What withdrawal strategy do you use / plan to use?

[TempusFugit]

Just wondering how others are planning to handle the drawdown phase of their lives.  There are lots of options and I’m sure none of them are perfect.  I also realize that lots of people are none-of-the-above but there’s only so many options I can put in the poll.  If you are a none of the above, are you using a strategy at all, or just sort of ‘winging it’? 

For those that want to describe what they are doing, can you also tell us how far out from retirement you are? 

[NotJen]

I don't know what most of those options mean.

Each December: look at cash position.  Is it enough for expected expenses for next 2 years?  If yes, do nothing.  If no, sell shares in the most tax-efficient way.
Each January: look at previous year's spending, track WR*, confirm I'm under 4%, go on with my life.


*calculated based on inflation-adjusted NW at retirement.

[TempusFugit]

I don't know what most of those options mean.

Each December: look at cash position.  Is it enough for expected expenses for next 2 years?  If yes, do nothing.  If no, sell shares in the most tax-efficient way.
Each January: look at previous year's spending, track WR*, confirm I'm under 4%, go on with my life.


*calculated based on inflation-adjusted NW at retirement.

So when you decided you were financially ready to retire, were you using the 4% rule as your guide?  It sounds like you are using it as a check periodically.  If your spending is just sort of whatever you spend without using a ‘budget’ based on a certain percentage, then I guess you’re in the none-of-the-above category.   

[NotJen]

I don't know what most of those options mean.

Each December: look at cash position.  Is it enough for expected expenses for next 2 years?  If yes, do nothing.  If no, sell shares in the most tax-efficient way.
Each January: look at previous year's spending, track WR*, confirm I'm under 4%, go on with my life.


*calculated based on inflation-adjusted NW at retirement.

So when you decided you were financially ready to retire, were you using the 4% rule as your guide?  It sounds like you are using it as a check periodically.  If your spending is just sort of whatever you spend without using a ‘budget’ based on a certain percentage, then I guess you’re in the none-of-the-above category.

Yes, I used the 4% rule as a guide to say I had 'enough'.  But I never planned on using constant withdrawals or anything.

Technically I had a budget for my first years of FIRE, but didn't find it helpful; I'm a chronic under-spender.  I do track spending, and my planning was (and is) based on years of accurate spending data, plus portions of "winging it" when it came to guessing about future healthcare and housing.  My plan, as ever, is to be adaptable.

[Villanelle]

We plan on using 4% as a guide, but in dramatically down markets, we will likely cut or delay some expenses and try not to take the full 4%. And if the market look good and we suddenly have the urge to spend a lot on something that is aligned with our values, I could see occasionally allowing ourselves an extra .1% or two, especially if we've come in under 4% in previous years.  To me, the 4% rule has never been a religion.  It's a starting point for decision-making.  I expect that to continue through R. 

[GuitarStv]

Our household spends about 50-55k a year, so I plan on about 60k per year of expenses (shit happens, and ).  We currently have about 2 million invested.  That means our max withdraw should be around 3% a year.  As we proceed and monitor, if we seem to be spiking up above this then we'll cut back on expenses . . . which there is certainly room to do.  If our withdrawals are lower, then we get richer.  If things go catastrophically wrong we can always sell our home, which is fully paid off and should probably net a bit north of 800k.  My son will be university age in 2033, so that will add a yearly expense for 4-5 years (we have about 67k invested separately for this, but I'm aware that this won't cover everything).  In 2046 we will both turn 65, so should also have additional funds coming in by way of social security and OAS each month.  My wife is not 100% sold on ER yet, so will probably continue working for several years after I retire.

We're still banging out the final specific details regarding what will be needed for future spending.  Between the collapse of democracy in the US and the worsening climate crisis, the future may be much more expensive than the plan so we'll have to be flexible.

TLDR - Aiming for a soft 3% (hopefully under) withdrawal, but will likely need to wing it on occasion to weather future disasters.

[secondcor521]

Officially I use this:

https://retireearlyhomepage.com/popr.html

aka Retire Again and Again.

Practically speaking, I don't spend anywhere close to what I could - currently it's about 1/4.  I spend what I need/want and withdraw from the portfolio in a reasonably tax-optimal way.  Then I go try to make sourdough bread or something.

[Ron Scott]

Been withdrawing for 7+ years NP. Never followed a formula. Avoid 4% and such like a stinky.

Transfer earnings from taxable brokerage to checking a few times a year as needed. Sell some taxable brokerage holdings if necessary.

Live below my means and never intend to spend “the most I can”.

