SWR and age starting drawdown?

k6chris

Dumb question, but does the SWR rate vary by the number of years you expect to be drawing down?  So a 3.5% "SWR" may be suitable for someone in their early sixties, but too conservative for someone fifteen years older, and too agressive for someone in their fifties. 

QrizB

Short answer, yes.

Hoenir

Called maths. 

squirrelpie

It sounds logical, but the worst ever fall in stock values might start to occur the day after you start SWR withdrawal, so I'm not sure the previous answers are right.

kempiejon

With a cash buffer big enough even if a portfolio fell by the largest amount in history and took a long time to recover an index linked SWR can be maintained. How big a pot is needed to account for that becomes part of the plan. Of course a fixed at commencement and subsequently indexed WR isn't the only game in town but if that's the direction the big pot plan smoothes fluctuations of the markets

westv

squirrelpie said:

It sounds logical, but the worst ever fall in stock values might start to occur the day after you start SWR withdrawal, so I'm not sure the previous answers are right.

SWRs take account of the current worst fall. If you worry about something coming along worse than that then you will never retire.

Triumph13

It doesn't vary by as much as you might think.  Historically, the vast majority of portfolios which survived 30 years ended up well over the initial balance - as long as they had fairly large equity allocations.  Similarly, a healthy person in their 70's needs to be prepared for the possibility they might reach 100+, although the older you get, the cheaper it becomes to use an annuity as longevity insurance.

OldScientist

Using https://www.2020financial.co.uk/pension-drawdown-calculator/ (UK historical data calculator) with a 60/20/20 (stocks/bonds/cash) portfolio

'Safe' withdrawal rate (i.e., 0% failures) is 4.1% for 20 years (~75yo), 3.3% for 30 years (~65yo), and 2.8% for 40 years (55yo).

So, the answer is 'yes', with larger changes to the SWR for retirements shorter than 30 years and smaller ones for those longer.

kempiejon

OldScientist said:

Using https://www.2020financial.co.uk/pension-drawdown-calculator/ (UK historical data calculator) with a 60/20/20 (stocks/bonds/cash) portfolio

Thanks for this handy link. I've done my modelling, spreadsheets etc but most of the online sims I used had US data. Seems using UK data from 1900 I have a 98% chance of still having money on my unlikey 100th birthday. I prefer a more stocky 80:20.

Secret2ndAccount

Curve looks something like this:

There is a decided downturn at 44 years. A 1956 retirement would have been hit by the Eisenhower Recession in 56/57, then finished off by the dot-com crash of 2000. This is the worst case, and sets the minimum SWR for all cases longer than 44 years. A Monte Carlo simulation (using the range and variation of real numbers, but randomly generated each year) wouldn't lead to a bump in the curve like this, but presumably would drag the curve down slightly in the 15-44 region to even things out.

michaels

OldScientist said:

Using https://www.2020financial.co.uk/pension-drawdown-calculator/ (UK historical data calculator) with a 60/20/20 (stocks/bonds/cash) portfolio

'Safe' withdrawal rate (i.e., 0% failures) is 4.1% for 20 years (~75yo), 3.3% for 30 years (~65yo), and 2.8% for 40 years (55yo).

So, the answer is 'yes', with larger changes to the SWR for retirements shorter than 30 years and smaller ones for those longer.

Although of course the chance of living beyond 95 is higher for the 75 year old than the 55 year old ceteris paribus....