Bogleheads at/Aiming For 2% SWR

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bogleheads at/Aiming For 2% SWR

Post by jebmke »

Leesbro63 wrote: Mon May 23, 2022 9:53 am
jebmke wrote: Mon May 23, 2022 9:39 am
Leesbro63 wrote: Mon May 23, 2022 9:28 am But it’s only cash flow because you have to make sure that it’s cash low. It’s not income at all (except for Form 1040).
I treat it conceptually as spending. A portion will go out as taxes (an expense) unless, increasingly likely in our case, 100% goes to charity (also an expense).
But less than half becomes taxes. For many/most “affluent but not filthy rich” maybe only 1/3 ends up “spent” as taxes. RMDs are, by and large, just a tax event having very little to do with income or spending.
I agree; the tax part is spending, though; no way around that if it hits.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
User avatar
rocket354
Posts: 679
Joined: Mon Dec 14, 2015 11:31 am

Re: Bogleheads at/Aiming For 2% SWR

Post by rocket354 »

These discussions about SWR never touch on a couple key points:

1) What portion of expenses comprise the given percentage? If my base expenses (housing, utilities, food, transportation) are $40k and I have a $1mm portfolio then I have a 4% SWR...but not much flexibility. If my base expenses are $20k and I have another $20k in discretionary spending with that same portfolio then I have either a 4% or a 2% SWR depending on my perspective. Clearly, I'd rather be in that latter category. But everyone's definition of "SWR" is likely somewhat different. How many people are really aiming for 2%, including all discretionary spending?

2) There are many more "failures" of a portfolio rather than just running out of money. Look at 1973, for example. It survived a 4% withdrawal, but in 1982, nine years in, someone would have only 40% of their portfolio remaining, inflation-adjusted. How many people would be looking at a 10% withdrawal with 9 years of negative-to-bleh returns behind them and *not* be looking for a job? Many of the years 1965-1973 are these types of failures. So people aren't being cautious with lower withdrawal rates because they think right now is worse than exactly 1929 or 1966, but because there's a real concern that right now they might be in a time period similar one of those windows of time (late 60's - mid 70's, 30's, 1900's, as examples) where their resolve would be tested as they keep withdrawing larger and larger amounts from a dwindling portfolio. And that stress, if you look at back-tested results, can last many, many years.

I am FI by the 4% rule (and even the 3% rule) according to my base expenses. But I'd like to get that number close to 2% which would allow for another 2% for discretionary (travel, entertainment, etc) which I can then cut back as needed, and have a retirement that doesn't include the stress of hoping my now-10% withdrawal rate will survive because it happened to barely do so the last period of extended poor returns.
Last edited by rocket354 on Mon May 23, 2022 10:30 am, edited 1 time in total.
Topic Author
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Leesbro63 »

jebmke wrote: Mon May 23, 2022 10:25 am
Leesbro63 wrote: Mon May 23, 2022 9:53 am
jebmke wrote: Mon May 23, 2022 9:39 am
Leesbro63 wrote: Mon May 23, 2022 9:28 am But it’s only cash flow because you have to make sure that it’s cash low. It’s not income at all (except for Form 1040).
I treat it conceptually as spending. A portion will go out as taxes (an expense) unless, increasingly likely in our case, 100% goes to charity (also an expense).
But less than half becomes taxes. For many/most “affluent but not filthy rich” maybe only 1/3 ends up “spent” as taxes. RMDs are, by and large, just a tax event having very little to do with income or spending.
I agree; the tax part is spending, though; no way around that if it hits.
I guess my issue is with people who consider RMDS as income without recognizing that their net worth goes down by that “income” amount if they spend it. As if an RMD was like Social Security income.
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bogleheads at/Aiming For 2% SWR

Post by jebmke »

^ for simplicity, I count as spending every dollar that flies out the door never to return again. One person's "discretionary" might be another's "essential." All dollars count or no dollars count.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
wolf359
Posts: 3207
Joined: Sun Mar 15, 2015 8:47 am

Re: Bogleheads at/Aiming For 2% SWR

Post by wolf359 »

I think it should be a little more nuanced than OP's original question.

SWR is a way to estimate a target number that is in the ballpark of what you need to retire. A real-life retirement involves Social Security, an emergency fund, and a person who is making the withdrawals and spending the money. There may be a paid off house, kids/family to help with expenses, and health savings accounts. If one retired voluntarily, they probably selected a retirement budget that has padding for desirable discretionary expenses, rather than being subsistence level (put another way, the retiree has the ability to cut back expenses in bad times.) SWR doesn't account any of that, in favor of making easy calculations.

There are certain expenses that are worth funding with a 2% SWR. These are things like food, water, utilities, shelter (of a certain amount), etc. On Maslow's hierarchy of needs, I'd be willing to have a 2% SWR to support physiological and security needs (the bottom two levels of the pyramid. Source: https://en.wikipedia.org/wiki/File:Expa ... Needs.webp). Core expenses like this could be funded by Social Security, annuities, pensions, or a portfolio held at a 2% SWR.

However discretionary expenses should probably be funded with a 4% SWR. If I'm budgeting for two annual high-end European vacations in retirement, it's not the end of the world if I have to cut my vacation budget in half (and now be spending at the 2% SWR level). In fact, the discretionary nature means I could cut it entirely if need be. That is not true for something like food or utilities.

When you're starting at zero, there's a psychological difference between aiming for 50X expenses versus 25X expenses. Both goals are years in the future, but the 50X target may feel so far in the future as to be unattainable. Why not aim for the 25X expenses number, with the intent of determining a more specific target and withdrawal strategy at that time? It's hard to calculate your actual expenses when it's decades in the future -- it's easier when you're within 3-5 years.

When you shoot for 4% and attain it but keep working, you have the benefit of a large portfolio continuing to compound. It only takes one more doubling event to reach 2%. That's 9 years if your portfolio is earning 8%, but much less if you're continuing to contribute at a high savings rate.

