The 4% Rule Use To Be THEE Rule But Now.....

garyt1957 said:
We're all in trouble if we can't average 2% over a 15 year period no matter what method we use.
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Not 2% , but 2% real returns ..that is inflation adjusted .

it already happened to those retiring in 1907,1929,1937 , 1965 , 1966 .

it took from 2000 to 2012 just to see about 1% in real return, that was 12 years ….it took 22 years in 1965 and 1966

most conservative portfolios normally return 3-6% in real return
 

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I have been retired for 4 years. I have taken a draw of approx. 3.5% from retirement accounts each year.
My retirement accounts continue to grow but 4 years is not a guarantee for the future so we continue to
monitor spending.

Also age makes a difference in terms of the 4% rule. Drawing 4% when one retires at 60-65 is a little more
risky than drawing down 4% starting retirement say at 70.
 
Rich29 said:
I have been retired for 4 years. I have taken a draw of approx. 3.5% from retirement accounts each year.
My retirement accounts continue to grow but 4 years is not a guarantee for the future so we continue to
monitor spending.

Also age makes a difference in terms of the 4% rule. Drawing 4% when one retires at 60-65 is a little more
risky than drawing down 4% starting retirement say at 70.
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The 4% swr is based on a 30 year retirement time frame …. Starting at 70 would be a different calculation totally.

planning from 70 to 92 instead of 62 to 92 shows a safe withdrawal rate would be considered to be 4.80% and not 4%.

the later you start the higher the safe withdrawal rate is and the earlier you start the lower it is

1,000,000 in a 50/50 4.80% draw rate

FIRECalc looked at the 129 possible 22 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 129 cycles. The lowest and highest portfolio balance at the end of your retirement was $-160,274 to $2,979,685, with an average at the end of $860,548 . (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 22 years. FIRECalc found that 9 cycles failed, for a success rate of 93.1%.
 

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mathjak107 said:
Yes they are wrong ….most don’t stay up on top of research ..they learned old school ways and are now running on misinformation or what used to be thought ..

I found that first hand looking for a planner for myself .

you can look at the research from famous researcher michael kitces if you want the facts

in fact you can start here .

very enlightening

the first article is about just how hard the 4% swr is to fail and what it would take .

the second is a look at how it stood up to the likes of 2000 and 2008

https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/

https://www.kitces.com/blog/how-has...he-tech-bubble-and-the-2008-financial-crisis/
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Thank you...these look interesting. I bookmarked them so I can take my time and read them tomorrow. Busy night ahead, still.
@garyt1957 "We're all in trouble if we can't average 2% over a 15 year period no matter what method we use." You've got that right!
 
I understand both sides of the argument re: owning a home vs. renting, but when we moved to Dallas in 2006 we knew the maximum we wanted to spend for a house and stuck to it. Because of the real estate bubble in South Florida at the time we were lucky enough to make a big profit on our home and paid cash for our home in Dallas. It has since doubled in value.

The dilemma is that we have no intention of selling because we love our home and our neighborhood, so our property taxes just keep going up. However, if we sold our home we would have virtually nowhere to relocate. There is very little real estate available and rents are sky-high. Our only option is to move to another state and we are not interested.

Our next-door neighbor is actually having her house completely remodeled because she has just retired and spends more time there, and she is gambling on high resale value. She moved out in December and will not be moving back in until Spring. The workmen are there every day.

We had everything replaced before I retired... windows, A/C units, water heaters, floors, etc. so I am planning on this being our "forever home". I am one of those who feels emotionally satisfied due to owning my home though I know it may not be the best financial choice.
 
mathjak107 said:
The 4% swr is based on a 30 year retirement time frame …. Starting at 70 would be a different calculation totally.

planning from 70 to 92 instead of 62 to 92 shows a safe withdrawal rate would be considered to be 4.80% and not 4%.

the later you start the higher the safe withdrawal rate is and the earlier you start the lower it is

1,000,000 in a 50/50 4.80% draw rate

FIRECalc looked at the 129 possible 22 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 129 cycles. The lowest and highest portfolio balance at the end of your retirement was $-160,274 to $2,979,685, with an average at the end of $860,548 . (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 22 years. FIRECalc found that 9 cycles failed, for a success rate of 93.1%.
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mathjak,

Do you think the SWR as we age would track with the government's IRA minimum distribution tables? :unsure:
 
Aunt Bea said:
mathjak,

Do you think the SWR as we age would track with the government's IRA minimum distribution tables? :unsure:
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Absolutely not …
.
Rmds are the exact opposite of what you want .

a safe withdrawal rate is designed to provide a safe , secure , CONSISTENT, income in good and not only bad but the worst of times .

the rmds are designed around the years balances ,So in bad years you would have big pay cuts since the draw is based on balance . The cuts can be so big you can’t pay your bills .

the whole idea of a safe withdrawal rate is to keep that income stream consistent and all that changes is the balance left.. rmds can vary wildly each year .


Also the rmds increase as you age ….your percentage is lowest when you are in your go go years and highest in your no go years …just the opposite of how we spend.

so nope , the rmds as a pay check are awful ….would you want a pay check from a job that varied drastically year to year to the point you couldn’t pay bills in bad years ?

also the good years would have you over drawing.

so rmds are designed to drain the account for tax purposes, not give you a consistent income to meet a lifetime of spending and meeting bills nor even inflation adjustments
 
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mathjak107 said:
Absolutely not …
.
Rmds are the exact opposite of what you want .

a safe withdrawal rate is designed to provide a safe , secure , CONSISTENT, income in good and not only bad but the worst of times .

the rmds are designed around the years balances ,So in bad years you would have big pay cuts since the draw is based on balance . The cuts can be so big you can’t pay your bills .

the whole idea of a safe withdrawal rate is to keep that income stream consistent and all that changes is the balance left.. rmds can vary wildly each year .


