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Old 02-06-2013, 07:25 PM   #41
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Each situation is unique. DW and I, on the other hand, have pension income (combined w/ SS Disabiity) that is already greater than my net p*ychecks were (I was deferring $40k plus for the last 5 years of w*rk)

So **for us** the transition was actlally painless... more cash, less w*rk. Plus the $600k portfolio.
That would certainly make a big difference. If I had guaranteed joint life time cash flows (especially ones that were inflation adjusted), I would have been comfortable FIREing on less and would have done so earlier.

I took a look at buying an annuity but the pricing for what is called an annuity out here was just awful - I could buy a portfolio of shares with similar initial income and at least the possibility of future increases as the dividends rise + have access to my capital which seemed a much better deal for me. I'll revisit when I get older.
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Old 02-06-2013, 07:34 PM   #42
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Which country are you a citizen of, and can you qualify for retirement benefits from her? Do you not pretty much has to rely on yourself, if your only citizenship is tied to HK ? I have the impression that there is not really a pension system for residents there, as a result of the laissez-faire approach to governance.
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Old 02-07-2013, 03:39 AM   #43
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i found the update data interesting.

Trinity study update - Bogleheads
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Old 02-07-2013, 05:53 PM   #44
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I have been reading Wade's work and his blog for the last year or so and think that he is really a smart guy who communicates very well. However, his idea about ditching bonds for a fixed annuity would not work at all for someone like me and DW who have 3 pensions and two SS income streams each month.

It would be too much guaranteed income. I prefer to manage my 60/40 asset allocation of index funds on my own and retain the flexibility.

Milevsky interprets Wade somehat differently. He says that 1/3 of your nest-egg should be in annuity-like things. Compute the PV of pension, SS, annuities, and other guaranteed income streams, add that amount to the value of your portfolio (401K, IRAs, bonds, stocks, etc), and divide that by 3. (Note that this is for computation only -- he's not suggesting that you consider the PVs as part of your portfolio for asset allocation purposes.)

If the PVs total less than 1/3 of this, buy enough SPIA to make up the difference.

Annuity Analytics: How Much to Allocate to Annuities?

If your guaranteed income stream is close to your bare-bones living expenses, then you can breathe easy about a 4% or perhaps even 5%-6% SWR.
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Old 02-08-2013, 08:34 AM   #45
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Since the money may have to last for 50+ years and we have no SS etc to fall back on, I am uncomfortable with any plan that calls for a reduction of principal. Current plan is to live off a little less than the mostly dividends and rents we will collect on our investments.

I would be even more uncomfortable with any plan that assumed we would spend down to anywhere close to our last dollar over a given number of years. I would lose so much sleep worrying that I might live longer and not have any money to support ourselves.
+1. LBYM is the mantra when you're working, why does it go out of the window when you retire? My plan is to live off rent, SS and some of the income my portfolio produces. I expect my portfolio to increase in retirement. People will say I'm leaving a lot on the table, but I don't need to spend money on useless cr@p and I'll be able to live just the same as I do now as a wage earner. My estate will go to my nieces so they'll be comfortable. One of them will probably spend it all, the other two will save it like I've done and pass it on to their children. Doing that for a few generations is a way for families to become wealthy. All this 4% rule stuff and spending down of principal is a conspiracy to keep future generations beholden to "The Man". If we truly value financial independence why not pass some of it on to our heirs.
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Old 02-08-2013, 08:52 AM   #46
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+1. LBYM is the mantra when you're working, why does it go out of the window when you retire? My plan is to live off rent, SS and some of the income my portfolio produces. I expect my portfolio to increase in retirement. People will say I'm leaving a lot on the table, but I don't need to spend money on useless cr@p and I'll be able to live just the same as I do now as a wage earner. My estate will go to my nieces so they'll be comfortable. One of them will probably spend it all, the other two will save it like I've done and pass it on to their children. Doing that for a few generations is a way for families to become wealthy. All this 4% rule stuff and spending down of principal is a conspiracy to keep future generations beholden to "The Man". If we truly value financial independence why not pass some of it on to our heirs.
What do you mean LBYM goes out the window when you retire? We spend way more now in retirement then while we were working and saving, but we are still LBYM. We are done saving - we did that while working. Another important reason - we now have TIME to enjoy spending the money, and our health is good now. So, IMO this is the time to make the most of what we saved.

