December Safe Withdrawal Rate – 104.5%

My December 2012 safe withdrawal rate was 104.5%. That is obviously not a safe withdrawal rate at all and is quite a bit worse than my SWR in November of 86.22%. There were two reasons for SWR being much worse for December.

The first reason is that my expenses in December were too high at $1580.99 for the month. In order to reduce my SWR I need to reduce my living expenses. The way I am determining my SWR is by tracking my trailing 12 months expenses divided by the amount of my investments. Since I don’t think the preceding 12 months accurately reflect my expenses going forward I am just using November and December’s expenses to determine my average monthly expenses for now. With only two months making the average, one bad month throws off the average quite a bit. January should be a low expense month and skew the average downward.

The other reason my SWR is worse is because I saved very little money in December. I managed to put $65 into my IRA. In order to reduce my SWR I need to increase the amount I put in my investments. Starting this month I have a goal of saving 50% of my income. It looks like I will achieve that goal this month and that will help lower my SWR.

The common rule is that you need to get your safe withdrawal rate down to 4% in order to be able to safely retire. I am setting that as my goal. I have a long way to go, but starting this month I expect to see significant progress in reducing my safe withdrawal rate.

4 thoughts on “December Safe Withdrawal Rate – 104.5%”

  1. 4%? I like to have very specific goals to work toward retirement savings and 4% is a very specific number.

    Is 4% only part of the principle or is 4% the projected interest on savings with a chance at dipping in to the principle?

    This is the first time I have heard of the rule of 4% and my first time here. I found you on WiseBread.

    • The 4% figure could include a return of principal. The idea is that if you take out 4% of your portfolio every year it should have large enough returns that you don’t go broke.

      I plan to get most of my income from dividends and hopefully won’t have to dip into principal. The 4% figure is just a target.

  2. 4% is the classic withdrawal rate to preserve capital during retirement. In good years for investments, it’s conservative, in bad years it’s excessive. On the average, experts advise 4% as a reasonable withdrawal rate. If you can find a selection of investments that consistently return better than 4% your principle will last forever!


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