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Re: Need Help With Withdrawal Strategy
Old 09-13-2003, 10:40 AM   #21
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Re: Need Help With Withdrawal Strategy

Paul Farrel sounds like he knows his subject. Re.
helpful books and articles, here is one I have not seen
mentioned; 'Cutting Loose' by Dorothy Kalins.
Copyright 1975, published by Doubleday in Canada and
Staurday Review Press in the States, it's a back to the land/back to the basics kind of book. Little financial
advice, but some good stories of folks who dumped their
upscale urban lives for a simpler existence. I read this
before I discovered Paul Terhorst. It was good entree.
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Re: Need Help With Withdrawal Strategy
Old 09-13-2003, 11:45 AM   #22
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Re: Need Help With Withdrawal Strategy

Income streams are important. I check the SEC yields of my funds to get a feel for my 'rock bottom' cash flow. That compared to our 'core' budget provides 'emotional' comfort that the basics are covered. The distance between the SEC average and 4% is sort of the fun money zone.

Scot Burns also did an article on less than million dollar portfolios but I can't remember when. Dory36's 33% thats my story sure rung a bell - because of similar examples to illustrate portfolio size(Burns) and income(dory).
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Re: Need Help With Withdrawal Strategy
Old 09-13-2003, 03:22 PM   #23
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Re: Need Help With Withdrawal Strategy

Hey GDER
Mind if I borrow your equation for my nephew's? Nice and simple - a shootable target.
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Re: Need Help With Withdrawal Strategy
Old 09-13-2003, 03:24 PM   #24
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Re: Need Help With Withdrawal Strategy

This issue of "income based' retirement versus "asset based" retirement relates to the recent discussion about estimating the present worth of social security benefits. I said that I thought it was impractical to come up with a meaningful value and, more importantly, that the exercise is academic, because the thing that matters in retirement is the income stream that a person is able to sustain from all sources.

The income stream from Social Security is about the most predictable on of all. What is much more challenging is to estimate what income stream (particularly on an inflation-adjusted basis) can be generated from financial assets. That is what FIRECalc does.

It is interesting to consider that the only thing that gives financial assets value is people's expectation that they will deliver cash in the future. Even a stock that currently pays no dividends is valued (through a combination of explicit and intuitive analysis) on the basis of the present value of expected future earnings/dividends.

The main difference between "dividend paying" stocks and "speculative" stocks is that the dividend paying stocks are expected to pay out a relatively secure, but slow-growing dividend stream, whereas "speculative" stocks are expected to ultimately pay dividends that have a chance of growing to be enormous. As the time to this future payout appears to be shortening, the price of a speculative stock appreciates even if it is not yet paying any dividends. So its annual return from price appreciation may be equal to or greater than the annual return of dividend-paying stocks.

In general, the greater predictability of the total return of dividend paying stocks causes that total return to be less than that of the overall stock market. Their lower "beta" translates to lower long-term total returns.
According to financial theory, a person can achieve highest returns associated with a particular level of risk (be on the "efficient frontier") by investing in a combination of the total stock market and bonds and/or cash.

However, if a person has a fairly diverse selection of dividend-paying stocks, they can achieve pretty nearly the same results by holding a somewhat higher percentage of their assets in those stocks. Fortunately, they now will be getting a tax break on the dividends.
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Re: Need Help With Withdrawal Strategy
Old 09-13-2003, 04:33 PM   #25
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Re: Need Help With Withdrawal Strategy

Hey Ted
I agree - big bet on the efficient frontier - little bet on diversified dividend stocks. I keep Berstein's Efficent Fronter website article on terminal wealth dispersion handy to reread when the emotional tries to overwhelm the rational. The dividend yield fell below long term treasuries circa 1958. I wonder how "mr market" will price relative yields going forward given the new tax rate.
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 05:19 AM   #26
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Re: Need Help With Withdrawal Strategy

Hi GDER. A couple of quick points. A lot of us (most?)
ERs have SS as our eventual base and not the ER
"gravy". Also, re. your formula and comment about
when ER is "possible", it's possible for most people
(read Terhorst again) when they make up their minds to do it. Remember, I started (ER) with practically nothing
and never really saved/invested until AFTER I decided
to go at age 49. Okay, I had some luck, but I'm still
retired 10 years later. Motivation is a lot more important
than any formula. IMHO this is true for just about any endeavor in life.
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 09:12 AM   #27
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Re: Need Help With Withdrawal Strategy

I've been using FIRECalc to run various withdrawal scenarios.
It allows you to determine what you can withdraw with various percentages of safety and shows you what your mean balance might be in 35-40 years. I don't want a balance!

