SWR - retirement - knowing if you are in trouble

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michaeljc70
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SWR - retirement - knowing if you are in trouble

Post by michaeljc70 »

I am wondering if retired people using a SWR withdrawal method use some metric(s) to determine if they are doing okay in the present day. In other words, when to start making changes to spending or other adjustments.

I've been retired 6 years. I feel totally fine. I look at having more today (in nominal dollars) than when I retired. I also look at my SWR if I pretended I was retiring today and if it will cover my expenses based on my portfolio value today. Not that the SWR hasn't gone up from what I started with to support my expenses, but that it is still under the ceiling of what I would consider acceptable. It would probably take several years of me being underwater in this metric before I would be worried.

I'm curious how other people evaluate this or do they just "know" that their plan will keep working in the long run? If you use a VWR then this is kind of built in.
MikeG62
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Re: SWR - retirement - knowing if you are in trouble

Post by MikeG62 »

We are following a modified version of Guyton and Klinger's withdrawal decision rules. Unless we run through a guardrail, we would withdraw and spend the amount we had planned to spend prior to the market decline.

Wrote this in a similar thread back on May of 2020:

"Our expectation is to continue to take distributions as planned. Having said that, we are following a modified version of Guyton & Klinger's withdrawal decision rules and those rules do contain guardrails which do provide for a ratchet down of spending if our portfolio falls far enough. It would have to be a much larger decline than we experienced in Feb/March of 2020 to trigger that adjustment. FWIW, we are in our 6th year of retirement and have not needed to make any downward adjustments so far. In fact, we are at the point now where we can make an upward adjustment in our spending as our spend has fallen below the lower tripwire. We have so far chosen not to make the adjustment."

FWIW, we are no longer at the point where we can make an upward adjustment. The 2022 bear market has taken that off the table. Good thing we were conservative and choose not to implement the increase.

Edited to add:

Once each year I compare our actual spend to:

1) Our current year budget
2) What our spend target would be if we were retiring in that year
3) What our spend would be using the 4% rule of thumb, and
3) What our spend would be using VPW.

I use these other metrics to further sanity check our spend level. Our actual spend in each year since we retired has been well below what it would have been under any of these other scenarios.
Last edited by MikeG62 on Tue Oct 04, 2022 6:29 am, edited 1 time in total.
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Watty
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Re: SWR - retirement - knowing if you are in trouble

Post by Watty »

michaeljc70 wrote: Mon Oct 03, 2022 12:25 pm I'm curious how other people evaluate this or do they just "know" that their plan will keep working in the long run? If you use a VWR then this is kind of built in.
The safe withdrawal rate studies were never intended to to be a withdrawal method that you would you in practice because your income needs will be different at different phases of retirement. For example I had a number of years between when I retired and when I will start Social Security.

There will also be lumpy expenses like when you need an expensive home repair or have a large uninsured medical or dental bill.

The SWR calculation is good though to help check to see if you are in the right ballpark for being able to retire.
Random Poster
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Re: SWR - retirement - knowing if you are in trouble

Post by Random Poster »

I’ll be honest:

I have no idea if we are doing okay in the present day and if any changes are needed. We’ve lost over 7 figures since the beginning of the year and we have (what I thought was) a reasonable 55/45 portfolio, with about $500k in additional cash.

All I do is take 2.5% of the current portfolio balance, not including the cash amount, and then try to keep the annual spending below that amount, as measured on an end of month basis. So far, our annual spending is still below 2.5% of September’s ending balance, so I guess we are okay, but, again, I really have no idea.

And I’m not entirely sure what we will do if the annual spending is above the 2.5% balance amount, either. Hopefully I don’t ever have to find out.
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livesoft
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Re: SWR - retirement - knowing if you are in trouble

Post by livesoft »

It hasn't been a worry of mine at all. We are not collecting SS benefits yet and

"The sun is the same in a relative way but you're older
Shorter of breath and one day closer to death"

so there are less days to pay for in the future, too.
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marcopolo
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Re: SWR - retirement - knowing if you are in trouble

Post by marcopolo »

livesoft wrote: Mon Oct 03, 2022 2:19 pm It hasn't been a worry of mine at all. We are not collecting SS benefits yet and

"The sun is the same in a relative way but you're older
Shorter of breath and one day closer to death"

so there are less days to pay for in the future, too.
I am not sure that is the context Roger Waters had on mind when he wrote those words, but it does put all the hand wringing about market fluctuations in perspective.
Thanks for the reminder.
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michaeljc70
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Re: SWR - retirement - knowing if you are in trouble

Post by michaeljc70 »

Watty wrote: Mon Oct 03, 2022 1:33 pm
michaeljc70 wrote: Mon Oct 03, 2022 12:25 pm I'm curious how other people evaluate this or do they just "know" that their plan will keep working in the long run? If you use a VWR then this is kind of built in.
The safe withdrawal rate studies were never intended to to be a withdrawal method that you would you in practice because your income needs will be different at different phases of retirement. For example I had a number of years between when I retired and when I will start Social Security.

There will also be lumpy expenses like when you need an expensive home repair or have a large uninsured medical or dental bill.

The SWR calculation is good though to help check to see if you are in the right ballpark for being able to retire.
Sure. I have taken SS (and lumpy expenses) into account. If you need $50k for expenses for 10 years from your portfolio and then will get $25k SS, that should all be taken into account. In other words, if you have a SWR rate of 3% you shouldn't be taking out a flat 3% of your initial balance + inflation for your whole life unless you have no other income. You should be taking out pensions+SS+annuities+other income streams+the 3% (adjusted for inflation). Or at least you can take that out. Of course you don't have to but you will probably die with a decent size estate.

As to lumpy expenses, I used an average of several years expenses when I came up with my number (and then even padded that).
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