Early Retirees Perhaps Living A Bit Too Much Below Our Means?

[Midpack]

I believe she answered that in this post -

Not in the OP, but her subsequent post is the reason I also mentioned in red below. It is a significant distinction, many times overlooked in threads.

However, 2.5% of remaining portfolio is dramatically more conservative (and cannot fail theoretically). Reading between the lines it appears you mean % of remaining portfolio, which I would agree is unnecessarily conservative.

 

[Katiek]

Logic suggests that you could withdraw more and be fine, but I tend to be conservative and would not want a lot (any?) risk that I wouldn't have enough later in life. One middle ground is to continue your approach, but identify some specific things that you want to do - a dream trip, more dinners out or moving expenses for your dream house with a view. Come up with a budget for those. If the budget for the other expenses fits with a higher (but reasonable) withdrawal rate, you can spend on those items. This way you can accommodate your desire to do some more enjoyable things, without just increasing the budget each year without regard to specific spending goals. This could help avoid overall "lifestyle creep" but allow you to do some of the items that you've been putting off.

 

[ERhoosier]

Any WR is not too conservative if it lets you sleep well at night

 

[ElizabethT]

To responders thus far: I really can't thank you all enough. I fully recognize this isn't what most people would consider a real problem, and yet, finding balance, regardless of portfolio value, is likely something many of us struggle to do.

I am going to heed the advice given here, and bump us to 3% of Jan 1 portfolio value, beginning in 2016. That's $25,000 in real dollars today, which is more than enough to cover what we are currently putting off - some additional travel, a once a year family trip we would like to provide for our children/grandchildren, and better seats when we go out to the theater. Oh, and better wine when we dine out.

Doing that now will give us the freedom to use our future pensions and SS for paying the higher property taxes trading 'up' to a smaller home, but in a better location, would create. (Price differential of the home would be negligible, but our property tax base would reset significantly.)

My husband will be thrilled when I tell him, truly.

 

[MuirWannabe]

I am going to heed the advice given here,

My husband will be thrilled when I tell him, truly.

I guess it's obvious who wears the financial pants in this relationship.

FWIW, your decision seems like a good move to me.

Muir

 

[meekie]

Considering none of us know how much time we have left, I would vote for spending more now, and cut back later.

I would be quite tempted to take a big chunk out, and make it your fun fund. Take something like 250k, to spend on fun things over the next few years. Keep your withdrawal at 2.5% for your new 4.75m balance.

 

[2017ish]

...
I am going to heed the advice given here, and bump us to 3% of Jan 1 portfolio value, beginning in 2016. .... Oh, and better wine when we dine out.

....

My husband will be thrilled when I tell him, truly.

I agree with your call--but in my household, DW would not be thrilled if "better wine" were ever relegated to a secondary consideration!

 

[2B]

I am going to heed the advice given here, and bump us to 3% of Jan 1 portfolio value, beginning in 2016.

I still think you are still being too conservative when you are basing you withdrawal on total portfolio. Heck, go back and up your 2015 spending plan. You're just trying to delay the spending longer.

Have you looked at how a 50% drop in equities would impact your withdrawals? Do you still cover your basic living expenses?

I would be quite tempted to take a big chunk out, and make it your fun fund. Take something like 250k, to spend on fun things over the next few years. Keep your withdrawal at 2.5% for your new 4.75m balance.

+1

This is another approach that would give you the same result but separate your "really safe" money for living expenses from the "fun" money.

 

[audreyh1]

So you are currently spending $125,000 a year?

SS plus pension will drop that to under $100k?

You could go 0% stocks and still have enough money for a 40 year retirement with that nest egg and withdrawal rate.

Without adjusting spending for inflation.

 

[audreyh1]

50 and 64 - yes, I think 2.5% of remaining portfolio is too conservative. 3% or even 3.3% is still pretty conservative. Even if you don't spend it all in one year, you can put it to good use in the near future. Or even as a cushion for years where the remaining portfolio drops.

Now some people will go 100% dividend paying stocks as you can easily match 2.5% annually in qualified dividends. And let the stocks and dividends grow over time and leave a sizable inheritance. You just have to be able to ignore the volatility of such a portfolio.

