"2.5% is all I need to live on"

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utrecht

Thinks s/he gets paid by the post
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Nov 25, 2006
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I just read a thread where a poster said something to the effect of "our pension meets most of our needs so we will only have a withdraw rate of 2.5% from our IRA".

Not to pick on him, as its his money to do with what he pleases, but Im just wondering why people think this way. Im dead center of the LBYM crowd and my savings rate during this accumulation phase is VERY large. It boggles my mind how much my wife and I are saving (while still not feeling like we are sacrificing much)....BUT...the whole point of this for me is to live much more comfortably in retirement.

I have a pension also, and if I retired in my current house, I could live with a zero % withdrawal rate and maintain my current lifestyle in retirement, but why would I want to do that? Initially , the whole point of saving was to make sure I could retire without having to eat dogfood. At this point, I want to live the best retirement possible. I want to move to a nicer more expensive area, travel extensively, have nicer cars, get a boat...ect..

I want to withdraw the maximum amount possible (as per firecalc) and let that determine my standard of living which will be extravagant compared to how we live now as oppossed to continuing to live like we do now and letting my assets grow to millions and millions for someone else to enjoy.

Sure I want to leave money for my son, but assumming that FireCalc is correct and withdrawing 4% will allow you to never run out of money, there will be plenty left for inheritance anyway.

As I said, I live well below my means now so I understand that mindset but I dont understand why people want to continue to do it after retirement.

Thoughts?
 
I agree with you about living large in retirement. But how can you determine that person is or isn't living it up in retirement?

Maybe their pension is 50k and 2.5% of their IRA is 75k.
 
I agree with you 100%. My intention is to live more richly in retirement, partly because I will have more free time to travel and enjoy life without work getting in the way. I imagine money will go a lot quicker without a job sucking up all of my time :)

Perhaps there are other rewards for living on less. When something doesn't make sense financially, many times there are psychological rewards, or other intangibles. If the whole point is peace of mind and living on 2.5% gives someone more than living on 3.5-4%, then to them it makes sense. I don't get it myself though :)
 
I guess we won't extend the argument to ask why you aren't living larger now instead of waiting later when you retire.
 
I respect everyone to be able to decide what their own comfort level is. After years of LBYM and 6.75 months of retirement, I have been watching my DW. We are comfortably traveling right now, but she still has a hard sometimes 'treating' herself. It took a while for us to accumulate this nest egg and while I am in a hurry for some things, I am in no particular hurry to blow the whole wad. But for every time my DW balks at 'an extra', I sneak in a nice meal or side trip somewhere.

I suspect that with a pension and a dinosaur size nestegg, one could take less at the beginning and ease into the yacht and lear jet. :rolleyes:

...but I did celebrate my event with a bottle of dom ... and DW got me 2 bottles of Remy XO Grand Cru ... the only problem is you start to get used to that stuff ... :D
 
utrecht said:
I just read a thread where a poster said something to the effect of "our pension meets most of our needs so we will only have a withdraw rate of 2.5% from our IRA".

Not to pick on him, as its his money to do with what he pleases, but Im just wondering why people think this way. Im dead center of the LBYM crowd and my savings rate during this accumulation phase is VERY large. It boggles my mind how much my wife and I are saving (while still not feeling like we are sacrificing much)....BUT...the whole point of this for me is to live much more comfortably in retirement.

I have a pension also, and if I retired in my current house, I could live with a zero % withdrawal rate and maintain my current lifestyle in retirement, but why would I want to do that? Initially , the whole point of saving was to make sure I could retire without having to eat dogfood. At this point, I want to live the best retirement possible. I want to move to a nicer more expensive area, travel extensively, have nicer cars, get a boat...ect..

I want to withdraw the maximum amount possible (as per firecalc) and let that determine my standard of living which will be extravagant compared to how we live now as oppossed to continuing to live like we do now and letting my assets grow to millions and millions for someone else to enjoy.

