@cstone @debrazebra, One thing I'm confused about is what is the purpose/use of the withdrawal rate. The answer of what formula is best depends entirely on the context of how the answer will be used.
My primary purpose for tracking the wd rate is thinking about how quickly I am "drawing down" the portfolio. That's why for me, after all inflows from outside the system have been accounted for, I'm interested in how much comes out of the whole in relation to how much I started with.
At other times I'm interested in other notions of withdrawal: e.g. the yearly result of a particular withdrawal method /total portfolio.
Debra (and others) what is your purposes/uses for knowing the "withdrawal rate" of your portfolio? What prompted your original request?
For me it is very very simple. Having decided how much I need/want to withdraw from my portfolio, I would like to know what percentage that amount is of my total portfolio, year by year. It is interesting to see how a successful Pralana plan withdrawal rate stacks up against the oft-recommended 4%, and also how those number would change if I changed other things, like projected rates of return, expenses, or whatever.
For all the discussion this has generated, if this were an Excel spreadsheet I would have dropped in a column for what I want and called it a day. To be fair, I never thought about 529's, payroll taxes, or the other things mentioned above by @cstone. Please please please, just a simple column, at least for me.
For me it is very very simple. Having decided how much I need/want to withdraw from my portfolio, I would like to know what percentage that amount is of my total portfolio, year by year. It is interesting to see how a successful Pralana plan withdrawal rate stacks up against the oft-recommended 4%, and also how those number would change if I changed other things, like projected rates of return, expenses, or whatever.@cstone @debrazebra, One thing I'm confused about is what is the purpose/use of the withdrawal rate. The answer of what formula is best depends entirely on the context of how the answer will be used.
My primary purpose for tracking the wd rate is thinking about how quickly I am "drawing down" the portfolio. That's why for me, after all inflows from outside the system have been accounted for, I'm interested in how much comes out of the whole in relation to how much I started with.
At other times I'm interested in other notions of withdrawal: e.g. the yearly result of a particular withdrawal method /total portfolio.
Debra (and others) what is your purposes/uses for knowing the "withdrawal rate" of your portfolio? What prompted your original request?
A note of caution with SWR withdrawal methods. The SWR (including Bengen's version) is taken once at the beginning of retirement and then kept the same in real $ terms for the rest of retirement. So if you have a 1,000,000 portfolio the year your retire and you use 4% (25k), your withdrawal rate (in terms of 25k/portfolio value today's dollars) will vary as your portfolio goes up and down. It's not the same as, e.g., taking out 4% of your portfolio each year.
I have two main reasons i want to know a withdrawal rate, first to track how much my portfolio as a whole is going up or down (closer to Cstone's simpler formula); but then I also sometimes want to know what a particular withdrawal method generates to withdraw (independent of income or expenses) each year. These two are usually not the same sense of withdrawal, as the second is independent of expenses and income, whereas the first is holistic taking everything into account. I think this second sense is closer to what you're wanting: in your example of Bengen's method, you'd be interested in what does that 25k/total portfolio amount to each year (regardless of whether ss kicked in or you had a huge expense).
@debrazebra: "option 2 fits the bill perfectly"
@jkandell:"Total taken out of portfolio this year/ total portfolio at the end of last year"
In tonight's release, option 2 (using 'Total taken out of portfolio') will be implemented.
The Cash Flow > Withdrawals > Withdrawal Rate section will have the columns below.
- (a) Year-over-Year change in portfolio ending value
- (b) Growth this year
- (c) Net Deposits/Withdrawals this year = (a) minus (b)
- (d) Prior Year-End Portfolio Value
- (e) Overall Withdrawal Rate = - (c) / (d)
This is simple for everyone to understand without getting into the many ways the portfolio value can change other than growth and total income - total expenses.
One might argue that inherited amounts should be excluded. Maybe, but they are a special case of Windfalls which are not excluded.
It will be a far larger effort to revise Pralana's spending strategies to use withdrawal rate instead of spending rate, per the Feature Voting item. (For this, I might want to exclude inheritances.)
@debrazebra: "option 2 fits the bill perfectly"
@jkandell:"Total taken out of portfolio this year/ total portfolio at the end of last year"
In tonight's release, option 2 (using 'Total taken out of portfolio') will be implemented.
The Cash Flow > Withdrawals > Withdrawal Rate section will have the columns below.
- (a) Year-over-Year change in portfolio ending value
- (b) Growth this year
- (c) Net Deposits/Withdrawals this year = (a) minus (b)
- (d) Prior Year-End Portfolio Value
- (e) Overall Withdrawal Rate = - (c) / (d)
This is simple for everyone to understand without getting into the many ways the portfolio value can change other than growth and total income - total expenses.
One might argue that inherited amounts should be excluded. Maybe, but they are a special case of Windfalls which are not excluded.
It will be a far larger effort to revise Pralana's spending strategies to use withdrawal rate instead of spending rate, per the Feature Voting item. (For this, I might want to exclude inheritances.)
Just now had a chance to look at it. This is exactly what I was hoping for. Thank you so much. It is another way for me to see that my plan is successful. I especially like that I see what my withdrawal rate is in the years I plan to buy a car. Obviously a jump but not horrendous. I really appreciate this.
It will be a far larger effort to revise Pralana's spending strategies to use withdrawal rate instead of spending rate, per the Feature Voting item. (For this, I might want to exclude inheritances.)
Are we sure that withdrawal rate is needed on the spending strategy pages? As of the latest update, we have the overall withdrawal rate now on the Withdrawal page--which can be examined after setting any of the withdrawal methods. With regard to additional listed info for each spending strategy, might the most relevant figure be the amount of spending generated by that method?