 

[audreyh1]

The tradeoff in this approach, of course, is that we are deferring some lifestyle choices until that point, wisely or unwisely. And which is really my question, one as much philosophical as financial I would imagine.

That deferral of lifestyle choices is the rub, because your health may deteriorate 5 years from now. That's a risk too.

 

[just walk away]

Hi Elizabeth T

In my opinion, you have chosen great ways to use additional income. Most of our additional spending has been on home remodeling and travel. For me, I can't see any scenarios where my family will regret our increased spending on these items. But, if we had not done the travel with our kids now, I think that ten years from now we would have regretted the missed opportunity. While I do still struggle with spending money, the money we have spent on travel and home improvement has been worth it to me and has brought much joy to our family life.

 

[Totoro]

Just some thoughts to consider:

Even if your portfolio just keeps up with inflation (e.g. throw it all in a TIPS ladder, not that I would recommend that), you have enough to fund 33 years of retirement at 3% withdrawal. That's without SS, downsizing your house or pensions.

In 33 years more than likely one of you will be dead.
Plan for a long retirement | Vanguard

Even worse, if your husband is 60 there is a 90% chance he won't be there then. If you are 60 it's still 80% ..

So +1 on the setting aside a chunk of money for fun things now, and +1 on the increasing spending to 3%.

Will you still be able to do fancy things like travel and adventures once you even hit SS and pension age?

Enjoy life now, you earned it and you will be fine! Only thing to consider is how big your inheritance you want to have - but even that will be ok unless you go to 4% - 5% permanently and both live up to 110 years old.

 

[daylatedollarshort]

You don't have to bump your spending up all at once. I've been lowering the amount I think would be good to leave for the kids as they get on in college and have increasingly good odds of becoming self supporting before too long. I agree with a previous post that having too much money to look forward to, at least for some adult kids, may not be a good thing, similar to the hazards of Economic Outpatient Care described in the Millionaire Next Door.

It is not easy to just flip a switch and one day go from super saver to even moderate spender for some of us. But then again after a certain point spending more money doesn't necessarily buy more happiness, and leaving money to a favorite charity can be a good use, too.

 

[clifp]

Personally I want to make sure that I die with an estate which doesn't owe estate taxes (currently 5.43 million double for a couple). Even withdrawing 3% of the balance each year gives a good chance of exceeding that amount. Now you can leave the amount over that to charities, but I personally would rather make the gifts while still living, or spend it on myself.

 

[growing_older]

With $5 million in assets now, your low withdrawal rate will likely lead to considerably more assets in your lifetime. You can well afford to spend more now, and you still have reinforcements (pension and SS) coming in the future.

a once a year family trip we would like to provide for our children/grandchildren

This is something that deserves special consideration. The family memories are priceless. Not everyone in the family may be in position to sponsor such a trip. Depending on the ages, especially grandchildren, time is of the essence and each year you put this off is a long long time to a child and they do grow and change rapidly. Make hay while the sun shines.

 

[ElizabethT]

I still think you are still being too conservative when you are basing you withdrawal on total portfolio. Heck, go back and up your 2015 spending plan. You're just trying to delay the spending longer.

Have you looked at how a 50% drop in equities would impact your withdrawals? Do you still cover your basic living expenses?

Originally Posted by meekie
I would be quite tempted to take a big chunk out, and make it your fun fund. Take something like 250k, to spend on fun things over the next few years. Keep your withdrawal at 2.5% for your new 4.75m balance.

Originally Posted by 2B
This is another approach that would give you the same result but separate your "really safe" money for living expenses from the "fun" money.

In the event my responses to above might be helpful to others:

- Re: Delaying 'bump' until 2016 . . . Yes, you are correct, and yes, there is no reason to put it off. Thanks for calling me on that!

- Re: A 50% drop in equities . . . we have a tight rein on our living expenses, which account for under 50% of our current spend. Knowing we can pull back 50% in the event of a fiscal disaster is one of our contingencies.

- Fun money pool . . . since about 50% of our annual spend is discretionary, we sorta, kinda do that already.