Sure I want to leave money for my son, but assumming that FireCalc is correct and withdrawing 4% will allow you to never run out of money, there will be plenty left for inheritance anyway.

As I said, I live well below my means now so I understand that mindset but I dont understand why people want to continue to do it after retirement.

Thoughts?
Click to expand...

Very thought provoking question. I think I my thoughts have been similar to those you describe. Due to a windfall that I did not expect and have not been counting on, it looks like I will be able to spend about 2-4 times as much in retirement as I have been spending in recent years. So, my withdrawal rate will probably be low?

Part of the disconnect is that I have never lived on that much. I am having a hard time imagining that I would want to spend that much time shopping when I could be doing more meaningful things. I have no desire to travel, and I do not want a McMansion because I live alone. Most expensive cars like Jaguars and such have terrible reliability ratings. My ex and I had a boat and I am familiar with what that entails, and don't want one.

What I would really like is to spend my final years in a top quality continuous care facility like my mother did. We never had to worry about her being abused or mistreated when she was old and helpless. I think that is wonderful. She had wonderful, healthy food available, beautiful surroundings, concerts and lectures, an exercise facility with a trainer who was used to dealing with the elderly in wheelchairs and so on, access to helpers who would do her shopping for her, dress her, and so on, and a skilled nursing floor when she needed that (and another Alzheimers' floor though she never needed that one). Such continuous care facilities are going to cost an arm and a leg by the time we boomers get really old. So, why not let some money grow in preparation for that, and if I don't live that long then the money will go to my daughter.
 
LOL! said:
I guess we won't extend the argument to ask why you aren't living larger now instead of waiting later when you retire.
Click to expand...

I think thats obvious isnt it?

I have XXXX amount of money coming in right now. But I have to work to get that amount and I need to save for the future.

Retirement is different. I dont need to save for the future because I have enough money and 45 withdrawal will never run out. Why not spend my full 4% even though its much more than im used to spending?

If you want to compare that to now, you would have to make give me a job I loved, make it a job that I would always love and pay me an amount of money that would always stay constant (with raises for inflation) and guarantee me that the money would never stop. Then I could spend it all and not worry about saving.

So if I was a pro baseball player
loved playing baseball and would always love playing baseball until I died
and was guaranteed to be paid xxxx amount for eternity (plus cost of living raises)

then I would live large now and not have to worry about the future. Until that happens, I need to save for retirement.
 
JohnDoe said:
I agree with you about living large in retirement. But how can you determine that person is or isn't living it up in retirement?

Maybe their pension is 50k and 2.5% of their IRA is 75k.
Click to expand...

So? Thats $125K which may be much more than they are used to living on, but why not make it $50K pension and $120K from IRA (4%) for a total of $170K. The money wont run out and you will still leave millions to your hiers.

I do agree that it will probably be hard for me to flip a switch from saver to spender, but im going to do my damndest.
 
LOL! said:
I guess we won't extend the argument to ask why you aren't living larger now instead of waiting later when you retire.
Click to expand...

As has already been discussed, reasons vary. For me, I do not have time to enjoy spending money. What is the point of having a bunch of toys I cannot enjoy? The reason that today is my last day at work is not because I hate my job. It is the best place I have every worked, and I am treated like a king (I guess in a sense I am one of the kings there). I am quiting because I have no free time. By saving while we worked, we are now able to start our own business (i.e. because I do not need to work, there is no risk for me in starting my business). Hopefully we will make 50-75% of what we made before, and gain 50 hours/week of time. If we don't we will gain even more free time. Win-Win.

Anyway, that is why I do not spend now, but intend to spend in the future.
 
Last edited:
Culture said:
As has already been discussed, reasons vary. For me, I do not have time to enjoy spending money. What is the point of having a bunch of toys I cannot enjoy?
Click to expand...

