Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I'm interested in your thoughts on the optimum investment withdrawal rate for a very early retirement in your 40's. I guess the most conservative path is simply to never sell capital gains and live off the dividends/interest in your portfolio, adjusting your spending as necessary up or down. That would be approximately 2% per year I suppose. The withdrawal rate could increase as you age and defined benefits kick in like social security or pensions to help. But what do the academic studies say and those of you who have researched this heavily? Is 3% draw down for a 45 year old too much?
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
You have a number of options There are Variable Withdrawal Rate tables, popular here on bogleheads.mathwhiz wrote: ↑Sun Jun 13, 2021 11:58 am I'm interested in your thoughts on the optimum investment withdrawal rate for a very early retirement in your 40's. I guess the most conservative path is simply to never sell capital gains and live off the dividends/interest in your portfolio, adjusting your spending as necessary up or down. That would be approximately 2% per year I suppose. The withdrawal rate could increase as you age and defined benefits kick in like social security or pensions to help. But what do the academic studies say and those of you who have researched this heavily? Is 3% draw down for a 45 year old too much?
FIREcalc shows that a withdrawal rate of 3.5% has a 95% chance of lasting 50 years. That goes up to 97% if you keep the withdrawal rate at 3.3%, 100% at 3% WR. (I use 50 because once you increase the time frame, FIREcalc no longer has enough historical periods to be accurate and your likelihood of success actually starts increasing for a given WR).
Our plan is to start off with a 3.5% ceiling, tracking both portfolio performance and how much we underspend from that ceiling each year. That means, in successive years, we will have available 3.5% of the original total + inflation + whatever we have underspent up until then (not inflation adjusted). If the portfolio does particularly well or particularly poorly, we will make adjustments as necessary. We do not figure SS into our calculations, not because of concerns about the system, but because we have to stretch everything for so long to make it there, SS will just be a cherry on top.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Early Retirement Now has an excellent series of articles on this topic.
Part of it depends on what percentage of your spending is discretionary. Personally I would be comfortable using 3.25-3.5% as long as a reasonable amount of expenses can be cut if needed.
Part of it depends on what percentage of your spending is discretionary. Personally I would be comfortable using 3.25-3.5% as long as a reasonable amount of expenses can be cut if needed.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
look for info on "perpetual withdrawal rates"
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
3% is probably safe, but of course the lower it is, the "safer" you are.
For an in-depth book on the topic, see "Living Off Your Money" by Michael H. McClung.
Link: https://www.goodreads.com/book/show/302 ... RKv&rank=1
Regards,
For an in-depth book on the topic, see "Living Off Your Money" by Michael H. McClung.
Link: https://www.goodreads.com/book/show/302 ... RKv&rank=1
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I would say if you're flexible(meaning you can go back to work even p/t if needed) anywhere between 3.5-5%. If you never want to work again, I'd want to be around 2.85-3% for 50+yrs
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Like a lot of stuff.. "it depends" - what's your goal? maximizing your withdrawal? maximizing safety?
I quit mid-40s, will be around 2% until my spouse retires in another couple of years, then we plan to use 3.5% if sequence risks don't show up.. if we end up in a 50% bear for years and years.. then I guess.. back to work in some capacity!
I'd say any where from 2% to 4% seems very reasonable. Above and below that you probably have some other plans: like you can easily go back to work if 6% doesn't work out.. or you want to be sub-2% to maximize a legacy.
I quit mid-40s, will be around 2% until my spouse retires in another couple of years, then we plan to use 3.5% if sequence risks don't show up.. if we end up in a 50% bear for years and years.. then I guess.. back to work in some capacity!
I'd say any where from 2% to 4% seems very reasonable. Above and below that you probably have some other plans: like you can easily go back to work if 6% doesn't work out.. or you want to be sub-2% to maximize a legacy.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
https://www.portfoliovisualizer.com/ shows perpetual withdrawal rates
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I take the average of 3% and current CAPE Yield.
Which is: AVERAGE(3%, 2.65%)=2.83%
Which is: AVERAGE(3%, 2.65%)=2.83%
My investment algorithm: https://www.bogleheads.org/forum/viewtopic.php?f=10&t=351899&p=6112869#p6112869
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I'm in my mid 40s and I'm withdrawing a fixed percentage of my portfolio balance each month (4.5% per year, similar to the VPW method). Withdrawals are added to a savings account that contains 5 months of withdrawals (resulting in a total of 6 months of withdrawals). My monthly income is determined by dividing the savings account by six. By separating monthly income from monthly portfolio withdrawals, I'm effectively smoothing my income stream and lessening the shock of sudden market swings. This method does, however, require a flexible spending approach.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
And another useful link on perpetual withdrawal rates:. https://www.google.com/amp/s/portfolioc ... ement/amp/Ramjet wrote: ↑Sun Jun 13, 2021 6:34 pm https://www.portfoliovisualizer.com/ shows perpetual withdrawal rates
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Consider a bad decade. It's not unreasonable for instance that a portfolio might sustain a 33% drop (or perhaps more) in real total return terms across a ten year period. Now consider costs, taxes and also drawing a income from that, which would pull the decline down even deeper. $1 dropping to $0.66 real total return where $0.03 is also being drawn each year for a decade, and you'd be down at 33% type levels of the inflation adjusted start date value still remaining after 10 years. The former 3% withdrawal amount at that point would be up near 10% in order to sustain around the same amount of inflation adjusted income/spending. Not a good prospect from there.
