There’s also an inflation increase annually, but of course that’s the US-based inflation rate.
Note that if your growth portfolio earns 8% return each year and you spend 4%, your 4% tends to grow each year. At least in good years. And certainly 20 to 30% gains in good years is not out of the question.
Make hay when the sun shines!!
Now is a bad time to retire.
Dang! Retiring September 1.
Social security is your friend. Sounds like we are expecting a nice boost next year.
Also if you still have a pension, few have cost of living adjustments, but someone else worries about funding it.
If you plan to live off of investment income, I hope you are well prepared with bonds, dividend stocks, or a cash hoard. Selling stock to fund retirement right now is a bad idea.
Maybe you should seek a temporary job for a while.
Six months ago was a bad time to be buying bonds. Right now is actually not bad.
Your mileage may vary. Plenty think the feds will stop raising interest rates any day now. But I think that is wishful thinking. The 10-year Treasury is at about 3%, far below the 9% official inflation rate. Personally I wouldn’t be surprised to see the 10-yr hit 5%.
Plenty think the feds will stop raising interest rates any day now.
That isn’t what the market is saying. The market has priced in many more interest rate increases this year.
Futures market are predicting an 80% chance of a 1% raise at the next meeting - with rates between 3.5 and 3.75 by year end (double where they are now). The bond market has largely price that in.
Personally I wouldn’t be surprised to see the 10-yr hit 5%.
Keep in mind that the yield curve is inverted because the deep pockets think rates will be LOWER in the future, which is why you should not expect the 10 year to hit 5%. In fact, the 10 yr has dropped by 50 basis points in the last month. The more the chance of recession increases, the likely we will have to reduce rates in 23 or 24.
https://www.reuters.com/markets/us/fed-seen-jacking-interest…
CuriousQ writes,
Realize that the 4% Safe Withdrawal Rate is based on a mix of SP500 stocks and US bonds. There’s also an inflation increase annually, but of course that’s the US-based inflation rate.
If you use other assets, like making the stocks all dividend stocks, or growth stocks, or something else, it goes outside the bounds of the study. It may even be beneficial to add something like a 10% REIT allocation, but again, that’s outside the bounds of the original study. There are periods where growth outperforms value, but the catch is that if you’re in the “wrong” assets when inflation goes up, you end up withdrawing more in that period to maintain your “real value” of spending, then the money isn’t there when the “right” assets that you own become the better performers.
Luckily, that 4% should result in you having a lot more than 30 years of portfolio survival in average or somewhat worse than average situations, since it’s “worst case.” Again, tinkering with the formula may improve your results, and the “worst case” SWR may let you survive a sub-optimal allocation in less-than-worst-case conditions. You’re just outside the bounds of what was studied.
Yes. William Begin revised his classic 1994 study to include small cap stocks and found it improved the “4% rule” to 4.5%.
https://www.yourwealth.com/good-news-for-retirees-seeking-co…
If I was retiring today, I’d probably go with an allocation like this:
20% S&P 500
20% Small Cap Index
30% Non-US stock index
30% Fixed income
30 years ago my objection to foreign stocks and some of the small cap funds was the higher expense ratios. But today, you can find foreign and small cap index funds that have expense ratios just a bit higher than the S&P500. You’re not being penalized for diversifying to those “more exotic” asset classes.
intercst
Hawkwin write,
Six months ago was a bad time to be buying bonds. Right now is actually not bad. Bond prices are up and yields are down over the last month. With the inverted yield curve, the market is predicting rates will fall in the next 2-3 years.
I agree. The only constituency for higher interest rates is elderly women who are afraid of the stock market. Higher interest rates hurt everyone else.
intercst
Social security is your friend. Sounds like we are expecting a nice boost next year.
Not at age 58.
If you plan to live off of investment income, I hope you are well prepared with bonds, dividend stocks, or a cash hoard. Selling stock to fund retirement right now is a bad idea.
I plan to live off my wife’s income. I said I was retiring, not we are retiring.
Maybe you should seek a temporary job for a while.
I’m an engineer. That means I built in a good safety factor. I’m not retiring with only 0.01 over a certain sum. I don’t need a temporary job.
PSU
I plan to live off my wife’s income. I said I was retiring, not we are retiring.
That sounds like the optimal retirement plan to me. Find a wife with a high income who enjoys her work.
intercst
I plan to live off my wife’s income. …
Unbeknownst to me, my wife had certain plans when I retired.