Also the rmds increase as you age ….your percentage is lowest when you are in your go go years and highest in your no go years …just the opposite of how we spend.

so nope , the rmds as a pay check are awful ….would you want a pay check from a job that varied drastically year to year to the point you couldn’t pay bills in bad years ?

also the good years would have you over drawing.

so rmds are designed to drain the account for tax purposes, not give you a consistent income to meet a lifetime of spending and meeting bills nor even inflation adjustments
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Another reason I'm glad that 1. I get a good pension (plus SS) so I don't need to make withdrawals from my retirement accounts and 2. Most of my investments are in a Roth, so my RMDs are quite minimal. They are also tax free because I make direct charitable contributions with them to St. Jude.
 
dseag2 said:
This is a great article. Thanks for posting!

"Experts" are all over the board on the 4% Rule. Some say it is too high. Some say it is artificially low. I'm just trying as much as I can right now to live off the savings I accumulated before being forced to retire. I was lucky enough to receive unemployment for 15 months and I started drawing Social Security at 63. Now the savings is dwindling.

I figure I have 6 more months before I have to start withdrawing funds from my investments. I know I will eventually have to do it but I'm not looking forward to seeing my balance at that point. The market is so erratic. The thought that the Fed may raise interest rates in March spooked Wall Street, but if the rise in interest rates reduces inflation it may be a good thing. We shall see.

I try to invest as wisely as I can and hope I will have enough money to see me through my final years. I'm not leaving the stock market. The latest figures I've seen are that the S&P was up 13% in 2021, down 9% so far in 2022 but up 90% over the past 5 years. It's a long-term proposition.
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It seems you and I are in a similar position, @dseag2 , in some regards. I can live off my retirement income for now but maintaining my house will eventually eat into my investments. I know that at some point (within the next 10 years) a new roof will be needed, the heat pump will have to be replaced, appliances will fail, and the septic system could become problematic. I'm trying to be proactive and keep my eye on everything, getting things serviced as needed.
 
Leann said:
It seems you and I are in a similar position, @dseag2 , in some regards. I can live off my retirement income for now but maintaining my house will eventually eat into my investments. I know that at some point (within the next 10 years) a new roof will be needed, the heat pump will have to be replaced, appliances will fail, and the septic system could become problematic. I'm trying to be proactive and keep my eye on everything, getting things serviced as needed.
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Yes, I hear you. Our roof will be next due to various hailstorms. Most of our neighbors have had theirs replaced, but due to our homeowner's insurance deductible the out-of-pocket expense will be over $11k. I'm just not ready to go down that road right now! The guy from the roofing company said I could look at it this way... the money I've saved on homeowner's insurance over a 16-year period more than offsets the cost of a new roof.
 
Home repair expenses must be factored in when considering retirement. Nothing lasts forever, and replacing broken/worn parts of the house is part of the "equation". In the nearly 20 years we've been here, we've replaced virtually all the appliances, and had the roofing replaced, etc. We have the septic tank serviced every other year. On average, I figure we spend between 5 to 7 hundred a year just to keep everything working.
Renters don't experience those expenses, directly, but they are factored into the monthly rent.
 
dseag2 said:
Yes, I hear you. Our roof will be next due to various hailstorms. Most of our neighbors have had theirs replaced, but due to our homeowner's insurance deductible the out-of-pocket expense will be over $11k. I'm just not ready to go down that road right now! The guy from the roofing company said I could look at it this way... the money I've saved on homeowner's insurance over a 16-year period more than offsets the cost of a new roof.
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Smartest thing we did when hub built this big old joint was to get a standing metal roof put on it.
It will be here when we are on the other side. And its very attractive, too.
 
Don M. said:
Home repair expenses must be factored in when considering retirement. Nothing lasts forever, and replacing broken/worn parts of the house is part of the "equation". In the nearly 20 years we've been here, we've replaced virtually all the appliances, and had the roofing replaced, etc. We have the septic tank serviced every other year. On average, I figure we spend between 5 to 7 hundred a year just to keep everything working.
Renters don't experience those expenses, directly, but they are factored into the monthly rent.
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Most rental markets don’t care what someone’s expenses are …rental markets don’t care if you needed a roof or new ac unit and other places didnt .

in fact they don’t care if you have paid off a mortgage or not. If those around you have no mortgage and have rentals the fact you do is irrelevant ….markets only allow a landlord market rents

rents are set by local market conditions and maybe local laws

there are few desirable places one can buy today and get as much rent as it costs to buy unless a lot of money is put down . Usually it is a long term investment and you need to pay your dues .

If you do plunk down a lot then the returns on that money put down and no longer coming in are a cost
 
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Liberty said:
Smartest thing we did when hub built this big old joint was to get a standing metal roof put on it.
It will be here when we are on the other side. And its very attractive, too.
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I had to look it up too @StarSong. That is attractive roofing Liberty. Are those metal roofs more expensive or comparable to prices of the most common types of roofs?
 
OneEyedDiva said:
I had to look it up too @StarSong. That is attractive roofing Liberty. Are those metal roofs more expensive or comparable to prices of the most common types of roofs?
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They can run 3 or even 4 times as much as asphalt shingles. Our roof was actually built in the back yard and hoisted up over our house to secure it. During hurricane "Ike", a big tree had fallen on it and our insurance company came out to inspect.

The response was "wow, what a roof". The tree was removed and just a few edges were pounded out. Otherwise it was completely intact. I'll see if I can find a picture good enough to show you what it looks like, later. We're driving the kids back to the airport shortly...lol.
 

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