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Old 09-03-2013, 08:59 AM   #21
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"The Number" is an illusion. Hitting it in a peak and then falling back is pretty normal. It's not unusual to have 2 or 3 10% equity drops in a year. A 25% drop should be considered likely every 7 or 8 years. I've seen several ~50% equity drops in my investing lifetime. Still with all this, the equity market averaged around +10% per year for the last 100 years or so.

It all comes down to your spending and other income. I don't think any retiree blindly follows the 4%+ inflation "rule" despite it being widely discussed. If you retired in October 2007, could you survive on what you would need to do to conserve your assets? Most of the retirees I know have hunkered down in light of the 2008 meltdown and the continuing poor yields in the fixed income market.

Being able to adjust means you have areas you can reduce spending. If your "Number" meets this requirement, I wouldn't worry about the little pullback we've just had.
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Old 09-03-2013, 09:22 AM   #22
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Yes, 2B. I remember hitting my "number" back in 2011, while still working. I remember posting about it and someone pointed out you may hit it again... and again... and...

They were right!
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Old 09-03-2013, 10:05 AM   #23
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The 5% fear is an issue that is very much personal. I personally find some of those who insist on 99+% FireCalc (or two times FireCalc) to resemble obsessive compulsives, although I have no doubt they are doing what is appropriate for them.
Yes, to each their own and all, but I really can't see 99+ compared to the default 95% being described as anything near 'obsessive compulsive'. Analogy: If you hit the last gas station before crossing a desert, would you shrug off a calculation that said you had enough gas to cross the desert 95% of the time? Would it be 'obsessive compulsive' to concern yourself with a 5% failure rate? I don't think so, I think it would be prudent.

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That said, the number I'm planning for includes about 20% in travel, which is complete budget slack. And we once lived happily as poor grad students and can do so again as a modest middle-class; the number planned, based on a scale back of our current lifestyle, is still a life that I never expected for myself, nor my wife.
Here's the issue for me - I don't think the vast majority of those who say 'I'll just cut back spending if things go badly', 'We'll eat hamburger instead of steak', 'We won't eat out so often', etc have run the numbers to understand what that means. 20% or 30% won't get you there, based on historical numbers.

Go to FIRECalc and run the typical $40,000/$1,000,000 30 year profile for 95% success. Then try the spending models. You'll find it takes cuts of more than 50% (about 58% worst case, ~ $17K), and cuts below $25K go on for a decade or more. Not $8,000 (20%).

Alternatively, a 3.57% WR has been historically 100% safe for 30 years. That's a cut in spending of under 11% from a 4% spend rate.

Again, to each their own, but I'd rather have the higher degree of confidence that is associated with spending a straight, inflation adjusted 3.57% from the start, than to start with 4% and have to drop below 2% a few years later. For me that would involve a substantial downsize/move - and that would very likely be a bad time for real estate in a poor economy. Would I ever recover that loss? That would just leave me deeper in the hole.

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Old 09-03-2013, 10:53 AM   #24
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Is there really a rule of thumb for x times annual expenses to arrive at some number?

Some have cited 36x for instance.
I doubt there can be much in terms of this type of thumbrule unless you're also specific as to whether someone has a pension or not.

For me, there's no way I will gun for 36x expenses. Now, what I COULD do is take my pension out of my expenses (creating "expenses after pension applied") and figure out my number based on THAT.

