Historic safe withdrawal rate (SWR) for Ireland

[SPC100]

We'd need to run the models with equivalent assumptions and see which gives a better outcome. In terms of providing the desired income, total income generated, and remaining wealth.

Well, it depends what you mean by a "better outcome".

See above. But desired outcome will be different for different people I guess.

Given post title is safe withdrawal rate, Let's say desired outcome is 30k p.a. + inflation for rest of life / 30 years with no concern about leaving money for next generation.

4p.c rule says I need 750k
3p.c rule days I need 1million

Annuity with no increases says I need 1 million, but will fail to meet my desired outcome due to no inflation increases.

If withdrawing 4p.c of principle per year, how much should I have in my principle when I retire to have some confidence of providing the income I want?

 

[SPC100]

Is the Irish case all that relevant? Ireland doesn't have its own currency and my guess (correct me if I am wrong) is that there is very little home bias anymore in most pension funds under management.

A lot of listed Irish firms generate the bulk of revenues outside Ireland anyway.

Imo, Our taxation regime is likely most relevant, followed by eu based vs us based investor. Most of the online stuff I see published covers us based case.

 

[Sarenco]

Annuity with no increases says I need 1 million, but will fail to meet my desired outcome due to no inflation increases.

An annuity of €30k that rises in line with inflation (capped @4%), would cost a 65 year old man about €1.25m.

Withdrawing a constant-euro amount, adjusted for inflation, from a fluctuating portfolio balance is unwise IMO.

Again, Bengen's work is an observation about the past - it is not a "rule" that predicts what will turn out to be a SWR in the future.

 

[SPC100]

I fully appreciate that it and related work is based on observance of past performance and doesn't guarantee future result. We can't predict the future.

But, As most people have some level of constant not negotiable expenses, how do you suggest they decide how much to save to be able to cover them?

 

[SPC100]

An annuity of €30k that rises in line with inflation (capped @4%), would cost a 65 year old man about €1.25m.

I underspecified, let's make it 60 year old couple with full payment till both dead, and inflation protection.

I didn't realise they cap the inflation increase.

 

[Mcivor]

Interesting post. Annual management charges should also be taken into account when people are deciding on a sustainable drawdown rate. These mgnt charges can be significant and could range from say 1% to 1.5%. So a gross 4% draw down rate could equate to 2.5% net

 

[SPC100]

The article in the OP allowed for 1% mgmt fees.

 

[Sarenco]

I underspecified, let's make it 60 year old couple with full payment till both dead, and inflation protection.

That would cost around €2m.

You can lower the inflation cap or spousal benefit to get to a lower figure.

As most people have some level of constant not negotiable expenses, how do you suggest they decide how much to save to be able to cover them?

If you are living off your savings, I would suggest adjusting your asset allocation to match your residual liabilities after all guaranteed income (State pension, etc.) is taken into account.

So, short-term expenses to be met out of cash, medium-term expenses to be met out of intermediate terms bonds, etc.

That may also involve annuitizing a portion (or perhaps even all) of your pension pot on retirement or at some later stage.

 

[SPC100]

Seeking A Fixed Percentage Approach To Retirement Spending

The fixed percentage withdrawal strategy is the polar opposite of constant inflation-adjusted spending. Subsequent strategies we consider will strive to strike a balance between these two. This fixed percentage strategy calls for retirees to spend a constant percentage of the remaining portfolio...

www.forbes.com

Here is a good article from Wade Pfau a professor in this space, looking at fixed percentage spend - "As for disadvantages, when combined with volatile investments, spending can become extremely volatile with this strategy, making it difficult for retirees to budget in advance. For a fixed retirement budget, managing retirement with this rule could be a particular challenge. Those considering this rule should probably be thinking in terms of applying it to discretionary expenses that allow more flexibility for spending reductions that will not derail a retiree’s standard of living."

I've heard a recent boogleheads podcast with him where he makes the case for an annuity (instead of bonds) for a portion of retirement funds.

 

[Sarenco]

There is really no universal approach that's going to be "right" for every retiree.

For example, it may not make sense for a retiree to immediately annuitize any of his portfolio if his spouse is still working (or is a retired public servant with a significant pension).

Going back to your original question - how much to save for retirement?

I think somewhere around 30 times your annual expenses is a good target for somebody planning to retire at 60.

That doesn't suggest a particular withdrawal strategy - but it is probably a reasonable amount to declare that you have saved "enough" to retire.