4% is now considered too high

[devans0]

Um... gone?

 

[devans0]

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

 

[chinaco]

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

Know it well. Thanks

 

[Gone4Good]

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?

+1

 

[Focus]

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.)

 

[Danmar]

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.

 

[jayc]

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.

 

[Gone4Good]

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.

 

[Midpack]

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...

 

[jayc]

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.

 

[Moemg]

.

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 .

 

[ERD50]

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

 

[keegs]

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.

 

[Midpack]

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...

 

[FIREd]

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.

 

[Gone4Good]

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...

Understood. But after a "normal" 30 year retirement I'll (hopefully) be 69. 10 years before that I'll reevaluate the situation and if I'm sitting on the untold riches that many of the historical runs suggest, I can up my spending then; assuming I can find stuff worth blowing it on. No regrets.

 

[GregLee]

But yes, we'll have regrets that we didn't enjoy it more while we were alive.

R U sure?

 

[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...

Yes, that thought occurred to me as I was writing that post. Not exactly the solution we are looking for.

Although, you could spend at a higher rate before you got the annuity with the thought that you wouldn't need as much nest egg at the time you annuitize. But that leaves you gambling on just what the annuities will be paying when you are ready to buy.

Just no easy answer.

-ERD50

 

[Sam]

I have thought for sometime that the "4% SWR" figure is too widely misunderstood. Especially for those on this board, if you retire early, unless very wealthy, less than 4% is likely needed. I think the 4% rule was generally created at a time most retired at 65. Pensions, SS, and lifestyle all have to be considered. With pending SS changes in the future, this too may have an impact down the road.

You might want to do some "additional" research about the 4%. Or you can simply ask. I guarantee you that most members of this board do not misunderstood that 4% SWR.

 

[REWahoo]

You might want to do some "additional" research about the 4%. Or you can simply ask. I guarantee you that most members of this board do not misunderstood that 4% SWR.

+1

 

[chinaco]

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...

I am looking at SPIA options.... but I am a little wary about it being the best approach. Since I have a pension, I am not sure that a SPIA is the best choice for us. But if I could lock-in a great payout because rates went a lot higher, I would probably do it.

For now, I intend to maximize the annuity we already paid for... SS. Delay till 70 for the larger SS amount and it has a COLA.


Of course, one could purchase longevity insurance (basically an SPDA). I think they can be purchased with inflation protection.

I have also considered creating an old age reserve fund and invest it in a target fund with a date 25 or 30 years into the future and use it. Right now this is my default approach.

I am considering several approaches and am still on the fence about it.

If I cannot make my mind up as the the optimum approach, I will take a multi-pronged approach.

I have also considered that our house could be used as a resource with a reverse mortgage. I would only consider that as a contingency plan... last resort if everything else failed.

 

[GregLee]

I guarantee you that most members of this board do not misunderstood that 4% SWR.

-1

This is so far from being grammatical English that I can't even figure out the intent of the posting.

 

[Nords]

-1

This is so far from being grammatical English that I can't even figure out the intent of the posting.

With a "misunderstand" or "is not misunderstood", then I think Sam's grammar is perfectly correct. As it stands it's still plenny good. How's your Vietnamese?

He's letting Bizlady know that while he agrees most of the general population might not understand the concept of the 4% SWR, he thinks that concept is quite well understood by most of the members of this board.

I think we [-]waste[/-] spend quite a bit of time trying to nail down the fourth significant digit of a number that can probably wander back & forth from 3-6% over at least three decades.

 

[Sam]

With a "misunderstand" or "is not misunderstood", then I think Sam's grammar is perfectly correct. As it stands it's still plenny good. How's your Vietnamese?

He's letting Bizlady know that while he agrees most of the general population might not understand the concept of the 4% SWR, he thinks that concept is quite well understood by most of the members of this board.

I think we [-]waste[/-] spend quite a bit of time trying to nail down the fourth significant digit of a number that can probably wander back & forth from 3-6% over at least three decades.

Thanks Nords.

I thunk GregLee is very good speeking english. I mist went read all the posts he/she rite to bitter my written skull. I can't not learned enought.

REWahoo: How you understand I? Mist be student tough english/vietnamese dactionery, no??

 

[foxfirev5]

You definitely need to stay flexible with unknown future returns. With my mind set I can already tell I'll have a problem when I comes time to draw down a portion of the principle in my investments. However I really don't want to work another 5 years so that I can just live on dividends and interest. A SWR of 3%, 2.5% or 4%, who knows. I guess I'll work another couple years, continue w/ LBYM and hope for the best.