Mander75, the so-called 4% "safe" withdrawal rate (SWR) method is mostly a marketing tool to frighten the clients of insurance salespeople into buying annuities and the clients of expensive advisory firms to deprive themselves to accumulate gigantic portfolios because of the dreaded sequence of returns risk (SORR) which could theoretically bankrupt a 4% SWR retiree.I am probably 20 years away from full retirement when I will start withdrawing. I looked over the subject / thread - in a nutshell, do I understand right that simply going with <=4% withdrawal rate is not the way, and it can be variable based on circumstances?
Actually, you're late to the news. The new SWR was apparently much lower, down to 1.9% not so long ago (see this August 2022 post). Anyway, no sane retiree has ever followed the SWR rule during a severe bear market, withdrawing an inflation-indexed amount equal to 4% of the initial portfolio from the current portfolio after it has sustained drastic losses. SWR studies are all about theoretical calculations years after the fact (backtests) or based on theoretical simulations (Monte Carlo), ignoring the actual reality of a retiree who doesn't know, at any point during retirement, what markets will do next.
Let's talk about VPW, instead.
VPW is immune to SORR; it will never prematurely deplete the portfolio. See this post for details.
VPW also adapts portfolio withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement to allow the retiree to spend most of the portfolio using return-adjusted withdrawals.
VPW is best used within an overall retirement plan, where pensions (like Social Security) are taken into account.
Conveniently, our wiki provides a VPW worksheet which supports an overall retirement plan for both accumulating investors and retirees. It takes into account current and future pensions, with and without cost-of-living adjustments. It contains two separate Accumulation and Retirement sheets.
As an accumulating investor, you could consider using the Accumulation sheet. There's a VPW Accumulation Worksheet thread where questions about it are answered. Enjoy!
Statistics: Posted by longinvest — Tue Dec 12, 2023 10:57 pm — Replies 2150 — Views 567247