There have already been some good answers that I am in agreement with, especially the one quoted above. On top of those, my reason is pretty simple, flexibility and compounding interest, the future is uncertain. I have 20 years give or take until retirement and I have enough for the necessities and some perks as well as adding a decent chunk to savings. For now, this is what makes the most sense to me.
 
Interesting how people are all over the map on this. We're sort of "middle of the road" on it, our current income is about what we were living on when working. Neither of us has much interest in extensive travel although day trips or one-to-two day trips are fun. I have a small 10-foot boat for fishing that stays in the garage.

We value the free time and no work pressures. My ex was one who had to spend every dime immediately and the marriage ended when I refused to take a loan for a trip when we were already flat broke.
 
I really tried to spend 4% the first year and even with the travel and paying for my Mom's health aide plus outfitting a nursery for my daughter I failed miserably .I'll try harder this year .
 
This is a real interesting post to me, because, in my w*rk career, I was a planner. I would recognize that there were unknowns, but you had to make decisions as best you could anyways.
Now that I am recently retired, I have a plan, but I am back to square one as it relates to this retirement stuff. Oh, I'm doing GREAT so far, but there are the unknowns that one has to 'plan' for also (aka plan b, c, d, ...etc.). So while I have planned for a 4% swr, in actuality, so far, some of it (maybe 1% of it, ytd) is still sitting in the money market account. I think that if it is still 'stuck' there at the end of 1 year, maybe I'll spend some of it on wine and women, ... and then squander the rest.
As in my w*rk life, I always made my quota, goals, objectives, ...etc. Habits being what they are, I will do my best to make my 4% plan. :D
...where's that travel brochure?
 
I think some who post a small % may be referring to their basic budget without all the extras. I'm sure I will splurge some years. Might take a trip to NZ someday. That would certainly knock a hole in the 2.5% budget. :p
 
It's reasonable for someone newly retired to spend more conservatively at first, especially if 2.5% is still more than their spending pre-retirement. It's easy to expand your spending when you see the nest-egg expanding too quickly!
 
I have run projections that say I could spend an extra $100k per year if I work another 10 years (I'm 53). But that isn't worth it to me. My FIRE is at roughly the equivalent of 4%, and I can spend a little less or more as circumstances dictate. I probably won't be going as low as 2.5%. I'd try to spend more if tht happened.

My goal has been to maintain essentially a constant spending level (plus inflation) from work through retirement.

Dan
 
I generally agree with the OP's sentiments. But I understand dialing it back a bit - at least in the early years of ER. When DW retires next year we are planning to start pulling at a fair amount less than 4% (although we will still be livin pretty large). We still have 30 years ahead of us and want to be sure it lasts. If all goes well with the market we will probably kick it up to 4% a few years later by tipping the trips up a notch on the luxury scale.
 
Newly signed on and this caught my eye quickly.

I'm at an age where the idea of spending large is not as attractive as 15 years ago and now it's obvious I could have spent more then. But I looked for the 2.5% post and if it's the one on living off fixed income, that person seemed to be saying 2.5% of an IRA. So I suspect they were still worried about outliving the funds.

I think living large is relative and if it's something that bring joy, I'm all for it.

And believe it or not , folks in nursing homes still have the "keep up with the Jonses" urge. So save some funds for that.
 
REWahoo said:
Yep. No doubt I'll be wanting a set of oversize chrome rims for my wheelchair. ;)
Click to expand...

Hey, my mother was pretty smug about having the niftiest walker in her continual care facility. She showed me all the features that made it cooler than everybody elses, like I would care! :2funny: And all the other seniors would stop her so they could drool over it.
 
My SWR, including pension, will be about 100K if I retire in 2 years and 150K if I retire in 5 years (I could retire today at 48 but I'm hanging on for lifetime medical). Not including my mortgage, which I may or may not pay off when I retire, my current expenses are about 18K/yr (this includes about 5K in charity/gifts). Hence, my expected withdraw rate at my current standard of living will be about 1% or less. I see no reason for this to significantly change, except for possibly 1 or 2 one-time high cost activities (e.g., Everest summit). OK. Maybe it will bump up to 25K. I can't fathom spending more than 30K. But it's still at the 1% level.

