Poll: What's your withdrawal scheme?

[Nords]

The answer is that it doesn't make sense. If you have a "conservative" balanced portfolio and still plan on a $5MM residual, I recommend you reevaluate your priorities. I know I would like to have a rich, miser uncle die and leave me $5MM but I don't want to be him.

Enough nitpicking, 2B, and set out an example. If you're not spending all of your SWR yet, then how are you planning to raise your outgo?

Buffett originally let his personal wealth pile up because he felt that he could make it grow faster than any charity (and probably out of a sense of responsibility toward providing for Susan). When he died and no one could handle his money as well as he could, then the charity could have it. Now that he's decided to dispense with taking care of his estate and give most of it to the Gates foundation, even he's adopted a 20-year spending plan.

People who aren't spending could be depraived misers, but they could also be frugal simple livers who haven't found much worth spending their money on. That includes spending on charities, too, so if you have a constructive example then we're ready to read about it.

 

[cute fuzzy bunny]

they could also be frugal simple livers

Some might be spleens. It sounds a lot funnier.

 

[Cut-Throat]

Good point 2B. I know we will start out underwithdrawing, but that could change in a hearbeat. If we keep with this plan, we should leave behind over 5mm when we die. Does that make sense?

Not to me! - But, hey you're driving your own bus!

 

[REWahoo]

Your wife's committment to your Grandchildren are understandable, (Women are like that). Plus, she doesn't have to put up with you all day.

If you ask her, she'll tell you it's a classic 'win-win' situation...

 

[wabmester]

Funny this poll comes up right before my first withdrawal. I have not had to touch our portfolio for two years into retirement, but now it's time. Maybe there should be a category for "gut-feel approach". I'm just taking out what I think I need for now, well below the 4% SWR. Lots of room for flexibility.

I voted "other".

Just to clarify the options, the "roughly 4% cap" option was intended to capture your scheme. You can withdraw well under 4% as longer as you're capping it at some "sane" level. That's what I do too.

I'm surprised at the number who give themselves an annual inflation adjustment. I would simply end up reinvesting such a raise each year, just like when I was working.

 

[2B]

Enough nitpicking, 2B, and set out an example. If you're not spending all of your SWR yet, then how are you planning to raise your outgo?

Et tu Nords? Oh well, busted. I'm guilty of delaying retirement because I'm a big chicken. If I truly believed in Bernicke, I'd be long gone because it has my after tax initial withdrawl above my current paycheck. Of course, I'm well short of that following the traditional FIRECalc.

I've developed the Bernicke-Chicken philosophy. I put my "essentials" in the FIRECalc and credit this area with "really safe" assets. This includes SS, a pathetic pension and whatever assets I need to be barely economically viable in my dotage.

The other assets are run on FIRECalc in the Bernicke mode and here it becomes a desired lifestyle for the next 20 years and then whatever is left is left. Unfortunately, I'm not excited by the "living large" potential of what this generates.

My options are to downgrade the first "safe" amount. That requires a significant lifestyle change far greater than DW and I have discussed. The second is to not worry about it and just do it. If I lost my job right now, I would go that route.

I've decided to keep working since my present job presents little stress so it's not a major negative to keep going. Also, I may have the opportunity later this year to have several short term foreign assignments over the next few months and so far that sounds like a nice diversion. It would broaden my traveling exposure. DW could also test out a longer trip since she could come along. I'd still have to work except on the weekends so DW would get the real foreign experience.

Depending on the equity markets, I may meet my target for the B-C in 2008. We'll see.

 

[bongo2]

Is there somewhere that summarizes what the heck all these different rules are? I think I understand some of them, but what is Bernicke, Guyton, and Gummy?

 

[Nords]

Is there somewhere that summarizes what the heck all these different rules are? I think I understand some of them, but what is Bernicke, Guyton, and Gummy?

Hey, if it was easy then everyone would be ER'd.

Gummy's been talking to himself for a very long time. Start with these two links and then use either one of them to browse further Gummy stuff:
http://www.gummy-stuff.org/Returns-Canuck.htm
http://www.gummy-stuff.org/Sam-retires.htm

 

[albundyz]

well, I'm cheating a bit because I won't start making serious withdrawals until next year, but my plans are.....

It seems that most retirement calculators assume nice, neat required income streams and therefore they produce nice, neat 4% withdrawal rates.

We will need to withdraw more from our retirement funds the first few years, until Soc Sec kicks in, then the withdrawal rate moderates.

For example, my last (916th) spreadsheet shows withdrawal rates of 8-8-8- for the first three years. yes, I know, my retirement balance will likely decline until SS kicks in.......then it, resorts back to 4%.

Currently, I'm intentionally delaying taking Soc Security in my projections.

I ran my numbers thru Firecalc and they projected just fine. I also ran them thru the ORP calculator and the project just fine there, too.

