Most retiree will never draw down their portfolio?

[2017ish]

This site is full of intelligent, insightful people who help me stay on the path to ER, but I definitely think there is a little too much fear and this article is consistent with that. People are on here all the time saying, "I've got 3 million plus a pension and my house is paid off, I'm 65, I think I need to work another 5 years, thoughts?"

Our plan is riskier than most here, I think the 4% rule blinds people to the fact that they'll reduce expenses in bad years. ...

In our case, we plan for very flexible spending that will allow us to handle reasonable worst case scenarios. But, we've done Several More Years.... We appear to be out of the ordinary on this forum in that we want our discretionary spending in early retirement to exceed our present after-tax, total spending. Maybe a desire to cash in on all the deferred gratification from our respective work schedules.... Plus DW is not a fan of hostels, coach seating, or staying in tents.

 

[haha]

And before you say (again) that the annuity should be COLA'd and it shouldn't be that expensive to do, check around. There aren't many/any, and they're very expensive. I'd like to live in space to decrease the strain on my muscles and joints in old age, but we've got to live in reality.

Not true in FA-ville, where everything comes up roses, regardless of the counter facts staring us in the face.

I especially enjoy the writers enjoining us to get a "guaranteed income", conveniently ignoring that even a guaranteed $ income is not a guaranteed standard of living. With governments around the world talking up inflation, how clever is it for the retiree to assume that they don't mean it, or that if they do mean it they cannot succeed in doing it?

Ha

 

[REWahoo]

This site is full of intelligent, insightful people who help me stay on the path to ER, but I definitely think there is a little too much fear and this article is consistent with that. People are on here all the time saying, "I've got 3 million plus a pension and my house is paid off, I'm 65, I think I need to work another 5 years, thoughts?"

Our plan is riskier than most here, I think the 4% rule blinds people to the fact that they'll reduce expenses in bad years. If leaving a large inheritance is the reason the majority of those in the article are dramatically under spending their portfolio, that's cool - totally respect that. But people seem to discount all the safety valves they have built in - equity in paid off home, taking social security early etc. Heck, if you have a $2 million dollar portfolio, you could make zero return on it and withdraw 100k for 20 years, then reverse mortgage the house and live on that and social security. If the worst Monte Carlo simulation occurs in reality, we've got bigger problems in the world and you better stock up some ammo!

I agree with you that some of us here are so risk averse that it appears almost laughable. Yes, there are safety valves for those of us who have pulled the plug, and they should prevent financial mishaps from becoming financial disasters, so we shouldn't worry so much about running out of money. I get it.

However, once you no longer have a paycheck - or two, in your case - your perspective on all this may be subject to modification. You young whippersnappers will understand that some day if you are lucky.

 

[Lsbcal]

I've used VPW a lot. The latest simulation says that by age 100 we would have 75% of our inflation adjusted portfolio even if retiring in 1968 with all that 1970's inflation. The worst point would be 1982 (14 years into the simulation) at 50% of the current portfolio. And it says we could spend 4.4% this year.

Anyway, in a bad sequence which we could (but hopefully won't) be heading into, we should all be mentally prepared for significant portfolio drawdowns. I've always figured it is baked in that we will leave a significant inheritance -- as the article suggests.

Sounds like most posters here are realistic about the future. But I still think we will all get anxious in a mult-year decline.

 

[travelover]

For me it's not either/or. For me the object is to feel fairly secure AND enjoy the oysters. If I stress that a lobster dinner will leave my family having to take care of me in old age I've seriously failed.

I am sure travelover was talking of oysters as a metaphor. ..........

Yup, everyone draws the line for themselves. That's why I said "YMMV" in my earlier post. Plus, I don't really care for seafood.

 

[Totoro]

If you need a portfolio to fund retirement and aren't reckless, most of us die with a very large leftover. Because math. And longevity variability.

Say you retire at 55 and on average you'll make it to 83. 28 years of bliss. However, you can also make it to 105. 50 years of bliss. Even though on average 28 years is what you need, 50 years is what needs planning for.

Very few people want a >50% chance of being destitute in their most fragile years. Add in the uncertainty in returns so a little buffering, and viola! Most of us will never draw down their portfolio.

Most common way to sidestep this dynamic is by buying SPIAs with a COLA once you hit old age, and spend down whatever leftover capital. That's what SS actually is. Longevity insurance.

DIY retirement portfolio == almost a binary choice between large leftover and destitution.

 

[haha]

This site is full of intelligent, insightful people who help me stay on the path to ER, but I definitely think there is a little too much fear and this article is consistent with that. People are on here all the time saying, "I've got 3 million plus a pension and my house is paid off, I'm 65, I think I need to work another 5 years, thoughts?"

I wish you would quote some of these people saying this all the time.

Ha

 

[gcgang]

Not true in FA-ville, where everything comes up roses, regardless of the counter facts staring us in the face.