[TempusFugit]

Been withdrawing for 7+ years NP. Never followed a formula. Avoid 4% and such like a stinky.

Transfer earnings from taxable brokerage to checking a few times a year as needed. Sell some taxable brokerage holdings if necessary.

Live below my means and never intend to spend “the most I can”.

But how do you define “your means” unless you have SOME model in your head?  There’s some heuristic you must’ve applied at some point, right? 

[Rob_bob]

None of the above, I use dividends for regular spending.

[GilesMM]

Net worth is up nearly 50% since retiring in 2020 despite what feels like furious spending relative to pre-retirement. 


BH mostly like this strategy: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

[TempusFugit]

Net worth is up nearly 50% since retiring in 2020 despite what feels like furious spending relative to pre-retirement. 


BH mostly like this strategy: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

Interesting. I hadn’t seen that one.  A quick glance leads me to think a potential downside of that is that your withdrawals in dollar terms are more likely to increase as you age, whereas typically your spending tends to decrease (spend more early, trends off as we age).  Not unique to that model, of course. 

[Ron Scott]

Been withdrawing for 7+ years NP. Never followed a formula. Avoid 4% and such like a stinky.

Transfer earnings from taxable brokerage to checking a few times a year as needed. Sell some taxable brokerage holdings if necessary.

Live below my means and never intend to spend “the most I can”.

But how do you define “your means” unless you have SOME model in your head?  There’s some heuristic you must’ve applied at some point, right?

As I retired I had a lifestyle I liked and could afford, and I kept it up in retirement. When I say I live below my means I basically spend as if I will have no real growth in the future and still leave an nice inheritance to family. So yeah, the model ends up being close to an old-fashioned “don’t touch your principal” approach, even though interest & dividends don’t work that way anymore.

I have several issues with the 4% thing, one of which is the concept of trying to figure out what’s the most you can possibly spend and then do something to pull it back a little for safety. I never thought about wealth building like that for myself.

[Metalcat]

Other:

With pension, real estate income, and very part time work in retirement, I doubt we'll withdraw much at all for a very long time.

[Omy]

Also, "other".

Rental income, interest, dividends, and our frugal natures have kept us from having to sell stocks since we FIREd in 2019. Net worth is up 50% since then.

When we sell our remaining rental, we will turn on annuity income. And social security if it's still an option. We are likely to have a big RMD "problem" in 15 years - assuming the fall of democracy doesn't change everything.

[Greystache]

I don't expect on withdrawal strategy will work for our entire retirement. In the first 10 years of retirement, we started out with the 4% rule as a guide. We found that for the first 9 years, we didn't really need to increase for inflation, but last year we finally did. Our spend will continue to be a little less than 4% of our portfolio value until we decide to take SS in 2 to 5 years. Then we will draw much less than 4% until RMDs kick in. I don't expect we will spend as much as RMD + SS will provide, so some of the RMDs will be given away or reinvested. If our portfolio takes a serious, prolonged downturn, we might take SS earlier or reduce our spend a little.

[Tom Bri]

Currently spending a bit more than 1/3 of my current income. If I go by the 4% rule I will almost double my spending! I doubt that will happen.

I expect to set up an automatic withdrawal sufficient to cover monthly auto-payments, credit cards and power bills etc. Add a cushion in the checking account for emergencies. More money than that is only 3 business days away.

[41_swish]

Currently spending a bit more than 1/3 of my current income. If I go by the 4% rule I will almost double my spending! I doubt that will happen.

I expect to set up an automatic withdrawal sufficient to cover monthly auto-payments, credit cards and power bills etc. Add a cushion in the checking account for emergencies. More money than that is only 3 business days away.

This is definitely something I have wondered. If I go to the 4% rule at 1.5 million then I would spend way more than my projected spend. I almost wonder if 4% is the high end of a SWR and if you could get away with less based on your needs. The obvious answer is yes.

I think I will continue to work in some capacity when I hit my FIRE number, ideally enough to just barely cover expenses or be able to live off a small 1% WR.

[secondcor521]

Currently spending a bit more than 1/3 of my current income. If I go by the 4% rule I will almost double my spending! I doubt that will happen.

I expect to set up an automatic withdrawal sufficient to cover monthly auto-payments, credit cards and power bills etc. Add a cushion in the checking account for emergencies. More money than that is only 3 business days away.

This is definitely something I have wondered. If I go to the 4% rule at 1.5 million then I would spend way more than my projected spend. I almost wonder if 4% is the high end of a SWR and if you could get away with less based on your needs. The obvious answer is yes.