How do I calculate what we can withdraw and make it last for 35 years with no balance at the end. We don't need or want to leave behind hundreds and thousands of dollars to our heirs. They're getting our real estate properties as it is.

My wife and I want to spend while we're alive.

Any suggestions?

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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 02:40 PM   #28
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Re: Need Help With Withdrawal Strategy

Hi proud Texan! I do not have a suggestion on how anyone could spend down to -0- by their demise.
It is mathematically impossible. I am now compelled
to repeat one of my favorite movie lines (Al Pacino
in 'Heat'). "You can get killed walkin' your doggie!"
John Ritter had plans for his future. Not much use now.
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 04:57 PM   #29
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Re: Need Help With Withdrawal Strategy

My wife and I both work for the DOD, so we have excellent benefits. Like you, our combined pensions are much more than our monthly expenses. In fact, we're taking a penalty by retiring early, but we are still getting a raise in our take home pay because we lived on so little and saved so much for so long.

Our medical is also paid for life. We have long-term care insurance for later, but I might like to have a little bit of reserve in case we need to go into assisted living. I have rental income though, so that won't be a major concern. I can also pawn my kids' inheritance if it becomes necessary.

My investment money is only needed for travel and dire emergencies. I just never want to miss out on something that I really wanted to do in life because I had to die with money in the bank.
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 05:57 PM   #30
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Re: Need Help With Withdrawal Strategy

Quote:
How do I calculate what we can withdraw and make it last for 35 years with no balance at the end. *
I don't see how this CAN EVER be calculated. FIRECalc uses historical data, and creates multiple passes. Looking at the graph shows all the possible outcomes using the historical data with the parameters you have input. Solving for 100% certainty (within the bounds of historical data, of course) will give end values from just greater than zero, to many millions of $ left over. All because of the possible variability year to year compounded by the years of run.

If I remember correctly, I-Orp has you put in your own fixed values of return for the different assets. Except for the tax planning effects, I guess I don't see how I-ORP is any better than just making your own spread sheet, and coming up with your own return values. In fact, if you make your own spread sheet, you could at least vary the return year to year. But unless you are going to use many many passes of historical data, where will these return % come from for each year?

I have made a spreadsheet with quite a bit of detail, but I still have to guess what the returns will be. And that's all they are, guesses.

I can probably pull returns out of my rear just as well as anybody else, but I know I am totally incapable of predicting down to zero dollars from 35 years off!

As johng said, it is mathematically impossible to do so. However, for a hefty up front fee, I'll be glad to try for anyone!
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 06:00 PM   #31
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Re: Need Help With Withdrawal Strategy

New exit strategy: spend all my money then die being shot by a jealous husband when I'm 95. :P
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 07:44 PM   #32
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Re: Need Help With Withdrawal Strategy

Quote:
. . .I don't want a balance!

How do I calculate what we can withdraw and make it last for 35 years with no balance at the end. *. .
I think you're thinking too narrowly. I not only want to leave 0 balance, I'd like the last check I write to bounce.

Who needs good credit when they're dead.
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Re: Need Help With Withdrawal Strategy
Old 09-14-2003, 08:05 PM   #33
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Re: Need Help With Withdrawal Strategy

Quote:
Well I like www.i-orp.com. *Projected pension + SS is more than our projected annual expenses, so unless some fool demon-rat 'means-tests' future SS, I have a nice built-in cushion.
In a sense, social security benefits are "means-tested," in that they become subject to income tax when a person's total taxable income exceeds a certain amount. I'm not complaining about this, because people who have that much income can live comfortably on it.
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 04:31 AM   #34
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Re: Need Help With Withdrawal Strategy

Yes Ted, I agree that the taxability after a point on SS
benefits is "means testing". Guess that's another
government rule that makes some sense, even to me.
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 05:12 AM   #35
 
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Re: Need Help With Withdrawal Strategy

Somewhat OT, but I generally don't agree with any means testing. I think that everyone should get equal benefits. I call it the double Robin Hood effect. Take from the rich, give to the poor, but the rich get nothing back. If I pay twice as much as someone else, shouldn't I get something in return?

