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Old 12-03-2010, 07:46 AM   #21
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I have no intention of trying to manage our income solely on a % of a constant mix. We don't need to take the risk. I will create a guaranteed income.
As long as you understand that guarantee is only as good as the insurance company stays in business and like your investments, you might want to be diversified.
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Old 12-03-2010, 09:25 AM   #22
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Just for fun I plugged $1M dollars with $40K annual withdrawal and a 30 year term into Firecalc. I plugged in a 50% holding in equities with 5 year treasury for interest rate on fixed portion, I also used a 3% inflation factor. Guess what I got...................a 95.5% probability of success.

I guess the author thinks and feels the future will be worse than the history used by Firecalc. Maybe they are right, maybe they are not.
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Old 12-03-2010, 09:59 AM   #23
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Any excess unspent may be seen as an opportunity cost, or as a financial legacy. I have one daughter, and hopefully a granddaughter in a few months. Imagine if your Roth was fully funded from 0-18 yrs old. I will have all that I need, and extra, and security.
I don't discount security. My parents were depression era people. My mother always worried whether they would have enough. They made poorly timed financial decisions because of that basic gut fear, driving them to sell low and buy high. It is a very human trait, we all have it. Security gets me out of worry driven planning and to strategic planning.
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Old 12-03-2010, 10:30 AM   #24
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Must we spend every last penny? Is our appetite for consumption so urgent that we cannot possibly satisfy it? If we die with a nickel left must we regret it?

I can understand wanting some luxuries in retirement, but if a single person with a paid off home retires today on $1,000,000 plus social security plus possibly a pension or other income source, I don't think it would be a tremendous hardship to just withdraw $30,000 instead of $40,000.

This could affect whether or not we have to spend our final years depending on the charity of our children or others just to survive. Now that's an outcome that seems a lot worse to me than having an income of $60K instead of $50K (assuming SS is $20K).

Oh my. I can't believe I am posting this before coffee.

Granted, those who have pointed out that it might make a bigger difference with more meager retirement resources make sense to me. If the same hypothetical single person with a paid off house retires today on $250,000 plus social security, again assuming the latter is $20K, an SWR of 4% instead of 3% could make the difference between an income of $30,000 and an income of $27,500 and that might present more of a hardship.

Where's that coffee... I am planning on an SWR of 3% or less once SS kicks in. I probably won't need or want to spend much of it anyway. Retirement is about so much more than just spending lots of money.
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Old 12-03-2010, 10:58 AM   #25
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And then there's this, from a Journal of Financial Planning article referenced in another thread:

Quote:
Planners who most commonly use
a structured systematic withdrawal
program were asked to indicate what
they usually recommend as a sustainable
withdrawal amount. In 2009 the
average rate was 4.4 percent. In 2010,
the average rate is 4.75 percent.
Kitces admits that itís difficult to know
what the source of that increase is, but
he says it could be a result of the growing
body of knowledge indicating that a 4.0
percent withdrawal rate with no other
adjustments may be too low.
Do I hear 5%? 5%? Going once, going twice...
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Old 12-03-2010, 11:11 AM   #26
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Um... gone?
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Old 12-03-2010, 02:33 PM   #27
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If I trusted that analysis, I could retire sooner. With fiscal problems coming up for the U.S.A. government, I don't trust political hogs to get pried away from the tax trough our representative to be able to come to a consensus on the hard choices. Money will have to come from somewhere. Social security WILL have to be cut.
Medicare benefits will either have to be paid for or cut. Seeing all my slacker co workers run for a doctor and load up on the most expensive antibiotics that their insurance will pay for any sniffle prudently taking proactive health decisions, this will probably not happen.
In short, those with the means will have to foot a large part of pulling us out of our deficits. I also see a larger drain as boomers head to retirement. As always with the boomers, the early cohort will do well, the end cohort will be on the tail end and get shafted do poorer.

