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Safe withdrawal rate: how to spot if your portfolio is heading for trouble [Members]
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“Miracles do happen. But normally to other people.” So true 😉 The fixed %age of initial pot SWR uprated by inflation approach seems to be like a game of Russian roulette where one knows neither the number of chambers in the gun nor the number of bullets in the chambers, and where SoRR is the spinning of the chamber after the trigger is pulled and each year’s withdrawal taken.
@TA, thanks for the insightful analysis. Very glad I subscribed, these recent pieces have been excellent and thought provoking. Well worth it.
Bengen’s rule of thumb is interesting. If you are starting at 4% that would imply a 6% ongoing WR. Whereas my takeaway from your analysis was that 10% is the point of no return.
So quite a lot of conservatism (accepting that 4% for the UK may be optimistic to begin with)
I was mulling over the relationship between proportion of real portfolio value compared with the ongoing withdrawal rate.
Sorry if this is stating the obvious. Given both are inflation adjusted isn’t one just the inverse of the other? Haven’t worked through the algebra but feels something along the following lines:
Real Portfolio Value as % of initial portfolio = Initial WR/ongoing WR
This relationship only works if you haven’t acted on the early warning signs and changed your withdrawal rate mid course.
But if you subscribe to the view that 50% of initial portfolio value in real terms is an early warning indicator that would translate to your ongoing withdrawal rate being 50% above its starting value.
Or inverting Bengen’s rule of thumb, time to take stock if your portfolio value falls below 75% of its starting value in real terms.
Nice analysis. Kinda useful to have some solid “rules” for when one should start to think more conservatively, although my concern is always that I will be more conservative than I need to be and unnecessarily deny myself.
Maybe it does need to be sliding line of concern by reference to years retired. 50% real value of original portfolio being rather more a concern at age 60 than 90 for instance.
Maybe we do need a version which takes into account state and other DB pensions and/or annuity purchase as the secure “floor” to SWR strategies.
Interesting calculation at the end which I applied to my circumstance. It showed real value of portfolio remaining after 5 years at 85% of original value.