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Old 11-30-2007, 09:48 PM   #21
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285.21%.

But I'm not retired yet ;-P

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Old 12-01-2007, 06:22 AM   #22
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I'm not retired yet, but I am planning for my withdrawal rate to depend on the market.

During prolonged market "down" periods of ten years or less, I won't have to withdraw at all since I will depend on cash reserves and LBYM.

When the market recovers and is "up", I will replenish the cash reserves and then probably withdraw up to around 4% or so and cut back on the LBYM'ing! At no time would I withdraw enough for the inflation-adjusted principal to diminish.

That is the plan, anyway!! In 707 days I can ER, and at that time 'll find out how well it works for me.
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Old 12-01-2007, 09:46 AM   #23
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Is it really "safe" in your portfolio? It might be better to put the excess in a cash hoard for when you are ready to spend it or have a sudden unexpected need for ready cash.

Audrey
Thanks , I'm already looking at trips for next year !
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Old 12-01-2007, 09:49 AM   #24
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Ours is a not particularly scientific model.

Dividends, interest, capital gains and other income goes into the checking account. When the checking account drops below $20k, its time to slow down or stop major and unnecessary expenditures until it pops back up. When it hits $40k+ I start looking at doing major renovation projects/purchases or reinvesting the money.
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Old 12-01-2007, 10:11 AM   #25
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Ours is a not particularly scientific model.

Dividends, interest, capital gains and other income goes into the checking account. When the checking account drops below $20k, its time to slow down or stop major and unnecessary expenditures until it pops back up. When it hits $40k+ I start looking at doing major renovation projects/purchases or reinvesting the money.
Hey, I like that method! It sounds very practical. (filing for future reference)
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Only 2.4% overall
Old 12-01-2007, 10:40 AM   #26
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Only 2.4% overall

but much much more from my taxable account. I hope to avoid a 72(t) but if I need to, I will. My income will jump once I tap my deferred accounts, so I am not income leveling, but it simplifies things taxwise.
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Old 12-01-2007, 10:42 AM   #27
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We're about $15K under what we're supposed to spend for this year. I'm committed to the 4% SWR so it's time to put my money where my mouth is.
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Old 12-01-2007, 11:12 AM   #28
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Congrats Moemg for making it on 2.5%. As long as you weren't depriving yourself, I don't see any problem at all with staying under 4%. As you know, some years you will be at 4% or even higher if you have large capital expenses. Plus, you can always take the trip of a life time or a one time splurge on something special if you're consistently staying under 4%. To me, it's more of a treat to do something special once in a great while than it would be to force myself to withdraw 4% every year and get used to spending it on things of less value to me.

If last year's dividends and end of the year mutual fund distributions were typical, I should be able to live on that for my normal expenses, kind of like CFB's plan. I know some people here like using CD ladders, but personally I like this approach better.
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Old 12-01-2007, 11:17 AM   #29
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As long as you weren't depriving yourself, I don't see any problem at all with staying under 4%.
But there could be a problem: getting to an older age, having much more money than you could ever spend, and regretting that you didn't do more stuff back when you felt more like doing it.
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Old 12-01-2007, 11:24 AM   #30
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Ours is a not particularly scientific model.

Dividends, interest, capital gains and other income goes into the checking account. When the checking account drops below $20k, its time to slow down or stop major and unnecessary expenditures until it pops back up. When it hits $40k+ I start looking at doing major renovation projects/purchases or reinvesting the money.
CFB. If you spend your capital gains how do you grow your portfolio?
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Old 12-01-2007, 12:09 PM   #31
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Congrats Moemg for making it on 2.5%. As long as you weren't depriving yourself,.

Thanks , I'm definetely not into deprivation .
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Old 12-01-2007, 02:15 PM   #32
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CFB. If you spend your capital gains how do you grow your portfolio?
I think he just means he spends his capital gains distributions. He still has unrealized capital gains accumulating in his portfolio (one hopes).

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Old 12-01-2007, 02:15 PM   #33
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CFB. If you spend your capital gains how do you grow your portfolio?
If you don't mind me answering this, I'll take a shot.

If your mutual fund holds 1000 stocks, and sells 200 of them (partial or full sale) during a year, you only have capital gains (or losses) on those 200 sales. I think a mutual fund must distribute at least 90% of those capital gains, as well as dividends.

The other 800 stocks can increase (or decrease) in value, but if they haven't sold them there is no cap gain and no cap gains distribution. So the mutual fund can increase in value (growing your portfolio) through the stocks it continues to hold AND also provide a flow of income through distributions on the stocks it sells and dividends the stocks pay.