We have hit our initial 4% goal, but my estimate of expenses has changed. Instead of re-adjusting the number, though, actual retirement is now based on non-financial factors. By the time we hit those benchmarks, we should be somewhere around 2% SWR (but that's more coincidental rather than a target. It will be about 6 years after hitting the 4% number.) If I'm forced to retire early, we'll be fine.

TLDR: Shoot for 4% SWR, then re-assess. If you keep working, saving, and keep investing, you'll probably hit 2% SWR within 9 years or less anyways.
Topic Author
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Leesbro63 »

rocket354 wrote: Mon May 23, 2022 10:27 am These discussions about SWR never touch on a couple key points:

1) What portion of expenses comprise the given percentage? If my base expenses (housing, utilities, food, transportation) are $40k and I have a $1mm portfolio then I have a 4% SWR...but not much flexibility. If my base expenses are $20k and I have another $20k in discretionary spending with that same portfolio then I have either a 4% or a 2% SWR depending on my perspective. Clearly, I'd rather be in that latter category. But everyone's definition of "SWR" is likely somewhat different. How many people are really aiming for 2%, including all discretionary spending?

2) There are many more "failures" of a portfolio rather than just running out of money. Look at 1973, for example. It survived a 4% withdrawal, but in 1982, nine years in, someone would have only 40% of their portfolio remaining, inflation-adjusted. How many people would be looking at a 10% withdrawal with 9 years of negative-to-bleh returns behind them and *not* be looking for a job? Many of the years 1965-1973 are these types of failures. So people aren't being cautious with lower withdrawal rates because they think right now is worse than exactly 1929 or 1966, but because there's a real concern that right now they might be in a time period similar one of those windows of time (late 60's - mid 70's, 30's, 1900's, as examples) where their resolve would be tested as they keep withdrawing larger and larger amounts from a dwindling portfolio. And that stress, if you look at back-tested results, can last many, many years.

I am FI by the 4% rule (and even the 3% rule) according to my base expenses. But I'd like to get that number close to 2% which would allow for another 2% for discretionary (travel, entertainment, etc) which I can then cut back as needed, and have a retirement that doesn't include the stress of hoping my now-10% withdrawal rate will survive because it happened to barely do so the last period of extended poor returns.
Fabulous post! Yes, “spending” should probably be broken into “fixed” and “discretionary”. Maybe a middle category too for “Lexus or Toyota” decisions.

Your second point is even better: having a portfolio barely survive a 1966 retirement is still a failure because no sane investor would maintain the same standard of living as the drawdown kept grinding, year after year.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by delamer »

TomatoTomahto wrote: Mon May 23, 2022 10:15 am
TheTimeLord wrote: Mon May 23, 2022 9:58 am
TomatoTomahto wrote: Mon May 23, 2022 9:17 am
Leesbro63 wrote: Mon May 23, 2022 8:48 am
TomatoTomahto wrote: Mon May 23, 2022 7:42 am In a (failed) attempt to convince my dear wife to retire, I bought MaxiFi Planner years ago. The software tells me that we can spend a middle 6 digit amount annually on discretionary expenses, and that’s if I live way longer than I’m likely to (family history says she might live forever).

I (finally :oops: ) realized that my wife’s wanting to be financially able to provide a safety net for children, siblings, parents was BS; she just loves working. As a woman in tech, on the negative side, she has vindications to score against the rampant misogyny. On the positive side, she continues to enjoy making lives better by her advocacy, her mentoring, her strategic insight. The money is truly just a way to keep score and validate that she isn’t still being taken advantage of.

Do we have any desire to spend a middle six digit amount annually? I don’t think so. Even if travel opens up safely in the future, there are only so many trips we want to take. Feeding the birds, planting trees and meadows, giving our rescue dogs their “best lives,” supporting local tradespeople are, relatively speaking, minor expenses. Our house’s energy needs are free.

SS and pensions will provide $95k annually. RMDs will kick in shortly, beginning with my relatively small ones. Our taxable portfolio pays out low amounts of dividends, relatively speaking, but still it’s money that has to be re-invested.

Our heirs have made good use of their “advance inheritances.” They will be getting a large “final inheritance,” which makes us smile.

TL;DR. We easily fall in the “under 2%” WR category. There’s no point in spending just to spend. Enjoy what matters to you.
I don’t get when people consider RMDs as “income”. It’s really just a tax event that should be optimized for tax purposes.
True enough. But it’s money that will have to be dealt with. It can go to pay taxes, be re-invested in taxable, spent, or most likely, a combination of all three.
I mean this in only the most positive way, to some extent do you see it or find it to be like a game you are attempting to master?
Maybe I shouldn’t admit this on BH, but if I’m telling the truth, i don’t think of it as a game to master but rather as something I’m supposed to be doing. Tbh, it’s boring and something I’m very happy to leave to an attorney and, ultimately, our heirs to think about.

Even as recently as 2 years ago, I worried that we had saved too much in tax deferred and oncoming tax torpedos and Roth conversions and blah blah blah. We have worked hard to get here, and I think the reward should be that I’m allowed to just shrug and say the senior equivalent of a teenager’s Whatever.
I guess I’m more interested in the “mastery” part, since we are being truthful. :D

But you know what happens if I screw up a Roth conversion or tax-loss harvesting or whatever optimization move that I’ve initiated? Our SS & pensions still get deposited every month. And our portfolio cushion will still be there the next day (or month or year). Even a low 6-figure mistake isn’t going to affect our financial security.

So, WHATEVS, indeed. That’s the ultimate satisfaction.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
User avatar
TomatoTomahto
Posts: 17158
Joined: Mon Apr 11, 2011 1:48 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by TomatoTomahto »

delamer wrote: Mon May 23, 2022 10:59 am So, WHATEVS, indeed. That’s the ultimate satisfaction.
:sharebeer
I get the FI part but not the RE part of FIRE.
User avatar
tennisplyr
Posts: 3703
Joined: Tue Jan 28, 2014 12:53 pm
Location: Sarasota, FL

Re: Bogleheads at/Aiming For 2% SWR

Post by tennisplyr »

I’m a boomer and retired for 11 years. My withdrawal has been ~3-5% over that time. I have no plans to drastically reduce that as I believe in staying the course.
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
59Gibson
Posts: 1386
Joined: Mon Dec 07, 2020 7:41 am

Re: Bogleheads at/Aiming For 2% SWR

Post by 59Gibson »

OP,
What is the time frame for 2%? I'm assuming much greater than the standard 30yr SWR. I simply cannot imagine a 50X 60/40 portfolio being needed to last 30 years. That's one of those scenarios where everything else would need to be questioned as well.(pensions, SS, annuities, functioning economy)
Chip
Posts: 3994
Joined: Wed Feb 21, 2007 3:57 am

Re: Bogleheads at/Aiming For 2% SWR

Post by Chip »

Like others have said, we're at 2% essentially by accident. Retired early 21 years ago, aiming to average around 3.5% WR, which we did for the first several years. The market has been kind to us overall. Now full social security is coming online.

