LBYM in ER

[W2R]

Every day in every way, life is getting better.

Ha

But are you choosing to LBYM these days?

 

[hellbender]

Yep

My wife and I live comfortably on about 50% of my cola'd pension. The rest is saved and invested. 100% of our taxable and tax-deferred monies (accumulated during our working years) will remain untouched until RMDs are required.

 

[braumeister]

This is a serious concern for me.
Do you have any idea what it costs these days to have an equestrian statue of yourself made and placed in the local park?

 

[Amethyst]

I thought pension income wasn't eligible for funding an IRA?

Amethyst

I've been fully finding a Roth each year out of my pension earnings and will continue to do so until my DW retires in 5 years. I have not wanted for anything - in fact I spend more freely now than before I retired.

 

[X501]

Although pension income is not, he can contribute based on the spouse's earnings.

 

[Alan]

Although pension income is not, he can contribute based on the spouse's earnings.

I agree. He can contribute to a spousal IRA as long his DW has earned income.

 

[LOL!]

Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.

 

[67walkon]

We plan to live below our means in the early stages of retirement. My wife inherited something we sold on an installment basis. We sold it 2 years ago and get quarterly payments, which we have been saving since I am still working. Assuming I retire next year when I'm 62, that cash flow, which is mostly tax free, plus some rent we get is more than we live on right now. Our plan is to add to savings as long as we have that income and the rent and postpone any decumulation as long as possible. Even assuming 3% inflation, we should never miss a beat and should be able to leave our kids a nice inheritance. Yes, we want to leave them something and not spend it all before we die.

 

[haha]

Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.

A portfolio that is mainly dependent on dividends from quality companies which are able to grow their well covered dividends will usually show an increasing income, and over time an increasing priciple value, even if you spend every dollar of dividends.

This technique does require some study and knowledge, as well as maintenance time.

This of course would not apply to nominal bonds, which is why I don't normally get involved with "buy and hold" nominal bonds. I was born in the 40s; I don't think there has been one year in all that time without inflation. The rate varies, but it never stops, and IMO it never will.

Dividends are not "gains", they are income. If you spend capital gains, unless you are a trader with demonstrated skill you are likely to eventually sink your ship.

Ha

 

[freebird5825]

Age: 52.5, FIRED and still acumulating. No heirs or spouse.
It is too early nor would it make sense for me to do any sort of withdrawals.
The first 3 years of FIRE, I continued to add to my retirement portfolio using $600 per month (and sometimes up to $1000) from my pension and annuity (P&A) income. The savings in income taxes alone funded this easily. I had a pre-set target amount to finish accumulating and achieved that last year. Mission accomplished.
Now I only use $100 per month of that P&A income and the rest is made up with 30 day dividends from a national muni fund. I have an emergency fund in place in a TE MM fund. I reset my AA to one where I could sleep easily.
I am still LBYM and saving up more cash in the 9 months when I do not have to pay property taxes in lump sums.
I have no choice but to assume that SS will not be what I expect it to be in 9.5 years when I turn 62 (not a political statement, just an equation variable). So I intend to continue DCA at the current rate and method, increasing it only when market conditions tell me to ramp it up temporarily for some bargains.
Once I can draw my own small FERS pension in 3.5 years, Plan C will kick in.
Plan C may involve selling the house and downsizing and/or a geographical relocation. I am actively thinking now about the cost/benefit of keeping the house. TBD...

 

[nun]

Most folks will have to add money to their "principal" in order to have it keep up with inflation. If you are spending all your gains annually on average, then you are probably not problem-free unless you are old. Of course, "gains" is more than just dividends and interest in a portfolio with at least some equities. And "gains" could be "losses" in 1/4th to 1/3rd of the years on average.

I agree, I asked the original question to see how people think about their principal. Right now I plan for 50% of my ER income to come from a rental property. I will have to spend down my after tax savings to get me to 59.5, but the annual amount will be around 1.5% of my total portfolio, so I hope to have gains above that to reinvest. Once SS and UK pension kick in I will have no need to draw on my personal investments. However I have locked up equity in the rental property in exchange for the rental income.

 

[73ss454]

As time goes by DW and I will be needing less of a nest egg. No plans to be the richest guy in the cemetery. I'm going to potters field.

 

[Ally]

We plan to LBYM after ER, because we always have. I think we are also a bit paranoid about running out of money after watching my husband's mom and my dad run out due to illnesses and needing caregivers.

 

[ItDontMeanAThing]

Yes.

Seriously, been LBYM since I finished college and this old dog is slow to learn new tricks. Between global economic uncertainty, the value of the dollar and it's exchange rate with the Thai Baht I see no reason to splurge. Though now that I'm back into photography after many years I'm beginning to turn my lust for a DSLR into semi-rational reasons why it would be good for me.

 

[obgyn65]

It makes no sense to let the principal grow for those of us without DW / DH or heirs. Unless you plan to leave some money for non profit organizations or some of your close friends...

