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Withdrawal Rate Too Low?
Old 04-28-2017, 03:53 PM   #1
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Withdrawal Rate Too Low?

The author of this article (It's harder than you think to spend down your 401(k) account in retirement - MarketWatch) has concluded that people in retirement aren't spending enough and she thinks retirees should use the RMD approach from the start. At least, that's how I read it. I'm not sure that I agree.
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Old 04-28-2017, 07:50 PM   #2
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The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: http://www.helpage.org/global-agewat...ectancy-at-60/.
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Old 04-28-2017, 08:15 PM   #3
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I've been living off my taxable stash since ER at the end of 2002, Started SS @ 2012 and have not touched my tax deferred at all so far. (Amazingly, the nominal value of my taxable stash is 25% higher than when I started 15 years ago) When RMD's start in 2021 I figure that's the time to start spending like a drunken sailor - after all it'll be gummint approved
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42 % of 60 year old men dont make it to 80
Old 04-28-2017, 09:02 PM   #4
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42 % of 60 year old men dont make it to 80

Quote:
Originally Posted by NW-Bound View Post
The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: Life expectancy at 60 | Data | Global AgeWatch Index 2015.
Social Security Life Table Charts - Business Insider, take the money, i suspect its lower for 83 years old
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Old 04-28-2017, 09:15 PM   #5
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I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
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Old 04-28-2017, 09:24 PM   #6
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The thing about RMDs is, you have to take it out of the tax-sheltered account, but there's no law that says you have to spend it.
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Old 04-28-2017, 09:25 PM   #7
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Jeez Ready, I think you nailed it........
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Old 04-28-2017, 09:35 PM   #8
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Jeez Ready, I think you nailed it........


Word.
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Old 04-28-2017, 09:44 PM   #9
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Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
All of the above.
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Old 04-28-2017, 09:52 PM   #10
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Quote:
Originally Posted by NW-Bound View Post
The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: Life expectancy at 60 | Data | Global AgeWatch Index 2015.
Actually if you look at table 3 the single life expectancy table for account owners the assumed life expectancy of a 70 year old is another 27.4 years, at 80 18.7, at 90 11.4 and at 100 6.3 , where as for beneficiaries of accounts, table 1 yields 17 years at 70, 10.2 at 80 and 5.5 at 90.
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Old 04-28-2017, 09:53 PM   #11
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Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
I plead guilty on 1), and 4).
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Old 04-29-2017, 12:04 AM   #12
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Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
+1
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Old 04-29-2017, 01:16 AM   #13
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Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.



I think it's a combination of several things:



have plenty of money we can't bring ourselves to spend it.

Wow. My compliments to you.

This should be a sticky in a section titled " The Angst of FIRE".

I'm up at nights worrying about retirement- and clearly know we have more than enough money.


These four items are exactly how I think.
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Old 04-29-2017, 01:20 AM   #14
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I think Ready might be onto something. Maybe some of us are not totally honest with ourselves. Maybe we want to leave a big legacy but too afraid to admit it. Heck I often told my kids to not expect anything. I want them to work hard, and not hardly working.
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Old 04-29-2017, 01:27 AM   #15
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Jeez Ready, I think you nailed it........
Yes! We are all Scrooge.
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Old 04-29-2017, 02:53 AM   #16
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My hobby is finding ways to live the high life on a low withdrawal rate. We optimize our spending but we have low overhead relative to our retirement income and never worry about running out of money. We were at an art museum today with discount tickets. Last night we saw a play with tickets I won in a contest. Tomorrow we're seeing a musical with seat filler tickets. Those are the kind of things we enjoy doing and I like the bargain hunting part so why spend more.
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Old 04-29-2017, 04:23 AM   #17
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Originally Posted by boomer239 View Post
Jeez Ready, I think you nailed it........
+3. We're spending just as much now as when we were working, we don't need or want more. Maybe we'll spend more when we get much older, but I'd rather err on the side of caution while I have another 30 years ahead of us...
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Withdrawal Rate Too Low?
Old 04-29-2017, 06:22 AM   #18
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Withdrawal Rate Too Low?

Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.



I think it's a combination of several things:



1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.



2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.



3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.



4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.

Gotta chime in here. +4. We have a very detailed retirement budget, and track expenses in a similar detailed manner. I have to admit that we try to "beat the budget" (as in underspend) every single month and feel unsuccessful if we don't. To what end, I'm not sure.😕


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Old 04-29-2017, 06:36 AM   #19
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I plead guilty on 1), and 4).
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Old 04-29-2017, 07:01 AM   #20
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+1 for Ready's comment.

HOWEVER... DW and I are slowly coming to the conclusion that we're under spending.

We have no direct heirs and a couple of hefty inheritances we never counted on are looking more and more unavoidable/likely and a couple of other family gyrations will add to the pot. Combined, they would drop our WR to about 2% despite the fact that we live fairly 'high' (Snowbirding, eat out 3X a week, good sized money pit boat etc).

We're nearing the point (almost there) where we plan to upgrade our car inventory, only fly first class, update our kitchen and perhaps move to a larger boat. I'll be 80 in 15 years and 'now is the time'.

I'm not eager to leave a large inheritance to a bunch of nieces who won't even talk to me unless I talk to them first.
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