Absent a much bigger drop we'll probably stay under 2% unless we manage to ramp up our spending. I bought brand-name cheese at the grocery store today instead of the store brand. It's one small step... :D
59Gibson
Posts: 1386
Joined: Mon Dec 07, 2020 7:41 am

Re: Bogleheads at/Aiming For 2% SWR

Post by 59Gibson »

wolf359 wrote: Mon May 23, 2022 8:41 am
59Gibson wrote: Mon May 23, 2022 6:36 am OP,
2% is 50X..100X would be 1%
I think 2% is fine to strive for, even if 1929 reoccured , I think these #s would hold up. Not so much for the 25X
When Bill Bengen conducted the study that resulted in the 4% safe withdrawal rate, it DID occur to him to use the worst stock market crash of all time.

4% safe maximum withdrawal rate was the number he came up with. It would have survived 1929.

What you're actually saying is that you anticipate conditions to be at least twice as bad as the 1929 crash.

Keep in mind that Bengen also intended 4% to be a guideline, and for financial advisors to be flexible and adjust the withdrawal rate based on current conditions. If you haven't read his original study, it's well worth the time. It's pretty short. (source: http://www.retailinvestor.org/pdf/Bengen1.pdf)
Yes I realize 1929 was taken into account. I should have stated this a bit diff.
I believe it would have been torture for someone at 25X watch their portfolio evaporate by 60-70% in just a few short years, more likely than not the person would haved panicked and went looking for some job. In hindsight the 4% worked, but who would have been able to ride that out. So in a sense the reirement failed because they most likely returned to some kind of work.

Well I just delivered a boat load of conjecture. :)
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Bogleheads at/Aiming For 2% SWR

Post by dbr »

59Gibson wrote: Mon May 23, 2022 11:54 am
wolf359 wrote: Mon May 23, 2022 8:41 am
59Gibson wrote: Mon May 23, 2022 6:36 am OP,
2% is 50X..100X would be 1%
I think 2% is fine to strive for, even if 1929 reoccured , I think these #s would hold up. Not so much for the 25X
When Bill Bengen conducted the study that resulted in the 4% safe withdrawal rate, it DID occur to him to use the worst stock market crash of all time.

4% safe maximum withdrawal rate was the number he came up with. It would have survived 1929.

What you're actually saying is that you anticipate conditions to be at least twice as bad as the 1929 crash.

Keep in mind that Bengen also intended 4% to be a guideline, and for financial advisors to be flexible and adjust the withdrawal rate based on current conditions. If you haven't read his original study, it's well worth the time. It's pretty short. (source: http://www.retailinvestor.org/pdf/Bengen1.pdf)
Yes I realize 1929 was taken into account. I should have stated this a bit diff.
I believe it would have been torture for someone at 25X watch their portfolio evaporate by 60-70% in just a few short years, more likely than not the person would haved panicked and went looking for some job. In hindsight the 4% worked, but who would have been able to ride that out. So in a sense the reirement failed because they most likely returned to some kind of work.

Well I just delivered a boat load of conjecture. :)
How tolerant one might be of a falling portfolio is supposed to be addressed by asset allocation and not by withdrawal rate.

If you want to see examples of how things have actually happened go to this tool https://engaging-data.com/visualizing-4-rule/ and play around with the withdrawal rate and the asset allocation. You can pick out the asset line for a specific year by clicking on the year in the list above the chart.
jsapiandante
Posts: 300
Joined: Thu Jul 30, 2015 5:58 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by jsapiandante »

rocket354 wrote: Mon May 23, 2022 10:27 am These discussions about SWR never touch on a couple key points:

1) What portion of expenses comprise the given percentage? If my base expenses (housing, utilities, food, transportation) are $40k and I have a $1mm portfolio then I have a 4% SWR...but not much flexibility. If my base expenses are $20k and I have another $20k in discretionary spending with that same portfolio then I have either a 4% or a 2% SWR depending on my perspective. Clearly, I'd rather be in that latter category. But everyone's definition of "SWR" is likely somewhat different. How many people are really aiming for 2%, including all discretionary spending?

2) There are many more "failures" of a portfolio rather than just running out of money. Look at 1973, for example. It survived a 4% withdrawal, but in 1982, nine years in, someone would have only 40% of their portfolio remaining, inflation-adjusted. How many people would be looking at a 10% withdrawal with 9 years of negative-to-bleh returns behind them and *not* be looking for a job? Many of the years 1965-1973 are these types of failures. So people aren't being cautious with lower withdrawal rates because they think right now is worse than exactly 1929 or 1966, but because there's a real concern that right now they might be in a time period similar one of those windows of time (late 60's - mid 70's, 30's, 1900's, as examples) where their resolve would be tested as they keep withdrawing larger and larger amounts from a dwindling portfolio. And that stress, if you look at back-tested results, can last many, many years.

