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How do these withdrawals look?
Old 04-27-2007, 02:13 PM   #1
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How do these withdrawals look?

I have a somewhat different retirement situation than most people do. My wife and I are both eligible to start drawing a pension at age 50. I plan to retire at 50 (7 1/2 years) but my wife will be only 46. Since she will only be 46, she wont receive anything for 4 years.

We have other investments that we will draw from during that 4 year period to bridge the gap until her pension kicks in.

Since Im anonymous here, i dont mind posting actual numbers.

Heres the dilemma.....

Our pensions will be about $4750 / month (hers starts 4 years later of course)
My projections show we will have about $1.4 Milllion in investments. 457k, Roths and taxable investments.

Since we save such a high percentage of our incomes, this is enough money to significantly raise our standard of living so I want to withdraw the highest amount that i safely can. I also want to withdraw enough that our income is higher in the 1st 15 years or so since I expect we will travel alot more in the earlier years.

Right now, Im thinking of withdrawing $9000 / month from the $1.4 million for the 1st 4 years. Thats a withdrawal rate of about 7.7%

That would make our monthly income $13750 for those 4 years.

If our investments return 6% during those 4 years, we will still have $1.25 Mil or so at the end of the 4 years.

At that point, our pensions will be $9500 / month and we would need a little over $4000 month from investments to get to the same $13750 monthly income.

That would put our withdrawal rate at slightly under 4% from that point on.

To get a slightly higher income for the 1st 15 years or so, I would have to withdraw more than the listed 7.7% the 1st 4 years which would leave less money at the end of the 4 years and would probably put my withdrawal rate for the rest of the time at closer to 5.5% which i think is still OK since our pensions are guaranteed and will never run out. They are also inflation adjusted.

Most people retire when they have enough money to sustain a lifestyle that they are used to or that they are willing to compromise to if they downsize. We will retire at a set time period and want to figure out what lifestyle our investments / pension willl sustain so we're kind of doing it in reverse. We will be moving to an area with a higher cost of living

Thoughts?

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Re: How do these withdrawals look?
Old 04-27-2007, 02:36 PM   #2
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Re: How do these withdrawals look?

Quote:
Originally Posted by utrecht

Thoughts?
One comment and one question:

I'm jealous and have you run your numbers through FIRECalc?

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Re: How do these withdrawals look?
Old 04-27-2007, 04:09 PM   #3
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Re: How do these withdrawals look?

I played around with FIRECalc a bit but I was missing some critical information about your current investments size and allocation.

FIRECalc can certainly help with your question.

Conceptionally, I'd treat your retirement as a 4 year gap where you need $228K (4*12*$5750) followed by 48K/year withdrawal of 40 years for you and wife.

I'd say that even in expensive place 165K/year of spending is more than adequate. Given your large pension, you might want to check out this list of states (particularly NY) that exempt large amount of pension from state income tax.
http://www.bankrate.com/brm/itax/news/20051107b1.asp
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Re: How do these withdrawals look?
Old 04-27-2007, 04:29 PM   #4
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Re: How do these withdrawals look?

Quote:
Originally Posted by utrecht
Right now, Im thinking of withdrawing $9000 / month from the $1.4 million for the 1st 4 years. Thats a withdrawal rate of about 7.7%

That would make our monthly income $13750 for those 4 years.

If our investments return 6% during those 4 years, we will still have $1.25 Mil or so at the end of the 4 years.

At that point, our pensions will be $9500 / month and we would need a little over $4000 month from investments to get to the same $13750 monthly income.

That would put our withdrawal rate at slightly under 4% from that point on.
Sounds perfectly reasonable to me, just a little bit on the conservative side (6% return.) Congratulations.
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Re: How do these withdrawals look?
Old 04-27-2007, 04:41 PM   #5
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Re: How do these withdrawals look?

I guess Im not sure how FireCalc works. I start with the "standard" page but every time I switch to the "advanced" page which i need to use to enter future decreases in withdrawals....the standard page resets my starting portfolio back to the default $750,000

What Im trying to enter is this...

$165000 for living expenses (this is a joke to me since we make less than this now and save an ungodly percentage, but hey, I deserve it and have been saving just for this purpose)

$57000 decrease in withdrawals in 2007 (I assume you have to pretend like youre retiring right now?..the $57000 equals my pension which I will draw immediately upon retiring)

$57000 decrease in 2011 (4 years from "now" when my wifes pension kicks in)

Starting portfolio of $1,400,000 (my projected portfolio amount at time of retirement)

Zero social security (We're both cops. We get something but its greatly reduced because of the govt pension)

40 year retirement

100% invertsed ( I think this is fine since such a high percentage of my income will be pension and guaranteed)

Can anyone tell me why I cant get it to work?
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Re: How do these withdrawals look?
Old 04-27-2007, 04:44 PM   #6
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Re: How do these withdrawals look?

Quote:
Originally Posted by utrecht
I guess Im not sure how FireCalc works. I start with the "standard" page but every time I switch to the "advanced" page which i need to use to enter future decreases in withdrawals....the standard page resets my starting portfolio back to the default $750,000

....Can anyone tell me why I cant get it to work?
FIRECalc standard and advanced are two separate versions of the program. Don't start with standard and switch, start with the advanced tab and enter everything there.

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Re: How do these withdrawals look?
Old 04-27-2007, 04:57 PM   #7
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Re: How do these withdrawals look?

I'm going to be in a somewhat similar position, waiting for SS and pension while putting two kids through college, paying for family medical insurance, and trying to ramp up our travel a little.

I have enough in bonds/cash to cover the most of the gap until the pension and SS starts up. There's no way you can count on 6% for a 4 year period with equities. Although I otherwise prefer 100% equities, for that kind of period you're not losing much by going with bonds/cash and spending them first.

Not sure what your asset allocation looks like, so you may be doing something similar.

Dan
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Re: How do these withdrawals look?
Old 04-27-2007, 05:09 PM   #8
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Re: How do these withdrawals look?

I know I cant count on 6% over a 4 year period, but thats much lower than the avg longterm growth rate. I could stick it all in my EmigrantDirect account and get 5.15% guaranteed.

My portfolio value at time of retirement is also just a projection. It could be higher or lower. I wont know for sure until 7 years from now, but I have to use some sort of number to plan for the future right? Why would I use an assumption of less than 6% for those 4 years?

I switched FireCalc to "classic version" and got what I needed. It shows 81.3% success rate. I think thats acceptable when I consider that I really doubt we'll spend anywhere near that much money every month. It would be very very easy to cut back.

I really just want to get a general idea what our monthly income might be for now because we will be moving to S.Florida where the houses are much more expensive than they are here in Dallas and I want to know what we'll be able to afford. I didnt include the fact that our house will be paid off in the total portfolio. I just plan on using that amount as a down payment on the new house.
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Re: How do these withdrawals look?
Old 04-27-2007, 05:15 PM   #9
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Re: How do these withdrawals look?

Here is some FIREcalc help for your situation

Switch to Advanced calc
Enter your planning horizon. I'd suggest 48 years (8 until you retire and than 40 more you and your wife's life expectancy)
Don't try to make your own assumptions let FIREcalc make the calculations
So in 2015 you'll decrease withdrawal for your 57K pension , 2019 same thing for the DW.
Social Security for you in 2027 (at 62) wife at 2031 of some amount
In the how much to you have tab. Enter your current assets, and your current yearly savings, and asset allocation. (i.e. Don't assume I'll have 1.4 million in 8 years when you retire).
Then hit submit


Tell us what your success rate looks like.
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