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Old 01-05-2017, 06:38 PM   #21
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We are anticipating 60% discretionary but even some of the non-discretionary could be decreased if necessary.

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Old 01-05-2017, 06:47 PM   #22
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If big_hitter started it, the thread would be a pole for sure.
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Old 01-05-2017, 07:13 PM   #23
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So your income would drop if we had a market crash? In my case it would because I use % of remaining portfolio so my income fluctuates wildly with market swings. Most people here though seem to use methods with less variation. With a low withdrawal rate like yours you can use a constant withdrawal (spending) method indexed to inflation (classic Trinity study) and your portfolio will survive just fine without tightening your budget.

You kind of have a catch-22 with your low (under 3%) withdrawal rate. You have trimmed down expenses so that you have a low withdrawal rate, but that means that in addition to low discretionary parts of the budget, you have (relatively) more invested and subject to those market forces that shrink portfolios occasionally. If, for example, you used 3.33% as your withdrawal - still pretty conservative - you would have 10% more for discretionary expenses, or that could be set aside for lean years when the portfolio is hammered.
Thank you for your thoughtful analysis, Audrey.

Actually, I do not follow the 60/40 rule. Approximately 20% of my investments are in rental properties. Currently, I also have a large cash allocation, in anticipation of buying opportunities after a market crash. A 50% drop in equities tomorrow would be greatly muted in my portfolio by noncorrelated assets. My property portfolio continued to generate wealth throughout the 2008-2009 market crash, which was very reassuring. I also have a holding company, which requires some strategizing to choose the optimal dividend to minimize corporate and personal taxes. Any surplus can be directed to my TFSA, where its earnings will never be subject to tax.

You are correct, of course, in postulating that I have perhaps been "too frugal", at least by the standards of the Trinity study. However, I do not live in the country where the Trinity study was conducted, and my expectation is that markets will not produce the same ROI in future as in past years. Furthermore, in the absence of a pension, risk management is crucial. I am now entering Year 5 of ER and if all goes well, I do anticipate loosening the purse strings a little as I move beyond the Retirement Risk Zone.
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Old 01-05-2017, 07:13 PM   #24
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Of our 2016 spending, 40% was charity, travel, jewelry, entertainment, restaurants and 50% of home improvement costs. (The other half of home improvement was replacing the AC so not discretionary.) The big items were charity, travel and home improvement.

It would KILL me to cut charity to zero and especially to back out of a church pledge (they're not legally binding but mine would make a dent in the budget if I backed out) but I could certainly cut back expenses if necessary for a year or two without too much pain.
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Old 01-05-2017, 07:26 PM   #25
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I have been spending well over 100% of my living budget each year on building my house. I blew by the anticipated total cost of construction last year. I have also been spending over 50% of my living budget each year since retirement on my kids (unplanned education costs and a wedding that was always down the road sometime but not really planned for.) I am taking an unexpected 2.2% or so out of retirement accounts to cover extra costs. I don't break down living costs by discretionary vs non. I could sell a couple of unnecessary vehicles and cut expenses by about 15% per year. I have no pans to do that and I don't anticipate a downturn in the economy would have a major impact on my spending or income.
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Old 01-05-2017, 07:46 PM   #26
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My discretionary spending is 400% of my fixed overhead w/o food.

So, 15 grand covers housing, property taxes, health insurance, cell, landline, internet, premium TV, water trash and sewer, electric and gas.

The other 60 grand covers food, drink and fun.
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Old 01-05-2017, 07:50 PM   #27
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My discretionary spending is 400% of my fixed overhead w/o food.

So, 15 grand covers housing, property taxes, health insurance, cell, landline, internet, premium TV, water trash and sewer, electric and gas.

The other 60 grand covers food, drink and fun.
You must be quite the party animal!
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Old 01-05-2017, 07:58 PM   #28
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Yeah Baby!

I don't worry about dough. My overhead is low and my discretionary is high.