I am FI by the 4% rule (and even the 3% rule) according to my base expenses. But I'd like to get that number close to 2% which would allow for another 2% for discretionary (travel, entertainment, etc) which I can then cut back as needed, and have a retirement that doesn't include the stress of hoping my now-10% withdrawal rate will survive because it happened to barely do so the last period of extended poor returns.
This. It's exactly how I'm planning my retirement. My discretionary expenses will comprise of roughly 50% of my budget so if !@#$ hits the fan, I can reduce my spending in half if needed.
FactualFran
Posts: 2776
Joined: Sat Feb 21, 2015 1:29 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by FactualFran »

Leesbro63 wrote: Mon May 23, 2022 6:16 am Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
1929 came and went and supported 30 years of inflation adjusted-withdrawals using an initial withdrawal rate of 5.3% with a 50:50 stock:bond portfolio that Bengen used in "Determining Withdrawal Rates Using Historical Data". After 30 years all the money would have gone to "money heaven".
HootingSloth
Posts: 1050
Joined: Mon Jan 28, 2019 2:38 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by HootingSloth »

rocket354 wrote: Mon May 23, 2022 10:27 am These discussions about SWR never touch on a couple key points:

1) What portion of expenses comprise the given percentage? If my base expenses (housing, utilities, food, transportation) are $40k and I have a $1mm portfolio then I have a 4% SWR...but not much flexibility. If my base expenses are $20k and I have another $20k in discretionary spending with that same portfolio then I have either a 4% or a 2% SWR depending on my perspective. Clearly, I'd rather be in that latter category. But everyone's definition of "SWR" is likely somewhat different. How many people are really aiming for 2%, including all discretionary spending?

2) There are many more "failures" of a portfolio rather than just running out of money. Look at 1973, for example. It survived a 4% withdrawal, but in 1982, nine years in, someone would have only 40% of their portfolio remaining, inflation-adjusted. How many people would be looking at a 10% withdrawal with 9 years of negative-to-bleh returns behind them and *not* be looking for a job? Many of the years 1965-1973 are these types of failures. So people aren't being cautious with lower withdrawal rates because they think right now is worse than exactly 1929 or 1966, but because there's a real concern that right now they might be in a time period similar one of those windows of time (late 60's - mid 70's, 30's, 1900's, as examples) where their resolve would be tested as they keep withdrawing larger and larger amounts from a dwindling portfolio. And that stress, if you look at back-tested results, can last many, many years.

I am FI by the 4% rule (and even the 3% rule) according to my base expenses. But I'd like to get that number close to 2% which would allow for another 2% for discretionary (travel, entertainment, etc) which I can then cut back as needed, and have a retirement that doesn't include the stress of hoping my now-10% withdrawal rate will survive because it happened to barely do so the last period of extended poor returns.
Here is how we think of it: We have a baseline spending level that we would strongly prefer not to fall below. By the time we retire, the plan is for those to be 100% covered by a paid-off home, Social Security benefits claimed at age 70, a COLA pension claimed at age 57, and a TIPS ladder to bridge from retirement to age 70. Whatever is left in the portfolio after buying the TIPS ladder will be the risk portfolio.

We have several wants that are not in the baseline spending, mostly a larger budget for travel. If the risk portfolio is looking like it will easily cover those extra wants, then perhaps a big chunk of it will be used to upgrade our housing or buy a second home if that seems desirable post-retirement.

If all of the housing, travel, and miscellaneous wants are covered, and we are still looking at a sub-4% (or really, sub-VPW) withdrawal rate from the risk portfolio, the plan is increase giving to children and charity during our lifetime so that we don't just let the portfolio spiral upwards.

The basic goal is to have our needs and core wants met regardless of what the stock market does (i.e. up to and including a complete loss of value) but to make the most use of our money while we are alive and not just stick with a very low withdrawal rate that causes most of it to only be spent after we are no longer around.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Bogleheads at/Aiming For 2% SWR

Post by marcopolo »

TheTimeLord wrote: Mon May 23, 2022 8:02 am
smitcat wrote: Mon May 23, 2022 7:53 am
TomatoTomahto wrote: Mon May 23, 2022 7:42 am In a (failed) attempt to convince my dear wife to retire, I bought MaxiFi Planner years ago. The software tells me that we can spend a middle 6 digit amount annually on discretionary expenses, and that’s if I live way longer than I’m likely to (family history says she might live forever).

I (finally :oops: ) realized that my wife’s wanting to be financially able to provide a safety net for children, siblings, parents was BS; she just loves working. As a woman in tech, on the negative side, she has vindications to score against the rampant misogyny. On the positive side, she continues to enjoy making lives better by her advocacy, her mentoring, her strategic insight. The money is truly just a way to keep score and validate that she isn’t still being taken advantage of.

Do we have any desire to spend a middle six digit amount annually? I don’t think so. Even if travel opens up safely in the future, there are only so many trips we want to take. Feeding the birds, planting trees and meadows, giving our rescue dogs their “best lives,” supporting local tradespeople are, relatively speaking, minor expenses. Our house’s energy needs are free.

SS and pensions will provide $95k annually. RMDs will kick in shortly, beginning with my relatively small ones. Our taxable portfolio pays out low amounts of dividends, relatively speaking, but still it’s money that has to be re-invested.

Our heirs have made good use of their “advance inheritances.” They will be getting a large “final inheritance,” which makes us smile.

TL;DR. We easily fall in the “under 2%” WR category. There’s no point in spending just to spend. Enjoy what matters to you.
"I (finally :oops: ) realized that my wife’s wanting to be financially able to provide a safety net for children, siblings, parents was BS; she just loves working."
It just leave less time for the two of you to enjoy life.
Why do so many BH assume you can't both work and enjoy life? While I am bad at retirement my wife would be 10 times worse. She is far happier working and doing the things she enjoys when the opportunity presents, as opposed to sitting around between opportunities to do the things she enjoys.
Why do so many BH assume retirees are sitting around waiting for opportunities? :beer
Once in a while you get shown the light, in the strangest of places if you look at it right.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Admiral »

After claiming SS (2x @ age 70, combined over $70k in current dollars) plus a $45k pension I project our WR will be 1-2% on a retirement budget of $130k per year.

Without a likely inheritance it will be maybe 2-3% unless we really ramp up spending (like up to $170k/year which is really a lot in my opinion). In the pre-SS years it will be under 4%.

So by that measure we already have 50x expenses at least, since much of our expenses will be covered by income.

Could we stop saving? Probably. Flexible Retirement Planner tells me I could be withdrawing $20k a year now.