I think I will continue to work in some capacity when I hit my FIRE number, ideally enough to just barely cover expenses or be able to live off a small 1% WR.

Right.  The next question that people ask is, "Well, if I am living off 1% WR but believe I could spend (say) 3% WR and still be 'safe', then *should* I increase spending to increase my happiness?"  A first order consideration is whether the person asking the question wants to leave money behind for kids or charities or not.

I'm trying to figure this out myself, but honestly spending more money kind of makes me itchy and takes more work.  Spending money to reduce or avoid hassle seems to be a promising avenue for further investigation.

[Laura33]

I have absolutely no idea.  We're going to have a few years' expenses in CDs, which we will presumably replenish.  But it's hard to predict, because at various times we will have (1) mortgage paid off and colleges done, (2) 2 SS checks at some point, (3) switching to Medicare at 65-ish, and who knows what that's going to be, and (4) a pension from DH.  I anticipate SS and pension to cover all mandatory expenses and then some, and other discretionary costs will likely be very lumpy year to year depending on trips, grown-kid issues, etc.

I suspect that probably once or twice a year we'll look at spending as compared to the 4% rule -- my version of that, though, is generally looking at it as 4% of whatever the value is each year.  We'll then adjust the discretionary stuff downward if/when we need to.

I see no reason to withdraw some arbitrary number beyond what I need.  For me, the 4% just as an upper-bound figure that I want to periodically check myself against. 

[Villanelle]

Good points above about not just blindly spending 4%.

We are a ways out, but my loose plan for withdraws will be to take what we think we need (probably quarterly), which will almost certainly be <4%.  Annually, we will see what we have left.  So if we take out $15k/quarter and only spend $50k, we'd have $10k left.  (Probably $20k in reality, as I'll likely leave a large cash cushion.)  I'd likely then decrease the next set of quarterly withdraws to eat up that $10k overage and account for the slightly lower spend--probably at 50k/year estimated.

If we have a large expense, like a car replacement, I'd do an individual withdraw for that, as needed. 

As accounts hopefully grow, I'll start scrapping off excesses and making larger charitable donations with them.

So I'm not going to withdraw 4% to spend, just because we can.   But if we ever start going over 4%, then it's time to look to make some cuts or delay some expenses.  That's how I'll use 4%--not as something that tells me what to spend, but as a guardrail to tell me when maybe I need to change how much we spend or plan to spend.

[obstinate]

Right now I'm modeling that we will need substantially to withdraw only around 2% per year, or maybe a little less, so I don't expect to need to use  any rule. However, we will probably be tracking how things are going for the first couple of years. If the portfolio does through some unlucky even fall below a guardrail threshold like 75% we would at least cut our spending significantly and possibly go back to work.

[Metalcat]

Good points above about not just blindly spending 4%.

We are a ways out, but my loose plan for withdraws will be to take what we think we need (probably quarterly), which will almost certainly be <4%.  Annually, we will see what we have left.  So if we take out $15k/quarter and only spend $50k, we'd have $10k left.  (Probably $20k in reality, as I'll likely leave a large cash cushion.)  I'd likely then decrease the next set of quarterly withdraws to eat up that $10k overage and account for the slightly lower spend--probably at 50k/year estimated.

If we have a large expense, like a car replacement, I'd do an individual withdraw for that, as needed. 

As accounts hopefully grow, I'll start scrapping off excesses and making larger charitable donations with them.

So I'm not going to withdraw 4% to spend, just because we can.   But if we ever start going over 4%, then it's time to look to make some cuts or delay some expenses.  That's how I'll use 4%--not as something that tells me what to spend, but as a guardrail to tell me when maybe I need to change how much we spend or plan to spend.

Exactly, in this community, the 4% rule has always just been a starting point, from there individual circumstances, risk tolerance, and hedges are then factored in.

[41_swish]

Currently spending a bit more than 1/3 of my current income. If I go by the 4% rule I will almost double my spending! I doubt that will happen.

I expect to set up an automatic withdrawal sufficient to cover monthly auto-payments, credit cards and power bills etc. Add a cushion in the checking account for emergencies. More money than that is only 3 business days away.

This is definitely something I have wondered. If I go to the 4% rule at 1.5 million then I would spend way more than my projected spend. I almost wonder if 4% is the high end of a SWR and if you could get away with less based on your needs. The obvious answer is yes.

I think I will continue to work in some capacity when I hit my FIRE number, ideally enough to just barely cover expenses or be able to live off a small 1% WR.