The PV and PC links posted earlier show PWR figures ... based on "available data" that could draw you into a false sense of security IMO. Based on the above thought-train I'm more inclined to go with a 2% figure. For instance for a Permanent Portfolio PV suggests a 4.8% PWR figure. Likely because PV is limited to a 1972 start date (gold). Broaden that and the figures aren't as good. Consider for instance a Permanent Portfolio, with a twist. Leave the 25 allocations to each of stock and gold, a barbell of two extremes that combine to a central bullet, as your growth bucket holdings, and spend down the 50% of bonds. Standard PP holds 25 each in a short/long dated treasury barbell, but 50 into a 10 year intermediate is near-as no different. So 2%/year for 25 years drawdown would have those bonds all spent. Historically over 25 years the worst case outcome for 50/50 stock/gold saw a 2x real gain outcome based on yearly granularity data since 1931. Average and median cases were both 3.5x real gain factors. So the 50 'growth' (stock/gold) holdings grew sufficiently enough to restore 100% of the inflation adjusted start date portfolio value in the worst historic case since 1931, on average grew the 50 to 175 (ended with considerably more inflation adjusted portfolio value at the end of 25 years). Either way and it was good to go for a second 25 year run.
Note that for the above much of time since 1931 saw it being illegal to hold/trade investment gold in the US. I used British spot gold prices converted to US$ based figures to measure the historical outcome. As though you might have had a British cousin or simply held gold in London or Switzerland or wherever. And that's not really a PP as you start with 25 in each of stock/gold along with 50% bonds, but that transitions to being 50/50 stock/gold as all of bonds get spent ... so more broadly averages 37.5/37.5/25 stock/gold/bonds. A nice feature there however is that reduces early years sequence of returns risk in holding a near pure PP in earlier years.
Whilst that compares to your spend dividends example, a factor with dividends is that they might halve or more in real terms at times, leaving you having to half your spending, or sell some shares likely at a time when share prices had also declined.
Of course I've strictly adhered to holding the same portfolio for the entire 25 year period, in practice you'd use discretion. If after a handful of years the portfolio had done well then you could stop and restart afresh, from a higher base capital level (2% of a higher inflation adjusted total portfolio value is more $$$ actual income/spending).
Optimal as in maximising income production safely is very subjective, a risky venture.
Optimal safety is simply minimisation of amount being drawn. 0% SWR total gain accumulation is very safe - as good a guaranteed safe to not totally fail for a major asset such as a global stock index, and if you're rich enough that 0.5% withdrawals provide enough income to cover your spending needs then you're near as equally as safe. Even 1% is pretty safe. At 2% moderately safe. 3% and 4% and you're getting into the realms that that might just last 30 years. ...etc.
The other factor that is commonly overlooked is that figures more often exclude costs and taxes. At times of economic stress so also will the government purse be under pressure, taxes tend to rise at the worst possible times.
On the upside is that those are the bad cases, more generally you have a good chance of not actually enduring anywhere near as bad (but equally there is a risk you could see even worse). More likely you'll see wealth expansion. Repeated long enough however and the chance of one run being bad is more inclined to occur. Plan/prepare for the worst, hope for the best, in acceptance that your worst case plan still has a risk that actualities could be even worse.
The PV and PC links posted earlier show PWR figures ... based on "available data" that could draw you into a false sense of security IMO. Based on the above thought-train I'm more inclined to go with a 2% figure. For instance for a Permanent Portfolio PV suggests a 4.8% PWR figure. Likely because PV is limited to a 1972 start date (gold). Broaden that and the figures aren't as good. Consider for instance a Permanent Portfolio, with a twist. Leave the 25 allocations to each of stock and gold, a barbell of two extremes that combine to a central bullet, as your growth bucket holdings, and spend down the 50% of bonds. Standard PP holds 25 each in a short/long dated treasury barbell, but 50 into a 10 year intermediate is near-as no different. So 2%/year for 25 years drawdown would have those bonds all spent. Historically over 25 years the worst case outcome for 50/50 stock/gold saw a 2x real gain outcome based on yearly granularity data since 1931. Average and median cases were both 3.5x real gain factors. So the 50 'growth' (stock/gold) holdings grew sufficiently enough to restore 100% of the inflation adjusted start date portfolio value in the worst historic case since 1931, on average grew the 50 to 175 (ended with considerably more inflation adjusted portfolio value at the end of 25 years). Either way and it was good to go for a second 25 year run.
Note that for the above much of time since 1931 saw it being illegal to hold/trade investment gold in the US. I used British spot gold prices converted to US$ based figures to measure the historical outcome. As though you might have had a British cousin or simply held gold in London or Switzerland or wherever. And that's not really a PP as you start with 25 in each of stock/gold along with 50% bonds, but that transitions to being 50/50 stock/gold as all of bonds get spent ... so more broadly averages 37.5/37.5/25 stock/gold/bonds. A nice feature there however is that reduces early years sequence of returns risk in holding a near pure PP in earlier years.
Whilst that compares to your spend dividends example, a factor with dividends is that they might halve or more in real terms at times, leaving you having to half your spending, or sell some shares likely at a time when share prices had also declined.
Of course I've strictly adhered to holding the same portfolio for the entire 25 year period, in practice you'd use discretion. If after a handful of years the portfolio had done well then you could stop and restart afresh, from a higher base capital level (2% of a higher inflation adjusted total portfolio value is more $$$ actual income/spending).
Optimal as in maximising income production safely is very subjective, a risky venture.
Optimal safety is simply minimisation of amount being drawn. 0% SWR total gain accumulation is very safe - as good a guaranteed safe to not totally fail for a major asset such as a global stock index, and if you're rich enough that 0.5% withdrawals provide enough income to cover your spending needs then you're near as equally as safe. Even 1% is pretty safe. At 2% moderately safe. 3% and 4% and you're getting into the realms that that might just last 30 years. ...etc.
The other factor that is commonly overlooked is that figures more often exclude costs and taxes. At times of economic stress so also will the government purse be under pressure, taxes tend to rise at the worst possible times.
On the upside is that those are the bad cases, more generally you have a good chance of not actually enduring anywhere near as bad (but equally there is a risk you could see even worse). More likely you'll see wealth expansion. Repeated long enough however and the chance of one run being bad is more inclined to occur. Plan/prepare for the worst, hope for the best, in acceptance that your worst case plan still has a risk that actualities could be even worse.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
+1zuma wrote: ↑Sun Jun 13, 2021 6:57 pm I'm in my mid 40s and I'm withdrawing a fixed percentage of my portfolio balance each month (4.5% per year, similar to the VPW method). Withdrawals are added to a savings account that contains 5 months of withdrawals (resulting in a total of 6 months of withdrawals). My monthly income is determined by dividing the savings account by six. By separating monthly income from monthly portfolio withdrawals, I'm effectively smoothing my income stream and lessening the shock of sudden market swings. This method does, however, require a flexible spending approach.
