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09-01-2017, 06:34 AM
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#21
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Recycles dryer sheets
Join Date: Feb 2015
Posts: 296
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Not to hijack your thread....but what I would be worried about in addition to sequence of return risk at the start of portfolio withdrawals would be how will you pay for LTC costs in the latter years should it become necessary?
Because unless you have $1 million set aside for LTC costs to self insure....your withdrawals in latter years could be far more than 1.5% you project.
Something to consider.
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09-01-2017, 07:11 AM
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#22
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Recycles dryer sheets
Join Date: Apr 2012
Posts: 216
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Quote:
Originally Posted by pb4uski
It is the ultimate WR that is important. As Totoro suggests, carve out a portion of your nestegg to cover those early year excesses.
For example, let's say someone is 59 has $1 million and spends $65k a year and is 7 years from SS and expect to get SS at age 66 of $40k a year. $40k * 7 years is a carve-out of $320k to fund not taking SS for 7 years, leaving $680 to fund the $25k gap between spending of $65k and SS of $40k... so an "ultimate" WR of 3.7%, which is pretty reasonable for a 66 year old.
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I'm having a hard time understanding this. If someone takes out $65k per year for 7 years, that totals $455k. That leaves $545k remaining at age 66. At that time, the person withdraws $25k per year to supplement SS, so the WR is 4.6%. Am I looking at this right?
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09-01-2017, 07:34 AM
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#23
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Full time employment: Posting here.
Join Date: Aug 2016
Posts: 770
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Quote:
Originally Posted by pb4uski
Do you really think that the OP would have their entire retirement nestegg invested in the S&P 500?
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Correct - we're currently at 65/35 but will move closer to 50/50 at retirement time.
And I just used the $1mm nest egg figure as an example only.
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09-01-2017, 07:37 AM
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#24
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
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Quote:
Originally Posted by pb4uski
It is the ultimate WR that is important. As Totoro suggests, carve out a portion of your nestegg to cover those early year excesses.
For example, let's say someone is 59 has $1 million and spends $65k a year and is 7 years from SS and expect to get SS at age 66 of $40k a year. $40k * 7 years is a carve-out of $320k to fund not taking SS for 7 years, leaving $680 to fund the $25k gap between spending of $65k and SS of $40k... so an "ultimate" WR of 3.7%, which is pretty reasonable for a 66 year old.
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Quote:
Originally Posted by MikeWillRetire
I'm having a hard time understanding this. If someone takes out $65k per year for 7 years, that totals $455k. That leaves $545k remaining at age 66. At that time, the person withdraws $25k per year to supplement SS, so the WR is 4.6%. Am I looking at this right?
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No... think of it as two funds. I'm ignoring inflation and investment return for simplicity... or assuming that they are equal... take your pick.
One fund is $280k at inception the is like a SS supplement and funds a benefit equal to SS of $40k a year from ER at 59 until SS begins at 66 (and is $280k... $40k a year for 7 years... not the $320k in my previous post )
The other fund is the remaining nestegg of $720k (not $680k) and will pay the $25k a year for 40 years... a 3.47% "ultimate" WR.
The SS begins at $40k a year at age 66.
So for the first 10 years...
Year | Age | Retirement fund | SS replacement | Withdrawals | SS | Total | 0 | 59 | 720 | 280 | | | | 1 | 60 | -25 | -40 | 65 | | 65 | 2 | 61 | -25 | -40 | 65 | | 65 | 3 | 62 | -25 | -40 | 65 | | 65 | 4 | 63 | -25 | -40 | 65 | | 65 | 5 | 64 | -25 | -40 | 65 | | 65 | 6 | 65 | -25 | -40 | 65 | | 65 | 7 | 66 | -25 | -40 | 65 | | 65 | 8 | 67 | -25 | 0 | 25 | 40 | 65 | 9 | 68 | -25 | 0 | 25 | 40 | 65 | 10 | 69 | -25 | 0 | 25 | 40 | 65 | | | | | | | | | WR rate | 3.47% | | | | |
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-01-2017, 07:54 AM
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#25
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Recycles dryer sheets
Join Date: Apr 2012
Posts: 216
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Ok, now I understand. Thanks for the education!
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09-01-2017, 08:03 AM
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#26
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Full time employment: Posting here.
Join Date: Aug 2016
Posts: 770
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Quote:
Originally Posted by pb4uski
No... think of it as two funds.
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As it turns out, this is our exact setup because my accounts are separate from DW's. We can start drawing down my accounts (after 59.5) while DW's continues to grow. By the time we're ready to start tapping DW's account, the SS calvary arrives.
