How did you adjust to making regular withdrawals and watching your balance decline? - Page 2

Dawg54 · 05-15-2008, 07:36 AM

The withdrawals hasn't hurt much as my w/d factor is much less than 4%. But the stock market heading south the last few months has hurt. Retired just a little over a year, an instant decline is not very comforting. But the rebound the last few weeks has eased the pain.

WilliamG · 05-15-2008, 07:36 AM

I retired at 55 in 2000. We put the lion's share of our already taxed assets in a five year Treasury ladder to live off of til 59 1/2 access to my rollover IRA. Having a multi-year high level plan for expenses and where income will come from takes a lot of the scariness out of near term (even multi-year) bad markets. Looking back it still sorta surprises me how mellow I was while market was so downward during 2001 and 2002!

Currently we still have the 5 year planning process with 1-2 year detailed plans. We take the interest and dividends from our IRA portfolio into a money market within the IRA so portfolio growth is not so completely tied to NAV changes. This near term insulation of future income does a lot to shelter emotions from a downward drift in market values.

youbet · 05-15-2008, 07:42 AM

Quote:

Originally Posted by JustCurious

There is a third alternative...spend less than your portfolio earns, so that the balance continues to grow even without working. But I would hate to deprive myself so that my heirs can live it up when I'm gone.

In years when your portfolio has negative returns, you're going to find it difficult to spend negative amounts....... without going back to w*rk!

REWahoo · 05-15-2008, 07:47 AM

Quote:

Originally Posted by youbet

In years when your portfolio has negative returns, you're going to find it difficult to spend negative amounts....... without going back to w*rk!

I was thinking the same thing. Then I realized I could always use my PenFed Visa Card to spend my negative return - and get cash back! How about that for a lose/win strategy...

**Martha** · 05-15-2008, 07:54 AM

So far, the market ups and downs are far more visible than any withdrawals.

youbet · 05-15-2008, 08:03 AM

Two years into RE, I struggled to not feel guilty over withdrawals. Lately, however, inspried by an ERD50 thread concerning portfolio value fluctuations and after much studying of FireCalc outputs, I've become more comfortable with the fact that there will likely be significant vairation in my portfolio value over time. And that my portfolio will shrink over time. Gimmicks such as buckets, holding large cash balances or extreme diversity don't solve the problem.

I downloaded a number of sample years in spreadsheet format from FireCalc and put middle and ending values into histograms. It's an eye opener! Few "average" outcomes. Many outcomes significantly above or below average and the distributions skewed to the right. Even with a WR that FireCalc indicates would have had a zero failure rate historically, there were lots of close calls and early dips.

In the end, I concluded that variation is something you just have to live with unless you want to buy an annuity or go to something like CD ladders and probably die a slow death to inflation.

After years of accumulating, I try to have money not be an end in itself but rather to live and enjoy my RE while prudently managing my investments.

retire@40 · 05-15-2008, 08:18 AM

One approach you could take is creating a 3 to 5 year withdrawal spreadsheet based on your investment balances and your annual budget.

Column 1 is the current actual balance in all your investment accounts.
Column 2 is the current year withdrawals you plan on taking from each of those accounts.
Column 3 in the balance in your accounts (less withdrawals from prior year plus estimated increase or decrease in value)
Column 4 is withdrawals in year 2
Etc.

All columns may be adjusted on an ongoing basis as facts change. For example, if you had an unexpected large expense in the current year, it may cause you to decrease some of the fluff in your budgets over the next 3 to 5 years in order to absorb that extra cost. Conversely, if you inherit some money from a long-lost relative, you can adjust your entertainment line item over the next few years.

If you see that in year 5 your withdrawals are exceeding your budget, it tells you that your plan may not work unless you do something now to avoid the shortfall.

This will give you some short-term and mid-term confidence that your plan is working.

blessed · 05-15-2008, 08:48 AM

I have been retired 18 months; DH has pension and health from Fed. However, we are withdrawing more than 4% from savings (taking from taxable account). We rebalanced and had to pay big Cap Gains for 2007. So the taxes paid to Fed. and St. came to $24,000; it will be about $2,000 for 2008.

lsbcal · 05-15-2008, 12:41 PM

If your an analytical like me then you will be doing a lot of number crunching to project some worse case historical data onto your situation. My wife likes to have a good time and so she's a counterbalance to my conservative views. I figured we could spend up to 5.2% of portfolio for the first years until SS kicks in and brings this down. This is based on several FireCalc runs.