The overnment should provide equal services to all. It does that in the form of the Military and Police services, transportation, and regulatory agencies like commerce, communications, environmental, etc. It's not until one gets to the social programs that the means test arise. It's usually done to hide mismanagement or some sort of pyramid scheme.

I thiink that the progressive tax systems and the various means testing that goes on generates a sense of futility in trying make ones self better off, since proportionally, the harder I work and the more I make, the less I get back in return.
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 06:48 AM   #36
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Re: Need Help With Withdrawal Strategy

There is a land mine in the tax law with regards to SS.

For a married couple filing jointly:

a) *Take your annual SS Benefit, and divide it by 2.

b) *Then sum your Taxable AND None-Taxable Income (that includes Pension Payments, you aren't escaping this!).

c) *Add (a) + (b).

d) *Subtract $32,000 from the result.

e) *If the result is < or = 0, none of the SS Benefit will be taxed. *If > than 0, then the benefit starts to be taxed (but don't worry, no more than 85% of your SS Benefit will be taxed *:P).

f) *Now play with the simple form of the tax-elegibility equation above. *The 32k is fixed, it is NOT inflation indexed. *So as your income needs increase with inflation, you get taxed more on SS Bennys. *
And even if you kept your income requirement from your investments or pension constant, the increasing SS Benny due to COLA will boost the taxable amount.
Now, try a more realistic scenario... boost BOTH of those amounts due to inflation... tax tax tax!

Now, if you are well below age 62, don't be thinking about this using TODAY'S dollar amounts. *You need to inflate and adjust them for the future. *And remember, that 32k trigger STAYS at 32k!

Inflation To Taxation... sounds like some sort of punk band. *

First there is the SS Payroll Tax.
Then get taxed on the use of SS.
Can we come up with another layer of tax on it? *That's a rhetorical question *
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 07:14 AM   #37
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Re: Need Help With Withdrawal Strategy

Telly, you are good. I'm going to answer your
"rhetorical" question. Yes, we can come up with another layer of tax, and in time we will. Excellent point though about the fixed nature of the 32K and possible
effects of inflation. This will eventually amount to additonal taxes even if the tax code is untouched.
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 07:34 AM   #38
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Re: Need Help With Withdrawal Strategy

Hi GDER! Whether the taxability of SS at a higher
income level is "means testing" or not is just playing with semantics. I hope you are right and that you get all
that is coming to you, rather than have it siphoned off
for distribution to someone more "needy". Unfortunately
that is exactly the sort of scheme our "leaders" are apt
to cook up. Wealth redistribution from the better off to
the less fortunate is high on their list of PC/feel good/
vote buying tricks. I can easily envision them installing
the one you suggested. Hope I'm wrong, but that
happens so seldom .
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 11:18 AM   #39
 
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Re: Need Help With Withdrawal Strategy

Quote:
First there is the SS Payroll Tax.
Then get taxed on the use of SS.
Can we come up with another layer of tax on it? That's a rhetorical question
Yup, they've got to pay for those tax cuts and the War somehow! - And we still have a 500 Billion Deficeit!!
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Re: Need Help With Withdrawal Strategy
Old 09-15-2003, 03:49 PM   #40
 
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Re: Need Help With Withdrawal Strategy

Quote:
but a tax cut is one thing that does NOT have to be paid for
Really !! - If the overall budget of the government is in the red and the govenment (Bush) decides to not collect as much (mostly from the very wealthy), it will have to borrow even more somewhere else to make up the difference or cut spending to pay for it!

I'm all in favor of a tax cut, as long as the government makes spending cuts to compensate for them. The last tax cut was not tied to a spending cut, but a spending increase!

All you guys do is complain about taxes. Well, the GOP is in charge of the Legislature and the Presidency - when are they gonna start cutting the programs, so they can lower your taxes!

I have no polital agenda other than explaining the truth. And as Jack says "You can't handle the truth".

Listen buddy! - I'm a Social Liberal and a fiscal conservative. The only president that fit this bill was Clinton. Reagan was the all time spending leader until 'W' showed up.

You have no idea what you're talking about!
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