A thumbrule based on my preliminary "number" and "expenses after pension applied", I come up with 26x expenses, so that seems about right.
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Old 09-03-2013, 10:55 AM   #25
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Go to FIRECalc and run the typical $40,000/$1,000,000 30 year profile for 95% success. Then try the spending models. You'll find it takes cuts of more than 50% (about 58% worst case, ~ $17K), and cuts below $25K go on for a decade or more. Not $8,000 (20%).
I use the manual spending model on Firecalc where you can change spending per year. I've found that for my portfolio the difference between 95% and 100% is a difference of about $5000 a year. I don't make any changes for the first 6 years and then in year 7 change it to reduce it $5000 a year. I think that is something very doable. I could get to 100% with fewer cuts if I instead made changes in the first 6 years.
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Old 09-03-2013, 11:23 AM   #26
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Just for the record, when I used the above calculator it told me I need about 1.5 million more that what all my other calculations have come up with, including FIRECalc. Is it me or are they trying to scare people into investing with them? If my number was as high as they say I'd have to work until age 70+. Although when I did retire I would be able to live like a king. At least for the 15 years I had left since I only said to use a life span of 85.
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Old 09-03-2013, 12:32 PM   #27
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I use the manual spending model on Firecalc where you can change spending per year. I've found that for my portfolio the difference between 95% and 100% is a difference of about $5000 a year. I don't make any changes for the first 6 years and then in year 7 change it to reduce it $5000 a year. I think that is something very doable. I could get to 100% with fewer cuts if I instead made changes in the first 6 years.
W/O knowing the other inputs (SS/pension timing), and what %WR $5,000 represents, it's hard to comment. If SS/pensions provide a big % of expenses then a $5,000 cut could well be a 50% reduction in WR from the portfolio. That is why I presented my numbers in the generic sense.

But I'd suggest that people need to run these for their own scenarios before assuming minor cuts will provide major relief.

If a $5,000 cut in year 7 is very do-able for you, I could see spending that extra $5K the first 6 years, and then re-evaluate. If the portfolio is still in good shape, keep spending the original amount.

I guess this is a hot button for me personally, because I would find it difficult to cut spending. We spend on what seems to be the high side for most here, but that seems to be mostly due to our COL area, and a largish house (so high taxes). We don't take expensive vacations, don't eat out all that much, modest vehicles, no cable, cheap pre-pay cell-phones, etc. So I'm looking for a number that will likely work through the worst of times, w/o cutting.

Cuts for us would likely mean a big change in where we live. And that might incur added travel expenses to visit friends/family, and that might get more difficult as we age. So for me, a conservative flat level seems to make more sense. A non-COLA pension factors into that also.

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Old 09-03-2013, 02:01 PM   #28
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I'm a little late to the thread, but yes - I hit my number and decided to ER. But then I went below my number and realized that "my number" needed to change. Why ? Because I see ER as a one way street. I will not get another job at my current salary, so I'd rather be prudent and wait a bit. My "new number" includes a 15% buffer over 100% sucess in FIRECalc. Is that crazy obessive-compulsive ? Maybe. BUT I know I will sleep at night when I finally do ER with my "new number".
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Old 09-06-2013, 06:52 AM   #29
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Just for the record, when I used the above calculator it told me I need about 1.5 million more that what all my other calculations have come up with, including FIRECalc. Is it me or are they trying to scare people into investing with them? If my number was as high as they say I'd have to work until age 70+. Although when I did retire I would be able to live like a king. At least for the 15 years I had left since I only said to use a life span of 85.
Basically, they have a vested interest in you leaving as much money with them as long as possible.

One person I know was still working at 65 (or so) and had a minor stroke. He had a substantial portfolio and a good pension. He thought he could easily live on 4% of his portfolio. When he talked with his "financial adviser," he was told that he didn't have enough money and that they could look at things again when he was 70. He retired anyway. About 6 months later we traded emails. He had fired his FA when he realized that he was being charged 1% to be put into high fee funds. Up until then he had ignored my encouragement to look at index investing.

I think it's pretty normal in the FA business to be able to get away with the high fees when dealing with well compensated, busy people. When retired, they realize how badly they are being ripped off. Hence, a key reason to keep their busy client fully engaged in other activities.

