It's interesting you posted this, because I just read Pfau's article on adjusting spending on an annual basis to maximize the "utility rate" (allowing to maximize withdrawals). I'm moving more towards this approach, in part to allow higher withdrawal and more active early retirement, until we reach Social Security, where we would cut back the withdrawal rate.
Pfau's article is here: Retirement Researcher Blog: “Optimal Withdrawal Strategy for Retirement-Income Portfolios”
Many of you may be interested, and I've seen that many of you already are doing some kind of annual adjustment.
So What does this have to do with TRANCHING
Here's what I see in a nutshell. Phase 1- Twenty +or- years of spending to the activity level, and
Phase 2 - Ten +or- years of a slower , less expensive life.
An arbitrary example of spending... excl. inflation
Phase 1 - $55,000/yr
Phase 2 - $40,000/yr
....................... or any other combination of numbers.
Why do this? In our case, had we planned for what we now see as reduced spending in our later years, we might have spent more in the early years. (doubt it)... More important, If we had thought this way in the beginning, we might have been able to retire earlier.
Thus the reason for the post.
In a previous post, I mentioned our plan for our future living in our Continuing Care Retirement Community. This gives us a fixed cost of living within a budget that we can plan ahead. Lodging, Meals, entertainment, transportation and all utilities ad ancillary costs included in one payment. In fact, when we make the move into an apartment, we calculate that the income from the sale of our house (along with Social Security) should suffice for Phase 2... and continue to provide some estate dollars for our kids.
So what's different? Probably nothing except as a means for thinking about the later years as an entity apart, and different from the active years. In our case for the next 13 years, we'll need about $180,000 beyond our SS income... This will be covered by the sale of our current house.
In this case... Phase 2 equals the House.
The second benefit from this kind of planning is that you can put a finite date in any financial calculator. ie... the number of years in phase 1.
Whether using this approach or not, I would suggest that though your mileage may vary, understanding the difference between living style and expenses at age 57 through 77
and those at age 77 to 87 ,
will be quite significant..
And, at the VERY LEAST... considering the possibility that the final years of retirement may not be as active as the early years, will help in appreciating what you're doing today.