We don't feel the great need to pass it along to future generations. What is left over we will pass along to relatives and charities, but we also gift to them now while we are living.

And we aren't accumulating "stuff" either. Most of our spending on ourselves goes towards experiences, not things.
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Old 02-08-2013, 09:05 AM   #47
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What do you mean LBYM goes out the window when you retire? We spend way more now in retirement then while we were working and saving, but we are still LBYM. We are done saving - we did that while working. Another important reason - we now have TIME to enjoy spending the money, and our health is good now. So, IMO this is the time to make the most of what we saved.

We don't feel the great need to pass it along to future generations. What is left over we will pass along to relatives and charities, but we also gift to them now while we are living.

And we aren't accumulating "stuff" either. Most of our spending on ourselves goes towards experiences, not things.
My definition of LBYM in retirement is that you don't spend principal. Given the dependence on your portfolio to produce income, rather than a job, it seems foolish to eat into it.
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Old 02-08-2013, 09:10 AM   #48
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+1. LBYM is the mantra when you're working, why does it go out of the window when you retire?
There are those, of course, who did all that saving mostly (if not, purely) for selfish reasons -- YOLO, You can't take it with you, "Laissez les bons temps rouler," life looks different now, etc. Shaking your finger at them doesn't make them wrong.

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but I don't need to spend money on useless cr@p...
Yeah, like travel, a higher quality (safer) automobile, charity, "kicking back," and all that "crap,"

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Doing that for a few generations is a way for families to become wealthy... If we truly value financial independence why not pass some of it on to our heirs.
Unless your name is Rockefeller, or some such, that wealth is only going to last a generation or two (Oh! yeah, even then) -- easy come easy go. Making it on your own didn't teach you that? Look around.
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Old 02-08-2013, 09:21 AM   #49
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Milevsky interprets Wade somehat differently. He says that 1/3 of your nest-egg should be in annuity-like things. Compute the PV of pension, SS, annuities, and other guaranteed income streams, add that amount to the value of your portfolio (401K, IRAs, bonds, stocks, etc), and divide that by 3. (Note that this is for computation only -- he's not suggesting that you consider the PVs as part of your portfolio for asset allocation purposes.)

If the PVs total less than 1/3 of this, buy enough SPIA to make up the difference.

Annuity Analytics: How Much to Allocate to Annuities?

If your guaranteed income stream is close to your bare-bones living expenses, then you can breathe easy about a 4% or perhaps even 5%-6% SWR.
Milevsky is a very bright guy, I've read several of his articles. But for those who want to put some of their portfolio into an annuity, investing 1/3rd seems arbitrary. Otar's methodology makes more sense to me (he has fans & not here). How much you annuitize should be governed more by meeting your floor or basic income needs through pensions/annuities. That could be less than 1/3rd or much, much more. YMMV
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Old 02-08-2013, 09:28 AM   #50
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There are those, of course, who did all that saving mostly (if not, purely) for selfish reasons -- YOLO, You can't take it with you, "Laissez les bons temps rouler," life looks different now, etc. Shaking your finger at them doesn't make them wrong.
They are definitely not wrong.....I just don't see a reason to change my philosophy post retirement. I saved before retirement and I'll save after was well.

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Yeah, like travel, a higher quality (safer) automobile, charity, "kicking back," and all that "crap,"
I do and will do a lot of traveling, but usually on my bike. A year ago I rode half way around Iceland, drove the rest and stayed in hostels. It was inexpensive and amazing. I give to local charities. I don't see the need for a BMW when a Honda gets me safely where I need to go...that's when I don't go on my bike.