To smooth it out even further have more in the savings account and divide by a higher number.
Question…how did you come up with the total of 6 months to divide by? Why not more or less?
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
In sufficiently bad scenarios (e.g., permanent real returns under 0%), nothing will last forever.
But I tend to think of planning for around 2.5% being a good enough bet such that below that you are getting just to the types of scenarios, including the one above, you can't really plan for anyway.
And that is really a matter of degree. Around 3% there are scenarios which I don't think are likely but I don't think are science fiction either, but others may disagree and think going below 3% is equally in the can't really plan for it range.
But I tend to think of planning for around 2.5% being a good enough bet such that below that you are getting just to the types of scenarios, including the one above, you can't really plan for anyway.
And that is really a matter of degree. Around 3% there are scenarios which I don't think are likely but I don't think are science fiction either, but others may disagree and think going below 3% is equally in the can't really plan for it range.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I don’t want to hold an excessive amount of cash. Six months feels like a good compromise, but one could certainly stretch it out further.SquawkIdent wrote: ↑Mon Jun 14, 2021 8:42 am+1zuma wrote: ↑Sun Jun 13, 2021 6:57 pm I'm in my mid 40s and I'm withdrawing a fixed percentage of my portfolio balance each month (4.5% per year, similar to the VPW method). Withdrawals are added to a savings account that contains 5 months of withdrawals (resulting in a total of 6 months of withdrawals). My monthly income is determined by dividing the savings account by six. By separating monthly income from monthly portfolio withdrawals, I'm effectively smoothing my income stream and lessening the shock of sudden market swings. This method does, however, require a flexible spending approach.
To smooth it out even further have more in the savings account and divide by a higher number.
Question…how did you come up with the total of 6 months to divide by? Why not more or less?
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Mostly it will depend on your asset allocation. Real bond yields are 0-to-negative, so you would want to be equity heavy.
3% is most probably fine if you are at least 70/30 and have some flexibility to draw less if there's a severe downturn.
Interesting video from smart guy Ben Felix here about this: https://www.youtube.com/watch?v=3BScK-QyWIo
3% is most probably fine if you are at least 70/30 and have some flexibility to draw less if there's a severe downturn.
Interesting video from smart guy Ben Felix here about this: https://www.youtube.com/watch?v=3BScK-QyWIo
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
We have various buckets of money and are privileged to have pensions. Wife and I have, Taxable Account, 2 401k's, 2 ROTH's, 2 Pensions, 2 Social Security income streams.
We are trying to figure out the optimum drawdown of the taxable account from ages 45-59.5. Pension kicks in at 62-65. We also fully expect to spend more money earlier rather than later. We want to do vacations and trips when we are younger and realize that may mean less money when we are in our 60's/70's for trips but I don't think we will be as active and probably content to stay at home more and be with future grandkids rather than big international travel at that age.
So it's complicated.
We are trying to figure out the optimum drawdown of the taxable account from ages 45-59.5. Pension kicks in at 62-65. We also fully expect to spend more money earlier rather than later. We want to do vacations and trips when we are younger and realize that may mean less money when we are in our 60's/70's for trips but I don't think we will be as active and probably content to stay at home more and be with future grandkids rather than big international travel at that age.
So it's complicated.
fortunefavored wrote: ↑Sun Jun 13, 2021 6:23 pm Like a lot of stuff.. "it depends" - what's your goal? maximizing your withdrawal? maximizing safety?
I quit mid-40s, will be around 2% until my spouse retires in another couple of years, then we plan to use 3.5% if sequence risks don't show up.. if we end up in a 50% bear for years and years.. then I guess.. back to work in some capacity!
I'd say any where from 2% to 4% seems very reasonable. Above and below that you probably have some other plans: like you can easily go back to work if 6% doesn't work out.. or you want to be sub-2% to maximize a legacy.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
FIRECalc shows that certain withdrawal rates have had certain chances of success over certain historical periods. Whether history will repeat is unknown.sailaway wrote: ↑Sun Jun 13, 2021 12:11 pmFIREcalc shows that a withdrawal rate of 3.5% has a 95% chance of lasting 50 years. That goes up to 97% if you keep the withdrawal rate at 3.3%, 100% at 3% WR. (I use 50 because once you increase the time frame, FIREcalc no longer has enough historical periods to be accurate and your likelihood of success actually starts increasing for a given WR).
There are only three independent data points going back 150 years - whether today's market and world is sufficiently similar to the period starting 1871 (and the data sufficiently reliable) is also unknown, but I wouldn't bet on it. Are three or fewer data points sufficient?
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Amortization based withdrawal (ABW) is an excellent withdrawal strategy that works like this. The idea is to calculate withdrawals by dividing up your remaining portfolio over remaining retirement years. i.e. Use amortization techniques to calculate how much $ per year will deplete the portfolio by end of retirement. If expected return is 0%, the problem becomes easy: withdrawal = 1/N of the portfolio size. If expected return is positive, withdrawal will be more than 1/N.
If retiring at 45 and retirement lasts till age 100, that's 55 years of retirement. According to the basic ABW calculator:
If expected return = 0%, starting withdrawal = 1.8%.
If expected return = 1%, starting withdrawal = 2.4%.
If expected return = 2%, starting withdrawal = 3.0%.
If expected return = 3%, starting withdrawal = 3.6%.
Update every year based on new portfolio value. Also update expected return if that has changed. The riskier the asset allocation, the higher the portfolio expected return, but the greater the fluctuations in withdrawals.
The above withdrawal rates assume no Social Security. One way of dealing with Social Security is to set aside bonds to build a bridge to Social Security and calculate amortized withdrawals on the remaining portfolio. That is not my preferred approach due to reasons outlined here. An alternative is to value Social Security as a bond and count that in your portfolio. Then calculate amortized withdrawals on the resulting total portfolio.
