Early Retirement Extreme Forums

When you give percentages for SWR, do you mean the chance that the portfolio with fail after a certain number of years, or the percentage of the portfolio that you spend in a given year?

The percentage of the portfolio that you spend in a given year.

The formula is:
Average monthly expenses * 12 / Financial independence assets = SWR

If it's the later, wouldn't it be more correct to call it just WR?

Yes, but everyone knows what you mean if you say SWR.

Jacob, you're going to confuse the hell out of people if they eventually learn that the ERE guy is a millionaire.

More-so if they accuse you of earning that million dollars by selling your book

Or going back to work Congrats, that's a great achievement.

Egg wrote:~23.5%

Not sure that really counts as an "SWR", mind, as I'm pretty sure only the extremely foolish would feel confident getting the ~25% returns required to sustain that one...!

As someone new to ERE, I am finding this tricky. Perhaps I've misunderstood, but isn't SWR the percentage you can safely draw down each year without jeopardising financial independence?

penny wrote:As someone new to ERE, I am finding this tricky. Perhaps I've misunderstood, but isn't SWR the percentage you can safely draw down each year without jeopardising financial independence?

In theory. But then a totally safe withdrawal rate (other than a histoical one) is a myth anyway, so although 4% is more realistic than 23.5% for sustainability, neither are necessarily SWRs as such. To allow numbers like mine, I guess you'd have to extend the definitition to something along the lines of "the returns you'd need to cover your withdrawals".

P.S. Update: My "SWR" is now 12%

Thanks for your reply egg. How do you arrive at 23.5% and 12%? Are these figures actual draw down or returns made in a given year? Like I said, this is new to me so any insight is appreciated.

penny wrote:Thanks for your reply egg. How do you arrive at 23.5% and 12%? Are these figures actual draw down or returns made in a given year? Like I said, this is new to me so any insight is appreciated.

Expenses/Assets * 100.

I personally look at my expenses over the course of a year. One area where I think you could trick yourself is to underestimate your expenses. So you could be really cheap for a week and use your current weeks expenses * 52 / total assets and give yourself a false picture. You could also not take into account future expenses such as health care.

steveo73 wrote:

penny wrote:Thanks for your reply egg. How do you arrive at 23.5% and 12%? Are these figures actual draw down or returns made in a given year? Like I said, this is new to me so any insight is appreciated.

Expenses/Assets * 100.

I personally look at my expenses over the course of a year. One area where I think you could trick yourself is to underestimate your expenses. So you could be really cheap for a week and use your current weeks expenses * 52 / total assets and give yourself a false picture. You could also not take into account future expenses such as health care.

Thanks steveo73

Depending on how I estimate living costs per year, the new 2015 figures (this is for a couple):
* Basic living cost (good life, but not much travel budget) => SWR = 1.4%
* Very comfortable (good life, but more travel budget or more health coverage when older ) => SWR = 2.4%
* Easy living (enough buffer to allow flexible way of living) => SWR = 4.2%

I'm below 15% now. That feels significant to me. I think the next point will be 10% or less.

@steveo73--Is that based on your current spending level, or a post-kid retirement budget? I'm just curious how people are calculating their number.

jennypenny wrote:@steveo73--Is that based on your current spending level, or a post-kid retirement budget? I'm just curious how people are calculating their number.

Current spending level. I assume my spending could drop in retirement but its not that clear cut because I will still be supporting kids.

@Henk: very, very nice. Now the market goes up and down, so your exact numbers will change a bit from time to time, but it looks like you've got this one covered

@steveo, looking back to March it was 21.5%, so yes, that's an impressive change. Nice, keep it up!

2014 -- 9%
2015 -- 7%

Start of Year Portfolio Expenses SWR
2011 SWR $20,000.00 $24,000.00 120.00%
2012 SWR $30,000.00 $24,000.00 80.00%
2013 SWR $40,000.00 $24,000.00 60.00%
2014 SWR $60,000.00 $22,000.00 36.67%
2015 SWR $80,000.00 $18,800.00 23.50%
2016 SWR $141,000.00 $20,500.00 14.54%
2017 SWR $200,000.00 $20,500.00 10.25% - Predicted

2013 - 8%

2014 - 4%

2015 - 3%

2011: infinite
2012: 76%
2013: 28%
2014: 12%
2015: 8.4%* **

*now calculated to exclude market fluctuations using formula book value * 11% * PE ratio of 15 (Alternate formula, market value *(average PE10/current PE10)

**anticipated to drop to 4% - 6% this year due to 'lifestyle arbitrage'

Nice, JL, you're getting close. And that within just a few years.

And to me it seems like FRx, you're there - also pretty amazing to get from 4% to 3% in one year, either a lot of growth of your assets, or a reduction of expenses, or a bit of both. Anyway: impressive.

Currently 2.53%. I pay full price for health insurance right now, so that number would go down if I quit my part time job and my income went down to an amount where I could get a subsidy.