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Old 11-03-2013, 02:20 PM   #21
Recycles dryer sheets
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Originally Posted by Katsmeow View Post
This bears some similarity to our current situation. DH retired 3 years ago, took SS at 62 since we had adolescents at him and that way they could get SS benefits while under 18. I went from full-time work to very part time work that I might quit at any point. I'm 59 so older than you.

Anyway, right now, we are drawing out more than 4% of our portfolio which is a little bigger than yours but not a lot bigger. This is because we still have kids in college so have high expenses right now for really the next 3 years. Then our spending goes down to about $65k-$70k. Also, when I'm 66 my SS projects to $30k.

I have run all of this in Firecalc. Basically we will have a really high withdrawal rate for the next 3 years, then when the kids are gone we will have a slightly high WD rate if I don't take SS until 66 or we could have a lower WD rate if I take SS at 62 (I'll evaluate that at the time). Note, that over this time that we are taking high withdrawals, we expect our portfolio to decline over that period of time. However, I've worked out that it can decline to about 60% of what it is now and we will be OK given the SS that DH and I will draw. If I take SS at 66 our portfolio would only have to give us about $18k a year.

The risky part is as someone mentioned what if we have a sustained bear market while in the period of very high withdrawal percentages. Right now, we are already better off that I projected we would be 2 years ago. I mean at this point our portfolio has increased in value this year even though we have taken withdrawals above 4%. However, I know that could and probably will change sometime in the next 3 years.

From running various runs of Firecalc I've project certain portfolio values 3 years from now to see how our plan would fare with those values.

That is I've created a scenario in Firecalc, for example, where I pretend it is 3 years from now and give a starting portfolio value and then put it in what our spending is projected to be at that time and I've run the success rates. This is what tells me that if our portfolio then is only 60% of what it is now (either due to a bear market or do to withdrawals) we still have an acceptable chance of success (I am content with 95% but the actual numbers are about 100% for $65k spending then about 98% for $68k spending).

We have an overall asset allocation of 55/45, but I've put a lot of the 45% into the short term investment grade bond fund (a little over a year of projected withdrawals0 and then another several months of withdrawals in the money market found. The point being that in the event of a bear market that year and a half of funds would be available for withdrawal without having to sell equities.
Thanks for this response, Katsmeow. It expresses pretty much my own philosophy (or pipe dreams, anyway, as I'm still w*rking) and what I've tried to do when I play with FIRECALC. I figure if I throw in variables that TEND toward more conservative expectations, the better chance I have at taking a shot at those pipe dreams.
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Old 11-03-2013, 02:34 PM   #22
Recycles dryer sheets
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Originally Posted by Katsmeow View Post
That is I've created a scenario in Firecalc, for example, where I pretend it is 3 years from now and give a starting portfolio value and then put it in what our spending is projected to be at that time and I've run the success rates. This is what tells me that if our portfolio then is only 60% of what it is now (either due to a bear market or do to withdrawals) we still have an acceptable chance of success (I am content with 95% but the actual numbers are about 100% for $65k spending then about 98% for $68k spending).
Thanks Katsmeow -- I think your philosophy and approach is similar to how I'd like to look at our situation. I like to play with FIRECALC in such a way that I assume conservative input and see what the worst case scenario is with that input. Even if our BS buckets get filled sooner than we can bear, neither of us would have a problem with PT work or downsizing to help bridge gaps.
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Old 11-03-2013, 02:37 PM   #23
Recycles dryer sheets
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Since BS is a major cause of stress, here's a nice video that summarizes the science behind why BS should be avoided in favor of time with loved ones.

Can Stress Actually Kill You? - YouTube
Thanks Meadbh -- I liked this simple visual of what goes in the body under conditions of stress. Explained better than most long-winded technical articles could do.
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Old 11-03-2013, 02:40 PM   #24
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You are assuming that the kids will be independent after college. In today's economy, that is not always the case! Even though they were out on their own, we've found that getting our kids through their 20's is more expensive than getting them through their teens. You just can't budget for some of the costs of their "independent" and career start-up life choices.
Revlefty -- We have one kid that is completely independent already and another that is on the verge of college graduation. Even if he has to depend on our help for a bit while he gets launched, I don't have too much fear that by 2017 he'll be out and on his own.
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Old 11-03-2013, 02:55 PM   #25
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My human feedback is pretty simple. If I were in this situation, before I retired I'd move about $180,000 into "safe" short term assets - CDs, TIPs. That should provide $36,000 annually for the five years before SS starts. Exactly how much I need to move depends on interest and inflation rates at that point.

The remaining $620,000 is my long term portfolio. If I withdraw $24,000/yr from it, that's a 3.9% withdrawal rate. Probably successful in 96% of past scenarios, but the future may not be like the past.

I'd know that I had little conservatism in the SS assumption. Odds are, we'll collect that whole $48,000 for the early years at least.

The big question is any other optimism/conservatism in assumptions. Is the $60,000 the minimum you'd be willing to live on? So you have no room to flex your withdrawals down in a bad market? Or, do you have some "fun" spending in there that you'd be willing to skip for a few years if you need to? What are your plans for long term care expenses?

Note that only 40% of your total spending is coming from portfolio withdrawals, so even a 50% reduction in withdrawals is just a 20% reduction in spending.

As you get closer, you may want to look harder at your spending assumptions. pre-Medicare health insurance should be clearer in a couple years, and SS politics may clarify a little. And you can spend some time thinking about what you have to spend vs. what you want to spend.
Thanks, Independent -- I like your idea of converting assets to actual cash/short terms before retirement. Kind of the "bucket" approach.

Based on our current lifestyle, 60k is actually a pretty comfortable number for us to play with (at least the first few years). We're also researching expatriation and RV'ing as possibilities.

Something we haven't really done too much of, though, is looking more closely at LTC concerns. That will be next on my list of research topics.....
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Old 11-03-2013, 02:59 PM   #26
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You didn't say what kind of portfolio you have and it's exposure to equity risks. Retiring in 2017 means you will have plenty of time to see which way the equity markets are going.

You might want to consider your current risk profile and what you are targeting for in future years. If you really want to get picky, you could look at FIRECalc sequences that were 5 years from a market low (like now). Do this with the spreadsheet output.

My guess is that 75% of SS is too conservative. But this could be OK if you are not too conservative with every assumption.
Thanks for the tip on the spreadsheet output, Lbscal -- I'm going to take a look at that. Current portfolio is about 70/30.
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