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Calculating actual withdrawal rates
Old 05-01-2013, 12:16 PM   #1
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Calculating actual withdrawal rates

After retirement, how often do you calculate your actual withdrawal rates? Here's what I do. I keep a spreadsheet that lists my total expenses by month (including taxes). I compare this to my monthly pension amount and can calculate my withdrawal amount for each month then divide by my portfolio value to determine the WR for that month - then multiply by 12 to get the equivalent annual WR. I find that since my monthly expenses can vary from month to month - some months my WR is high and some months, it is below zero. What I plan on doing is that after I'm ERd for a year, I'll calculate my expenses for the previous 12 month period and calculate my WR for that year based on my portfolio value at the beginning of the period. That should smooth things out.

Any other ideas? Thanks.

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Old 05-01-2013, 12:57 PM   #2
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Ah, my "January Fun". Here's how I decided to do this:

In my case, my investments are all through Vanguard and the TSP. I only withdraw from Vanguard once each year, during the first day or two of January. I also get monthly deposits from the TSP, but these can only be changed in amount once each year for all deposits in a given year.

So, it's easy. To figure out my actual withdrawal rate for 2012, I look at how much I had in my bank account right after the withdrawal from Vanguard on 1/2/2012, add the 12 monthly TSP deposits, and subtract whatever was left over at the end of the year on 12/31/2012.

During the past couple of years I have also kept track of all of my spending, to the penny, because I think this is fun (I know, twisted fun, eh? ). Luckily, for 2012 my spending agreed with the computations in the last paragraph after taking my pension income into account, so this provides a double check.

Once I figure out what I withdrew and spent, I divide by my portfolio's value on 12/31/2011 just before the withdrawal.

That is the only time I compute my actual withdrawal rate - - once a year. During the year I project how my spending is going at least once a month, just to make sure I stay on track, but I don't bother with withdrawal rate for that.

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Old 05-01-2013, 01:22 PM   #3
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Just once a year when I calculate my annual withdrawal (Dec 31)
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
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Old 05-01-2013, 03:07 PM   #4
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Do it once a year unless you can't help yourself (OCD).
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
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Old 05-01-2013, 03:18 PM   #5
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I withdraw a basic amount once a year and top it up later in the year (as I did prior to ER). Because there are many expenses that occur yearly and quarterly, individual months are too variable to be meaningful and the data need to be smoothed. However, since ER I have developed an expense budget on Excel and I update it monthly. This enables me to calculate monthly and YTD variances from expected expenses and helps me to manage expenses and withdrawals.
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Old 05-01-2013, 04:57 PM   #6
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This is my first full year of retirement, so I'm getting used to understanding what my actual expenses are. I've made a point of using "categories" in Quicken more tightly than I used to - I've been using Q since 1995.

I made my decision of when to ER based on shooting for a percentage of gross income (I used 85%), adjusted annually for 3% inflation. I know a lot of people use annual expenses and that makes sense, but this is just the way I did it.

I haven't had to start withdrawing anything (plus, I can't yet actually access much of the tax-favored money), but when I do I'll probably go for an approach similar to what W2R described: annual "lump sum" withdrawals and then auto-trickle monthly amounts from the mutual fund company to my checking account. I did that in 2012, during which I had almost no income, and it seemed to work well. I was taking money from a Vanguard money market account, and it showed up like clockwork just as if I were still getting a paycheck.

Having a decent emergency stash set aside is also very helpful for smoothing things out.

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Old 05-01-2013, 05:08 PM   #7
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On January 1st.I calculate my withdrawal amount . I write this in a notebook and just subtract monthly as I use the money . Some months I only spend a small amount but other months are much higher . Any large projects come from my yearly budget . This year it is new landscaping & a bathroom remodel.
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Old 05-01-2013, 05:16 PM   #8
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This would be my approach also. Simple.
Originally Posted by audreyh1 View Post
Just once a year when I calculate my annual withdrawal (Dec 31)
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 05-01-2013, 09:59 PM   #9
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I track my actual Withdrawal Rate throughout the year. I pay for everything in cash here in the Philippines. So I just add up my ATM withdrawals in one column (my main source of money). In another column, I add up any credit card expenditures. Another column has monthly costs.

This is on the same spreadsheet where I track my net worth and asset allocation.

The only thing I pro-rate is the flight cost of my annual trip home to the USA.

I have found a real time withdrawal rate to be pretty accurate. That is because for a renter like me "stuff" just does not cost very much so big purchases are not skewing the running average too much. My brand new vehicle last year was $1500 (125 cc scooter), probably a once every 5 years purchase. A brand new computer was $350. A brand new flat screen television was $400. So these are not skewing an ongoing Withdrawal Rate too badly.

Maybe another factor is that most of my expenditures are optional. My basic living costs are quite low, but I spend a lot on entertainment, travel, etc. I also find it easier to give bigger gifts if I know my current Withdrawal Rate.
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Old 05-02-2013, 03:25 PM   #10
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I keep detailed expense records and look primarily at the last 12 months total to make sure we are under our annual budget.

The annual budget is based on a percentage of the portfolio value on Jan 1st, but I don't recalculate WR every month.

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