### Author Topic: What is a safe income growth rate during withdrawals?  (Read 1196 times)

#### whywork

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• Posts: 207
##### What is a safe income growth rate during withdrawals?
« on: August 11, 2018, 02:30:36 PM »
I understand 4% is a safe withdrawal rate during retirement and average stock market return is 7%.

The 7% is the average return but assuming the ups and downs of market, what is the average growth that can be expected during withdrawals?

Say I have 25x networth and am withdrawing 4% what's the average growth return I can have? I tried running firecalc for 1M and 40k expenses and see the below numbers

 Period -> Return (Along with 4% withdrawal)
 10 years -> 5.9
 20 Years -> 5.67
 30 Years -> 5.25

So for example for a 10 year period, my investment will grow at 5.9% including withdrawals. I'm not very good at math but is there a way to calculate these for any period and any networth (20X, 25X, 30X, 35X, 40X etc...)

#### MustacheAndaHalf

• Magnum Stache
• Posts: 4473
##### Re: What is a safe income growth rate during withdrawals?
« Reply #1 on: August 12, 2018, 07:40:11 AM »
The stock market is less predictable than you expect.  For example, over some 30 year periods with a 4% withdrawal rate, your return will be -100%.  You will run out of money about 1/8th of the time, according to Vanguard's nest egg calculator.  That's with 100% stocks, and with just 80% stocks/20% bonds your odds of crashing improve to only 1/10th of the time.
https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf

Whenever you see numbers like "5.67%" for a future return, be suspicious.  You should see large error bars around any prediction of future returns.  The danger is you ignore situations where your retirement savings crash to \$0.

#### boarder42

• Walrus Stache
• Posts: 9213
##### Re: What is a safe income growth rate during withdrawals?
« Reply #2 on: August 12, 2018, 07:45:52 AM »
So vanguard is predicting worse future than we've had in the past.

Really historically. You just want to avoid a large drop in the first 5-10 years and you'll be fine.
« Last Edit: August 12, 2018, 07:47:35 AM by boarder42 »

#### whywork

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• Posts: 207
##### Re: What is a safe income growth rate during withdrawals?
« Reply #3 on: August 12, 2018, 12:13:19 PM »
The stock market is less predictable than you expect.  For example, over some 30 year periods with a 4% withdrawal rate, your return will be -100%.  You will run out of money about 1/8th of the time, according to Vanguard's nest egg calculator.  That's with 100% stocks, and with just 80% stocks/20% bonds your odds of crashing improve to only 1/10th of the time.
https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf

Whenever you see numbers like "5.67%" for a future return, be suspicious.  You should see large error bars around any prediction of future returns.  The danger is you ignore situations where your retirement savings crash to \$0.

It is true that there are no guarantees. At the same time that shouldn't prevent us from trying to come up with an "average" growth rate; and average here doesn't mean guaranteed.

Here is some more context for everyone on what I am trying to do. In my google sheets, I have a tracker that I use to see when I will retire and what my future networth will be based on different spend patterns. In that tracker I have a yearly expense amount and a stock market return rate. I'm not retired, so for my working years I put a market return rate of 7% (since I'm not withdrawing). For post retirement since I'm withdrawing I'm not sure what to rate to put. I know I can't do 7% since the market can go up and down and when withdrawing, the rate can be less. I tried the FireCalc and used the amount I'll typically end up with to calculate the rate I can put. It seems for those different periods we have them in the 5.x% ranges as above. I currently use 5.5% as my post retirement return rate which helps me see what my final networth will be (on the "average")

#### boarder42

• Walrus Stache
• Posts: 9213
##### Re: What is a safe income growth rate during withdrawals?
« Reply #4 on: August 12, 2018, 01:24:32 PM »
Your theory makes 0 sense. If you're assuming 7% in accumulation you can assume the same in withdrawal. You can be more conservative or more aggressive. The choice is yours. The sequence of returns is really what matters after you're fired and trying to live off your income.