Total Portfolio Allocation and Withdrawal (TPAW)
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I agree with this. There are people posting extremely low WD rates. This is MadMax scenarios. 0% or negative growth for decades?? Sorry no WD rate will work, it's game over. So why bother planning for it. That's a non functioning economic system-it could happen but portfolios will not rank as a concern.NiceUnparticularMan wrote: ↑Mon Jun 14, 2021 9:14 am In sufficiently bad scenarios (e.g., permanent real returns under 0%), nothing will last forever.
But I tend to think of planning for around 2.5% being a good enough bet such that below that you are getting just to the types of scenarios, including the one above, you can't really plan for anyway.
And that is really a matter of degree. Around 3% there are scenarios which I don't think are likely but I don't think are science fiction either, but others may disagree and think going below 3% is equally in the can't really plan for it range.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
January 2000 retiree applying 4% SWR by March 2009 saw their $1M start date portfolio value down to $260K (inflation adjusted) remaining. If they'd opted for a 3% SWR they'd have had $320K. $380K if using a 2% SWR.
At that time the 4% SWR withdrawal amount was a effective withdrawal rate of 15.3% relative to the ongoing portfolio value, and some upon seeing such might have capitulated to save what little remained, caught out by the great 1980/1990 bull run and having become totally disillusioned. Yet others given great 1990 gains might even have confidently opted for a 6% SWR, and seen their retirement funds wiped out in just a little over a decade. Even for the 3% SWR'er at a effective 9.4% withdrawal rate might have had hesitations. For the 2% SWR seeing a 5.28% effective rate might have had greater inclination to continue to ride it through.
It doesn't have to be repeated decades of 0% or lower total returns (losses) when income is also being drawn, a single decade long case might be enough to severely damage those that might have thought themselves capable of riding volatility through. It's rare to hear about such failure cases from individuals who lived the experience as they're not inclined to habit investment boards.
Historic mathematical and human emotion/instinct risks are distinctly different risks. And the 2000's were a relatively mild bad case. It's simple enough to mental role play and consider how you might feel/react if for your first decade of retirement total return investment gains were 0% or worse and where you were also drawing a inflation adjusted income on top.
At that time the 4% SWR withdrawal amount was a effective withdrawal rate of 15.3% relative to the ongoing portfolio value, and some upon seeing such might have capitulated to save what little remained, caught out by the great 1980/1990 bull run and having become totally disillusioned. Yet others given great 1990 gains might even have confidently opted for a 6% SWR, and seen their retirement funds wiped out in just a little over a decade. Even for the 3% SWR'er at a effective 9.4% withdrawal rate might have had hesitations. For the 2% SWR seeing a 5.28% effective rate might have had greater inclination to continue to ride it through.
It doesn't have to be repeated decades of 0% or lower total returns (losses) when income is also being drawn, a single decade long case might be enough to severely damage those that might have thought themselves capable of riding volatility through. It's rare to hear about such failure cases from individuals who lived the experience as they're not inclined to habit investment boards.
Historic mathematical and human emotion/instinct risks are distinctly different risks. And the 2000's were a relatively mild bad case. It's simple enough to mental role play and consider how you might feel/react if for your first decade of retirement total return investment gains were 0% or worse and where you were also drawing a inflation adjusted income on top.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
2% is massively unnecessarily conservative, or at least it has been historically.
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I would check out the Early Retirement Now blogs on Safe Withdrawal Rates.mathwhiz wrote: ↑Sun Jun 13, 2021 11:58 am I'm interested in your thoughts on the optimum investment withdrawal rate for a very early retirement in your 40's. I guess the most conservative path is simply to never sell capital gains and live off the dividends/interest in your portfolio, adjusting your spending as necessary up or down. That would be approximately 2% per year I suppose. The withdrawal rate could increase as you age and defined benefits kick in like social security or pensions to help. But what do the academic studies say and those of you who have researched this heavily? Is 3% draw down for a 45 year old too much?
https://earlyretirementnow.com/safe-wit ... te-series/
Lots of analysis ad tools that will be of help.
WoodSpinner
WoodSpinner
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Relative to a emerging market US economy that had a right tail outcome, and when cost/taxes are ignored. Broaden to a more central/average history along with Jo-Average costs/taxes and historic SWR tables do look distinctly different.aristotelian wrote: ↑Tue Jun 15, 2021 1:37 pm 2% is massively unnecessarily conservative, or at least it has been historically.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Taxes are part of spending so my assumption is they are included in "withdrawal". Even so most retirees have low tax rates.seajay wrote: ↑Fri Jun 18, 2021 8:13 amRelative to a emerging market US economy that had a right tail outcome, and when cost/taxes are ignored. Broaden to a more central/average history along with Jo-Average costs/taxes and historic SWR tables do look distinctly different.aristotelian wrote: ↑Tue Jun 15, 2021 1:37 pm 2% is massively unnecessarily conservative, or at least it has been historically.
Good point on including international. 2% is still very conservative. With zero real return your portfolio would last 50 years with no social security.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
OP, I am the same age as you, retired, and I use BigERN's spreadsheet for this problem.
https://docs.google.com/spreadsheets/d/ ... sp=sharing
For a 45 year retirement, 65/25/10 S/B/C, this is my personal SWR table:
The first block is the SWR using historical data with various final value targets across the columns and various drawdowns from the most recent market high down the rows. For example, a 50% final value target when the market is 10% off the high yields a historical SWR of 3.44%. That is the failsafe number for those conditions (failsafe being 100% success over all historical 45 year periods).
The row labeled "Current" is the current value of the market relative to its most recent high. We are currently 2.27% off the 52 week high, so that row represents the current failsafe SWR for the various final value target columns.
The final block is the expected final value by percentile based on historical data using the failsafe WR (0% failure rate over all 45 year periods for given FVT). So for example the 75% final value target column actually has a 98% chance of 100% capital preservation even though the failsafe is only 75%.