Right.  The next question that people ask is, "Well, if I am living off 1% WR but believe I could spend (say) 3% WR and still be 'safe', then *should* I increase spending to increase my happiness?"  A first order consideration is whether the person asking the question wants to leave money behind for kids or charities or not.

I'm trying to figure this out myself, but honestly spending more money kind of makes me itchy and takes more work.  Spending money to reduce or avoid hassle seems to be a promising avenue for further investigation.

Valid point I agree with you. I am VERY far away from that, but the legacy I want to leave is very up in the air. I am not married yet and don't have kids. I need to see how that goes and then evaluate.

[GuitarStv]

I don't think there's much point leaving behind a financial legacy without a livable world to go with it, so it's not high on my list of priorities.

[RedmondStash]

Other.

OP, why do you ask? If you give us more info about your reasons, we might be able to provide more targeted or useful responses.

I keep an eye on what withdrawing 4% would look like each year, but I don't worry if I go above or below it, provided my accounts are in good shape.

One piece of advice I got early on that I've found really helpful is to take the stash at FIRE age and project out your portfolio value, adjusted by what current spending and growth of whatever your AA would predict (maybe around 7%), for the next 50 years. I did that years ago, and now I compare where I currently am to where the original projections would put me. As long as I'm ahead of the game, I don't worry about the 4% guidelines.

In fact, if I'm ahead of the game, that's the time I look at spending more than 4% on one-time purchases like home upgrades, new car, etc. I figure I might as well deal with those big financial hits when my coffers are full. That way, during leaner years, those expenses will already be behind me, and I can more comfortably cut back on spending.

[twinstudy]

spend rent only, no withdrawal of principal

[41_swish]

I don't think there's much point leaving behind a financial legacy without a livable world to go with it, so it's not high on my list of priorities.

I can never tell if you are messing with me or just the most cynical poster on here.

[mistymoney]

I don't think there's much point leaving behind a financial legacy without a livable world to go with it, so it's not high on my list of priorities.

decendants will need very pricey outdoor suits to moderate temperature, filter pollution and sheild from the raging sun with cancer-blocker technology.

in addition, climate controlled residential greenhouses will be necessary for food product for the family.

Only the well-funded progeny will survive! A financial legacy is a must!

[reeshau]

I started with the 4% rule, but have not mechanically adjusted our withdrawal rate; rather, I am refilling our cash cushion when low.  We are well above our sustainable wealth; our 'stache is very close to 2x when we started in 2020.  So, I haven't had to get any fancier.

At some point, I will need to start thinking about the magic ages for IRA's, Medicare, and Social Security.  With RMD's closer as well, we may amp up our withdrawals--probably formal and informal giving, to manage that phase.

[Much Fishing to Do]

As far as our "spending" we're just gonna spend whatever we want to.  It should stay under 4%, and be even better once SS and Medicare kick in in a dozen years.

I have been thinking about a withdrawal strategy like a constant percent of my portfolio or some kind of Guyton rails or something to help guide me on what to give the kids over time (something I can follow to see how much, beyond my own spending, I can withdraw and gift).  I don't want to watch a portfolio grow like crazy (which is gonna happen with "average" market returns and the fact that I already buy whatever I want, so am not gonna spend more to just spend it) and them collect it at 50 when I could have given them something helpful at 30.  But also this giving could become a problem for me if the markets don't perform well and it's too much, so will need some guiderails/restrictions.  I don't want to get in the way of their own normal budgeting but giving them large home down payments to add to whatever they have or significantly paying down their mortgage or the like is how I'd like to help.

[ATtiny85]

I started with the 4% rule, but have not mechanically adjusted our withdrawal rate; rather, I am refilling our cash cushion when low.  We are well above our sustainable wealth; our 'stache is very close to 2x when we started in 2020.  So, I haven't had to get any fancier.

At some point, I will need to start thinking about the magic ages for IRA's, Medicare, and Social Security.  With RMD's closer as well, we may amp up our withdrawals--probably formal and informal giving, to manage that phase.

Well said, this is similar to our plan. Unless of course the market decides otherwise in the next decade.

[jimmyshutter]

I'm surprised VPW wasn't included in the choices.

I'll be loosely following VPW. I like the idea of greater withdrawals percentages earlier in retirement.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

[PhilB]

I voted constant percentage of portfolio as all my planning is based on that, with a 3.5% withdrawal of current portfolio value.  The reality is very different. 