I should also add that our annual budget includes allocations for all identifiable run rate expenses, various contingency funds for repairs, replacements, insurance and deductibles, etc., set asides for state and federal taxes, and an accruing fund for infrequent but expensive repair and replacement items like autos, major home repairs, etc. We have a very detailed budget which we've been maintaining since ER'ing five years ago, and there have been no items to date not accounted for in our budget, so I think we've got a pretty good handle on that side of things.

 

[pb4uski]

One approach to this might be to enter your situation into firecalc, including an inheritance for your heirs and calculate the maximum spending that still gives you a 100% success rate. I'm guessing that it is much more than 3%.

 

[RockyMtn]

This made me laugh . . . then realize that the real reason I posted is, perhaps, because I want to be told to loosen up and spend more now . . .

Funny how we so often already know the answer to our own questions isn't it?

My dream is to sell our current home and buy something smaller but with a view. I've been resisting doing so because, well, I don't really know. I really don't want to die having obtainable dreams like this deferred simply due to fear.

Ok...I'll take the bait. Loosen up and spend more now! Your expenses are likely to drop in future years. Increasing your spending levels now is well within your asset level.

 

[nuke_diver]

In the event my responses to above might be helpful to others:


- Re: A 50% drop in equities . . . we have a tight rein on our living expenses, which account for under 50% of our current spend. Knowing we can pull back 50% in the event of a fiscal disaster is one of our contingencies.

.

This was the one thing I didn't see before that I was going to comment on. So while you have a 2.5% WDR you actually spend much less for non discretionary spending so I think you are more than good to bump things up.

One of the games I've played in my ER prep is using the Flexible Retirement Planner to attempt to model these kinds of situations ...a 50% drop follow by a slow recovery and vary the spending over those times to drop to the min required and see if the money hold up over 45 years (not that I want to live that long but what I want and what I get are not going to be the same is my guess). If the money holds up I up the min to see how high I can go before I start getting significant failure rates. At spending levels that I'm comfortable with (like a lot here I would actually have difficulty being a conspicuous consumer) the only fails I see are my versions of the zombie apocalypse..things like 50% followed by 5 years so 10% declines....in which case everyone is screwed so I choose to not worry about those thing

 

[maloney50]

I'd spend more. I've observed as folks get older they don't need or want to spend that much. My mother in law just passed away in her early 80's . She was in good health overall till her later years . I managed her money and she never even touched her money, she lived on ss and a small pension. She did fund her grand kids college however. Her last years were spent in a nursing home., at the end she was wheelchair bound. The yield on the s and p is about 2 percent. At a 4 percent withdrawal you will be spending 2 percent of your savings a year. Ar a 5 percent return you won't ever run out of money. This assumes you are using low cost index funds. If you are not all bets are off.


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[seraphim]

How much do you WANT to spend?

We do as we please at $85k a year. It covers all our needs and wants. It's only 2% WD. Why take out more?

Edited: I see you've already decided lol. So ignore my question...




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[LOL!]

One thing I would look at on the withdrawal rate is to see how much of it goes to taxes and investing fees.

There is a big difference between withdrawing 2.5% of portfolio to spend and having another 1.5% go to expense ratios and advisors fees versus withdrawing 3% and paying expense ratios of 0.15% and paying no advisor fees.

There is also a big difference between paying 5% or less of withdrawals on income taxes and paying 15% or more of withdrawals towards income taxes.

 

[doughroller]

What is it that you want to do that will require more money? The thing that comes to my mind is travel. From what I read, most people spend more when they first retire then spending goes down as they get older. If you and DH are in good health maybe now is the time to do this. Who knows how things will be when SS kicks in? You guys have done an awesome job of building your nest egg, but the one thing you don't have control over is your health. As I write this I am reflecting that I tend to feel like you. We are 54 and DW is 55. We are almost there for ER but we are getting to the age where people are getting sick or they pass, just out of the blue. DW is the one telling me that planning for the future is good, but some balance is needed. I assume you have reviewed all of your spending. Can anything unnecessary be eliminated? It seems like you have lots of cushion, you don't want to have regrets down the line. FWIW.

 

[maloney50]

Isn't this whole topic I think we are spending less than we could?


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