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Re: Need Help With Withdrawal Strategy
Old 09-16-2003, 04:03 AM   #41
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Re: Need Help With Withdrawal Strategy

Wow GDER! You out-ranted the expert (that would be me. I too think cut-throat is pretty much out to lunch on how government and taxes work, and your explanation was really excellent. Short and to the point.
Alas, I find myself surrounded by cut--throat clones.
I do a fair job of avoiding them though. One last thought. I will gladly take any money coming from the
government, i.e. tax refunds, tax cuts, or they can just
print it up. I don't care. I have full confidence in my abilities to
manage it, and little in theirs. That goes for my life also.
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Re: Need Help With Withdrawal Strategy
Old 09-16-2003, 04:55 AM   #42
 
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Re: Need Help With Withdrawal Strategy

GDER,

Quote:
This is just increasing the amount of welfare. *If it's welfare, call it welfare not a 'tax cut', 'child credit' or 'earned income credit' etc. *

I spent 4 years in the Navy, and when I was in, we had a name for people like you ---------------------------------------* * L-I-F-E-R. *

Lazy - Ineffective - Fatasses - Expecting - Retirement

Your whole existence comes from the government! - The defense dept. is the most bloated area of government that we have. You are the reason our taxes are too high!

At least I made it on my own in the private sector. I pay your salary and your retirement benefits. I see little difference in *Lifers and Welfare collectors.

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Re: Need Help With Withdrawal Strategy
Old 09-16-2003, 06:00 AM   #43
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Re: Need Help With Withdrawal Strategy

All this is great stuff, reminds of 35 years past when I would tell my fellow engineers what a liberal democrat I was to simulate debate. Luckily it didn't prevent them from helping to provide the bulk of my early investment education.

My question is this - have you altered your asset allocation, bond duration, or withdrawal rate in lieu of your view of the future.

Now that I've hit the big 60, FIREcalc says I can take a lot more than SEC average yield mainly due to SS in six years - more than we are spending. So the future is bright?, uncertain? or grim? - ie let it ride tax sheltered, take it out or invent new ways to party now while we're young.
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Re: Need Help With Withdrawal Strategy
Old 09-16-2003, 09:50 AM   #44
 
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Re: Need Help With Withdrawal Strategy

Unclemick,

Quote:
My question is this - have you altered your asset allocation, bond duration, or withdrawal rate in lieu of your view of the future.
I have altered my asset allocation greatly since the run-up of the stock market this year. I did this in Mid- August. I'm 50% Stock (Mostly large Cap) and 50% Cash. If the market continues to rally, I'll pull out another 10% for each rise of 500 points on the Dow.

My personal reasoning is this. The S&P 500 PE sits at about 22 right now - Very over valued - and is predicting a booming economy for its value. However if this economy does not start producing great jobs (not the $8 a hour jobs that are everywhere) by next year, there is no way that the economy can grow to justify the valuations of the current PE. We could then see another major sell off that we saw in 2002. I'll start buying stocks again, if this selloff occurs.

That's why I'm not into bonds right now. I want the cash for purchasing stocks, in case the sell off occurs. Also, with interest rates at historic lows, it looks like there is only one place for interest rates to go. And then you know what happens to bonds.

As far as my withdrawal rate - I'm not withdrawing. My wife is still working - This covers Health care and were still stashing 30 G's a year.

I agree with you on spending more up front and enjoying life. I set my withdrawal rate at about 3%, which will do very nicely. But then I end up with all kinds of dough at age 95. So I factored in another 30 Grand a year for Travel and Entertainment until age 83. and then go back to the 3%. This is all with 3% return.

If you have not ever used Quicken, I would suggest it. They have a retirement planner that you can schedule an unlimited number of events over time and you can play 'what if' scenarios very easily. great for budgeting and any other personal finance need! Prints out some nifty graphs too. I highly recommend it.
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Re: Need Help With Withdrawal Strategy
Old 09-17-2003, 02:53 AM   #45
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Re: Need Help With Withdrawal Strategy

Thanks cut=throat. I am almost completely switched into bonds, bond funds and bond like entities. Am I worried about interest rates rising? You bet! With no common stock I have to get my protection (inflation and
otherwise) elsewhere, like real estate. As far as
pulling more out now so you can improve your SOL,
I suggest you find ways to live better without spending more money. It's not that hard. Whoever said "The
best things in life are free!" knew what they were
talking about.
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Re: Need Help With Withdrawal Strategy
Old 09-17-2003, 04:06 AM   #46
 
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Re: Need Help With Withdrawal Strategy

johngalt,

Quote:
As far as
pulling more out now so you can improve your SOL,
I suggest you find ways to live better without spending more money. It's not that hard.

As I said in my post, Currently I am not withdrawing any money right now. In fact I'm still saving over 30 Grand a year. I won't start my withdrawal until my wife retires in about 8 years.