But, we still save a lot, if only to defer the taxes. I'm not worried about RMDs. We will either convert from ages 60-70 or else just pay what we owe.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Bogleheads at/Aiming For 2% SWR

Post by marcopolo »

jebmke wrote: Mon May 23, 2022 7:57 am
MikeG62 wrote: Mon May 23, 2022 7:50 am I think there is a fair probability that if 3.0% does not work (one runs out of money before expiring), 2.0% may not work either. Said another way, 2.0% might give a false sense of security, while at the same time causing one to work many years longer than is actually necessary and/or spending a lot less than they otherwise would during retirement.
What would be interesting is to know how many people end up at <= 2% not because that was a target. One often sees posts about windfalls (sold company, inheritance, stock options ...). In my opinion, planning around a windfall would not be wise. I had a significant windfall from NQ stock options but I never included them in my portfolio until they were converted to cash. At one point they were seriously under water.
I would think a more common unplanned way of getting there is just through market movements.
I would suspect many people that retired in the decade or so have seen their portfolios grow quite a bit in real terms, even after making their withdrawals for living expenses. That is how we ended up at around 2% WR, it was never planned. Of course, now we are giving some of that back, and may end up back at 3% before long...
Once in a while you get shown the light, in the strangest of places if you look at it right.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
User avatar
TheTimeLord
Posts: 12130
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by TheTimeLord »

marcopolo wrote: Mon May 23, 2022 3:53 pm
TheTimeLord wrote: Mon May 23, 2022 8:02 am
smitcat wrote: Mon May 23, 2022 7:53 am
TomatoTomahto wrote: Mon May 23, 2022 7:42 am In a (failed) attempt to convince my dear wife to retire, I bought MaxiFi Planner years ago. The software tells me that we can spend a middle 6 digit amount annually on discretionary expenses, and that’s if I live way longer than I’m likely to (family history says she might live forever).

I (finally :oops: ) realized that my wife’s wanting to be financially able to provide a safety net for children, siblings, parents was BS; she just loves working. As a woman in tech, on the negative side, she has vindications to score against the rampant misogyny. On the positive side, she continues to enjoy making lives better by her advocacy, her mentoring, her strategic insight. The money is truly just a way to keep score and validate that she isn’t still being taken advantage of.

Do we have any desire to spend a middle six digit amount annually? I don’t think so. Even if travel opens up safely in the future, there are only so many trips we want to take. Feeding the birds, planting trees and meadows, giving our rescue dogs their “best lives,” supporting local tradespeople are, relatively speaking, minor expenses. Our house’s energy needs are free.

SS and pensions will provide $95k annually. RMDs will kick in shortly, beginning with my relatively small ones. Our taxable portfolio pays out low amounts of dividends, relatively speaking, but still it’s money that has to be re-invested.

Our heirs have made good use of their “advance inheritances.” They will be getting a large “final inheritance,” which makes us smile.

TL;DR. We easily fall in the “under 2%” WR category. There’s no point in spending just to spend. Enjoy what matters to you.
"I (finally :oops: ) realized that my wife’s wanting to be financially able to provide a safety net for children, siblings, parents was BS; she just loves working."
It just leave less time for the two of you to enjoy life.
Why do so many BH assume you can't both work and enjoy life? While I am bad at retirement my wife would be 10 times worse. She is far happier working and doing the things she enjoys when the opportunity presents, as opposed to sitting around between opportunities to do the things she enjoys.
Why do so many BH assume retirees are sitting around waiting for opportunities? :beer
Touché
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: Bogleheads at/Aiming For 2% SWR

Post by Normchad »

Lee_WSP wrote: Mon May 23, 2022 4:00 pm
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
Exactly. 4% is for 30 years. Lots of people are planning on living longe than 30 years.

I’m not aiming for 2%, and won’t ever get there. But I do think about a “perpetual withdrawal rate”, and I definitely aim to be in that ballpark with my desired post retirement lifestyle. So there is flexibility to cut back if needed, but I don’t want to cut back. I want to live the same way I live now, for as many years as are left.
Topic Author
Leesbro63
Posts: 10638
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Leesbro63 »

Lee_WSP wrote: Mon May 23, 2022 4:00 pm
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
Nope. I was referring to 2% for age 65ish retirement for 30 more years.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

Leesbro63 wrote: Mon May 23, 2022 4:07 pm
Lee_WSP wrote: Mon May 23, 2022 4:00 pm
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
Nope. I was referring to 2% for age 65ish retirement for 30 more years.
I’m referring to the fact that you referenced a board dedicated to early retirement as your source for “larger subset”.
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

Normchad wrote: Mon May 23, 2022 4:06 pm
Lee_WSP wrote: Mon May 23, 2022 4:00 pm
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
Exactly. 4% is for 30 years. Lots of people are planning on living longe than 30 years.

I’m not aiming for 2%, and won’t ever get there. But I do think about a “perpetual withdrawal rate”, and I definitely aim to be in that ballpark with my desired post retirement lifestyle. So there is flexibility to cut back if needed, but I don’t want to cut back. I want to live the same way I live now, for as many years as are left.
I think 2.5% or 3% historically works fine as far as a perpetual withdrawal rate goes. Ie, a unitrust. 5% actually runs out rather quickly, 4% may or may not make it in perpetuity, but I don’t think it can.

I know for a fact that a lot of these 4% discussions get derailed because half the participants don’t understand that the 4% is 4% of the initial amount which is then increased for inflation each year, so it may be 4% the first year, but the next year it may be only 3%, but by the 20th year, it’s probably closer to 10% and then by the end, it could be 90% or 100% of the corpus.
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: Bogleheads at/Aiming For 2% SWR

Post by Normchad »

Lee_WSP wrote: Mon May 23, 2022 4:53 pm
Normchad wrote: Mon May 23, 2022 4:06 pm
Lee_WSP wrote: Mon May 23, 2022 4:00 pm
Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
Early retirement adds ~20-25 years to one’s retirement. The 4% SWR was calculated as 4% of the initial balance withdrawn over a 30 year time frame, adjusted for inflation. For the early retirement crowd, 2% is easy shorthand for figuring out how much they need to safely withdraw over 55 years instead of 30.
Exactly. 4% is for 30 years. Lots of people are planning on living longe than 30 years.

