I just realized I've doing my WR calculations incorrectly

[ejman]

I'm in a similar situation, investment income more than covers spending. So, my "withdrawal" rate is actually a negative number. My net worth is 25% higher today than the day I stopped working for money. Been ratcheting up the spending and will continue to do so, but don't see my withdrawal rate becoming a positive number ever.

The way I see it, investment income ( dividends, cap gains etc) is actually part of the withdrawal rate so as long as one is taking something out of one's investments the withdrawal rate would be positive no? If one reinvests everything then withdrawal rate would be zero. If one puts money in from outside sources i.e. work, gifts etc then withdrawal rate would be negative?

 

[audreyh1]

Right. If you spend your dividends, you are withdrawing that amount.

Withdrawals only go negative if you add more money than you take out.

 

[gauss]

Intriguing idea but frankly, just the thought of doing such would probably send my pacemaker into overdrive. As many others have noted a lifetime of LBYM does cause some preconditioning. I thought I was really upping the game by buying what to me is a semi luxury car...

Similar to my thoughts.

Personally, the biggest luxury to having a low WR is being able to sleep well at night knowing that money worries are hopefully not in the cards for me.

-gauss

P.s. I was glad to see the topic of your thread was the opposite of what it could have been by just reading the subject.

 

[Huston55]

I started working on my year end numbers and I've been simply taking my expenses divided into my liquid NW as the % of withdrawals and my average has been about 4.3% since ER back in 2002. (This includes 3 new vehicle purchases). I just realized however that I really should take SS and a small non cola pension into account in this calculation. When that is done then it turns out that my actual WR is closer to 2%. Maybe I should start living it up a little - just in time for Christmas! Merry Christmas and Happy New Year to all

I'm surprised to be the first to offer....but, I would be happy to help you increase your WR. And, I know several of our forum colleagues over at the "Golf Talk Tuesdays" thread would likely join me in taking an expensive international golf holiday to help.

http://www.early-retirement.org/forums/f29/golf-talk-tuesdays-78866.html

Just let us know what we can do; we're here for ya man!

 

[SecondCor521]

I'm in a similar situation. My spending is right at about 3.5% of my investments, but I have what I call "non portfolio income" - money that comes into my possession that isn't dividends or capital gains in my taxable account or IRAs.

I just ran a Quicken report and this year my non-portfolio income is slightly more than twice what I spent this year. Oh dear...

 

[ejman]

I'm surprised to be the first to offer....but, I would be happy to help you increase your WR. And, I know several of our forum colleagues over at the "Golf Talk Tuesdays" thread would likely join me in taking an expensive international golf holiday to help.

http://www.early-retirement.org/forums/f29/golf-talk-tuesdays-78866.html

Just let us know what we can do; we're here for ya man!

Your generosity, as well as that of the forum colleagues over at the "Golf Talk Tuesdays" site is amazing and certainly a welcome relief particularly at this time of need. My heartfelt thanks

 

[audreyh1]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

 

[cooch96]

If I ever get to the point where it feels difficult to responsibly spend down my assets, (it might happen) I'd become a "patron of the arts." It Sounds so lofty. Just find a starving artist whose work you appreciate and give them a living wage to do sculpture or murals.

 

[45th Birthday]

The way I see it, investment income ( dividends, cap gains etc) is actually part of the withdrawal rate so as long as one is taking something out of one's investments the withdrawal rate would be positive no? If one reinvests everything then withdrawal rate would be zero. If one puts money in from outside sources i.e. work, gifts etc then withdrawal rate would be negative?

Yes, based on the theory of the withdrawal rate concept, that might be true. This concept being: the maximum rate at which the portfolio can be depleted over time without being fully depleted by a certain date, given a range of possible market movements.

But, if in practice the portfolio throws off enough income that, even with sustained market decline, the portfolio doesn't diminish, has a "withdrawal" really taken place?

 

[audreyh1]

Yes, based on the theory of the withdrawal rate concept, that might be true. This concept being: the maximum rate at which the portfolio can be depleted over time without being fully depleted by a certain date, given a range of possible market movements.

Yes, It is true. The safe withdrawal rate studies are all based on total return of portfolios over history. That total return includes all income generated by the portfolio such as dividends and interest.

But, if in practice the portfolio throws off enough income that, even with sustained market decline, the portfolio doesn't diminish, has a "withdrawal" really taken place?

Not going to happen. A portfolio will diminish with a sustained market decline. Throwing off income has nothing to do with it. It's all about total return.

Even with no stocks, bonds can diminish as well during period of rising interest rates and/or financial credit crises (of you hold those lower quality, high income ones), and they definitely won't keep up with inflation if you are taking all the interest/dividends. So - over time your portfolio will decline if the markets behave poorly especially if you aren't reinvesting your dividends/interest.