I use the 71% final value target column as my personal target, because the failsafe for that one at a market high is a nice round 3%. So my personal SWR ceiling as of this moment is 3.07% based on our current drawdown from market high. That said, my actual WR right now is well below that, so I have a lot of cushion.
https://docs.google.com/spreadsheets/d/ ... sp=sharing
For a 45 year retirement, 65/25/10 S/B/C, this is my personal SWR table:
Code: Select all
100% 98% 85% 75% 71% 50%
Drawdown 0% 2.68% 2.70% 2.85% 2.96% 3.00% 3.14%
5% 2.84% 2.86% 3.00% 3.11% 3.15% 3.31%
10% 2.97% 3.00% 3.15% 3.26% 3.29% 3.44%
15% 3.16% 3.19% 3.34% 3.44% 3.47% 3.64%
20% 3.32% 3.34% 3.47% 3.57% 3.61% 3.82%
35% 3.87% 3.89% 4.01% 4.10% 4.14% 4.33%
Current 2.27% 2.75% 2.77% 2.92% 3.03% 3.07% 3.22%
Percentile 0.00% 1.00x 0.98x 0.85x 0.75x 0.71x 0.50x
0.25% 1.15x 1.13x 0.97x 0.80x 0.74x 0.54x
0.50% 1.21x 1.18x 0.99x 0.85x 0.78x 0.60x
1.00% 1.28x 1.25x 1.05x 0.89x 0.84x 0.65x
2.00% 1.37x 1.34x 1.16x 1.00x 0.93x 0.72x
3.00% 1.47x 1.43x 1.23x 1.07x 1.00x 0.80x
4.00% 1.53x 1.49x 1.28x 1.13x 1.06x 0.86x
5.00% 1.58x 1.55x 1.33x 1.17x 1.11x 0.90x
10.00% 1.98x 1.95x 1.72x 1.53x 1.46x 1.23x
20.00% 2.57x 2.53x 2.32x 2.14x 2.06x 1.86x
The row labeled "Current" is the current value of the market relative to its most recent high. We are currently 2.27% off the 52 week high, so that row represents the current failsafe SWR for the various final value target columns.
The final block is the expected final value by percentile based on historical data using the failsafe WR (0% failure rate over all 45 year periods for given FVT). So for example the 75% final value target column actually has a 98% chance of 100% capital preservation even though the failsafe is only 75%.
I use the 71% final value target column as my personal target, because the failsafe for that one at a market high is a nice round 3%. So my personal SWR ceiling as of this moment is 3.07% based on our current drawdown from market high. That said, my actual WR right now is well below that, so I have a lot of cushion.
FIRE'd. Mid-40s.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I just have dividends and capital gains sent to my money market account. This is more than enough to cover my expenses with meaningful buffer built in. If you get to this point you are safe forever.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Especially since this suggests that you are living off dividends and capital gains from taxable and Roth only, while presumably still having a traditional reserve.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I am currently living on dividends and capital gains from taxable only. I have to wait 7 years to take dividends from IRAs. Much more in traditional than Roth.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Do you mean capital gains distributions rather than realized or unrealized capital gains?
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Depends on what you are optimizing for. In your case, it seems to be legacy.BGeste wrote: ↑Fri Jun 18, 2021 12:07 pmI am currently living on dividends and capital gains from taxable only. I have to wait 7 years to take dividends from IRAs. Much more in traditional than Roth.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
I’m not so sure that means as much as some make it out to mean, at least not w/o some more information.
I’ve seen people post on Twitter things such as “All you need to do is save $1MM and find 10 stocks that yield 10% for a $100,000 a year income to retire early”, for example. How easy is that?
I’m not implying that’s what you’ve done- not in the least, because I know you haven’t. But, selling some shares in retirement from time to time is by no means a bad idea in a world where new money invested in VTI yields considerably less than 2%.
Being wrong compounds forever.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Not really. I just do not need to spend more than the taxable distributions at this point. That may change.sailaway wrote: ↑Fri Jun 18, 2021 12:21 pmDepends on what you are optimizing for. In your case, it seems to be legacy.BGeste wrote: ↑Fri Jun 18, 2021 12:07 pmI am currently living on dividends and capital gains from taxable only. I have to wait 7 years to take dividends from IRAs. Much more in traditional than Roth.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Most of my portfolio is in total market index funds. With a tilt towards value and dividend paying ETFs. I have 75% in equities and the rest in fixed income. Fixed income is good for 15 years of expenses so I do not rebalance. Portfolio yields about 3% in income and I need about 1.6% for expenses. I buy more shares with the difference. I am not against selling shares but I prioritize spending the distributions first. In my view if you can get expenses and portfolio income matched like this you never have to worry.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:24 pmI’m not so sure that means as much as some make it out to mean, at least not w/o some more information.
I’ve seen people post on Twitter things such as “All you need to do is save $1MM and find 10 stocks that yield 10% for a $100,000 a year income to retire early”, for example. How easy is that?
I’m not implying that’s what you’ve done- not in the least, because I know you haven’t. But, selling some shares in retirement from time to time is by no means a bad idea in a world where new money invested in VTI yields considerably less than 2%.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Gotcha. Your thinking closely follows mine but I am more inclined to sell some shares as needed (when DW and I are someday no longer accumulating) since that will help with taxes, somewhat. I always figure it’s best to defer taxable events to a time when the money is going to be spent (which is part of the reason I currently own bonds in tax deferred accounts and none in our joint brokerage).BGeste wrote: ↑Fri Jun 18, 2021 12:33 pmMost of my portfolio is in total market index funds. With a tilt towards value and dividend paying ETFs. I have 75% in equities and the rest in fixed income. Fixed income is good for 15 years of expenses so I do not rebalance. Portfolio yields about 3% in income and I need about 1.6% for expenses. I buy more shares with the difference. I am not against selling shares but I prioritize spending the distributions first. In my view if you can get expenses and portfolio income matched like this you never have to worry.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:24 pmI’m not so sure that means as much as some make it out to mean, at least not w/o some more information.
