The 4-4.5% rule?

[dblaace]

Interesting read.

https://www.barrons.com/articles/the-originator-of-the-4-retirement-rule-thinks-its-off-the-mark-he-says-it-now-could-be-up-to-4-5-51611410402

[RWD]

Previous discussions:
https://forum.mrmoneymustache.com/investor-alley/author-of-4-rule-now-says-4-5/
https://forum.mrmoneymustache.com/welcome-to-the-forum/bengen-creator-of-the-4-rule-changes-the-rule/

[life_travel]

He actually said that 5% is safe and 4% was very conservative. We are planning to retire on 5% ( always planned ) but then again, we are not 35 so I think we'll be fine. After taking a year sabbatical I actually would prefer to work a little bit , even in retirement, maybe 6-8 hrs a week. That would provide a small safety net to our 5%.

One of my friends is retired ( she is over 60) and does massage very occasionally , for word of mouth clients.
She completely controls how much she wants to work because she is very active with fitness , travel and social activities. She says sometimes she sees 2 clients in a month but sometimes it's 4 per week.

[American GenX]

This same link was posted here a week or so ago.  The thread might have been deleted.

LOL They are 14 to 15 years behind with the news.

Bengen said it was now the 4.5% rule back in 2006 IIRC and even said 5% just last year.

Someone retiring then would still have been OK for 30 years if they withdrew no more than 4% (actually, in 2006 he raised that calculation to 4.5%), Bengen says.

Bengen says based on the current environment he thinks a new retiree should be safe if they start with a withdrawal rate of…no more than 5%.“That’s what I use myself,” Bengen told me when we spoke by phone.OK, so it’s not an earth-shattering change from 4%. It’s even less of a change from the updated “worst case scenario” rule of 4.5%. But the 4% rule is now a 5% rule, if you like.

[HPstache]

I'll take the 4% rule and know that I can trim the budget or do a side gig if shit hits the fan.

[dblaace]

Sorry, I tried to do a search first and didn't find anything.

[cool7hand]

I'll take the 4% rule and know that I can trim the budget or do a side gig if shit hits the fan.

+1

[FIRE 20/20]

Sorry, I tried to do a search first and didn't find anything.

No problem - the search here is terrible.  It's usually better to site-specific search with google or your favorite search service.

https://forum.mrmoneymustache.com/forum-information-faqs/how-to-search-the-forum/

[norajean]

4% is safe. 3.5% if you need more than 30 years

[friedmmj]

4% is safe. 3.5% if you need more than 30 years

I’d like to flip that around a bit.  What would be safe for a 15 year horizon?  I’m planning to retire at age 55 and withdraw approx 5.5% for 15 year so I can delay SS until age 70.  I think this is OK but haven’t seen much discussion about 15 year safe withdrawal rate. I could annuities but would prefer no to.

[vand]

The problem with trying to nail withdrawal rates is that it's a multi-variate problem, where changes in one variable (drawdown period) affects what an optimal portfolio mix should be when you are just considering a stock/bond portfolio.

A 60/40 is close to optimal for providing the optimal SWR over a 30yr period, but if you shorten that to 15 years then you risk a lot of volatility in a portfolio that is too stock heavy, so you need more bonds and the optimal mix changes to something more conservative, whereas if you are planning a 50 year drawndown then you need a heavier stock allocation to provide continual growth to provide the optimal SWR.

And that's just with stocks and bonds! Today we can use many other asset classes to construct portfolios that have different characteristics.

So.. it's really difficult. Portfolio growth may be the dominant factor in determining the SWR, or portfolio stability may be the dominant factor, depending on your drawdown horizon. What is optimal in scenario A is not optimal in scenario B.

In the real world, I do think that a 4% is a very good rule of thumb 95% of the time for 30yrs+, maybe even up to 50yrs. And if you throw in any social programmes that you are due as well as keeping your budget flexible, and maybe even consider the option to go to work to top up your portfolio when it is most advantageous to do so, would be the best ways to play it. 

You can opt to go with 5% or even more, and nobody is going to send the FI police around to check on you. You likely still be fine. Slightly less likely than using 4%, granted, but still very well within your acceptable probability of not failing.

And it's worth remember that there is no WR that is 100% guaranteed to not fail. We only have history to go on, and just because it hasn't happened in the past doesn't mean that it can't happen in the future. You could do everything right, plan the optimal portfolio that has never failed under historic precedence, and the future could be so dismal that the portfolio still fails.

[friedmmj]

Thanks.  I guess what I’m really asking is whether a 5.5% withdrawal rate for 15 years with a 50/50 asset allocation is too risky.  I’m certain that the math “works” based on the typical expected returns but it’s more about the outlier scenarios.

[norajean]

Yes, 5.5% is the correct figure for 15 years. What is your confidence SS will still be available in 15 years and that it will be sufficient for your needs? Are you 95% confident? If not, I would be withdrawing and spending less.

[BikeFanatic]

it’s more about the outlier scenarios.

I agree with you that is the tougher call of them all! What are the outlier scenarios?
Social security wont be there - thats going to screw me up at 4-5%.
Total stock market crash and or world war? That will make it difficult also.
I also have a 12-15 year bridge to social security, my plan is to spend what I spend and see how it goes. If I have to go back to work as a walmart greeter, well then thats what I will have to do.  I have a plan for the worst case scenarios- go back to work even at an old age.  Another plan I have is 2 years in  cash of bare bones expenses,  for these situations and a paid off home.

