Anyone planning to increase their WR with age?

[Gone4Good]

It seems like an obvious thing to do. The older we are the less likely we are to deplete our portfolio at a given withdrawal rate.

Using FireCalc to figure the highest withdrawal rate possible from a 50/50 portfolio that still results in 100% success you get these results for various withdrawal periods:

40 yrs - 3.3%
30 yrs - 3.7%
20 yrs - 4.6%
10 yrs - 7.5%

Does anyone here plan to adjust their withdrawal rate upwards as they age?

I think I probably will, although I don't have anything formulaic in mind.

 

[arky]

No, RMDs will take care of that whether I like it or not.

 

[Gone4Good]

No, RMDs will take care of that whether I like it or not.

You don't have to spend them though (other than the taxes :-( )

 

[Danmar]

Will if my portfolio keeps increasing.

 

[Car-Guy]

Probably not. To be honest, I'm not sure what I'd spend it on.

 

[2017ish]

The VPW strategy is designed to do this, and has been the subject of a great amount of discussion here and at bogleheads.

I haven't planned on it (or really even thought much about it) because: 1) our initial spending rate, when combined with freedom/time, will provide us with more luxury than we enjoy now; 2) the data and anecdotes indicating that, as we age past 75, our spending demands will likely go down.

 

[MichaelB]

Does anyone here plan to adjust their withdrawal rate upwards as they age?

It may happen, but we're not planning on it. I do plan on keeping some money set aside for health care needs during our phase-out period. That would increase the withdrawal rate..

 

[Gone4Good]

2) the data and anecdotes indicating that, as we age past 75, our spending demands will likely go down.

Yeah, that's the conventional wisdom. I always wonder how much of that data is influenced by people who find themselves income constrained. If people had the resources to spend what they wanted, would their spending go down?

I also wonder to what extent the traditional SWR calculations using CPI understates the amount of inflation elderly folks experience. One reason I like the idea of an increasing withdrawal rate is that it gives a little extra cushion against a personal inflation rate that may well exceed the average.

 

[big-papa]

The VPW strategy is designed to do this, and has been the subject of a great amount of discussion here and at bogleheads.

I haven't planned on it (or really even thought much about it) because: 1) our initial spending rate, when combined with freedom/time, will provide us with more luxury than we enjoy now; 2) the data and anecdotes indicating that, as we age past 75, our spending demands will likely go down.

Right. VPW does that as does the RMD calculation. But neither of those methods adjust for inflation but instead rely portfolio gains. A perfectly valid method, but even with VPW's increasing withdrawal percentage per year, you can fall behind inflation for sometimes many years (late 1970's for example). Not a bad thing if you have other sources of income that can act as a floor and are inflation adjusted.

Another option is Kitce's ratcheting method. His method still increases the withdrawal each year with inflation. And if you're lucky enough to not have retired in a sustained down market, there is a method to increase your withdrawals occasionally beyond inflation. If things aren't going well, it won't increase your withdrawals beyond inflation.
https://www.kitces.com/blog/the-rat...l-rate-a-more-dominant-version-of-the-4-rule/

Both are great methods but there is no method that suits everybody. For me, they're both interesting but backtesting shows that they're more likely to have you withdrawing substantially more in later years than in earlier years. I'd prefer something that is the opposite. Gummy's "sensible withdrawals" is one method that has a higher higher likelihood of higher withdrawals (via a "bonus") in early years than later years.

YMMV and there really isn't one method that suits everybody.

 

[2017ish]

Yeah, that's the conventional wisdom [spending slowing with age]. I always wonder how much of that data is influenced by people who find themselves income constrained. If people had the resources to spend what they wanted, would their spending go down?

....

Good point. I had the same misgivings with the conventional wisdom as you. After reading a lot of the literature in the area, however, I am fairly comfortable with thinking that asset/income constraints are not the primary driver. This article/blog by Kitces gives a decent introduction: https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

This is anecdotally confirmed (hah!) by my well-off in laws and their friends slowing down the spending significantly in their 80s--even though they are still remarkably healthy. Tennis continues to be played several times a week, but the vacations to other continents no longer are pursued. Perhaps a combination of aging and "been there, done that?"

 

[Meadbh]

I will consider it after approximately 5 years of ER. Will probably use Kitces' method to analyze the numbers.

RMDs re not equivalent to spending. You can save every dollar of your RMD if you wish. In any case, I am judiciously withdrawing some money from tax sheltered accounts now to avoid a major annual tax hit when I reach RMD age in 13 years time.

 

[Gone4Good]

Perhaps a combination of aging and "been there, done that?"

I can see that. I can also see wanting a really nice nursing home / elder care facility.

 

[Alan]

Our WR has been higher this past 6 years than I expect it to be in the long run. This is due to getting in all the travel we can while we are still fit coupled with the fact that we each will eventually be getting income from SS, plus I'll be getting income from UK SS.

 

[mpeirce]

I can see that. I can also see wanting a really nice nursing home / elder care facility.

This is my thinking as well.

I've seen assisted living / nursing care places that range from nice to really nice. I'm hoping I can afford the really nice place if I need it.

