Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: SWR for basic vs discretionary spending
Old 02-09-2005, 09:22 PM   #21
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: SWR for basic vs discretionary spending

Quote:
. . . What do you all think? *Anybody have any ideas about how to model this rule in a historical study?
ESRBob,

Are you familiar with Gummy stuff and his sensible withdrawal discussion? If not, you might find it interesting and can find it at:

http://www.gummy-stuff.org/sensible_withdrawals.htm

Another thing that you can do is to run your favorite SWR calculator each year in retirement. In bad years, ignore the results and simply withdraw the inflation-adjusted withdrawal. After one or more good years, your calculated SWR will increase. Use the new, higher number and reset your withdrawal formula to that value. Of course all of this kind of analysis is also dependent on your lifetime -- which we never really know.
__________________

__________________
sgeeeee is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: SWR for basic vs discretionary spending
Old 02-09-2005, 09:24 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: SWR for basic vs discretionary spending

Quote:
IMHO, it is safer to use a condom than a SWR. * *

*
That depends on what you are using it for Charlie. * Maybe you don't understand what one of the two is preventing. *
__________________

__________________
sgeeeee is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-10-2005, 06:40 PM   #23
 
Posts: n/a
Re: SWR for basic vs discretionary spending

FIRECalc is the finest planning, and I say PLANNING, tool that I have ever seen as regards Retirement and SWR. It allows you to do various models based on changing criteria - by that I mean, your portfolio changes daily, not annually, so you can ask FIRECalc to do many scenarios. Bottom line, I think you should shoot for 100% SWR and use either 4% Annual withdrawal or something slightly higher that is fixed or slightly lower with an increased annual expense cost to give you discretionary spending. Either way, it beats any other calculator or model out there - hats off to the inventor.
__________________
  Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-10-2005, 07:55 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: SWR for basic vs discretionary spending

Quote:

ESRBob,

Are you familiar with Gummy stuff and his sensible withdrawal discussion? If not, you might find it interesting and can find it at:

http://www.gummy-stuff.org/sensible_withdrawals.htm

Another thing that you can do is to run your favorite SWR calculator each year in retirement. In bad years, ignore the results and simply withdraw the inflation-adjusted withdrawal. After one or more good years, your calculated SWR will increase. Use the new, higher number and reset your withdrawal formula to that value. Of course all of this kind of analysis is also dependent on your lifetime -- which we never really know.

Thanks, SG; I will look at the Gummy Stuff in more detail.

In real life, I think about my SWR oh, about every other day -- I know this year's number cold the same way a salary earner knows his next paycheck. But I was looking for a way to model a %-of-portfolio and sticky-downward rule against a historical database. Basically none of the SWR analyses seem to have modelled rules other than simple % or simple annual inflation-adjusting. Maybe the next new thing for SWR research?

__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-10-2005, 08:03 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: SWR for basic vs discretionary spending

Quote:
Too much analysis.


I still dont get SWR analyses. Its easy...if you're spending 6+% of your nestegg on a sustained basis or planning to eat portions of your nestegg on a sustained basis as part of your overall "plan", you're not gonna make it. Period. If you're spending <3% of your egg, you either have way too frickin much money, or you're depriving yourself. Cut it out.
TH, there is a pretty wide spread between 3% and 6% and I think that is where all the attention focusses. As I remember from a previous post you spend mostly dividends, and it works out at about 3.3%, so I would agree that you should ignore SWR and buy whatever you want!

Those of us trying to figure out how much to go beyond 4%, or whether 5% is too high, or taking a part time job to make it all work out are probably the ones who spend the most time thinking about SWRs. Consider yourself lucky!

How's the baby, btw? Doin' any diapers yet? One thing I learned the hard way is if you plop a kid on your shoulder and bounce them, (with your shoulder pointing into their stomach) you can reliably get them to spit up whatever they just ate. Mom's hate it, (especially if they are breast feeding!) and you probably won't love it either. I got myself a new grip and they started to let me hold the kid again.
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-10-2005, 09:04 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: SWR for basic vs discretionary spending

Quote:
. . .One thing I learned the hard way is if you plop a kid on your shoulder and bounce them, *(with your shoulder pointing into their stomach) you can reliably get them to spit up whatever they just ate. *. .
Find a way to aim that baby and you have yourself quite weapon.
__________________
sgeeeee is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 05:43 AM   #27
Recycles dryer sheets
 
Join Date: Oct 2003
Posts: 452
Re: SWR for basic vs discretionary spending

Here's what I'm doing : I use Firecalc and am withdrawing 4.5%. The only increase that I give myself each year is whatever increases I get from stock dividends. Then in 3 years and 9 months, when soc. sec. kicks in, I'll lower my withdraws by at least 50% and live mostly off of soc. sec and pension. Also, plan to pay off the house at that time.
Firecalc approves - 100% sucess rate.
Actually, I think I could lower my withdrawals by 100% and live totally off of pension and soc. sec , at least for a few years. Of course, that's depending a lot on what happens with the cost of living between now and then.
__________________
renferme is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 06:52 AM   #28
 
Posts: n/a
Re: SWR for basic vs discretionary spending

Hello bennevis. Sounds like a good plan.

