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What is your 2009 budget as a % of portfolio value
Old 02-07-2009, 08:37 PM   #1
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What is your 2009 budget as a % of portfolio value

Hello,

I ER'd (sort of) in May 08 and planned to use Bob Clyatt's 4%/95% formula for withdrawals.

As a result of the stock market drop, I have to invoke the 95% rule - in my very first year of ER - for my 2009 budget. That amount is now 5.2% of my portfolio value on 12/31/08.

I would like to compare my withdrawal as a percentage of 2009 budge to what other ERs are using.

Please share your SWR methodology as well as your planned 2009 budget as a percentage of portfolio value on 12/31/08.

Any comments on the 5.2% withdrawal in the very first year of ER are also welcome. We'll probably go back to work or do part time work this year, but are not yet looking forward to it.

Thanks in advance.
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Old 02-07-2009, 09:25 PM   #2
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Was the going back to work planned regardless of the stock market or was it because of the stock market?
+++
I just want to get a handle on what you want to accomplish with the info.
+++

Book report: "Work Less, Live More"

My methodology is:
Expenses:
Year 1 - Prepare a line item budget.
Year 2 & 3 Adjust year 1 for known price changes.
All future years grown at 4% adjusted for known items - new car purchase, real estate tax decrease.

Investment growth - generally grown a 3%/year - higher amount in 2009

Several years of expense budget in cash to ride out market downturns.

investments + SS (when it kicks in) - expenses = Do I have enough until I die.

++++++
I think the 4% WR is a good rule of thumb for the general public. For the individual; more detailed expense and investment projections should be prepared.

Having said all that about expense growth; I'm guessing that expenses will grow at less than 4% as I age. Money for travel will decline and other costs will increase - negating total growth.
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Old 02-07-2009, 10:31 PM   #3
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I'm not ERd yet. If I were, I would be using my mid/low-end budget, rather than my mid/high budget or my barebones budget. Doing so would put me at about 3.25% WR. I am stll working though, for a couple reasons: 1) kids in college...being able to at least partially support them is important to me (ER mid/low budget would not allow me to support them), and 2) I intend to keep saving until I can get my budget to the mid/high or high level at a 3% WR or less, before age 50. If the markets do not cooperate and I don't get there, I will probably pull the cord at 50 anyway.

The rationale behind having several levels of budget is that the economy goes up and it goes down. I need to have enough flexibility to survive thrive even when things are tough, without putting my 90th year at significant risk...but that's me.
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Old 02-07-2009, 11:06 PM   #4
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FIRE'd in 2000 and used 4% WR. With market downturn I'll be at 6% for 2009. I will begin SS at year end 2009 with 1st ck. 01/10 and a WD rate of 3.5% at current balance. ER is not for sissy's.
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Old 02-08-2009, 05:18 AM   #5
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FIRE'd (sort of) in 2008 and used 4% WR. With market downturn I'd be at 6% for 2009 using Dec. 2008 portfolio value. However, I slashed my budget and will have a 4.3 WR and will go forward with a slashed budget until I see a reason to adjust.

I did not yet have to decide to retire formally as a lawyer, but I expect to extend the decision for two more years when it comes this summer. In reality, I was a sole practitioner and turned away work so I could retire, but if something lands in my lap that I might enjoy, I'll think about taking it.

I'm beginning to think ESR is right for me. I like the image of a three legged stool. Some people have pensions and robust 401-ks and taxable savings. I have a mountain cabin to sell some day, a work skill I can use as long as I have my mind, and the taxable savings (and a tiny IRA). I think I want to see it that way during this downturn and re-visit it in a couple years.

P.S. I'm one of those people who retired as soon as I possibly could.
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Old 02-08-2009, 06:23 AM   #6
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Increasingly I am looking at these questions as "it depends". Most of our money is in deferred accounts. We are still working but I am thinking that I still want to move the money from deferred each year even if I end up reinvesting it somewhere, recharacterizing some of it into Roth, or using some to defer SS. (The RMD dump is going to be big tax-wise.) But no matter what I do, I intend to force our spending to reset to the current market conditions as much as possible and use good years to save for bad years.

I guess I have started to look at things as a budget adjustment instead of a withdrawal adjustment. In our case the withdrawals appear better in the long run. People with funds better spread between deferred and non-deferred can more easily look at their case as a withdrawal plan.

