Resetting travel budget to match original WR

[Live And Learn]

My original budgetted WR was 3% and I planned to increase the budget only for those items impacted by inflation, if needed. Given the rally in equities this past year I can double my original travel budget and come to the same original WR of 3%. Part of me feels this is cocky and presumptive. The other part says that if I was fine with a starting WR of 3% then I should be fine with a "revised" starting WR of 3% now.

Of course if equities tank my travel budget will probably go back to $1k per year, as it was for almost my entire life.

I know its all mind games but I'd like to know what other folks in ER have done with their budgets as their assets increased.

 

[braumeister]

Just like you, our travel budget is well more than double what it was originally.
We travel more, but a large part of it is traveling in greater comfort.

 

[fritz]

My original budgetted WR was 3% and I planned to increase the budget only for those items impacted by inflation, if needed. Given the rally in equities this past year I can double my original travel budget and come to the same original WR of 3%. Part of me feels this is cocky and presumptive. The other part says that if I was fine with a starting WR of 3% then I should be fine with a "revised" starting WR of 3% now.

Of course if equities tank my travel budget will probably go back to $1k per year, as it was for almost my entire life.

I know its all mind games but I'd like to know what other folks in ER have done with their budgets as their assets increased.

Lots of discussion on withdrawal rates here. I like this one from Vanguard utilizing a ceiling/floor on the SWR. Included the link for your review (and attached the material which is in PDF format on their wesbite).

https://personal.vanguard.com/pdf/s823.pdf

IMO - if you pull larger amounts in good years (but at the same % SWR), you run the risk of not having enough portfolio growth to cover that same % SWR for basic needs in bad years. Pulling a set/fixed % off your yearly account balance assures you most likely wouldn't run out of money, but might not cover basic expenses in some bad years (hence the consider saving most of the good years growth for the not so good years).

 

[jebmke]

As equities have increased, I have used the growth to dump some appreciated stocks into our donor advised fund and bumped up our charitable donations quite a bit.

 

[jebmke]

IMO - if you pull larger amounts in good years (but at the same % SWR), you run the risk of not having enough portfolio growth to cover that same % SWR for basic needs in bad years.

Agree completely. Have to avoid a ratchet unless you are at an abnormally low WR to begin with.

 

[Live And Learn]

Agree completely. Have to avoid a ratchet unless you are at an abnormally low WR to begin with.

That's my point. I'm still at a 3% WR which theoretically should last longer than I shall live. I think I read the theoretical "eternity" WR is 3.1%. Therefore, if my starting WR is 3% I should be good. No ?

 

[fritz]

Lots of discussion on withdrawal rates here. I like this one from Vanguard utilizing a ceiling/floor on the SWR. Included the link for your review (and attached the material which is in PDF format on their wesbite).

https://personal.vanguard.com/pdf/s823.pdf

IMO - if you pull larger amounts in good years (but at the same % SWR), you run the risk of not having enough portfolio growth to cover that same % SWR for basic needs in bad years. Pulling a set/fixed % off your yearly account balance assures you most likely wouldn't run out of money, but might not cover basic expenses in some bad years (hence the consider saving most of the good years growth for the not so good years).

That's my point. I'm still at a 3% WR which theoretically should last longer than I shall live. I think I read the theoretical "eternity" WR is 3.1%. Therefore, if my starting WR is 3% I should be good. No ?

If you pull 3% (actually % amount could be higher with this style withdrawal) of your retirement funds annually - no matter what the balance is, you "theoretically" wouldn't run out of funds. But would 3% of your retirement fund balance in a bad year, cover your basic living needs (say your funds dropped to 65% of current balance)? This is why it is normally suggested to leave the growth off your retirement funds in good years alone - to continue to grow your account balance (for the inevitable shrinkage in the bad years). This is discussed in the info I linked/attached from Vanguard.

 

[Sojourner]

That's my point. I'm still at a 3% WR which theoretically should last longer than I shall live. I think I read the theoretical "eternity" WR is 3.1%. Therefore, if my starting WR is 3% I should be good. No ?

I don't think the "eternity" SWR is that high. I believe it is closer to 2%, but someone please correct me if that's not the case.

With regard to ramping up the travel budget to fill out your 3% annual withdrawal, I think it's a perfectly sound idea and will likely lead to greater satisfaction, happiness, and fulfillment. As you can tell from my user name, I love to travel and feel like it's truly one of life's most meaningful experiences, so if you can get more of it while sticking with your plan, you should go for it.

 

[pb4uski]

I'm not so sure that ratcheting is a bad idea... especially if the WR is 3%. For someone in their 60s most of us would think a 3% WR is sufficiently prudent any day of the week. Why should it be any different for the person working whose assets have grown to $x through contributions and market appreciation from the retiree whose assets have grown to $x (assuming the same AA in both cases). IMO, if it is good for the newbie retiree it is equally good for the person who had been retired for a while. The relevant factors are the amount available, the AA, the WR and the retiree's time horizon and how the available amount got to be whatever it is is not relevant.

 

[braumeister]

I guess I should point out that my WR was already below 3% and now that I'm taking SS it is dropping even lower. So I'm happy to enjoy more (and costlier) travel.

 

[DrRoy]

One way to go would be to stick with the original dollar amount for the first year, and in future good market years, spend more on travel that year.

 

[W2R]

I know its all mind games but I'd like to know what other folks in ER have done with their budgets as their assets increased.

