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LBYM in ER
Old 04-16-2011, 07:45 AM   #1
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LBYM in ER

Many advisers and articles are concerned with how long your retirement income and nest egg will last. They plan for spending down of principal and the "trick" is to die before your money runs out. Is anyone here going to LBYM in ER so that they continue the accumulation phase in retirement? You spend less than your income sources and invest the surplus to increase your net worth! Duh! This doesn't assume a certain SWR, just that it's always less than your investments, SS etc produce each year.
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Old 04-16-2011, 08:31 AM   #2
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.......... Is anyone here going to LBYM in ER so that they continue the accumulation phase in retirement? ..........
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.
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Old 04-16-2011, 08:34 AM   #3
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Maybe I'm missing it, but unless your income is all pensions/annuities and/or you don't plan on touching principal AT ALL, how could one answer this conclusively? I don't fall in any of the above categories and I will happily but cautiously spend down principal most likely (I'd like to die broke, but I know it's practically impossible). I intend to LBYM in that I am targeting a 2.5% WR before Soc Sec and I intend to work some more...as close as I can come to answering.
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Old 04-16-2011, 08:58 AM   #4
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I actually do have a defined benefit pension (and so will my DW). I am only 4 months into ER and I am still figuring out the details of my monthly expenditures. The plan at this time is to not touch my 403b and 457 money for the next 10 years. I am also planning to be able to save some money but I don't expect it to be significant in the sense you are talking about. In my case the LBYM issue will be the timing for SS and the start of withdrawls from my existing savings.
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Old 04-16-2011, 09:27 AM   #5
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Maybe I'm missing it, but unless your income is all pensions/annuities and/or you don't plan on touching principal AT ALL, how could one answer this conclusively?
You're not missing it. The idea is to live on pension, SS, dividends, CGs and NOT touch the principal. In fact you add to that principal each year so it grows.
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Old 04-16-2011, 09:42 AM   #6
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Depending on your tax situation, it could be that you take distributions beyond your expenses in order to fill up your 15% tax bracket. Dependinig on what you do with the overage, it could be considered LBYM.
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Old 04-16-2011, 09:48 AM   #7
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Depending on your tax situation, it could be that you take distributions beyond your expenses in order to fill up your 15% tax bracket. Dependinig on what you do with the overage, it could be considered LBYM.
Hi Rich..
What is the significance/reasoning for the 15%.
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Old 04-16-2011, 09:52 AM   #8
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In fact you add to that principal each year so it grows.
And then what?
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Old 04-16-2011, 09:52 AM   #9
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You're not missing it. The idea is to live on pension, SS, dividends, CGs and NOT touch the principal. In fact you add to that principal each year so it grows.
Then you're asking a question of only part of this audience (albeit a large group), which is fine. For those of us without pensions to substantially supplement Soc Sec, who also don't want to leave a $ legacy/bequest, the LBYM question is altogether different. For those in my boat, LBYM is mostly planning for a WR less than a reasonable SWR. Sorry, I should have just kept quiet on this thread, it does not apply to me...
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Old 04-16-2011, 10:23 AM   #10
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Then you're asking a question of only part of this audience (albeit a large group), which is fine..
I'm glad you answered. I'm as much interested in those that will spend principal as those that won't.

I've always saved, but started to think about ER about 10 years ago without much sophistication. I just applied the rules Id grown up with and figured that Id need a nest egg big enough to produce income to live on after including SS. Bridging the ER to SS age made me start to plan with greater thought and I found this and other sites.
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Old 04-16-2011, 10:30 AM   #11
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I very much am adding to my savings and living below my means. My sole income however is my pension. If I knew I could completely trust the system for the next 35 years, I wouldn't be saving but I'm not comfortable trusting my sole financial means to one source, a pension. Also, I will get very little in SS and that's 20 years away.
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Old 04-16-2011, 10:48 AM   #12
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Hi Rich..
What is the significance/reasoning for the 15%.
Nothing special about 15%, other than that it's a federal bracket that is low enough to make qualified distributions worth considering for some (you may be in a higher bracket well after post-tax savings run out, SS begins, etc). Living off post-tax investments might leave you in a nice low ordinary income situation, so you can take out some qualified money cheap (tax-wise).

You need to be careful not to let the IRA withdrawal (treated as income) push you beyond the top of the 15% bracket, of course.

If you can get the money out of an IRA for 15% in fed taxes, that lowers your RMD exposure later, and if you think taxes are going to rise down the road, oro are moving to a high tax state from a low one, it helps to get it out now at the lower rate.

The actual brackets and numbers you use are totally dependent on your personal numbers, brackets, and situation, but the strategy is the same.
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Old 04-16-2011, 10:51 AM   #13
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And then what?
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Old 04-16-2011, 10:51 AM   #14
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Since FIRE'd no accumlation for me. Instead, more like holding serve

If by year's end and I LBYM'd so that there's a surplus in my budget, then I'll invest that. Other than that, the only real investing is more re-allocating.

Even with my HSA, the "S" there is for Spending on qualified medical expenses and not Saving until age 65 to use that as an IRA.
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Old 04-16-2011, 10:52 AM   #15
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I will (and do now) spend principal as part of total return investing, however I expect my portfolio value to continue growing faster than inflation over the long term. I won't be adding to the portfolio from any other income source though, so I can't say I'll be in accumulation mode.
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Old 04-16-2011, 10:56 AM   #16
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I am currently only spending dividends(3.3%WR) and this would likely be LBYM. Eventually though if the portfolio appreciates I might spend some principle. Not sure how the concept of LBYM works in retirement. If you spend a low WR aren't you really just saying you are setting something aside for a rainy day? Alternatively if you want to leave a legacy isn't this just spending your money a different way? Is the concept of LBYM even valid in retirement?
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Old 04-16-2011, 10:59 AM   #17
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Is anyone here going to LBYM in ER so that they continue the accumulation phase in retirement? You spend less than your income sources and invest the surplus to increase your net worth! Duh! This doesn't assume a certain SWR, just that it's always less than your investments, SS etc produce each year.
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.
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Old 04-16-2011, 11:05 AM   #18
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Once you are comfortable that your declining net worth will outlast you, what exactly is the point of having your net worth ever increasing unless your goal is to make your heirs happy or get your name on a building?
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Old 04-16-2011, 11:15 AM   #19
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When I check out for good, I'd rather have $1 in my net worth than $0. A matter of pride

But I really haven't thought of and don't need a legacy or a statue of me
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Old 04-16-2011, 11:39 AM   #20
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Pensions and dividends are less than planned expenses so we will be drawing down principal.

I wouldn't have called it as not LBYM as the WR will be 3% or less. In these years before SS and the possibility of losing retiree health insurance I won't let it rise above 3%, so we would be cutting back to preserve capital in that case.
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