That pesky COL/inflation along with health related issues have to be the twin "horns of a dilemma" upon which many a good SWR has been gored.

JG
__________________
  Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 08:48 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: SWR for basic vs discretionary spending

Quote:

TH, there is a pretty wide spread between 3% and 6% and I think that is where all the attention focusses. As I remember from a previous post you spend mostly dividends, and it works out at about 3.3%, so I would agree that you should ignore SWR and buy whatever you want!

Those of us trying to figure out how much to go beyond 4%, or whether 5% is too high, or taking a part time job to make it all work out are probably the ones who spend the most time thinking about SWRs. Consider yourself lucky!

How's the baby, btw? Doin' any diapers yet? One thing I learned the hard way is if you plop a kid on your shoulder and bounce them, (with your shoulder pointing into their stomach) you can reliably get them to spit up whatever they just ate. Mom's hate it, (especially if they are breast feeding!) and you probably won't love it either. I got myself a new grip and they started to let me hold the kid again.
Baby's doing great! He's very verbal and gestures wildly with his hands a lot. I dont know where he gets that from Diapers are definitely getting done...my biggest challenge is avoiding getting peed on during the change. And I thought that leaving the working world would end the experience of being pissed on. I was wrong. :P

He's sitting here with me now with the hiccups, which is pretty funny.

I've already made him projectile vomit a couple of times. But only when I was feeding him a different formula, which I relocated to the trash asap.

Back on topic...its going to be different for every person depending on their lifestyle, portfolio size and tolerance for risk. Spending just dividends and having a working wife definitely simplifies the task considerably. Her income alone pays all our "mandatory" monthly spending. The dividends are the discretionary component. Any large capital purchases either come out of the dividend piece or I'd have to convert principal.

Given that part of this consideration is almost 100% variable (the lifestyle yada yada piece) and the other part involves guessing the near to intermediate term future (which we cant) is why I'm skeptical that an accurate analysis can be formed. Maybe a range or a variety of calculations. Propositions to skim in fat years and tighten the belt in lean years seems almost likely to end up balancing out in the long run. We already "know" from historical data that much more than 4% might not work in the long haul. That calc depends on a level withdrawal, reinvesting to buy more shares in lean years and fewer in up years, along with draining principal during really bad times.

It seems like an effort to drop this to a base and consistent withdrawal coupled with a variable component is akin to turning an analog signal into a digital one...going from a smooth line to a steppy one. Viewed from far enough away they look nearly the same. No?

Gummy did have some stuff and I remember looking at it and it did make some sense, but I think his thing was that in a really fat year he'd take the extra vacation and consider buying the new car a year early, and in a bad year they'd stay home and practice new pasta recipes.

I'm sort of practicing this right now. Given that we just had a very good year, I bought some extra baby crap that I probably didnt need, a new digital camera, did a few extra things to the house we're selling to help it sell quicker and at a higher price, etc.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 09:15 AM   #30
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: SWR for basic vs discretionary spending

Hi TH,

Before I retired I saved and invested enough that I felt safe without having to budget. So my DW and I don't use any prescription for withdrawal other than we withdraw when we need to spend more. Our withdrawal rate is less than 3% -- significantly less if you consider future pension and ss benefits.

I do run the numbers periodically and keep track of our spending to make sure we don't creep up to a dangerous withdrawal rate. They aren't numbers I live by, but they help me quantify things and gain a comfort level.

You were actually part of the inspiration to run this particular simulation. A few months back, there were a number of people who, like you, were discussing basic budgets vs spending that you could easily cut back on if you needed to. I was just curious about how much a fluctuating discretionary budget could affect survival rates. I was actually surprised at how much difference this type of budgeting made on a historical case. For the person with half of their spending as discretionary, the SWR could be 50% higher than using conventional approaches. In reality, it could clearly be even greater than that if people were actually willing to cut off discretionary spending entirely during bad years.

__________________
sgeeeee is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 10:54 AM   #31
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: SWR for basic vs discretionary spending

For those of you with interest in this kind of analysis, I've posted a companion study over on intercst's board. I started with the same basic assumptions, but with a fixed 5% initial withdrawal rate. Then I varried the discretionary/required budget ratio and looked at the success rate.

http://www.retireearlyhomepage.com/c...0433;start=0#1

__________________
sgeeeee is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 12:44 PM   #32
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: SWR for basic vs discretionary spending

Quote:

did a few extra things to the house we're selling to help it sell quicker and at a higher price, etc.
TH,
Maybe its just specific factors in your case, but did you consider keeping the old house and becoming a landlord?

My portfolio allocation calls for 5% commercial real estate or REITs and with REITS in the clouds I am thinking of going the old fashioned route.

I can't resist the dig -- isn't working your tail off for a few months to improve the value of a house you are selling sort of like early semi-retirement?

In any event, I think it is a great use of time for someone in ER -- just the sort of thing that should be right up our alley -- put some cash in, manage a project, put some labor in, flip and repeat next time you feel the urge.

