# Retirement age discussion **URL:** \ **Category:** In My Humble Opinion\ **Created:** [March 5, 2022, 2:28pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519 "2022-03-05T14:28:42Z")\ **Posts on this page:** 20\ **Page:** 6
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [July 20, 2023, 2:44pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/101 "2023-07-20T14:44:04Z")
> [@DSeid](#): > > The 4% inflation adjusted includes income amounts, yes? Not SS income though. It’s the answer to the question “how much can I withdraw from my nest egg each year and still expect my nest egg have a very high probability of lasting 30 years?” It’s only looking at your nest egg - 401/403/457/TSP and/or ordinary investments - So Social Security and other defined benefits don’t factor into this. Figure your safe annual nest egg withdrawal, add your SS and any other pensions to it, and that’s how much money you will have available to play with each year. There are simulations out there that use actual stock/bond returns over the past ~100 years to “stress test” your retirement plan. You input your nest egg size and your annual withdrawal size, and it’ll see how long your nest egg lasts if you retire in year X, where X is any given start date within that 100-year period. And then after it tries your withdrawal sequence using all the possible retirement dates, you’ll be able to see how often your retirement plan succeeds or fails (meaning you’ll know your probability of success - which you want to be very high). That’s basically **[what Bengen did when he first developed the 4% rule](https://www.forbes.com/advisor/retirement/four-percent-rule-retirement/)**: > Bengen looked at retirements beginning over a 50-year period from 1926 to 1976. He used actual market returns from 1926 through 1992. For years beginning in 1993, he assumed a 10.3% return on stocks and a 5.2% return on bonds. Withdrawals were made at the end of each year and the portfolio rebalanced annually. > > From this he evaluated the longevity of the portfolio for up to 50 years. For example, he examined whether a portfolio of someone retiring in 1926 would last until 1976. For those retiring in 1976, he examined whether their portfolio would last until 2026. > > While Bengen didn’t coin the phrase “the 4% rule,” it comes from the results he documented. What he found was that an initial withdrawal rate of 4% enabled most portfolios to last 50 years or more. And for those that fell short, they still lasted about 35 years or longer, more than enough for the majority of retirees. In the time since he first did that analysis, we now have another 30 years of stock/bond return data to work with. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 20, 2023, 4:38pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/102 "2023-07-20T16:38:53Z")
> [@hajario](#): > > His calcs are for the money to run out when I’m 100ish and taking social security at 62. It also takes my typical spending into account with the occasional big expense from a nice vacation to the kitchen remodel. Possibilities of foreseeable but not expected major medical expenses even ongoing factored in? ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 20, 2023, 4:41pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/103 "2023-07-20T16:41:07Z")
> [@Machine\_Elf](#): > > It’s the answer to the question “how much can I withdraw from my nest egg each year and still expect my nest egg have a very high probability of lasting 30 years? What constitutes high probability? More likely than not? 99%? For some of us a 20% chance of running out is uncomfortable risk. ---
**Author:** ![hajario](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hajario/32/171_2.png) [@hajario](https://boards.straightdope.com/u/hajario)\ **Post date:** [July 20, 2023, 4:43pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/104 "2023-07-20T16:43:35Z")
Yes, of course. For example we determined that I wouldn’t need long term care insurance because I could weather that storm. All of this is (or should be) standard practice for a competent CFP. ---
**Author:** ![Machine\_Elf](https://avatars.discourse-cdn.com/v4/letter/m/82dd89/32.png) [@Machine\_Elf](https://boards.straightdope.com/u/Machine_Elf)\ **Post date:** [July 20, 2023, 5:12pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/105 "2023-07-20T17:12:32Z")
> [@DSeid](#): > > What constitutes high probability? More likely than not? 99%? > > For some of us a 20% chance of running out is uncomfortable risk. Vanguard has one of these calculators: [https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf](https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementNestEggCalc.jsf) I input: - 30 years - $1,000,000 nest egg - $40,000 annual withdrawal - 50% stocks, 45% bonds, 5% cash And it said that my nest egg had a 91% chance of lasting the desired 30 years. I tried a 3.3% withdrawal rate, and it said I had a 97% chance of dying before bankruptcy. They don’t say what they use for stock/bond return rates in this simulation. I’m guessing it also assumes you don’t adjust your withdrawals downward during bear markets. It’s definitely a choose-your-own-adventure kind of thing: if you’re risk-averse and there are a lot of centenarians in your family tree, then you’ll want to stick with something closer to 3% instead of 4%. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 20, 2023, 7:29pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/106 "2023-07-20T19:29:58Z")
