Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Kitces on Flexible Spending
Old 07-17-2019, 07:53 PM   #1
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 998
Kitces on Flexible Spending

Michael Kitces has an interesting post where he dives deeper into flexible spending versus FIRE. In the past he has advocated for ratcheting rules, where you start with a safe withdrawal rate and in (the majority of) cases where your portfolio grows notwithstanding withdrawals, you may ratchet up spending over time.

Interesting in this article is that he references a Bengen article that I had not seen before. Bengen shows that 3.5% is the SWR for a 45-year retirement. He did this in 1996, so the "3.5% is the new 4%" isn't so new!

In my mind the money quote is:

Quote:
...with 40-50+ years to compound, the range of future outcomes is actually much much wider than more retirees realize (or can even comprehend, with “equal” likelihood of a $1M retirement account running out, or turning into $150M, at a 3.5% initial withdrawal rate!
Yikes! Hence the idea that you are very likely to be able to ratchet up. In the context of being prepared for variable spending (up and down) it makes sense.

https://www.kitces.com/blog/the-prob...ending-rules/?
__________________

__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-17-2019, 08:13 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Aug 2007
Posts: 1,169
If you play around with FIRECalc, youíll find that ~3.5% WR is safe forever, or at least as long as FIRECalc has data.

Itís definitely a good starting point, but unless youíre unlucky, itís probably too conservative.
__________________

__________________
Eat, Drink and Be Merry.
tulak is offline   Reply With Quote
Old 07-17-2019, 09:16 PM   #3
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 998
Quote:
Originally Posted by tulak View Post
If you play around with FIRECalc, youíll find that ~3.5% WR is safe forever, or at least as long as FIRECalc has data.

Itís definitely a good starting point, but unless youíre unlucky, itís probably too conservative.
Yup, that's why I'm comfortable with 4% for 40 years, plus SS which makes it 3% for half those years.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Old 07-17-2019, 10:07 PM   #4
Thinks s/he gets paid by the post
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 2,255
In his Reddit AMA, Bengen says he has revised his findings to SAFEMAX = 4.5 % for 30 years and that a 4% WR will last forever.
I have upgraded my withdrawal max after reading that Kitces article at year 6 of retirement due to the great portfolio growth and seeing how little my parents and others actually spent after 80. Now if I could just bring myself to actually spend it....
__________________
ďNo, not rich. I am a poor man with money, which is not the same thing"
GravitySucks is offline   Reply With Quote
Old 07-18-2019, 12:01 AM   #5
Full time employment: Posting here.
YVRRocketSurgery's Avatar
 
Join Date: Dec 2015
Location: Vancouver
Posts: 609
Interesting article. In some ways, I feel we're looking to somewhat applying similar concepts that Kitces discusses when we retire.

We're looking to ratchet up our core spend based on our taxable dividend portfolio hopefully through dividend increases growing faster than inflation. Conversely, we're looking for our withdrawals from our tax-advantaged retirement accounts to be flexible, based on returns, similar to the guardrail approach, which would support our fun spend like extended travel so potential cuts in this bucket wouldn't be as painful.
I also estimate combined withdrawals during the first couple of years to be in the 3.5% neighbourhood before having the confidence to ramp it up if returns are decent.
__________________
Target April 2022
"Life moves pretty fast. If you don't stop and look around for a while, you could miss it."
YVRRocketSurgery is offline   Reply With Quote
Old 07-18-2019, 12:44 AM   #6
Full time employment: Posting here.
 
Join Date: Dec 2012
Posts: 591
Quote:
Originally Posted by GravitySucks View Post
In his Reddit AMA, Bengen says he has revised his findings to SAFEMAX = 4.5 % for 30 years and that a 4% WR will last forever.
I have upgraded my withdrawal max after reading that Kitces article at year 6 of retirement due to the great portfolio growth and seeing how little my parents and others actually spent after 80. Now if I could just bring myself to actually spend it....
I'm a big fan of Michael Kitces. For me, he just makes a lot of sense.

The little spending after 80 makes sense to me too. So another reason why it may be OK to have increased spending in years leading to our eighties.
Elbata is offline   Reply With Quote
Old 07-18-2019, 05:30 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 4,700
The LTC can be the wildcard spending after reaching 80, but like the article overall.
__________________
TGIM
Dtail is online now   Reply With Quote
Old 07-18-2019, 06:11 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,652
Quote:
Originally Posted by Elbata View Post
I'm a big fan of Michael Kitces. For me, he just makes a lot of sense.

The little spending after 80 makes sense to me too. So another reason why it may be OK to have increased spending in years leading to our eighties.
+1 I'm a fan too... but $150m doesn't pass the smell test.. for $1m to grow to $150m over 50 years would be 10.54% a year and that is with no withdrawals.. so with withdrawals it would be north of 12.5% a year.

Quote:
...with 40-50+ years to compound, the range of future outcomes is actually much much wider than more retirees realize (or can even comprehend, with “equal” likelihood of a $1M retirement account running out, or turning into $150M, at a 3.5% initial withdrawal rate!
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-18-2019, 06:14 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 4,700
Quote:
Originally Posted by pb4uski View Post
+1 I'm a fan too... but $150m doesn't pass the smell test.. for $1m to grow to $150m over 50 years would be 10.54% a year and that is with no withdrawals.. so with withdrawals it would be morth of 12.5% a year.
Yeah was wondering about that too. If 1982 was the best starting year of retirement, then even those returns haven't reached 50 years of analysis.
__________________
TGIM
Dtail is online now   Reply With Quote
Old 07-18-2019, 08:29 AM   #10
Thinks s/he gets paid by the post
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 2,255
Quote:
Originally Posted by Dtail View Post
Yeah was wondering about that too. If 1982 was the best starting year of retirement, then even those returns haven't reached 50 years of analysis.
Best I could squeeze out of FireCalc was $47M with 50 years and a 3.5% WR
GravitySucks is offline   Reply With Quote
Old 07-18-2019, 08:42 AM   #11
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 998
Quote:
Originally Posted by GravitySucks View Post
Best I could squeeze out of FireCalc was $47M with 50 years and a 3.5% WR
I agree, I wonder if he is using a Monte Carlo model. Those give crazy long-tail numbers, both up and down. He usually sticks to historical models but who knows?

