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Old 04-09-2015, 10:05 AM   #41
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Not really.

One group is increasing their withdrawal by inflation regardless of what their portfolio does. The other is tracking the portfolio performance which means if the portfolio outpaces inflation for a while, so does their withdrawal.

Since the withdrawal amount is computed on what is in the portfolio, the amount set aside outside of it doesn't matter, neither does the AA of things outside the portfolio since that isn't rebalanced.

Withdrawal and spending are separate things. My spending varies from year to year anyway and doesn't necessarily track either inflation nor my portfolio. And I have money set aside for many things giving me plenty of spending flexibility. After several years I may splurge on something regardless of market conditions.
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Old 04-09-2015, 01:32 PM   #42
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...

Withdrawal and spending are separate things. My spending varies from year to year anyway and doesn't necessarily track either inflation nor my portfolio. And I have money set aside for many things giving me plenty of spending flexibility. After several years I may splurge on something regardless of market conditions.
Agreed. Seems to me barring drastic lifestyle changes (above and beyond eliminated work-related expenses) retirement spending patterns mimic pre-retirement spending for the most part. In my case anyway, I'm always trying to spend less than budgeted and I suspect that pattern will continue throughout retirement. I splurge as well but not sure if I'll be able to do it regardless of market conditions. Time will tell, as will future market conditions.
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Old 04-09-2015, 01:44 PM   #43
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...Since the withdrawal amount is computed on what is in the portfolio, the amount set aside outside of it doesn't matter, neither does the AA of things outside the portfolio since that isn't rebalanced...
I have a lot of "cash" in I-bonds, which I have not touched in years. I do include that in my AA calculation. Should I exclude that from the AA, then say that my AA is even higher in equities than it is?

It's a mental accounting game. Whether I move my cash from left to right pant pockets or leave it where it is, I still consider it in my AA.
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Old 04-09-2015, 02:09 PM   #44
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I have a lot of "cash" in I-bonds, which I have not touched in years. I do include that in my AA calculation. Should I exclude that from the AA, then say that my AA is even higher in equities than it is?

It's a mental accounting game. Whether I move my cash from left to right pant pockets or leave it where it is, I still consider it in my AA.
It's not a mental accounting game. It's a very real one.

I have a retirement portfolio of $X. On Dec 31 of each year I use the value to compute my withdrawal $ for Jan. I ignore all other funds or investments that are not part of my retirement portfolio.

That retirement portfolio has a target asset allocation. After I withdraw, I rebalance the portfolio back to target. The portfolio is in fact made up of several different types of accounts, but they are all part of the retirement portfolio and together meet the target AA.

Anything that happens with funds outside that portfolio has no bearing whatsoever if it is not included in the withdrawal calculation or not rebalanced as part of the retirement AA.
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Old 04-09-2015, 02:23 PM   #45
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It's not a mental accounting game. It's a very real one.

I have a retirement portfolio of $X. On Dec 31 of each year I use the value to compute my withdrawal $ for Jan. I ignore all other funds or investments that are not part of my retirement portfolio.

That retirement portfolio has target asset allocation. After I withdraw, I rebalance the portfolio back to target. The portfolio is in fact made up of several different types of accounts, but they are all part of the retirement portfolio and together meet the target AA.

Anything that happens with funds outside that portfolio has no bearing whatsoever if it is not included in the withdrawal calculation or not rebalanced as part of the retirement AA.
This. I have about $35K cash "outside" PF and not included in AA or rebalancing calculations as it's earmarked for a new car in the next few weeks (at which time it will vanish from the account held in, so including it in the AA, rebalancing, or PF calculations would not make sense). Mental accounting is including it in my current net worth calculations just because...for the moment anyway...it makes me feel good.
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Old 04-09-2015, 02:24 PM   #46
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My approach is to determine my portfolio value on Dec 31. I subtract my "escrow fund" for deferred SS income and heath insurance cost from this amount. I take 5% of this amount and move it to my bank. This is "cash" and excluded from my rebalancing calculations that are done to free up this cash.