I’m not aiming for 2%, and won’t ever get there. But I do think about a “perpetual withdrawal rate”, and I definitely aim to be in that ballpark with my desired post retirement lifestyle. So there is flexibility to cut back if needed, but I don’t want to cut back. I want to live the same way I live now, for as many years as are left.
I think 2.5% or 3% historically works fine as far as a perpetual withdrawal rate goes. Ie, a unitrust. 5% actually runs out rather quickly, 4% may or may not make it in perpetuity, but I don’t think it can.

I know for a fact that a lot of these 4% discussions get derailed because half the participants don’t understand that the 4% is 4% of the initial amount which is then increased for inflation each year, so it may be 4% the first year, but the next year it may be only 3%, but by the 20th year, it’s probably closer to 10% and then by the end, it could be 90% or 100% of the corpus.
That’s an astute observation. Recently it’s become clear that a lot of posters are very mistaken about what they think they know. Many do not know what the assumptions surrounding 4% were. We see now similar levels of misunderstanding about the anticipated behavior of bonds, etc etc.

As Willthrill likes to point out, we have yet to find anybody ever who used a rigid 4% rule during retirement. Literally nobody does it. But from all the posts about SWR and 4%, you’d think it was common.

The work itself was great. And what we learned from it was great and very useful. (Especially if you understand the motivation for the work). And it helps me think about things. For a lot of folks, it’s a reasonable starting place to think about planning. But it can’t be any of those things for the folks that missed the “for 30 years” part, or the “adjusted annually for inflation part”, or the “you might only have 3 bucks left at the end” part…..
User avatar
AerialWombat
Posts: 3106
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Bogleheads at/Aiming For 2% SWR

Post by AerialWombat »

deleted
Last edited by AerialWombat on Fri May 27, 2022 11:01 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
WestCoastPhan
Posts: 424
Joined: Sun Apr 24, 2022 10:30 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by WestCoastPhan »

I'm aiming to have enough that I don't think too much about the withdrawal rate. In other words, spending needs are easily met. Looking at it from a withdrawal rate perspective, 2% of investable assets (i.e., not counting home equity) sounds about right -- covering any and all expenses, even discretionary things like international travel.
MikeG62
Posts: 5065
Joined: Tue Nov 15, 2016 2:20 pm
Location: New Jersey

Re: Bogleheads at/Aiming For 2% SWR

Post by MikeG62 »

WestCoastPhan wrote: Mon May 23, 2022 5:32 pm I'm aiming to have enough that I don't think too much about the withdrawal rate. In other words, spending needs are easily met. Looking at it from a withdrawal rate perspective, 2% of investable assets (i.e., not counting home equity) sounds about right -- covering any and all expenses, even discretionary things like international travel.
As was said up-thread, you may end up working for many more years than was necessary to get to the point where you have enough assets such that 2.0% in enough to cover all the things you "want "to do. There is no free lunch here - there are trade-off's. Keep in mind that for every additional year you work you will have one less year to enjoy your retirement and do the things you'd really like to do and each additional year working will likely be the healthiest year of the remaining years of your life.
Real Knowledge Comes Only From Experience
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Marseille07 »

MikeG62 wrote: Tue May 24, 2022 8:15 am
WestCoastPhan wrote: Mon May 23, 2022 5:32 pm I'm aiming to have enough that I don't think too much about the withdrawal rate. In other words, spending needs are easily met. Looking at it from a withdrawal rate perspective, 2% of investable assets (i.e., not counting home equity) sounds about right -- covering any and all expenses, even discretionary things like international travel.
As was said up-thread, you may end up working for many more years than was necessary to get to the point where you have enough assets such that 2.0% in enough to cover all the things you "want "to do. There is no free lunch here - there are trade-off's. Keep in mind that for every additional year you work you will have one less year to enjoy your retirement and do the things you'd really like to do and each additional year working will likely be the healthiest year of the remaining years of your life.
Another thing to point out is that 2% is really low. You build up 2M and only spend 40K + CPI. It is certainly safe, but could be too safe.

I sometimes feel 3% constant-percentage (different than SWR) is too safe as well.
User avatar
TheTimeLord
Posts: 12130
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by TheTimeLord »

Marseille07 wrote: Tue May 24, 2022 10:42 am
MikeG62 wrote: Tue May 24, 2022 8:15 am
WestCoastPhan wrote: Mon May 23, 2022 5:32 pm I'm aiming to have enough that I don't think too much about the withdrawal rate. In other words, spending needs are easily met. Looking at it from a withdrawal rate perspective, 2% of investable assets (i.e., not counting home equity) sounds about right -- covering any and all expenses, even discretionary things like international travel.
As was said up-thread, you may end up working for many more years than was necessary to get to the point where you have enough assets such that 2.0% in enough to cover all the things you "want "to do. There is no free lunch here - there are trade-off's. Keep in mind that for every additional year you work you will have one less year to enjoy your retirement and do the things you'd really like to do and each additional year working will likely be the healthiest year of the remaining years of your life.
Another thing to point out is that 2% is really low. You build up 2M and only spend 40K + CPI. It is certainly safe, but could be too safe.

I sometimes feel 3% constant-percentage (different than SWR) is too safe as well.
What do you mean by constant percentage?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bogleheads at/Aiming For 2% SWR

Post by jebmke »

TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
H-Town
Posts: 5905
Joined: Sun Feb 26, 2017 1:08 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by H-Town »

Marseille07 wrote: Tue May 24, 2022 10:42 am
MikeG62 wrote: Tue May 24, 2022 8:15 am
WestCoastPhan wrote: Mon May 23, 2022 5:32 pm I'm aiming to have enough that I don't think too much about the withdrawal rate. In other words, spending needs are easily met. Looking at it from a withdrawal rate perspective, 2% of investable assets (i.e., not counting home equity) sounds about right -- covering any and all expenses, even discretionary things like international travel.
As was said up-thread, you may end up working for many more years than was necessary to get to the point where you have enough assets such that 2.0% in enough to cover all the things you "want "to do. There is no free lunch here - there are trade-off's. Keep in mind that for every additional year you work you will have one less year to enjoy your retirement and do the things you'd really like to do and each additional year working will likely be the healthiest year of the remaining years of your life.
Another thing to point out is that 2% is really low. You build up 2M and only spend 40K + CPI. It is certainly safe, but could be too safe.

