Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Changing budgets as you age
Old 12-14-2004, 03:49 PM   #1
Recycles dryer sheets
 
Join Date: Sep 2004
Posts: 250
Changing budgets as you age

So on another forum Lancelot posted about the problem of perhaps being too conservative with spending during the early years of ER, while still young and healthy enough to enjoy a very active lifestyle.

How do you address this in your ER budgeting? Do you just count on a constant SWR while assuming that money for fun will eventually be replaced by money for medical care as you age? Some other scheme? Just curious to see how many people take this into account and what systems people are using to change their budgets over time, while still making sure they don't run out of money at 90.
__________________

__________________
FlowGirl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Changing budgets as you age
Old 12-14-2004, 04:17 PM   #2
Thinks s/he gets paid by the post
Hyperborea's Avatar
 
Join Date: Sep 2002
Location: Silicon Valley
Posts: 1,008
Re: Changing budgets as you age

I'm not there yet but this is definitely a concern of mine. *The "standard" SWR sets the withdrawal rate to account for the worst historical case. *Most of the time you don't hit the worst case. *So, what do you do?

I think the only reasonable choice if you want to get at that extra money rather than fund a building at your alma mater is to take the extra as it occurs. *You can do something simple like re-running FIREcalc and getting a new SWR every couple of years. *

Or you can do something a little more complex and do a variable withdrawal type system such as the one that Prof. Ponzo (gummy) proposes - he calls it "sensible withdrawals". *Essentially you take a semi-fixed base (e.g. $20K + inflation adjust) AND some percentage of the excess gains (e.g. 50%) of the portfolio. *What it does is "front load" the excess to some degree. *The yearly amounts are likely to be kind of lumpy so you would want to buffer it with a fixed income ladder to smooth it out.
http://www.gummy-stuff.org/sensible_withdrawals.htm
__________________

__________________
Hyperborea is offline   Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 04:25 PM   #3
 
Posts: n/a
Re: Changing budgets as you age

I am going to use a 'flexible withdrawal' rate. Taking more after good years in the market, and less after poor years in the market.

I have also budgeted roughly 25% extra until age 80 for travel and such.
__________________
  Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 07:22 PM   #4
Full time employment: Posting here.
 
Join Date: Apr 2004
Posts: 802
Re: Changing budgets as you age

Hyper, I think Gummy was a prof at Waterloo? He's retired and has been a regular at The Wealthy Boomer site for years. I seem to recall Waterloo was your alma mater?

A flexible way to take more in good times, and less in lower years is to draw 5% on the December 31 portfolio balance for the next year's income.

Use 4% if you are younger and healthy, 6% or higher if you are older or in poor health.

5%x's$500 000=$25 000

5%x's$450 000=$22 500

5%x's$550 000=$27 500

Hopefully your year end balance increases over 5% and gives you inflation protection.
__________________
Zipper is offline   Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 07:37 PM   #5
 
Posts: n/a
Re: Changing budgets as you age

We don't budget or SWR either. My SS will replace
my wife's salary in 2006. If she retires, our income
will continue flat, with a small built in inflation adjustment. Then, she can collect SS in 2011.
Also, currently plan no drawdown of our "base", strictly living off the income. Remains to be seen how that goes.

JG
__________________
  Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 08:06 PM   #6
 
Posts: n/a
Re: Changing budgets as you age

And another thing...................I had pretty steady
net worth expansion from my full retirement in 1998
until about 2003. Then, it leveled off but did not decline.
I am going to try real hard to hold it where it is
as long as possible. I do not see further increases,
but there are a couple of scenarios that could accrue
to my benefit. I am figuring that holding
net worth where it is now is doable indefinitely, unless
we have a disaster. We could draw it down for routine living,
but having retired with so little, that would make me nervous.

JG
__________________
  Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 08:28 PM   #7
Thinks s/he gets paid by the post
Hyperborea's Avatar
 
Join Date: Sep 2002
Location: Silicon Valley
Posts: 1,008
Re: Changing budgets as you age

Quote:
Hyper, I think Gummy was a prof at Waterloo? He's retired and has been a regular at The Wealthy Boomer site for years. I seem to recall Waterloo was your alma mater?
Yup, he was a prof in the applied math dept. I took one course from him in mathematical modeling (I was a physics student taking a lot of extra math) - turning real life into differential equations and then solving them.

Quote:
A flexible way to take more in good times, and less in lower years is to draw 5% on the December 31 portfolio balance for the next year's income.
This is the technique that another FIREee known as "Galeno" over on the Motley Fool site uses. He takes 5% of the value of his "investment" portfolio (everything but the FIB) every year and then stuffs it into his fixed income buffer (FIB). He then takes 1/6 (IIRC) of his FIB every year to live on. This allows him to vary his withdrawals to account for good or bad times plus it buffers the withdrawals so that they don't bounce around too much.
__________________
Hyperborea is offline   Reply With Quote
Re: Changing budgets as you age
Old 12-14-2004, 09:12 PM   #8
Thinks s/he gets paid by the post
charlie's Avatar
 
Join Date: Mar 2004
Location: Dallas
Posts: 1,211
Re: Changing budgets as you age

My coffeehouse IRA has a 60% stock 40% bond
split. My plan is to force the stock allocation (in $)
to grow at the CPI rate. We will spend what we
need each year out of the bond portion. We are
currently drawing down the IRA at about 6% per
year. I figure that the port will make about 6% per
year on average (7% for the stock allocation and 4.5%
for the bond). It's a horse race folks! Who knows
how long it will last?

Cheers,

Charlie

P.S. Only 2/3 of our stash is in my IRA. The rest
is compounding merrily away.
__________________

__________________
charlie is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Does retirement spending decrease with advanced age? JustCurious FIRE and Money 24 01-23-2007 12:29 PM
Stone Age Newborns~27,000 years old mickeyd Other topics 0 11-21-2006 12:44 PM
Real retiring age of Spaniards highest ForeignExchange Life after FIRE 0 01-20-2006 08:58 AM
Who picked age 65? mickeyd Other topics 28 05-25-2004 05:20 AM
SS options in firecalc wzd FIRE and Money 4 02-16-2003 10:46 AM

 

 
All times are GMT -6. The time now is 02:54 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.