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09-01-2017, 01:38 PM
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#27
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Thinks s/he gets paid by the post
Join Date: Jun 2017
Location: Western NC
Posts: 4,610
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Why not work part-time?
IIRC, Kitces in that recent podcast discussed on another thread pointed out that earning $10-$20K/year would significantly impact your withdrawal rate for the better those first 7 years.
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09-01-2017, 03:21 PM
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#28
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Full time employment: Posting here.
Join Date: Aug 2016
Posts: 770
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Quote:
Originally Posted by ncbill
Why not work part-time?
IIRC, Kitces in that recent podcast discussed on another thread pointed out that earning $10-$20K/year would significantly impact your withdrawal rate for the better those first 7 years.
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Yeah, I may do that. I might go down to 32 hours in April or May 2018 for at least one year. After that, I might either keep that schedule for around year, or go down to 3 days a week, or hang it up completely.
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09-04-2017, 11:26 PM
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#29
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Thinks s/he gets paid by the post
Join Date: Oct 2012
Location: Reno
Posts: 1,331
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Quote:
Originally Posted by Carpediem
Yeah, I may do that. I might go down to 32 hours in April or May 2018 for at least one year. After that, I might either keep that schedule for around year, or go down to 3 days a week, or hang it up completely.
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To follow up, I'm in a similar situation, since DW is 5 years younger and can't pull from her accounts for a while. I'm working half-time online for half of salary for the last 2 years which means I haven't pulled anything from my accounts yet, and I was renewed for another two years, which means DW can retire next year or earlier. (I like working online for 15-20 hours per week at half pay, which keeps me out of some trouble.) For about 3-4 years, I'll pull 5-5.5%, but after taking SS this will pull back to below 4% for 5 years, then when DW takes SS, the SWR goes further down. Unless the market crashes, we'll probably delay her taking SS since she was the higher earner--if I croak, she'll be in good shape. Not worried about myself in the reverse.
I would be a bit concerned about sequence of return risks in pulling 7% at the beginning, but if you have slack in the budget it could work.
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09-05-2017, 09:40 AM
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#30
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by Carpediem
Another work day and another day of dreaming of retirement. In my most favored scenario of hanging it up at some point next year, I would be looking at the WRs shown below for the first 15 years with a 30 year average WR of 2.4%. The calculators show a 95+% chance of success. But those first 7 years sure make me nervous, especially in terms of SoRR. Obviously I could improve the numbers if I worked a few more years but what fun is that!
If you were faced with similar high WRs early in retirement, could you convince yourself to pull the trigger? Or to those who are already retired, did you pull the trigger with > 4% WR for a few years knowing it would be at a more acceptable level in a few years when the Calvary arrived?
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I never felt that a withdrawal rate was a particularly meaningful statistic. Odds of surviving based on dollar amounts of real spending seems more helpful.
But, I did retire with the expectation of digging into principal during the years before SS. I'd do it again.
I didn't want to spend those dwindling years of good health at w*rk. You might say that I decided to "seize the day".
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09-05-2017, 09:42 AM
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#31
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by walkinwood
Calculate a portfolio size needed for the 8th year onwards to be 4% withdrawals with a 50/50 stock/bond allocation.
Now do you have enough left to fund the difference for the 1st 7 years if you put it into a bond/tips ladder?
Does that make you feel better?
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+1
This is one of the calculations I did. It made me feel better.
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09-05-2017, 09:45 AM
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#32
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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Quote:
Originally Posted by Carpediem
SoRR = Sequence of Returns Risk
Yes, the withdrawals are based on a spending level that matches our budget and past spending. The budget does include slack that could be cut, such as $12k travel plus some other things. Healthcare costs are also accounted for and current health is good. (Ages 59, 58)
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And, your long term care plan is .... ?
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09-05-2017, 10:01 AM
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#33
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Full time employment: Posting here.
Join Date: Aug 2016
Posts: 770
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Quote:
Originally Posted by Independent
And, your long term care plan is .... ?
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Based on current projections, there should be enough money remaining to self fund LTC. Our savings will receive a bump when we decide to sell our two rental properties, probably sometime in our 70s.
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09-05-2017, 07:07 PM
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#34
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Posts: 1,305
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couple things..if your portfolio has to last a long time 50/50 is way too conservative
7% WR does seem high to me, but run the numbers through a monte carlo or firecalc....if the monte carlo puts you at 80% and firecalc is over 90% go for it...
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