I sometimes feel 3% constant-percentage (different than SWR) is too safe as well.
It's true if you are single and use 2%. It may not be too low if you are married and use 2%. What is the going odds of divorce in the U.S.? Link: https://worldpopulationreview.com/state ... e-by-state

Financial planning is being prepared for the worst. 50% divorce rate in first marriages; 60% of second marriages; and 73% of all third marriages end in divorce. Those rate are just too high to ignore when you do your financial planning.
Time is the ultimate currency.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Marseille07 »

deleted
Last edited by Marseille07 on Tue May 24, 2022 11:54 am, edited 1 time in total.
User avatar
TheTimeLord
Posts: 12130
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by TheTimeLord »

jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Well if that's the case, wouldn't that mean any percentage under 100% would work mathematically forever? :oops:
Last edited by TheTimeLord on Tue May 24, 2022 10:54 am, edited 1 time in total.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Admiral »

jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Seems like you'd need a lot of discretionary spending in your budget to make that work. Not necessarily a bad thing but perhaps not practical for many people who don't have millions.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Marseille07 »

Admiral wrote: Tue May 24, 2022 10:51 am Seems like you'd need a lot of discretionary spending in your budget to make that work. Not necessarily a bad thing but perhaps not practical for many people who don't have millions.
Depends on one's perspective.

I think it's impractical to keep drawing 4% during a downturn (effective WR becomes 6%~8%) and risk SORR. I'd gladly cut back instead, which constant-percentage allows you to do.

Of course, 2% SWR would survive fine because the withdrawal rate is so low. But then, you need millions to generate your expenses at 2% SWR.
Independent George
Posts: 1592
Joined: Wed Feb 17, 2016 11:13 am
Location: Chicago, IL, USA

Re: Bogleheads at/Aiming For 2% SWR

Post by Independent George »

This is so Bogleheads

"Dear BHs. My spouse and I are blessed to have $500k combined income, and have accumualted roughly 10M in assets at age 45. Our mortgage is paid off, and our kids should complete college in the next five years. Do we have enough to retire at age 60 on a 0.5% SWR, or should we sell the house and move to rural Montana to scavenge meat left by wildlife just to be safe?"
pasadena
Posts: 2337
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: Bogleheads at/Aiming For 2% SWR

Post by pasadena »

Independent George wrote: Tue May 24, 2022 11:06 am This is so Bogleheads

"Dear BHs. My spouse and I are blessed to have $500k combined income, and have accumualted roughly 10M in assets at age 45. Our mortgage is paid off, and our kids should complete college in the next five years. Do we have enough to retire at age 60 on a 0.5% SWR, or should we sell the house and move to rural Montana to scavenge meat left by wildlife just to be safe?"
😂🤣😂

Personally, I'd much rather retire at 55 with a 3.75% WR than retire at 70 with a 2% WR.

That said, my target of 3.75% (in today's dollars) is mostly for the first 15 years or so. After that, I expect social security to cover most of my living expenses (not all, but easily 75%+), so my WR is expected to go down dramatically at that time.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Admiral »

Marseille07 wrote: Tue May 24, 2022 11:04 am
Admiral wrote: Tue May 24, 2022 10:51 am Seems like you'd need a lot of discretionary spending in your budget to make that work. Not necessarily a bad thing but perhaps not practical for many people who don't have millions.
Depends on one's perspective.

I think it's impractical to keep drawing 4% during a downturn (effective WR becomes 6%~8%) and risk SORR. I'd gladly cut back instead, which constant-percentage allows you to do.

Of course, 2% SWR would survive fine because the withdrawal rate is so low. But then, you need millions to generate your expenses at 2% SWR.
Well, that's only if one assumes that the 4% SWR is a "rule" that must be followed at all costs. Humans being what they are, in severe downturns most people are going to cut back anyway... just perhaps not 25%. As always, it depends. I would not be comfortable with a 4% WR if, as was posted upthread, my core expenses required a 4% WR.
dboeger1
Posts: 1411
Joined: Fri Jan 13, 2017 6:32 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by dboeger1 »

I realize this is a somewhat arbitrary metric, but I've always found the idea of living strictly off of dividends oddly appealing. I am not a dividend investor, but conceptually, there's something nice about the idea of treating the total market as a single conglomerate, and letting the various executives and managers of all the individual entities deciding how much money to reinvest in the business, and how much money to pay out to you, the shareholder, as income. It seems to be the closest alignment of personal and corporate values, since presumably, the money paid out as dividends is not optimally reinvested into earnings growth, so it may as well be the guideline for how much income the investor can draw.

Of course, in practice, this is far from perfect. It would result in leaving a huge pile of unspent wealth upon death, and the income would fluctuate substantially with economic cycles. Dividends have also become less favored over time, in part due to taxation, hence why they're at levels that are appropriate for a 2% SWR discussion. I doubt I'll end up doing something like this as I can't see wanting to work much past 4% SWR, but my wife finds her career much more fulfilling, so I could see her pushing us to that point over time.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Marseille07 »

Admiral wrote: Tue May 24, 2022 11:15 am Well, that's only if one assumes that the 4% SWR is a "rule" that must be followed at all costs. Humans being what they are, in severe downturns most people are going to cut back anyway... just perhaps not 25%. As always, it depends. I would not be comfortable with a 4% WR if, as was posted upthread, my core expenses required a 4% WR.
Well, what exactly are we talking about here? When I discuss constant-%, discretionary spending is included and this gets slashed (by the withdrawal method) during a downturn.

