The Winter Safe Withdrawal Rate

One of the things on many soon to be retiree’s minds is how much money can I spend in retirement and is it enough?  I’d like to take a diversion to a cattle operation to show how we can think about a similar scenario.

From about November to March most farmers in my area feed hay to their cattle.  The grass has stopped growing and this is how the herd meet’s their protein and energy requirements to make it through sometimes harsh weather.

Many of my neighbors produce their hay from their own hayfields that are reserved only for hay production and aren’t grazed.  Hay can often be bought from farmers with a surplus.

Hay and Tractor with Bale Unroller on the Back

Hay has a fertilizer value beyond just its nutritional density and it can frequently be acquired for the fertilizer value with the sustenance that the cattle get being an added bonus.  Unrolling round bales of hay through the winter grows more grasses and clover come Spring from the additional Nitrogen, Phosphorous, and Potash in the bale and builds organic matter for future water retention, carbon sequestration, and soil structure improvements.

The other role that hay plays on my farm is a safety valve for extreme weather such as a frigid winter or a droughty summer or fall.  Its money in the bank, or barn as the case may be.

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Some purchased hay can be kept in reserve by portioning-out grass to the cattle utilizing portable electric fencing.  In the fescue belt, where we’re located, is an area extending from VA to MO down to AR and back over to SC.  Fescue is extremely cold hardy and is capable of providing higher nutrition than hay in the winter as late as at least February.  Providing the cattle better nutrition when the weather is more extreme and when the soon-to-be mammas are in their last trimester works well for our operation.  Hay can be fed in the early Fall to allow the fescue pastures to continue growing into December.

This strategy, known as stockpiling, allows farmers to extend the grazing season further into winter.

On the farm, we look at our winter feeding program similarly to how financial advisors look at a retirement safe withdrawal rate.  The grass has stopped growing; you no longer have a paycheck. Ben Carlson recently did an article entitled Revisiting The 4% Rule.  Ben ran several calculations showing that retirees didn’t run out of money if they stuck to their budget even if retiring when market conditions were dire.

The 4% Rule is a rule of thumb can be used for retirement forecasting to answer the question of how much money can I take from my portfolio annually and still be okay.  Retirees can and probably should get more formal advice that involves a Monte Carlo simulation to determine if the likelihood of the scenario playing out well is satisfactory.  But, the 4% Rule is a beginning point when adding-up portfolio withdrawals, social security, pensions and any other forms of income along with the expense side of the equation to see if retirement will offer the lifestyle desired.

Through the season we repeatedly take inventory of animals, pasture, weather conditions, and other variables to answer the question:  Do we have enough feed for the winter?  Winter feed is the single biggest expense on an operation like mine.  Do I have enough to retire?

On the farm, a winter budget is prepared that factors in the number and type of animals to feed.  A pasture inventory is completed and the total number of hay bales in the barn is known.  The tonnage of grass in a pasture and how many animal grazing days that will provide can be estimated.  Farmers can also guestimate how many pounds of hay they’ll need to offer for the winter.  Some margin for error is built-in for the unknowns.  Colder or wetter weather means the cattle need more feed to stay warm.  Your portfolio should be similarly constructed for a market downturn.

From Spring through Fall farmers take steps to prepare for winter grazing.  Not overgrazing pasture and weather play a role in this preparation just as retirement savers have to prepare in the decades leading up to their retirement.  When winter comes pasture is portioned (budgeted) out with electric fence.  Similarly, no farmer would let the cattle have free reign in the hay barn.  There would be too much waste!  More than 4% would be withdrawn!  We might deplete our portfolio early!

The hay in the barn is ready should conditions be unfavorable for grazing.  In this way, hay acts like a cash and bonds cushion in your portfolio.  It’s there as portfolio insurance until the skies clear and the environment is more conducive to grazing.


If hay is like bonds allowing you to keep your quality of life in retirement despite the market environment then stockpiled winter grass is the equities that fuel your portfolio’s growth beyond inflation thru decades in retirement.  The cows want grass, but there are a variety of conditions that might make it unavailable akin to a market drawdown.  But, you need to do everything you can to make the conditions suitable for growing grass.  Invest in a broadly diversified low-cost portfolio suitable to your comfort for risk.

When a farmer looks out at the pasture available for winter grazing and the hay in the barn they have a pretty good idea whether they have enough feed to make it through winter.  Through forecasting and budgeting a plan is created.  Do the same as you’re preparing, nearing, and in retirement.  Determine how much you need to save and how much you can spend.  Soon it will be summer again.  Enjoy yourself.  You earned it.


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