My S(?) WR

[MichaelB]

Quote:

Originally Posted by REWahoo I doubt anyone is going to be able to beat my first five year withdrawal percentages.

We had college expenses bunched together which I thought would get us up there but no. Close, though.

Quote:

Originally Posted by Midpack I just retired 6 months ago, but I wonder if I may have to relearn that crucial investing mindset (underlined) again. I was fully invested in '87, '00 and '08 and never came close to bailing - but part of the "discipline" may have come from knowing I still had income to build assets again and could always stay working longer. Without the latter option, it may be more difficult to mentally withstand the next big downturn, won't know until it happens. Where I was at least 80:20 most of my working life, I'm close to 50:40:10 now, hopefully that will help me stay the course. Thanks for posting your progress too, great thread. I'd post my progress, but there's not enough history yet...

The '08 / '09 downturn brought us within 5% of our "minimum portfolio" - the number that would have forced a portfolio shift that, while preventing further loss, would also guarantee a permanently smaller portfolio. Way too close for me, and showed me that I was not effective in assessing portfolio risk, something I hope to have changed.

I look forward to seeing your progress here soon. And another thanks to REWahoo for starting this thread.

[Finance Dave]

Good topic, fun to read. I'm not yet FIRE'd, so no charts from me.

[Mulligan]

Quote:

Originally Posted by MichaelB Bulletproof - no. More like beat up. And there were some sleepless nights, and probably more ahead. But the real lesson for me is, despite all the math, graphs, failure rates and safe withdrawal calculations, risk is better appreciated after the market falls 50%, and safety is not a percentage but how one acts and reacts when that happens or things just go bad. This though has led me to lighten up on the budget stress, increase the withdrawal rate, and try to chill a bit more.

I have retired and am drawing a pension that is 2% annual COLA'd . While I dont have to worry about withdrawal rates, the markets " drops" worry me also. My pension trust fund dropped from 30 billion to 19 billion, before bouncing back, a couple years ago. If the market ever drags you down its inevitable it will eventually get me too. The only benefit I have going for me personally is I dont control my money, as I am sure I would panic and permanently lock in my losses!

[Lsbcal]

Very interesting thread so far and thanks to everyone for sharing.

Here are some stats for us:

year  spend  portfolio
2004  6.4%   15%
2005  3.7%   16%
2006  4.5%   14%
2007  5.2%   20%
2008  4.7%  -10%
2009  6.6%   -2%
2010  5.6%    0%
2011  4.8%  -11%

That last column is the inflation adjusted portfolio balance. I figure that is really the figure of merit for us. So we are down 11% from the start of retirement.

Besides my lack of great stock/bond returns, my excuses are:
1) Delaying SS until 2 years from now. DW started hers in 2010.
2) Helping DS get through college
3) Converted a lot of IRA money to Roth triggering heavier tax bite.

This year DS graduates from college and we will be taking some income from Roth's to reduce taxes a lot. When I take SS our spending could go down into the 3% range but I figure we will want to live it up a bit. Don't really want to be on one of those FIRECalc lines that go up and to the left. Flat might be better in terms of quality of life before we turn off the lights for good.

[REattempt]

REWahoo...did you post this as a result of our Capital Markets/SWR discussion? If so, niiiiiice....

Here is my firecalc result...absolutely not meaningful (doesn't include real estate equity my "buffer" and doesn't include pensions or SS...I'm only 47, so who knows if they will be around)

and

Here are my results since 8/31/11...again, absolutely not meaningful...

I budgeted at 2.8% and ran at 2.6% of Investible Net Worth for September through Now. Really didn't change my spending from pre to post retirement.

The difference between investible and Total is my homes. I don't include the value of the properties I own in my WR calculation. I thought it was a good way to keep a buffer.

[Nords]

2009 wasn't nearly as scary as that 2002 thingy. Although I have to admit that we had a much larger dollar drop in 2009, but the percentage wasn't as bad.