In the 6 years since FIRE I have tended to withdraw around 2% because of unplanned for earnings and underspends.  This will be the first year that I do sell the full 3.5% (alright, not from all of my portfolio, but from 80% of it), but that is more to do with wanting to take some gains while markets are high. Much of it will increase my (already high) cash buffer.  I use cash to fill in for future income streams from state and work pensions and to smooth income if needed. 

In my modelling, I make sure we would be okay if the 3.5% portfolio income dropped by 50%.  We can do that easily as we have a good floor from future pensions / cash.  Plus the fact that we struggle to spend anywhere near what the spreadsheets say we could.  If I'm honest with myself though, I very much doubt my ability to stick to my strategy if we do get a big crash.  I'm much more likely to drastically reduce the percentage sold and just cut back on spending rather than sell in the dip.

Because of all the above, nowadays I pay more attention to efficient ways to pass on money to my kids than on modelling our own retirement.

[Retire-Canada]

I thought I would figure out my detailed withdrawal strategy in the first few years of retirement when I was living off my cash/bonds. In the event all the winds were in my favour and now my portfolio is much bigger than it was at retirement so SORR and being concerned about money are in the rearview mirror. Now I just want something simple to work with and I'm going to use a guardrail of 4% of my actual investment value as my "normal" max withdrawal per year. I doubt I will spend that much unless something happens with a vehicle, real estate or large home reno/repair, but it provides an easy sanity check. In the rare year I want to spend more than 4% of the actual portfolio value I'll need to sit down and do some detailed analysis.

Personally what I appreciate most about retirement is all the free time to do stuff I enjoy and help support friends/family. Most of that stuff is free or low cost so there is no great urge to increase spending despite having the money to do so. I have already started to work on increasing my donations year over year and that is one way I do intend to spend more of my investments.

[secondcor521]

Because of all the above, nowadays I pay more attention to efficient ways to pass on money to my kids than on modelling our own retirement.

What have you discovered in this area?  I have my own thoughts but would be interested in others' good ideas.

[mistymoney]

I didn't see mine listed. I am planning to start at about 6% and decrease to 3% over the first 10/11/12 years.

Maybe!

[TempusFugit]

OP, why do you ask?…

Mostly just because I thought it might spur some discussion, which it has. 

Also, because as I am finalizing my plans for retirement in the next 12-18 months, I’ve had to buckle down and get serious.  I want to be able to tell myself that I have looked at my plan from every angle, that I’ve done due diligence.  I’m not naïve enough to think that we can plan for all eventualities but I do think we can do our part on the front end to avoid kicking ourselves later for being too cavalier about what is probably the biggest financial (and maybe even psychological) decision in our lives. Maybe second only to marriage. That's a pretty big one, too, I suppose.

In a lot of ways, it’s become clear to me that the "simple math" for retirement is only simple when you’re accumulating assets, but gets more complicated in a hurry when you are in the spending phase. 

I don't think that a simple 4% rule really works for most people as an actionable plan.  I'm not questioning the math or the validity of the rule itself, but the reality of how we spend money, especially over a multi-decade period.  It also doesn't account for things like SS income, which most of us (in the US) will get, even if it's a reduced amount.  It's even more important to consider if one is, shall we say, not entering retirement in the flush of youth.

Some strategies, such as the guardrails models, might start with a >4% WR, but the caveat is that historically you would have had to reduce your spending, sometimes severely and for extended periods to make it work.  Given the current market, I think it's very probable that a guardrails model would force such a reduction, probably in the not distant future.  I’d like to avoid that if I can.  I certainly don't want to begin retirement with what I think is a high probability that I'd have to reduce my planned spending, especially in the first years that are supposed to be full of fun and adventure. That's the point of retiring early, after all.

On this forum, and with some of the comments in this thread, I sometimes get the impression that (some) folks aren’t really doing the work to look at what a real retirement withdrawal phase will look like. If you’re still 5-10 or even more years away from retirement that’s fine. So many things will change that it probably wouldn’t be of much value. Maybe that’s because you have, or plan to have, so much money or you spend so little, that you can go with a 2% or 3% rule and be content.   I’m sure that would be a safe financial plan, so more power to you. 

Some people are relying on 'flexibility' to obviate making detailed plans or decisions.  That model doesn't fit my personality.  I worry about anyone who just does some hand-wavy "I'll be flexible" thinking about such an important thing. 

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”   

[reeshau]

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”

It's a fair question, if you aren't experiencing it yet.  I would phrase it differently:

There is a risk of running out of money.  Many people are worried by this, and (particularly in this forum) spend a lot of time planning for it.

There is also a risk that you may have too much money.   Not many people think of that.