[RWD]

Thanks.  I guess what I’m really asking is whether a 5.5% withdrawal rate for 15 years with a 50/50 asset allocation is too risky.  I’m certain that the math “works” based on the typical expected returns but it’s more about the outlier scenarios.

cFIREsim and FIRECalc indicate that for a 50/50 portfolio a 5.6% withdrawal rate has never run out of money in any 15 year periods. Portfolio Charts seems to indicate it would survive even up to a 6.7% withdrawal rate though I believe the dataset for that doesn't go back as many years.

[Rhinodad]

4% is safe. 3.5% if you need more than 30 years

I’d like to flip that around a bit.  What would be safe for a 15 year horizon?  I’m planning to retire at age 55 and withdraw approx 5.5% for 15 year so I can delay SS until age 70.  I think this is OK but haven’t seen much discussion about 15 year safe withdrawal rate. I could annuities but would prefer no to.

I completely understand the thinking on this...and it works out great if you are only counting on one persons SS income when you hit 70. If you have a spouse, and part of your planning is to count on 2 SS checks at 70, but one dies early, and you only have 1 check, and you've spent down your 'stache fairly aggressively, then is the surviving spouse just surviving for the remaining years, and not fully enjoying their retirement? Would it be better to claim SS at 62 for both, and lowering your withdrawal rate, and be able to perhaps even grow the 'stache, so the surviving spouse has enough? Just a thought.

[friedmmj]

Thanks.  I guess what I’m really asking is whether a 5.5% withdrawal rate for 15 years with a 50/50 asset allocation is too risky.  I’m certain that the math “works” based on the typical expected returns but it’s more about the outlier scenarios.

cFIREsim and FIRECalc indicate that for a 50/50 portfolio a 5.6% withdrawal rate has never run out of money in any 15 year periods. Portfolio Charts seems to indicate it would survive even up to a 6.7% withdrawal rate though I believe the dataset for that doesn't go back as many years.

Very helpful thanks!  I have very high confidence that the social security benefits for folks that have overall medium or low income will be intact in 15 years.  I foresee taxes being raised on higher incomes before and during retirement (for example, the proposal to apply FICA taxes above 400k income), but I do not see base level benefits being trimmed.

[Car Jack]

2% here.  shrug.  I've got room for a Porsche picked up in Germany at Leipzig.  I've always been a "safety net" guy.  No matter what, I'm covered. 

[friedmmj]

4% is safe. 3.5% if you need more than 30 years

I’d like to flip that around a bit.  What would be safe for a 15 year horizon?  I’m planning to retire at age 55 and withdraw approx 5.5% for 15 year so I can delay SS until age 70.  I think this is OK but haven’t seen much discussion about 15 year safe withdrawal rate. I could annuities but would prefer no to.

I completely understand the thinking on this...and it works out great if you are only counting on one persons SS income when you hit 70. If you have a spouse, and part of your planning is to count on 2 SS checks at 70, but one dies early, and you only have 1 check, and you've spent down your 'stache fairly aggressively, then is the surviving spouse just surviving for the remaining years, and not fully enjoying their retirement? Would it be better to claim SS at 62 for both, and lowering your withdrawal rate, and be able to perhaps even grow the 'stache, so the surviving spouse has enough? Just a thought.

My wife will collect spousal benefit since she was a SAHM.  When one of us dies, the survivor will collect my benefit (2/3rd of combined).  Also, I don't anticipate 100% draw-down of assets by Age 70.

[markbike528CBX]

2% here.  shrug.  I've got room for a Porsche picked up in Germany at Leipzig.  I've always been a "safety net" guy.  No matter what, I'm covered.

I was going to be snobby and say real Porsches aren’t built in Leipzig. But they do build Panamera there.   

Disclosure: 2000 Boxster, original IMS, built in Uusikaupunki,Finland.

Edit for spelling Uusikaupunki and Panamera, source https://www.porsche-leipzig.com/produktion/

[RWD]

2% here.  shrug.  I've got room for a Porsche picked up in Germany at Leipzig.  I've always been a "safety net" guy.  No matter what, I'm covered.

I was going to be snobby and say real Porsches aren’t built in Leipzig. But they do build Panamera there.   

Disclosure: 2000 Boxster, original IMS, built in Uusikaupunki,Finland.

Edit for spelling Uusikaupunki and Panamera, source https://www.porsche-leipzig.com/produktion/

Our 2014 Cayman was built in Osnabrück, Germany.

[Much Fishing to Do]

I think he always based his SWR rate on someone retiring around 65 and (I think appropriately) maybe now just factoring the death curve more.  When I first heard I could withdraw 1/25th of my money adjusted for inflation starting at age 65 with a 50/50 portfolio, and most probably would not run out of money, my only thought was that the stock market was therefore a ridiculous risk for me to take as I could do all that with fixed income given I can't imagine living past 85 (no one in my family has to date).

I thought the most fascinating part of the article is the current market timing he's doing and the moves he's made outside of his SWR study boundaries (sounds like may be based mostly on current valuations but not totally) by currently being at 25% equities because of the wall street/main street dislocation and then he plans to get back in after its all over.  The fact not even Bengen sets it and forgets it really stresses the import of the 4% rule being a guideline that may help one decide when its safe to retire but not much more.