> [@Machine\_Elf](#): > > There are simulations out there that use actual stock/bond returns over the past ~100 years to “stress test” your retirement plan. You input your nest egg size and your annual withdrawal size, and it’ll see how long your nest egg lasts if you retire in year X, where X is any given start date within that 100-year period. And then after it tries your withdrawal sequence using all the possible retirement dates, you’ll be able to see how often your retirement plan succeeds or fails (meaning you’ll know your probability of success - which you want to be very high). That’s basically **[what Bengen did when he first developed the 4% rule](https://www.forbes.com/advisor/retirement/four-percent-rule-retirement/)**: This is the thing I mentioned above. It is useful in that it forces you to confront the fact that there are no certainties. I’m not sure of the allocation of assets they used. The one my CFP used allowed us to input influxes of cash we expected during the period (from inheritances.) We haven’t taken out anywhere near 4% of our assets per year in the seven years I’ve been retired. We got close to 4% return in dividends, etc., and with Social Security that is plenty to live on. The benefit of taking out the money is having enough to be comfortable while not running out of money, there is no virtue in doing it just to do it. When you have to you can put it in a Roth so it doesn’t really count as a withdrawal. For the example you gave above, I think you could generate $100K of revenue out of a $2.5 million nest egg with no problems, and with Social Security (probably maxed out if you can accumulate that much in savings) you might not need to touch your capital. Especially if you have a paid off mortgage. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 20, 2023, 10:06pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/107 "2023-07-20T22:06:43Z")
> [@Voyager](#): > > We haven’t taken out anywhere near 4% of our assets per year in the seven years I’ve been retired. We got close to 4% return in dividends, etc. I’d consider what’s removed as dividends etc. as included in the taking out. As opposed to reinvesting it. Not so? ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [July 20, 2023, 11:57pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/108 "2023-07-20T23:57:50Z")
> [@Machine\_Elf](#): > > It’s not 4% of the value each year, **[it’s 4% of the value on the day you retire, adjusted by inflation each year thereafter](https://www.kiplinger.com/retirement/retirement-planning/the-4-rule-gets-a-closer-look)** so as to maintain your purchasing power over time: Ah - thanks for the clarification! In terms of cash flow in retirement - I’ve been concerned about that, because “they say” your expenses go down - but ours really won’t, unless we move someplace cheaper (which is actually a plan). We don’t travel all that much, we haven’t worked in an office in 3+ years, we only have one car (2, if you count Dweezil’s vehicle), we don’t spend a lot of money on office clothing (see above)… It’s definitely work comparing what your total SS benefit, plus an estimate of what you’d be taking from the 401k etc, minus a guess about your tax burden (I assumed 25%), to your current take-home pay. You won’t have FICA/Medicare taxes taken out, so that’s a 7.3% bump. Other deductions are largely a wash: you won’t be contributing to a 401(k) any more, Medicare premiums are close enough to health insurance premiums that those are mostly a wash, etc. I am by no means ready to stick a fork in the job (I turn 64 later this year), but the numbers are somewhat reassuring. Honestly, the real question is not so much “how early can I retire”, but “Just tell me when I have to die!”. > [@Voyager](#): > > When you have to you can put it in a Roth so it doesn’t really count as a withdrawal. Only if you have earned income. If you ARE still earning money after you hit the mandatory withdrawal age for a regular IRA (70 and a half?), then yes, you could turn around and dump the unneeded withdrawal into a Roth. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 21, 2023, 7:49am UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/109 "2023-07-21T07:49:50Z")
> [@DSeid](#): > > I’d consider what’s removed as dividends etc. as included in the taking out. As opposed to reinvesting it. Not so? I think the theory here is that your capital base diminishes over time. If you can live on dividends, it stays constant, subject to market fluctuations of course. Reinvesting dividends causes your portfolio to grow. And if you have an aggressive allocation like is best long before retirement, you are never going to get that amount of income from your investments. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 21, 2023, 8:02am UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/110 "2023-07-21T08:02:22Z")
> [@Mama\_Zappa](#): > > Only if you have earned income. > > If you ARE still earning money after you hit the mandatory withdrawal age for a regular IRA (70 and a half?), then yes, you could turn around and dump the unneeded withdrawal into a Roth. IRA withdrawals, which I was talking about, count as earned income and can be transferred into a Roth, assuming you are under the income limits. You have to pay tax on the withdrawal, of course. It is a good way of stashing money from pre-mandatory IRA withdrawals into something I won’t have to pay further taxes on. I’ve already gone past the five year rule for my first deposit. I have to start mandatory withdrawals next year, and most of it is going into my Roth. ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [July 21, 2023, 2:31pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/111 "2023-07-21T14:31:45Z")
> [@Voyager](#): > > IRA withdrawals, which I was talking about, count as earned income and can be transferred into a Roth, assuming you are under the income limits. Huh. I’d never heard of that. Googling it suggests that the IRA withdrawals are not earned income. I HAVE heard of a “Roth conversion” (where you move money from a traditional to a Roth IRA); is what you describe some kind of variant of that scheme? For anyone unfamiliar with conversion: you can take funds from a traditional IRA, and move them to a Roth, though you have to pay taxes on them at the time you do that. Among other things, it’s a way people whose income is too high for Roth contributions to be able to contribute to a Roth. We’ve never bothered, since both our workplaces have Roth options on our 401(k) plans. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 21, 2023, 3:03pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/112 "2023-07-21T15:03:24Z")
