could retire on his full retirement age and his life expectancy at that point was 1 year.  Now, if you retire at 67, your life expectancy is what?  20 years?  So you see the problem.  What happens in 2034?  At that point, the trust fund (big pile of extra money) goes to zero and people taking money out are now paid only what's coming in.  What's coming in?  75% of current benefits.  Will that go on forever?  Likely not, but it will probably not be quite as bad because someone in Congress with balls is going to put forward a bill to do something reasonable like start raising the retirement age and/or eliminating early retirement (most people start taking ss at 62) and/or removing or raising the cap on SS income.


On to the 4%.  This came from the Trinity study that found that with a conservative portfolio, a sustainable withdrawal rate of 4% will keep payments coming for 30 years.  Nobody remembers the 30 years and thinks "wooo hoooo, I'm 24 and can take 4% forever".  Well, no.  You can take 4% till you're 54 and then you got nothing. 

How do you figure things out, then?  A simple excel spreadsheet with everything coming in, everything going out and settable % increases in investments is how I do it.  I set my % increase for every year as a prediction.  I have my SS numbers in there with the 75% drop in 2034.  Every year, I replace predicted numbers with real numbers.  My travel number is my ace in the hole.  If things start going downhill, I don't spend $15k a year on travel and bam....I'll do fine.  I'm not a big believer in some simple %.  That depends on market returns which currently are lower than they were when the Trinity study was done.  Heck....when the study was started, I was getting 10% on a 6 month CD while I was in grad school.

Eric

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #33 on: March 24, 2017, 09:37:09 AM »
On top of this, SS is broken.  Why do I say this?  When SS was first created, a man could retire on his full retirement age and his life expectancy at that point was 1 year.  Now, if you retire at 67, your life expectancy is what?  20 years?  So you see the problem. 

That sounds good, except for the fact that it's not really even close to reality.  You're looking at TOTAL life expectancy, which is irrelevant because many people died in childhood.  The difference in life expectancy after reaching SS payout age is only about 5 years longer now than it was back then.

https://www.ssa.gov/history/lifeexpect.html



On to the 4%.  This came from the Trinity study that found that with a conservative portfolio, a sustainable withdrawal rate of 4% will keep payments coming for 30 years.  Nobody remembers the 30 years and thinks "wooo hoooo, I'm 24 and can take 4% forever".  Well, no.  You can take 4% till you're 54 and then you got nothing. 

That's true, as long as you ignore the 95% of outcomes that were more than zero.  Did you know that the average amount left after 30 years is 2x the starting amount (real dollars), and the median is 1.5x the starting amount?  Outcomes vary, which is why 4% is a worst case scenario number.  Most of the time, 4% leaves you ridiculously wealthy and nowhere close to broke.


I'm not a big believer in some simple %.  That depends on market returns which currently are lower than they were when the Trinity study was done.  Heck....when the study was started, I was getting 10% on a 6 month CD while I was in grad school.

The Trinity Study looked at market returns over 130+ years.  Are you claiming that current returns are worse than at anytime over the last 130+ years?  If so, your calculator may be broken.
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FIREby35

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #34 on: March 25, 2017, 08:18:47 PM »
Hey OP -

Darn those 30 year old millionaires and their flexible plans.

Especially darn them for not having withdrawal rate data since they were 10.

Here's an idea - let's ask some 50 year olds who took 20 years longer to accumulate the same amount of money the same question. Since they just retired, they also can't give you any withdrawal rate data but at least they are your own age - so you can trust them.

If you want decades of retirement data, ask an 80 year old. You could also ask "Math" and see what he says. Math can be a cold comfort though, he has no heart.

Your problem is not related to data and withdrawal rates. It is psychological. You don't "feel" like the 4% rule is enough certainty and don't trust the flexibility of all the variables. It's cool, you aren't the only one.

I'm being a little cheeky on purpose. Don't be offended, have a laugh :)


pa2016

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #35 on: March 25, 2017, 09:46:35 PM »
I am actually in between 30 and 50 -- 42 to be exact. Planning to FIRE in May, with a 6.5% WR. I am actually OK with this as this includes mortgage. Excluding mortgage, the expenses are closer to 2.5%.
I can choose to pay off mortgage but at 3.75% interest rate, I rather keep it for tax deduction purpose. DH will still be working, with no plans to stop anytime soon. So, I guess the difference is that I do have a backup ....

