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What if your w/d strategy is "winging it'?
Old 05-24-2013, 01:44 PM   #1
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What if your w/d strategy is "winging it'?

I recently read a long thread on an article about the 4% withdrawal rule and its merits (or lack thereof). After skimming the 50+ replies, I took away a lot information, some useful, some not so useful. My wife and I are planning ER in 2017; (I will be 53, she will be 47). Relative to most on this forum, our plan seems a bit “out of the box” for three reasons:

1) First off, we plan on expatriating to Penang, Malaysia via a visa program called MM2H (Cost of living is significantly lower and we love Southeast Asia)

2) Rather than relying only on the merits of the capital markets or worrying about the sad state of artificially manipulated low interest rates, we plan on hedging it by paying of our mortgage, selling our overpriced California house, leaving the USA within a few months, and living mostly on the proceeds, at least through the years that would generate early withdrawal penalties if we tapped the funds (Roth and traditional IRA’s, two small pensions that won’t be available yet and 401k plans). Although we will probably take a loss (we paid $738K), we anticipate having 550 to 600K after realtor fees and the 50K that is required as a fixed deposit for the visa program.

We plan on simply budgeting a maximum of 50K per year rather than tap into any of our retirement assets and allow them to grow tax free until we need them. We anticipate this can generate ample income for 10 to 15 years based on our lifestyle choices. (This number is based on extensive research and posts on forums specific to Malaysian expat living and obviously depends on inflation, interest rates etc.) We’d probably transfer about 100K to the local currency initially and the rest will remain out of the market in laddered CD’s or similar interest bearing instruments. Leaving the bulk in USD affords protection in the event of another Asian debt crisis. (a real possibility given the amount of debt relative to GDP lately).

3) Most importantly, unlike everyone else, I do not have some master planned withdrawal spreadsheet, have not studied graphs, charts and read dozens of reports detailing how to make your money last, and will not hire a professional advisor even if they are fee-based. (I don’t feel we have enough net worth to really benefit from this). Granted, I work in the financial services industry for 30 years although I am not a licensed professional nor do I have any specialized training in retirement planning. What I do have is relatively good investing and budgeting skills. Although I don’t really doubt my ability to manage a successful early retirement, sometimes the forum makes me wonder if others think I’m crazy for “winging it”. A brief synopsis of our current financial situation follows and I will leave it open to comments, thoughts, suggestions.

We currently have about 500K in total investments plus an additional 100K CAD in a Canadian tax sheltered account ; At year end 2008, we only had 275M. We max out my 401k and my wife has both 403b and 457k; By doing this, it allows our taxable income to drop enough to make us eligible to also max out two Roth IRA’s; thus, we will invest about 63K this year; We also prepay about 20K a year on our mortgage. We’ve increased net worth by over 100% in 4 years by starting both retirement accounts shortly before the market bottom; Our portfolio is conservatively balanced at approximately 40% fixed income, 60% equities and is very diversified in a combination of mainly no-load mutual funds and some ETF’s and closed end funds; no individual stocks; The asset allocation is roughly 30% US, 20% Asia ex-Japan, 30% other foreign developed and 20% emerging market (the fixed income is very diversified).

In my personal opinion, although the market is ripe for a pullback, I anticipate that QE and the market’s eventual acceptance of its tapering should probably produce positive returns through 2016 or longer. Barring another calamitous financial crisis, I allow for a range that has us starting ER with an amount between 700K (low end) and 1MM (high end). We’d begin collecting the small pensions at age 50 (mine) and 55 (hers) and keep them in very safe investments or even savings products.

Once the house proceeds cash runs dry, I have absolutely positively no idea how much we’d need to withdraw every year to make it last another 20 or 30 years. What I do know is that nobody has a clue about future tax rates, and studying 100 years of past performance makes about as much sense to me as asking a psychic. There’s no way predicting future rates of return, political or social events that could trigger a crisis or timing the market. I’d rather concentrate on understanding how to use proper asset allocation and attempt to stay properly invested in any investing climate than worry about how much to withdraw each year. In lean times, live more modestly; in boom times I’d take an extra vacation