Not as easy for people with full time overwork jobs.

Good luck on the house sale, and the deal with the pee is that you pull the new diaper out, shake it open, and whip it over the business end of the baby right after you get the old diaper untaped. So you never leave a loaded weapon pointed directly at you. Ever notice that evil little grin he gives you just after he hoses you? He knows how to have a good time messing with his old man!

Good luck and enjoy fatherhood.
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 02:37 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: SWR for basic vs discretionary spending

Quote:
Hi TH,

Before I retired I saved and invested enough that I felt safe without having to budget. So my DW and I don't use any prescription for withdrawal other than we withdraw when we need to spend more. Our withdrawal rate is less than 3% -- significantly less if you consider future pension and ss benefits.

I do run the numbers periodically and keep track of our spending to make sure we don't creep up to a dangerous withdrawal rate. They aren't numbers I live by, but they help me quantify things and gain a comfort level.

You were actually part of the inspiration to run this particular simulation. A few months back, there were a number of people who, like you, were discussing basic budgets vs spending that you could easily cut back on if you needed to. I was just curious about how much a fluctuating discretionary budget could affect survival rates. I was actually surprised at how much difference this type of budgeting made on a historical case. For the person with half of their spending as discretionary, the SWR could be 50% higher than using conventional approaches. In reality, it could clearly be even greater than that if people were actually willing to cut off discretionary spending entirely during bad years.
Makes a lot of sense for ER's to do this analysis. My "live the way that makes sense" budget is around 30-35k and thats well within the traditional "SWR", with or without my wifes income I can do that, no sweat. My "reasonable minimum" is less than half that. The "Screws all the way down" budget is about 8k.

Gee this is kinda fun having a nice conversation
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: SWR for basic vs discretionary spending
Old 02-11-2005, 02:45 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: SWR for basic vs discretionary spending

Quote:

TH,
Maybe its just specific factors in your case, but did you consider keeping the old house and becoming a landlord?

My portfolio allocation calls for 5% commercial real estate or REITs and with REITS in the clouds I am thinking of going the old fashioned route.

I can't resist the dig -- isn't working your tail off for a few months to improve the value of a house you are selling sort of like early semi-retirement?

In any event, I think it is a great use of time for someone in ER -- just the sort of thing that should be right up our alley -- put some cash in, manage a project, put some labor in, flip and repeat next time you feel the urge.

Not as easy for people with full time overwork jobs.

Good luck on the house sale, and the deal with the pee is that you pull the new diaper out, shake it open, and whip it over the business end of the baby right after you get the old diaper untaped. So you never leave a loaded weapon pointed directly at you. Ever notice that evil little grin he gives you just after he hoses you? He knows how to have a good time messing with his old man!

Good luck and enjoy fatherhood.
Well heres the deal...I can get ~$240k gross for the house...probably about $220k net...or I can get max $1200 a month rent minus about $250 a month in mandatory costs, minus maintenance and late night "the tub overflowed" calls, minus the renter damaging the house we completely refurbished.

$220k invested in a 5% 5 year CD gets me a higher rate of monthly income than the rent would provide, no hassle, no work involved, and I do NOT like the run up in real estate prices around here and would LOVE to take that money off the table. Rents are way out of line with house prices and the huge amount of available rentals arent helping the situation. Its a great market to be selling a house or becoming a renter...a bad one to be a renter or be buying a house. If I didnt have 3 dogs, 3 cats, and just spent a year consolidating two houses to the point where if I move another piece of furniture I'm gonna scream, I'd find a nice ranch for rent and get out of this housing market altogether.

Yeah, the work was definitely the four letter W-O-R-K stuff. But look at it this way...by using relatives that are contractors, their friends who owe them favors, bargain shopping for materials myself and just paying for some labor, doing half of it myself, and using every single '12 months no payment, no interest' deal I could find, we put about $40k into a house we might have sold as-is for $130. We'll get a quicker sell and I'll make about 50k on the difference. But yeah, if I had a regular job there'd be no way I could do it.

Besides, its either go work on the house or stay here and get peed on.

I tried that new diaper method, but then I ended up with two wet diapers, and once he peed on me twice before I got the new diaper on him. Now I put a paper towel under him and drop a dishtowel on the business end of him while I'm moving him over to the new diaper.

I wish I knew about that dishtowel thing when I was working. In retrospect a lot of people I didnt like would have been a lot more agreeable with a dishtowel over their heads. :-/
__________________

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Roth Conversion Tax halo FIRE and Money 35 11-28-2006 01:00 PM
endowment method of retirement spending starboardtack FIRE and Money 31 06-21-2006 07:50 PM
New Vanguard SWR tool 'Lifetime Spending Analyzer' intercst FIRE and Money 7 12-23-2004 07:17 AM
Scott Burns: Stay safe on retirement spending PL FIRE and Money 49 12-22-2004 11:59 AM
SWR, terminal values, TIPS, I-bnds & comm paper sgeeeee FIRE and Money 144 02-25-2004 04:35 PM

 

 
All times are GMT -6. The time now is 06:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.