Tyler

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #36 on: March 26, 2017, 09:37:59 PM »
Withdrawal rates are actually a lot more complicated and interesting than the old 4% rule implies. Yes, a WR higher than 4% may be perfectly fine based on your specific portfolio and personal situation.  Here are a few articles to explain how the math works and how you might approach retirement investing a bit differently.  https://portfoliocharts.com/portfolio/retirement-income/

For very early retirees, pay particular attention to perpetual withdrawal rates
« Last Edit: March 26, 2017, 09:39:58 PM by Tyler »
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StetsTerhune

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #37 on: March 27, 2017, 07:01:09 AM »
In the couple years before my retirement (it's been 10.5 months now) I shifted from being incredibly detailed about my spending/saving to not tracking or caring at all. Pretty sure I've been in the 5% ballpark this year, but other than checking once a month or so to make sure I have money in the appropriate accounts I haven't looked at all. Probably at the end of retirement year 1 I'll sit down some morning and see what I've spent.

My personal opinion is that the "4% rule" is about 95% B.S. There's reasons it's way to high, there's reasons it's way too low. It's a reasonable thing to keep in mind for planning, but for actual retirement living flexibility is king. I'm 33 years old and live a life where I could easily cut my expense by ~70% tomorrow. I can also be pretty sure that I could make 3 phone calls and get a job starting next week. If the stock market drops by 60% next week, I'll likely do some combination of those two things. My strong guess is that anyone dutifully following a 4% withdrawal rate is going panic and do something similar.

I don't think a 4% withdrawal rate gives me a 99% chance of not having to work again. If I had to guess I'd put it at closer to 80%. (That number is completely made up, but on the other hand, I have never read any study that I though took into account enough to honestly say that their numbers aren't also mostly made up)

I think there's a reasonable enough chance that I can go 60 more years without working that I quit my job. But I also think the only way I can be confident that I'll be fine is too have the flexibility to do whatever it takes to be fine.

cacaoheart

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #38 on: March 27, 2017, 04:19:56 PM »
The difference in life expectancy after reaching SS payout age is only about 5 years longer now than it was back then.

I'm glad to see someone else pointing out the huge difference between life expectancy at birth and life expectancy at adulthood. While I came across a detailed CDC chart on various ages, your linked social security article covers the issue well. Infant mortality and maternal death during labor are both way down, but otherwise adults live about as long now as they did a century ago.

https://www.cdc.gov/nchs/data/hus/2010/022.pdf

Strick

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #39 on: March 27, 2017, 07:12:28 PM »

I think there's a reasonable enough chance that I can go 60 more years without working that I quit my job. But I also think the only way I can be confident that I'll be fine is too have the flexibility to do whatever it takes to be fine.

I think this is key whether ones uses 3% or 7%. The only thing that is certain is that if you never retire for fear of not being able to sustain a long comfortable retirement you will not have a long comfortable retirement.

tooqk4u22

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #40 on: March 28, 2017, 10:35:38 AM »
I am actually in between 30 and 50 -- 42 to be exact. Planning to FIRE in May, with a 6.5% WR. I am actually OK with this as this includes mortgage. Excluding mortgage, the expenses are closer to 2.5%.
I can choose to pay off mortgage but at 3.75% interest rate, I rather keep it for tax deduction purpose. DH will still be working, with no plans to stop anytime soon. So, I guess the difference is that I do have a backup ....

Wait, what.....your mortgage is 62% of your spending?  If you have a short time left on your mortgage it makes sense I guess, but if you have 10+ years left then I would think the mortgage amount represents a sizable piece of your stash and the net stash after payoff wouldn't be 2.5%?

Curious about this, can you walk through the math/time?

Retire-Canada

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #41 on: March 28, 2017, 02:38:00 PM »


Maizeman put together these charts in another thread to put the %WR risk of going broke in perspective with the risk of dying. I believe the death stats are for a US male. These numbers don't include Gov't retirement benefits or any flexibility in spending - both of which would reduce the red "go broke" zone.

Peter Gibbons

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #42 on: March 28, 2017, 06:43:15 PM »
Very cool graphics!

Tyler - if you are reading this, I would love for you to add this kind of a graphic to your toolbox for any desired portfolio asset allocation !