I should never have found the strike through. I Will get in trouble sooner or later
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Old 12-03-2010, 04:31 PM   #28
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As long as you understand that guarantee is only as good as the insurance company stays in business and like your investments, you might want to be diversified.
TJ
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Old 12-03-2010, 08:40 PM   #29
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Must we spend every last penny? Is our appetite for consumption so urgent that we cannot possibly satisfy it? If we die with a nickel left must we regret it?
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Old 12-03-2010, 09:41 PM   #30
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The link I posted for the Journal of Financial Planning article was incomplete, so it didn't work. Here's a corrected one. (Thanks for alerting me, W2R.)
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Old 12-04-2010, 04:21 AM   #31
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I find it difficult to decide on a SWR so we just spend our dividends. Maybe around 3.2% Will adjust spending to reflect market conditions as time goes on. If big legacy looms later on, we will give more away to charities or my daughter when we are still alive. Some legacy will be inevitable though. OK with that.
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Old 12-04-2010, 06:48 AM   #32
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I plan to live on ~95% of the previous year's income (dividends, interest, SS) and count on my LBYM history to make adjustments for shortfalls. Every year I accomplish this will increase the portfolio and therefore provide a cushion if I need to dip into the principal.
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Old 12-04-2010, 08:34 AM   #33
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I plan to live on ~95% of the previous year's income (dividends, interest, SS) and count on my LBYM history to make adjustments for shortfalls. Every year I accomplish this will increase the portfolio and therefore provide a cushion if I need to dip into the principal.
That's a fine strategy, just so long as you take into account how volatile investment income can be. I think some folks have the view that interest and dividends are less volatile than the market overall, but I'm not so sure. CD rates are down 60% or more from just a couple of years ago. Dividends on the S&P 500 are down ~20% or so.
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Old 12-04-2010, 11:08 AM   #34
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Must we spend every last penny? Is our appetite for consumption so urgent that we cannot possibly satisfy it? If we die with a nickel left must we regret it?
DW and I don't have kids. We're going to be at a WR of less than 3% and if there's a pile left (statistically likely based on historical data at least) when we've both gone poof, it will go to charities - I can live with that. But yes, we'll have regrets that we didn't enjoy it more while we were alive. If there was actually a way to ensure we could "die broke" - we'd absolutely go for it, and that does not mean the excess would go to "consumption."

Doesn't mean the difference between austerity and lifestyles of the rich & famous, but there could be a substantial difference in consumption. Consumption at this stage of our lives is for life's experiences - not "things" as some may be thinking. YMMV


Maybe I've been wrong all these years but 4% SWR is very near the historical floor for a 30 year retirement, so odds are there would be considerable money left on average. I'm going to be more conservative, but as most here know 4% SWR is not an average, which implies a 50/50 chance, it's a very high probability of success (again historically). Choosing a WR of less than 4% for a 30 year retirement means the retiree is assuming returns will be worse than we've ever seen, including the Great Depression, and/or he/she will live longer than 30 years in retirement. All understandable, but to put it in perspective...
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Old 12-04-2010, 11:21 AM   #35
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That's a fine strategy, just so long as you take into account how volatile investment income can be. I think some folks have the view that interest and dividends are less volatile than the market overall, but I'm not so sure. CD rates are down 60% or more from just a couple of years ago. Dividends on the S&P 500 are down ~20% or so.
Yes, I agree. The low CD rates are disappointing. This strategy will work for my mix until the end of 2013. I will then have my IRA to tap if need be, followed by SS a few years later. My horizon is only 3-5 years out and my goal is 4%. At 62 I will decide about SS and probably make some changes in AA. I am currently running a sample portfolio in my IRA account that may increase dividend yield enough to offset the CD low rates, but there can still be loss of principal. This is the first year of this plan and I am new at the taking it out part.

Besides, plan B can always be LBYM. Got that one down pat.
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Old 12-04-2010, 11:32 AM   #36
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.

Doesn't mean the difference between austerity and lifestyles of the rich & famous, but there could be a substantial difference in consumption. Consumption at this stage of our lives is for life's experiences - not things as some may be thinking. YMMV


...

I totally agree . If there are places you want to see or things you want to do your 50's , 60's & early 70's are the time to do them . I observed this in my Mom who loved to go and still traveled in her late 70's but the trips became less frequent in her 80's and stopped almost totally in her 90's . She still likes to talk about traveling but knows that ship has sailed .
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Old 12-04-2010, 01:16 PM   #37
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If there was actually a way to ensure we could "die broke" - we'd absolutely go for it, and that does not mean the excess would go to "consumption."
Annuity.

I don't want to do it now as I don't trust the company over that long of a term. But I'll re-think it as each decade passes.

-ERD50
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Old 12-04-2010, 01:32 PM   #38
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Nothing's for certain but if all goes to plan we should have enough in fixed income and SS to meet our income requirements at least for the first years of retirement. With little or no revenue gap to fill I'm thinking I'll need adjustments in AA as we draw nearer to retirement and beyond but there's time for me to figure out what that should be.
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Old 12-04-2010, 02:06 PM   #39
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Annuity.

I don't want to do it now as I don't trust the company over that long of a term. But I'll re-think it as each decade passes.

-ERD50
Actually I agree with considering an annuity late in life. But if we've spent 1X in the first 20 years of retirement, having 2-3X/yr (for example) for our remaining years when we can't readily enjoy experiences for physical if not other reasons would lead to the same regrets. So the problem remains. But it's a potential solution to the 'die broke' aspect...
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Old 12-04-2010, 02:13 PM   #40
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Dying with a huge pile of money in the bank does not scare me. Spending the last years of my life as a destitute in a Medicaid facility does. So, I'll be conservative with my SWR.
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