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04-28-2017, 02:31 PM
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#21
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,653
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I draw only what I need to pay the bills. No more, no less.
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04-28-2017, 03:41 PM
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#22
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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Quote:
Originally Posted by jebmke
I draw only what I need to pay the bills. No more, no less.
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Right. But can't to effect the level of the bills? At least to some degree? Or is everything on auto pilot?
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04-28-2017, 04:02 PM
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#23
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Recycles dryer sheets
Join Date: Jan 2017
Location: Charlotte
Posts: 222
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Quote:
Originally Posted by Major Tom
In the original post, the talk was of 3.5% of the portfolio value at the start of retirement, with adjustments for inflation - not 3.5% of whatever the current value was at the time.
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Ok, I missed that. But at some point in the 'fixed WR + inflation' approach there has to be recalibration points. To take it to extremes, if you start out at 3.5% of 2.3M = 80,500 and then come into a 10 million dollar inheritance 6 years later, do you continue living on 80,500?
I think that was the question by the OP, can he recalibrate.
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04-28-2017, 05:12 PM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,001
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Quote:
Originally Posted by bw5972
Ok, I missed that. But at some point in the 'fixed WR + inflation' approach there has to be recalibration points. To take it to extremes, if you start out at 3.5% of 2.3M = 80,500 and then come into a 10 million dollar inheritance 6 years later, do you continue living on 80,500?
I think that was the question by the OP, can he recalibrate.
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Right, the question was about recalibration. Which some of us are doing annually or every few years. Some folks are using the "ratcheting" method, and others are doing the % of remaining portfolio method. I see the % remaining portfolio as an annual recalibration.
In the discussions on withdrawal rates, it appears that most folks here look at the current portfolio value when evaluating withdrawal rates, not the initial portfolio value. From various polls and discussions, etc., it appears that few folks are actually using the SWR from initial portfolio value and annually thereafter increased by inflation (or "constant spending") model.
__________________
Retired since summer 1999.
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04-28-2017, 05:36 PM
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#25
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Thinks s/he gets paid by the post
Join Date: Nov 2009
Location: SF East Bay
Posts: 4,323
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Quote:
Originally Posted by bw5972
I think that was the question by the OP, can he recalibrate.
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Yes, that was his question, as well as wondering by how much he should recalibrate, and for how long.
__________________
Contentedly ER, with 3 furry friends (now, sadly, 1).
Planning my escape to the wide open spaces in my campervan (with my remaining kitty, of course!)
On a mission to become the world's second most boring man.
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04-28-2017, 09:56 PM
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#26
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,865
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Quote:
Originally Posted by audreyh1
I see the % remaining portfolio as an annual recalibration.
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There is a difference between the two.
If in year N the portfolio goes up and in year N+1 the portfolio goes down, then the former would see a reduction in withdrawal amount whereas the latter would increase their withdrawal by inflation.
The former has less running-out-of-money risk but has more downside-variability-to-spending risk.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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04-28-2017, 10:25 PM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,001
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Quote:
Originally Posted by SecondCor521
There is a difference between the two.
If in year N the portfolio goes up and in year N+1 the portfolio goes down, then the former would see a reduction in withdrawal amount whereas the latter would increase their withdrawal by inflation.
The former has less running-out-of-money risk but has more downside-variability-to-spending risk.
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Yes, I wasn't trying to say they were the same. I was just saying they were both forms of recalibration. The ratcheting one doesn't go down though, only up, so it doesn't recalibrate annually like the % remaining portfolio does.
__________________
Retired since summer 1999.
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04-29-2017, 06:39 AM
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#28
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Thinks s/he gets paid by the post
Join Date: Jan 2008
Posts: 1,653
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Quote:
Originally Posted by Danmar
Right. But can't to effect the level of the bills? At least to some degree? Or is everything on auto pilot?
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yes but withdrawal "rate" is normally not a factor in deciding.
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04-29-2017, 07:10 AM
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#29
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Recycles dryer sheets
Join Date: May 2015
Location: Country
Posts: 140
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Thanks again for all the valuable information given by everyone. We are presently living off of our traditional pensions and haven't started the withdrawal of our IRAs yet. I am a few years out due to my age but these informational threads are invaluable.
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04-29-2017, 11:27 AM
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#30
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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I think most people who retire before they start SS can safely withdraw more during the bridge period. (i.e. your original 3.5% was somewhat conservative)
For example, if you're planning to get $30,000 of SS, starting 11 years from now, you can carve out $330,000 for SS bridge income. Take $30,000 from it every year, plus some percent from your remaining $3.0 million (if I'm following the OP correctly).
That gives you more spending money today without mentally committing to an permanent increase in your regular withdrawals.
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04-29-2017, 01:46 PM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,671
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Since DB-like cash flow is more than enough to pay for our fixed-costs, we only W/D our RMD at the end of the year as required. I usually exchange it into my cash/ST stash and spend it on vacations etc.
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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04-29-2017, 03:54 PM
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#32
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Recycles dryer sheets
Join Date: Jan 2011
Location: Desert SW
Posts: 358
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It seems that most of you have advised (me, the OP) that with increased portfolio value, one can also increase the withdrawal amount. However, the original SWR study done by William Bengen, stated that the original withdrawal can only be increased by inflation in order to have the portfolio last at least 30 years. The point is to guard against sustained market losses at some time in the future. I understand that if one increases withdrawal rates as you go, you must also be willing to reduce rates in the future which could be troublesome in some cases - though maybe not to us LBYM people.
It seems that everything I read about SWR and sequence of return risk is concentrated on the downside (of course, that is the "risk" equation). With the continuing bull market, I'm surprised that the upside situation (risk of under spending) hasn't been addressed more often by the financial guru's. Or maybe it has, and I haven't seen it. Interesting.
