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What drawdown method do you use?
Old 09-04-2011, 01:07 AM   #1
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What drawdown method do you use?

Now that I'm getting closer to "the date", I find that there is very little on draw down methods (versus a myriad of books and articles on accumulation methods).

I've read Lucia's buckets and also articles from others who live off the interest.

What method do you use? Why do you think it is best?
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Old 09-04-2011, 02:21 AM   #2
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You may find this old thread interesting:
Withdrawal Rate Mechanics
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Old 09-04-2011, 02:34 AM   #3
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Or these:
Detailed Distribution-Decumulation-Withdrawal Plan
Semi-Fixed Minimum Withdrawal Starting at 3%

Best of luck.
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Old 09-04-2011, 09:53 AM   #4
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We keep two years' expenses in cash. During good years we replenish the cash stash. During not-so-good years we keep spending it and wait for the market recovery.
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Old 09-04-2011, 10:04 AM   #5
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We keep two years' expenses in cash. During good years we replenish the cash stash. During not-so-good years we keep spending it and wait for the market recovery.
Same here, but we keep slightly more (3-5 years) in cash, depending on the short term returns and our decision to "harvest" (in our case, anything above $5k) along the way, that shows a gain since my retirement on May 1, 2007.

As for DW (who still choses to be employed, but expected to retire at the same time as me), we keep her aound the 5 year gross income level in cash. If she wishes to retire tomorrow (or keep on wor*ing), it's up to her.

Being a bit more conserative, it fits our needs for a good night's sleep...
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Old 09-04-2011, 10:13 AM   #6
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We keep two years' expenses in cash. During good years we replenish the cash stash. During not-so-good years we keep spending it and wait for the market recovery.
I do the same currently. But might bump my stash up to three or four years as extra chicken money.
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Old 09-04-2011, 10:22 AM   #7
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I don't like to take out money when the market is up. I need more money and letting it ride might make more. I don't like to take funds out when market is down. I could have had more money if I had planned better...
And I need $$ in October...to last til end of January-so 4 months.
I was going to take it out of a growth fund but am annoyed that the value is down so I am probably going to take it out of IRA bond fund that is large enough to re-grow. Oh-and I'm spending the quarterly dividends from a utility stock. My withdrawal rate is about 4.6% until I collect SS then it drops to 3.5%

As you see I don't have an answer for you, but I feel your pain and confusion.
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Old 09-04-2011, 12:25 PM   #8
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A hypothetical question.....

If someone was able to live within their income from all sources for that year ( SS, Pension, interest & dividends ) , would it be correct to say that their SWR for that year is zero?

Of course, as inflation bites, this situation may not be possible, so the SWR would tend to slowly rise.
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Old 09-04-2011, 12:27 PM   #9
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^No. You said "interest & dividends" and they count towards SWR since they were not re-invested. So do investment expenses like that 1.5% you pay your advisor.
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Old 09-04-2011, 12:52 PM   #10
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I use almost exclusively interest and dividends. A few times I have needed to withdraw principal to cover somewhat large (and not originally budgeted for) expenses when the cash flow from the I&D was not there at the moment. But at the same time, I am adding to principal by reinvesting excess I&D (and cap gains distributions) in the other months. Overall, the net inflow/outflow from principal is in my favor, much more reinvested than withdrawn.

Thia was always part of my ER plan when I was first devising it in 2008.
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Old 09-04-2011, 01:09 PM   #11
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Of course, as inflation bites, this situation may not be possible, so the SWR would tend to slowly rise.
The withdrawal amount should rise with inflation, to pay for higher living expenses. But since the amount of your investment is hopefully appreciating as well, the withdrawal rate won't necessarily rise. The Safe Withdrawal Rate shouldn't change unless you change your mind about your retirement plan.
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Old 09-04-2011, 02:00 PM   #12
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I'm nominally 100% equities. I invest for total return. I raise cash when the portfolio value is above retirement projections, which would always be in a market hitting new highs. I do not reinvest fund distributions. I sell equities to meet expenses if I don't have cash sitting around, in a way that rebalances the portfolio equities. If I have excess cash and the market drops more than 20% I will begin buying equities, which would always be when the market is hitting new lows, adding more in steps if the market continues down.