This has been "normalized" to start at 1.0. It begins at June 2002 when I started surfing lessons ER and skips along in six-month intervals to Jan 2012. Green reflects assets, the lower blue bars reflect mortgage debt, and the line is net worth. And, yes, since I'm including mortgage debt it only seems fair to include the equity on our home and our rental. Not that I can sell call options on real estate equity.

[ejman]

Fascinating thread. Retired 12/31/2002


Year Expenses % Liquid Assets as % of Initial Amount
2003 8.49% 100%
2004 5.13% 123%
2005 3.94% 144%
2006 5.09% 154%
2007 4.05% 168%
2008 3.27% 177%
2009 4.76% 135%
2010 5.63% 155%
2011 4.26% 181%

I guess we went kind of loopy the first year of retirement. The expensesl % are calculated as a percentage of the portfolio at the end of the prior year

[REWahoo]

Quote:

Originally Posted by REattempt REWahoo...did you post this as a result of our Capital Markets/SWR discussion?

I'd been thinking about doing it for a while and your thread influenced me to follow through. I thought a little reality might be a nice change to our usual discussion of which prognosticator has the most accurate crystal ball...

[REWahoo]

Quote:

Originally Posted by Nords And, yes, since I'm including mortgage debt it only seems fair to include the equity on our home and our rental.

But, but... my graph shows only my portfolio value, not my net worth.

And where is your withdrawal rate on that chart?

[Lsbcal]

Quote:

Originally Posted by REWahoo But, but... my graph shows only my portfolio value, not my net worth. And where is your withdrawal rate on that chart?

This is a good point. My stats are fully inflation adjusted outcomes and do not include the house equity.

If your investments include real estate then that is a lot tougher to assess now. Our house equity has gone up but I only have an estimate. RE doesn't sell that often in our neighborhood in even good times. Appraisals for refinancing do not reflect reality in our neighborhood but who cares if you own a lot of the house value and just want a better interest rate.

P.S. This hopefully is not a who-did-better thread. Comparisons are kind of meaningless. Some have done part time work, have unusual income streams, whatever. Some are eating at expensive restaurants on their 4.0% spending and some are just getting by on their 4.0% spending.

[Nords]

Quote:

Originally Posted by REWahoo But, but... my graph shows only my portfolio value, not my net worth. And where is your withdrawal rate on that chart?

I'm still stumbling around trying to figure out how many digits to use on the 2011 data... when you do home improvements at $200 sq ft you hope it's a one-time lifetime event.

I guess I should search for any old threads where we were tracking our SWRs over the years.

Been a few changes since 2002. When I ER'd we had no rental income (parents-in-law were squatting) and spouse had just resigned from active duty with no clear prospect of getting a Navy pension (although the Reserves looked promising). By October of 2002, based on the drop in our portfolio from June, it looked like we wouldn't have an ER portfolio by 2004 either.

Today... much better. Maybe we'll get two pizzas from Costco this week for tomorrow's dinner.

Anecdotally I think there's a strong correlation between ER'ing and having the time/motivation to improve one's financial situation. I guess another way to state that would be "ERs will work incredibly hard to avoid having to go back to work"...

[MichaelB]

Quote:

Originally Posted by REWahoo And where is your withdrawal rate on that chart?

Last night I looked at some old spreadsheets. Back then I wasn't focused on things like withdrawal rates and only tracked certain expenses, so my calculations still have some assumptions, but I suspect they are pretty close.

My first year withdrawal rate was 3.8% (not including college expenses). Using that reconstructed data and including lump sum withdrawals, FireCalc give me an initial success estimate of 70%.

Total CPI has been 36%, but our budget is up less than that, and this year the budget is around 4.2%. FireCalc is more generous now and now says our projected success rate is above 90%. The difference, of course, is life expectancy. Still, 12 years later, I think if we can keep our spending increases limited to CPI and avoid a major portfolio loss we should be in pretty good shape, despite a withdrawal rate that I have frequently classified as risky.

[ripper1]

I'm one of those demonized public employees who gets a cola'd pension so I am just withdrawing what my portfolio is yielding. Somewhere about 2.8% a year.