So far we're about 16% above the inflation adjusted starting portfolio value after about 5 years retirement. Has been a good market though with 55/45 allocation. This buffer could disappear with a very bad stock market -- so no unnecessary increases in spending. That is, aside from that new flashy red hybrid Camry we will be buying in the next week

. Could not convince DW to give up the leather and heated seats.

socca · 05-15-2008, 06:58 PM

Quote:

Originally Posted by Independent

I think my Mom did it by having all of her money in fixed income assets. She spent all the interest, so she had a declining real wealth. But, since the dollar amount never went down, she was okay psychologically. I expect a lot of people in her generation did that. Sounds corny, but remember that we're talking feelings not logic here.

Is the expectation that you can get something (after-tax inflation-adjusted rate of return above zero) for nothing by strategic investing 'logical'? This is certainly the conventional wisdom, and this 'wisdom' certainly brings great emotional comfort to the folks who subscribe to it. The only fly in the ointment is that this 'wisdom' is based on past returns, and the past is gone forever and may never be repeated. If we lived in a sustainable society, then past returns might be more indicative of future returns.

Every month I produce a spreadsheet showing what my laddered bond portfolio paid me the previous month. I compare this against my budgeted monthly expenses (I don't care about actual expenses as long as they're within budget). The ability to tell my megacorp war-mongering war-profiteering employers to take a hike back in Jan 2007 was based on my prediction that my monthly cash flow would be strongly positive. It was, and is. I now have the luxury of trying to develop an entrepreneurial career in line with my values rather than serve the American war machine.

If I were heavily into equities (the conventional wisdom), I would use the same basic management strategy but modify my spreadsheet so that I'm making virtual monthly payments to myself rather than actual payments. I would then track whether my long-term portfolio investment return is in line with my estimates. A short-term market correction (to equity enthusiasts, all downturns are 'short-term') would not be a concern at all. I would simply note that my portfolio is temporarily below its expected long-term trend (up, up, up, always up!!), and go about living my life.

Nords · 05-15-2008, 08:29 PM

Quote:

How did you adjust to making regular withdrawals and watching your balance decline?

The good news is that you're asking this question before you start making the withdrawals.

Quote:

Originally Posted by ejman

Now, 2000-2002 while I was still working - Then it shrunk!

Like EJ says, the better news is that you already know how to adjust. Remember during 2000-2002 when you used to make regular contributions and watch your balance decline? ER's not much different, except that you have more time to ~~obsess~~ focus on your finances because you're not ~~wasting~~ spending all that time in the office.

Quote:

Originally Posted by REWahoo

Yep. But when I consider the alternative (working), it ain't too bad...

Quote:

Originally Posted by REWahoo

One factor that has been of great assistance in my transition from growing to spending our nest egg is the death of friends and siblings. Nothing like the ultimate reminder of the fleeting and temporary nature of life to make you ask yourself "What am I saving it for?".

I used to read the obits in the back of our alumni magazine and think "Man, what a bunch of old guys. I hope I make it that long." Now, however, our class is starting to make a more consistent appearance in that section.

Quote:

Originally Posted by Martha

So far, the market ups and downs are far more visible than any withdrawals.

Until we wrote that check for the car purchase...

lsbcal · 05-15-2008, 08:39 PM

Quote:

Originally Posted by Nords

I used to read the obits in the back of our alumni magazine and think "Man, what a bunch of old guys. I hope I make it that long." Now, however, our class is starting to make a more consistent appearance in that section.

Have you noticed how many people in their 50's and 60's are kicking the bucket? Just crossed the 60's line.

SkisALot · 05-15-2008, 09:09 PM

I've been ER'd 3 years now and living entirely off my portfolio. There are still days when seeing a stock take a dive is very gut wrenching; I go over my options again. Still, I was getting used to living with the uncertainty until inflation became a BIG issue. I didn't count on the real inflation rate that I believe we are experiencing (and that everyone is denying) getting as high as it is. While I have been living below my means, I am always on the look-out for ways to cut back further. This perception has become a way of life now. Living entirely off my money has drastically changed my thinking from what it was when I had a pay check coming in. It's like living in a different world.

megacorp-firee · 05-15-2008, 11:46 PM

Quote:

Originally Posted by JustCurious

There is a third alternative...spend less than your portfolio earns, so that the balance continues to grow even without working. But I would hate to deprive myself so that my heirs can live it up when I'm gone.

Another alternative is to live off the dividends and interest. The balance does not grow, but it doesn't get much smaller (not counting the crazy market actions lately) due to withdrawals.

Mysto · 05-16-2008, 10:01 AM

I've handled the problem by using the "bucket" (I know-I know) theory. At then end of the day it's all just AA but by having a spending bucket of 10 years I just watch my long term bucket grow w/o a drawdown. It's all just psychology but it works for me.

