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How do you handle irregular withdrawals?
02-11-2019, 08:48 PM
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#1
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Recycles dryer sheets
Join Date: Jan 2017
Posts: 119
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How do you handle irregular withdrawals?
I know many of you target a set SWR (3-4%). Do you consider this as your routine yearly spend without periodic expenses such as car replacement or major house repair or do you include these expenses within your SWR?
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02-11-2019, 10:50 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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I make sure that my recurrent expenses are low compared to the 4% WR. These encompass living expenses such as food/housing costs, and also discretionary spending such as travel expenses
In 2018, I spent 2.7%. I did not make any major purchases such as a new car, nor incur any major home repair or update.
That low WR should allow some room for unscheduled expenses in future years. I don't want to plan in finer details than that. It would take too much work, and would involve too many unanswerable questions.
PS. In past years, I did exceed 4% occasionally due to home expenses and unexpected healthcare costs.
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02-11-2019, 11:05 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,087
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I consider the 4% rule, the very high end, so all my expenses including the car replacement, the new roof, should be in the SWR number. But those giant expenses are amortized over years.
So a $30K car, is really $3K/yr for 10 years
A $5K roof is good for 20 yrs, so that is $250 /yr
Basically this means most of the time I withdraw less and spend less than the 4%, when I bought the new van, it pushed my spending probably up a lot and I took out enough to cover it. No need to look at the % , as I won't buy another vehicle for at least 10 years.
My spending cash did get pretty low
The next year it was back to less than 4%.
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Fortune favors the prepared mind. ... Louis Pasteur
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02-12-2019, 03:12 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2018
Location: Tampa
Posts: 11,297
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Different ways to handle it. I am in the minority in that I use a separate emergency fund outside of my AA for these large one off expenses. Thus it doesn't enter into the yearly WR%.
On the flip side, if I am targeting 3% WR for the year and only spend 2.75%, then 0.25% goes into the emergency fund, but I consider my yearly spending and reduction of my investment accounts to be 3%.
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TGIM
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02-12-2019, 03:58 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Jul 2015
Location: Beaverton
Posts: 1,382
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I don't get too stuck on WR's. I'm within the acceptable range. I keep a pad in my main account if something would be needed. Prior to retiring I bought a new car for the DW and have done what needed repairs reared their ugly head. I know due to high cost of HI I will be on the higher side as I delay collecting SS. In addition my budget includes car repair and misc spends which do arise and did to the tune of $2k to my truck.
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02-12-2019, 04:31 AM
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#6
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Recycles dryer sheets
Join Date: Feb 2013
Posts: 61
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Quote:
Originally Posted by Sunset
I consider the 4% rule, the very high end, so all my expenses including the car replacement, the new roof, should be in the SWR number. But those giant expenses are amortized over years.
So a $30K car, is really $3K/yr for 10 years
A $5K roof is good for 20 yrs, so that is $250 /yr
Basically this means most of the time I withdraw less and spend less than the 4%, when I bought the new van, it pushed my spending probably up a lot and I took out enough to cover it. No need to look at the % , as I won't buy another vehicle for at least 10 years.
My spending cash did get pretty low
The next year it was back to less than 4%.
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Sorry for the threadjack but I can't help it. Is $5k for the roof for a garden shed or a house? My house is small and would be at least 20K.
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02-12-2019, 05:11 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,071
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Quote:
Originally Posted by NW-Bound
I make sure that my recurrent expenses are low compared to the 4% WR. These encompass living expenses such as food/housing costs, and also discretionary spending such as travel expenses
In 2018, I spent 2.7%. I did not make any major purchases such as a new car, nor incur any major home repair or update.
That low WR should allow some room for unscheduled expenses in future years. I don't want to plan in finer details than that. It would take too much work, and would involve too many unanswerable questions.
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Similar thinking for me.
Quote:
Originally Posted by MatatuPuncher
Sorry for the threadjack but I can't help it. Is $5k for the roof for a garden shed or a house? My house is small and would be at least 20K.
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In 2014 I put a new roof on a 1100 sq ft house I was about to sell and it cost $4k. How small is your house?
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02-12-2019, 06:17 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,327
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I sequester excess funds not spent from my chosen SWR in an emergency fund. So far I have not tapped the emergency fund since unusual expenses (e.g. daughter's wedding) were accommodated within my SWR.
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Idleness is fatal only to the mediocre -- Albert Camus
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02-12-2019, 06:34 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,688
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I make monthly accruals for larger/long term items - including holidays, home renovation/repairs, luxury discretionary items, tax and a miscellaneous one. So long as the large items are less than what I've accrued I don't sweat it.
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Budgeting is a skill practised by people who are bad at politics.
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02-12-2019, 07:06 AM
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#10
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Dryer sheet aficionado
Join Date: May 2016
Location: Toronto, Ontario
Posts: 34
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I have a savings fund for large expenditures like car, and replacement home items like roof, driveway, hvac and major appliances. I estimated the cost and lifespan of those items, than annualized the total. I take that amount every year and save it in a balanced mutual fund.
