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3 Years to go and questioning the 3.5% WR
Old 08-02-2019, 10:24 AM   #1
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3 Years to go and questioning the 3.5% WR

Been following the group now for a couple of years. I know most here subscribe to <3.5% WR for FIRE. I know the variables are many -Age, Investments (Tax Deferred and Taxable), Annual Expenses, Location of retirement (HCOL/ LCOL) and many more I'm not including.

When I look at my own plan and discuss with my FP I seem to be on track including running the figures thru FIRECALC. But I get more nervous when I plug in 3.0% or less. QUESTION: Is this assuming that when my DW and I are gone my kids will have all the principal?

My Plan -love some feedback here:

I'm 56 and plan to launch at 59-60 (depending on macro economy at the time). My families average lifespan for my descendent males is around 76 years old. Women in my family do much better If I retire at 60 and with the advancements in medicine, I could see maybe 20 high to moderate active good years followed by 5-8 years of possible frailty/ needing care. So, my timeframe is 27 years that I am using and this in turn increases my annual WR from 3.5% to 4.25%.

Today I have 1.1M Retirement Accounts (mostly Roths/ 401-K's) and 1.4M Taxable. Adding approx 100k per year to savings until I retire in 3 years.

800k home will be paid for by end of 2020 and no debt. Expecting 40k per year from SS including DW's piece.

Projected annual spend (once the kids are out of college and off the payroll) will be approx 130-140k after tax. Side gigs until we turn 67 (wife's a PRN nurse) will account for 15-20k per year in retirement. I will adjust WR based on returns. If there's a bad year in returns I'll drop WR by 10% and cut back on expenses somewhere (no vacations etc). I actually follow the idea to give to my kids (houses, babies, college for the gk) while I'm still around vs. leaving a bucket of cash when I'm gone.

Goal would be to leave this place with no debt and nothing on the balance sheet but lots of fantastic memories, lots of grace and lived a generous life.

Any thoughts?
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Old 08-02-2019, 10:57 AM   #2
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If you've been reading here for awhile, you'll know that lots of folks pull the trigger with much less than you have.

I'm not quite sure what you're asking in your QUESTION. No matter the calculator you use, if there is residual principal when you and spouse are both gone, it goes to your estate. It's up to you to decide who gets it - your kids, charities, other family members, etc. That's why having your legal documents in order is so important.

Also not sure why 3.0% makes you more nervous than 3.5% - nervous that you won't have enough to live on?

Many here find there are plenty of ways to reduce spending after retirement if that's what you need to do, and also plenty of ways to "blow that dough" if you've got more than you need.

Good luck with your decision making!
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Old 08-02-2019, 11:18 AM   #3
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Quote:
Originally Posted by Cincyguy63 View Post
.... But I get more nervous when I plug in 3.0% or less. QUESTION: Is this assuming that when my DW and I are gone my kids will have all the principal? ....

.....So, my timeframe is 27 years that I am using and this in turn increases my annual WR from 3.5% to 4.25%....
When the second of you dies whatever is left goes to your heirs... except for life contingent payout annuities (they stop).

Can you elaborate on where you are plugging in 3.0% or 3.5% and also how your WR changes from 3.5% to 4.25%?

That said, I think you will be fine and might even be able to prudently earlier than age 60.
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Old 08-02-2019, 11:29 AM   #4
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I think that I think that I know what you want

I don't understand what your question is. Perhaps you could restate it?

Here's what I think you are hoping. You have a goal of spending down your estate during your lifetime, and want to target a WR which will accomplish that. You indicate that the WR won't be a fixed "direction" as much as it will be a "steering wheel".

You'll embark on your journey with about 3M, and a variable spend rate that should burn it to about zero at about the end of your life expectancy.

If I have stated it accurately, it sounds like your plan is as good as any could be, since there will be significant factors which can't be known in advance, such as your and DW's lifespans, market returns, inflation, black swan events, etc.

If I haven't grasped what you're saying, please clarify.
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Old 08-02-2019, 11:50 AM   #5
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Projected annual spend (once the kids are out of college and off the payroll) will be approx 130-140k after tax.
With no mortgage and just two of you, there is probably much optional spending in that amount. If so, even if the future is worse than the worst of the past and a 4% withdrawal ratio becomes unsafe, it is highly likely you will be able to trim some optional spending without much pain.
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Old 08-02-2019, 11:50 AM   #6
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The WR of less than 3.5% is something I've seen quoted frequently here and other places. I use it in the simplest of terms ie if I amass a cash generating machine using my investment nest egg of say$3M (not including house, emergency cash etc) a 3.0% withdrawal nets me 90k + 20k (side gigs) gross per year. That's below what my planned net annual expenses would look like in retirement so that would mean a material change in lifestyle. But if I keep exposure to the markets of something within reason, I assume returns should be 4-5%+ or - per year supporting a 4% WR. The fear would be I am sacrificing my golden years for the sake of leaving behind a much larger inheritance than I would want.

I do have an estate plan in place that would move our wealth into a trust for my kids.
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Old 08-02-2019, 11:52 AM   #7
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Originally Posted by Mdlerth View Post
I don't understand what your question is. Perhaps you could restate it?

Here's what I think you are hoping. You have a goal of spending down your estate during your lifetime, and want to target a WR which will accomplish that. You indicate that the WR won't be a fixed "direction" as much as it will be a "steering wheel".