I especially enjoy the writers enjoining us to get a "guaranteed income", conveniently ignoring that even a guaranteed $ income is not a guaranteed standard of living. With governments around the world talking up inflation, how clever is it for the retiree to assume that they don't mean it, or that if they do mean it they cannot succeed in doing it?

Ha

Guaranteed income DOES NOT EQUAL guaranteed standard of living. No truer words were spoken. I think the economist term is Money Illusion.

Still, I don't need to count my money to have fun (although I think I do it now), and sometimes think I'm underspending what I comfortably could.

The (repulsive) idea of annuitizing a significant portion of my portfolio, with deferred starting date supplemental income streams coming on every few years to help mitigate inflation, could open spending, or charitable giving, possibilities that I currently don't recognize. It has a certain appeal.

But I just can't make myself seriously consider doing this. While it would minimize adverse sequence of return risk, turning current assets into guaranteed income, you don't know what that income will buy, and today's rates may not be the best for setting up a lifetime income. OTOH, today's asset values may turn out to be ridiculously overvalued and there won't be as much assets to turn in to income in the future.

You pays your money and you takes your chances.

 

[Lsbcal]

Occasionally I read these work related articles and that brings back the anxious feelings I had in those days. Would I be able to keep up my skills? Do I understand the newest tech ideas being bandied about? Etc, etc.

I have to stop myself before I work myself up into bad dreams occurring at night. I try to remember that we've got a great reserve and that it is a real security blanket. Those anxious days are behind me now.

Helps me to sleep better as others here have expressed.

 

[laurence]

I agree with you that some of us here are so risk averse that it appears almost laughable. Yes, there are safety valves for those of us who have pulled the plug, and they should prevent financial mishaps from becoming financial disasters, so we shouldn't worry so much about running out of money. I get it.

However, once you no longer have a paycheck - or two, in your case - your perspective on all this may be subject to modification. You young whippersnappers will understand that some day if you are lucky.

touché! We, in fact, already feel it coming on as the ER date creeps closer.

 

[laurence]

I wish you would quote some of these people saying this all the time.

Ha

All right, allow my slight exaggeration as youthful indiscretion, but I was reading a thread the other day where people were stating their projected withdrawal rate was 3% or even 2%, and only a couple of posts pointing out how conservative that was.

 

[RobbieB]

There is that, the age difference. There is a big difference that way I look at stuff at 61 vs the way a "real early" retiree (say 40) looks at stuff. He's got 20 more years of uncertainty. Which is a lot, not to mention a long way to SS and medicare.

So yeah, we are all different and I'll be another that kicks with a big stash left I'm sure. I just want to make sure it's not too big. I'm not a fan of counting it. Id rather ride it or eat it or drink it or walk on it or fish the river on it.

 

[NW-Bound]

... I can't even imagine the expense, worries and logistics of taking care of a second home from hundreds of miles away. Not my cup of tea, even though I could easily afford to buy a second home.

Homes can be a money pit. This applies to one's main home too. So why don't we all live in tiny homes? It all depends on whether one gets enough out of something to feel that it is worthwhile. However, a person's feeling changes with time too. I have seen more than one poster talk of selling the 2nd home because he/she is done with it. Donheff is a recent one, but kaudrey sold her weekend cabin after having it for not very long (I still remember when she talked about working OMY in order to have it - my memory can be so good it scares me).

At some point, I may change my mind. Life situation changes. I don't have my life charted out with Microsoft Project like some people seem to do.

Yup, everyone draws the line for themselves. That's why I said "YMMV" in my earlier post. Plus, I don't really care for seafood.

I raised my children feeding them seafood. At some point, they changed. My daughter will not touch any seafood now, but my son still eats fish filet and crab. No shrimp or lobster though. Fine. They miss out.

There is that, the age difference. There is a big difference that way I look at stuff at 61 vs the way a "real early" retiree (say 40) looks at stuff. He's got 20 more years of uncertainty. Which is a lot, not to mention a long way to SS and medicare.

So yeah, we are all different and I'll be another that kicks with a big stash left I'm sure. I just want to make sure it's not too big. I'm not a fan of counting it. Id rather ride it or eat it or drink it or walk on it or fish the river on it.

If the market crashes and takes away 1/2 of your stash, will you miss it?

 

[MichaelB]

All right, allow my slight exaggeration as youthful indiscretion, but I was reading a thread the other day where people were stating their projected withdrawal rate was 3% or even 2%, and only a couple of posts pointing out how conservative that was.

That is also the case with some FAs that blog, such as Wade Pfau and William Bernstein, who suggest future returns will be much lower and recommend withdrawal rates around 3%, or even less.

 

[RobbieB]

If the market crashes and takes away 1/2 of your stash, will you miss it?