I started retirement in 2007 when the economy was looking shaky so I had about 3 years of cash to start just in case. That came in handy. I was able to buy as the market declined and have hit new portfolio highs since then. If the market had gone up instead I would have used all the cash for expenses before selling any more equities, so I wouldn't be carrying lots of cash for a long time period.
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Old 09-04-2011, 02:16 PM   #13
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Originally Posted by Coolius View Post
A hypothetical question.....

If someone was able to live within their income from all sources for that year ( SS, Pension, interest & dividends ) , would it be correct to say that their SWR for that year is zero?

Of course, as inflation bites, this situation may not be possible, so the SWR would tend to slowly rise.
I pay divs and interest to a sweep account and then spend them as part of my income needs. I calculate the WR each year and this includes these payments as I no longer re-invest them.
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Old 09-04-2011, 02:32 PM   #14
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If someone was able to live within their income from all sources for that year ( SS, Pension, interest & dividends ) , would it be correct to say that their SWR for that year is zero?
Of course, as inflation bites, this situation may not be possible, so the SWR would tend to slowly rise.
You're a dividend investor. The SWR is your dividend yield. SS and pension would cover some of the fixed expenses and the SWR from the portfolio of interest/dividend income would only have to cover the "expense gap" not already filled by SS and pension.

The advantage is no principal consumption, which is very handy for extreme ERs of 5-6 decades. However a typical dividend portfolio might have to be 30-35x your annual spending instead of 25x. Of course that depends on your asset allocation, too-- for TIPS or Treasuries it might be higher than 40x.

Incidentally your heirs will be a lot happier, too.
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Old 09-05-2011, 09:14 AM   #15
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I'm nominally 100% equities. I invest for total return. I raise cash when the portfolio value is above retirement projections, which would always be in a market hitting new highs. I do not reinvest fund distributions. I sell equities to meet expenses if I don't have cash sitting around, in a way that rebalances the portfolio equities. If I have excess cash and the market drops more than 20% I will begin buying equities, which would always be when the market is hitting new lows, adding more in steps if the market continues down.

I started retirement in 2007 when the economy was looking shaky so I had about 3 years of cash to start just in case. That came in handy. I was able to buy as the market declined and have hit new portfolio highs since then. If the market had gone up instead I would have used all the cash for expenses before selling any more equities, so I wouldn't be carrying lots of cash for a long time period.
Serious question. Whats the difference between "nominally 100% in equities" and "100% in equities"?
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Old 09-05-2011, 10:39 AM   #16
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Serious question. Whats the difference between "nominally 100% in equities" and "100% in equities"?

I do end up with a cash balance at times with this method, so I can't really claim 100% equities. Just no permanent allocation to cash or bonds. I have about 12% "cash" at the moment, most of which is actually in a GNMA bond fund trying to earn a little more. As stated, that will be spent down before I sell equities, or may be reinvested in a bear market. I was down to $0 cash in 2009, all in at the market bottom and then selling equities as needed while the market was rising.
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Old 09-05-2011, 03:22 PM   #17
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Spend divs and interest in taxable. When that runs out, I sell something.
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Old 09-05-2011, 03:40 PM   #18
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This is interesting. I am looking at galeno's method of withdrawal / cash buffer.
Hi I'm galeno

One thing that doesn't add up to me is this:
He keeps 6 years of cash in the pipeline and this is 25% of the total.
To replenish, he withdraws 4% of the 75% in equities.
6 years into 25% is about 4%. 4% of 75% is about 3%. I estimate he needs to take out about 5.7% each year to keep even.
What am I missing / wrong about here?
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Old 09-05-2011, 03:47 PM   #19
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What am I missing / wrong about here?
He's still around, you might send him a PM and ask.
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Old 09-05-2011, 08:46 PM   #20
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Probably just meant 4% of the total of 25% cash plus 75% equities.
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