> [@Voyager](#): > > I think the theory here is that your capital base diminishes over time. If you can live on dividends, it stays constant, subject to market fluctuations of course. Reinvesting dividends causes your portfolio to grow. The theory as I understand is that my capital base appreciates appreciates some X% on average each year, and/or I earn some (possibly less but less volatile) X% on average by dividends, etc. In each case if I take an average of X% or less out the impact is roughly the same. Other than the likelihood that the X of the stock heavy is both higher as is the volatility around X for it. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 21, 2023, 7:03pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/113 "2023-07-21T19:03:21Z")
> [@Mama\_Zappa](#): > > Huh. I’d never heard of that. Googling it suggests that the IRA withdrawals are not earned income. I HAVE heard of a “Roth conversion” (where you move money from a traditional to a Roth IRA); is what you describe some kind of variant of that scheme? Exactly. The IRA funds are not in the list of excluded unearned income funds from what I saw, so I assumed they counted. But I’ve done the conversion, and there has been no problems. And you do indeed pay tax on the withdrawal. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 21, 2023, 7:10pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/114 "2023-07-21T19:10:52Z")
> [@DSeid](#): > > The theory as I understand is that my capital base appreciates appreciates some X% on average each year, and/or I earn some (possibly less but less volatile) X% on average by dividends, etc. In each case if I take an average of X% or less out the impact is roughly the same. Other than the likelihood that the X of the stock heavy is both higher as is the volatility around X for it. All depends on how you look at it. The advantage of looking at it as dividends is that you don’t have to worry about where the market is when you cash out. And, as I said, dividend heavy stocks are less volatile in general. Disappointing during big run ups, but reassuring during declines. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 21, 2023, 7:20pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/115 "2023-07-21T19:20:47Z")
Yes even by my of thinking, X% total return (appreciation and income production combined) the big advantage of dividends is less volatility of both what the total return is that year and of the principal. One approach I’ve heard for a growth oriented retirement portfolio is to have enough in cash to be able to buffer a downturn for a year or two without having to sell off too much seed corn. Another heard is a modest gold position as it is less correlated with other classes. (ISTM that bond and stocks travel together in recent downturns.) ---
**Author:** ![squeegee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/squeegee/32/14537_2.png) [@squeegee](https://boards.straightdope.com/u/squeegee)\ **Post date:** [July 21, 2023, 7:24pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/116 "2023-07-21T19:24:44Z")
> [@DSeid](#): > > One approach I’ve heard for a growth oriented retirement portfolio is to have enough in cash to be able to buffer a downturn for a year or two without having to sell off too much seed corn. “Cash” is a question begging term. In my diversified portfolio I’ve got $350k in mutual funds earning 5+% that are liquid in one day. That’s still “cash” for my purposes. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [July 21, 2023, 7:25pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/117 "2023-07-21T19:25:59Z")
> [@DSeid](#): > > One approach I’ve heard for a growth oriented retirement portfolio is to have enough in cash to be able to buffer a downturn for a year or two without having to sell off too much seed corn. I have about three years of cash, which is not quite intentional, but when I turned 70 and started taking Social Security my cash requirements from my portfolio went way down. Another way of avoiding sleepless nights. I do wake up in the middle of the night all the time, but that’s my bladder, not the stock market talking. ---
**Author:** ![DSeid](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dseid/32/20194_2.png) [@DSeid](https://boards.straightdope.com/u/DSeid)\ **Post date:** [July 21, 2023, 7:40pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/118 "2023-07-21T19:40:11Z")
> [@squeegee](#): > > “Cash” is a question begging term. In my diversified portfolio I’ve got $350k in mutual funds earning 5+% that are liquid in one day. That’s still “cash” for my purposes. Liquidity is not the only or even main item of concern; correlated volatility in a downturn, or lack thereof is. ---
**Author:** ![squeegee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/squeegee/32/14537_2.png) [@squeegee](https://boards.straightdope.com/u/squeegee)\ **Post date:** [July 21, 2023, 7:44pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/119 "2023-07-21T19:44:47Z")
So you’d keep actual cash “cash”? That’s nuts. There’s lots of places to make at least some money that isn’t that volatile, or that change based on things you can see coming from a mile away, e.g. interest rates. Example: everybody’s favorite this week SWVXX, yielding 4.9% last 7 days. It can never fall to a yield below zero. ---
**Author:** ![hajario](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hajario/32/171_2.png) [@hajario](https://boards.straightdope.com/u/hajario)\ **Post date:** [July 21, 2023, 7:59pm UTC](https://boards.straightdope.com/t/retirement-age-discussion/960519/120 "2023-07-21T19:59:24Z")
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