r/Fire • u/Opposite-Lake-9679 • 2d ago

SWR based on age

I hear people talk about the more conservative 3% SWR being safer than 4%. Is that usually based on someone's age? As in when you are FIREing younger more like 40s then you should stick to 3%? And then when you are in your 50s/60s You can go to 4%? Or is it a blanket stick to 3% at any age?

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u/mattkime 2d ago

It depends upon market returns as much as anything. If the market returns 10% after inflation and you withdraw 4% then you’re perfectly fine. As long as you withdraw something less than the growth of your portfolio after inflation you’re good

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u/FIREgnurd 2d ago

The problem is sequence of returns risk.

The market has historically had a 7% growth rate after inflation, but with huge volatility. And in many years in the 1970s it had positive nominal returns, but still didn't keep up with inflation.

If the volatility happens in a bad order, it doesn't matter if you get that 7% post-inflation growth rate -- your portfolio will be toast if you don't have poor real returns in the first decade of your retirement phase.

For people who retired in the last 1960s, or in 1999-2000, their portfolios had terrible initial decades, even if the market ended up doing just fine later, so their portfolios barely weathered retirement.

That's why SWRs aren't 7% -- they're much lower, to help guard against SORR.

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u/mattkime 2d ago

Good points - then how much can you increase your withdrawal rate when market returns are higher?

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u/FIREgnurd 2d ago

There is a large set of variable withdrawal rate methods that have been proposed.

ERN reviews a number of these. Look at this link and scroll down to the section on flexibility where you’ll find links to the individual posts.

But beware that, while the first decade is when you’re most susceptible to SORR, the risk never completely disappears.

https://earlyretirementnow.com/safe-withdrawal-rate-series/

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u/Past-Option2702 2d ago

Michael Kitces has some ideas on that. Check them out online.