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Spending in retirement
Old 08-18-2007, 07:06 PM   #1
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Spending in retirement

Money flow in retirement can be rather lumpy since there are different ages for different accounts and sources of funds. I was wondering how many adjust or plan to adjust their spending to their income, versus how many attempt to smooth their spending for a constant standard of living, plan to spend more up front, or plan to spend more later or leave an estate. Currently, I adjust my spending to my income, and it will rise as more things kick in, and it should continue to rise over time even though leaving an estate is not my intent. This seems a good fit for my desires and risks retiring early. The permanent income hypothesis doesn't seem too relevant to me, though maybe I am just telling myself I will spend more later.
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Old 08-18-2007, 07:16 PM   #2
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Our plan is to spend to a plan (plus or minus) for the first few years as we prepare for our next major move. Once we do that our expenses will drop by a bunch and our income needs will be less. Also, due to a a couple of IRAs that have done very well over the past several years, we plan on spending them down a bit before we have to do RMDs. That will lessen the tax bite while giving us some options on other things we can do while we still are physically/mentally able to do so.

We believe we will both have some significant health issues (DW already does) that will prevent us from doing a lot in our Golden Years. So, these are our Golden Years right now. We don't anticipate spending as much as our RMDs will require us to take and we are not keen on leaving a ton for the family. Each kid (grandkid) will receive a set amount and that is all. In other words, we plan on dying with a lot less than we have today (inflation considered of course).

The short answer is we will have a variable spending plan and will adjust as desired or needed.
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Old 08-18-2007, 07:44 PM   #3
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I basically adjust spending to income, with the proviso that I define income as sustainable inflation protected recurrent income. (at least as best as can be judged)

One thing I could not do is front load spending. It would make me shudder! I have somewhere between no faith and very little faith in academic formulations of personal finance.

Most of these guys who are recommending complex frontloading schemes are themselves well protected by fancy subsidized retirement plans. Their motto is “Publish and let the reader perish!”

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Other Considerations
Old 08-18-2007, 08:30 PM   #4
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Other Considerations

DW retired last year, I expect to in the next few months. Our youngest child is off to college next week. We expect to have these expenses for 4 years, after that we will have a better cash flow for recreational activities, sort of like a late boost to our retirement.
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Old 08-18-2007, 08:58 PM   #5
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I retired at 52 and my personal method of spending is that until I reach 59.5 (now almost 57) I have been focusing on decelerating from my previous 35 years of work life. In prep of my ER I tried to earmark enough savings to taxable accounts to have fun and do a lot of stuff I haven't had time to do. Even after 4 years of ER I am still amazed how quickly time flies - it is going much quicker than when I worked. I guess the old saying "Time flies when you are having fun" is true. When I reach 59.5 my phase two will kick in and it will include more travel (I am not a big traveler) and some major purchases (new auto, remodel my woodshop, etc.) and then again at 62 (SS) phase three will kick in. I will wait until then before I predict the future.

So far - I love my permanent vacation and have never regretted my decision although I have had a few unexpected surprises.

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Old 08-19-2007, 03:53 AM   #6
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aenlighten - On the spending more earlier topic.

That is my desire. We are less concerned about leaving a large estate behind.

I do not believe spending patterns are flat for most people (even if they had a large amount of resources). Many studies show that discretionary spending decreases as one ages. The big bump at the end could be medical expenses if one has a lingering illness.

I intend to have a safety net income stream that covers our basic needs (non-discretionary plus small discretionary). It will come via a small pension, SS, and probably an annuity (perhaps purchased between 65 - 75 ). I will also cut out a portion of the portfolio as a reserve fund for inflation purposes over the later years. While I have not settled in the exact number... probably 15 - 20% of the current portfolio will be used to fund > 75 discretionary income needs.

The rest, we will spend. We will do so by planning to fund a particular spending pattern. That said, we do not intend to just spend it because it is available. Rather we will do the things we want to do instead of worrying about it and deciding not to. For us, much of that spending will be used for travel.

I think one key issue for everyone is if one retired in a strong financial position or somewhat marginal financial position.

Ha - one thing is for sure. People need to understand how to plan for retirement funding/spending if they intend to spend down money up front. Or they better have a large amount of money!
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Old 08-19-2007, 07:13 AM   #7
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We have self annuitized for the first 10 years (bucket approach) so we will spend to a fixed budget. At the end of that period we will adjust based on returns and needs.