[Midpack]

Quote:

Originally Posted by ripper1 I'm one of those demonized public employees who gets a cola'd pension so I am just withdrawing what my portfolio is yielding. Somewhere about 2.8% a year.

I hope you don't feel demonized here. I've made the distinction in some threads at times, but only because it's different planning with a COLA'd pension and subsidized retiree health care vs someone with neither. It can be misleading when someone at one extreme offers advice to another on the other end of the benefit spectrum without either recognizing the distinction. Of course there are all kinds here, at the extremes and between, and we all face risks...

[Mulligan]

Quote:

Originally Posted by Midpack I hope you don't feel demonized here. I've made the distinction in some threads at times, but only because it's different planning with a COLA'd pension and subsidized retiree health care vs someone with neither. It can be misleading when someone at one extreme offers advice to another on the other end of the benefit spectrum without either recognizing the distinction. Of course there are all kinds here, at the extremes and between, and we all face risks...

I think Ripper was teasing a bit. I'm a cola'd pensioner (no health insurance), too and have never felt unwelcome over the issue. I think several threads in the past have shown opinions that the government should get out of the pension business, but never has anyone felt we should have them taken away. Midpack, you are certainly correct about different planning aspects though. Instead of me having a withdrawal rate, I am having a 20% deposit rate to be used in case my pension would ever get reduced. This forum has been very beneficial to me in realizing you shouldnt put all your trust in the government as things can change. If I had retired 15 years ago with a pension, I would have just spent it all and waited for the next one to come in the mail without a concern in the world.

[Koolau]

Quote:

Originally Posted by Lsbcal Very interesting thread so far and thanks to everyone for sharing. Here are some stats for us: year spend portfolio 2004 6.4% 15% 2005 3.7% 16% 2006 4.5% 14% 2007 5.2% 20% 2008 4.7% -10% 2009 6.6% -2% 2010 5.6% 0% 2011 4.8% -11% That last column is the inflation adjusted portfolio balance. I figure that is really the figure of merit for us. So we are down 11% from the start of retirement. Besides my lack of great stock/bond returns, my excuses are: 1) Delaying SS until 2 years from now. DW started hers in 2010. 2) Helping DS get through college 3) Converted a lot of IRA money to Roth triggering heavier tax bite. This year DS graduates from college and we will be taking some income from Roth's to reduce taxes a lot. When I take SS our spending could go down into the 3% range but I figure we will want to live it up a bit. Don't really want to be on one of those FIRECalc lines that go up and to the left. Flat might be better in terms of quality of life before we turn off the lights for good.

I've been independently thinking lately about your reason (3) Converted a lot of IRA money to Roth triggering heavier tax bite.) I'm coming to think of the taxes paid to convert as a "neutral" at worst. IOW, a case could be made NOT to include the tax bite of a Roth conversion in your WR. You are simply exchanging one asset (a tax-deferred one) for a tax "free" one. The cost to do so is the tax bite - but that "cost" is virtually converted to "value" within the Roth. So it could be looked at as "neutral". I'm certain it doesn't feel that way when you look at your cash stash or even your "unadjusted-for-future-taxes" net worth. In this case, I guess it's all about your viewpoint. YMMV.

[ripper1]

Quote:

Originally Posted by Mulligan I think Ripper was teasing a bit. I'm a cola'd pensioner (no health insurance), too and have never felt unwelcome over the issue. I think several threads in the past have shown opinions that the government should get out of the pension business, but never has anyone felt we should have them taken away. Midpack, you are certainly correct about different planning aspects though. Instead of me having a withdrawal rate, I am having a 20% deposit rate to be used in case my pension would ever get reduced. This forum has been very beneficial to me in realizing you shouldnt put all your trust in the government as things can change. If I had retired 15 years ago with a pension, I would have just spent it all and waited for the next one to come in the mail without a concern in the world.

I'm also aware that a government pension could get reduced. That is why I also decided to put away as much as I could in a 457 account that the City of Chicago offered through Nationwide. New hires now have to work longer and get some kind of 401k I believe. They are working on also changing benefits for current employees going forward. I think I am safe because I already retired but the COLA might be something they will look at.