Another part of "it depends" is that we both have small pensions (one uncola-ed, the other diet-cola-ed) and SS. Based on back-of-the-envelop estimates, these can initially provide between 65-80% of our current spending - medical insurance and taxes are included in the estimate.

Like many boomers, I am increasing thinking that dieing at my desk may be the best hedge against the future but blasphemy on RE is probably not a good idea.
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Old 02-08-2009, 08:04 AM   #7
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I am not retired yet. If market conditions were ever such that I had to withdraw over 4% of my portfolio's present value, even though that is "allowed" by withdrawal schemes, I would find it to be very difficult to do!!

I think I would temporarily revert to a bare bones budget and withdraw 4%. If that was insufficient, I don't know what I'd do. Maybe sell things on e-bay for a while just to get by. Hopefully the market would recover before I would have to return to w*rk.

caveat - - Realistically I will probably have SS , a very tiny diet-COLA'd pension, lifetime medical, and monthly payments from my TSP in the very secure never-to-decline G-Fund. If these hold up and don't get clobbered by inflation, they would cover more than a bare bones budget for me without touching my portfolio, even the dividends. I would be completely happy and secure and could enjoy my retirement on that much.

But life has always been a matter of dodging obstacles and jumping towards opportunities, and I am sure that will continue in ER. Even when you think you know what your future will bring, something will happen that changes everything immensely for the better, or that ruins all plans. Remember John Lennon's observation, "Life is what happens to you while you are making other plans". Life is like that. Anything can happen, to any of us.
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Old 02-08-2009, 08:06 AM   #8
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What's the 95% rule?
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Old 02-08-2009, 08:16 AM   #9
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Originally Posted by Want2retire View Post
I am not retired yet. If market conditions were ever such that I had to withdraw over 4% of my portfolio's present value, even though that is "allowed" by withdrawal schemes, I would find it to be very difficult to do!!
Same here. Just under 3% with my current portfolio. And I still worry.
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Old 02-08-2009, 08:19 AM   #10
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In August 2008 I decided to retire in April 2009. At that time I was planning on a starting WR of 4.6%. I'm still retiring, but I've cut my budget by about 15% and expect to be at an initial WR of about 5%.

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Old 02-08-2009, 08:44 AM   #11
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I do a straight 4% so since my portfolio dropped so did my budget . The original budget had a lot of padding so the drop is really not changing my lifestyle . Travel has been cut somewhat and I'm giving slightly fewer gifts .
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Old 02-08-2009, 09:09 AM   #12
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.05% of my portfolio. I'm a cheap date.
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Old 02-08-2009, 09:46 AM   #13
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2008 Actual Spending and 2009 Budgeted Spending
This thread might help.
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Old 02-08-2009, 12:49 PM   #14
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Originally Posted by walkinwood View Post
Hello,

I ER'd (sort of) in May 08 and planned to use Bob Clyatt's 4%/95% formula for withdrawals.

As a result of the stock market drop, I have to invoke the 95% rule - in my very first year of ER - for my 2009 budget. That amount is now 5.2% of my portfolio value on 12/31/08.

I would like to compare my withdrawal as a percentage of 2009 budge to what other ERs are using.

Please share your SWR methodology as well as your planned 2009 budget as a percentage of portfolio value on 12/31/08.

Any comments on the 5.2% withdrawal in the very first year of ER are also welcome. We'll probably go back to work or do part time work this year, but are not yet looking forward to it.

Thanks in advance.
Walkinwood,
My feelings are that in your case I wouldn't go straight to the 5.2% withdrawal. You're in your first year of ER, things are in flux, budgets and expectations can be ratcheted around more easily, part time work can be taken on with fresh skill sets and contacts.

The 95% Rule (spending at your Safe Withdrawal Rate or up to 95% of last year's withdrawal if you need it, whichever is higher) was conceived as a way to cope with a downturn once you're on a multi-year ER lifestyle -- something of a salve for the family who wasn't keen to radically alter their lifestyle because of one down year. The numbers tested out well over the long run data series for it.

But I didn't conceive it as a first-year boost to consumption -- not sure how the numbers would fare. Personally I feel this downturn is not just a one-year blip but could drag on for awhile. I have no way of knowing that, but my instinct right now is to batten down, cut costs (or increase income) to keep myself at something closer to my 4.3% target. If things get better down the road, then I'll increase then.

