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I had a plan
Old 03-04-2012, 03:43 PM   #1
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I had a plan

Hi, I am 53 and DW is 52. I had an early retirement plan from the beginning of my career. It wasn't a very sophisticated plan, but at least it got us disciplined maxing out 457/401k plans early.

It went something like this. Both spouse and i worked in local government. If we needed 80% of salary in retirement and if we were only currently living on 90% then we would really only need to replace 72% of income. At 50 years old and 25 years in the system we could retire with a pension at 39% with a COLA. That meant I only had to save enough to cover another 33%. If I had a paid off house by then, all would golden.

So we were on autopilot for a number of years, after all it was so far away. We did not budget very tightly because we had paid ourselves first in contributions to retirement. She the spender, me the saver worked quite well in that we did live below our means but would also splurge on nice things once in awhile.

A new job opportunity for DW in the private sector lead to us to relocating to a more expensive coastal community. She traded pension for pay raise and stock options. I changed gear on the paid off house as interest rates declined. We got in early enough to still have equity in the house. But we had crazy equity in 2007, rode the bubble up and down. Rode the stock market up and down a couple of times but kept contributing to our plans. I had always been pretty aggressive 100% stocks because I considered the pension as the safe investment.

It has really only been over the last few years that I have been reading this forum and books to learn more about asset allocation, rebalancing and SWR. I have learned a lot from you all...thanks. Today I am closer to 70/30 allocation and may go 60/40 as I prepare to FIRE.

So as I said, I did not have a great plan, but at least I had a plan . And although a few years late, I plan to fire at the end of the year at 54. We have enough in after tax and 457 that getting to 59 and a half should not be an issue.

I am fortunate to have a pension when combined with DW limited pension should provide for all the basics. We will need to cover healthcare. We will both qualify for SS although WEP will come into play. I am not including SS in my calculations at this time, I need to study the options more carefully.

I have read a lot about SWR. I intuitively like the fixed percent of portfolio with upper and lower limits for my situation. We should be able to adjust for the variable annual payments that this could produce. The tricky part will be to determine what rate and limits i should set. I have read the article on the Vanguard site and although it does provide a lot of info, there are a lot of variables and it is hard for me to see the sweet spot.

So I'm curious to hear thoughts from others. I am thinking 4 1/2 rate and limits at 5 % both upper and lower.

Thanks
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Old 03-04-2012, 05:53 PM   #2
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Hi, Genug, and welcome to the Early Retirement Forum.
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So as I said, I did not have a great plan, but at least I had a plan . And although a few years late, I plan to fire at the end of the year at 54.
Hey, that's great! While 54 may sound late to some folks, it doesn't sound so late to me; I didn't retire until age 61.

I don't know the answer to your question about the right withdrawal rate for you, since these things are so personal. However, there are a lot of extremely interesting articles on withdrawal rates available as links from Bob's Financial Website . So, maybe reading some of those will help you to decide. Personally, my withdrawal rate is anything lower than 3.2%, but then that is unusually low (partly due to longevity in my family). Maybe someone else has more to contribute concerning withdrawal rates.
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Old 03-04-2012, 07:16 PM   #3
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Genug,

Welcome. It sounds like good planning and thinking. I am already retired and my plan is not this good (yet).
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Old 03-04-2012, 07:22 PM   #4
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Welcome to the site Genug. Sounds like you are doing really well.

