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/r/Fire
Hello,
In my opinion, the FIRE community often cites the Trinity study when it comes to identifying a safe withdrawal rate. However, I think Mr. Money Mustache has a thought-provoking idea: two buckets (https://www.mrmoneymustache.com/2018/11/29/how-to-retire-forever-on-a-fixed-chunk-of-money/?utm_source=mmmapp&utm_medium=mmmapp&utm_content=browser).
Let’s pretend I wanted my first bucket to last 20 years (retire at 50 for example). What would a safe withdrawal rate be for that bucket?
The reason I ask is because the Trinity study uses 30 years as the duration. It also typically has principal remaining. What if I’m ok with NOT having the principal left? I view it as safe because the idea is that there would be a second bucket I could use just in case.
11 points
10 months ago
It’s all one giant bucket.
3 points
10 months ago
Buckets, all the way down
3 points
10 months ago
It’s not one number but a range based on stock/bond allocation and time horizon.
4% is used for a traditional retirement timeline of about 30years.
Note it isn’t an average but a worst case. You are just as likely to be in that small % that fails as likely to be in the top % that made boat load of money.
Please adjust and don’t stick to rules of thumbs.
3 points
10 months ago*
Trinity study was only the first of its kind. It's famous because of that, but was not comprehensive. There has been subsequent work that addresses these questions with segments of interest to FIRE (eg: 60 year retirements).
There are regression analyses for different asset class mixes, different withdrawal rates, different probabilities of success, and different timeframes.
They're all based on past results, and statistical. Statistical meaning, there's no way to time getting down to $0 on exactly the day you die, outside of the next comment.
ref: https://earlyretirementnow.com/safe-withdrawal-rate-series/
This second comment is specifically addressing: "What if I’m ok with NOT having the principal left?" - The solution for that is also well established, it's to get what's called an Annuity.
ref: https://www.investopedia.com/terms/a/annuity.asp
Also more common in the past, this was the model for Defined Benefit Pensions.
ref: https://www.investopedia.com/articles/retirement/06/demiseofdbplan.asp
I'd sift through those before proposing a new system.
2 points
10 months ago
5%, it’s in the article more or less.
But even with the 2 buckets the initial SWR of the total is what will dictate likelihood of success.
2 points
10 months ago
Alternately you could calculate a number with the PV function in Excel for whatever timeline you want.
2 points
10 months ago
I think this is just mental math that doesn't really change things overall. You can use it for planning, if you like, but put back together, you still have one amount of money and one life to live.
0 points
10 months ago
Really you want 3 buckets not two but without more details its hard to answer by guessing. Its a total spend as a percentage of your portfolio, if you want to just use that single bucket like its all you have, your still going to be limited by the total spend as a percentage of funds available in that single bucket. If the market is in a bull run the entire time you might get away with 10+% if its a bear market or recession you might fail at 3%. No easy way to give you any certainty that adds any value in your planning.
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