Mike, thanks for writing this article. I read it a few days ago but knew I had to revisit and see if I could make sense of it. Here is what I came up with. The cash withdrawal rate is not a return rate. It represents the percentage of the portfolio that was withdrawn for the year. IMO, you should calculate both portfolio return rate AND cash draw rate. I think Frank is emphasizing that in retirement, what matters most is how much money you can safely withdraw to support your lifestyle rather than the investment return. I hope he doesn't believe a 12.34% cash withdrawal rate will last very long. He uses the average value between start and end of year to smooth for portfolio fluctuations. Cash draw % matters a lot in retirement because if your withdrawal rate exceeds your portfolio return you're eating into your principal. Use investment return % when you are determining if an investment strategy is working as you planned. Use cash draw when you need to ensure your withdrawals are sustainable. I think the target of 3%-5% cash draw rate is still considered sustainable. If the market does well and your returns are high you can take a larger cash draw and vice-versa. I've enjoyed your articles. Hope you continue.
Cheers.
Thanks for this article as it caused me to check what rate I was receiving for my Cap1 savings account. I was earning just the 0.3% as well. I incorrectly thought I was getting the 2+% rate. Turns out you have to change account types from 360 to 360 Performance. Cap1 silently started this new account type in 2019. They didn't alert existing customers so we were missing out on the increased interest rates. Why do companies treat their loyal customers so poorly? Anyway, for any Cap1 customers if you are in a older 360 savings account you might want to switch. It is easy to do. Took a few minutes. But come-on Capital One, this leaves a bad taste.
Comments
Mike, thanks for writing this article. I read it a few days ago but knew I had to revisit and see if I could make sense of it. Here is what I came up with. The cash withdrawal rate is not a return rate. It represents the percentage of the portfolio that was withdrawn for the year. IMO, you should calculate both portfolio return rate AND cash draw rate. I think Frank is emphasizing that in retirement, what matters most is how much money you can safely withdraw to support your lifestyle rather than the investment return. I hope he doesn't believe a 12.34% cash withdrawal rate will last very long. He uses the average value between start and end of year to smooth for portfolio fluctuations. Cash draw % matters a lot in retirement because if your withdrawal rate exceeds your portfolio return you're eating into your principal. Use investment return % when you are determining if an investment strategy is working as you planned. Use cash draw when you need to ensure your withdrawals are sustainable. I think the target of 3%-5% cash draw rate is still considered sustainable. If the market does well and your returns are high you can take a larger cash draw and vice-versa. I've enjoyed your articles. Hope you continue. Cheers.
Post: The Draw of Cash
Link to comment from February 2, 2025
Thanks for this article as it caused me to check what rate I was receiving for my Cap1 savings account. I was earning just the 0.3% as well. I incorrectly thought I was getting the 2+% rate. Turns out you have to change account types from 360 to 360 Performance. Cap1 silently started this new account type in 2019. They didn't alert existing customers so we were missing out on the increased interest rates. Why do companies treat their loyal customers so poorly? Anyway, for any Cap1 customers if you are in a older 360 savings account you might want to switch. It is easy to do. Took a few minutes. But come-on Capital One, this leaves a bad taste.
Post: Where’s My Rate Hike?
Link to comment from October 9, 2022