"Focus on spending, not stocks mayhem"

[serie1926]

A nice interesting read from Burns.

Curious to hear others thought on the withdrawal strategy.

 

[Meadbh]

My FA tells me I can spend more. But I plan to follow these guidelines in 2016 despite a portfolio gain of 1%. No equity withdrawals, no increase in total withdrawal. It helps me to sleep at night.

 

[ejman]

Good read, and sensible recommendations. I think most retirees (certainly most ER types which tend to have some investment savvy or they wouldn't be ER) will check the investment weather and adjust expenditures accordingly if stormy weather looks likely. I am a bit surprised about the allowed safe spending being 50% higher if those rules he mentions are followed and will check into that further.

 

[Options]

Nearly forgotten? What rock has Burns been living under? The Guyton-Klinger rules have been discussed in a number of publications/blogs, etc. (Pfau, Cotton, et al). These rules have been incorporated into ***** calculator for at least a couple years.

Supporting evidence can be found in a nearly forgotten research paper...In 2006, financial planner Jonathan Guyten and William Klinger added a new dimension to withdrawal rate studies.

Emphasis added

 

[audreyh1]

Here is a recent overview of the Guyton Klinger rules (UK version).
Guyton-Klinger's Sustainable Withdrawal Rules for Retirement Portfolios - FinalytiQ

I follow a sort of simplified version of this by not doing any inflation adjustment, and letting my withdrawal track with the portfolio performance (fixed % of remaining portfolio). After a negative year, my withdrawal drops in $ term - I take a pay cut proportional to the portfolio loss. But after a good year, I get a raise proportional to the portfolio gain. Rebalancing guarantees that withdrawals are only taken from whichever asset class outperforms.

I didn't try to start with 4.7% or whatever withdrawal rate.

Spending is managed by not letting our "essentials" budget grow to match our portfolio growth. That way it's mostly our discretionary spending that has grown over time, and we usually end up with excess at the end of the year which we set aside to spend whenever we like in the near future. The advantage of discretionary spending is that it can be cut, if necessary, without much pain.