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Should I increase my WR after inheritance
Old 11-20-2017, 10:54 AM   #1
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Should I increase my WR after inheritance

My father recently passed away at 97 (had a darn good run!) and I have received a pretty healthy inheritance. I had been taking a WR of about 4% but now it's at 3%.

I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.

I know there is a million and 1 ways to divvy everything up, but I could sell this to the DW as benefiting us now and in the future. And it appears to be fairly safe also.
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Old 11-20-2017, 11:02 AM   #2
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Old 11-20-2017, 11:02 AM   #3
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I've always figured never to count on an inheritance until you actually receive it. Too many things could happen, like the person being immortal, or they run through their dough on medical or otherwise finding they didn't have as much as you thought, or they could give it to someone else.


Once you have it though, I would reset my plan with the new money part of it just like the old. I guess you could treat the money separately if you wanted to do things in his memory, but my thought is that money is money. And this sounds like enough money to be a game changer, so dump your old plan and put together a new one.
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Old 11-20-2017, 11:21 AM   #4
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I'm confused. If you received a large inheritance, wouldn't your WR % go down, even if the amount you are withdrawing goes up (within limits)?

Or are you "compartmentalizing" and keeping the inheritance separate from the WR calculation? If so, my advice is "don't do that!". Money is fungible, look at the big picture. (like I see RunningBum just posted)

With a larger buffer, I'd agree that makes delaying SS more attractive, considering spousal benefits.

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Old 11-20-2017, 11:31 AM   #5
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While I don't advocate spending for the sake of spending, I do think that uping your expenditures for things that improve the quality of life for you, your loved ones and others is a good idea.
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Old 11-20-2017, 11:42 AM   #6
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I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.
If including the inheritance in your portfolio allows you to protect your wife's future by delaying the start of your social security benefits until 70, then it's hard to think of a reason not to do this.

Without know the numbers involved, it would be hard to tell if you are considering an optimal solution, or one that on the surface just seems better than before. What alternatives are you considering?

Remember, all money is fungible. You should probably consider investing your inheritance per your asset allocation strategy immediately, then withdrawing the necessary amount from your overall portfolio. Don't let the inheritance money sit in a savings account earning nothing.
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Old 11-20-2017, 11:49 AM   #7
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If you add the inheritance to your long-term retirement assets, then applying the same planned withdrawal rate to the total assets makes sense to me.

If you are using the new funds some other way, then don't worry about "overall WR". All that matters is the withdrawal rate on your current retirement assets not including the new inheritance. Heck you could blow it all on a new house and it wouldn't impact your current retirement portfolio survival characteristics.

I prefer to compartmentalize and only apply the withdrawal rate to the chunk of my assets set aside as "retirement fund" which is what I actually withdraw my annual income from. I can do whatever the heck I want with the rest of my assets without compromising the survival of the retirement fund in any way.
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Old 11-20-2017, 11:59 AM   #8
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You should do whatever you want. Especially some things that you would have liked to do before but thought you couldn't afford.

Because now you can -
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Old 11-20-2017, 12:15 PM   #9
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While I don't advocate spending for the sake of spending, I do think that uping your expenditures for things that improve the quality of life for you, your loved ones and others is a good idea.
Agree.
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Old 11-20-2017, 04:02 PM   #10
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I agree all money is fungible and it's all in my brokerage account. At present my WR is reduced to 3% because I haven't changed my WR yet. I really don't need a lot of extra income but if I can have it, I was thinking why not take it. Once both my DW and I start taking SS we will be awash in more money than we normally would spend. So the choice is give the kids a larger inheritance or up our standards of living and travel. I'm inclining towards the latter :-)
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Old 11-20-2017, 04:03 PM   #11
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I agree all money is fungible and it's all in my brokerage account. At present my WR is reduced to 3% because I haven't changed my WR yet. I really don't need a lot of extra income but if I can have it, I was thinking why not take it. Once both my DW and I start taking SS we will be awash in more money than we normally would spend. So the choice is give the kids a larger inheritance or up our standards of living and travel. I'm inclining towards the latter :-)
My thoughts exactly.
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Old 11-20-2017, 06:34 PM   #12
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All money is fungible but goals and time frames are not. It makes perfect sense to have money earmarked for certain things and invest it differently depending on the goal and timeframe.
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Old 11-20-2017, 06:59 PM   #13
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All money is fungible but goals and time frames are not. It makes perfect sense to have money earmarked for certain things and invest it differently depending on the goal and timeframe.
"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"