I’ve seen people post on Twitter things such as “All you need to do is save $1MM and find 10 stocks that yield 10% for a $100,000 a year income to retire early”, for example. How easy is that?
I’m not implying that’s what you’ve done- not in the least, because I know you haven’t. But, selling some shares in retirement from time to time is by no means a bad idea in a world where new money invested in VTI yields considerably less than 2%.
Being wrong compounds forever.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
That's what we do. Once RMDs, Social Security and pensions start, cash flow will increase. We're not reinvesting in taxable at this point or rebalancing.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Most of the dividend distributions I get are qualified, so same tax treatment as capital gains distributions or sales. I live in a state with no income tax. Fixed income is a mix of taxable and tax free municipals. Remember your dividends, interest and capital gains distributions are taxed in a taxable account whether they are reinvested or not. Therefore, I have them sent to my money market account and spend what I need. With the surplus I buy more shares of certain funds. In my tax deferred account I plan to reinvest all distributions for 7 more years when I can take them without penalty.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:48 pmGotcha. Your thinking closely follows mine but I am more inclined to sell some shares as needed (when DW and I are someday no longer accumulating) since that will help with taxes, somewhat. I always figure it’s best to defer taxable events to a time when the money is going to be spent (which is part of the reason I currently own bonds in tax deferred accounts and none in our joint brokerage).BGeste wrote: ↑Fri Jun 18, 2021 12:33 pmMost of my portfolio is in total market index funds. With a tilt towards value and dividend paying ETFs. I have 75% in equities and the rest in fixed income. Fixed income is good for 15 years of expenses so I do not rebalance. Portfolio yields about 3% in income and I need about 1.6% for expenses. I buy more shares with the difference. I am not against selling shares but I prioritize spending the distributions first. In my view if you can get expenses and portfolio income matched like this you never have to worry.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:24 pmI’m not so sure that means as much as some make it out to mean, at least not w/o some more information.
I’ve seen people post on Twitter things such as “All you need to do is save $1MM and find 10 stocks that yield 10% for a $100,000 a year income to retire early”, for example. How easy is that?
I’m not implying that’s what you’ve done- not in the least, because I know you haven’t. But, selling some shares in retirement from time to time is by no means a bad idea in a world where new money invested in VTI yields considerably less than 2%.
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Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
It sounds like you and I are close in age, me being a couple of years younger. I am aware of tax treatment, although I do live in a state with an income tax. I also have dividends sent to our settlement fund, but that’s mainly to keep US and Intl balanced at 30%. Someday we’ll be spending those dividends, of course. What I was speaking towards specifically, was I saw no reason in our case to own a dividend equity fund when there would be more income that was needed already, as you explained in your situation. Way back when I first began to contemplate early retirement I started to fund Vanguard Dividend Appreciation Fund but after I fine tuned my plan I took a tax loss on it and never went back to that lone of thinking. My dad is a Boglehead and I’ve heard him voice his displeasure enough over the years about taxes he has to pay on income he doesn’t need (mainly about RMDs) to have payed attention. I figured best to get it set up right from word-go, where I can control taxable income pretty exactly.BGeste wrote: ↑Fri Jun 18, 2021 1:00 pmMost of the dividend distributions I get are qualified, so same tax treatment as capital gains distributions or sales. I live in a state with no income tax. Fixed income is a mix of taxable and tax free municipals. Remember your dividends, interest and capital gains distributions are taxed in a taxable account whether they are reinvested or not. Therefore, I have them sent to my money market account and spend what I need. With the surplus I buy more shares of certain funds. In my tax deferred account I plan to reinvest all distributions for 7 more years when I can take them without penalty.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:48 pmGotcha. Your thinking closely follows mine but I am more inclined to sell some shares as needed (when DW and I are someday no longer accumulating) since that will help with taxes, somewhat. I always figure it’s best to defer taxable events to a time when the money is going to be spent (which is part of the reason I currently own bonds in tax deferred accounts and none in our joint brokerage).BGeste wrote: ↑Fri Jun 18, 2021 12:33 pmMost of my portfolio is in total market index funds. With a tilt towards value and dividend paying ETFs. I have 75% in equities and the rest in fixed income. Fixed income is good for 15 years of expenses so I do not rebalance. Portfolio yields about 3% in income and I need about 1.6% for expenses. I buy more shares with the difference. I am not against selling shares but I prioritize spending the distributions first. In my view if you can get expenses and portfolio income matched like this you never have to worry.Wanderingwheelz wrote: ↑Fri Jun 18, 2021 12:24 pmI’m not so sure that means as much as some make it out to mean, at least not w/o some more information.
I’ve seen people post on Twitter things such as “All you need to do is save $1MM and find 10 stocks that yield 10% for a $100,000 a year income to retire early”, for example. How easy is that?
I’m not implying that’s what you’ve done- not in the least, because I know you haven’t. But, selling some shares in retirement from time to time is by no means a bad idea in a world where new money invested in VTI yields considerably less than 2%.
Being wrong compounds forever.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
No...historically even 3.5% worked fine for 40 years.mathwhiz wrote: ↑Sun Jun 13, 2021 11:58 am I'm interested in your thoughts on the optimum investment withdrawal rate for a very early retirement in your 40's. I guess the most conservative path is simply to never sell capital gains and live off the dividends/interest in your portfolio, adjusting your spending as necessary up or down. That would be approximately 2% per year I suppose. The withdrawal rate could increase as you age and defined benefits kick in like social security or pensions to help. But what do the academic studies say and those of you who have researched this heavily? Is 3% draw down for a 45 year old too much?
People here are way too conservative...would love to be one of their heirs...
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
OP, expect to have slightly variable, annual income from spending a slowly rising percentage of each recent annual portfolio value. Thus you are steadily adapting each annual spending amount to your recent annual portfolio size, during your long retirement. Plus you can see in advance this year, approximately what next year's income may be. Big ERN has done extensive repetition of others' retirement spending research, with consideration of early start dates, and has written his opinion about each of them.