Am I crazy?
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Old 05-24-2013, 02:26 PM   #2
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Whether you believe that SWR methodologies have merits or not, you still need to figure out how much you're willing to withdraw each year (your annual budget) from your portfolio when the time comes. How will you decide on the amount? Or conversely, how will you decide if your annual expenses are too high to be supported by your portfolio?
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Old 05-24-2013, 02:43 PM   #3
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Whether you believe that SWR methodologies have merits or not, you still need to figure out how much you're willing to withdraw each year (your annual budget) from your portfolio when the time comes. How will you decide on the amount? Or conversely, how will you decide if your annual expenses are too high to be supported by your portfolio?
Well, I suppose I don't really know for sure which is part of the reason for this post. Part of the problem lies in the subjective nature of what is a comfortable amount and another part is the uncertainties of future events. I'm not sure I agree with pulling a set amount annually; I think monthly systematic withdrawals would work better after seeing how much is needed after the pensions, assesing each year's tax burdens and anticipating current lifestyle plans? Then there's the question of when to begin taking SS (if it still exists). On one hand, delaying it as long as possible sounds reasonable but OTOH, part of the joy of ER for me is the ability to be very active and travel all over SE Asia before we are senior citizens.
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Old 05-24-2013, 04:30 PM   #4
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You wouldn't have caught me winging it like this. That said, all it requires is that you adjust your spending as needed. Without a large base of fixed expenses, you should be able to do that easily.

If you're winging it with 10%/year withdrawals, good luck. With 1% withdrawals, why? If you're near the 2-4% range your guess is as good as ours. There are no guarantees.
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Old 05-24-2013, 05:13 PM   #5
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Am I crazy?
I don't know, are you? Sounds like you have made up your mind, or did you want our blessing?

Good luck! Better you than me.
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Old 05-24-2013, 05:14 PM   #6
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We have a similar approach, except I will keep track of what my assets are and how much I can use each year. Flat out "winging it" is a bad plan. You need to know how much you can live on, and what a withdrawal does to your money supply. If your lifestyle will cause you to run out of money when you're seventy, you need to know that....
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Old 05-24-2013, 05:57 PM   #7
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As a frequent contributor to WR threads, it may surprise you to hear that most of us will "wing it" in varying degrees whether we know it or not (many know it). But knowing 'those who don't learn from history are condemned to repeat it' - it's still useful to me to know what's worked (at various probabilites) in the past - through recessions, depressions, bubbles, world wars, cold wars, low/high inflation, low/high yields/interest rates, high/low equity allocations, high/low employment, etc.

But we're under no illusion there's some foolproof withdrawal scheme, no matter how elaborate or sophisticated. We make a plan, have contingency plan B's in mind, adjust as needed (using what we've learned from history). Check once in a while, but don't obsess, life's too short.

Winging it alone isn't a plan, but it's a part of every plan...
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Old 05-24-2013, 06:24 PM   #8
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Average income in Malaysia is equivalent to about $1,700 a month. Assuming you want to live like an average Malaysian, that's about 3.4 % of your assets not including the value of your home. That sounds doable as long as the average Malaysian lifestyle fits your needs. Having lived overseas for quite a few years (South America - not Asia) it seems that the closer one tries to duplicate american life style amenities the pricier (by a long shot) things get. If you can adapt to local living styles then considerable savings can be had.
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Old 05-24-2013, 06:29 PM   #9
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As a frequent contributor to WR threads, it may surprise you to hear that most of us will "wing it" in varying degrees whether we know it or not (many know it). But knowing 'those who don't learn from history are condemned to repeat it' - it's still useful to me to know what's worked (at various probabilites) in the past - through recessions, depressions, bubbles, world wars, cold wars, low/high inflation, low/high yields/interest rates, high/low equity allocations, high/low employment, etc.

But we're under no illusion there's some foolproof withdrawal scheme, no matter how elaborate or sophisticated. We make a plan, have contingency plan B's in mind, adjust as needed (using what we've learned from history). Check once in a while, but don't obsess, life's too short.

