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Old 08-16-2012, 06:50 AM   #41
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OMG, the more I read the more problems I see, and the more uncertain I am! Is this a problem too? I'm not sure! It must be getting worse!!
Probably.

The thread began as a discussion on future returns, uncertainty, and the recent popular view that 4% withdrawal was too optimistic. Calculators cannot address this. I think 4% over 30 years is achievable for most people, and if things take a turn for the worse, people will find a way to adjust.
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Old 08-16-2012, 07:54 AM   #42
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i ran Firecalc a few times a few years ago. Haven't since then. Do you think given all the uncertainties that we fixate too much on Firecalc? I think it is a good starting pount but I suspect most of us have moved in to more flexible, personal withdrawal plans?
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Old 08-16-2012, 08:53 AM   #43
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Do y'all really take a fix amount every year? I plan on using it as a guideline, but imagine my wd will be 4.5% 1 year, maybe 7% the next because of a big purchase, 3% the next, etc
If I had to live on a rigid fix budget I don't think I would retire?
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Old 08-16-2012, 09:36 AM   #44
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Do y'all really take a fix amount every year? I plan on using it as a guideline, but imagine my wd will be 4.5% 1 year, maybe 7% the next because of a big purchase, 3% the next, etc
If I had to live on a rigid fix budget I don't think I would retire?
TJ
I have been taking a fixed 3.5% but spending less than 3%. The excess goes into a fund (that is not including when calculating the following year's 3.5% withdrawal). That fund is earmarked for extra spending in a bad downturn if 3.5% of current portfolio is insufficient or in any year in which I want to splurge. As time goes by I plan to evaluate how things are going and adjust as needed. In case of a prolonged downturn that exhausts the "mad money" fund I am tracking what Guyton rules would say my spending should be based on my starting point. That could be a let down escape path if things get extremely bad. I don't treat any of this as gospel. As with most, I expect to roll with the punches.

Disclosure: I have a good pension to cover essentials so whatever approach I take involves a lot less stress than would be the case if I was relying primarily on a portfolio for expenses.
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Old 08-16-2012, 09:55 AM   #45
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Do y'all really take a fix amount every year?
Definitely not.

Our withdrawals have varied every year, from a high of 9.8% (yikes!) in year two down to what looks to be 3.7% this year. The average over seven years - most of those living 100% off our portfolio prior to SS kicking in - is 6.1%.

DW will get a small pension starting next year and I'm projecting our withdrawal rate will dip to under 3.5%.

EDIT: All the withdrawal percentages above are based off the initial value of our portfolio on the day I retired. FWIW, after seven years of withdrawals, the portfolio amount is now 95% of the initial value.
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Old 08-16-2012, 10:18 AM   #46
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Do y'all really take a fix amount every year? ...
Over the last 5 years withdrawals have averaged 5.4%. Had to partially support DS through college. Now he is out and we've begun SS. So basics needs will now be 2% of portfolio and might withdraw up to 3.6% total when we include discretionary fun items (things and vacations).

After 9 years our portfolio is now 94% of the initial inflation adjusted starting value.
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Old 08-16-2012, 10:22 AM   #47
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Be careful about those assumptions. Retiring in your mid-30's puts you at risk of being under 40 quarters of SS earnings history, which would mean zero benefits. If you do manage to work enough quarters to qualify, you will still have many years of zeros when they figure PIA based on 35-years of work history, so expect a very low benefit amount.
We have well over 10 years of credits due t lots of work for both of us during high school and college, and we should have 10-12 years of post college higher income earnings histories on the SS record if we ER in the next few years.

I did an analysis of what we would see from SS based on retiring in different years (based on current law). Right now I would get $9700/yr at age 67 (full retirement age) and DW would get $9300. If we wait 4 years to ER, I get $12,600/yr and DW gets $11,600/yr at full retirement age.

I doubt we will actually see those full amounts when we hit age 67, but we'll probably get some or most of those amounts even with pretty harsh changes in the SS laws to make the program solvent long term.

