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Re: New Withdrawal Rate Study
Old 06-01-2006, 11:15 AM   #21
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Re: New Withdrawal Rate Study

Each of us has a unique set of variables that we need to balance. *I don't see any one number or any one system that will work for everyone. *My numbers are very different from many that I see reported here. *My needs are unique to me and my income plan is also unique to my desires and my nest egg.

For example.

My first 8 years of retirement will include:
Pensions
After tax withdrawls from a variety of accounts to make up the difference which will be 5-6% of my nest egg. *

Year 9 income is adjusted for loss of an income stream and begining SS. *
Expenses are adjusted down to reflect no more mortgage payments and several other items we will no longer have to fund.
Nest egg withdraws are decreased by 1-2% as expenses decrease.

Year 12 expenses are adjusted down by a 15-20% and income needs will also be adjusted downward by further reductions in nest egg withdraws. *SEPP payments will be reduced since we will have "spent down" the bulk of the funding IRA.

Year 16 begins RMDs from all 4 IRAs. *Excess income goes into Aftertax accounts. *Or gets spent on who knows what?

After year 16 it the great unknown...we plan on a level to slowly declining level of expenses. *Our income will continue to rise with RMDs alone so the excess (above inflation) will continue to be floated off to after-tax accounts and ....maybe charities...educational scholarships etc......or maybe just fun money for Vegas trips to play the slots all daywith our oxygen tanks in tow. * *:P

In our case, life events change over time and we have a plan to adjust expenses and income as these changes occur. *A flat rate for withdraws does not work for us due to the variable nature of our expenses...at least in the early years of retirement. *In the later years, income will be determined by IRS IRA RMD rules. *Because we don't want or need a huge income (and income tax problem) in our Golden Years...we plan on chewing into the largest IRA long before that to reduce it to a more palatable level before RMDs hit. *The trick is to balance it so we can continue to cover income needs plus inflation by still spend it down to avoid excess RMDs and taxes. *But, it is a problem I can live with. *
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Re: New Withdrawal Rate Study
Old 06-01-2006, 11:33 AM   #22
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by SteveR
Each of us has a unique set of variables that we need to balance. I don't see any one number or any one system that will work for everyone.
Amen

I have pathological variables. I haven't found any spreadsheet or program that can possibly deal with it accurately. I have written one, but I don't have a monte carlo engine to deal with the expected investment returns.

a small example:

I will have a pension coming. It attains full value at age 55. If I take it earlier, it is reducet 0.5% per month before age 55. Up until age 60 it is not inflation proofed. Age 60-65 it is 50% protected (versus CPI). After 65, 75% indexed.

If that's not weird enough, I can also take the "level income option." That involves a larger pension until social security eligibility (at age 66 for me), thereafter substantially reduced. This is to combat the "windfall elimination provision." so in theory I can prevent some of my SS from being eaten up. Since I got my 40 quarters in before becoming a state employee (Alaska opted out of SS in 1987), I will in theory get some SS, but it is subject to being reduced due to the pension.

combine that with 2 pensions of my wife (both small, one indexed to cpi, one like mine), IRAs and RRSPs with minimum distribution requirements at age 70, after-tax investments etc., and it can get pretty overwhelming.

All of this is complicated by the US-Canada tax treaty, differing tax rates and policies etc.

If anyone knows of a spreadsheet with the flexibility to handle all this (and more) let me know.

When I try to deal with these issues, I program the Canadian tax rates into the program (in other words I make the assumption they will stay higher than the US rates). I also have to make assumptions about currency exchange values. How much do I devalue the US dollar in 20 years?

loads of fun....
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Re: New Withdrawal Rate Study
Old 06-01-2006, 11:57 AM   #23
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Re: New Withdrawal Rate Study

Quote:
I think I understand it after reading it 5 to 10 times
job: that's pretty much my point as well.* after more than several readings i think i understand it, but even then it's not too clear.
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Re: New Withdrawal Rate Study
Old 06-01-2006, 01:11 PM   #24
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Re: New Withdrawal Rate Study

So, SteveR and bosco, how are you estimating the amount of $$$ you want in your portfolio at the time you RE?*

My planning involves many budgeting and income issues as you describe for yourselves in your posts.* *Still, I estimated the portfolio withdrawal I'd need to make each year and bumped it against the 4% inflation corrected guideline as a "rule of thumb" to give myself some confidence that I wouldn't be depleting the portfolio while I was still young enough to care.*

BTW, I never use the 4% as a "must withdraw and spend" number, but only as a guideline for a sustainable real withdrawal rate over the long haul. I also assume that if I happen to get lucky and retire in boom times in the market, I'll reevaluate and up my spending when I notice I'm now tied with Bill Gates for richest person in the world!* * If I retire into bust market times, my plan allows me to stay within the 4% guideline, so I should OK as long as the future market performance is no worse than the past.