 

[CardsFan]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

This what we have been doing. Just finishing our 1st year in ER. That being said, I had tracked our actual expeneses for the previous 5 years, took the highest of the 5, added HI and taxes, and calculated a maximum expected WR of 3.3%.
Looking back at 2016, the actual WR was only 2.6%. When SS kicks in in 4 years (FRA) WR will be 1-1.5%. I guess we need to up our game

 

[brucethebroker]

If I ever get to the point where it feels difficult to responsibly spend down my assets, (it might happen) I'd become a "patron of the arts." It Sounds so lofty. Just find a starving artist whose work you appreciate and give them a living wage to do sculpture or murals.

I'm not starving, but I can fingerpaint.............does that count?

 

[pb4uski]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

That is exactly what we do. I have a monthly "paycheck" transfer from our retirement nestegg to the local bank account we use to pay our bills for our normal living expenses. Taxable account distributions also go directly to this local bank account. I monitor our bank balances and do special transfers if necessary. At the end of the year I take the total transfers and taxable account distributions as the numerator.

For the denominator I usually use the balance of our retirement nestegg at the beginning of the year... or if I want a result more consistent with the Trinity study then I use the balance of our retirement nestegg when I retired.

As long as the calculated WR is in a reasonable range then I'm happy. Our WR is currently on the high side because we have not yet started SS. If I want I can reduce the numerator by an estimate of SS to get a notion of our "ultimate" WR once SS starts.

The only thing I am debating with myself is how to treat the cost of the winter condo that we bought for cash this year, but I'm leaning towards adjusting the numerator to exclude that withdrawal and ignoring the value when I calculate the denominator in future years (IOW, viewing the winter condo similar to our home and outside our retirement assets rather than as an investment in real estate within our retirement assets).

Also, for clarity, when I use the term nestegg I mean our taxable accounts, tax-deferred IRAs, tax-free Roth IRAs and HSAs, etc... but excluding our homes, cars, boats, local bank accounts and credit cards that have minimal balances, etc.

 

[Danmar]

Retired 10 years and up to this point have generally just spent divs and pension. Divs represent around 3.25-4% of market value over this period, depending on current prices. Portfolio has almost doubled over retirement period. Have decided to change strategies a bit for next year. Will systematically sell .5-1% throughout the year and add to my cash balance. I will eventually figure out something to spend/gift it on. In theory this will allow me to bump spending/gifting by about 15%. Looking forward to this.

 

[GTFan]

Yep, that's the position we're going to be in after the ACA goes bust (if it does) and we don't have to suppress income anymore. Only been retired a couple of years but I can see that we're going to need to draw way more in future than we're doing now because we can easily live on divs, interest, my small pension and my wife's PT work. Then decide on whether to build cash like audrey does (for splurges or whatever) or just gift it out. Or if the healthcare market really hits the fan it'll all go towards ridiculously priced insurance and OOP expenses.

Sure is nice to know that no matter how the market does we can make it work.

 

[audreyh1]

This what we have been doing. Just finishing our 1st year in ER. That being said, I had tracked our actual expeneses for the previous 5 years, took the highest of the 5, added HI and taxes, and calculated a maximum expected WR of 3.3%.
Looking back at 2016, the actual WR was only 2.6%. When SS kicks in in 4 years (FRA) WR will be 1-1.5%. I guess we need to up our game

I think it's instinctive to most here, who got where they are through careful planning, saving, and investing, to take out less if they don't need it and leave as much invested as possible for the long term.

But one problem with this approach, is that in the long term we die, and unspent funds invested just means a bigger legacy for heirs rather than being spent during our lifetimes. And in the short term, such investments can get creamed occasionally when we go through one of our bear markets.

I prefer to take out as much from long-term investments as I am "allowed" to based on my SWR calculations. My strategy is to have the minimum exposed to the markets that I have to (to meet certain survival criteria) rather than the maximum. So even if I don't spend it all this year, I can spend it the next year, or the next, or splurge, or whatever without worrying whether the unspent funds will be cut in half next year due to a bear market. I also feel that extra money to spend now is more valuable than extra money to spend when I am 80+.

It's just a different way of looking at retirement investments.

 

[audreyh1]

The only thing I am debating with myself is how to treat the cost of the winter condo that we bought for cash this year, but I'm leaning towards adjusting the numerator to exclude that withdrawal and ignoring the value when I calculate the denominator in future years (IOW, viewing the winter condo similar to our home and outside our retirement assets rather than as an investment in real estate within our retirement assets).

