Author Topic: Safe withdrawal rate calculation  (Read 1877 times)

elvizzle

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Safe withdrawal rate calculation
« on: May 01, 2013, 10:43:38 AM »
Hello fellow mustachians!

I am trying to calculate how much passive income + safe withdrawal rate income we have right now.  Here is our financial situation

Primary house
Value:  $525,000
Mortgage:  $400,000

Investment properties
Total value: $1,200,000
Total mortgages:  $685,000

Retirement accounts:  $400,000

Brokerage accounts:  $275,000

I'm currently getting $36,000/year in cash flow from my rentals.  I'm trying to calculate my safe withdrawal rate.  I know it's 4% of my net worth, but I'm unsure what to include in my net worth.

Do I include my primary home as part of my net worth?

Since I'm already getting passive income from my rentals, do I include the investment property values as part of my net worth? 

My wife and I are 29 and 31, respectively.  Should we add our retirement accounts as part of the SWR calculation?

Thank you!

Zaga

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Re: Safe withdrawal rate calculation
« Reply #1 on: May 01, 2013, 11:17:47 AM »
The way I'd calculate it if I were you:

First, the rentals, you get $36,000 in cashflow a year.  That takes those into account, ignore them otherwise for SWR.

Second, brokerage accounts.  You can use the 4% rule for those and take $11,000 per year.

Third, retirement accounts.  You may decide to take more than 4% from your brokerage accounts with the plan of using them up then moving onto yout retirement accounts at age 60, but keep an eye on them to make sure you don't kill off the golden goose prematurely.

Fourth, your home.  No, don't take a "withdrawal" from your home.  Once that is paid off then your decreased expenses are the financial benefit from owning.

Your total net worth should include everything, but your safe withdrawal rate should calculate each type of asset differently in my opinion.

Another Reader

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Re: Safe withdrawal rate calculation
« Reply #2 on: May 01, 2013, 01:24:52 PM »
SWR is more relevant to paper portfolios.  Net rental income, pensions, and other income sources contribute to your income but don't need FIREcalc type analysis because they are relatively stable.  Apply the 4 percent SWR (or whatever rate you prefer) to the paper assets.  Add that income to your other sources of income to get the total available income.

Note that currently the MM family relies on net rental income to meet their expenses and Arebelspy's recent FI announcement does as well.