Anyway, with only $47M I guess it is OMY.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Old 07-18-2019, 09:35 AM   #12
Recycles dryer sheets
 
Join Date: May 2013
Posts: 291
Great article - thanks for posting it.

On whether he's using historic or Monte Carlo:
"Accordingly, the chart below shows the trajectories of wealth for 50-year retirement time horizons...through various rolling return periods in history."

(The very-high end portfolio values he cites seem way too high to be historical to me as well, fwiw.)
footenote is offline   Reply With Quote
Old 07-18-2019, 10:33 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 21,831
Quote:
Originally Posted by GravitySucks View Post
Best I could squeeze out of FireCalc was $47M with 50 years and a 3.5% WR
But FC is inflation adjusted. Perhaps Kitces number was not? 3x inflation over 50 years is not unreasonable, I think.

If we knew the start year for that number, it would be an easy check.

-ERD50
ERD50 is online now   Reply With Quote
Old 07-18-2019, 01:50 PM   #14
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Bay Area
Posts: 195
I think you're right...that it's a nominal value (as opposed to real). Still surprising though (even $47M real seems unrealistically high if taking out 3.5%/yr). I guess "equal chance of $150M vs running out" is less a statement of confidence about supersized returns, and more a statement of confidence in the portfolio's survival using a 3.5% WR.

Have enjoyed Kitces's writing over the years and enjoyed this article as well.
Nature Lover is offline   Reply With Quote
Old 07-18-2019, 02:04 PM   #15
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: Country Living
Posts: 3,513
Smart guy making some darn good money teaching others! He does speaking engagements and his fee is $8000-$15000 per engagement. He will do 40 this year (all booked but two) so this is $320,000 to $600,000 plus expenses.

And looks like with 2500 members of the investment professional subscritions, that's another $150,000 to $247,000.

Not too shabby, eh?

https://www.kitces.com/speaking/
__________________
Retired in 2014 at the Ripe Age of 40
ExFlyBoy5 is offline   Reply With Quote
Old 07-18-2019, 02:41 PM   #16
Thinks s/he gets paid by the post
HNL Bill's Avatar
 
Join Date: Dec 2017
Posts: 1,621
Quote:
Originally Posted by ExFlyBoy5 View Post
Smart guy making some darn good money teaching others! He does speaking engagements and his fee is $8000-$15000 per engagement. He will do 40 this year (all booked but two) so this is $320,000 to $600,000 plus expenses.

And looks like with 2500 members of the investment professional subscritions, that's another $150,000 to $247,000.

Not too shabby, eh?

https://www.kitces.com/speaking/
Not too, but it sounds an awful lot like w$rk.
__________________
Balance in everything.
HNL Bill is online now   Reply With Quote
Old 07-18-2019, 02:52 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,039
About a million a year would probably be enough to get me back to w*rk. Fortunately I don't have the personal capital for that to be an option. A man does need to know his limitations.��
__________________
Just plodding along on Dividends/Interest, SS and a small pension.
foxfirev5 is online now   Reply With Quote
Old 07-18-2019, 02:58 PM   #18
Thinks s/he gets paid by the post
ExFlyBoy5's Avatar
 
Join Date: May 2013
Location: Country Living
Posts: 3,513
Quote:
Originally Posted by HNL Bill View Post
Not too, but it sounds an awful lot like w$rk.
Well, at a per hour rate, I think the speaking gig is pretty good. Shoot, even at the "base rate", if you figure two days travel and a day of speaking and shaking hands, that's close to $3,000 a day. Certainly worse ways to make that kind of money!



I was never a big fan of public speaking, so I won't be making $ doing that anytime soon. Then again, I have no desire to w*rk for money ever again, either.
__________________
Retired in 2014 at the Ripe Age of 40
ExFlyBoy5 is offline   Reply With Quote
Old 07-18-2019, 03:27 PM   #19
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 998
Quote:
Originally Posted by ERD50 View Post
But FC is inflation adjusted. Perhaps Kitces number was not? 3x inflation over 50 years is not unreasonable, I think.

If we knew the start year for that number, it would be an easy check.

-ERD50
I think you got it. So he is probably correct (which I expected).
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Old 07-19-2019, 12:48 PM   #20
Thinks s/he gets paid by the post
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 2,255
Quote:
Originally Posted by ERD50 View Post
But FC is inflation adjusted. Perhaps Kitces number was not? 3x inflation over 50 years is not unreasonable, I think.

If we knew the start year for that number, it would be an easy check.

-ERD50
Good point. Thanks.
__________________

GravitySucks is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Health Savings Account/Flexible Spending Account Bongybo Health and Early Retirement 5 07-26-2008 07:46 PM
Flexible Spending Account Fireup2020 Young Dreamers 28 10-02-2007 12:11 PM
Flexible Spending Accounts - Child and Dependent Care justin FIRE and Money 5 10-24-2006 04:19 PM
Flexible Spending Accounts (FSAs) azanon Young Dreamers 39 09-19-2006 03:14 PM
Flexible Spending Account Contributions justin Other topics 16 11-22-2005 05:23 PM

» Quick Links

 
All times are GMT -6. The time now is 06:49 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×