I am a little concerned, however, when everyone keeps talking about the magic 4% withdrawal rates, when mine are significantly higher the first few years.

 

[2B]

Is there somewhere that summarizes what the heck all these different rules are? I think I understand some of them, but what is Bernicke, Guyton, and Gummy?

In brief, Bernicke says that after age 55 spending will decrease 3% every year until age 70. This is based on spending data of real people that are not "short" of money. That means that the 4% SWR you could barely get by on at age 55 goes unspent when you are 70. There a link on FIRECalc to a pretty good description of his approach.

Guyton is more complicated but his "rules" allow a higher withdrawl rate (up to 6.2% with an aggressive portfolio) but the risk is that a prolonged down market would trigger spending cuts of 10% to maintain portfolio survivablilty. Of course, good stock returns would trigger a spending increase. He has an article in the Journal of Financial planning that you could probably google.

Both methods present a way to take more now or retire sooner by assuming future spending cuts are acceptable. Most of us agree that we will be less interested in travel when we are 85 than we are now but not all. Some people think they are going to be in those commercials showing 100 year olds flying gliders and climbing mountains (or some such crap). About once a week, I see a whole nursing home full of people that aren't going to the grocery store across the street. Even if I can fly the glider at 100, I'd rather do the fun stuff now and run the risk I make it healthy that long and can't afford it.

Unfortunately, we put up our lives and money and take our chances. Do you feel lucky?

 

[2B]

I am a little concerned, however, when everyone keeps talking about the magic 4% withdrawal rates, when mine are significantly higher the first few years.

If FIRECalc says you are good, you are about as good as you can get. It is conservative. FIRECalc also allows for portfolio drawdown waiting for SS or pensions to kick in. Don't let the initial high withdrawl rate worry you if FIRECalc considers it.

 

[REWahoo]

We will need to withdraw more from our retirement funds the first few years, until Soc Sec kicks in, then the withdrawal rate moderates.

Yup. I'm there now, doing just that.

Retired at 58 1/2, withdrawing in the neighborhood of 6% until SS kicks in and not planning to take that until 66 or later. Firecalc gives me 95+% success rate, and I'm not losing any sleep over taking more than 4% the first few years.

Ya takes your money, and ya takes your chances...

 

[mickeyd]

I am a little concerned, however, when everyone keeps talking about the magic 4% withdrawal rates, when mine are significantly higher the first few years.

Oh, don't let it bother you.

We are all pretty-much obsessed with 4% here, but when it comes to actually making a withdrawal from our stash it probably will be (is) more pragmatic.

Speaking only for myself, all of my plans have indicated 4% + inflation as my W/D rate (not started yet) however I know darn well that I will probably yank out more than 4% at times as well as keeping it under 2% at other times.

It all depends on who wins the argument between DW and me. ~~~~~

DW "We need to go on a 14 day cruise to Alaska this summer"

Me "Well, we already have exceeded our travel budget for this year"

DW " Do you want me to make arrangements for one or two?"

Me " Two, but inside cabin. OK?"

 

[vickifool]

VickiSpouse actually retired last July at 54. Our kids are 15, 17, and 20. So college is still a BIG consideration.

We're planning to use the classic 4% with inflation increases except for large one-time expenses.

I projected our regular budget and extraordinary expenses out until age 95. Those extraordinary expenses are mostly fantasy--where and when we travel and when the weddings are--who really knows? One kid has already had a drastic change of college plans. That spreadsheet was how I convinced VickiSpouse to take the package and retire.

Vickifool

 

[paradiseken]

Some might be spleens. It sounds a lot funnier.

Can you please 'spleen yourself CFB?

Actually, we are not miserly or depraived and will spend in retirement. I just want to try an experiment this first year of really limiting our withdrawals. It's like holding one's breath for as long as one can. When the pressure gets too great, I'll increase our withdrawals. I just want to see what our needs really are.

Now, about that new Z06 Corvette I lust for ....

 

[audreyh1]

Just to clarify the options, the "roughly 4% cap" option was intended to capture your scheme. You can withdraw well under 4% as longer as you're capping it at some "sane" level. That's what I do too.

Yes, that's how I interpreted that option. I take less than 4% and hopefully can continue withdrawing < 3% if possible, but I would never take out more than 4% of each beginning year value - that's the hard limit on withdrawals.

Audrey

 

[2B]

Yes, that's how I interpreted that option. I take less than 4% and hopefully can continue withdrawing < 3% if possible, but I would never take out more than 4% of each beginning year value - that's the hard limit on withdrawals.

Audrey

Am I the "profit" in the wilderness? What is everyone saving it for


If you follow FIRECalc with a 3% withdrawl, the ending portfolio will be many times what you start with. When the term "end" is used, it reflects you being dead.