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Unless your name is Rockefeller, or some such, that wealth is only going to last a generation or two (Oh! yeah, even then) -- easy come easy go. Making it on your own didn't teach you that? Look around.
You obviously don't know my nieces, one will spend it and two will save it and add to it. This is my plan. I imagine it won't be one that many will follow, but I have removed all worry about running out of money and expect my estate to provide for me and form the foundation of a financial independence for my nieces.
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Old 02-08-2013, 09:33 AM   #51
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Milevsky is a very bright guy, I've read several of his articles. But for those who want to put some of their portfolio into an annuity, investing 1/3rd seems arbitrary. Otar's methodology makes more sense to me (he has fans & not here). How much you annuitize should be governed more by meeting your floor or basic income needs through pensions/annuities. That could be less than 1/3rd or much, much more. YMMV
+1, If you can cover you expenses from SS, rent etc they act as your annuity and you could go 100% equities with your portfolio. If you need an annuity along with SS, rent etc to cover your basic needs make sure you account for inflation if the annuity is not COLAed
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Old 02-08-2013, 10:02 AM   #52
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This article appeared on MarketWatch this morning, "4% rule gets downsized"

Retirement's "4% rule" for nest-egg withdrawals gets downsized - Encore - MarketWatch

There is a link in the article that takes you the PDF from Morningstar, Pfau is one of the authors.

http://corporate.morningstar.com/ib/...rawalRates.pdf
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Old 02-08-2013, 10:10 AM   #53
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This article appeared on MarketWatch this morning, "4% rule gets downsized"

Retirement's "4% rule" for nest-egg withdrawals gets downsized - Encore - MarketWatch
The "bottom line" from the above link:
Quote:
in today’s markets, retirees who want “a 90% probability of achieving a retirement income goal with a 30-year time horizon and a 40% equity portfolio” should withdraw just 2.8%.
Before anyone relying on drawing 4% panics, note this from the article:
Quote:
the authors also assumed that retirees will lose one percentage point in annual returns to investment fees.
Using low-cost funds and managing your own investments you can easily cut that 1% fee to 0.2%, allowing that 2.8% to become 3.6% - not far from the traditional withdrawal number. One more example that "cost matters".
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Old 02-08-2013, 10:24 AM   #54
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The Morningstar article today also admits that additional stock will also help, since the problem their talking about is low bond returns. Just sayin'...
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Old 02-08-2013, 10:31 AM   #55
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My definition of LBYM in retirement is that you don't spend principal. Given the dependence on your portfolio to produce income, rather than a job, it seems foolish to eat into it.
To me, that's an extremely restrictive definition of LBYM. There is absolutely nothing wrong with spending down principal over one's lifetime. You just can't be that aggressive about it so you don't go to zero while still alive.
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Old 02-08-2013, 10:32 AM   #56
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The "bottom line" from the above link: Before anyone relying on drawing 4% panics, note this from the article:
Using low-cost funds and managing your own investments you can easily cut that 1% fee to 0.2%, allowing that 2.8% to become 3.6% - not far from the traditional withdrawal number. One more example that "cost matters".
Whew! Thanks for that follow up - I didn't exactly 'panic', but I did raise an eyebrow. Very good example of just how important that 'little' 1% fee is, and the overwhelming advantage of DIY.

-ERD50
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Old 02-08-2013, 10:41 AM   #57
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My definition of LBYM in retirement is that you don't spend principal. Given the dependence on your portfolio to produce income, rather than a job, it seems foolish to eat into it.
This is an empty definition. It's just a slogan that doesn't have any concrete meaning.

What does "principal" mean? If your assets are cash, CDs, bonds, etc. then, sure, it does have a standard meaning. But "principal" is meaningless when applied to stocks & other equity or equity-like assets.

