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Old 08-10-2017, 05:09 AM   #61
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If I read your post correctly, you only spend the dividends in taxable account, not touch the principal before 60. In theory, you could do this forever, no need for any reinforcements.
Nearly true, but not quite. First, the dividends do not grow with inflation, while my expenses do. Second, the built-in surplus I have has been shrinking because some of the dividends themselves have been shrinking. Third, due to some health issues, my overall expenses beyond inflation have risen slightly in the last few years. And fourth, if I have any one-time large expenses which exceed my built-in surplus, they will come out of principal.

Taken together, in a few years these 4 things will probably erode my remaining built-in surplus and force me to use some principal before the reinforcement begin to arrive. I have lots of principal including some "slush funds" set aside just for this purpose.

Any one of my reinforcements will probably be enough to offset these gradual, negative pressures on my financial picture. And those reinforcements do not include a possible inheritance down the line, nor do they include a likely reduction in my medical expenses from switching from an ACA health plan to Medicare.
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Old 08-10-2017, 06:52 AM   #62
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Back up plan when savings run out to $0.00 and you only have $1200-$1300 in Social Security .... move to a cheap Asian country like the Philippines or Thailand and still live fine.
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Old 08-10-2017, 12:09 PM   #63
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Not knowing what #1 "Cruise Ship Giglio" meant I Googled it. The answer from Google is all related to the Costa Concordia Ship disaster. I must admit to extreme befuddlement. #'s 2-4 I can relate to.


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Old 08-10-2017, 06:41 PM   #64
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4. Moved to a place with minimal healthcare costs.
Luckily I only pay $100/month for health insurance and other out of pocket costs are low. When I hit Medicare age my costs will rise as I'll have to pay PartB and a comprehensive Medicare extension plan......that combo is currently $200/month. I might then consider moving to the UK for the NHS, but who knows what it will be like post BREXIT.
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Old 08-10-2017, 07:27 PM   #65
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Back up plan when savings run out to $0.00 and you only have $1200-$1300 in Social Security .... move to a cheap Asian country like the Philippines or Thailand and still live fine.
How could you do that in your 70s or 80s?
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Old 08-10-2017, 08:03 PM   #66
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I guess my approach is to keep distinct silos for 3% annual withdrawal. For a prolonged risk-off scenario I keep 33x current annual expenses (excluding income taxes) in FDIC-insured deposits. Exposure here is inflation in case CD rates never catch up to inflation. For this issue I keep 33x current expenses in common stocks which hopefully hold up better but could get wiped out by a lawsuit. So for that exposure I have 33x current expenses in my 401K and IRA which hopefully offers some protection. Mostly in international stock funds which may help if the US dollar crashes.

If none of these work then Plan B is expense reduction, which would be difficult for me because I think I'm at the minimum right now. But if the need arose, leaving California would be an option. Plan C would be returning to work as a part time contractor if they'll have me and tutoring math or science if not. My current expenses are less than what my projected Social Security benefit will be so the gap I expect to be relatively small. So hopefully covered by just a few hours a week.

Pensions, children, and inheritance ain't gonna happen for me.
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Old 08-10-2017, 08:17 PM   #67
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I guess my approach is to keep distinct silos for 3% annual withdrawal. For a prolonged risk-off scenario I keep 33x current annual expenses (excluding income taxes) in FDIC-insured deposits. Exposure here is inflation in case CD rates never catch up to inflation. For this issue I keep 33x current expenses in common stocks which hopefully hold up better but could get wiped out by a lawsuit. So for that exposure I have 33x current expenses in my 401K and IRA which hopefully offers some protection. Mostly in international stock funds which may help if the US dollar crashes.

If none of these work then Plan B is expense reduction, which would be difficult for me because I think I'm at the minimum right now. But if the need arose, leaving California would be an option. Plan C would be returning to work as a part time contractor if they'll have me and tutoring math or science if not. My current expenses are less than what my projected Social Security benefit will be so the gap I expect to be relatively small. So hopefully covered by just a few hours a week.