When I do start withdrawals, I recognize that life is finite and I would rather spend it than die with it. As the old saying - "you can't take it with you"

There are a few things that my wife and I want to do when she retires that are not cheap. One is a 2 month wildlife Safari in Africa.
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Re: Need Help With Withdrawal Strategy
Old 09-17-2003, 04:28 AM   #47
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Re: Need Help With Withdrawal Strategy

I think Cut-Throat's planned ER lifestyle is a bit different
than most of us. I can understand the appeal of an
African safari. Personally, I would rather be boiled in my own juices, but I think it's neat for others if that's what
they like to do.
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Re: Need Help With Withdrawal Strategy
Old 09-21-2003, 02:35 PM   #48
 
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Re: Need Help With Withdrawal Strategy

Cut-Throat, I pulled out my Quicken Retirement Planner as you suggested and entered in my financial assets. I entered an assumed inflation rate of 3% and an assumed total return of 5.5%. I thought a 2.5% real return would be pretty conservative, and I figure that I can do at least that well with a mix of TIPS plus roughly a fourth to a third in Vanguard's Total Stock fund. Quicken gives me a green light, and says my money will last for 45 years, with $300,000 to spare. The plan assumes I spend 3.8% of the portfolio in the first year, and keep pace with inflation thereafter.

When I go into Quicken and revise both the inflation rate and the anticipated returns up-wards (17.5% and 20% respectively), it gives me a red light and tells me my money will last only 37 years. This is despite the fact that both scenarios assume a 2.5% real return. I'm having a hard time understanding why this is so. Shouldn't the money last the same length of time as long as the return beats inflation by 2.5%? Is it because I'm spending more than 2.5%? I want to be sure I understand what would happen if we were to encounter inflation that's out of control (or deflation, for that matter). Can someone explain that? Thanks.
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Re: Need Help With Withdrawal Strategy
Old 09-21-2003, 04:35 PM   #49
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Re: Need Help With Withdrawal Strategy

Quote:
Shouldn't the money last the same length of time as long as the return beats inflation by 2.5%?
With inflation at 3% and your total return at 5.5%, the actual real rate of return is given by:
1 - (1.055/1.03) = 1 - 1.02427 = 0.02427, or 2.427%

With inflation at 17.5% and your total return at 20% (hopefully not a realistic scenario) your actual real rate of return would be:
1 - (1.20/1.175) = 1 - 1.02128 = 0.02128, or 2.128%.

In other words, simply subtracting the inflation rate from the total return gives an approximation of the real rate of return that becomes less accurate with higher inflation (which would also probably cause a person's tax rate to increase, although there is no way of predicting how tax brackets would change). I'd say that you are pretty secure if a portfolio of mostly TIPs will sustain your spending needs for more than 35 years.
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Re: Need Help With Withdrawal Strategy
Old 09-22-2003, 11:00 PM   #50
 
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Re: Need Help With Withdrawal Strategy

Thanks Ted. That formula is exactly what I need. By the way, I have one follow-up question: Do TIPS work the same way? In other words, will my money last longer with TIPS if inflation is low, or do they protect my purchasing power regardless of inflation?
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Re: Need Help With Withdrawal Strategy
Old 09-23-2003, 05:49 AM   #51
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Re: Need Help With Withdrawal Strategy

The way that TIPs work is that the principal amount (on which the annual interest payments are based) is adjusted each year for inflation as measured by the Consumer Price Index. Doing this properly requires multiplying the principal amount by the ratio of the "new" CPI value to the CPI value at the time when the TIPs were issued. Therefore, it provides inflation protection (at least before taxes) that is as good as the CPI measurement.

Rather than base your financial decisions on what you read in this forum (or -- even worse -- what some broker tells you) check it out at the Treasury web site at

http://www.publicdebt.treas.gov/sec/seciis.htm

IMO, the greatest long-term "risk" associated with TIPs is that, in the future as it becomes necessary to reinvest in new TIPs, the interest rate (i.e., the premium over the inflation rate) may decline. Since this rate is determined by the market, that would be caused by TIPs becoming more popular (especially among retirees) as I think they should!
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Re: Need Help With Withdrawal Strategy
Old 11-01-2003, 08:04 AM   #52
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Re: Need Help With Withdrawal Strategy

Quote:
I think Cut-Throat's planned ER lifestyle is a bit different
than most of us. *I can understand the appeal of an
African safari. *Personally, I would rather be boiled in my own juices, but I think it's neat for others if that's what
they like to do.

Not to worry, John. I'm sure that there are still places in Africa where both yours and CTs goals can still be achieved... simultaneously!


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Re: Need Help With Withdrawal Strategy
Old 11-01-2003, 03:20 PM   #53
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Re: Need Help With Withdrawal Strategy

Hey Ed_B! I wish for Cut-Throat happiness and
prosperity. Doubt we could coexist anywhere.
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Re: Need Help With Withdrawal Strategy
Old 12-21-2003, 04:42 PM   #54
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Re: Need Help With Withdrawal Strategy

Quote:


Not to worry, John. *I'm sure that there are still places in Africa where both yours and CTs goals can still be achieved... simultaneously! *


Ed_B
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Re: Need Help With Withdrawal Strategy
Old 12-22-2003, 06:12 AM   #55
 
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Re: Need Help With Withdrawal Strategy

Re. Africa, maybe so. I complain bitterly about this
country's leaders, laws and policies. Can hardly stand to watch or read the daily news as it is awash in
nuttiness. Popular culture is sick sick sick! At least Cut-throat is doing his own thing
and not messing up my life, which can not be said
for our fearless leaders at any level, IMHO. So, I have
stopped voting, and periodically
threaten to leave the friendly confines of the USA.
Even seriously considered it a time or two. Alas, where would I go?

John Galt
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