For me, like many others, the point of retirement is to spend my time, not specifically my money. The way I currently enjoy my time is through activities that are either free or inexpensive (running, bicycling, hiking, reading, puzzles, etc). I'd much rather go to fast food restaurants than expensive restaurants. My idea of heavy drinking is orange and grape soda. If I had the choice of a free car, I'd still go with a Corolla or Civic. The reliability, gas mileage, and ease of getting around make them ideal. I'm still driving my 1980 Corolla. It gets me to where I want to go. I don't need anything different. I live alone, not counting pets. My house is already big enough for one person. The one thing that the money will provide is the priceless feeling that it is there should I ever need it (e.g., take care of parents or myself in very old age).

Many people say that they want to die broke, meaning that they want to spend down their retirement assets as they age. Not me. I want to die filthy rich. The more the better. I'll be quite happy after I die knowing that my money has gone to the charities that I support. I don't see the problem.
 
There are many reasons

Uncertainty about expenses and returns early in retirement (inflation equities), the length of the retirement, the lumpiness of assets and when they become accessible (real estate appreciation and sales, pensions, iras, social security), the lumpiness and uncertainty of expenses and when you incur them (capital expenses, future medical costs) and whether you want a constant standard of living (inflation), a constant position in society (inflation+1%), or a rising position in society (inflation + 2+%). One's personal inflation rate may be higher or lower than average. Even a constant standard of living doesn't maintain one's position in society which is growing richer; if you want to afford tomorrow's technology and medical treatments you should plan on more than inflation. If you retired earlier than you would have preferred, having more to look forward to in the future may be satisfying. You can make a lot of assumptions and level everything over your expected lifespan, accounting for more uncertainty, or you can adopt a more incremental approach and only spend it when it comes it in.
 
utrecht said:
I just read a thread where a poster said something to the effect of "our pension meets most of our needs so we will only have a withdraw rate of 2.5% from our IRA".
Not to pick on him, as its his money to do with what he pleases, but Im just wondering why people think this way. Im dead center of the LBYM crowd and my savings rate during this accumulation phase is VERY large. It boggles my mind how much my wife and I are saving (while still not feeling like we are sacrificing much)....BUT...the whole point of this for me is to live much more comfortably in retirement.
Click to expand...
Hey, I resemble that remark.

There's frugality, and then there's deprivation. Working life sucks badly enough without crossing the line in your non-working life too. Spouse and I don't feel that we sacrificed anything while we were working except for our free time-- we were too busy working (or deploying) and parenting to be able to think of creative ways to spend it. We'd spend most of our family time at the beach, the park, the library, or working on the house-- again hardly expensive activities, and we certainly didn't feel we were sacrificing anything but our time and our sleep.

By the time we retired we were already living in a great house, near a good school, with all the amenities and lifestyle we could want. When we retired we got our time back and could take naps pretty much whenever.

What more could we want in our retirement? I equate "living more comfortably" with "having control over my time", not "spending more money".

Another issue is the timing of retirement. A military retirement doesn't normally vest until a minimum of 20 years. Other retirees have saved plenty but continued to put their time in to be able to have (let alone to afford) medical insurance. Still others invested during the world's greatest bull market and their returns far outstripped their realistic expectations (oh well).

More importantly, is there something you could do now and enjoy/value more highly by doing it now than by waiting until you're retired? For example, many retirees advise not saving [-]sex[/-] travel for retirement... and Ty Bernicke has observed that retiree spending generally drops every decade in retirement.

Finally, I'm no Chicken Little, but FIRECalc's fundamental assumption is that past is prologue. 4% is the best number we have, and it's good enough for me, but I sure hope it turns out to be right. I'll get back to you on that in six or seven decades.
 
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