If you retire with $100,000 of BRK and it goes up to $125,000 -- what then? If you withdraw $10,000, does that count as "spending principal"? Or are you only allowed to spend dividends? Which BRK doesn't pay.

If you retire with $100,000 of JNJ, which currently pays 3.2% dividend yield ($2.44 per share) -- what then? I guess you are only allowed to spend $3200 per year. What if JNJ goes up to $125,000? What if it goes down to $75,000?

Stock dividends are just a matter of the company deciding whether to keep cash to grow internally, or to distribute it to shareholders. To the shareholder, there is essentially no difference, it's just a matter of getting cash directly (via dividends) or indirectly (by selling shares).

FWIW -- Right after I started my IRA in the late 1970's I thought about buying Berkshire Hathaway stock. I didn't, because it would have taken my entire IRA ($2000) to buy one share. But if I had, that 1 share would now be worth $150,000. My question is, would "don't spend principal" mean that I'm not allowed to spend any of that $148,000 gain? Some of it? all of it? none of it? In "some", how do you deternine how much?

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If you can cover you expenses from SS, rent etc they act as your annuity
Only guaranteed income counts as annuity. Rental income does not, since it's not guaranteed. Same for dividends.
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Old 02-08-2013, 11:00 AM   #58
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What does "principal" mean? If your assets are cash, CDs, bonds, etc. then, sure, it does have a standard meaning. But "principal" is meaningless when applied to stocks & other equity or equity-like assets.
For me, LBYM (not spending principal) means only spending distributions from the portfolio, dividends, interest etc. It's not a law, but a guiding principle. The growth in the value of the stocks in the portfolio is a way that the dividends will keep up with inflation. If you own stocks that don't produce dividends and the return is only capital appreciation then you'd have to come up with an algorithm to take some of that appreciation as income. Maybe you'd define your principal as the starting value of the stocks multiplied by (1+ annual inflation) and take anything above that as income. I tend to own funds that throw off dividends so I'll take those as income and use any capital appreciation to keep up with inflation.

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Only guaranteed income counts as annuity. Rental income does not, since it's not guaranteed. Same for dividends.
Rental income can be highly variable, but I'm confident that my rental income is secure as I only have to deal with a single renter, the apartment is in the ground floor of my house and I live in an area with many young professionals and graduate students. In 17 years of renting I've never had a vacancy and I'm mortgage free so I have lots of equity to fall back on.
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Old 02-08-2013, 01:10 PM   #59
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Before anyone relying on drawing 4% panics, note this from the article:
Quote:
the authors also assumed that retirees will lose one percentage point in annual returns to investment fees.
Using low-cost funds and managing your own investments you can easily cut that 1% fee to 0.2%, allowing that 2.8% to become 3.6% - not far from the traditional withdrawal number. One more example that "cost matters".
Good catch! Every day I'm more convinced of the great debt I owe John Bogle. Maybe someone else would have decreased costs for "the masses" as he did--but they didn't.
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Old 02-08-2013, 02:35 PM   #60
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To me, that's an extremely restrictive definition of LBYM. There is absolutely nothing wrong with spending down principal over one's lifetime. You just can't be that aggressive about it so you don't go to zero while still alive.
+1

Our high level philosophy is that retirement is what we saved for. Seriously, we were married @ age 19, and our net worth depended on how full the gas tank was. We scrimped and saved and now we are enjoying the fruits of that effort. Draw down princ? Heck yes. In a systematic manner. We currently target age 90 for portfolio depletion. That would leave us with just a nice pension and SS. In todays dollars more than enough to live on. We suspect that by 90 DW will no longer want a BMW Z-4. We will most likely not be traipsing around the world. A cruise or two a year might be all we can handle.

I fully recognize that all of our plans could fly out the window - health disaster, a 1929 collaps, a WWII disaster, or whatever. If those biggies happen, I adjust. Even w*rk again. Oh well.
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