Author Topic: about that 4% withdrawal rate....  (Read 4726 times)

PencilThinMustache

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about that 4% withdrawal rate....
« on: May 02, 2014, 08:29:30 PM »
so Ive read the posts and it makes good sense.  But for those of us who realistically aren't going to be able to be retired for 60 years like MMM, what's the harm in withdrawing more than 4% a year and just simply "shaving" some off the 'stache as you approach 7-8 decades?  I don't need to die someday with $2million+ in my retirement account.  Though Im not explicitly against leaving money to my kid (maybe kids), I think they should work for their money and I don't want a "trust fund baby."  Thoughts on this?

Threshkin

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Re: about that 4% withdrawal rate....
« Reply #1 on: May 02, 2014, 08:36:35 PM »
The risk IMO is running out of money.  I DO NOT want to be a greater at Walmart at 75 because I need the cash to buy cat food to eat.

Better to "shave the stache" when you are young and are better equipped to handle it mentally and physically.

Cheddar Stacker

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Re: about that 4% withdrawal rate....
« Reply #2 on: May 02, 2014, 08:48:05 PM »
Buffett fan I assume? Love the handle. Time 2 go from pencil thin to super stache though.

I agree I think. Are you saying once you are 70-80 what's the harm in drawing down 5-6%? If so I don't see much of a drawback. Less of a timeframe allows for more aggressive spending.

However since I plan to live forever I have to stick to the 4%. YMMV.

brewer12345

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Re: about that 4% withdrawal rate....
« Reply #3 on: May 02, 2014, 08:57:15 PM »
The easiest way to do what you are suggesting is to buy a payout annuity.

zataks

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Re: about that 4% withdrawal rate....
« Reply #4 on: May 02, 2014, 09:48:38 PM »
I've created a number of spreadsheet scenarios for myself spanning the next 60 years (until I'm almost 90) and think I see what you're getting at as well.  Given the buffer I plan on creating for myself, when I retire I will gaining significant amounts of interest money annually if I only pull what I need.  Then my pension kicks in and I draw practically nothing from investments (maybe even draw none and actually add to investments!) and see the stache grow gigantic!  So, when I'm 65 and have been retired for 20 years, with potentially ~25 more to go, and have 50x my annual expenses saved, why not buy an expensive sports car or donate a f@*k ton to charity, at say, 5x my annual expenses? 

tl;dr: it's your money, save, spend, generally fuck about with it as you see fit.

Kaminoge

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Re: about that 4% withdrawal rate....
« Reply #5 on: May 03, 2014, 01:55:00 AM »
I'm pretty risk adverse.

To me the fear is that I'll be shaving regardless due to health/medical type stuff. My grandparents recently passed away (within a few months of each other) aged 88 and 90. I think in the last 4 or so years of their lives they probably spent more than they did in the previous 10 due to the increased level of care they received. And that was in Australia where costs are less AND a lot of my grandfather's stuff was covered due to him being a veteran.

So what I'm saying is that I would plan for 4% know that if I needed to run it down at the end there'd hopefully be plenty there. My grandmother really REALLY hated how the money they'd taken their entire lives to scrimp and save was being burned through so fast but we kept pointing out that keeping them in as much comfort as possible at the end of their lives was part of the reason they'd saved it.

bikebum

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Re: about that 4% withdrawal rate....
« Reply #6 on: May 03, 2014, 02:14:54 AM »
Isn't the 4% rule from the Trinity Study, which looks at whether or not the account is depleted in 30 years? I don't think the rule implies you can withdraw 4% without eating into the principal.

electriceagle

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Re: about that 4% withdrawal rate....
« Reply #7 on: May 03, 2014, 05:02:53 AM »
The value of your investments eill go up and down because of the markets.

The idea of the 4% SWR is that you have a high probability of not running out of money even though the stock market happens to fall for a while.

bobmarley9993

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Re: about that 4% withdrawal rate....
« Reply #8 on: May 03, 2014, 07:11:39 AM »
Isn't the 4% rule from the Trinity Study, which looks at whether or not the account is depleted in 30 years? I don't think the rule implies you can withdraw 4% without eating into the principal.

Generally you won't deplete it but it doesn't always work at the 4% level.  You can look at the website cfiresim to do some simulations.  Even at 50 year horizons it will usually work with high stock allocations (90% of the time or so).    90% is obviously a gamble but the general theory is that as you withdraw, the investment gains are supposed to offset what you take out even adjusting for inflation.   I think to be safe, you want closer to a 3% withdrawal rate to make it last "forever".
« Last Edit: May 03, 2014, 07:15:21 AM by bobmarley9993 »

roddy6667

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Re: about that 4% withdrawal rate....
« Reply #9 on: May 03, 2014, 11:20:25 PM »
Here's a calculator to see how long your money will last.

Two things to consider:
Do you intend to leave any money to heirs? (How much was left to you?)
Are you going to live forever?

http://www.calcxml.com/calculators/how-long-will-my-money-last?pdf=1&advisor=1

SwordGuy

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Re: about that 4% withdrawal rate....
« Reply #10 on: May 04, 2014, 08:24:36 AM »
Isn't the 4% rule from the Trinity Study, which looks at whether or not the account is depleted in 30 years? I don't think the rule implies you can withdraw 4% without eating into the principal.

There is no such thing as the "4% rule".  The universe enforces no such rule.

There is a "4% observation".

A study observed that a given stash of stock would last at least 30 years if only 4% was withdrawn from it.  After 30 years, you were assumed to be dead, so it didn't matter if the money ran out at 30 years and a day.

If you plan on needing that stash to last longer than 30 years, you had better be prepared to take out less at least some of the time.  You may not need to, but it would be wise to be prepared to do so.

bikebum

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Re: about that 4% withdrawal rate....
« Reply #11 on: May 04, 2014, 12:34:23 PM »
Isn't the 4% rule from the Trinity Study, which looks at whether or not the account is depleted in 30 years? I don't think the rule implies you can withdraw 4% without eating into the principal.

There is no such thing as the "4% rule".  The universe enforces no such rule.

There is a "4% observation".

A study observed that a given stash of stock would last at least 30 years if only 4% was withdrawn from it.  After 30 years, you were assumed to be dead, so it didn't matter if the money ran out at 30 years and a day.

If you plan on needing that stash to last longer than 30 years, you had better be prepared to take out less at least some of the time.  You may not need to, but it would be wise to be prepared to do so.

That's why it's the 4% "rule" instead of the 4% "law." I know, semantics. I think you're saying the same thing as me.