Pensions, children, and inheritance ain't gonna happen for me.
Did I read that right? You have 99x your expenses? Wow. Belt, suspenders, and super glue. Lol.
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Old 08-10-2017, 09:45 PM   #68
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We came from nothing so know what it's like. Blessed by the Lord and never want to go back, we could cut way back if need be. Honestly we don't spend much now. Our activities aren't expensive but we would definitely have to move to another state.
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Old 08-11-2017, 06:40 AM   #69
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The most broke period I ever lived through was in grad school. I didn't own a car, shared a house, read books and talked about lofty matters with other smart, broke people, like my future wife, whom I met then. I could see the checking account dwindling to nearly nothing each week and there was no savings account. It was awesome. Today in our early 50s we have seven figures saved, no debt and good jobs and SS is there someday, so Plan B is knowing DW and I can muddle through whatever, should we have to again, and it will be alright.
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Old 08-11-2017, 06:45 AM   #70
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Nearly true, but not quite. First, the dividends do not grow with inflation, while my expenses do. Second, the built-in surplus I have has been shrinking because some of the dividends themselves have been shrinking.
Surprised your divs are not increasing or even shrinking. My divs are now growing by about 7% per year and have doubled since retirement n 2006. This has kept my cash flow (divs plus pension) growing ahead of inflation.
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Old 08-11-2017, 07:04 AM   #71
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The most broke period I ever lived through was in grad school. I didn't own a car, shared a house, read books and talked about lofty matters with other smart, broke people, like my future wife, whom I met then. I could see the checking account dwindling to nearly nothing each week and there was no savings account. It was awesome. Today in our early 50s we have seven figures saved, no debt and good jobs and SS is there someday, so Plan B is knowing DW and I can muddle through whatever, should we have to again, and it will be alright.
Similar comments may have different meaning dependent upon your status, i.e., retired or not.
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Old 08-11-2017, 07:18 AM   #72
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My first safety net is realizing that 4% is not a rule at all, but a finding in a study that historically has worked over a 30 year period. It may or may not work in the future, over longer periods. So I had no plans to ER at 4%.
+1 Even if you put all your faith in 4%, it does not apply to early retirees.

To answer the OP's question - we keep 3 years of expenses in short-term investments to help protect against sequence of returns risk.
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Old 08-11-2017, 07:43 AM   #73
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Though not quite retired, my safety net is similar to what others have mentioned. We have a "luxury" budget that I have used for forecasting planned expenses, and an "austerity budget" for the absolute basics. My pension will cover the austerity budget, and when SS kicks in that would give us some additional breathing room.

In addition, we have enough in cash to cover the gap between pension and our "luxury" budget, or to supplement our "austerity" budget, to not be forced to sell equities before we are eligible for SS.
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Old 08-11-2017, 08:02 AM   #74
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Surprised your divs are not increasing or even shrinking. My divs are now growing by about 7% per year and have doubled since retirement n 2006. This has kept my cash flow (divs p,us pension) growing ahead of inflation.
Most of my dividends are from bond funds, not stock funds. As a percentage of my big bond fund's NAV, the monthly dividends per share has fallen by more than 1/3 since 2009. I have increased that bond fund's share count by about 50% (through rebalancing, reinvested cap gin distributions, and some external purchases), so my monthly dividends have been pretty stable.

My quarterly stock fund dividends have increased somewhat, but they represent maybe 15% of my portfolio.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 08-11-2017, 11:00 AM   #75
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Most of my dividends are from bond funds, not stock funds. As a percentage of my big bond fund's NAV, the monthly dividends per share has fallen by more than 1/3 since 2009. I have increased that bond fund's share count by about 50% (through rebalancing, reinvested cap gin distributions, and some external purchases), so my monthly dividends have been pretty stable.

My quarterly stock fund dividends have increased somewhat, but they represent maybe 15% of my portfolio.
I understand. So the distributions from your bond funds are characterized as divs. These would be interest or cap gains in Canada.
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Old 08-11-2017, 11:11 AM   #76
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For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.
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Old 08-11-2017, 11:20 AM   #77
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I have no safety net. My fixed expenses are so low I don't need one.
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Old 08-11-2017, 11:20 AM   #78
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For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.
Best? Not sure. Why wouldn't a flexible spending plan be equally good and have the advantage of more spending in good times?
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Old 08-11-2017, 11:21 AM   #79
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3 years expenses in cash should cover us, as we carry no debt and have not taken SS or small pensions yet. Further, we could reduce expenses, sell a vacation home, tap a life insurance policy. If a market downturn went into five years or longer, and our dividends took a big hit, I'd be sweating on the equity portion of the portfolio.
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Old 08-11-2017, 01:47 PM   #80
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For early retirees, the best safety net is a conservative withdrawal rate. Since ER, ours has been right about 3%.
That means something very serious, i.e., changing an early retiree to a regular retiree by working a few more years.

By the time we have satisfied the 3% rule, we would find that we just need the 4% rule (being older), LOL.
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