Author Topic: An interesting take on withdrawal rates  (Read 2620 times)

LivlongnProsper

  • 5 O'Clock Shadow
  • *
  • Posts: 73
  • Age: 45
  • It's a new day, anything is possible.
An interesting take on withdrawal rates
« on: August 12, 2016, 03:26:33 PM »
 http://www.usatoday.com/story/money/columnist/powell/2016/08/11/new-retiree-withdrawal-rate-formula-4-percent/86877234/

This article explains that in todays low fixed rate environment a new rule for withdrawal rates is needed that is simple enough for people to understand. It says you can withdraw a percentage every year equal to your age divided by 20. This means MMM would have needed a withdrawal rate of under 2%. I for one think it is way too conservative for most ages. I hope so or my FIRE hopes just dimmed. Thoughts?



scottish

  • Handlebar Stache
  • *****
  • Posts: 1209
  • Location: Ottawa
Re: An interesting take on withdrawal rates
« Reply #1 on: August 12, 2016, 05:46:38 PM »
He's trying to predict returns.   The 4% SWR was based on historical data.   Which is substantially better than fortune telling.   YMMV.

Cycling Stache

  • Bristles
  • ***
  • Posts: 465
  • Age: 42
Re: An interesting take on withdrawal rates
« Reply #2 on: August 12, 2016, 06:21:39 PM »
This article is nonsense.  Here's the starting premise . . .

"where investment returns are likely to be low for some time to come"

Everything in his argument follows from that assumption.  If you don't believe that this guy magically can predict the market, you can ignore this and move to the next article.  Real data is more helpful, like the kind used to support the 4% rule.

Classical_Liberal

  • Pencil Stache
  • ****
  • Posts: 991
  • Age: 42
Re: An interesting take on withdrawal rates
« Reply #3 on: August 12, 2016, 08:24:28 PM »
"while someone who is 80 could withdraw 4% (80 20 = 4)"

According to recent actuarial tables a males life expectancy (ie 50 percent chance of making it) at 80 is only 8.2 years and a females 9.6.

I think you can be a bit more aggressive. 

Spork

  • Walrus Stache
  • *******
  • Posts: 5755
    • Spork In The Eye
Re: An interesting take on withdrawal rates
« Reply #4 on: August 12, 2016, 08:44:38 PM »
"while someone who is 80 could withdraw 4% (80 20 = 4)"

According to recent actuarial tables a males life expectancy (ie 50 percent chance of making it) at 80 is only 8.2 years and a females 9.6.

I think you can be a bit more aggressive.

The reality of this made me LOL.

I, too, think 4% is probably just fine.  And... if it isn't, it isn't just you hanging there out on a limb.  If it isn't, then something really terrible happened and we are all just royally screwed in the tookus. 

It's one of those bets like "if the world goes to hell, I need to have a bunker full of ammo, an army and 16 fully automatic weapons" vs "oh crap, it's gone this far?  Screw it."

4% is reasonable, IMO.  I am now looking at 2% and thinking... I could probably have had 5-10 more years of freedom.  I could still have 20+ years of absolute over-the-top hedonism..... Ah well....

Classical_Liberal

  • Pencil Stache
  • ****
  • Posts: 991
  • Age: 42
Re: An interesting take on withdrawal rates
« Reply #5 on: August 12, 2016, 09:10:02 PM »
I could still have 20+ years of absolute over-the-top hedonism..... Ah well....

If I make it to 80 & am living comfortably off of a 4% WR... On my 81st birthday I'm booking a flight to vegas with a half dozen strippers, a bottle of viagra (for my blood pressure), will drink exclusively from the hotel minibar & double down all hard 17's!  I'll still die rich at 90.

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1714
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: An interesting take on withdrawal rates
« Reply #6 on: August 12, 2016, 11:09:35 PM »
I could still have 20+ years of absolute over-the-top hedonism..... Ah well....

If I make it to 80 & am living comfortably off of a 4% WR... On my 81st birthday I'm booking a flight to vegas with a half dozen strippers, a bottle of viagra (for my blood pressure), will drink exclusively from the hotel minibar & double down all hard 17's!  I'll still die rich at 90.
Or rich and happy at 81 ... ;-)

mathjak107

  • Pencil Stache
  • ****
  • Posts: 565
Re: An interesting take on withdrawal rates
« Reply #7 on: August 13, 2016, 07:39:27 AM »
so by this formula you would be 100 and taking 5% withdrawals .  that is ridiculous . you got to love these folks with half an idea on something and then write articles . 

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5302
  • FU @ 22. F.I.R.E before 23
Re: An interesting take on withdrawal rates
« Reply #8 on: August 20, 2016, 03:09:53 PM »
Thank god this guy came along. No more "does 4% still work?" threads. So simple. Bulletproof financial advice...

mathjak107

  • Pencil Stache
  • ****
  • Posts: 565
Re: An interesting take on withdrawal rates
« Reply #9 on: August 20, 2016, 03:12:31 PM »
nonsense ,at certain ages . there is only a very narrow window of ages i agree with that formula . like i said 5% withdrawals at age 100?   ha ha ha

Libertea

  • Bristles
  • ***
  • Posts: 369
  • Age: 43
  • Location: USA
Re: An interesting take on withdrawal rates
« Reply #10 on: August 20, 2016, 04:41:04 PM »
I think the problem with this proposal is the same as the problem with ANY inflexible SWR proposal that doesn't factor in the retiree's ability to alter discretionary spending based upon returns, or even (gasp) do some PT work to help make up a shortfall.  People aren't automatons that spend based upon some inflexible rule.  They can and do adjust their spending plan over time. 

I'm going to be withdrawing 0% in my early 40s because I'm semi-retiring, at least initially.  I haven't decided about whether I'll work in my 50s, but either way, I'll withdraw a sensible amount based upon my needs and returns at that time.  I'm certainly not going to decide to limit myself to 2.5% SWR an entire decade beforehand without a good idea of what my expenses or income situation will be at that time!

ETA: And following the 4% rule adjusted for inflation "requires too much thinking"?  Seriously?  What are we, like 12 years old where we have to pretend that we're too cool for school and too much math hurts our pretty little heads?  I realize we are not living in the era of manual labor, but I do think that most people in the FIRE community are capable of pushing some calculator buttons or entering data/basic formulas into an Excel spreadsheet....
« Last Edit: August 20, 2016, 04:50:43 PM by Libertea »