She described it to one of her friends, “I cooked for the family for 40 years. Now that he is retired from working, I am retired from cooking. Now HE will be doing the cooking.”
Thank goodness Youtube has hundreds of cooking channels. 
She described it to one of her friends, “I cooked for the family for 40 years. Now that he is retired from working, I am retired from cooking. Now HE will be doing the cooking.”
We’ve turned cooking into a date of sorts. Both work on the recipe together, often while listening to jazz and sipping on wine. Makes the chore of cooking a lot more fun.
IP
Unbeknownst to me, my wife had certain plans when I retired.
We do have plans. While she is still working, she will do nothing at home. I will be responsible for all work around the home. A great deal for me.
PSU
Ispouse is an excellent cook and I love home cooked meals. So I offered to help with slicing, dicing and peeling and to take the lead with the dishes. Tonight was a squash zucchini casserole with veggies from our daughter’s garden, homemade Mac n cheese, corn bread and fresh green beans.
As far as money is concerned, we are living on a combination of ispouse’s pension, SS and dividend and interest income from my taxable account. Next month I plan to start collecting my SS which will be deposited in my taxable account thereby increasing my dividend and interest income each month without spending the corpus.
I plan to do the same with my rmds in 3 years. Deposit the rmd in my taxable account, thereby further increasing my dividend and interest income without touching the corpus.
The taxable account is mostly low cost etfs. My goal is steadily growing income from ispouse’s pension and SS, and growing income from the SS and rmd money deposited in my taxable account.
Now is a bad time to retire.
IMNSHO, there’s never a bad time to retire.
AW
I am on the opposite extreme from Brucecm. My taxable account consists primarily of Vig (vanguard dividend appreciation etf) for dividend income and brk for risk adjusted growth in my taxable account which will be replenished with my SS checks and rmds as described above. I want to continue to grow our net worth and income with minimum effort.
What I’m doing…
Downsized house (mortgage 1/2 of former); paid off all credit (except cars and mortgage) 4 years before I retired in 2017.
I worked part time (25% of salary) until 2020 and was taking social security at age 67 (2017).
My total needed expenses are covered by a small pension ($500/mo) and social security less medicare advantage plans for my wife and I. We have two modern cars and a moderate 3BR home.
Spending money for travel & entertainment is from my Motley Fool contracting job and officiating soccer matches.
I have one growth/tech portfolio (Roth) that’s been down 67% this year. I don’t need any of that money. It’s something that will probably be inherited.
I have another income/growth portfolio (larger than Roth - the split is 75/25…it was 65/35 in November…ahem). I set up in 2018/19 to pay out 2.7% dividend yield (0.7 to 1% more than S&P yield). I “set up” by selling growth stocks and researching and buying dividend companies. It took 8 months to accomplish this. I withdraw the dividend amounts less tax withholding every quarter…this has been used for home improvements and travel to see children and grandchildren. This IRA will gradually become taxed next year when I turn 72.
The income / growth portfolio is 53% by value dividend payers. More than half that ore REIT’s anchored by AMT, DLR and retail REITs anchored by O. Of 45 companies in this port 15 are REITs. Energy stalwarts are PSX and OKE. I also own BMY and DTE (Deutsche Telecom) for diversity.
The remainder of the income/growth port is growth. Semiconductors (pay a small divvy) are 15%; other big positions >3% GOOG ANET MSFT DDOG ANET PAYC and SNOW were either transferred from high growth or originally bought in the income/growth. These provide needed growth to beat S&P 500 that I couldn’t do with dividend stocks alone. This port has beat S&P for 8 years now. Though it’s losing by 2% YTD. I look at these growth names (yes SNOW and DDOG) as less speculative than the high growth names like CRWD, S, SHOP, SQ, ROKU, PATH and MDB that populate the high growth port.
I also have 5% currently in income options positions. I sometimes have up to 10% options…of course their long call sides are way down now.
Just what I do - hope it gives you an idea
Joe
Community Fool - Ticker Guide ANET, OKE, PRLB, MTZ, MMM, LKQ & BMY
click link for my profile & holdings
http://my.fool.com/profile/CMFJambo/info.aspx
Hi thejusticier,
“Do one really need a less volatile portfolio?”
Depends …
Our portfolio was originally fairly conservative when we retired in 2005. We had 3 years of cash cushion plus the cash to build our house at Blowout Mtn. We had companies like JNJ, HNZ, AEP, PGN, UNS, CAT, KMB, KO, PAYX, PG, COP, BMY and others. (some were bought-out like HNZ, PGN & UNS)
I bought some small amounts of growth stock in 206/7. NFLX was probably the best that I bought in that period. Our highest sale price was 130X our original purchase price and I closed the position by Sep 2019. As of Sep 2019, NFLX shares gifted to charity were 40% of our net withdrawals since retiring.