It's all variable based on how much trading there is in the fund, and how profitable the trading was. Dividend distribution tends to be more steady but there's no guarantee the fund manager will stay with some of those dividend producing stocks. And a lot depends on the type of fund. Actively managed funds tend to have more turnover and generate larger distributions than index funds.

That's why I don't think I'll plan on those alone as my cash flow and won't necessarily adjust my spending based on having larger or smaller distributions.

But it is a way of getting a cash flow that seems to be more or less what I think I will need. Some years I may need to liquidate more assets, others I may need to reinvest some of the distributions based on how much I get, and I may need to rebalance assets, but I think it will take some of the decision making on which assets to sell out of my hands. Or rather, when I make those decisions, most of the time it will be because of rebalancing or doing it on the merits of the investments, rather than having to make a decision to sell because I need the cash, either immediately or to fund a CD ladder for the future.

Put another way, reinvesting distributions is literally buying more shares of the mutual fund. It's a good forced savings while you are accumulating a nest egg. But when you are needing income from your investments, it doesn't make sense to me to automatically buy more of the mutual fund and have to sell something else. I'll take the money from the distibutions and then decide whether I want to use the money as income, invest in something else, or invest it back into the same fund.

As far as rebalancing goes, generally in a good year a stock fund will both have more distributions and also grow in value, so it makes sense take the distributions away from it. And in a bad year it generally has a smaller distribution and may go down in value, so it makes sense to get income from another source that had been doing better. Lots of exceptions there, of course, but I think the strategy is consistent with trying to keep a portfolio balanced without have to exchange assets too much.

There's probably a flaw in there that distributions and dividends from bond and money funds may be higher and throw off the balance. I still need to study that and see if I need to adjust my strategy.
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Old 12-01-2007, 03:21 PM   #34
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We're about $15K under what we're supposed to spend for this year. I'm committed to the 4% SWR so it's time to put my money where my mouth is.
So Al what are you going to spend your money on ?
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Old 12-01-2007, 03:27 PM   #35
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But there could be a problem: getting to an older age, having much more money than you could ever spend, and regretting that you didn't do more stuff back when you felt more like doing it.
Thats the thing. Except for rare occasions when our cash flow drops severely negative (let see...like buying a new house and pumping a bunch of money into it?) we do exactly what we want without artificial limits that force us to not do something we want or feel like we didnt spend enough. Although we usually underspend by about 20-30k per year on what the funds throw off, but I dont mind reinvesting that.

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CFB. If you spend your capital gains how do you grow your portfolio?
Good answer by RunningBum, but basically my two bucket approach lets me take all the "throwoff" paid out by the funds in the first bucket (hey, i'm paying taxes on it anyhow) and the small chunk of equities in that first bucket helps give me a bit of growth and capital appreciation. I'm not cashing out internal appreciation, just the capital gains paid out by the funds.

I only need that bucket to get me past another 15-20 years, at which time I'm okay with it being depleted...although it probably wont be. My second bucket is mostly equities of the high volatility/return type, if and when the first bucket gets skimpy we'll choose a good point to shift some funds from the second bucket to the first.

My wife still works a few days a week, so that helps give us a small but reliable cash flow through the checking account. Whatever wimpy amount we get from social security and a few pensions will replace that cash flow when we're 62.

My worst case scenario has us running out of money between 85-90. If we need more money at that point and we're still kicking, we'll either sell the house and rent or reverse mortgage the property.

And there goes those dang illiquid real estate thingies throwing off cash again!

My likely scenario has my son inheriting $1.5-2.5M in todays dollars when he's in his 40's.
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Old 12-01-2007, 04:05 PM   #36
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We're about $15K under what we're supposed to spend for this year. I'm committed to the 4% SWR so it's time to put my money where my mouth is.
A new dishwasher perhaps?
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Old 12-01-2007, 04:21 PM   #37
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That'd be one heck of a dishwasher.
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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.
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Old 12-01-2007, 04:40 PM   #38
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That'd be one heck of a dishwasher.
Only if it is of the 2 legged variety......
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Old 12-01-2007, 09:18 PM   #39
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Only if it is of the 2 legged variety......
I hear Swedish dishwashers are very good!
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Old 12-02-2007, 10:58 AM   #40
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We're about $15K under what we're supposed to spend for this year. I'm committed to the 4% SWR so it's time to put my money where my mouth is.
So Al what are you going to spend your money on?
We went out to a really nice restaurant last night, but we split the meal so we only blew through $39.

I'm about to schedule our Hawaii trip for next March. That trip cost $3,000 last year, and we'll try to get that up to $4,000 or more with lots of eating out at nice restaurants, maybe a helicopter trip? Maybe we should fly first class!

Maybe a super quiet, super efficient fridge.

I can't justify a quieter dishwasher, since we just run it when noise isn't important.

Run the space heater in the bathroom more.
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