(1) I kept living about the same, at first. Money started piling up.

(2) Then I ramped up my frivolous Amazon purchases (see http://www.early-retirement.org/forums/f27/what-is-the-last-thing-you-ordered-from-amazon-72064.html ). .That didn't do much and money continued piling up.

(3) What worked was going all out and buying my dream house, which meant the world to me. That took care of all the excess cash from the previous six years of retirement. You have probably felt the happy-joy-joy glow from my smiling face clear across the country for the past year as I enjoy my house.

I don't expect this bull market to continue indefinitely, but now that I have my house and have had the yard re-done the way I want it, I'm ready to batten the hatches and go back to step (1) above.

 

[FUEGO]

For what it's worth, we almost doubled our travel budget in 2016 from $5400 to $10,000 as part of an effort to ramp up our spending to what our portfolio can afford.

And I'll ramp it right back down (with tail between my legs!) if/when the market crashes. It's purely discretionary/fun money for us and we could get by spending a few thousand per year on a winter cruise and a cheap summer trip somewhere.

I'm also helping fund my plumber's smoking habit, and drop $100 or $200 here and there instead of spending all day puzzling my way through DIYing plumbing. Next up is outsourcing the lawn mowing for $300-400/yr (but not quite there yet).

 

[GravitySucks]

To OP,
What are your odds of going broke at a 3.5%WR? Do you consider a 3% WR 99% fool proof and 3.5% 95% safe? Are you comfortable with the difference?
Personally I'd say bump it now, drop it back down later if you have to.

Sent from my Moto G (4) using Early Retirement Forum mobile app

 

[bmcgonig]

Interesting article from Vanguard. They say that using their floor and ceiling approach you can increase your withdrawal rate by over 1℅ point. Does anyone follow this line of attack or think it's too aggressive?

Sent from my Nexus 6P using Early Retirement Forum mobile app

 

[donheff]

Theoretically starting a 3% traditional (Start at 3, then COLA each year) SWR is "safe" at anytime since no historical 30 year period would wipe it out. As we have discussed in previous threads, resetting after a period of growth probably makes it more likely that you are starting on one of the potential future scenarios that makes it more likely that you will see a decline in the next few years leaving you in scary territory (albeit still likely to succeed). Rather than a simple reset of a traditional 3o% SWR (which would have you continue the higher spending even if the market crashes son) maybe you should "reset" to the VG floor and ceiling approach mentioned above which will get you your increase today but has a built in method to ratchet down when future years head south.

 

[Options]

I don't think the "eternity" SWR is that high. I believe it is closer to 2%, but someone please correct me if that's not the case.

With regard to ramping up the travel budget to fill out your 3% annual withdrawal, I think it's a perfectly sound idea and will likely lead to greater satisfaction, happiness, and fulfillment. As you can tell from my user name, I love to travel and feel like it's truly one of life's most meaningful experiences, so if you can get more of it while sticking with your plan, you should go for it.

It was William Bernstein who referred to the 2% SWR as "bulletproof". IIRC, he said you should be "ok" with a 3% SWR.

 

[Live And Learn]

Great discussion. According to Fido RIP I can spend 109% after increasing my travel budget. Firecalc says I can spend 19% more.

I believe I got the 3.1% from one of Jim Otar's books. 2% certainly would be bulletproof (and would leave alot of us with a boatload of money left of on the table).

I need to spend more time thinking about this. I was hoping you guys would come back with "that's a no brainer" for an answer ... alas, we (those on this forum) are built with conservativeness in our blood.

I think I need to see my first big decline in assets to figure out what I am really comfortable doing. This year I went to Israel and it was amazing. I used last years underbudget variance to fund this years overbudget travel budget. I will do the same next year (using 2014's underbudget travel variance).

Regardless, even if I never traveled again, retired life is soooooooooooooo much better than w*rking !

 

[kaudrey]

L&L - you are basically doing a variable withdrawal rate. The initial 4% "rule" stated that you withdraw 4% of your portfolio in year 1, and then adjust that number for inflation. It wasn't "calculate 4% of the portfolio each year".


But, as noted, many people now say a variable withdrawal, based on market performance, both up and down, is a good option as long as there is some cushion on the down side in case of a really bad market year(s). At 3%, you likely have that cushion.


There is nothing wrong with what you are doing. As you note, the question more becomes how comfortable will you be when the budget goes back down. If you won't have a problem meeting your basic needs even if, say, 2008 happens again, then I don't see an issue with spending some of the gains.


It's a long-term management process; but, I intend to do it similarly - I don't need to leave my relatives millions of dollars when I die...

 

[ERD50]

To the OP - you are kind of mixing terms here, though it might not be that important, but for clarity, and to keep us all on the same page:

The FIRECalc/Trinity study approach is X% of the original portfolio balance, adjusted for inflation each year. So you haven't done a full inflation adjustment, but it also looks like you are basing the 3% on the current balance. That's not a bad thing, but it is different, and can confuse things if people are thinking straight FIRECalc methodologies.

And a historically safe WR is ~ 3.1%. Check for yourself, enter $1M portfolio for easy math, your time period, and hit 'investigate' for spending with a 100% success rate.

This also means you can ratchet that historically safe WR to match the current portfolio balance (it's been called the 'retire again & again' approach). FIRECalc tested that % in every case, so it will work. Historically that is, but of course it is reducing your margin against worse than historical periods.

-ERD50