For my age 55 retirement, the method I used is the RMD percentage (Required Minimum Distribution percentage for spending from IRAs) each year, for my age, applied to my entire recent annual portfolio value, plus spending annual interest and dividends. There were longevity based RMD percentages for every age due to inherited IRAs which were required to be withdrawn from, in order to be taxed. The RMD spending method was developed at Boston College's Center for Retirement Research but I haven't read about how early of retirement starting ages were used in their research.
For more common retirement ages, the RMD spending method is superior to the better known 4% method. Bengen's 4% method was the very first to use historical data which had recently become available in 1991-92. The RMD method uses more history (2012). Bengen's method had late failures for 30 year periods that had not ended when he chose 4% (1/25th of portfolio) as the starting rate. David Zolt improved on Bengen's method by sometimes skipping the annual inflation boosts, if the portfolio was not performing well, but the Zolt website is no longer up.
Repetition for emphasis: Use a slowly rising percentage of each recent annual portfolio value, so you are adapting your spending each year to your remaining portfolio size. That slightly variable annual income is far safer for portfolio longevity, than choosing Bengen's fixed 4% of retirement day assets, expecting that precise inflation-buffered withdrawal amount to always work through the next 40+ years of variable portfolio returns.
The first column is your age, the second column is your life expectancy, the withdrawal (WD) % is the reciprocal of the life expectancy from here.
https://www.irs.gov/publications/p590b
45 38.8
46 37.9
47 37.0
48 36.0
49 35.1
50 34.2
51 33.3
52 32.3
53 31.4
54 30.5
55 29.6
The table continues to age 115! Someone more learned should double check to see if I posted from the correct table in the gargantuan IRS website.
For my age 55 retirement, the method I used is the RMD percentage (Required Minimum Distribution percentage for spending from IRAs) each year, for my age, applied to my entire recent annual portfolio value, plus spending annual interest and dividends. There were longevity based RMD percentages for every age due to inherited IRAs which were required to be withdrawn from, in order to be taxed. The RMD spending method was developed at Boston College's Center for Retirement Research but I haven't read about how early of retirement starting ages were used in their research.
For more common retirement ages, the RMD spending method is superior to the better known 4% method. Bengen's 4% method was the very first to use historical data which had recently become available in 1991-92. The RMD method uses more history (2012). Bengen's method had late failures for 30 year periods that had not ended when he chose 4% (1/25th of portfolio) as the starting rate. David Zolt improved on Bengen's method by sometimes skipping the annual inflation boosts, if the portfolio was not performing well, but the Zolt website is no longer up.
Repetition for emphasis: Use a slowly rising percentage of each recent annual portfolio value, so you are adapting your spending each year to your remaining portfolio size. That slightly variable annual income is far safer for portfolio longevity, than choosing Bengen's fixed 4% of retirement day assets, expecting that precise inflation-buffered withdrawal amount to always work through the next 40+ years of variable portfolio returns.
The first column is your age, the second column is your life expectancy, the withdrawal (WD) % is the reciprocal of the life expectancy from here.
https://www.irs.gov/publications/p590b
45 38.8
46 37.9
47 37.0
48 36.0
49 35.1
50 34.2
51 33.3
52 32.3
53 31.4
54 30.5
55 29.6
The table continues to age 115! Someone more learned should double check to see if I posted from the correct table in the gargantuan IRS website.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Historically, how many times have p/e ratios been this high while real yields this low (although the later is harder to judge pre-TIPS)?
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Based on what I've read in some of these threads (40x - 60 expenses needed?) eventually there are going to be some very wealthy heirs and happy charities! All good if that is your goal.ncbill wrote: ↑Fri Jun 18, 2021 3:29 pmNo...historically even 3.5% worked fine for 40 years.mathwhiz wrote: ↑Sun Jun 13, 2021 11:58 am I'm interested in your thoughts on the optimum investment withdrawal rate for a very early retirement in your 40's. I guess the most conservative path is simply to never sell capital gains and live off the dividends/interest in your portfolio, adjusting your spending as necessary up or down. That would be approximately 2% per year I suppose. The withdrawal rate could increase as you age and defined benefits kick in like social security or pensions to help. But what do the academic studies say and those of you who have researched this heavily? Is 3% draw down for a 45 year old too much?
People here are way too conservative...would love to be one of their heirs...
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Subject to sequence of returns (and sequence of inflation/taxation variations). 1880 onward global stock data and I see a 1.5% 30 year PWR, that compares to the average amount of taxes paid over that history on the income (average/basic/standard/most-common rate), in effect the 1.5% WR amount drawn was being handed to others (taxman). Whilst that ended 30 years with the same inflation adjusted amount as at the start, if additional withdrawals occurred such as 2%/year then it didn't even survive 30 years. All stock simply might not be a sure-thing/rewarding as standard SWR tables suggest. A significant risk/bet.aristotelian wrote: ↑Fri Jun 18, 2021 8:50 amTaxes are part of spending so my assumption is they are included in "withdrawal". Even so most retirees have low tax rates.seajay wrote: ↑Fri Jun 18, 2021 8:13 amRelative to a emerging market US economy that had a right tail outcome, and when cost/taxes are ignored. Broaden to a more central/average history along with Jo-Average costs/taxes and historic SWR tables do look distinctly different.aristotelian wrote: ↑Tue Jun 15, 2021 1:37 pm 2% is massively unnecessarily conservative, or at least it has been historically.
Good point on including international. 2% is still very conservative. With zero real return your portfolio would last 50 years with no social security.
Better, provided bonds were cost/tax efficient and tended to pace inflation in net real terms, would have been to 40/60 initial stock/bond and leave stock to accumulate, spend bonds (2%/year for 30 years).