You'll embark on your journey with about 3M, and a variable spend rate that should burn it to about zero at about the end of your life expectancy.

If I have stated it accurately, it sounds like your plan is as good as any could be, since there will be significant factors which can't be known in advance, such as your and DW's lifespans, market returns, inflation, black swan events, etc.

If I haven't grasped what you're saying, please clarify.

You are 100% spot on....
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Old 08-02-2019, 12:27 PM   #8
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Originally Posted by Cincyguy63 View Post
The WR of less than 3.5% is something I've seen quoted frequently here and other places. I use it in the simplest of terms ie if I amass a cash generating machine using my investment nest egg of say$3M (not including house, emergency cash etc) a 3.0% withdrawal nets me 90k + 20k (side gigs) gross per year. That's below what my planned net annual expenses would look like in retirement so that would mean a material change in lifestyle. But if I keep exposure to the markets of something within reason, I assume returns should be 4-5%+ or - per year supporting a 4% WR. The fear would be I am sacrificing my golden years for the sake of leaving behind a much larger inheritance than I would want.

I do have an estate plan in place that would move our wealth into a trust for my kids.
One way to deal with this unknown from year to year is to start off each year with three plans. Option #1, low ball, no travel, cook at home. Option #2, some travel, a few meals out, etc... Option #3, Business class overseas, etc..., New car, eat out lots, upgrade house furnishings. You could excute those options depending on end of year Net Worth or some other metric. Good luck.
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Old 08-02-2019, 12:55 PM   #9
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Originally Posted by Bigdawg View Post
One way to deal with this unknown from year to year is to start off each year with three plans. Option #1, low ball, no travel, cook at home. Option #2, some travel, a few meals out, etc... Option #3, Business class overseas, etc..., New car, eat out lots, upgrade house furnishings. You could excute those options depending on end of year Net Worth or some other metric. Good luck.
Love the idea of a High/ Med/ Low range...Thank you!
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Old 08-02-2019, 01:01 PM   #10
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Originally Posted by Cincyguy63 View Post
Today I have 1.1M Retirement Accounts (mostly Roths/ 401-K's) and 1.4M Taxable. Adding approx 100k per year to savings until I retire in 3 years....Expecting 40k per year from SS including DW's piece.

Projected annual spend (once the kids are out of college and off the payroll) will be approx 130-140k after tax. Side gigs until we turn 67 (wife's a PRN nurse) will account for 15-20k per year in retirement. I will adjust WR based on returns. If there's a bad year in returns I'll drop WR by 10% and cut back on expenses somewhere (no vacations etc). I actually follow the idea to give to my kids (houses, babies, college for the gk) while I'm still around vs. leaving a bucket of cash when I'm gone.
When do you start taking the SS? If at age 62, then your WD rate only needs to be around $160 (grossed up for taxes) -$40K SS -$15 nursing)= $105K, or 4.2%. Since you're willing to cut spending by 10% in down times, I don't see any problems with your plan, especially if you do add several hundred thousand to the pot.
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Old 08-02-2019, 01:03 PM   #11
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When do you start taking the SS? If at age 62, then your WD rate only needs to be around $160 (grossed up for taxes) -$40K SS -$15 nursing)= $105K, or 4.2%. Since you're willing to cut spending by 10% in down times, I don't see any problems with your plan, especially if you do add several hundred thousand to the pot.
Hello HNL Bill - Plan would have me and DW taking SS at full rate at 66.2 years old. We would have a couple of side gigs during that bridge time... Expecting no less than 20k per year.
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Old 08-02-2019, 01:05 PM   #12
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Any plans to move to a LCOL/MCOL area to take advantage of the 800k home equity?
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Old 08-02-2019, 02:16 PM   #13
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Quote:
Originally Posted by Cincyguy63 View Post
The WR of less than 3.5% is something I've seen quoted frequently here and other places. I use it in the simplest of terms ie if I amass a cash generating machine using my investment nest egg of say$3M (not including house, emergency cash etc) a 3.0% withdrawal nets me 90k + 20k (side gigs) gross per year. That's below what my planned net annual expenses would look like in retirement so that would mean a material change in lifestyle. But if I keep exposure to the markets of something within reason, I assume returns should be 4-5%+ or - per year supporting a 4% WR. The fear would be I am sacrificing my golden years for the sake of leaving behind a much larger inheritance than I would want.

I do have an estate plan in place that would move our wealth into a trust for my kids.
To begin with, less than 3.5% is pretty close to bulletproof... I recall reading that 4% is really 4.5% so 3.5% gives you lots of leeway.

If you retire at 59 and the $40k of SS is at 66 then you would have 7 years before SS... or $280k at $40k a year. You'll have $2.7m at retirement. Subtract a side fund of $280k to replace SS for 59-66 and that leaves you $2,420k.

If you spend $135k and have $40k covered by SS (or the side fund) then your gap is $95k which is a 3.9% WR.... sufficient IMO since it ignores the side gig money... (probably more like 3.8% with the side gig money included). FIRECalc shows 96.6% success in that scenario with no side gig money... and 99.2% if you can limit spending to $132,970 (check out the Investigate tab).

And working until 60 bumps the 96.6% success rate up to 100% at $135k spending.

If you have some flexibility in the $135k spending number I think you are good to go at 59 if you prefer... or perhaps even earlier.
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