I like your signature. Perhaps I should take the extra dough and emulate you!
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Old 11-20-2017, 07:15 PM   #14
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"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"



I like your signature. Perhaps I should take the extra dough and emulate you!
I wrote that new sig line in early 2016 when I realized I was approaching about 40 hours a week for 3 months straight working on planning the details of our 3.5 week Southern France/Barcelona trip. It was a great trip, and super smooth in spite of many complications due to my thorough preparation, but dang it was a huge amount of work! I really wish I could hire someone to do it for me but probably won't delegate such a task for several more years, and it won't be nearly as thorough and customized to us.

On options for extra dough.....

There is no reason some funds can't be set aside for something other than funding annual living expenses, especially when faced with a windfall (by definition unexpected?). Just before we retired we set aside a goodly chunk for travel apart from our retirement fund that we planned to live off of, because we wanted to be able travel heavily the first few years, and expected that once the pent up desire eased, and the funds were exhausted we would settle into a more routine annual travel and spending pattern.

Other people may set aside funds for buying an RV or boat, or maybe even a second home or some other highly desired toy.

Similarly other folks may set aside a chunk, kind of like creating their own annuity for X years or month, to bridge them until new sources of income come on line, like SS or a pension.

The only "rule" is that you should not violate your self-determined withdrawal rate on the pile of money that you have earmarked as your retirement fund. Those funds are for drawing your annual income, and if you decide to pull a big chunk out to spend on something else you had better recalculate the annual income the smaller fund will support and abide by your new annual income.
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Old 11-20-2017, 07:40 PM   #15
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I'm thinking of figuring out my SS rate at 70, and take the amount out of my inheritance yearly which would bring the WR up to about 4.2%. But then delay taking SS so that DW would be able to trade up to mine if necessary.
I take an equivalent amount out of my 401k each year to bump by annual income up to what I will get when I turn 70 and start collecting SS on my account. It seemed like a good thing to do to smooth out the income flow.
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Old 11-21-2017, 11:31 AM   #16
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To strictly follow the standard 4% plus inflation rule you would not reset to have the 4% be equal to your total portfolio. You would stick with your current withdraw percentage for the balance that doesn't include the inheritance. Then start the 4% rule plus inflation for the inheritance balance.
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Old 11-21-2017, 12:17 PM   #17
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That would be the same number.

(.04 x A) + (.04 x B) = .04 x (A+B)
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Old 11-21-2017, 12:20 PM   #18
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To strictly follow the standard 4% plus inflation rule you would not reset to have the 4% be equal to your total portfolio. You would stick with your current withdraw percentage for the balance that doesn't include the inheritance. Then start the 4% rule plus inflation for the inheritance balance.
I think I'll just lump it all together and take 4.2% out (which would be adding what my SS would be at 70) and then at SS age, reduce WR by an equal amount which would probably drop the WR to 3.7%. I look at it like having my cake and eating it too.
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Old 11-21-2017, 12:33 PM   #19
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That would be the same number.

(.04 x A) + (.04 x B) = .04 x (A+B)
Sounds like it, but it really wouldn't be.

IF the OP started with 4% and increased the amount by inflation each year, he wouldn't be taking out 4% right now. Since the market has been good, it's likely to be less than 4%.

With the inheritance, start a new bucket at 4%, and increase that amount by inflation.

Seems unnecessary, but it would reduce sequence of returns risk because you'd have 2 different starting points instead of 1.

It doesn't sound like the OP is actually doing 4% + inflation.
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Old 11-21-2017, 12:35 PM   #20
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"Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!"

I like your signature. Perhaps I should take the extra dough and emulate you!
If you and DW enjoy travel, then why not earmark part of the inheritance for travel while you are young enough to enjoy it. As Robbie might say, blow some of that dough!
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