[Lsbcal]

Quote:

Originally Posted by Koolau I've been independently thinking lately about your reason (3) Converted a lot of IRA money to Roth triggering heavier tax bite.) I'm coming to think of the taxes paid to convert as a "neutral" at worst. IOW, a case could be made NOT to include the tax bite of a Roth conversion in your WR. You are simply exchanging one asset (a tax-deferred one) for a tax "free" one. The cost to do so is the tax bite - but that "cost" is virtually converted to "value" within the Roth. So it could be looked at as "neutral". I'm certain it doesn't feel that way when you look at your cash stash or even your "unadjusted-for-future-taxes" net worth. In this case, I guess it's all about your viewpoint. YMMV.

From just the standpoint of cash flows the taxes are money out the door. You are taking the hit now which hopefully is lower then the hit in future years when you withdraw from a Roth to lower your taxes (as we are going to do this year) and reduce your withdrawal rate then. Maybe I do not understand the argument for not calling it spending.

Just from a FIRECalc type of simulation, you would have to count any taxes in that year because they deplete the portfolio and the worry is that the portfolio would decline too far before it gets a chance to experience growth in later years (those lines that prematurely hit zero in the simulations).

In any case, it does affect the "figure of merit", i.e. the inflation adjusted retirement portfolio. That figure-of-merit is affected by (1) spending of all kinds less incoming cash flows like SS or pension, (2) the inflation rate, and (3) your investment returns.

[pb4uski]

Quote:

Originally Posted by Koolau I've been independently thinking lately about your reason (3) Converted a lot of IRA money to Roth triggering heavier tax bite.) I'm coming to think of the taxes paid to convert as a "neutral" at worst. IOW, a case could be made NOT to include the tax bite of a Roth conversion in your WR. You are simply exchanging one asset (a tax-deferred one) for a tax "free" one. The cost to do so is the tax bite - but that "cost" is virtually converted to "value" within the Roth. So it could be looked at as "neutral". I'm certain it doesn't feel that way when you look at your cash stash or even your "unadjusted-for-future-taxes" net worth. In this case, I guess it's all about your viewpoint. YMMV.

Interesting observation.

I agree that if the tax rate is constant and the earnings rate is the same that a tIRA to Roth conversion should be economically indifferent so one could argue that the tax outflow shouldn't be counted as a withdrawal. The reason so many of us do tIRA>Roth conversions is because we believe out current tax rate will be lower than our future tax rate when RMDs kick in.

I don't think many people think of the withdrawals for taxes as not counting towards the withdrawal rate (I don't) but there is an argument to be made that is valid.

If we included deferred taxes in computing our net worth, then a tIRA>Roth conversion wouldn't change our net worth, but very few people do that (I don't assuming, perhaps naively, that my effective tax rate in retirement will be minimal).

[Koolau]

Quote:

Originally Posted by Lsbcal Maybe I do not understand the argument for not calling it spending.

Well, as you (and pb4uski) point out (and, I believe I alluded to) this is all quite in the eye of the beholder. I only pointed it out because IIRC, I listed last year's taxes (2010) in another thread as being high for the same reason (extra taxes, due to Roth conversion). Then, I began to rethink that statement.

I was simply suggesting that tIRAs and Roths can only be compared in terms of their "value" by recognizing the current taxes due at the time. If you are in a low tax bracket, the tIRA is more valuable than to a person in a higher tax bracket, but the point is still valid. True, your tax rate can and probably will change over time. In the current situation, however, I'm suggesting that paying the taxes now simply recognizes and equalizes the difference (now). You can choose to call it a "cost" and consider the outlay as increasing your WR. But, in fact, your assets at the time of paying the taxes are (for all intents) exactly the same. Again, that might change over time based on tax brackets, but for now, you haven't changed your total assets by paying the taxes. I think that makes a (debatable) case for saying you haven't "spent" anything.

Please, never ask Koolau for the time. He is likely to explain how they make the watch.