“I never understood why the 4% Rule is referred to as a Save Withdrawal Rate (SWR) as it defines a rate at which your consumption can exceed your dividend, interest, pensions, Social Security, and other “guaranteed” sources of income without depleting your portfolio in 30 years.”
The SAFE withdrawal Rate (SWR) is not for pensions, not for Social Security and 'other guaranteed sources of income.
It is for assets Not Pension, Not SS and ‘guaranteed income’ like annuities.
It is for your other savings.
If you get dividends and interest, that is part of your annual ‘withdrawal’. It s on stocks/bonds/REITS, etc that you own.
Now, for your planning, take SS, take pensions, take annuities. That adds up to XX bucks.
If you spend YYY bucks, more than XX, they you need to take money (via dividends, interest, etc) on your other assets.
Let’s just make up some numbers for discussion.
Let us say your SS income is $25,000 a year. Your pension is $25,000 a year. If you have an annuity, that pays $10,000 a year, then your ‘guaranteed income’ is $60,000
Now, let us say you want to spend $100,000 a year.
Now, let us just say you have savings (stocks bonds REITS CDs) not in an IRA - of $500,000 a year. It spins off Dividends and Interest of , say $20,000 a year.
Let us say you have an IRA/401K of $500,000 …and when you hit 72, you are forced to take 3.5%, increasing yearly, every year out of it. let’s just say it is 4% and that is $20,000 the first year and increasing.
So , without ‘touching’ assets (other than sale of assets in IRA/401K)
your income is $50,000K plus div/int of $20K…plus $20K from IRA… or $90K
The div/int are WITHDRAWALS and the IRA RMD each year is a WITHDRAWAL from assets
You will be taking roughly ($20K plus $20K = $40K ) or 4% from your ‘assets’.
The next question of course, is whether your pension has a COLA? if not, it’s value decreases dollar buying wise each year. Same for the annuity.
Now, on the day your ‘retire’, you can take %4…and you are doing that, whether you realize it or not, by collecting ‘dividends and interest’…
Now, if you live on less than $90K/yr, you are in good shape. If not…well, keep working! defer SS to get the maximum benefit at age 70.
(left out in this discussion is taking withdrawals from a ROTH IR). Or tax consequences…you pay income tax on IRA withdrawals, dividends, interest, part of annuity, and likely pension and SS - )
That 90K income would be reduced by 15% likely by taxes - maybe more if in a high tax state.
t.