I have a CD ladder which I consider "fixed income." Some of it matures every year and I like to have some mature in December which increases my rebalancing flexibility.
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Old 04-09-2015, 02:43 PM   #47
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I have a lot of "cash" in I-bonds, which I have not touched in years. I do include that in my AA calculation. Should I exclude that from the AA, then say that my AA is even higher in equities than it is?

It's a mental accounting game. Whether I move my cash from left to right pant pockets or leave it where it is, I still consider it in my AA.
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It's not a mental accounting game. It's a very real one......

Anything that happens with funds outside that portfolio has no bearing whatsoever if it is not included in the withdrawal calculation or not rebalanced as part of the retirement AA.
I guess it is a matter of opinion and where one wants to draw the line. If I owned I-bonds I would include them as part of my fixed income portfolio (like I do with CDs that I own). I also have an online savings account that I rebalance to being 6% of my total retirement assets consistent with my 60/34/6 AA.

However, once money leaves that online savings account to our local bank accounts things change as I consider these local bank accounts to be transitional... simply in the process of being spent on living expenses. So while these local bank accounts are part of my net worth, in my mental fund accounting they are part of the operating fund and not part of the retirement fund. Now that said, the balance in these local bank accounts is typically pretty modest... typically less than 1% of the retirement assets so it really doesn't make a big difference.
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Old 04-09-2015, 03:44 PM   #48
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Reading this thread a funny-to-me thought came to mind -- an analogy in fact : how is your socks and underwear drawer arranged.

Everyone's is set up just s little bit differently. It's very "personal" in how it is managed and maintained. There may be mental math involved. Left and right socks if you will. There is no best way to arrange it. And regardless how it is counted or managed the drawer contains the same number of undergarments when you go sleep at night.
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Old 04-09-2015, 03:52 PM   #49
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Yes, just like should toilet paper emerge from the top/front of the roll or the back/bottom of the roll?
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Old 04-09-2015, 04:01 PM   #50
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One can call it many things, but the net result is the same. That is after a string of good stock market returns, one has a stash of cash (CD, I-bonds, or money market) set aside as a buffer for the case the market turns south.

I never look into details at Ray Lucia's money bucket, but suspect that it is a different name for the same idea.
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Old 04-09-2015, 04:05 PM   #51
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And regardless how it is counted or managed the drawer contains the same number of undergarments when you go sleep at night.
For that person, yes. For, each person has a different underwear AA that he/she likes. Some like to have more socks than T-shirts. Some have cold feet, and like to increase sock AA during the winter (Tactical AA). Some need no underwear because they go "commando".
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Old 04-09-2015, 04:27 PM   #52
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Yes, just like should toilet paper emerge from the top/front of the roll or the back/bottom of the roll?
I'm sorry, but NO!!!
This is an absolutely critical parameter, and there is only one correct answer.
Period.


[Note: Determining the right way to install the roll is left as an exercise for the reader.]
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Old 04-09-2015, 04:42 PM   #53
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Yes, just like should toilet paper emerge from the top/front of the roll or the back/bottom of the roll?
Lol...

While many people consider this topic unimportant, some hold strong opinions on the matter. Advice columnist Ann Landers said that the subject was the most controversial issue in her column's history.
-Wikipedia on toilet paper orientation
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Old 04-09-2015, 10:17 PM   #54
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Given how persnickety some forum members are I expected more debate on this important topic.
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Old 04-10-2015, 01:38 PM   #55
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...

...once money leaves that online savings account to our local bank accounts things change as I consider these local bank accounts to be transitional... simply in the process of being spent on living expenses. So while these local bank accounts are part of my net worth, in my mental fund accounting they are part of the operating fund and not part of the retirement fund. Now that said, the balance in these local bank accounts is typically pretty modest... typically less than 1% of the retirement assets so it really doesn't make a big difference.
This is exactly what I do/will continue to do, only you put it much more succinctly than I did.
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