I've seen articles from the big finacial houses that advocating retiring on over 100% of your prior income. My favorite had the theme of "Haven't you always wanted to spend a month in the south of France?" Just work until you're 80 or so and you too can spend a month pushing your walker around Nice.
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Old 09-06-2013, 06:58 AM   #30
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I'm a little late to the thread, but yes - I hit my number and decided to ER. But then I went below my number and realized that "my number" needed to change. Why ? Because I see ER as a one way street. I will not get another job at my current salary, so I'd rather be prudent and wait a bit. My "new number" includes a 15% buffer over 100% sucess in FIRECalc. Is that crazy obessive-compulsive ? Maybe. BUT I know I will sleep at night when I finally do ER with my "new number".
I am a Bernicke model type. I've seen my in-laws and parents follow the pattern of reduced spending as they age. By the time my in-laws were 80 they ate modestly, hit an occasional early bird special, gave to their church and spent most of their time around the house. They hardly ever bought anything. My own parents were dead before 80. If someone thinks they'll need as much money for their lifestyle then as their 50's, they are delusional.
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Old 09-06-2013, 07:53 AM   #31
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I use the manual spending model on Firecalc where you can change spending per year. I've found that for my portfolio the difference between 95% and 100% is a difference of about $5000 a year. I don't make any changes for the first 6 years and then in year 7 change it to reduce it $5000 a year. I think that is something very doable. I could get to 100% with fewer cuts if I instead made changes in the first 6 years.
I use the manual spending model as well for projections. I frequently update my projected expenses as things change. I then re-run Firecalc with the new projected spending profile. I plan to do this at least annually.
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Old 09-06-2013, 10:30 AM   #32
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If someone thinks they'll need as much money for their lifestyle then as their 50's, they are delusional.
You seem confident that your anecdotal evidence will hold and that your idea of a spending model will work for you. Congratulations.

My grandparents traveled actively in their late 80's, but they increased their spending to do so at higher cost places and with hiring drivers and such. In her 90's my grandmother finally retired to an elder care system with tiered care, that kept her active and engaged even as her health progressively failed. It wasn't cheap. My parents are retired in place, but they are largely able to stay in place (resort house that they love) because they can hire help for cleaning, gardening and general handyman jobs that would otherwise be too much for them.

If the decreasing spending model works for you, bravo. But my anecdotal evidence is that quality of life can be maintained by level or increased spending models. I don't think I am delusional since I have immediate family experience in doing so.
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Old 09-06-2013, 11:24 AM   #33
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W/O knowing the other inputs (SS/pension timing), and what %WR $5,000 represents, it's hard to comment. If SS/pensions provide a big % of expenses then a $5,000 cut could well be a 50% reduction in WR from the portfolio. That is why I presented my numbers in the generic sense.

But I'd suggest that people need to run these for their own scenarios before assuming minor cuts will provide major relief.

If a $5,000 cut in year 7 is very do-able for you, I could see spending that extra $5K the first 6 years, and then re-evaluate. If the portfolio is still in good shape, keep spending the original amount.
Our situations is a little different than most people. There is no chance we would ever keep spending the original amount that we spend for the first 6 years, well the first 3 years actually. The next 3 years for us are very high spending, not at all sustainable for the long-term. This is because of 2 kids in college. We expect during that 3 years to see our portfolio decrease significantly. However, the key word in that sentence is expect. That is we know that the later withdrawal rate will be based upon a portfolio less than we have at this time. (Years 4 to 6 are a little higher in spending than years 7 and on mostly because I won't be on medicare until year 7 and my health insurance is much higher in cost than Medicare + supplement).

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I guess this is a hot button for me personally, because I would find it difficult to cut spending. We spend on what seems to be the high side for most here, but that seems to be mostly due to our COL area, and a largish house (so high taxes). We don't take expensive vacations, don't eat out all that much, modest vehicles, no cable, cheap pre-pay cell-phones, etc. So I'm looking for a number that will likely work through the worst of times, w/o cutting.

Cuts for us would likely mean a big change in where we live. And that might incur added travel expenses to visit friends/family, and that might get more difficult as we age. So for me, a conservative flat level seems to make more sense. A non-COLA pension factors into that also.
I can see in your situation why cuts would be difficult. In our expenses though we do it differently. We plan for quite a bit of discretionary spending that it wouldn't really hurt that much to cut. We eat out a lot. Cutting, say, $100 a month from dining out is not a big deal. And for other stuff that is true as well. There certainly is a level below which making significant reductions would involve major changes (such as moving) but that level is well below the spending that would put us at 100% on Firecalc.
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Old 09-06-2013, 11:57 AM   #34
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You seem confident that your anecdotal evidence will hold and that your idea of a spending model will work for you. Congratulations.
I don't think it is just anecdotal evidence that most people spend less in late old age. If you look at the following source you will find that mean spending of those 75 and older is well below those 65 to 74 and lower still than the population under 65 even if you adjust for household size.

