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Race For The Ever Lower SWR

There have been debates over how much you can safely withdraw from your investments without causing early depletion. Quite a few seem obsessed with coming up with that one safe withdrawal rate (SWR) which will allow them to keep living off their securities investments in perpetuity.

Is it 4%?




4% is used as a fairly accurate historical number based on a several studies. In an ever-growing pessimism or self-deprecation, many personal finance enthusiasts have brought this number down to as low as 1%. All this, while treasury bonds, one of the safest investments you can ever have, are at around 2.5% (as of 2017).

Setting a percentage on your withdrawal rate is like setting a strict daily calorie intake – impossible. Nobody eats the same calories every day unless you’re a little aspy.

Though there is an average safe calorie that each individual should follow, some days we eat far less and some days far more. Those of us who have figured out the calorie game know that many factors affect our weight, not just calories:

  • stress level
  • activity level
  • the quality of the foods we eat
  • what time in the day we eat
  • sleep routine


You Spend What You Have

I am certain of this, every sane healthcare professional will spend wisely based on current economic circumstances once they will rely purely on their passive income.

How do I know this? Because you became a healthcare professional. You figured out how to make sacrifices and how to ration your time. Therefore, you’ll figure out how to ration your money as well.

If everyone is losing their jobs while we’re fighting a few more countries, and while inflation is through the roof, you won’t upgrade your car that year. You won’t take that vacation to Greece. You won’t even buy a $20-bottle of wine – you’ll live sensibly because that’s what you are.


Maintain Perspective

If your investment portfolio cannot earn more than 1% then the securities market won’t even exist anymore. Investments are investments because they produce a rate of return. No person would take on the risk of Wall Street and get 1% rate of return.

Have you been stashing more and more money into savings accounts? No, because they have been providing abysmal rates.

Banks are different from securities markets. Banks are private entities that can dictate how much they want to pay out their customers. Their irresponsible lending and shady bookkeeping has created a permanent distrust in their practices in the USA.

However, securities markets are made up of businesses that cannot afford to lose the trust of their main financiers – us. Without the consumer being willing to lend money to governments and businesses through bonds or without our investments in their companies, these entities wouldn’t have the capital needed to build $2 billion factories or fund $1 billion worth of a new fleet.


You Have Alternatives – Wall Street Knows That

Investments aren’t just about stocks and bonds. There are also:

  • individual real estate
  • real estate conglomerates
  • private lending
  • private equities
  • local business investing
  • commodities
  • foreign exchange
  • investing in collectibles
  • investing in your earning ability


So What Is Your SWR?

Well, to beat my earlier analogy to death, what’s your daily calorie requirement? It’s unlikely to be a specific number. Your most enlightened answer will be “however much it takes to stay fit and feel healthy”.

Economists have tried to make a science out of the economy but it has far too many moving parts, including granular decisions that nobody can predict as to how they might affect the whole.

Yes, same as in medicine. We think we know why certain things happen and we have convinced the world that we know exactly why certain cancers happen and how to prevent certain diseases. We have even designed medications to combat certain illnesses – those in the know, know that most of it is a bunch of vegan bologna.

The underlying science isn’t false but its ability to predict outcomes or even dictate results is shockingly mismatched.

The improved answer is that “your withdrawal rate will be the most sustainable amount which allows you to enjoy your desired lifestyle as well as maintain the health of your portfolio”.


Why Is There So Much Focus on SWR?

Safe withdrawal rates are a critical concept for the economy as a whole to understand. It’s important for the personal finance professionals such as Andrew Mohrmann, my personal financial adviser, to steer their clients in the right direction.

They have to be able to rely on some concepts and develop the kind of grammar that can make the personal finance language understandable between professional and client.  For that the term SWR is beneficial. And for us physicians an “average daily caloric intake” is the most efficient way to communicate weight control to our patients.  

The welfare of the citizens of a country is highly reliant on each household’s financial literacy. Irresponsible consumer money management isn’t done intentionally, it’s because there isn’t enough foresight and inadequate knowledge. By having a basic understanding of how much passive income our investments can earn, we can make better financial decisions for our futures.

I place more emphasis on withdrawal strategies and could give a fuck about withdrawal rates. The SWR (as the layperson understands the term) can be manipulated depending on the underlying investments, lifestyle, and timing.

I insist on constantly talking about withdrawal methods and passive income sources because if a healthcare professional can realize the potential of their investments then they are more likely to invest. They will also feel more financially secure, more confident, less dependent on their career, and more likely to improve their impact on medicine.


Nothing Is Set In Stone

At any time you can move your investment money from securities to real estate. Or you can park it all in a bond fund. You could move it all into TIPS to simply maintain the value of your investments.

And if you’re in the camp of 1.3% or even 2% SWR then I suggest you move your money into US treasury bonds because you’re obviously doing something wrong. You’ll get 2.4% guaranteed in T-bonds.

What does guaranteed mean? It means that the only way you won’t get 2.4% (as of 2017) is if the US economy completely collapses. Which means there wouldn’t be a functional monetary system. Which would mean the rest of the world would be even worse off.

So this illusive SWR isn’t set in stone and too superficial of a concept to spend time thinking about. Ignore this number when it comes to real-world passive income. Instead, use it to get an idea of what your conservative income could be in retirement.

My investments will produce income through:

  • dividends
  • through appreciation
  • through tax savings
  • leveraging
  • skills acquisition
  • inflation protection
  • risk mitigation

All these factors need to be accounted for when deciding on your actual withdrawal and income from your investments. No single concept such as the SWR will help you with that.

Finally, I worry that the SWR is used by many to keep themselves locked in their current situation and therefore feel stuck because they haven’t “hit that number” yet.

I would advise a friend to not wait until their current expenses are fully accounted for by their idea of a SWR before feeling financially independent and secure to live the life they want.



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