Have you tried plugging your numbers into retirement calculators such as FIRECalc ?
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Old 03-04-2012, 08:22 PM   #5
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Welcome to the forum. You have done well and it is great to be thinking about ER at your age. Many here think a WR of 4% or less is safer for someone your age. The government SS website has fair coverage of the WEP questions. You will probably need to call and talk to someone to get the specific info pertaining to your situations. After you get that figured out I would suggest running Firecalc and a couple of the other retirement planning tools with the SS numbers included to see if you can make a plan work with a lower WR.
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Old 03-05-2012, 01:20 PM   #6
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Welcome Genug. Looking to be comfortably FI at 54ish and retire if possible. Like you, I've had a plan for a long time but have learned SO much from this site in order to fine tune the plan. Awesome wisdom on this site. Best of luck!
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Old 03-05-2012, 03:55 PM   #7
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Not to pry, but I think for a though full answer, you need to provide some more details. If I understand you post, you have enough with cola pensions and some SS to cover needs. How about wants that will make retirement fun? One way to see some options is to price some annuities. That would give some ballpark numbers. Look at single premium immediate or SPI A ones.
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Old 03-05-2012, 11:06 PM   #8
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Thanks for the welcomes and replies

My basic question has to do with what the trade off is worth by accepting the risk of volatility in annual withdrawal amounts by opting into the fixed rate with upper and lower limits model.

If your nest egg is what funds the majority of retirement, a predictable annual withdrawal that includes adjustments for inflation and has a high probability of lasting 30 or x years is of primary importance. More so than the fact that you may indeed in many scenarios end up with a boatload of money at the end.

If a pension covers the basic needs of food, shelter and health insurance (at a basic won't starve, won't go cold and will be covered) it seems one would have a better tolerance for a variable annual withdrawal amounts for the niceties of life and could better adjust for years of feast or famine without risking total destruction. The upper and lower limits ensure the feast is not too decadent and the famine not quite so severe. I think this flexibility helps reduce the potential for leaving boatload of money while making sure the nest egg is not depleted.

This is kind of an academic question, I will probably calculate a number of scenarios and adjust along the way.
I was just curious if you chose 3.5% or 4% under the traditional SWR if you would think differently if some annual volatility was acceptable.

In any case I am committed to continue to LBYM and enjoy the thoughts and discussions on this board very much
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Old 03-06-2012, 05:43 AM   #9
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Originally Posted by Genug View Post
Thanks for the welcomes and replies

My basic question has to do with what the trade off is worth by accepting the risk of volatility in annual withdrawal amounts by opting into the fixed rate with upper and lower limits model.

If your nest egg is what funds the majority of retirement, a predictable annual withdrawal that includes adjustments for inflation and has a high probability of lasting 30 or x years is of primary importance. More so than the fact that you may indeed in many scenarios end up with a boatload of money at the end.

If a pension covers the basic needs of food, shelter and health insurance (at a basic won't starve, won't go cold and will be covered) it seems one would have a better tolerance for a variable annual withdrawal amounts for the niceties of life and could better adjust for years of feast or famine without risking total destruction. The upper and lower limits ensure the feast is not too decadent and the famine not quite so severe. I think this flexibility helps reduce the potential for leaving boatload of money while making sure the nest egg is not depleted.

This is kind of an academic question, I will probably calculate a number of scenarios and adjust along the way.
I was just curious if you chose 3.5% or 4% under the traditional SWR if you would think differently if some annual volatility was acceptable.

In any case I am committed to continue to LBYM and enjoy the thoughts and discussions on this board very much
Hi Genug, and welcome to the forum. Your question is not at all academic, it is critical to the success of many of us here. Volatility is the greatest threat to portfolio survivability. Selling assets after they have declined in value to fund expenses is what leads to premature portfolio exhaustion. Running out of money and too old to work. Volatility also reduces annualized returns. We deal with that first by allocating assets to reduce volatility. This is why we have part of the portfolio in fixed income. We also carry a large cash reserve outside the portfolio - so we can withstand a major decline for a year or so.

Being able to reduce expenses is another way to approach that, and can be just as effective. If you have an estimated withdrawal rate of 3.5% - 4% and can also reduce your expense substantially in response to poor market returns, your portfolio can sustain you indefinitely. Alan mentioned and linked FIRECalc. It is an excellent tool that lets you simulate these scenarios and measure the impact to you portfolio.
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