I know there are exceptions and some people do spend as much or more in later life (particularly those with significant health problems where they need to hire care), but that that isn't most people.

www.bls.gov/cex/22012/midyear/age.pdf
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Old 09-06-2013, 12:53 PM   #35
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[QUOTE=Katsmeow;1354237]Wee 33x is basically a 3% withdrawal rate. 25x is basically a 4% rate.



Wait a minute. What am I missing here. Your saying if you withdraw less (3%) you need more money (33x) and if you withdraw 4%, you need (25x) Or am I completely missing the meaning here.
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Old 09-06-2013, 12:56 PM   #36
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I know there are exceptions and some people do spend as much or more in later life (particularly those with significant health problems where they need to hire care), but that that isn't most people.
My in-laws were both in some form of care facility (assisted, memory, skilled nursing) at the same time for about three years. That was definitely an increase in their living expenses during that period. After my MIL passed away, the care for my FIL was about their previous normal living expenses. They got a great income tax break because the cost of care was deductible if over 7% of gross (now 10%) so they effectively paid no income tax on their normal taxable income for about 8 years.

I would certainly like to think I'll be taking the kind of vacations I'm taking now when I'm 80 but I haven't seen any of my wife's or my relatives doing that sort of traveling. In most cases I don't think money is the issue.

Barring extraordinary circumstances, I have plenty of money to support my current lifestyle. My current Bernicke based plan still has my age 70+ allowable (safe) spending safely over what I normally spend in most years. That includes 3 or 4 weeks in foreign travel and several domestic trips. I can't imagine traveling that much when I'm near 80. Based on my family history, I'll be dead by then.
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Old 09-06-2013, 01:03 PM   #37
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[QUOTE=modhatter;1355274]
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Wee 33x is basically a 3% withdrawal rate. 25x is basically a 4% rate.



Wait a minute. What am I missing here. Your saying if you withdraw less (3%) you need more money (33x) and if you withdraw 4%, you need (25x) Or am I completely missing the meaning here.
Maybe. What I am saying is that if someone wants to have a portfolio that is 33x what they are withdrawing then that is the same as saying they have a 3% withdrawal rate. If the person wants to have a portfolio that is 25x what they are withdrawing then they have a 4% withdrawal. Some people feel they need to have a 3% rate and others feel fine with 4%....
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Old 09-06-2013, 01:03 PM   #38
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[QUOTE=modhatter;1355274]
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Wee 33x is basically a 3% withdrawal rate. 25x is basically a 4% rate.



Wait a minute. What am I missing here. Your saying if you withdraw less (3%) you need more money (33x) and if you withdraw 4%, you need (25x) Or am I completely missing the meaning here.
You have it backwards. This assumes equal spending. If you need $10,000 per year, you need a portfolio of $333,333 (33x) with a 3% withdrawal. For the same income at 4%, you need $250,000 (25x).
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Old 09-06-2013, 01:20 PM   #39
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I've seen articles from the big finacial houses that advocating retiring on over 100% of your prior income. My favorite had the theme of "Haven't you always wanted to spend a month in the south of France?" Just work until you're 80 or so and you too can spend a month pushing your walker around Nice.
The average disposable annual household income in France is 28K. Two average US SS checks a month would be $29.5K per year. Plus France has a higher rated health care system, and the doctors make house calls.

See -
OECD Better Life Index

This is the kind of stuff I'd like my financial adviser to be pointing out!
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Old 09-06-2013, 01:40 PM   #40
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The average disposable annual household income in France is 28K. Two average US SS checks a month would be $29.5K per year. Plus France has a higher rated health care system, and the doctors make house calls.

See -
OECD Better Life Index

This is the kind of stuff I'd like my financial adviser to be pointing out!
I won't get into the details of what you mean by disposable income but France is expensive even for the locals. I'd have trouble establishing a "normal" lifestyle even with my income. With French income taxes, I'm toast. Housing is unbelieveably expensive IMHO and people use all sorts of tricks to try to get deals. People will buy "survivor rights" from the elderly homeowners where they will own the house on their death. Non-residents don't get Frence health care unless they pay for service although for basic office visits it is cheaper than the US.

If you want to save money, try the Czech Republic.
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