In fact you add to that principal each year so it grows.

 

[Sandhog]

Yes.

Seriously, been LBYM since I finished college and this old dog is slow to learn new tricks. Between global economic uncertainty, the value of the dollar and it's exchange rate with the Thai Baht I see no reason to splurge. Though now that I'm back into photography after many years I'm beginning to turn my lust for a DSLR into semi-rational reasons why it would be good for me.

I do believe most of in this forum have LBYM. However, as for me, during my ER if there are surplus available, I intend to splurge. I have never flown first class oversea. I have flown first class domestically couple of time from cheap upgrade but I would like to flow first class to Thailand or Philippines if I have surplus during my ER. I have to get to ER first but that's another story.

 

[nun]

It makes no sense to let the principal grow for those of us without DW / DH or heirs. Unless you plan to leave some money for non profit organizations or some of your close friends...

I want to leave money to a couple of theaters and my nieces. Another reason for LBYM in ER is to ensure 100% success for my ER financing plan.

 

[Danmar]

I want to leave money to a couple of theaters and my nieces. Another reason for LBYM in ER is to ensure 100% success for my ER financing plan.

Maybe this is a definitional issue but I don't see what you are doing as LBYM. I view it as simply having a different assessment of what your SWR is and setting aside some funds for a favourite cause.

 

[Khan]

That sounds suspiciously like either "extreme ER" or "work until you drop".

I wouldn't hesitate to spend a little principal if it'd improve our lives... or someone else's. But sorry, we're no longer taking applications.

I'm in that situation.

 

[haha]

It makes no sense to let the principal grow for those of us without DW / DH or heirs...

Perhaps it does not, in a world of absolute predictability. In our world, it makes sense, especially if it does not truly pinch you.

Ha

 

[mickeyd]

I must be hardwired for LBYM because I still try to LBYM even tho I can afford to not do so as my pensions, SS, and investments more than cover our needs. Last month I went over by about $5000 or so (oops!) do to a cruise we went on. I'm still not bankrupt...

 

[veremchuka]

So far I have not had to tap my portfolio to supplement my pension since I retired almost 4 years ago except for a small amount to help pay off my mortgage last year. Now that my mortgage is paid off, I am actually saving between $700 to $1100 a month so I am actually accumulating in retirement which I wasn't before I paid it off. This is really required as I spent all my cash and taxable accounts in paying off the mortgage (in year 7 of a 30 year fixed) so I need to replenish my cash reserves.

I really LBYM, always have so it is not a hardship to me. I'm not sure at what point I'll have to start taking distributions if at all until RMD's are required. I am conflicted about RMD, on one hand I feel I should take distributions each year to the top of the 15% bracket to help with RMD one day but then there's the issue of paying the taxes now. I guess the taxes will be due when I have to take the RMD so maybe it is better to start drawing it down now, this is something I can't get a good handle on. I think it is personal preference whether to pay taxes now vs later, I've read pros and cons to this.

I'd have no qualms taking distributions and spending it if I have to. It is important to me to leave as much as I can for my heirs so I am not trying to blow it all before I kick the bucket.

 

[youbet]

I think it depends on what you mean by "means" and "live."

If I look at our long term plan which includes self-insuring for LTC, sending 3 grand-youngin's to post secondary school, providing for a grandchild with special needs and a few other life goals, then we're not LBYM. But as far as what we spend on a daily basis today, it's less than our SS, pensions and portfolio earnings. FIRE'd for 5 years, our net worth is a little higher today (in real dollars) than when we left work. But income is either being spent or there's plans for where it's going.

Put another way, our spending plan calls for the FIRE portfolio to be growing today. So, even though current expenditures are less than current income, I don't consider us LBYM.

 

[NW-Bound]

I hope my children will be self-sufficient before too long. One already flew the coop, and one more to go.

I have a certain lifestyle that I am comfortable with, and it has been the same for a long time. Yet, as my net worth increased over the years, we have taken a few new indulgences, like a 2nd home and some travels. An RV was my last toy, and I do not need anything more. No need or use for expensive, fast or luxurious cars. No boats, no planes, no motorcycles, except for some cheap dirt bikes which I already have for riding the forest trails.

So, to sustain the current lifestyle, I am going to need less than 3% WR. If the economy does not go in the toilet again, and my stash keeps on growing, will I spend more? Maybe, maybe not. I like to count my money, and checking its growth with Quicken is fun too. Call me Scrooge.

 

[GregLee]

Yes, I'm expecting to build principle during retirement by around $1k/month. I don't have any specific idea about what I'll do with it (I have no heirs of any consequence), but possibilities are compensating for inflation, or paying for some catastrophic illness. Or just nursing home care for me or my wife, or both of us. As I'm sure you all know, a very nice thing about money is that there are so very many things you can spend it on.