Author Topic: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth  (Read 4492 times)

danb

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Hello,

I am using the Mad Fientist Financial Independence Tracker spreadsheet.
http://www.madfientist.com/financial-independence-spreadsheet

Question 1: I am confused about the "With-Drawl Rate".  I thought this was in reference to how much of my retirement I can pull out each year. But the larger i make it, the less time it takes me to retire. Can someone explain?

Question 2: Would 8% be a safe number for "growth"?  my portfolio is shown below:



PORTFOLIO



neil

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #1 on: January 27, 2015, 12:19:31 AM »
Increasing the withdrawal rate reduces retirement time because that implies you are withdrawing more money.

i.e.

$100K at a 50% WR would mean taking $50K "income" from your investments.  Under the conditions below that would say you could retire today, simply because that would cover your expenses.  However, a 50% WR is not sustainable for your portfolio - you will likely be out of money in two years.

Portfolio sustainability is a different question and that is where calculators like cfiresim can tell you if your portfolio can withstand the withdrawal rate you are planning for.


I personally think 8% is a little on the aggressive side, but that's me.

MDM

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #2 on: January 27, 2015, 12:23:40 AM »
Question 1: I am confused about the "With-Drawl Rate".  I thought this was in reference to how much of my retirement I can pull out each year. But the larger i make it, the less time it takes me to retire. Can someone explain?

It's a computer program so it is doing what you tell it. ;)

If you tell the spreadsheet you can have a higher Withdrawal Rate of 10% and still be Safe, then the spreadsheet will say that you don't need as large as asset balance and thus can get to FI sooner.  Caveat User.

arebelspy

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #3 on: January 27, 2015, 09:40:09 AM »
A higher withdrawal rate means you withdraw more each year.  If you tell it you can withdraw that much each year, it takes less time to save up the money to support that.

If you tell it your expenses are $X and you want 2% WR, you need 50X to retire.  If you want a 10% WR, you only need 10X.  It takes less time to save up 10X than 50X.

But a 10% WR is much more likely to fail.

I personally think 8% is a little on the aggressive side, but that's me.

Agreed.  Even if you do get 8% long term, the down years when you have to withdraw your living expenses means your portfolio won't recover (e.g. your portfolio is down 30% and you still withdraw $X, there's less in there to go up when the market recovers).  Start reading about the Trinity study and 4% SWR to begin learning about safe withdrawal rates.  :)
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jackiechiles2

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #4 on: January 27, 2015, 10:00:34 AM »
Since you've posted this, I've signed up on two different spots on that site to get that damn spreadsheet and it's nowhere to be found.

arebelspy

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #5 on: January 27, 2015, 10:02:58 AM »
Since you've posted this, I've signed up on two different spots on that site to get that damn spreadsheet and it's nowhere to be found.

His latest post specified that you could email him for it... did you try that?  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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DrF

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« Last Edit: January 27, 2015, 10:28:42 AM by DrFunk »

Scandium

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #7 on: January 27, 2015, 10:42:35 AM »
A higher withdrawal rate means you withdraw more each year.  If you tell it you can withdraw that much each year, it takes less time to save up the money to support that.

If you tell it your expenses are $X and you want 2% WR, you need 50X to retire.  If you want a 10% WR, you only need 10X.  It takes less time to save up 10X than 50X.

But a 10% WR is much more likely to fail.

I personally think 8% is a little on the aggressive side, but that's me.

Agreed.  Even if you do get 8% long term, the down years when you have to withdraw your living expenses means your portfolio won't recover (e.g. your portfolio is down 30% and you still withdraw $X, there's less in there to go up when the market recovers).  Start reading about the Trinity study and 4% SWR to begin learning about safe withdrawal rates.  :)

I think this 8% is assumed yearly return, not 8% W.R. That's within the range of commonly used rates of return. Usually I see 10% pre-inflation, 7% after. So your 5% is a little safer/more conservative. I've used 6% after inflation in my spreadsheet, which is based on.... nothing at all/gut feeling.

arebelspy

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #8 on: January 27, 2015, 10:47:00 AM »
A higher withdrawal rate means you withdraw more each year.  If you tell it you can withdraw that much each year, it takes less time to save up the money to support that.

If you tell it your expenses are $X and you want 2% WR, you need 50X to retire.  If you want a 10% WR, you only need 10X.  It takes less time to save up 10X than 50X.

But a 10% WR is much more likely to fail.

I personally think 8% is a little on the aggressive side, but that's me.

Agreed.  Even if you do get 8% long term, the down years when you have to withdraw your living expenses means your portfolio won't recover (e.g. your portfolio is down 30% and you still withdraw $X, there's less in there to go up when the market recovers).  Start reading about the Trinity study and 4% SWR to begin learning about safe withdrawal rates.  :)

I think this 8% is assumed yearly return, not 8% W.R. That's within the range of commonly used rates of return. Usually I see 10% pre-inflation, 7% after. So your 5% is a little safer/more conservative. I've used 6% after inflation in my spreadsheet, which is based on.... nothing at all/gut feeling.

Right, typically people confuse the two before they learn what SWR is.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

neil

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Re: Mad Fientist FI spreedsheet question about withdrawl Rate and Growth
« Reply #9 on: January 27, 2015, 11:08:54 AM »
Yeah, I was implying about the 8% growth rate being high, not SWR (second question).  I am not really all gloom and doom but US industrial growth was gold in the 20th century and we have a lot more competition now, and I would not want to bank my retirement expecting a certain return.  The market also rarely returns at its "expected" rate and that makes short term answers to the retirement question murky.  When articles reference long term return rates, there is usually some statistical bias because many articles reference post-WWII to now.

I also wasn't really thinking about how it is used in the spreadsheet.  I think it is worth factoring return rate in the calculator to get a retirement date, but as long as you aren't using the result as a hard retirement deadline, I suppose it doesn't matter much.  Hitting 4% SWR makes future return largely irrelevant, which is the whole point of the idea of SWR.