Tyler

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #43 on: March 28, 2017, 06:55:13 PM »
Cool!  I'll look into it.
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maizeman

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #44 on: March 28, 2017, 07:13:48 PM »
Let me know if there's anything I can do to help out!
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Peter Gibbons

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #45 on: March 28, 2017, 10:44:12 PM »
selfishly, I'd ask what it looks like if you retire at 45 yrs old

Retire-Canada

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #46 on: March 29, 2017, 06:50:59 AM »
selfishly, I'd ask what it looks like if you retire at 45 yrs old



You selfish bastard! Ha! ;)

I asked a similar question and Maizeman kindly obliged with this graph ^^^. It's for a FIRE at 50yrs old with 4%WR. Note there is a silver of red "go broke" zone, but it's freaking tiny and this without factoring in SS/CPP/OAS, etc...

I'll be firing somewhere between 4% - 5% WR and I'll be downshifting at ~5.7%WR, but I'll let my 'stach keep growing without any WR until it's a bit lower. Missing out on free time at the prime of my life seems like more of a concern than going broke!
« Last Edit: March 29, 2017, 06:56:31 AM by Retire-Canada »

FIREby35

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #47 on: March 29, 2017, 07:49:02 AM »
selfishly, I'd ask what it looks like if you retire at 45 yrs old



You selfish bastard! Ha! ;)

I asked a similar question and Maizeman kindly obliged with this graph ^^^. It's for a FIRE at 50yrs old with 4%WR. Note there is a silver of red "go broke" zone, but it's freaking tiny and this without factoring in SS/CPP/OAS, etc...

I'll be firing somewhere between 4% - 5% WR and I'll be downshifting at ~5.7%WR, but I'll let my 'stach keep growing without any WR until it's a bit lower. Missing out on free time at the prime of my life seems like more of a concern than going broke!

Amen.

maizeman

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #48 on: March 29, 2017, 07:56:38 AM »
Sure can do 45. I'm afraid it looks an awful lot like the 50 though. ;-)



Chances of going broke before dying are ~3.3% at a 4% withdrawal rate, ~9.4% at 4.5% WR and ~15.6% at 5% WR.

Things to know that mean my projections may not line up with the standard ones you might get out of a website like cfiresim: 1) I use monthly data on stock returns (shiller data) to calculate a lot more total scenarios. 2) that means I also calculate withdrawals on a monthly basis, not one lump sum per year 3) to calculate failure rates I use portfolio life expectancy, which I think provides a more accurate estimate of failure rates over extremely long retirements than looking at the number of failures out of all the time intervals that are as long as your estimate retirement in historical data (traditional Trinity approach).



My approach is the green line, the traditional approach is the blue line. Intuitively, failure rates shouldn't decrease as we go to longer retirement lengths, but the problem is that really bad years (like the mid 60s) start dropping out of your dataset once your retirement window gets long enough.

(Tyler, I think you recommend the perpetual withdrawal rate, which also does a much better job than the conventional Trinity method for extremely long retirements, right?)
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FIREby35

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Re: Anyone actually doing a 5% WR or higher ?
« Reply #49 on: March 29, 2017, 10:29:24 AM »
So, you guys are nerding out with your graphs and various data sets - and it is great.  Are those available somewhere or do I have to ask you to make on for a 35 year old? :)

What I am understanding is that a 4% withdrawal rate (or even 5% or higher) is actually very conservative because it has failure rates that are very low and does not account for any external variables that can be avoided through proactive management by the owner of such a portfolio. For example, the owner of the portfolio can register for social security (full or diminished), modify withdrawals, earn income or diagnose a portfolio failure based on known risks (like sequencing of return risks). Assuming the manager of the portfolio is aware of these risks, they should have years (decades?) to react (with really easy fixes they might do anyway) and, hopefully, avoid the small group of scenarios leading to portfolio failure. Not to mention the "chances" are that you will end up rich compared to ending up broke even without taking any of those steps.

In summary, these withdrawal rates and their data are extremely conservative because they don't (and can not) account for active intervention. Is that the conclusion you all are making?

Really cool to have death quantified as a risk and presented on a graph, btw. It seems we all (or at least I) focus on the small sliver of red "failure rate" part of the graph rather than the big "death" section.

These kind of conversations make me see the actual power of saved and invested money. I never "feel" like I'm "rich." Math reminds me my "feelings" are stupid and that I am in fact "rich."