Ted_Shepherd
Recycles dryer sheets
Hello, I'm Ted Shepherd, though you may know me from Motley Fool years ago as Chips Boss. (Chips was my German Shepherd Dog. The significance of the screen name is that, in retirement, I have no boss and I am boss only to my dog.) Retired at 53 from career as an aerospace engineer and operations research analyst. Went broke at 40 chasing performance in mutual funds and listening to stock brokers who drained my account into their own. (May their tribe decrease.) I learned that I cannot pick stocks to beat the market averages, and cannot pick managers and advisors to do that for me either. YMMV. Switched then to index fund investing, and retired 13 years later, 1993. Maximum contributions to a 401(k), living below my means and dollar cost averaging put me in a position to retire early. I own my house with no mortgage.
My experience might not be of much use to you because, unlike many people, I never supported a spouse or family, never got wrecked in a divorce settlement, and inherited about a third of my retirement stash.
My current retirement income is in three roughly equal streams: IRA withdrawals, pensions (corporate and social security), and dividends in a taxable account. My allocation of the income stream is about a tenth for income taxes, and the rest split about evenly between consumption and restoring the damage inflation does to the retirement stash. (That looks like "savings". Don't let anyone tell you that you won't need to do any further saving in your retirement years.) My income taxes are so low because almost half my income is tax-deferred, in a IRA. Because I inherited part of the retirement stash, and because of the challenge and my resentment of consumerism, I have managed the money for these 17 years of retirement to stabilize its purchasing power as well as I can given market volatility.
Currently, my annual withdrawal from the retirement funds is about 2.5% for living expenses and income taxes combined. I have known all along that my income taxes would jump sharply when I reached the age to make mandatory withdrawals from the IRA. It never made sense to me to make much in the way of early withdrawals from the IRA. I didn't need the money, for one thing, and paying income taxes sooner rather than later does not appeal to me. Further, detailed mathematical analysis showed that only minimal withdrawals in my sixties were necessary to support my goal of stabilizing the purchasing power of the retirement funds.
Of course, my planning depends on assumptions about future market returns, inflation, and income taxes. My spread sheet for personal financial planning allows me to vary these parameters easily to see the consequences for my spendable income. It runs to age 95. I'm currently using inflation at 3% a year, and investment return at 5.75% return (only 2.75% after inflation, combining dividends and capital gains), and continuation of current tax law. If that law lapses, my standard of living (after tax, spendable income) will drop about 5%. A nuisance, not a tragedy for me. If the market does better than my conservative assumptions, I will raise my standard of living while being prepared to drop it back again if necessary.
My experience might not be of much use to you because, unlike many people, I never supported a spouse or family, never got wrecked in a divorce settlement, and inherited about a third of my retirement stash.
My current retirement income is in three roughly equal streams: IRA withdrawals, pensions (corporate and social security), and dividends in a taxable account. My allocation of the income stream is about a tenth for income taxes, and the rest split about evenly between consumption and restoring the damage inflation does to the retirement stash. (That looks like "savings". Don't let anyone tell you that you won't need to do any further saving in your retirement years.) My income taxes are so low because almost half my income is tax-deferred, in a IRA. Because I inherited part of the retirement stash, and because of the challenge and my resentment of consumerism, I have managed the money for these 17 years of retirement to stabilize its purchasing power as well as I can given market volatility.
Currently, my annual withdrawal from the retirement funds is about 2.5% for living expenses and income taxes combined. I have known all along that my income taxes would jump sharply when I reached the age to make mandatory withdrawals from the IRA. It never made sense to me to make much in the way of early withdrawals from the IRA. I didn't need the money, for one thing, and paying income taxes sooner rather than later does not appeal to me. Further, detailed mathematical analysis showed that only minimal withdrawals in my sixties were necessary to support my goal of stabilizing the purchasing power of the retirement funds.
Of course, my planning depends on assumptions about future market returns, inflation, and income taxes. My spread sheet for personal financial planning allows me to vary these parameters easily to see the consequences for my spendable income. It runs to age 95. I'm currently using inflation at 3% a year, and investment return at 5.75% return (only 2.75% after inflation, combining dividends and capital gains), and continuation of current tax law. If that law lapses, my standard of living (after tax, spendable income) will drop about 5%. A nuisance, not a tragedy for me. If the market does better than my conservative assumptions, I will raise my standard of living while being prepared to drop it back again if necessary.