If you only "want" to spend 3%, you're in good shape. If you are limiting travel and other pleasures, you are starting to move up the miser scale.

 

[donheff]

Actually, we are not miserly or depraived and will spend in retirement. I just want to try an experiment this first year of really limiting our withdrawals. It's like holding one's breath for as long as one can. When the pressure gets too great, I'll increase our withdrawals. I just want to see what our needs really are.

I will consider your efforts to be my behavior lab. You can report back from the other side and I will assume, "if they can do it, we could too in the event..." In the meantime we will keep livin the life.

 

[paradiseken]

I will consider your efforts to be my behavior lab. You can report back from the other side and I will assume, "if they can do it, we could too in the event..." In the meantime we will keep livin the life.

Okay Don, I give up. I guess LBYM is a hard habit to break. It's almost becoming an obsession now. I need to loosen up. I think I'll go out this afternoon and buy that Z06. Oh wait, I have a '76 MGB that I need to sell first.

 

[audreyh1]

Am I the "profit" in the wilderness? What is everyone saving it for


If you follow FIRECalc with a 3% withdrawl, the ending portfolio will be many times what you start with. When the term "end" is used, it reflects you being dead.

If you only "want" to spend 3%, you're in good shape. If you are limiting travel and other pleasures, you are starting to move up the miser scale.

We are not limiting our lifestyle, not limiting travel or other pleasures. We simply don't spend as much as our portfolio would let us spend. We already own all the "toys" we want. We have been traveling extensively since 1999.

Confession - in 2006 we spent an average of $850/month on eating out.

We are also young. I'm 47, DH is 51.

What are we saving it for? Well for one thing, we might have to pick up the tab for elderly/ill parents. It's nice to have a cushion available for that. We are currently paying for medical expenses for one parent. For a while there it was looking like that would hit us a lot harder than it eventually did!

We also will self-insure for LTC.

When we get past where family/parents might need the financial support, then we'll be more aggressive about charitable donations. Right now family is our charity!

Audrey

 

[Ed_The_Gypsy]

I ain't there yet, but I favor Galeno's simple scheme. Portfolio 100% in equities (but not quite!). Take a flat 4% of the pot out each year and put it into a CD ladder and evetually a mm fund. Let the market take care of inflation.

Realistically, it will be a 72T-type withdrawal, since all of my stash is in IRAs. Nords has a scheme to pull it out, but I haven't figured it all out yet.

 

[sgeeeee]

. . . When the term "end" is used, it reflects you being dead.

. . .

Wait a minute. Nobody ever told me that. Is that what this retirement thing leads to? Death? I thought we were all going to kayak into the sunset wrapped in warm dryer sheets.

 

[ESRBob]

I'm theoretically using the 95% Rule but until hard times come it's the same as the Roughly 4% of Portfolio Rule. Let's hope it stays that way for awhile... The last 4 years have been awfully kind...

Audrey, hats off to you for finding a nice 3%+/- equilibrium where you don't need more and your spending is stable, while still having tons of fun. And don't stop eating out if you're finding good food out there. If I were on long-term RV status I'd just view meals out as one of those expenses like oil or gas.

 

[KM]

Not retired yet, but I was planning on using the KM rule

I created a spreadsheet a few years ago - one row per year. I plugged in our savings. I give them a conservative 5% annual growth (which we have exceeded to date, as we are 70/30, but moving to 65/35 in the next few years....). Then I determined a retirement budget based on what we spent each year. I added in some nice healthy vacations, increased the medical line item, etc. I inflate that by 3% each year. Then, starting the year we retire, I determined how much we would need to withdraw each year, after our pensions. I don't factor in SS....as who knows where it will be when I am 65. Anyway, if it says I can live to 100 and still have money, I am happy. It does.....so I am happy.

I went back and looked. It is about 2.5% -3% until we are 80 and then it goes to 4-5+%. Being an overly conservative view, we should be fine. And it is always fun to play with and say "Gee, I could really retire next year, if I wanted to ...." and "Hmm...if we get 8% we can go on 2 cruises each year"

 

[audreyh1]

And don't stop eating out if you're finding good food out there. If I were on long-term RV status I'd just view meals out as one of those expenses like oil or gas.

That's what it basically comes down to. I enjoy cooking (especially in nice outdoor weather), but when we are visiting an area where there are a lot of nice restaurants (especially when there are yummy regional specialties), it just seems silly to cook! And there are other times like being in transit or having MH service done where cooking becomes inconvenient.

Occasionally we get "stuck" somewhere with absolutely no decent restaurants, and then our grocery bills go sky high! LOL! I think because we do go through periods where we are somewhere with only bad restaurant choices (sometimes really bad), we tend to overdo it when we find a location with good restaurants!

We visited a friend near Lafayette LA last February and ended up extending our stay because there were just too many great places to eat! Them Cajuns sure have a fine cuisine!

Audrey