A lot of folks treat a large expense, like real-estate, as a one time withdrawal from the nestegg which reduces the income going forward. This seems like a reasonable approach as long as the remaining nestegg is sufficient to support future income needs, and as long as the lower nestegg is taken into account by lowering withdrawals proportionally.

So - a big expense can be treated as a giant one-year over withdrawal, or amortized over however many years the portfolio is expected to last.

 

[NW-Bound]

I ran FIRECalc in the past, and when I included SS it told me the amount I could spend for a 30-year retirement. There's little difference in the SWR dollar amount between taking SS at 62, FRA, or 70 for my set of numbers.

So, each year, as I spend less than that amount, I feel quite OK. Even in my most profligate year, I underspent by about 20% or more. I should live quite comfortably on 1/2 to 2/3 that FIRECalc amount.

I suppose I have some "surplus" built-up, but I never add it up to see what it it. Do I feel the need to spend it? Nope. If the market keeps on rising, I may find something to spend it on, such as travel upgrade or more gifts and donations. But I want to see my stash grow first before doing that. My chicken that keep laying eggs may get sick or something.

 

[ejman]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

Exactly what I do as described in your first paragraph.

As I was planning how to get funds prior to ER back in 2002 I considered the predetermined draw at the beginning of the year method but decided against it mainly because of the unpredictability of fund distributions (particularly CG) and just not knowing what retirement would really be like. I quickly got used to not having a regular paycheck.

 

[marko]

Don't know what your NW is, but if you really want to splurge on a private jet, there are services out there that can accommodate you. You don't have to buy your own. If you really need to "burn" some NW, that would do it quite nicely - and be lots of fun.

Back to the private jet for a second, if you take a group (say, kids and kids of kids) you could fill a private jet and the cost per person wouldn't be dramatically more than say first class airfare. Live a little!! YMMV

I always said that if I won the lottery the only thing I'd want is a private jet. Leave in the morning from Boston, go skiing in Utah and have dinner in SFO; sleep in a bed all the way back for a morning stroll on the beach in Florida. (Actually, I've done exactly that before; my boss had a jet and it's a great time saver)

 

[W2R]

A lot of folks treat a large expense, like real-estate, as a one time withdrawal from the nestegg which reduces the income going forward. This seems like a reasonable approach as long as the remaining nestegg is sufficient to support future income needs, and as long as the lower nestegg is taken into account by lowering withdrawals proportionally.

This is how I am approaching the cash purchase of my Dream Home in 2015. I have a lot of wiggle room. Other than money for the house, my withdrawal/spending amount has averaged 2% for the past 7 years. I am one of those who doesn't withdraw more than I spend, or if I do, the excess is effectively returned at the end of the year.

I plan to continue withdrawing and spending about the same amount, but from a smaller portfolio due to buying the house. So, the percentage will not be quite as low as previously. I'll probably still average below 2.5%.

This year it was 2.2% (based on the lowered portfolio value) so it's all working out.

 

[SecondCor521]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

I've only been retired about a year, but the above is essentially what I do.

I take my last six months' worth of spending from Quicken, double it, and divide by my portfolio balance. Given all my particulars, I try to keep the result under 3.5%.

Unfortunately or fortunately depending on how you look at it, this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.), as I noted above.

Since my outside income this year was about twice what I spent this year, I guess I have a negative 3.5% withdrawal rate for this year. I have just left the excess funds there in the portfolio and bank as a hedge against future risks such as a market decline, ACA issues, and my kids' educations.

Since I calculate the number on at least a weekly basis, I'm effectively doing a VPW. If the market declines significantly in the near term and I want to consider myself as doing a Trinity-style withdrawal, I'll have to modify my approach.

 

[NW-Bound]

...Unfortunately or fortunately depending on how you look at it, this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.), as I noted above.

Since my outside income this year was about twice what I spent this year, I guess I have a negative 3.5% withdrawal rate for this year...

Oh my! What a calamitous happening. You need to remedy this ASAP.

Either stop that source of extra income if you can, or drain it quickly. Posters here can help you with the latter. Can't let that hot money burn a hole in your pant pocket.

 

[SecondCor521]

Oh my! What a calamitous happening. You need to remedy this ASAP.

Either stop that source of extra income if you can, or drain it quickly. Posters here can help you with the latter. Can't let that hot money burn a hole in your pant pocket.

Yes, I understand I can sponsor either a luxury golf tournament for some of my online friends. Or I could have W2R say the W word once.

;-)

 

[braumeister]

this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.)

So you're the one who hacked my credit card! I always wondered who did it and now I know. But surely it's not worth the risk, since the fraud department caught it before you even got away with $100. Are you still doing it?