Any worries
I’m slightly worried about sequence risk if the market crashes / drops heavily in the first years of retirement. If I continue to draw out my SWR even then I might destroy to much of my wealth longterm. In this case I’d cut down on my spending.
What’s the goal
Goal: never run out of money until my death, wealth can be 0 by then. No plan on having any income apart from the generated one from my NW.
How many years must it last
About 50 years based on current life expectancy.
Plan to retire in 25 years when I’m 55 with ~3million in assets. Will use 4% assuming AHV kicks in ~10 years later which will reduce my withdrawal rate down to somewhere around 3.0-3.3%. I’m pretty sure I won’t run out of money before my death.
I’m computing my retirement plan with AHV, second pillar and 3rd pillar kicking in when they do. In this computation, I’m using a 3% “permanent” SWR for my invested assets.
On a more broad basis, I’m using Pi as a SWR on my whole net worth, because it’s fun, lower than 3.5% and reminds me that no matter how many studies we have done on the past, this value is still arbitrary when it comes to assessing what the future holds.
I don’t put too much weight in the SWR, all in all, partly because I’m still quite far away from reaching FIRE and partly because I figure the skills I’m building should help me to make some money if stocks drop significantly in the first years of my retirement.
I’m targeting ca. 5% otherwise - with 2 kind and nearly a single income - I’d never be able to retire before official pension age… my goal is approx. 53-54 so 10 years before AVS & pillars kick in. Ready to reduce our spending if market tanks immediately after retirement date.
I start by the end and deduct my planned AHV pension from my planned expenses. The difference must be covered with a 3% SWR.
I’m checking if it’s covered by my planned 2nd pillar and/or third pillar when I get there (with a 3% SWR). If I have more 2nd/3rd pillar than required for that, the rest can be retrieved earlier (at age 61) and fully depleted until I get to the time when my AHV + other assets will become sustainable.
My taxable account could be used to contribute to those final 3% if necessary, otherwise, it can be fully depleted by the time I get my AHV pension so, yes, I’m using a way more than 3% rate for that part.
For day to day tracking, I don’t do that and just apply the 3.14% rate on my whole assets to keep me motivated to go forward as long as I’m still pretty far away from my target.
As an example, with CHF 50K of yearly expenses, I’d need 1.6M at 3.14% SWR.
If I were to retire at the end of my 35th year with 30,000 in my 2nd pillar and 3,000 in my 3a, assuming a 4% p.a. growth, I’d need 1.5M (of which, 1.45M in taxable).
My spreadsheet is a bit confusing, I’ll see if I can make it more readable and post a link to it (probably not this week-end).
Have you calculated the amount you have to pay from your wealth to the first pillar if you don‘t work anymore and how this affects the 1st pillar pension?
Hi,
I am targetting 50kchf gross with 3,5%.
The more I progress and learn the more I get conservative.
I like this podcast of Ben Felix on the topic.
He highlighted a Standford paper titled The 4% Rule—At What Price? indicate that you 4% rule need a serious update especially if you plan to follow it more than 35 years.
You may want to adjust your spending like Vanguard paper explained that during crisis to consume less like 2,5% of your portfolio. The flexibility to reduce annual withdrawals by just 5% can have a profound effect on a portfolio.
They also mentionned eliminating debt which mean you home mortgage must be paid and your Home value not included in the Total Net Worth.
I think the last approach may be the best while keeping a low activity or part time in an area/company/association you love to get some freedom and remove the stress of keeping an high pay stressfull job with a more flexible/balance lifestyle.
Could it be part of your options ? What could be your dream activity once retired ?
Climbing or sailing coach ?
Professional fisherman ?
Youtube travellers / Travel influencer ?
I don‘t mind my job but if given the option I‘d rather travel fulltime forever. There is so much to see in this world. I plan to travel fulltime latest in my mid 40s until I‘m no longer physically able to enjoy it (but then I could just stay longer in one place and change what I do as leisure)
AHV plays a big role IMO. Lets assume everything stays the same. We are talking about 28k/year of income per year, for the rest of your life. That’s worth at least 700k if not much more.
Someone with a 4%/100k withdrawal rate out of 2.5 million get’s down to 2.88%/year with AHV. So this should last for another 50-60 years and thus making sure that you will never run out of money.
Depends on how many years you have contributed and how much. I‘ll have contributed for 20-23 years when I retire. Based on that and my actual paid amount to AHV (and if I avoid paying in anymore based on wealth by not living here) I‘d get 821.-/monthly, which is low and be about 1/5th of my monthly budget.
Indeed. As @MUFC_OK says, it depends how long you contribute. Currently I plan to keep my bases in CH and contribute after RE → my planned spending keeps this expense into account.
I use this calculator, which I find quite easy use, to simulate my situation taking into account the upcoming payments (2nd and 3rd pillar as lumps sums and AHV as monthly payment). Quite straightforward to adjust params and see how thing change and the impact of the different factors.
I’m using 3% just to be on the safe side and not to get too excited, I don’t plan anyway to completely stop working, I’m thinking of switching to a part-time job in few years so the exact SWR is not very important for me.
AHV and 2nd pillar are so far away that the rules of the game can change completely, it’s really difficult to estimate which impact they’ll have on my retirement few decades from now.
I plan without AHV. Demographically, the system is not sustainable as it is right now. A reform is badly needed, who knows how much money we’ll get by the time we qualify (>20 years for me).
I highly doubt something like that is going to happen. What is most likely to happen is that the retirement age is raised to life expectancy like in several other European countries. So, it would be prudent to not rely on it till 68-70.
What I (we?) really need is a good AHV calculator. If I use the official website I have to fill each year to simulate what would happen if I stop right now etc. I am not even sure what should it be the correct amount to put in once I stop working. That will help knowing exactly the amount of ahv.
In Switzerland, if you run out of money, the Government will pay you a “minimum existence” (different for everyone) amount per month. I know a few people who have this as their strategy.
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