**Want2retire** · 05-16-2008, 10:15 AM

Quote:

Originally Posted by lsbcal

Have you noticed how many people in their 50's and 60's are kicking the bucket? Just crossed the 60's line.

In 23 days I will hit the big six-oh too, and the idea is pretty horrifying. Where did the time go? Where do our lives go? How could this possibly be true?

I'd better quit before someone starts singing "Cat's in the Cradle".

lsbcal · 05-16-2008, 10:52 AM

Want2Retire, you mentioned it was really nice to sit out in the backyard in the morning with a cup of coffee (in a previous thread). Haven't forgotten that, so I tried it this morning since it was very warm ... and you were right!

walkinwood · 05-16-2008, 12:44 PM

Its human nature that losses hurt more than gains feel good. Its the reason why people sell winning investments too soon and hold on to losers too long.

I've just ER'd and to try and prevent a panic, I've done the following
a) Read the original SWR papers by Bengen etc. I am very comfortable with the thinking behind the SWR strategies and the back-testing and MC testing that has gone on. btw, I've chosen to use the 4%/95% plan advocated by Bob Clyatt.

b) Stick to your plan.

c) I've put a spreadsheet that shows what my portfolio 'should' look like taking consumption and a modest investment performance into account. That will show you how you stand at any time in relation to your 'plan'.

d) Don't check your portfolio every day. I can't help myself on this one, but am working on it.

So far - 16 days into ER - I haven't really withdrawn any money so all this is theory so far.

lsbcal · 05-16-2008, 01:21 PM

Quote:

Originally Posted by walkinwood

... So far - 16 days into ER - I haven't really withdrawn any money so all this is theory so far.

I got a kick out of this last sentence

.

What's kind of hard to manage is all those unknown expenses. You can plan for them to some extent, but emotionally it still can be a little difficult to deal with especially in a down market. For us there were things like:

$16k, new roof
$5k, replace forced air ducting
$30k, son decided to really get serious about college so we gave him old car and are buying new one
$15k/yr -- college expense
$10k, replace house carpeting

05-15-2008, 07:36 AM	#21
Dawg54 Thinks s/he gets paid by the post Join Date: Feb 2005 Location: Mississippi Posts: 2,968	The withdrawals hasn't hurt much as my w/d factor is much less than 4%. But the stock market heading south the last few months has hurt. Retired just a little over a year, an instant decline is not very comforting. But the rebound the last few weeks has eased the pain. __________________ The born loser.

05-15-2008, 07:54 AM	#25
Martha Moderator Join Date: Feb 2004 Location: minnesota Posts: 9,341	So far, the market ups and downs are far more visible than any withdrawals. __________________ . Do not rely on the information provided--my posts are not to be taken as legal advice. Needless to say you must consult with your legal representative. I am not responsible for errors. If I offended you with cya I apologize. If I did not, I tried.

05-15-2008, 08:03 AM	#26
youbet Thinks s/he gets paid by the post Join Date: Mar 2005 Posts: 3,963	Two years into RE, I struggled to not feel guilty over withdrawals. Lately, however, inspried by an ERD50 thread concerning portfolio value fluctuations and after much studying of FireCalc outputs, I've become more comfortable with the fact that there will likely be significant vairation in my portfolio value over time. And that my portfolio will shrink over time. Gimmicks such as buckets, holding large cash balances or extreme diversity don't solve the problem. I downloaded a number of sample years in spreadsheet format from FireCalc and put middle and ending values into histograms. It's an eye opener! Few "average" outcomes. Many outcomes significantly above or below average and the distributions skewed to the right. Even with a WR that FireCalc indicates would have had a zero failure rate historically, there were lots of close calls and early dips. In the end, I concluded that variation is something you just have to live with unless you want to buy an annuity or go to something like CD ladders and probably die a slow death to inflation. After years of accumulating, I try to have money not be an end in itself but rather to live and enjoy my RE while prudently managing my investments. __________________ Over all was the silence of the wilderness - Sigurd Olsen

05-15-2008, 08:18 AM	#27
retire@40 Thinks s/he gets paid by the post Join Date: Feb 2004 Posts: 2,546	One approach you could take is creating a 3 to 5 year withdrawal spreadsheet based on your investment balances and your annual budget. Column 1 is the current actual balance in all your investment accounts. Column 2 is the current year withdrawals you plan on taking from each of those accounts. Column 3 in the balance in your accounts (less withdrawals from prior year plus estimated increase or decrease in value) Column 4 is withdrawals in year 2 Etc. All columns may be adjusted on an ongoing basis as facts change. For example, if you had an unexpected large expense in the current year, it may cause you to decrease some of the fluff in your budgets over the next 3 to 5 years in order to absorb that extra cost. Conversely, if you inherit some money from a long-lost relative, you can adjust your entertainment line item over the next few years. If you see that in year 5 your withdrawals are exceeding your budget, it tells you that your plan may not work unless you do something now to avoid the shortfall. This will give you some short-term and mid-term confidence that your plan is working. __________________ No man is free who is not master of himself. --- Epictetus Enjoy Yourself (It's Later Than You Think). --- Guy Lombardo