Wagyu, lobster, truffles, fancy pocket knives, XO cognac. I fear no restaurant -
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Old 01-05-2017, 08:38 PM   #29
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Yeah Baby!

I don't worry about dough. My overhead is low and my discretionary is high.

Wagyu, lobster, truffles, fancy pocket knives, XO cognac. I fear no restaurant -


I fear restaurants... I would be a fat hog if I went more than once a week. My GF always stops and gets leftovers for 2 more meals at home. I cant stop, dutifully plowing through the grub until its gone.
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Old 01-05-2017, 10:01 PM   #30
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Yeah Baby!

I don't worry about dough. My overhead is low and my discretionary is high.

Wagyu, lobster, truffles, fancy pocket knives, XO cognac. I fear no restaurant -
So, you like XO Cognac.

I have turned my son-in-law and the husbands of my nieces to Cognac drinkers. They have not liked it enough to spring for an XO bottle, but when I or my brothers bring out a bottle, one quick look and they recognize it as good stuff.

Anyway, I am working on reducing my overhead so that my discretionary gets higher. The problem I can see is that with my frugal nature, when I see how low my essential living expenses are, I may get even more reluctant to splurge. This effect is real. Been sampling off-brand XO bottles...

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My discretionary spending is 400% of my fixed overhead w/o food.

So, 15 grand covers housing, property taxes, health insurance, cell, landline, internet, premium TV, water trash and sewer, electric and gas.

The other 60 grand covers food, drink and fun.
My healthcare cost alone is much higher than 15 grand. So, no Wagyu beef for me. I don't care for caviar anyway.
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Old 01-05-2017, 10:35 PM   #31
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For me, everything is discretionary, if necessary. A few lifetimes ago when changing careers, I downsized so radically I'm surprised I didn't evaporate. If you're good with budgeting, you'll make it no matter what happens. I always come in at or under budget.

OTOH, I've spent (lots and lots) more money in the last five years than in the last fifteen. Spending will increase another 33% in a few years. Even if another 2008 came along I'd be okay as I've already planned for the worst case scenario (beyond historical), so I'd probably, maybe cut travel.
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Old 01-05-2017, 10:45 PM   #32
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In what circumstances would you take a drastic measure like moving out of the country? Would you if the market went down by 50% one year? Just curious. ..........
You are asking a "Cold War Kid" ?

Nukes of course.
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Old 01-05-2017, 10:54 PM   #33
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I don't have a budget. Last year I took 63K out of investments but spent about 20K on dental care and 20K on gifts and still have about 10K leftover. This year spending 15K on dental but then no more for a few years.
Basic cost of living is around 20K but I get 11K from SS. If I get scared I could cut back to about 25K total without hardship so from the 75K or so I had last year I would say 50K was discretionary or 2/3 if you consider dental care discretionary. I got dental surgery, sinus lift, 5 crowns so far and getting implants and a bridge and a root canal this year and don't bother to try to find cheaper dentist.
In 16 months my income will go up from 11K to about 30K so my withdrawals will all be optional.
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Old 01-05-2017, 11:06 PM   #34
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I don't have a budget. Last year I took 63K out of investments but spent about 20K on dental care and 20K on gifts and still have about 10K leftover. This year spending 15K on dental but then no more for a few years.
Basic cost of living is around 20K but I get 11K from SS. If I get scared I could cut back to about 25K total without hardship so from the 75K or so I had last year I would say 50K was discretionary or 2/3 if you consider dental care discretionary. I got dental surgery, sinus lift, 5 crowns so far and getting implants and a bridge and a root canal this year and don't bother to try to find cheaper dentist.
In 16 months my income will go up from 11K to about 30K so my withdrawals will all be optional.
Old woman, I think that(for me), dental care is not discretionary but the nice thing is that some years I hardly have any. Other years I am less fortunate. I spent a lot on it also, last year, and do not regret it. Teeth are right at the top of my priority list.

What we consider discretionary is going to vary from person to person. So, I think you should get to decide if it is discretionary or not. I am sorry you had to go through all that last year, though. That is a lot of dental work.
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Old 01-05-2017, 11:52 PM   #35
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In our case if a bump in quality of life was worth the price of being further away from our DD.