If you look at the maximum withdrawal curve in Bengen's original study, if you retired at the right time, your rule would be 8%. But nobody will know if it was a good or bad time to retire until far later, so we know it as the 4% rule.

Someone following the 4% rule in an 8% time will have significant additional accumulation.  That will need to be disposed of in some way.  Also, thinking about this could guard against regrets about the plan they did follow, based on the results rather than the process.

[Villanelle]

I thought I would figure out my detailed withdrawal strategy in the first few years of retirement when I was living off my cash/bonds. In the event all the winds were in my favour and now my portfolio is much bigger than it was at retirement so SORR and being concerned about money are in the rearview mirror. Now I just want something simple to work with and I'm going to use a guardrail of 4% of my actual investment value as my "normal" max withdrawal per year. I doubt I will spend that much unless something happens with a vehicle, real estate or large home reno/repair, but it provides an easy sanity check. In the rare year I want to spend more than 4% of the actual portfolio value I'll need to sit down and do some detailed analysis.

Personally what I appreciate most about retirement is all the free time to do stuff I enjoy and help support friends/family. Most of that stuff is free or low cost so there is no great urge to increase spending despite having the money to do so. I have already started to work on increasing my donations year over year and that is one way I do intend to spend more of my investments.

I've thought about setting up a spreadsheet to tell me what our balance would be if we did 4% +inflation.  Then that could be extreme guardrail.  So if one year we want to increase our use of hookers and blow beyond what 4% will buy us, I can refer to the spreadsheet that will tell me that if I'd spent my full 4%, I'd have $X.  I don't think I'd be willing to spend down to that number unless it was an emergent and urgent need, but it would probably give me peace of mind to know, "if we'd been blindly spending our 4% all these years, we'd have $876k.  We have $987k, so blowing an extra $10k this year on blow isn't going to hurt us. 

[TempusFugit]

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”

It's a fair question, if you aren't experiencing it yet.  I would phrase it differently:

There is a risk of running out of money.  Many people are worried by this, and (particularly in this forum) spend a lot of time planning for it.

There is also a risk that you may have too much money.   Not many people think of that.

If you look at the maximum withdrawal curve in Bengen's original study, if you retired at the right time, your rule would be 8%. But nobody will know if it was a good or bad time to retire until far later, so we know it as the 4% rule.

Someone following the 4% rule in an 8% time will have significant additional accumulation.  That will need to be disposed of in some way.  Also, thinking about this could guard against regrets about the plan they did follow, based on the results rather than the process.

Sure, I can see how someone finds themselves withdrawing a very low percentage because that’s just the way it worked out, but I’m not so sure I can understand if that was the plan to begin with.  Well, I can understand being that paranoid, but it just doesn’t seem like a good way to live!  To each his own. 

I’m sure there are people who would look at my plan and think I was cutting things too close.  After all, I’m planning to withdraw >5% for a few years when I retire. I’m not planning to leave millions when I die. My plan “works” in part because I’m planning to reduce my spending when I’m in my mid-70s.  Some would say I’m not being cautious enough, but I’m trying to think of it more like crossing the goal line in football.  Once you’re across the line, it doesn't matter if you crossed by one inch or by 5 yards.  A touchdown is a touchdown. What I’m trying to do is make sure the play has been carefully reviewed by the referees!  I don’t want it called back because I had a knee down! 

[Metalcat]

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”

It's a fair question, if you aren't experiencing it yet.  I would phrase it differently:

There is a risk of running out of money.  Many people are worried by this, and (particularly in this forum) spend a lot of time planning for it.

There is also a risk that you may have too much money.   Not many people think of that.

If you look at the maximum withdrawal curve in Bengen's original study, if you retired at the right time, your rule would be 8%. But nobody will know if it was a good or bad time to retire until far later, so we know it as the 4% rule.

Someone following the 4% rule in an 8% time will have significant additional accumulation.  That will need to be disposed of in some way.  Also, thinking about this could guard against regrets about the plan they did follow, based on the results rather than the process.

Sure, I can see how someone finds themselves withdrawing a very low percentage because that’s just the way it worked out, but I’m not so sure I can understand if that was the plan to begin with.  Well, I can understand being that paranoid, but it just doesn’t seem like a good way to live!  To each his own. 

I’m sure there are people who would look at my plan and think I was cutting things too close.  After all, I’m planning to withdraw >5% for a few years when I retire. I’m not planning to leave millions when I die. My plan “works” in part because I’m planning to reduce my spending when I’m in my mid-70s.  Some would say I’m not being cautious enough, but I’m trying to think of it more like crossing the goal line in football.  Once you’re across the line, it doesn't matter if you crossed by one inch or by 5 yards.  A touchdown is a touchdown. What I’m trying to do is make sure the play has been carefully reviewed by the referees!  I don’t want it called back because I had a knee down!

