How to Plan for Uneven Draws from Portfolio

[RetireAge50]

Given an early retirement, I’m assuming most here will need to draw from their portfolio uneven amounts over time. Here is a simplified version of ours:
Ages 50-65
$24,000 Pensions
$51,000 Portfolio

Ages 66-Death
$42,000 Pensions
$24,000 Social Security
$9,000 Portfolio
Our portfolio is hit heavy in early retirement and not so much later on. Seems SWR, model 60/40 allocations, etc are moot as these “rules of thumb” are too general. Will need to formulate a custom plan for our needs (which I am starting to think about).
What are some investment strategies or ideas people here use for uneven needs?

[Lsbcal]

Quote:

Originally Posted by RetireAge50 ... Our portfolio is hit heavy in early retirement and not so much later on. Seems SWR, model 60/40 allocations, etc are moot as these “rules of thumb” are too general. ...

I think you could model this uneven plan in FIRECalc. On the Income/Spending tab there is the option to add or subtract income in later years. Have you tried that tool?

[RetireAge50]

Yes. FireCalc is good and let's you add income at different points in time as you said. However, I'm thinking I should vary portfolio composition over time as well.

For me 100% stocks after age 65 might be good. But first 15 years more conservative (due to heavy withdrawals early on).

[Theseus]

If I understand correctly, what you are dealing with is how to calculate WR when the withdrawals are not uniform throughout the planning horizon. Having been there, and not finding much for concrete ideas on how to deal with it I came up with my own method, from heretofore to be known as the Theseus method of calculating non uniform WR, or TMOC-NUWR in the official list of FIRE acronyms

Calculate PV of all future savings withdrawals
example, with $1MM savings: (using assumed random variable amounts per month)
$1,961,495 FV over 360 months @ 5.3% ROR
Returns an NPV of $1,200,000 / 360 = $3,333.33 per month * 12 = $40,000 annually
40,0000 / current savings of $1MM = 4% WR

I've been using this method in my spreadsheet calculations, even using goal seeking in Excel to verify that a 3.5% - 4.0% range provides an adequate income level to support our ER plans. Spreadsheet uses pensions and assumed future SS benefits as primary income sources, then sets required withdrawals based on either desired income level or a WR from goal seeking. I've been satisfied using this method of calculating WR, since ER forces our hand on higher WR in the early years, then decreasing with SS, but again increasing as non-Cola pensions diminish in value. And I always want to prove things with numbers, and this seems to accomplish that without resorting to just assuming it all works out in the end.

[Katsmeow]

DH retired almost 4 years ago and I semi-retired. I am now all but retired (working about 2 to 3 hours a month). We still have kids in college. DH is drawing SS, but I am not SS age yet and may not draw for several years. For the next 2 1/2 years we will be withdrawing a high amount. High enough that I can expect the value of the portfolio to decrease. We've modeled this in Firecalc so I'm OK with it. However, the main risk is having a large market decrease during this period and having to sell equities to fund out withdrawals.

What I did was figure out the amount that we will spend over the next 3 years above a 4% withdrawal rate. I've set aside that amount of money in cash/CD/short term bond fund so that it will be available over the next 3 years and I won't have to sell in a down market. Right now, we are spending down our taxable money and not withdrawing from the IRA at all.

[Alan]

Quote:

Originally Posted by RetireAge50 Yes. FireCalc is good and let's you add income at different points in time as you said. However, I'm thinking I should vary portfolio composition over time as well. For me 100% stocks after age 65 might be good. But first 15 years more conservative (due to heavy withdrawals early on).

As well as FIRECALC I use Fido Retirement Income Planner which also models incomes coming in at various times and produces charts and tables showing projected flows from investable assets as those income streams come on line.

When I ER'ed my AA was 37/63 and now that we have gone through the first 4 years, and have had great market returns, the AA is up to 47/53 and I plan to move it to 50/50 for the foreseeable future as we are only 3 years away from the next 2 pensions starting.

[RetireAge50]

What you describe with asset allocation changing over time is what I expect. The tools seem to assume a constant allocation.

I can get around it by running firecalc for the first 15 years and again for ages 65+ (with different inputs) and make sure both results are over 100%.

Maybe the complication is unnecessary as about 50 to 60 percent stocks works for both.

[BBQ-Nut]

Quote:

Originally Posted by RetireAge50 Given an early retirement, I’m assuming most here will need to draw from their portfolio uneven amounts over time. Here is a simplified version of ours: Ages 50-65 $24,000 Pensions $51,000 Portfolio Ages 66-Death $42,000 Pensions $24,000 Social Security $9,000 Portfolio Our portfolio is hit heavy in early retirement and not so much later on. Seems SWR, model 60/40 allocations, etc are moot as these “rules of thumb” are too general. Will need to formulate a custom plan for our needs (which I am starting to think about). What are some investment strategies or ideas people here use for uneven needs?

My personal planning involves 3 (possibly 4) different phases - each with their unique withdrawal rates.

I have modeled these in the spreadsheet I've created and grown over time.

I use the FV function in excel to model how each part of my portfolio 'survives' over each phase based on beginning balance, the expected 'real' rate of return, and how much I withdraw over x years.

Then at the beginning of the next phase I start over with another FV function based on the ending balance of the previous phase.

This allows me to see how each portion of portfolio does over time.

In my own calculations, the beginning phase, like yours, is the hardest hitting to savings since it is before any SS benefits.

And depending on when you claim SS, the hit on your savings is affected.

If you are targeting a SWR as the primary goal then taking SS early will help, but I personally think the SWR is just a guide - what is important is will your savings to when you think it needs to.

And when you hit 70 1/2, RMDs will hit and there goes your SWR for that portion of your portfolio (depending on the size).

I'd suggest finding 'tools' and calculators that others have suggested and see if your withdrawal profiles will last to what you want them to and adjust accordingly.

[NanoSour]

I have a similar scenario and find that ESPlanner's consumption smoothing algorithm best answers the question for me. I just plug in all my information, assign asset allocation for Monte Carlo simulation and let her rip. I liked the answer so I decided to to ER.

[RetireAge50]

I need to look into some of these tools. I'm hoping one of them will output the suggested asset allocation at different ages (for the highest success rate).

[Brett_Cameron]

I use the Spending models>Manual Entry of Spending changes to input future spending then run FIREcalc to evaluate how the portfolio fared with the spending profile I use. You have to be a supporter (contributor) and have a login to use this.