Originally Posted by youbet
That separation isn't always as easy as it sounds. Just because something, such as a beloved hobby, gets categorized as discretionary, doesn't mean it won't be badly missed when given up due to retirement budget problems. For folks who actually liked their jobs but retired in order to have more time to devote to "discretionary" budget items like hobbies and travel, they might wonder why they retired if they can't do those discretionary activities as planned!
My only point is that sometimes on this board we make it seem like separating what is discretionary and what is necessary is easy. And that giving up so-called discretionary budget items will be painless. Not necessarily so.
In the case we're discussing, computing a higher SWR by understanding "needed" vs "discretionary" budget items, it should be considered that the forfeiture of some of the "discretionary" items will quickly lead to an unhappy retirement. Bummer.
I've always thought that one of the most difficult parts of retirement planning was estimating what I would need to spend in retirement to be satisfied. I knew what I spent while I was working, but my guess of what I would want to spend if I wasn't working was just that -- a guess. So I agree with you that separating required and discretionary spending could be difficult.
There are two important observations I would make, though: 1) Notice that when you use FIRECalc as proposed, discretionary budget is never eliminated. It is simply tied to a percentage of your overall portfolio. So it can shrink, but it won't go away. This makes the job a little bit easier. Say you have a travel budget and you think you could reduce it by 10% fairly easily (by choosing more frugal travel habits, by taking one less trip, . . . whatever). So you put 10% of your travel budget as discretionary. You will never have to reduce your travel budget by that much. The overall reduction will never be as high as 10%. 2) As hard as it may be to figure out how much of your spending you might consider discretionary, try to use one of the other proposed variable spending models and figure out how much your budgets might need to be cut.
But I don't do these simulations in order to see how much to spend each year. I don't even use the 4% rule. I saved enough money that I now spend what I want to spend. I do not anticipate having to reduce my spending during years of poor performance. But if some disastrous financial crises occured and I needed to contain spending, the required/discretionary simulations help to understand how much I might need to control.