Winging it alone isn't a plan, but it's a part of every plan...
+1MM !!! I have a couple of very elaborate spreadsheets which give me "some comfort" that I won't be eating cat food at age 90. Barring that, I know I will be "winging it". I am hoping I don't obsess too much, but I do know that I will be hedging my bets by trying to find find PT work the first 5 years (aka: early adoption of Plan B !).
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Old 05-24-2013, 06:30 PM   #10
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Average income in Malaysia is equivalent to about $1,700 a month. Assuming you want to live like an average Malaysian, that's about 3.4 % of your assets not including the value of your home. That sounds doable as long as the average Malaysian lifestyle fits your needs. Having lived overseas for quite a few years (South America - not Asia) it seems that the closer one tries to duplicate american life style amenities the pricier (by a long shot) things get. If you can adapt to local living styles then considerable savings can be had.
I love this post ! Thank you ejman
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Old 05-24-2013, 06:42 PM   #11
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You wouldn't have caught me winging it like this. That said, all it requires is that you adjust your spending as needed. Without a large base of fixed expenses, you should be able to do that easily.

If you're winging it with 10%/year withdrawals, good luck. With 1% withdrawals, why? If you're near the 2-4% range your guess is as good as ours. There are no guarantees.
Well I guess I'm not really totally "winging it". We do have a specific plan with a set budget and anticipate no problems until retirement age since virtually anyone should be able to live on half a million in cash for awhile; Of course we won't withdraw 10% of whatever we have left even if times appear good because it's not prudent; BTW, we have no kids and not sure if we'd ever write a will, thus have absolutely no reason to die with very much cash; in the absence of a will whatever is left in an estate will no doubt be turned over to the last state we had residence in; Our fixed expenses would only be annual rent; I don't believe in purchasing foreign property unless you can really could do without the entire purchase price in the event of some civil breakdown that forces you to walk away with no cash.

Perhaps I have an advantage because I understand how the markets work but as a non revenue producer with no vested interest in commissions, I can personally tell you that most professional financial advice is bulls**t;any intelligent person can learn enough to do their own planning. The financial services industry is the world's biggest scam by far designed to take such undue advantage of every single entity from municipalities and governments right down to an individual investor. Maybe I'm jaded but believe me: I see how little work is done on my trading desk and what kind of insane fees are collected for "investment management fees".
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Old 05-24-2013, 06:47 PM   #12
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Average income in Malaysia is equivalent to about $1,700 a month. Assuming you want to live like an average Malaysian, that's about 3.4 % of your assets not including the value of your home. That sounds doable as long as the average Malaysian lifestyle fits your needs. Having lived overseas for quite a few years (South America - not Asia) it seems that the closer one tries to duplicate american life style amenities the pricier (by a long shot) things get. If you can adapt to local living styles then considerable savings can be had.
+1
The biggest gap in your plan has nothing to do with withdraw rates -- it's that you are preparing to move to Penang without having spent any time there to determine if that is a lifestyle that you can comfortably live ..... I have lived all across asia for decades and i personally dislike Penang.

Are you prepared with a plan b if penang or all of Malaysia drives you wonky ? That's where I would do more homework. ....

Forums are one thing ....go live there for a few months on extended vacation or something to get better insight ... Just saying ....
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Old 05-24-2013, 06:54 PM   #13
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I don't know, are you? Sounds like you have made up your mind, or did you want our blessing?

Good luck! Better you than me.
Not looking for your blessing; mostly looking for advice on what others have done, plan on doing and what convinces them that a specific methodology will work since everyone's situation is unique; It's nice to find this forum as it is because, for example, every single person my wife and I come across seem to look at us like we live on Mars if we even begin to talk about retirement since we both are clearly under 50. I know that a decent segment of the US population does NOT fall into that sad and pathetic category that you read about over and over in the financial press. So I hold a great degree of respect for anyone that has the diligence, prudence and ability to be able to obtain ER. We've only made up our minds about one thing: Although we are compensated well (we make about 210K combined) we both view our jobs as just that: a means to an end (my wife more than me as her job is much harder). We both view expatriation as a huge adventure with so much to learn and experience and should it not work out we have 49 other states we can come back to besides California,(and 10 provinces since my wife is Canadian)
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Old 05-24-2013, 06:59 PM   #14
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We have a similar approach, except I will keep track of what my assets are and how much I can use each year. Flat out "winging it" is a bad plan. You need to know how much you can live on, and what a withdrawal does to your money supply. If your lifestyle will cause you to run out of money when you're seventy, you need to know that....
Yes, I agree totally. Unfortunately, it will not be possible for us to understand what it means to exist without salary until we actually do it. I know every single asset we own, keep very careful watch of our asset allocation and understand when I think it's wise to rebalance. I plan for the worst case scenario which has already occurred in 2008n with a 47% decline in our asset base. But I've also carefully tracked how it recovers in a good market in both contributory and non-contributory accounts. (It takes a lifestyle adjustment to compensate for a huge financial crisis).
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Old 05-24-2013, 07:06 PM   #15
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+1
The biggest gap in your plan has nothing to do with withdraw rates -- it's that you are preparing to move to Penang without having spent any time there to determine if that is a lifestyle that you can comfortably live ..... I have lived all across asia for decades and i personally dislike Penang.