We also will monitor our accounts during the 10 year period and can go into a safety mode (very low spending) if required. We also have an alternate plan including an annuity if required as we have no pension - only savings and then SS.
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Old 08-19-2007, 10:11 AM   #8
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I spend according to my income but so far my income is far exceeding my spending .
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Old 08-19-2007, 11:44 AM   #9
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Quote:
Originally Posted by Moemg View Post
I spend according to my income but so far my income is far exceeding my spending .
Same here.

Though there will be projects/replacements in the future as things wear out.
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Old 08-19-2007, 12:34 PM   #10
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I spend according to my income but so far my income is far exceeding my spending .
Same here. Our kid is at the stage where she's embarrassed to be seen in public with us and just wants to hang out with her friends, so she'd prefer that we stay home near our wallets & car keys and be ready to spring to action for her every whim urgent need. The result is that we don't spend on much more than groceries & surf wax.

We've been taking up the spending slack with charitable contributions to offset some of the cap gains. And no doubt a home improvement project or two will make a serious dent in the SWR over the next few years.
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Old 08-19-2007, 05:34 PM   #11
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I am 49, retired almost a year, and living on my dividends of about 3.5% from a portfolio
of IMO top quality stocks. I am adjusting my spending to the dividend flow. About
60% of the $$ goes to travel and entertainment, the rest to 'needs' (which could be
cut back further if needed). I think I have spent more this last year than any in my life.
If and when SS kicks in, I will attempt to adjust my spending upward to compensate.
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Old 08-19-2007, 05:49 PM   #12
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Since LBYM got us to ER in grand style, we will continue to spend in proportion to what our income stream is. We occasionally go over our income, but often are way under, so it all sorts itself out. Need to travel, do it. Fix up the house, do it. Stay at home, do it.
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Old 08-19-2007, 07:56 PM   #13
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I plan to use Bob Clyatt's withdrawal strategy to start with. We have roughly $10K cushion over what we spend now if we start at 4%, so we may not spend the planned amount each year.

We plan to treat our ER like a sabbatical. If we get nervous about our financial position after a year, we will go back to work some more.
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Old 08-20-2007, 02:51 PM   #14
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I have plotted out the various income streams that appear over the next 15 years. I then try to smooth out the peaks and valleys with savings and withdrawals.

It's not an exact procedure, primarily due to 3 variables

1) inflation unknown
2) investment returns unknown
3) US/CD exchange rate unknown (have US source income but live in Canada)

Once/year I reevaluate. I plan to use an "endowment" type formula to help prevent spendable income from changing too quickly one way or the other.
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Old 08-20-2007, 03:07 PM   #15
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plan to use an "endowment" type formula
Not familiar. Can you elaborate on what this is?
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Old 08-20-2007, 03:35 PM   #16
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Not familiar. Can you elaborate on what this is?
check out

Variable Withdrawals in Retirement

although you don't have to use .7 and .3

you could use .5 and .5 if you could handle a bit more variation.

another version can be found at

http://www.analyzenow.com/Articles/P...topilot999.pdf

sorry, haven't figuredout how to shorten the links.
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Old 08-20-2007, 05:17 PM   #17
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i don't think i ever consciously matched my spending to my income. i've enjoyed a lot of luxury due to my life circumstances but i've never been a spender which worked out well because i was never ambitious enough to make tons of money. as much as i've enjoyed the luxuries, money never impressed me much.

in fact, now that i've inherited, i'm planning to reduce the luxury level of my life by living in third world countries for a while. it is curious that i never did this before. i'm 50 years old and i never ran away from home. my poor mom had to die just to get rid of me.

money to me means security. i was much more comfortable with this security in the hands of my parents than in mine and so, besides the fact that my parents were just a lot of fun to be around, i think that is partly why i never left home. i felt safe.

i don't have them anymore but they have left me the resources to live even in poverty. i could not be happier for that legacy or feel more safe.
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Old 08-20-2007, 05:45 PM   #18
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It's time for me to preach again.....

If you can withdrawl a less than 4% amount from your portfolio, you are either depriving yourself of enjoyable activities or delayed your retirement unnecessarily. Being "safe," just creates a large estate for your heirs.

Bernicke is right. You will spend much less at 75 than you will spend at 55 (adjusted for inflation).

Front load your retirement. My in-laws are sitting in a nursing home/assisted living facility as I type. I intend to blow the inheritance asap. Of course, they determine how soon asap happens.
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