I fully realize that years down the road, I may need to make changes.* But I also needed some guideline to allow me to estimate the required retirement portfolio so I'd know when to kick the work plug out of the wall, which I'm doing four weeks from tomorrow.

Anyway, I'm curious, what rules of thumb or guidelines are you using to estimate the size of retirement portfolio you'll need in order to RE given your other sources of retirement income? Do those rules of thumb include an SWR assumption such as 4% or another number?
*



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Re: New Withdrawal Rate Study
Old 06-01-2006, 01:57 PM   #25
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by youbet
So, SteveR and bosco, how are you estimating the amount of $$$ you want in your portfolio at the time you RE?
since I am an engineer, I am used to dealing with uncertain quantities. I also quickly (because I'm a lazy engineer) know when the level of analysis is unwarranted given the degree of unknowns.

there are 2 very big unknowns in my planning and a bunch of smaller unknowns. The big 2 are equity performance over the next X years, and the US/CD exchange rate (majority of pensions and investments are US dollar-denominated). In the face of these uncertainties, too much analysis is pointless.

What I have done is run a spreadsheet and tried to bracket the biggies, and make reasonable assumptions on the small uncertainties. Ultimately, I am going to have to remain flexible and change my strategies based on what happens.

Fortunately, DB pensions will likely suffice for the first 10-12 years with minimial help from the portfolio. This puts DW and I in a strong position in terms of being able to let the nest egg grow. There will be some repositioning that needs to occur. And the RMDs loom very large when we reach age 70. For that reason, it will probably make sense to tap the IRAs and RRSPs before we need the money and redeploy it in after-tax accounts. Since we will be living in Canada, Roth conversions are not an option.

Does anyone know where there is useful information about currency hedging? A google search I undertook mostly ended up with info only suitable to institutions. I am currently overweighted in international and resources due to US dollar concerns.

The fact is that we are basically FI now--since I don't money from investments now. Assuming modest (3% or so real) growth in our portfolio, it will easily be able to inflation-proof the pensions once they are ground down.

I plan to work until Oct 07 and then pull the plug. That way I will have the mortgage paid off--psychologically worth it to me. Plus I will have 4 or 5 months off next winter. The difference of the last 12 or 13 months of work is the difference between a healthy travel budget and the difference between drinking fine Belgian beers or having to settle for Buttwiper Budweiser.

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Re: New Withdrawal Rate Study
Old 06-01-2006, 02:18 PM   #26
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by youbet
So, SteveR and bosco, how are you estimating the amount of $$$ you want in your portfolio at the time you RE?*

Anyway, I'm curious, what rules of thumb or guidelines are you using to estimate the size of retirement portfolio you'll need in order to RE given your other sources of retirement income?* Do those rules of thumb include an SWR assumption such as 4% or another number?
*
Bosco beat me to it...but here is my 2 cents on the topic.

Rule of Thumb...?

I did my calculations the hard way....brute spredsheet calculations and projections of conservative expected returns on a mixed portfolio based on real data from actual expenses and projections of future spending needs. *Throw in a debt reduction plan that has been active for 15 years and you have a pretty good idea of what you need to live on for the expected duration of your life. *My number was determined several years ago and we passed it a few times....going both ways. *: *

SWR is only meaningful for us beyond year 20 of retirement. *Before that income needs are based on pretty solid expense expectations. *We have padded the nest egg enough to ER now but fully paid health insurance coverage is only 14 months away. *With our health issues we decided it was the most intellegent thing to do. *Since the major factors in an ER plan are covered our nest egg just allow us to have a much higher standard of living. *We have a fall back level that is still very comfortable so given our current assets and spending needs we feel pretty safe in our estimates. *The worse thing that can happen is that we die before we spend it all. *I'll take that risk. *

The number we calculated years back has changed some since then...mostly up due to the 2000-2001 beating we got in the markets at the time. *I did read the early Trinity studies in the mid 1990's so I did have an idea of "possible" withdraw rates based on some general portfolio mixes so I was not totally flying blind. *As I said, my number is mine alone...it is unique to me and my situation. *It won't work for you. *Your situation will be unique to you and your assets and income sources will be different. *If you have no penson and no paid health insurance and all your income will come from your nest egg then SWR will be much more important to you. *I agree with ESRBob and his 4%/95% rule. *Also, working part time is always an option if things go south. *Preservation of principal is a key factor in this since you might out live your nest egg if you calculate depleting it at age 92. *

Safe is relative to your ability to save, invest and spend to a flexible budget. *If you can balance your expenses to meet your income stream minus a safety factor you will be fine using whatever noteworthy SWR you choose. *How much is too much? *It depends! * *

Using FIRECalc my number is 100% safe even with a 50:50 mix of stocks and bonds and taking SS late and living to 100. *
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Re: New Withdrawal Rate Study
Old 06-01-2006, 06:42 PM   #27
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by SteveR
*If you have no penson and no paid health insurance and all your income will come from your nest egg then SWR will be much more important to you.
Thanks SteveR and bosco......very interesting.