Are you prepared with a plan b if penang or all of Malaysia drives you wonky ? That's where I would do more homework. ....

Forums are one thing ....go live there for a few months on extended vacation or something to get better insight ... Just saying ....
Hi papada111

Thanks for the advice; We are taking an extended trip to Penang in 2015 and intend to live in a local apartment and meet up with all the expat forum people who are very supportive. Our plan B is Chiang Mai, Thailand which we also find very livable and have been to before ; our plan C is Hua Hin, Thailand and our plan D is give the entire experience at least one year, keep a one bedroom apartment worth of furniture in storage and come back if all else fails. Yes, there's always Panama and Ecuador but a trip to Cuenca last year convinced us that Latin America is not for us.
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Old 05-24-2013, 07:19 PM   #16
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Yes, I agree totally. Unfortunately, it will not be possible for us to understand what it means to exist without salary until we actually do it. I know every single asset we own, keep very careful watch of our asset allocation and understand when I think it's wise to rebalance. I plan for the worst case scenario which has already occurred in 2008n with a 47% decline in our asset base. But I've also carefully tracked how it recovers in a good market in both contributory and non-contributory accounts. (It takes a lifestyle adjustment to compensate for a huge financial crisis).
Well there ya go. As long as you know how to keep track of what's going out and what's coming in, and prepared to make adjustments as needed, then have a blast!

But do make a will, even if it's just to leave any leftovers to your favorite charity.
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Old 05-24-2013, 07:53 PM   #17
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To the OP : I would not wing it when it comes to FIRE planning and withdrawal strategies. However I tend to be very conservative.
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Old 05-24-2013, 09:39 PM   #18
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1) First off, we plan on expatriating to Penang, Malaysia via a visa program called MM2H (Cost of living is significantly lower and we love Southeast Asia)
You mention that you have both Canadian and US tax-advantaged accounts - what is your citizenship?

The IRS has been creating more requirements for US citizens living overseas in terms of annual financial reporting, and in a few years, it may become such a hassle/burden for foreign institutions that you may have more difficulties in finding local (foreign) banks/institutions that want to hold your accounts. Also, there are many forms you would need to file if you're a citizen for any and all assets held by foreign institutions.

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2) Rather than relying only on the merits of the capital markets or worrying about the sad state of artificially manipulated low interest rates, we plan on hedging it by paying of our mortgage, selling our overpriced California house, leaving the USA within a few months, and living mostly on the proceeds, at least through the years that would generate early withdrawal penalties if we tapped the funds (Roth and traditional IRA’s, two small pensions that won’t be available yet and 401k plans). Although we will probably take a loss (we paid $738K), we anticipate having 550 to 600K after realtor fees and the 50K that is required as a fixed deposit for the visa program.
If you can live off of your house proceeds, then surely you'll want to withdraw at least, say, $10k/year from your IRAs and convert it to a ROTH IRA since you'll be in the 0% income bracket with your standard deductions.
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Old 05-24-2013, 09:39 PM   #19
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Best of luck to you. I visited Penang about 20 years ago and loved it. Georgetown on Penang was probably my favorite urban area among the places I've visited in SE Asia. I'm curious if you're planning on living in Georgetown or in a more rural part of the island? I have no idea what costs are like now in Malaysia, but of all of the countries I've visited in the world, Malaysia & Thailand (which I've been to fairly recently) easily had the best value for the money for someone with dollars.
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Old 05-24-2013, 10:20 PM   #20
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We plan on living in Asia for afew years also. The difference is we have two small children...

I think 50k pa as a budget is ample, many years you may not even spend that.

When we have looked, lovely apartments in Penang with an ocean view are around $700pm. Food is around $2 pp per meal. (on average). Flights are cheap within Asia, so you can travel for not much at all.

Good luck with your plans.
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