Secure Your Retirement with this Variable Withdrawal Strategy

Do you like the idea of a portfolio withdrawal strategy that can't run out of money? This walkthrough video is the third part in our Safe Withdrawal Rate (SWR) series, and teaches you how to model a variable withdrawal strategy based on the CAPE ratio. Using this powerful and FREE tool created by Karsten Jeske, you can design a personalized plan that works with your own financial situation. Be sure to see the show notes below to get your free copy, to see the two prior episodes, and for all the links we discuss in the video.

Timestamps:
00:00 Safe Withdrawal Rate series
02:03 Getting started
04:54 How the model works
07:19 Entering the parameters
10:20 Reviewing the results
12:43 Wrapping up

#twosidesoffi #financialindependence #firemovement

@30by40

**Note: This content does not constitute investment advice and is being presented for informational and educational purposes only.

[TwoSidesOfFI]

Are you using or plan to use a fixed or variable withdrawal strategy in retirement? Let us know in the comments below.

[jeske]

Awesome video! Thanks for putting this together. One thought I had since you mentioned the VPW: That rule is indeed a special case of my CAPE-based rule if you set a=4% (or whatever number you want to use) and b=0. This will create a very volatile consumption pattern, essentially as volatile as your portfolio. That's why the CAPE-based rule is much preferred! But again, thanks for this, and keep up the great work!

[davidfolts]

Best of the best financial YouTubers! Thanks!!!

[kristinebradley]

This tool box is so timely for me. I've been working my way through every model tool trying to get comfortable modeling ALL the scenarios if we retire now. Your videos have helped me understand a few of the parts I didn't quite understand, so I really appreciate it. I'm launching my own CAPE based cash flow retirement strategy next month thanks to the SWR Toolbox - Dr. Karsten and your videos.

[rickmc]

Quality intro, topic transitions, and outro music are overlooked by a lot on YouTube. Not you guys. It’s adds a very solid quality increase to your videos for the effort (after you got it set the first few time). I really appreciate the touches you all do to your vids. Well done.

[seanmooney]

Thank you so much for putting this together! The visual walk-through is a great addition to ERNs awesome work. Enjoying the channel very much.

[jeffreylo]

Been using the SWR Toolbox for a while and still learned something new. I was an engineer by trade. While I trust the math, I can't get over withdrawing >4% (in my case 4.89% per the toolbox) during this early part of my RE. In fact, I am withdrawing <3.25%. To me, I am perfectly OK with that if it helps me sleep better at night. Like Karsten said in an earlier video, why withdraw more if you don't need to? Thanks Jason for putting this together.

[frossm]

Thank you for this series. I love learning more about this tool and how you are using it in retirement.

[anilbangia]

While many will wrestle a lot with the idea of withdrawing less than the estimated SWR (which may help them sleep better), it ocurred to me that we also have another key input to tune conservatism in this toolbox. Given that one can set a final target value of the portfolio (e.g. 10% or 25% based on personal tolerance), has anyone though of using this setting to tune your level of comfort with the buffer in SWR estimate. I quite like the simplicity of using a single input to tune the conservatism buffer, which also comes with the ease of interpretation of what it means.

[JohnMcLaughlinPlus]

I've been a fan of VPW due to its simplicity (and I like the idea of a variable withdrawal rate as my natural inclination would be to adjust with market conditions anyway), but I wasn't aware that Karsten had a way to do variable withdraw.

FWIW I set them up with the same data (future income, 'ending' the retirement at 100, $0 future value) and they ended up with a suggested withdrawal within about 0.5% of each other (so pretty good agreement). Surprisingly Karsten was a bit more aggressive than the Boglehead VPW but as I said the differences were small.

Anyway Good stuff and thanks for the video!

[craigmckinlay]

For me having fired at 49 years old it’s a 4% rule but no inflation increase in a year when the markets are down. Hopefully also overlay kitches ratcheting strategy to increase the withdrawal markets if portfolio grows big enough over time. Rob Berger just did a very good YouTube video on this. Having said that currently actually spending about 3.5% because it is naturally my normal spend and don’t feel like forcing myself to spend more for sake of it!

[rwl]

I am planning a variable withdrawal strategy. But in my plan I will withdraw a higher amount of money when I start retire and cut back when the years progress. I observed that people tend to stay more at home and spend less when they got older and more sick. Should I ran out of money when I am 87+ and mentally impaired I don't care anymore 😃

[dumoon]

Really helpful video Jason! Hope to see more on how to get the most out of the SWR tool.

[rickmc]

I really loved this analysis with detailed examples.
I am curious if you both could share your feelings, as I think your feelings around the “math stuff” is a huge part of why this is such an admired FI channel, of how changes in the SWR in a volatile year affects your plans. Maybe it’s doesn’t at say 3 months or even 6 months. But how do you normalize 18-24 months of whipsaws? Especially given your last few years before or first few years after leaving traditional work.
Really great video. Thanks.

[dougb]

I'd like to capture market upside using dynamic SWR. Tradeoff seems to be possibility of lower SWR than fixed SWR during poor return years. I could set lower bound on dynamic SWR to be same as fixed SWR. Also contemplating Kitces' ratcheting SWR, than only ever goes up.

[MicahsJourney...]

Thanks, this 3-video series has been outstanding and I hope you continue it if able. One question: I'm not quite understanding the methodology regarding the fill-color of the cells. Specifically, a few are colored orange, while others are white. Is the intent to only change what's in orange? I'm guessing not because you also change some numbers in white cells further into the video (such as portfolio value if it drops below $3M vs. if it rises over $3M). Can you help explain the color rationale? Thanks Jason

[pareshjoshi]

Jason - can you please share your thoughts on the followings.

1. Cape ratio is based on historical data so how future or forecast is factored in SWR?

2 let us assume SWR for May came $10.000 per month. But due to some emergency one need to spend $15.000. What should be done next? You spend less in coming months than what SWR suggest?

3. Cap ratio is based on S&P 500 so does it ignore mid cap and small cap which has a huge impact on economy. Also what about international?

4 Since cap ratio is based on S&P 500 it will be very volatile month to month so my question is, does it make sense to calculate SWR quarterly instead monthly?

Thanks and I do like detail approach. Looking forward to your thoughts.

Paresh

[richardf]

Thank you for the video. Your explanation is very helpful. Maybe I missed it but how does the cash flow assist impact the withdraw rate? Since we are only looking on the income side and not expense, the other CF should have no impact on the withdraw rate. I entered my state pension & SS payments and I am getting a SWR of 7.5%. However, when I removed them, it drops to 5.05%....

[pvrspvrs]

Good time of day. It's strange, isn't the cape withdrawal rate supposed to change when % Stocks/Bonds is changed on the Parameters & Main Results tab. For example, by changing % Stocks/Bonds from 80/20 to 0/100, the rate remains unchanged. “thanks.

[skpowerz]

Do you ever change the a (intercept) and b (slope)? I've read some of the blogs but I cannot find an explanation what to do with these.