You're right, every situation is different.* And thanks to your thorough explanation, I understand your rational now.* Of course, with pensions predominantly covering your retirement budgets, SWR from your portfolio is less critcal and indeed icing on the cake.*

In my case, while I'll have partially subsidized medical coverage and a small non-cola pension, my primary income source will be from my portfolio.* Since (WR) (Portfolio $) = income, I had to make some assumption regarding WR to solve for the amount I needed in my portfolio to generate my required income.* I used the commonly accepted figure of 4% and therefore waited until I had accumulated 25X desired income.* My small non-COLA pension is my safety net.

Given all the chatter on the board lately that 4% is very conservative (perhaps too conservative), I'm feeling pretty comfortable pulling the plug four weeks from tomorrow.* In fact, perhaps I hung around a year or two too long.* Although, since my job has been relatively enjoyable, no regrets.

Thanks for your info and the interesting discussion.
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Re: New Withdrawal Rate Study
Old 06-01-2006, 08:36 PM   #28
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Re: New Withdrawal Rate Study

While this Scott Burn's column doesn't specifically address withdrawal rates, it does have an interesting take on its corolary, How much is enough?

Indeed, if you start thinking about either retirement or being "rich" in terms of dollars, it's very likely you'll never get there, because the dollar target is constantly moving.

The experience target gives you power that you'll never have if you wait on the stock and bond markets. Those who really want to retire can figure out ways to live that will cut their expenses while enhancing their experience of life.



At some point retiring early becomes a leap of faith that you'll be flexible enough and savvy enough to overcome challenges that happen along the way. And if you retire sans COLA pension and/or medical coverage, you just have to be willing to be especially nimble. yko
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Re: New Withdrawal Rate Study
Old 06-02-2006, 05:41 AM   #29
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Re: New Withdrawal Rate Study

His starting quote is a good one...

"You know you are rich when more money won't change where you live, what you eat, what you drive or who you sleep with."
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Re: New Withdrawal Rate Study
Old 06-02-2006, 06:01 AM   #30
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by youbet
Maybe it would help me if you could give an example.*

The minimum I'd need in retirement is $40K/yr. Absolutely can't go below that, so a variable withdrawal plan must have this amount as a fixed minimum, anything less would be a problem.*

With the traditional 4% guideline, I'd need a $1,000,000 portfolio before retiring and I'd take $40K/yr inflation adjusted.* (Of course, as the years go by, I'd reevaluate my situation based on actual results.* But, I'd feel confident I could continue the 4% based on the fact that, historically, 4% has always survived.)

What portfolio value would I need to retire with the system you're suggesting to support a minimum $40K/yr withdrawal?
This was good run, previousily the floor was set at 80% of initial draw, but this made me think of setting at an absolute inflation adjusted value for all sims.* I still have a small error in the minimum methodology when the inflation adjsutment takes place, but I think this will amount to a couple 100 bucks one way or the other.* Now all the runs have a 40k inflation adjusted minimum built in. This has no extras, No Ty and No part time work built in.

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Re: New Withdrawal Rate Study
Old 06-02-2006, 12:24 PM   #31
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Re: New Withdrawal Rate Study

Quote:
Originally Posted by dory36
His starting quote is a good one...
"You know you are rich when more money won't change where you live, what you eat, what you drive or who you sleep with."
Ya know, I think Scott Burns' unknown reader may have just entered the Quotation Hall of Fame with that one...
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Re: New Withdrawal Rate Study
Old 06-02-2006, 12:28 PM   #32
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Re: New Withdrawal Rate Study

However, according to the quote, Ken Lay and Bernie Ebbers are "rich"
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Re: New Withdrawal Rate Study
Old 06-02-2006, 01:30 PM   #33
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Re: New Withdrawal Rate Study

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Ken Lay and Bernie Ebbers are "rich"
... in experience!
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Re: New Withdrawal Rate Study
Old 06-02-2006, 03:24 PM   #34
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Re: New Withdrawal Rate Study

NO amount of money is going to change where they live, what they eat, what they drive, or who is having sex with them...
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Re: New Withdrawal Rate Study
Old 06-02-2006, 06:34 PM   #35
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Re: New Withdrawal Rate Study

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Originally Posted by Cute Fuzzy Bunny
NO amount of money is going to change where they live, what they eat, what they drive, or who is having sex with them...
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Re: New Withdrawal Rate Study
Old 06-03-2006, 10:02 PM   #36
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Re: New Withdrawal Rate Study

...and dont forget to tip your waitress! I'll be here all week!!!
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