If you include discretionary spending in 4% SWR and cut back during a downturn, you're effectively doing the same thing. Discretionary budget is necessary either way.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by Admiral »

Marseille07 wrote: Tue May 24, 2022 11:19 am
Admiral wrote: Tue May 24, 2022 11:15 am Well, that's only if one assumes that the 4% SWR is a "rule" that must be followed at all costs. Humans being what they are, in severe downturns most people are going to cut back anyway... just perhaps not 25%. As always, it depends. I would not be comfortable with a 4% WR if, as was posted upthread, my core expenses required a 4% WR.
Well, what exactly are we talking about here? When I discuss constant-%, discretionary spending is included and this gets slashed (by the withdrawal method) during a downturn.

If you include discretionary spending in 4% SWR and cut back during a downturn, you're effectively doing the same thing. Discretionary budget is necessary either way.
I don't think we are in disagreement. I'm simply stating that just as most people don't blindly follow the 4% rule, I (and likely most people) would not slash spending to match a severe market drop, mostly because they would be unable to do so. Yes, I agree if one can easily live on 50% of their budget, then a 50% haircut when the market plummets is no big deal.

Unless one is on the edge, typically one would spend a bit more when times are good, and less when times are bad, regardless of the "rule" that's being followed (or not followed, as the case may be!)
jebmke
Posts: 25475
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bogleheads at/Aiming For 2% SWR

Post by jebmke »

Admiral wrote: Tue May 24, 2022 11:33 am Unless one is on the edge, typically one would spend a bit more when times are good, and less when times are bad, regardless of the "rule" that's being followed (or not followed, as the case may be!)
That is the Taylor Larimore method, essentially. Judgement. More broadly applied, one might spend more one year (regardless of market) knowing that one can and will likely spend significantly less in future years. The broader application of the Larimore rule is what we used (I retired in December, 2007) and still do.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
User avatar
Lee_WSP
Posts: 10401
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Bogleheads at/Aiming For 2% SWR

Post by Lee_WSP »

TheTimeLord wrote: Tue May 24, 2022 10:51 am
jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Well if that's the case, wouldn't that mean any percentage under 100% would work mathematically forever? :oops:
No. A 5% withdrawal rate (unitrust) will exhaust itself rather quickly unless you have a very good bull market with yearly 6%+ returns. But even then, the portfolio will be ground down through attrition. Just plug it in and see. 4% might make it 40 years, but not perpetually.
RetiredAL
Posts: 3537
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Bogleheads at/Aiming For 2% SWR

Post by RetiredAL »

Leesbro63 wrote: Mon May 23, 2022 6:16 am I don’t think I’ve ever seen a thread specifically focused on Bogleheads who have achieved or aspire to a 2% (or even lower) withdrawal rate/savings at 50x annual spending. Although this poll is from another forum, it suggests that we may be a larger subset than known:

https://www.early-retirement.org/forums ... 14017.html

Is 2% folly? Belt AND suspenders? Would it be a personal tragedy to save that much and a 1929 arrives and all that accumulation goes to money heaven? Of if, as many think, we’re headed for a 1966-1981 era of inflated/declining real asset values, might 50x/2% be the solution for millions of Boomers retiring into it?
As I approached retiring, I wanted to be under 4% and had a 3% target. After everything settled in, I found we were below 2%. We started this year under 1.5% but I'm sure we are above that currently.

My initial withdrawal plan was to fund the same $ amount into our checking that went to checking from my paycheck. What surprised me was that CA Tax $ went to near zero and our Fed Tax $ went down more than 50%. On a wage replacement basis, we are under 70%. Our income is SS + IRA withdrawals. Pre-retirement, we were at the top of what was the then 15% Fed tax bracket.

I'm concerned about 1.5% being too low, so we've stepped up our giving. Of course, the recent market dip (temporary??) may alter this.
Da5id
Posts: 5066
Joined: Fri Feb 26, 2016 7:20 am

Re: Bogleheads at/Aiming For 2% SWR

Post by Da5id »

Lee_WSP wrote: Tue May 24, 2022 12:17 pm
TheTimeLord wrote: Tue May 24, 2022 10:51 am
jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Well if that's the case, wouldn't that mean any percentage under 100% would work mathematically forever? :oops:
No. A 5% withdrawal rate (unitrust) will exhaust itself rather quickly unless you have a very good bull market with yearly 6%+ returns. But even then, the portfolio will be ground down through attrition. Just plug it in and see. 4% might make it 40 years, but not perpetually.
His point was mathematical, not practical. If you take a fixed percentage per year, even 50%, you never hit zero dollars assuming you allow for fractional cents. Doesn't make it a retirement plan.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: Bogleheads at/Aiming For 2% SWR

Post by dbr »

TheTimeLord wrote: Tue May 24, 2022 10:51 am
jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Well if that's the case, wouldn't that mean any percentage under 100% would work mathematically forever? :oops:
It does if your definition of "works" is that the portfolio is never actually exhausted. If you add the criterion that at least a certain amount of money must be able to be withdrawn, which would be a pretty practical condition, then it can not work. If you look at the spending models in FireCalc you'll notice that one of the options is "Percentage of Remaining Portfolio" but there is also a condition that can be imposed on how much that can change every year. There is a reference to Bob Clyatt's book where there is discussion of this. It might be interesting for you to look at the outcomes for those different options.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by delamer »

TheTimeLord wrote: Tue May 24, 2022 10:51 am
jebmke wrote: Tue May 24, 2022 10:49 am
TheTimeLord wrote: Tue May 24, 2022 10:45 am What do you mean by constant percentage?
I think it means same percentage of portfolio regardless of value. So if value drops by 25%, the withdrawal is 3% of the lower number so it also drops by 25% and spending would have to drop by 25% to balance the math.
Well if that's the case, wouldn't that mean any percentage under 100% would work mathematically forever? :oops:
Yeah, and that’s pretty basic math.

The issue is that most people are looking for some continuity year-to-year in their income.

And a constant percentage year-by-year doesn’t give them that.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
MathWizard
Posts: 6560
Joined: Tue Jul 26, 2011 1:35 pm

Re: Bogleheads at/Aiming For 2% SWR

Post by MathWizard »

I'm currently planning using 2.75% .
Our plan has us ratcheting up if our portfolio balance grows more than 50% than planned.

My wife thinks I am being too conservative.
Post Reply