__________________
Retired in 2011 at 54
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04-29-2017, 06:45 PM
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#33
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 47,472
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"Risk of under-spending"?
"OMG, OMG, batten the hatches, call out the artillery! Somebody died and left some spare change on the table!"
OK, I understand. The phrase just struck me as funny so I had to joke around about it. No slam intended.
At the end of every year, I compute the percentage I spent according to three different methods:
1) The traditional SWR method, that is only increased with inflation
2) The method I mostly use and relate to the best; percent of the prior 12/31 balance
3) Percent of my lowest low portfolio balance on 3/9/2009
I figure that if I am under 4% every year using all three methods, I'll be fine. But I never spend anywhere near that amount, so there is a buffer there to protect me.
Meanwhile, I am using some of the excess $$$ from this thriving market, to prepare for cutting back when (not if) the next market crash comes along. To me, this involves cutting back pretty ruthlessly on regular monthly expenses that I can live without. We have had a lot of threads about cutting the cable, cheaper cell phone service, and dropping the landline, for example. I have no debt and pay my credit card off in full every month.
But I do want to enjoy the money I have at the moment, so I tend to spend my discretionary money more on one time purchases. See the Amazon thread for examples of the kind of silly stuff I fritter away my cash on. Plus, I bought a house in cash, which is definitely a one time purchase for me at this stage in my life. Avoiding the risk of underspending now, while the market is so high, I have been spending on the needed new appliances for my new house, and other big item necessities in order to prepare for the inevitable future crash. I am spending in order to position myself well for the future crash.
I also have several years in cash or cash equivalents.
If/when the Big Crash comes, I'll immediately cut back sharply on the one time discretionary purchases. I have been getting my teeth fixed as much as possible, and had my HVAC completely replaced. OK, that was necessary but theoretically the new, energy efficient system will mean lower monthly electric bills. Gradually I'm trying to position myself well for hard times in the future. Hopefully after the crash I will be able to live off SS and mini-pension and dividends, until the economic mess is over, or mostly over. Meanwhile, to keep from selling low, during the crash I can use my cash and cash equivalents to supplement my spending money. I can also use it for rebalancing which would involve buying low.
This is how I plan to spend less when that becomes necessary.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities. - - H. Melville, 1851.
Happily retired since 2009, at age 61. Best years of my life by far!
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04-29-2017, 06:49 PM
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#34
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Thinks s/he gets paid by the post
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
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I worry about spending too little.
I also worry about spending too much.
I just haven't decided which one I need to worry about more.
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04-29-2017, 07:51 PM
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#35
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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Too much worry for me and I'm the worrywart.
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04-29-2017, 11:37 PM
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#36
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Recycles dryer sheets
Join Date: Nov 2012
Posts: 94
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We're both retired now and comfortable, have an income flow at least as much as while we were working, and barely tapping into IRAs and other investments. Told DH to get his new pickup--who knows how long we'll be around, and we have no heirs. So I say go for it--enjoy the fruits of our labor.
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04-30-2017, 08:18 AM
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#37
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by Packman
It seems that most of you have advised (me, the OP) that with increased portfolio value, one can also increase the withdrawal amount. However, the original SWR study done by William Bengen, stated that the original withdrawal can only be increased by inflation in order to have the portfolio last at least 30 years. The point is to guard against sustained market losses at some time in the future. I understand that if one increases withdrawal rates as you go, you must also be willing to reduce rates in the future which could be troublesome in some cases - though maybe not to us LBYM people.
It seems that everything I read about SWR and sequence of return risk is concentrated on the downside (of course, that is the "risk" equation). With the continuing bull market, I'm surprised that the upside situation (risk of under spending) hasn't been addressed more often by the financial guru's. Or maybe it has, and I haven't seen it. Interesting.
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I think of Bengen's work as a slap-upside-the-head to people (especially advisers) who were being far too aggressive toward the end of the big bull market.
It recognized that most wage workers wanted a retirement check that looked just like their pre-retirement paycheck - very stable, but increasing with inflation.
He said that if you want something like that, you need to be much more conservative in the early years than people had imagined.
That is a huge message to people who haven't given the draw-down part of retirement planning any thought. IMO, it belongs at the top of the list of topics for people within sight of retirement.
But, people who looked a little realized that in most scenarios, the retirees ended with portfolios that were bigger than they had at the beginning.
IF you want level spending,
you have to start conservatively. But, if the early years do well, there must be some point where you can increase your spending. The question is how to find that point.
And, IF you don't really care about level spending,
if your initial budget has plenty of discretionary spending, there must be some higher initial spending amount.
I think if you look at academic writers, you'll find lots of discussion on "optimal" spending patterns that recognize the "underspending risk". And, you'll find threads here.
The long VPW thread is one example: http://www.early-retirement.org/foru...ate-68770.html
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12-09-2021, 08:09 AM
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#38
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Recycles dryer sheets
Join Date: Jul 2020
Posts: 283
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I think it's that time of year, so thought I'd bump this thread to the top. btw, if I go the route of doing an inflation rate adjustment what do folks usually use, the government annual CPI for December?
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12-09-2021, 09:02 AM
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#39
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
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I use a spending based system. My current “cushy” spend level equates to a 2.3% withdrawal rate so I don’t worry much about it.
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12-09-2021, 09:23 AM
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#40
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,819
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Quote:
Originally Posted by cat4ever
I think it's that time of year, so thought I'd bump this thread to the top. btw, if I go the route of doing an inflation rate adjustment what do folks usually use, the government annual CPI for December?
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Why would you do this?
Spend what you need/want to spend. If your plans exceed the CPI over the long run, then you might need to re-evaluate your spending. But you make it sound as if you will just blindly w/d an amount based on CPI? Maybe I misunderstood?
-ERD50
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