Yeah, I'd miss it and that could cause a "adjustment" to my plans.

But I'm really not worried about that. The market has already crashed to that degree with no effect on my finances. My house lost half its value and so did my investments. Guess what they're worth now?

Don't worry, be happy and smoke 2 joints -

 

[daylatedollarshort]

All right, allow my slight exaggeration as youthful indiscretion, but I was reading a thread the other day where people were stating their projected withdrawal rate was 3% or even 2%, and only a couple of posts pointing out how conservative that was.

To add to MichaelB's list, other financial financial pundits like Bogle and Shiller are expecting low investing returns by historical standards in the coming decade or so. If they are right, 4% withdrawal rates would be on the high side.

 

[laurence]

That is also the case with some FAs that blog, such as Wade Pfau and William Bernstein, who suggest future returns will be much lower and recommend withdrawal rates around 3%, or even less.

Yeah I've seen that, and I think it's something to really ponder if you are retiring in your early 40's. Selfishly I just view the time horizon of when we are income/work free at 55-56 years of age and see it as overly cautious for the shorter time horizon. But we are planning to pay off the rental so we have our basic income covered, is that cheating?

 

[jim584672]

I have a pension with SS, these create a floor of income. By taking them as late as possible it maximizes my personal safety net. Drawing down principal isn't as scary with a net set up. I can see the case for an annuity starting at 75 for those without a pension.

 

[bclover]

This site is full of intelligent, insightful people who help me stay on the path to ER, but I definitely think there is a little too much fear and this article is consistent with that. People are on here all the time saying, "I've got 3 million plus a pension and my house is paid off, I'm 65, I think I need to work another 5 years, thoughts?"

o!

lol, my late husband was Portuguese and he had a saying, "Americans live to work while everyone else works to have a life". I find there is a big kernel of truth to that. Rarely do I see post (and I admit that I'm new here so maybe I'm missing them) about anyone enjoying their money, and god forbid you admit to buying something "frivolous" such as a boat but it seems that it's all so when we get old and broke down we'll have a nice nursing home. Don't get me started on 95% of the financial advice I see on the net. they all start off with some story of a older worker who is going to be forced onto the streets.

Experience also colors one's judgement. My husband, my baby brother and my best friend all died within the last 4 years ALL before the age of 56. so all the sacrificing and denial did not do them a bit of good,although we did blow a wad of cash on my brothers casket since he was retired navy, we got a lot of fancy navy emblems on the box. So not spending money because I may need it when I'm 90 has absolutely no weight with me. not gonna do it, so in that respect I'm the "odd duck" on these boards. I've always responded better to "rewards" than to "doom".

 

[NW-Bound]

I have a pension with SS, these create a floor of income. By taking them as late as possible it maximizes my personal safety net.

That's the common argument.

Drawing down principal isn't as scary with a net set up.

I have been debating this part with myself. What money is mine, I have some control over. What money SS gives me, that's really the government money. They can change it as they see fit. A US Supreme Court has said so in a lawsuit a long time ago.

 

[NW-Bound]

lol, my late husband was Portuguese and he had a saying, "Americans live to work while everyone else works to have a life". I find there is a big kernel of truth to that. Rarely do I see post (and I admit that I'm new here so maybe I'm missing them) about anyone enjoying their money, and god forbid you admit to buying something "frivolous" such as a boat but it seems that it's all so when we get old and broke down we'll have a nice nursing home. Don't get me started on 95% of the financial advice I see on the net. they all start off with some story of a older worker who is going to be forced onto the streets...

You definitely have not been here long enough. Man, people are splurging like crazy. It's just that we are a bunch of reserved people who do not want to be called braggarts, but boy some of them do spend.

His and her Teslas, 4 or 5 homes, spending a couple of months in Europe? That's not enough spending for you?

 

[REWahoo]

His and her Teslas, 4 or 5 homes, spending a couple of months in Europe? That's not enough spending for you?

Hey, it isn't all wine and roses. My Ferrari was repossessed.

 

[travelover]

You definitely have not been here long enough. Man, people are splurging like crazy.

For sure . I bought some clothes at the Salvation Army and didn't even wait until Wednesday's Half Off for Senior's Day.

 

[bclover]

You definitely have not been here long enough. Man, people are splurging like crazy. It's just that we are a bunch of reserved people who do not want to be called braggarts, but boy some of them do spend.

His and her Teslas, 4 or 5 homes, spending a couple of months in Europe? That's not enough spending for you?

Actually that does make me kinda happy, it's actually not the "what" because everyone has their own "vices", and I know I've got goofy vices that I spend money on, it's more of some times it seems (just to me) that everyone has saved this money simply so they will have a nice tricked out nursing home.

 

[NW-Bound]

Hey, it isn't all wine and roses. My Ferrari was repossessed.

You could have splurged on consumables instead. What would be there for them to repossess?