But that is a bad/worst historic case, in the average (median) case 3.7% additional real was evident - and where discretionary additional income might have been top-sliced out of those gains. Assuming a 2% base/core withdrawal rate and in hope/good-chance of additional discretionary withdrawals/spending on top that isn't overtly conservative, rather it is just a different way of looking at otherwise going all-in on a single risk factor of commonly assumed SWR table values. Also whilst taxes are lower nowadays (tax advantaged options etc.) out-of-sample/forward-time values might reflect such changes (lower SWR). Some moan about recent negative real yields however back in the 1970's/1980's when inflation and cash deposit interest rates were up at 15% levels, after tax/net income was more negative real than is the case nowadays. Circumstances that drove higher inflation also meant that more tax revenues were required in order to service the public purse (taxes tend to increase with increases in inflation).
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
You think real returns on bonds are bad now?
Consider the hapless mid-1960s retirees who saw annual inflation go from under 2% (1965) to around 6% (1970) then to almost 14% (1980)
Don't think any of them were getting a positive real yield on their bonds...
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
The question was the combination of stock and bond multiples.ncbill wrote: ↑Sat Jun 19, 2021 7:39 amYou think real returns on bonds are bad now?
Consider the hapless mid-1960s retirees who saw annual inflation go from under 2% (1965) to around 6% (1970) then to almost 14% (1980)
Don't think any of them were getting a positive real yield on their bonds...
Over the entire 1960s p/e ratios were less than half of what they are today, sometimes one-third. For a stock heavy portfolio, that makes up for a lot. On the bond side, interest rates adjusted and most people were buying new or reinvesting.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Those retirees still has this happen to their equity investments:Seasonal wrote: ↑Sat Jun 19, 2021 7:53 amThe question was the combination of stock and bond multiples.ncbill wrote: ↑Sat Jun 19, 2021 7:39 amYou think real returns on bonds are bad now?
Consider the hapless mid-1960s retirees who saw annual inflation go from under 2% (1965) to around 6% (1970) then to almost 14% (1980)
Don't think any of them were getting a positive real yield on their bonds...
Over the entire 1960s p/e ratios were less than half of what they are today, sometimes one-third. For a stock heavy portfolio, that makes up for a lot. On the bond side, interest rates adjusted and most people were buying new or reinvesting.
https://en.wikipedia.org/wiki/1973–1974 ... rket_crash
"All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms and 43% in real terms...the United States didn't see the same level in real terms until August 1993, over twenty years after the 1973–74 crash began."
Yet a 4% inflation-adjusted WR still worked for 30 years for the above retirees, except for a single starting year (3.8% then) so I don't see 3.5% as a problem for 40 years assuming OP is a single male.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
UK had Jo-Average investors paying 38% taxation rates back in that high inflation era. The Beatles were singing 'Taxman' "19 for you 1 for me, taxman" in reflection of their 95% tax rate. In one year in the late 1960's Labour (Democrats equivalent) raised taxes retrospectively such that the richest paid 136% tax rates (over a certain limit, earn $1, own $1.36 in tax). It was not incoincidental that high taxation aligned with high inflation. 15% interest or 10% dividend yields were just a figure, few tax reduction choices existed and even Jo Average earning 15% on their cash deposits in a 15% inflation rate situation was seeing 'safe' options yielding -6% real.ncbill wrote: ↑Sat Jun 19, 2021 8:04 amThose retirees still has this happen to their equity investments:Seasonal wrote: ↑Sat Jun 19, 2021 7:53 amThe question was the combination of stock and bond multiples.ncbill wrote: ↑Sat Jun 19, 2021 7:39 amYou think real returns on bonds are bad now?
Consider the hapless mid-1960s retirees who saw annual inflation go from under 2% (1965) to around 6% (1970) then to almost 14% (1980)
Don't think any of them were getting a positive real yield on their bonds...
Over the entire 1960s p/e ratios were less than half of what they are today, sometimes one-third. For a stock heavy portfolio, that makes up for a lot. On the bond side, interest rates adjusted and most people were buying new or reinvesting.
https://en.wikipedia.org/wiki/1973–1974 ... rket_crash
"All the main stock indexes of the future G7 bottomed out between September and December 1974, having lost at least 34% of their value in nominal terms and 43% in real terms...the United States didn't see the same level in real terms until August 1993, over twenty years after the 1973–74 crash began."
Yet a 4% inflation-adjusted WR still worked for 30 years for the above retirees, except for a single starting year (3.8% then) so I don't see 3.5% as a problem for 40 years assuming OP is a single male.
Adjust a mathematical 4% SWR upward by 6% to account for taxation, 10% SWR type amounts, and ... not good. Yes a pure mathematical 4% SWR cost/tax ignored investor did see that survive/pull-through, on paper. But in the real world it was very bad for those in drawdown/retired. Fine for accumulators who stayed the course (were able to continue adding to savings) as the declines provided better cost-averaging opportunities that later when they retired (1990's) proved to be very productive.
When you factor in such risk, what might be a reasonable way to combat that? Well as cost averaging tends to do OK over periods of declines 50/50 stock/bond initial, spend from stock if stocks are doing well (and top up bonds back towards 50% weighting), otherwise draw income from bonds and also draw from bonds to add to stock. 2.5% SWR for spending, another 2.5% from bonds to stock and over a decade of -5% annualised real total return declines you may end up with 100% stock, zero bonds remaining (after having spent half and migrated half over to stocks) and typically will tend to see that subsequently do well during the recovery/rebound where 6% or even 8% type SWR rates might still see real portfolio value additionally being expanded. Again however subject to costs/taxes. Nowadays there are tax efficient and low cost options more commonly available to hedge the high/rising taxation risk factor - but in view of that possibly forward time SWR's may trend lower (in a world of many/more rich then competition will tend to see the lower SWR common denominator decline).
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
The actual lyric is "There's one for you, nineteen for me." Sung from the perspective of the taxman of course.
Re: Optimal Investment Withdrawl Rate for very early retirement (<50 years old)
Thanks.
The Rolling Stones of course vacated the UK to instead live in France, their 1972 "Exile" album name was sourced from their enforced tax exile status. David Bowie and I guess many others also opted to tax exile. I guess that collectively left a bigger tax hole that others had to fill instead of the intended belief that it would provide more tax income for the treasury