Some of our NFLX proceeds went back into other growth companies like ENPH which is currently 37X our original purchase price in Jan 2019.
Now, growth companies are about 50% of our portfolio but that number only tells part of the story.
We still have our Dividend core positions and interest-bearing annuities. Over the years they have grown in value and have increased their payouts, most of them annually. And I have added to some positions. I manage that portion of our portfolio to produce 150% of our needed expense cash. It is now at 220%.
For me, the slow and steady portion is key. I can do nothing and it will continue to produce cash. If half of the dividends go away, we are still Ok.
If all of the growth portion goes away, we are still Ok.
At our current depressed value, we need less than 1% of our portfolio per year. Our portfolio is down 54.39% since Nov 9, 2021 straight dollars. If I add the withdrawals made for our house, so far, that become -43.26%.
So for me, pure growth no. If I die, DW would have to manage sales.
With our cash producing investments, I have a very short set of instructions for DW in the event I die.
Does that help you?
Gene
All holdings and some statistics on my Fool profile page
http://my.fool.com/profile/gdett2/info.aspx
intercst: That sounds like the optimal retirement plan to me. Find a wife with a high income who enjoys her work.
Wow! You mean renting is not a better deal?
Mike
Hi Intercst:
"As the retirement portfolio has grown over the years, the 5 years’ worth of expenses in bonds has become a smaller percentage of the portfolio, I’m about 97% stock, 3% fixed income today. "
"If you retire early with the “4% rule”, you’re much more likely to leave a bundle to your heirs or charitable beneficiaries than run out of money – no matter how long you live. "
yes I hear that. The 4% rules is still based on the statistics of the market of the last 100? years. Nothing in principle would say that this statistics would be maintained in the next 100years. There might be too many factors to be considered.
At any rate using the historical market data simulation, with my numbers even during the worst 40 years that started at the end of the 60s, I would still have a surviving portfolio with some margin even though it could have been hairy at times especially in the 1970s before seeing the market rise in the 1980s. The retiree who started in 1980 would have had the best 40 years in the past 100s of data.
If your portfolio is not drawn too low below a point of non-return then in times it should be allowed to rise. You don’t want it to rapidly shrink so much that it will not be able to rise enough to sustain your expenses moving forward.
I am interested to know more about how different portfolio compositions give different results. There will be different results of course but I want to know how could certain portfolios ‘not make it’ even if the starting number was good to go.
I hear several retirees on the MF boards have a large percentage of their retirement portfolio in individually picked stocks rather than one with indexes and/or more bonds in it as suggested by traditional retirement advice (30/70 or 40/60 or 50/50 bond/stocks).
Having experienced a 50% draw down in the past 7 months, I am wondering if I should go less volatile. I am not absolutely convinced that less volatility is what I need in retirement but again I need to ensure that my portfolio does not shrink below that point of non-return.
what do you think about portfolio re-balance? Do you do any of that?
When you harvest to feed your cushion, do you do it evenly across the portfolio or do you decide to sell more of this or that? How much % of the draw is in dividends?
tj
“Actually, I did the opposite. When everyone got afraid to spend on cruises and travel after the 2008 Economic collapse, I doubled my spending and started taking 3 or 4 cruises per year to take advantage of the bargains.”
I think that is what I too would do. But in order to be able to do that, the cash should be there, and if one can plan this cash to be there in a certain period, he or she can use this cash in a time of his or her own choosing. If there are bargains in down times then we should go at that time.
Regardless down turn or up turn, I would want to go traveling when most people are not, like when they are taking their vacations. In retirement, I would think you can have this flexibility.
The drawing from the portfolio would have to be done based on market conditions but when you use the cash you draw is up to you and how you planned it.
tj
"But that’s not for people just barely scraping by on 4%. That’s for those with adequate reserves. "
That’s a matter of how much you think you need to draw. If you include your regular expense plus some extra cash that you can use or save.
Would you typically draw more if your portfolio has gone up for a while? How do you handle or plan large ticket items? say you need to buy a car in the next 2 or 3 years? don’t you draw from the market over the next 2 or 3 years enough to cover that particular expense?
and if the market is bad then you don’t buy it and wait a couple of years to do so?
tj