Whether or not over saving is a good or bad way to live depends on how much that person enjoys the work involved in accumulating more wealth than they need.

I love my work, DH loves his work. SWAMIs can easily end up with an extremely low WR just because we have no reason to stop what we do.

[TempusFugit]

Whether or not over saving is a good or bad way to live depends on how much that person enjoys the work involved in accumulating more wealth than they need.

I love my work, DH loves his work. SWAMIs can easily end up with an extremely low WR just because we have no reason to stop what we do.

Absolutely.  The poll and the discussion though are more targeted to people who are wanting to retire or have already retired.  If you enjoy paid work, that's awesome. That's the dream, right? "If you love what you do, you'll never work a day in your life" and all that.   

I may very well decide in a year that I'm going to keep riding the train and enjoy being unconcerned about performance reviews and bonuses and rumors of the next round of layoffs.  Heck, my job is already better now that I've largely stopped caring about getting credit for my work and letting the sun shine on more junior members of the team, even if I sometimes cringe and think "that's not how I would have handled that". 

Not caring as much is great! I may keep pushing the boundaries and discover that I've customized my job to the point that I feel no reason to leave it.  But even if I decide not to retire yet, I want to be confident that I could.

For the purposes of this poll and discussion, I am more curious about the planning processes for those of us who have retirement, particularly relatively early retirement as a goal.  If that's the case, we have to have some way of deciding that we've reached that goal. 

[Villanelle]

After seeing the robust, full lives that my parents live in their 80s, I'm not very willing to commit my 80yo self to cutting spending.  Maybe I'll want to sit how and do sudoku and crochet (with cheap yarn, of course) and go to a matinee movie 2x year with a senior discount ticket, and call that good.  But maybe I won't. 

And if I've over-saved--if I do end up naturally wanting to spend less in my 70s and beyond, then the "downside" is that I have a lot more money to donate to charity. 

If DH or I were miserable or even unfulfilled in our employment, it might be more of a difficult question.  But I'd still be somewhat hesitant to make choices in my 40s about spending significantly less later on, which I'd have to live with in my 80s. 

[Metalcat]

Whether or not over saving is a good or bad way to live depends on how much that person enjoys the work involved in accumulating more wealth than they need.

I love my work, DH loves his work. SWAMIs can easily end up with an extremely low WR just because we have no reason to stop what we do.

Absolutely.  The poll and the discussion though are more targeted to people who are wanting to retire or have already retired.  If you enjoy paid work, that's awesome. That's the dream, right? "If you love what you do, you'll never work a day in your life" and all that.   

I may very well decide in a year that I'm going to keep riding the train and enjoy being unconcerned about performance reviews and bonuses and rumors of the next round of layoffs.  Heck, my job is already better now that I've largely stopped caring about getting credit for my work and letting the sun shine on more junior members of the team, even if I sometimes cringe and think "that's not how I would have handled that". 

Not caring as much is great! I may keep pushing the boundaries and discover that I've customized my job to the point that I feel no reason to leave it.  But even if I decide not to retire yet, I want to be confident that I could.

For the purposes of this poll and discussion, I am more curious about the planning processes for those of us who have retirement, particularly relatively early retirement as a goal.  If that's the case, we have to have some way of deciding that we've reached that goal.

That misses my point though.

Someone can still want to retire, but suffer nothing from over saving if they enjoyed their job the whole time. There's a massive continuum between hating your job and needing out ASAP and loving your job and working forever.

There's an enormous range of work possibilities within there where working quite a bit more than you need is very pleasant. It all depends on your relationship with the work.

I loved my former career as well, but I absolutely planned to retire in my 50s. I would have been able to retire comfortably in my 40s, but I loved the work. I would not love it past mid 50s though, too physically demanding.

That plan didn't work out because my health went sideways, but had I stayed more able-bodied I would not have suffered for over saving.

[twinstudy]

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”

It's a fair question, if you aren't experiencing it yet.  I would phrase it differently:

There is a risk of running out of money.  Many people are worried by this, and (particularly in this forum) spend a lot of time planning for it.

There is also a risk that you may have too much money.   Not many people think of that.

If you look at the maximum withdrawal curve in Bengen's original study, if you retired at the right time, your rule would be 8%. But nobody will know if it was a good or bad time to retire until far later, so we know it as the 4% rule.