The SS PIA formula benefits low income earners much more than high income earners. And since we will have earnings histories for only part of the 35 years that go into the average earnings formula, we will look like low income earners to the SS PIA formula. We will have 15 years of zeros for income, and another 10 or so years of lowish income, combined with 10 years of mid to high income (but nowhere near the $100,000+ SS max income each year)

PIA Formula:
(a) 90 percent of the first $767 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $767 and through $4,624, plus (c) 15 percent of his/her average indexed monthly earnings over $4,624.Since we have used up the 90 percent PIA bracket, we only get our potential SS payouts increased by 32 percent for each additional dollar we earn and pay SS tax on. Definitely not worth working real extra hard just to top off what we may theoretically possibly maybe get from SS in another 3+ decades.
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Old 08-16-2012, 11:34 AM   #48
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Do y'all really take a fix amount every year?
Yes, I withdraw 3.5% every year but I don't end up spending all of it. During my first full year of retirement (2010) I spent 2.5%. During my second year I spent 1.9%. This year I am on track to spend perhaps a little less, depending on how the rest of the year goes.

I just return the excess at the end of the year.

(Before someone else points it out, I should mention that I am well aware that I can't take it with me. When I claim SS this disparity will get even more ridiculous. So, I am working on spending more. Who knows? Maybe I'll end up with a new house or something.)
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Old 08-16-2012, 12:34 PM   #49
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(Before someone else points it out, I should mention that I am well aware that I can't take it with me. When I claim SS this disparity will get even more ridiculous. So, I am working on spending more. Who knows? Maybe I'll end up with a new house or something.)
OTOH, you don't have to buy lottery tickets to "whish and hope" you have enough money to prepare for/be in retirement.
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Old 08-16-2012, 03:06 PM   #50
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Yes, I withdraw 3.5% every year but I don't end up spending all of it. During my first full year of retirement (2010) I spent 2.5%. During my second year I spent 1.9%. This year I am on track to spend perhaps a little less, depending on how the rest of the year goes.

I just return the excess at the end of the year.

(Before someone else points it out, I should mention that I am well aware that I can't take it with me. When I claim SS this disparity will get even more ridiculous. So, I am working on spending more. Who knows? Maybe I'll end up with a new house or something.)
Its all about ones perspective. Some here may say you should spend more, but who knows, your daughter may be quite satisfied with your 1.9% draw down rate.
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Old 08-16-2012, 04:27 PM   #51
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[QUOTE=FUEGO;1222584]We have well over 10 years of credits due t lots of work for both of us during high school and college,...
IIRC credits start after you turn 21.
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Old 08-16-2012, 05:11 PM   #52
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I have played a bit with FIRECalc to see the ranges of outcome that past historical data would have produced. This range of results is huge. For example, even at the 100% success rate, I may barely be afloat at the end of 30 years, or I could be a multi-decamillionaire. Wouldn't the latter case be nice? I hope I will live long enough to see it.

Anyway, the "What if" or "Investigate" feature of FIRECalc is interesting to play with. Just now, I toyed with it, and here are different scenarios and results that I have found.

1) Suppose I will get no SS, what is the COLA'ed amount that I can spend at 100% success rate? FIRECalc tells me that it is $X. Of course, there is a chance that I may be broke at the end of the 30 years. Let's use this $X amount as the baseline.

2) I now tell FIRECalc that I am willing to reduce my spending such that during the 30 years, my portfolio will never drop below 1/3 of its initial value, and I still get no SS. FIRECalc tells me that I can spend only 91% of $X above.

3) Now, I add in SS and am willing to die broke. FIRECalc now says that I can spend 119% of X.

4) If I now use Bernicke's spending model, and am willing to spend more in my earlier years, FIRECalc tells me that I can spend up to 164% of $X. That's a huge increase. I can now fly 1st class, stay in fancy hotels, buy a new car every few years, etc..., and probably still have money left over.

So, what do I do? Well, I am spending the amount in case 2) above.

Yes, I am chicken! If I underspend, and if the market is doing well relative to the gloom that some people forecast, I should be able to see that in just a few years, as my portfolio would keep increasing despite repeated and numerous Wh*** posts. I will still be in my early 60s, and hopefully still young to increase my spending for more hedonistic pleasures.