 

[mpeirce]

No, RMDs will take care of that whether I like it or not.

I've never really understood this thinking. RMDs are simply a transfer from one account into another, albeit with a tax consequence.

 

[Fishingmn]

First off, I like VPW.

The problem I have with Firecalc is that in order to have 100% safety the vast majority of the time you end up with a big pile of money at the end (unless that 1 in 100 scenario happens - then we might all be in trouble).

Our philosophy is that we'd rather spend, especially on our kids if there's extra, instead of leaving a pile for them to inherit.

The tricky part of VPW is picking the end date (duh) and having the flexibility to vary your expenses if the market goes down. We have a pretty large travel budget that can certainly be that buffer if needed. Otherwise, as the % withdrawal goes up with our ages that just leaves more money to spend on our kids while they are living and we get to see the benefit of things like group travel or helping fund grandkid needs/education.

 

[Gone4Good]

First off, I like VPW.

Do you have a link to a source that explains VPW? Thx.

 

[2017ish]

Do you have a link to a source that explains VPW? Thx.

579 posts here: https://www.bogleheads.org/forum/viewtopic.php?t=120430

Wiki, with easy to follow table, here: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

There are also a good many discussions on the present site--the first result from searching is good and comprehensive at 290 posts! http://www.early-retirement.org/for...drawal-calculator-ive-seen-to-date-68770.html

E.T.A.

 

[Gone4Good]

579 posts here: https://www.bogleheads.org/forum/viewtopic.php?t=120430

Wiki, with easy to follow table, here: https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

There are also a good many discussions on the present site--the first result from searching is good and comprehensive at 290 posts! http://www.early-retirement.org/for...drawal-calculator-ive-seen-to-date-68770.html

E.T.A.

Thx. Did a quick Google search but not knowing VPW stood for "Variable Percentage Withdrawal" yielded nothing of value.

 

[REWahoo]

Does anyone here plan to adjust their withdrawal rate upwards as they age?

I think I probably will, although I don't have anything formulaic in mind.

Ours is beginning to look like it may resemble a sine wave, or maybe be U-shaped: http://www.early-retirement.org/forums/f28/firecalc-vs-rew-64705-5.html#post1664252

 

[RunningBum]

Right. VPW does that as does the RMD calculation. But neither of those methods adjust for inflation but instead rely portfolio gains. A perfectly valid method, but even with VPW's increasing withdrawal percentage per year, you can fall behind inflation for sometimes many years (late 1970's for example). Not a bad thing if you have other sources of income that can act as a floor and are inflation adjusted.

If you're falling behind inflation for many years you might need to cut your spending anyway, so VPW works well for this. Otherwise, just blissfully increasing your withdrawal with inflation may lead to one of those lines in Firecalc that goes to 0.

 

[Danmar]

First off, I like VPW.

The problem I have with Firecalc is that in order to have 100% safety the vast majority of the time you end up with a big pile of money at the end (unless that 1 in 100 scenario happens - then we might all be in trouble).

Our philosophy is that we'd rather spend, especially on our kids if there's extra, instead of leaving a pile for them to inherit.

The tricky part of VPW is picking the end date (duh) and having the flexibility to vary your expenses if the market goes down. We have a pretty large travel budget that can certainly be that buffer if needed. Otherwise, as the % withdrawal goes up with our ages that just leaves more money to spend on our kids while they are living and we get to see the benefit of things like group travel or helping fund grandkid needs/education.

Good points. Agree. Leaving a big pile at the end is not optimal but sometimes difficult to avoid, I think, other than through anniitization of course.

 

[FUEGO]

We plan to increase the withdrawal rate in the future if we can find anything worthwhile to spend it on. Right now we're targeting a dynamic 4% of portfolio value each year. The problem is that we only spent $25,000 last year and our 4% should have us spending $48,000 this year.

Looking at the VPW materials, I suppose we should increase that 4% variable rate to 5%+ as we get into our 50's or 60's. Especially considering SS will start at 67 for us (equating to an effective 2% withdrawal rate replacement).

I'm not too worried about following a mechanical rule though. We'll spend more than 4% some years, and less than 4% in other years. I like the variable nature of it since we're still in our 30's. I'd rather tighten belts now and cut back to $24-30k spending for a few years if necessary instead of blindly depleting our portfolio with a 4% + inflation withdrawal rule that wouldn't give us any extra spending headroom in really good years.

 

[Teacher Terry]

Most people spend less for travel and fun as they age but more for healthcare. WE spend more now then I think we will in 10-15 years. We are traveling why we can. I could care less if we leave any $ behind.

 

[NW-Bound]

... data and anecdotes indicating that, as we age past 75, our spending demands will likely go down.

Yeah, that's the conventional wisdom. I always wonder how much of that data is influenced by people who find themselves income constrained. If people had the resources to spend what they wanted, would their spending go down?

When you are old with creaky and arthritic bones, your eyesight and hearing shot, your palate dull, your hands trembling, your walk a shuffle on shaky legs, what do you care to spend your money on?

If you are not afflicted with any physical deterioration, then you are not old no matter what your age. Spend away.