Withdrawal rate question

[rubybeth]

This is maybe a dumb question, so be kind. DH and I are currently early 30s and hope to be FI and retire by our mid-40s. We make relatively good money (approx. $90K combined), and DH is in graduate school so his income will go up in about two years. Even by conservative estimates of growth of our investments (401k, IRAs, 457bs, and taxable accounts), I think we should be fine to pull the plug around age 45. DH thinks he wants to eventually get a PhD, so he may pull the plug on full time work earlier and then continue to work on a limited basis after FI, but I digress.

Since I will have a small pension that I can begin taking at 55, is it going to be okay to have a higher withdrawal rate on our accounts for the first 10 years of retirement, and then dramatically reduce that withdrawal rate upon receiving pension and then, later, social security benefits? It would look something like this:

age 45-55 withdrawal rate on stash = 5-6%
age 55-67 withdrawal rate = 4-5%
age 67-death withdrawal rate = 2-3%

I'm thinking that this is not optimal, because we'd be drawing down on the larger stash pretty quickly those first ten years, which is when it would have the potential to be growing quite quickly. How do we solve this? Just have a bigger stash to begin with (possible to do this, but DH's future income is currently unknown)? Or just plan to work part-time to keep the withdrawal rate closer to 4% (also do-able in both of our fields)? Reducing our expenses might also be possible, but I'm estimating a conservative stash amount and a liberal withdrawal rate to give us quite a bit of wiggle room. Or is there something else I haven't thought of yet?

[Bob W]

I think you're over thinking this.  12-15 years out and anything could happen in the world or your life.  Literally anything!

So the answer is to save and invest like hell now.  When you hit 45, if everything is going according to plan, you will probably have well over 1 million.   

You will also have learned to live a very nice life on less than 35K.

If you get really serious, you could knock this out much sooner of course.   There are many people on this site that live well on less than 20K.   

So the correct answer is to focus on the two things you can control a this point.  Learning how to keep expenses very low and learning how to invest like your on a mission from God. 

Then check back with us in 12 -15 years and we can give you an answer to the math.

[Gone Fishing]

I look at SS and my little pension as a little gravy on top of my portfolio withdrawals.  When (and if) I get them, they will be reduced by my early retirement.  If I have to actually rely on them for support, something went wrong.  So in that sense they are just my old age insurance (wait a minute, isn't that what SS was made for?).

I get what you are saying though, you want to use your 'stache to "bridge" your income until SS and your pension kick in. Anther way to say it is that you will be "front loading" your withdrawals.  This could certainly work.
     
Like Bob says, a lot can happen between now and then.  When you are projecting out that far, small little changes in withdrawal and earnings rates make a HUGE difference.  Get your 'stache built up then you can start modeling what these withdrawal rates should look like when you are closer to FIRE.  I think what you will find is that your 5-6% initial withdrawal rate will not change over time, you will just be consuming your 'stache at a rate faster than it can support, and it will be shrinking, thus shrinking your withdrawals if you maintain your withdrawal rate at 5-6% of the current balance (not the starting balance). 

A typical 4% withdrawal rate (assuming historical earnings hold up) "rear loads" your retirement income, perfect for someone who anticipates a high inflation, wants to leave a lot behind, and/or have the finest health care money can buy in the twilight of their lives.  Personally, if the numbers look good, I plan on accelerating my withdrawals once I hit 60, so I can enjoy my money while I am still able.       

[snshijuptr]

I get the want to simulate now even though you are years and years away from Retirement. I'm in the same boat. I agree with the other posters that you should focus on just saving as much now and cultivating a frugal lifestyle, but sometimes the best motivator to help you keep it up are simulations.

Check out firecalc.com and http://www.cfiresim.com/input.php for fun ways to calculate your retirement scenarios.

Personally at this point (I'm 10-20 years out), I just want to know when I'm less than 5 years away from retirement. At that point, I will pay off the house and really figure out what my expenses will be in retirement.

[rubybeth]

Okay, good to know I am probably overthinking this at this point. I just want to be as prepared as I can, but since retirement is actually about 12 years away, we do have plenty of time to save as much as possible. Savings rate right now is about 40% but will easily go to 50% or higher after DH graduates. We do live on about half of our income, but a chunk of it is going toward tuition right now, which will definitely pay off in the long run. Currently, I envision us using the pension for more flexibility in terms of travel, especially to do some slow traveling to visit family and friends around the world during Minnesota's winters.