Someone following the 4% rule in an 8% time will have significant additional accumulation.  That will need to be disposed of in some way.  Also, thinking about this could guard against regrets about the plan they did follow, based on the results rather than the process.

I understand that the 4% rule holds true in most circumstances, but I have gone for a much more conservative route because I like having peace of mind - I don't want to think about the bottom 1-3 percentile outcomes and having to go back to work, budget more aggressively than I would like, etc

As for the rest of the 'what is the money for', the answer (at least for me) is nothing in particular. Money is arbitrary and I think for those of us who aren't retiring super early, it just accompanies the hitting of career goals. Even if you gave me a billion dollars I still wouldn't retire before 45 because I have certain career goals I want to hit independently of money.

[Much Fishing to Do]

Because of all the above, nowadays I pay more attention to efficient ways to pass on money to my kids than on modelling our own retirement.

What have you discovered in this area?  I have my own thoughts but would be interested in others' good ideas.

One thing I look at are those tax breaks that were hard to take full advantage of when I qualified for them, and by the time I could afford to take full advantage did not qualify.  (e.g. Helping your kid max out retirement accounts (pre- or post tax), collecting the retirement savers credits, etc.). Staying out of debt as well in those early years.

[tooqk4u22]

For the most part my plan has been based on a 3% WR but not greater than 4% in distressed markets - basically allows for a 25% drop in my portfolio without adjusting spending.  It's probably super conservative but valuations, volatility, uncertainty (ACA, although my budget includes full insurance amount) are all on my mind.   

I read something on the forum the other day about a pension approach where you take out a % of the average balance of the last three years and I am thinking that through - it seems to make a lot of sense to me as it smooths it out but doesn't penalize in down years.   

[bacchi]

I use VPW to determine how much to withdraw.

The liquid assets input into the VPW calculator is the 3 year average, as tooqk4u22 just mentioned. ^^

McClung's Prime Harvesting method is used to determine when to sell off equities to buy bonds.

[TempusFugit]

The fixed percentage constant withdrawal strategy pulled head and wins the poll!

It would be interesting to know how many people who are already in the withdraw phase are consistently using that method.  I’m dubious! 

I think many of us will be using some hybrid of strategies. What I’m planning currently is really none of the above strictly speaking, but using combinations of methods to confirm that I’m withdrawing safe amounts. 

What I mean is that I have put together a spending plan that covers my retirement and accounts for supplemental income (pension, SS) and reductions of spending (mortgage paid off) at different points in the plan.  That makes a constant percentage withdrawal strategy kind of pointless. 

But aspects of such a model do have some value to me when I look at my spending year to year and see what the withdrawal rates are and how close (or not) they are to the SWR one would get from a 4% rule, for example. In my case I’m looking at BigERN’s SWR toolkit which uses CAPE as an important lens for backtesting to determine a SWR.  Using that tool, I get a 5.12% SWR* (constant).  This is >4% because of my age (closer to SS) and a small pension.  Without accounting for those income streams it would be <4% given today’s high CAPE.

So what I am doing is looking at my annual spending (projected in my plan) and checking where I might be exceeding that 5.12% and making sure there are very few of those and they’re offset by lots of years with lower rates. In my case my projected spend is very close to 4% on average. There are a few years in the plan that hit 6%, due to irregular expenses like buying a new car. Those don’t trouble me much because that’s the sort of thing that can be put off or reduced if conditions call for it.

I also intend to use a probability based guardrails model, where I rerun the Monte Carlo projections from year to year as I move through retirement and if the outputs start to go south (say <70%) then I will reduce spending such that it projects back to a more reasonable success probability.  Kitces published a paper explaining that model and comparing it to the OG guardrails (Guyton-Klinger) to see how the spending reductions compared historically and the probability based was less dramatic. 

https://www.kitces.com/blog/probability-of-success-driven-guardrails-advantages-monte-carlo-simulations-analysis-communication/

This combination makes sense to me.  I started with my desired spending.  The retirement planning tool I use includes the Monte Carlo tool, so I had that to begin with.  Then I looked at what that spending represented as a WR through retirement and did some backtesting simulations using a few tools to verify that I was in the right neighborhood.  Combine that with an ongoing re-evaluation to catch any off-the-rails trajectories and I think I’m comfortable. 

* BigERN’s tool actually gives you a Safe Spending Rate or safe consumption rate so this number includes the value of additional income from SS, etc.  If I am spending 5.12% that may not be actual withdrawals from the portfolio.