Hi all,
I’m nearing FIRE and I was hoping to be able to tap into the wonderful collected wisdom of this board around comparing withdrawal strategies. I’ve been experimenting with a few different approaches and lots of different spreadsheets and want to check the results are all making sense.
A bit of background first:
- I live in the UK, so I’ve basically filled in every spreadsheet (which are all denominated in dollars) with the equivalent in pounds. Of course, SWRs and return projections will be different in the UK, but only 20% of my portfolio is UK equities
I’m single, aged 49, and pretty flexible around spending. I suppose an absolute minimum spend a year would be around £40,000 but I’d like to be more extravagant than that, particularly in the early years, after nearly 30 years in a pretty stressful and full-on career
- I’m looking at retirement at age 50 with a 40-year timeframe
- My starting portfolio is £1,500,000 (a mix of tax-protected and taxable but I’ve ignored that for now as I have all taxation questions here)
- The portfolio consists of 45% global equities, 20% UK equities, 20% UK gilts (government bonds), 10% gold and 5% cash
- I have now, and intend to keep, a rental property that brings in £650 monthly, or £7,800 annually gross. This includes an allowance for costs, empty months etc
- I have an index-linked workplace defined benefit scheme that should provide £3,100 monthly, or £37,200 annually from age 60
- I should be eligible for the full UK state pension which will be £750 monthly, or £9,000 annually at age 67
I should say up front that I’m enormously grateful to longinvest, siamond, Ben Mathew, Big ERN, Ken Steiner and others for all their work and explanations. I’ve devoured all the ABW, VPW, VPW forward tests, Aloha Joe’s blogs and much more quite avidly to try and understand how PMT and NPV calculations work and so on. I wouldn’t have had a clue otherwise where to start.
So to the results, where I’m focusing on what the first year total spending looks like - i.e. portfolio withdrawal plus £7,800 rental income. I’ve not posted links to the original spreadsheets themselves but I can if that’s helpful. Hopefully, experts here will know which ones I’m referring to:
- Longinvest’s amazingly simple and easy to use VPW spreadsheet: £102,606 total spend in year 1
- Big ERN’s actuarial calculator: £91,156
- Siamond’s Amortized Spending Budget calculator: £97,505. Setting the soft spending gate at 50% brings this down to £99,076. I’ve assumed a 3.1% amortization rate, based on 4% stocks return and 1% bonds return and a 70:30 asset allocation
- Ken Steiner’s Actuarial Budget Calculator: £84,836, assuming a 4% expected rate of return and 2% inflation
- Ben Mathew’s Total Portfolio Allocation and Withdrawal Planner with Monte Carlo Simulation calculator: £105,000 (assuming 0% growth in withdrawals). My editing skills weren’t up to changing the rows, and so this is the only simulation that runs on a 45 year time frame: age 50-95
- Ben’s more simple Total Portfolio Allocation and Withdrawal Calculator: £102,510. For both 5 and 6 I found it slightly trickier to incorporate the other income streams to properly assess total portfolio asset allocation and expected returns as I had to work out how to treat pensions, gold, rental income etc. I’ve used 36% stocks, 6% risky bonds and 59% safe bonds once I’d done some calculations. Using the same 4% and 1% return assumptions I get to an expected real return for the whole portfolio of 2.07%, with the present value of the future income streams of £1,329,756 being added to the (risky) portfolio value of £1,500,000
- Big ERN’s SWR calculator. This one’s a bit different, because even though it incorporates all the future income streams, it outputs a safe withdrawal rate rather than a year 1 spend to be assessed every year. Setting, slightly arbitrarily, a 5% failure rate, I get a 5.25% safe withdrawal rate leading to a first year total spend of £86,550.
- Do people, and particularly the esteemed authors of the calculators, think these results are plausible?
- Is my approach the right one, particularly given my location and financial situation?
- Is it clear why some of the results are different? Most are very close, of course, hovering around the £100k mark. But both of ERN’s models and Ken Steiner’s model are significantly lower, perhaps due to different return assumptions?
Many thanks for any help!