05-16-2008, 10:01 AM	#35
Mysto Recycles dryer sheets Join Date: Mar 2006 Posts: 169	I've handled the problem by using the "bucket" (I know-I know) theory. At then end of the day it's all just AA but by having a spending bucket of 10 years I just watch my long term bucket grow w/o a drawdown. It's all just psychology but it works for me. __________________ I'm trying to find myself.* Have you seen me anywhere today?

05-15-2008, 07:36 AM	#22
WilliamG Recycles dryer sheets Join Date: Nov 2003 Posts: 200	I retired at 55 in 2000. We put the lion's share of our already taxed assets in a five year Treasury ladder to live off of til 59 1/2 access to my rollover IRA. Having a multi-year high level plan for expenses and where income will come from takes a lot of the scariness out of near term (even multi-year) bad markets. Looking back it still sorta surprises me how mellow I was while market was so downward during 2001 and 2002! Currently we still have the 5 year planning process with 1-2 year detailed plans. We take the interest and dividends from our IRA portfolio into a money market within the IRA so portfolio growth is not so completely tied to NAV changes. This near term insulation of future income does a lot to shelter emotions from a downward drift in market values.

05-15-2008, 08:48 AM	#28
blessed Dryer sheet aficionado Join Date: Feb 2008 Posts: 36	I have been retired 18 months; DH has pension and health from Fed. However, we are withdrawing more than 4% from savings (taking from taxable account). We rebalanced and had to pay big Cap Gains for 2007. So the taxes paid to Fed. and St. came to $24,000; it will be about $2,000 for 2008.

05-15-2008, 12:41 PM	#29
lsbcal Recycles dryer sheets Join Date: May 2006 Posts: 494	If your an analytical like me then you will be doing a lot of number crunching to project some worse case historical data onto your situation. My wife likes to have a good time and so she's a counterbalance to my conservative views. I figured we could spend up to 5.2% of portfolio for the first years until SS kicks in and brings this down. This is based on several FireCalc runs. So far we're about 16% above the inflation adjusted starting portfolio value after about 5 years retirement. Has been a good market though with 55/45 allocation. This buffer could disappear with a very bad stock market -- so no unnecessary increases in spending. That is, aside from that new flashy red hybrid Camry we will be buying in the next week . Could not convince DW to give up the leather and heated seats.

05-15-2008, 09:09 PM	#33
SkisALot Dryer sheet wannabe Join Date: Apr 2008 Posts: 22	I've been ER'd 3 years now and living entirely off my portfolio. There are still days when seeing a stock take a dive is very gut wrenching; I go over my options again. Still, I was getting used to living with the uncertainty until inflation became a BIG issue. I didn't count on the real inflation rate that I believe we are experiencing (and that everyone is denying) getting as high as it is. While I have been living below my means, I am always on the look-out for ways to cut back further. This perception has become a way of life now. Living entirely off my money has drastically changed my thinking from what it was when I had a pay check coming in. It's like living in a different world.

05-16-2008, 10:52 AM	#37
lsbcal Recycles dryer sheets Join Date: May 2006 Posts: 494	Want2Retire, you mentioned it was really nice to sit out in the backyard in the morning with a cup of coffee (in a previous thread). Haven't forgotten that, so I tried it this morning since it was very warm ... and you were right!

05-16-2008, 12:44 PM	#38
walkinwood Recycles dryer sheets Join Date: Jul 2006 Location: Near Newark, NJ Posts: 244	Its human nature that losses hurt more than gains feel good. Its the reason why people sell winning investments too soon and hold on to losers too long. I've just ER'd and to try and prevent a panic, I've done the following a) Read the original SWR papers by Bengen etc. I am very comfortable with the thinking behind the SWR strategies and the back-testing and MC testing that has gone on. btw, I've chosen to use the 4%/95% plan advocated by Bob Clyatt. b) Stick to your plan. c) I've put a spreadsheet that shows what my portfolio 'should' look like taking consumption and a modest investment performance into account. That will show you how you stand at any time in relation to your 'plan'. d) Don't check your portfolio every day. I can't help myself on this one, but am working on it. So far - 16 days into ER - I haven't really withdrawn any money so all this is theory so far.