SWR for basic vs discretionary spending

[sgeeeee]

. . .One thing I learned the hard way is if you plop a kid on your shoulder and bounce them,  (with your shoulder pointing into their stomach) you can reliably get them to spit up whatever they just ate.  . .

Find a way to aim that baby and you have yourself quite weapon.

 

[renferme]

Here's what I'm doing : I use Firecalc and am withdrawing 4.5%. The only increase that I give myself each year is whatever increases I get from stock dividends. Then in 3 years and 9 months, when soc. sec. kicks in, I'll lower my withdraws by at least 50% and live mostly off of soc. sec and pension. Also, plan to pay off the house at that time.
Firecalc approves - 100% sucess rate.
Actually, I think I could lower my withdrawals by 100% and live totally off of pension and soc. sec , at least for a few years. Of course, that's depending a lot on what happens with the cost of living between now and then.

 

[JOhn Galt]

Hello bennevis. Sounds like a good plan.

That pesky COL/inflation along with health related issues have to be the twin "horns of a dilemma" upon which many a good SWR has been gored.

JG

 

[cute fuzzy bunny]

TH, there is a pretty wide spread between 3% and 6% and I think that is where all the attention focusses. As I remember from a previous post you spend mostly dividends, and it works out at about 3.3%, so I would agree that you should ignore SWR and buy whatever you want!

Those of us trying to figure out how much to go beyond 4%, or whether 5% is too high, or taking a part time job to make it all work out are probably the ones who spend the most time thinking about SWRs. Consider yourself lucky!

How's the baby, btw? Doin' any diapers yet? One thing I learned the hard way is if you plop a kid on your shoulder and bounce them, (with your shoulder pointing into their stomach) you can reliably get them to spit up whatever they just ate. Mom's hate it, (especially if they are breast feeding!) and you probably won't love it either. I got myself a new grip and they started to let me hold the kid again.

Baby's doing great! He's very verbal and gestures wildly with his hands a lot. I dont know where he gets that from Diapers are definitely getting done...my biggest challenge is avoiding getting peed on during the change. And I thought that leaving the working world would end the experience of being pissed on. I was wrong.

He's sitting here with me now with the hiccups, which is pretty funny.

I've already made him projectile vomit a couple of times. But only when I was feeding him a different formula, which I relocated to the trash asap.

Back on topic...its going to be different for every person depending on their lifestyle, portfolio size and tolerance for risk. Spending just dividends and having a working wife definitely simplifies the task considerably. Her income alone pays all our "mandatory" monthly spending. The dividends are the discretionary component. Any large capital purchases either come out of the dividend piece or I'd have to convert principal.

Given that part of this consideration is almost 100% variable (the lifestyle yada yada piece) and the other part involves guessing the near to intermediate term future (which we cant) is why I'm skeptical that an accurate analysis can be formed. Maybe a range or a variety of calculations. Propositions to skim in fat years and tighten the belt in lean years seems almost likely to end up balancing out in the long run. We already "know" from historical data that much more than 4% might not work in the long haul. That calc depends on a level withdrawal, reinvesting to buy more shares in lean years and fewer in up years, along with draining principal during really bad times.

It seems like an effort to drop this to a base and consistent withdrawal coupled with a variable component is akin to turning an analog signal into a digital one...going from a smooth line to a steppy one. Viewed from far enough away they look nearly the same. No?

Gummy did have some stuff and I remember looking at it and it did make some sense, but I think his thing was that in a really fat year he'd take the extra vacation and consider buying the new car a year early, and in a bad year they'd stay home and practice new pasta recipes.

I'm sort of practicing this right now. Given that we just had a very good year, I bought some extra baby crap that I probably didnt need, a new digital camera, did a few extra things to the house we're selling to help it sell quicker and at a higher price, etc.

 

[sgeeeee]

Hi TH,

Before I retired I saved and invested enough that I felt safe without having to budget. So my DW and I don't use any prescription for withdrawal other than we withdraw when we need to spend more. Our withdrawal rate is less than 3% -- significantly less if you consider future pension and ss benefits.

I do run the numbers periodically and keep track of our spending to make sure we don't creep up to a dangerous withdrawal rate. They aren't numbers I live by, but they help me quantify things and gain a comfort level.

You were actually part of the inspiration to run this particular simulation. A few months back, there were a number of people who, like you, were discussing basic budgets vs spending that you could easily cut back on if you needed to. I was just curious about how much a fluctuating discretionary budget could affect survival rates. I was actually surprised at how much difference this type of budgeting made on a historical case. For the person with half of their spending as discretionary, the SWR could be 50% higher than using conventional approaches. In reality, it could clearly be even greater than that if people were actually willing to cut off discretionary spending entirely during bad years.

 

[sgeeeee]

For those of you with interest in this kind of analysis, I've posted a companion study over on intercst's board. I started with the same basic assumptions, but with a fixed 5% initial withdrawal rate. Then I varried the discretionary/required budget ratio and looked at the success rate.

http://www.retireearlyhomepage.com/...=SWR1;action=display;num=1107790433;start=0#1

 

[ESRBob]

did a few extra things to the house we're selling to help it sell quicker and at a higher price, etc.