But the point is you are living on the world where you free to do this to pursue your happiness.
True, as long as you are happy, it doesn't matter where you end up. There are definitely options besides staying put and living with much less.
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Old 01-06-2017, 06:16 AM   #36
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Somewhere between 30-60% is discretionary, depending on the year. I'll try to remember to update this when we go from renting a little apartment to buying a little house.
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Old 01-06-2017, 07:45 AM   #37
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Old woman, I think that(for me), dental care is not discretionary but the nice thing is that some years I hardly have any. Other years I am less fortunate. I spent a lot on it also, last year, and do not regret it. Teeth are right at the top of my priority list.
I agree with you- I've decided that I'm never going to mess with bridges again- I have 4 implants, I love them, and that's how I'll replace any more teeth I lose. (I get professional cleanings 4 X/year and use a prescription toothpaste plus a Sonicare and WaterPik - I prefer cheap prevention.)

In a way, though, that level of care IS discretionary. Plenty of people who can't afford it are living with missing teeth or have gone to dentures or partial plates.
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Old 01-06-2017, 07:58 AM   #38
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I dunno about dental care being discretionary.


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Old 01-06-2017, 08:03 AM   #39
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Discretionary is difficult to define. In the short term, we could cut out probably 10-15% and hardly notice. Over a longer period could sell some real estate (probably into a weak market) and cut much deeper. It would take more than a sharp downturn to actually reduce our cash flow though as we have been only spending divs and pensions up to this point. It would have to be something even worse than 2008-2009 as divs weren't cut then. In the meantime keep a fair bit of cash around
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Old 01-06-2017, 08:08 AM   #40
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We use the % of remaining portfolio method to establish our spend/budget each Jan 1, reducing as necessary should the market go down significantly between Jan 1 and Dec 31. It's instinctive, even while very likely not necessary, and it helps us sleep at night.

Discretionary spending represents 66%-70% of our annual spend. Lumped under that umbrella is Travel, Gifts, Restaurant Dining, Entertainment, Electronics, Weekly Allowances (i.e. our individual do-want-we-want amounts), Hobbies, Miscellaneous and Major Items, the later two being pretty significant accrual accounts. When the market dips, such as it did in late 2015/early 2016, we cut both of these account amounts immediately to offset the drop and keep our SWR at our current level of 2.75%.

To answer your questions:

1. Was it a minor adjustment or did you take more drastic measures? We have our budget structured with two significantly funded accrual accounts, one labeled as Major Items for things like new cars, new RV's and big upgrades to our home, and one labeled Miscellaneous for anything we might care to do not already captured under our other budget categories. In years past the Major Items funds have been used to upgrade our RV and kitchen, and the Miscellaneous fund covered things like a long river cruise, a vacation rental for our extended family, and a family cruise to celebrate my mother's birthday. So, while cutting either of these categories to the bone would yield pretty drastic cutbacks in real dollars spent, it would be minor with regard to impact on our day to day lives. Would we miss these relative splurges? Sure. But we would still have our more normally funded accounts like Travel and Entertainment to make ER enjoyable.

And as I've alluded to in other posts, it's also why we are vigilant in keeping a cap on our non-discretionary expenses even to the point of austerity. It's hard to put a price on the peace of mind having such tight control over our non-discretionary expenses provides in FIRE. Once pensions, Medicare and SS come onboard I'm sure we'll loosen up the non-discretionary expense reins a bit, but until then we'll hold tight.

2. Did the action taken give you confidence that lifestyle flexibility is indeed a powerful tool in retirement security? Yes, absolutely. When the market went south in late 2015/early 2016, year five of our FIRE, I continued to readjust our budget downward accordingly, in order to keep us at 2.75% SWR, and realized that large, negative portfolio swings of $100,000+ represented only $2750 in incremental annual spending offsets. That was a significant 'aha' moment for me.
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