That's my plan, and I am sticking to it.
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Old 08-16-2012, 05:38 PM   #53
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Yes, I am chicken!
I wouldn't call that chicken! I would call that cautious and prudent. And when you see Wh*** posts in the future, you'll be financially secure enough to be happy and enjoy the exhilarating rush of a bull market while it lasts.
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Old 08-16-2012, 06:02 PM   #54
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IIRC credits start after you turn 21.
I started paying Social Security taxes when I was 16 years old.

I'd be mightily annoyed to find that my SS credits didn't start for over five more years. It's irrelevant now, but it would've been mightily annoying if I'd retired before age 26.
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Old 08-16-2012, 06:25 PM   #55
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...(snip)...
2) I now tell FIRECalc that I am willing to reduce my spending such that during the 30 years, my portfolio will never drop below 1/3 of its initial value, and I still get no SS. FIRECalc tells me that I can spend only 91% of $X above.
...
I assume you are doing this by using the option on the "Investigate" tab, "Leave some money in the portfolio for my estate". This is critical IMO because most of us would be very worried indeed if our current portfolio dropped to some small fraction of the current.

I generally set this to about 50% of the current portfolio. This redefines the FIRECalc failures. Some of those lines that go below 50% of my current portfolio and then come back strong will appear as failures. But do I really want to go through that scenario? After 2008, my answer is now NO WAY!

Also I just use 20 years for the study. Probably will sell the big house if we get to our 80's and cannot afford lots of helpers around (gardeners, painters, cleaners, etc.).
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Old 08-16-2012, 07:25 PM   #56
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I just tried to raise the desired minimum portfolio value from 33% up to 50%. FIRECalc gives me diddly squat to spend!

Heck, even if one does not spend any money, a portfolio can drop close to 50% just because of market movements.

I guess I need to bring down the stock portion. Additionally, I am too far away from SS eligibility. Hmm... Something to think about. Maybe I should not stop the part-time work.
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Old 08-16-2012, 09:05 PM   #57
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We have well over 10 years of credits due t lots of work for both of us during high school and college,...
IIRC credits start after you turn 21.

I don't think your statement is accurate. The only age exception I saw was earnings don't earn SS credits for "Children younger than age 21 who do household chores for a parent". I know my SS statement reflects the earnings from the years I was age 15-21, and I earned 4 credits each year for the most part. All of the "you will get $X,XXX when you retire or if you become disabled" are based on the inclusion of my earnings from age 15-21.

Although in the grand scheme of things, it is only of minor importance since my earnings from age 22-present are much greater than from ages 15-21, and my post age 21-earnings represents in excess of 40 credits. The marginal benefit of the age 15-21 earnings are maybe $1000 a year in SS payouts at FRA.
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Old 08-16-2012, 09:22 PM   #58
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I don't think your statement is accurate. The only age exception I saw was earnings don't earn SS credits for "Children younger than age 21 who do household chores for a parent". I know my SS statement reflects the earnings from the years I was age 15-21, and I earned 4 credits each year for the most part. All of the "you will get $X,XXX when you retire or if you become disabled" are based on the inclusion of my earnings from age 15-21.
Although in the grand scheme of things, it is only of minor importance since my earnings from age 22-present are much greater than from ages 15-21, and my post age 21-earnings represents in excess of 40 credits. The marginal benefit of the age 15-21 earnings are maybe $1000 a year in SS payouts at FRA.
Whew. I know that children younger than 21 doing household chores for a parent are also exempt from paying FICA.

In our daughter's case, this little income niche has been fueling her Roth IRA for over five years.
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Old 08-16-2012, 11:32 PM   #59
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Using the online SS calculator at the gov site seems to confirm credit for earnings before 21.
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Old 08-17-2012, 12:48 AM   #60
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I have been a Dave Ramsey listener for years and I have only just recently found this site. I have always heard Ramsey say that since the stock market has increased an average of 12% per year that you can withdraw 8% of your portfolio per year and never touch the principal. Glad I found this site. I really believed what he said.
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