TH,
Maybe its just specific factors in your case, but did you consider keeping the old house and becoming a landlord?

My portfolio allocation calls for 5% commercial real estate or REITs and with REITS in the clouds I am thinking of going the old fashioned route.

I can't resist the dig -- isn't working your tail off for a few months to improve the value of a house you are selling sort of like early semi-retirement?

In any event, I think it is a great use of time for someone in ER -- just the sort of thing that should be right up our alley -- put some cash in, manage a project, put some labor in, flip and repeat next time you feel the urge.

Not as easy for people with full time overwork jobs.

Good luck on the house sale, and the deal with the pee is that you pull the new diaper out, shake it open, and whip it over the business end of the baby right after you get the old diaper untaped. So you never leave a loaded weapon pointed directly at you. Ever notice that evil little grin he gives you just after he hoses you? He knows how to have a good time messing with his old man!

Good luck and enjoy fatherhood.

 

[cute fuzzy bunny]

Hi TH,

Before I retired I saved and invested enough that I felt safe without having to budget. So my DW and I don't use any prescription for withdrawal other than we withdraw when we need to spend more. Our withdrawal rate is less than 3% -- significantly less if you consider future pension and ss benefits.

I do run the numbers periodically and keep track of our spending to make sure we don't creep up to a dangerous withdrawal rate. They aren't numbers I live by, but they help me quantify things and gain a comfort level.

You were actually part of the inspiration to run this particular simulation. A few months back, there were a number of people who, like you, were discussing basic budgets vs spending that you could easily cut back on if you needed to. I was just curious about how much a fluctuating discretionary budget could affect survival rates. I was actually surprised at how much difference this type of budgeting made on a historical case. For the person with half of their spending as discretionary, the SWR could be 50% higher than using conventional approaches. In reality, it could clearly be even greater than that if people were actually willing to cut off discretionary spending entirely during bad years.

Makes a lot of sense for ER's to do this analysis. My "live the way that makes sense" budget is around 30-35k and thats well within the traditional "SWR", with or without my wifes income I can do that, no sweat. My "reasonable minimum" is less than half that. The "Screws all the way down" budget is about 8k.

Gee this is kinda fun having a nice conversation

 

[cute fuzzy bunny]

TH,
Maybe its just specific factors in your case, but did you consider keeping the old house and becoming a landlord?

My portfolio allocation calls for 5% commercial real estate or REITs and with REITS in the clouds I am thinking of going the old fashioned route.

I can't resist the dig -- isn't working your tail off for a few months to improve the value of a house you are selling sort of like early semi-retirement?

In any event, I think it is a great use of time for someone in ER -- just the sort of thing that should be right up our alley -- put some cash in, manage a project, put some labor in, flip and repeat next time you feel the urge.

Not as easy for people with full time overwork jobs.

Good luck on the house sale, and the deal with the pee is that you pull the new diaper out, shake it open, and whip it over the business end of the baby right after you get the old diaper untaped. So you never leave a loaded weapon pointed directly at you. Ever notice that evil little grin he gives you just after he hoses you? He knows how to have a good time messing with his old man!

Good luck and enjoy fatherhood.

Well heres the deal...I can get ~$240k gross for the house...probably about $220k net...or I can get max $1200 a month rent minus about $250 a month in mandatory costs, minus maintenance and late night "the tub overflowed" calls, minus the renter damaging the house we completely refurbished.

$220k invested in a 5% 5 year CD gets me a higher rate of monthly income than the rent would provide, no hassle, no work involved, and I do NOT like the run up in real estate prices around here and would LOVE to take that money off the table. Rents are way out of line with house prices and the huge amount of available rentals arent helping the situation. Its a great market to be selling a house or becoming a renter...a bad one to be a renter or be buying a house. If I didnt have 3 dogs, 3 cats, and just spent a year consolidating two houses to the point where if I move another piece of furniture I'm gonna scream, I'd find a nice ranch for rent and get out of this housing market altogether.

Yeah, the work was definitely the four letter W-O-R-K stuff. But look at it this way...by using relatives that are contractors, their friends who owe them favors, bargain shopping for materials myself and just paying for some labor, doing half of it myself, and using every single '12 months no payment, no interest' deal I could find, we put about $40k into a house we might have sold as-is for $130. We'll get a quicker sell and I'll make about 50k on the difference. But yeah, if I had a regular job there'd be no way I could do it.

Besides, its either go work on the house or stay here and get peed on.

I tried that new diaper method, but then I ended up with two wet diapers, and once he peed on me twice before I got the new diaper on him. Now I put a paper towel under him and drop a dishtowel on the business end of him while I'm moving him over to the new diaper.

I wish I knew about that dishtowel thing when I was working. In retrospect a lot of people I didnt like would have been a lot more agreeable with a dishtowel over their heads. :-/