The annual amount comes out of my SWR, but I am saving it separately for major expenses.
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02-12-2019, 07:24 AM
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#11
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Moderator
Join Date: Nov 2014
Posts: 9,171
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For those who say you have a fund, is it a separate account? Do you actually withdrawal money and set it apart from your main portfolio? When you do this, do you then exclude that fund from your overall asset allocation? What do you invest that money in, cd’s?
I set money aside in my head. I have a $ budget and not a withdrawal percentage. Of course that budget is around 4%, at least until SS kicks in, and the budget reflects numbers for large expenses. Like Sunset, I amortize large expected expenses like car and home repair. Therefore, I’m usually under budget, but the year I need a new roof, I’ll be over budget. Hopefully within the parameters I’ve set. I have $10K for a new roof. It would suck a bit if it comes in at $20K but I do have built in cushion, so either way, I’ll be fine.
In my retirement plan, the main thing I have any worries about is a major market meltdown and no recovery in sight. Other than that, I should be fine.
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02-12-2019, 08:00 AM
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#12
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Full time employment: Posting here.
Join Date: Aug 2016
Posts: 770
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In addition to the questions Jerry1 posted, I'm curious if one method of withdrawing for lumpy expenses is more tax advantageous than another. I'm guessing the 'accrual method' is better but I'm no tax expert.
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02-12-2019, 08:48 AM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,139
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Quote:
Originally Posted by donheff
I sequester excess funds not spent from my chosen SWR in an emergency fund. So far I have not tapped the emergency fund since unusual expenses (e.g. daughter's wedding) were accommodated within my SWR.
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Same here except it’s more of a emergency/splurge/large one-off expenses fund.
And for Jerry: yes, I have separate accounts for retirement investments versus short-term funds. I always have. Could be done easily in a spreadsheet, I just like have accounts segregated.
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Retired since summer 1999.
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02-12-2019, 08:54 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Sep 2013
Location: Cincinnati, OH
Posts: 4,370
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I don't do a specific percentage, although I monitor and keep within a targeted value. If I have a larger expense, I just sell some shares and get extra money. What I sell depends on how the market is doing and with respect to my overall AA, although mostly due to market conditions rather than AA. Sell when high is the goal of course.
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You can't spend yourself to prosperity.
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Retired Aug 2, 2017; age 53
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02-12-2019, 12:02 PM
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#15
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Recycles dryer sheets
Join Date: Jan 2012
Posts: 442
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good question.....I keep my WR for living expenses low (~2.5%) which includes 2 week travel within the US only.
Extended Overseas travel, big ticket items etc will sometimes raise the WR to 4%+ for a year. Since the big ticket expenses are not expected to occur each year, I don't worry if the WR in any one such year exceeds 4%. Keeping an emergency fund in a separate account would be unnecessary extra work for such expenses in my opinion. I don't wish to complicate my finances too much.
Thanks
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02-12-2019, 02:49 PM
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#16
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Thinks s/he gets paid by the post
Join Date: Jun 2017
Location: Western NC
Posts: 4,633
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Quote:
Originally Posted by TNBigfoot
I know many of you target a set SWR (3-4%). Do you consider this as your routine yearly spend without periodic expenses such as car replacement or major house repair or do you include these expenses within your SWR?
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Live in a town home & pay a monthly fee which handles all outside maintenance including the roof.
I am currently getting my deceased relative's SFR ready to sell & am reminded every time I go over there how much a PITA a standalone home is in terms of maintenance/repair.
And after years of driving 15-20+ year old vehicles I plan to start leasing whatever's on sale, turning that cost into a fixed monthly expense.
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02-12-2019, 03:31 PM
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#17
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,498
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Quote:
Originally Posted by TNBigfoot
I know many of you target a set SWR (3-4%). Do you consider this as your routine yearly spend without periodic expenses such as car replacement or major house repair or do you include these expenses within your SWR?
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The latter.
My viewpoint is that your SWR is analogous to your paycheck when working.
How you handle irregular large expenses when you are retired with a specific, fixed SWR, will probably reflect how you did exactly the same thing if you ever worked at a job where you were paid a fixed amount.
What I did back when I was working, was the same as what I do now that I am retired. I spend less than that fixed amount of income and save the extra for a rainy day.
Then when something like car replacement or a major house repair comes up, I use the money I saved in previous years.
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Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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02-13-2019, 08:10 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Jul 2015
Location: Beaverton
Posts: 1,382
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I pull out money once a year that matches my budget. This year I did an additional $10k because an unexpected trip to Europe came up. I usually fund May 1 but I had an uneasy feeling in November so set aside money to sit until May. Then I transfer to Fidelity so I can earn the current rates. From there I pay myself twice a month transferring to WF bank and disbursing to he various pots. All money until I get at least FRA has come from a 50/50 of deferred comp and taxable investments to keep my tax bracket at a sensible level. I’m
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