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@David. Thanks for sharing that. I always judge these discussions by observing if the initial discussion of the 4% rule tells the unsuspecting reader the ground rules. That is that the 4% rule is based on a very specific asset allocation and that the equity allocation is higher than many retirees are comfortable with. If that is left unspoken I am gone.
Thank you @davidmoran. A safer withdrawal rate should be less than 4% initially, especially during an off-year like 2022. If inflation remains higher than 2% annually, one needs to increase their stock allocation, say several %.
For those who pay an advisor to manage their money, those advisor's management fees need to be accounted for as well. These fees represent an additional "withdrawal" to your SWR rate.
The two largest fees are your fund's expense ratios (mutual fund or ETF management fee) and your independent advisor's management fees. If you employ a portfolio manager often they will withdraw 1% of your portfolio yearly. That kind of a 1% "drag" on your SWR can reduce a very significant amount of your wealth over long periods of time (30 - 40 years in retirement for example).
To illustrate this, I will use a highly efficient mutual fund (VFINX...low ER) and run a simulation through Portfolio Visualizer. I set the withdrawal rate of 1% over the life of the simulation to see what the impact of just the management fee would be on the portfolio's ending value. I used $1,000 as the starting Portfolio value.
Paying management fees of 1% (withdrawn yearly) on a portfolio starting value of $1K in 1985, this portfolio would have grown to $38K by 2023. The Inflation adjusted value of that $1K in 1985 = $13K in 2023.
Removing the 1% withdrawal the during this same time frame, $1K(1985) grew to $56K (2023), with and adjusted inflation value of $19.5K.
This means that the a retiree, who paid a 1% management fee throughout retirement (1985-2023), had a portfolio that was 33% less than the same retiree who self managed their retirement portfolio.
Another way of looking at this is that your advisor made $18K (the difference between $56K-$38K) advising you over these 38 year. You made $27K. If you need advice...pay for it hourly, not as a percentage under management.
If there is one thing we all can do to improve our success with SWR in retirement it would be to reduce the fees that we pay on both the funds we invest in and advisor fees we pay others.
At one time when working & doing my taxes, advisor fees could be itemized. Thus cutting drag. With 401-k I never paid much attention to drag when account was smart, but as the years went bye & account grew the pain became noticeable !! Enjoy your weekend, Derf
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https://thepoorswiss.com/updated-trinity-study/
updated-trinity-study-for-2020-more-withdrawal-rates/p1
Nice to see further updates. Thanks.
The two largest fees are your fund's expense ratios (mutual fund or ETF management fee) and your independent advisor's management fees. If you employ a portfolio manager often they will withdraw 1% of your portfolio yearly. That kind of a 1% "drag" on your SWR can reduce a very significant amount of your wealth over long periods of time (30 - 40 years in retirement for example).
To illustrate this, I will use a highly efficient mutual fund (VFINX...low ER) and run a simulation through Portfolio Visualizer. I set the withdrawal rate of 1% over the life of the simulation to see what the impact of just the management fee would be on the portfolio's ending value. I used $1,000 as the starting Portfolio value.
https://portfoliovisualizer.com/backtest
Time frame: 1985 - 2023 (38 years)
Paying management fees of 1% (withdrawn yearly) on a portfolio starting value of $1K in 1985, this portfolio would have grown to $38K by 2023. The Inflation adjusted value of that $1K in 1985 = $13K in 2023.
Removing the 1% withdrawal the during this same time frame, $1K(1985) grew to $56K (2023), with and adjusted inflation value of $19.5K.
This means that the a retiree, who paid a 1% management fee throughout retirement (1985-2023), had a portfolio that was 33% less than the same retiree who self managed their retirement portfolio.
Another way of looking at this is that your advisor made $18K (the difference between $56K-$38K) advising you over these 38 year. You made $27K. If you need advice...pay for it hourly, not as a percentage under management.
If there is one thing we all can do to improve our success with SWR in retirement it would be to reduce the fees that we pay on both the funds we invest in and advisor fees we pay others.
Enjoy your weekend, Derf
what is your tax rate? what do you get for it?