If the papers are full of layoffs, store-closing and 'downsizing-chic', it is easier to cut expenses back without feeling left behind. Take full advantage of that with the chance to set reduced consumption levels without feeling deprived. If everyone is doing well, but your portfolio took a 10% hit, then the 95% Rule is a great way to keep your consumption more-or-less where it was and not feel that ER was such a possibly reckless or dumb idea.

One thing that might alter my thinking would be if I were just a few years away from Social Security or some other known financial windfall/improvement. In that case then sure, I would be comfortable with a higher withdrawal rate for a few years. But I wouldn't invoke the 95% Rule as a rationale for that so much as I'd just see it as cutting my overall portfolio back knowing it would get improved down the road, or less-heavily 'bled' down the road.

Hope this helps clarify
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Old 02-08-2009, 01:22 PM   #15
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Dex,
We originally decided to quit work for a year to see how things would shake out. At that point, a 4% withdrawal rate gave us the lifestyle we wanted & had been living at for a few years. We wanted to see how the markets would fare since SWR studies show that the greatest risk of failure is a severe stock market decline in the initial years. Hence the thought of returning to work or part-time work. We are in our late 40s. Going back to work is not as big a deal as the risk of our portfolio not surviving 40+ years of withdrawals.

ESR Bob,
I am a big fan of your book and I appreciate the explanation. You & I are in agreement on the risks of a first year market downturn to long term portfolio survival. The cut-back to our standard of living at a 4% withdrawal is more than we wish to take on right now, so we'll go back to some kind of paying work until our portfolio recovers.
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Old 02-08-2009, 01:47 PM   #16
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Originally Posted by ESRBob View Post
Personally I feel this downturn is not just a one-year blip but could drag on for awhile. I have no way of knowing that, but my instinct right now is to batten down, cut costs (or increase income) to keep myself at something closer to my 4.3% target. If things get better down the road, then I'll increase then.
This is interesting because I read an interview with Suze Orman in a magazine last night (it was either People or Marie Claire, I think) and she indicated that 2016 was the year she expected a turnaround. Now, it was late and alcohol might have been slightly involved and her comment scared me so badly I slammed the magazine shut, but I am pretty sure 2016 was her "turn around" date, and she went on to say something about things would get really, really bad before then. I'm not a big SO fan, but I'd say she knows more than I concerning investments, economy etc as this is her full-time job.

If I were retired (which I'm not), I think I would operate like Moemg and stay at a 4% rate year-in and year-out. If I couldn't live on that, I guess I'd have to go back to work. I fully realize this is big talk when you are still working, and you know I'd feel differently if in retirement I realized I had to go back to work, but that's my current thinking.
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Old 02-08-2009, 04:03 PM   #17
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Even though our "allowed" spending is up to 4% of the portfolio, our actual spending last year (including taxes on investments) was more on the order of 3.25% of the current portfolio, and I expect to be able to hold to that level this year.

At the beginning of 2008, our actual spending would have been more like 2.5% of the portfolio! Oh, well!

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Old 02-08-2009, 04:33 PM   #18
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Hmmm - last year about 3% handgrenade wise - lot of trips, wild and frivolous.

Now with a reduced portfolio want to/should spent more like 4% - but in my heart I really want to be a cheap bastard.

Unfortunately at 16th year of ER(65) not getting any younger - so targeting 10% more in actual $ - if I don't chicken out and get cheap- I mean frugal.

heh heh heh - I try to roughly hit 3-5% or more properly SEC yield of portfolio to 5% variable - although 2006, post Katrina I took 6% variable.
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Old 02-08-2009, 04:47 PM   #19
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Well, I guess I'm one of the Luckier one's with only Loosing about -9% ( 4 Bal. Funds and 4 Bond funds last yr) and only needing about 2.6% of my Savings , so no changes for me at this time.. Spend most of the time doing Charity & Lobbying Congressmen to fund Stem Cell Reserach for a T1 Diabetes Cure..
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Old 02-09-2009, 11:14 AM   #20
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Lets see. The budget allocation this years is 4% of our investment portfolio. For me, anything over 3% makes me uncomfortable. Still not sure we're going to make budget, though. I think it's going to be a challenging year for many - another moment for us to count our blessings.

I FIRE'd in 12/99 without a clue about concepts like SWR and such. Since then we've had 4 years of market declines and 8 years of expensive private school college tuition to go. We're lucky to still be solvent. It's been a combination of mistakes, poor judgment and good luck.

Still, 4% when times are bad is probably a better case scenario.

Michael
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