FIRECalc vs REW

[NW-Bound]

So, we have W2R who retired in the terrible year of 2009, and Lsbcal in an also trough year of 2003, and the market shot up from there. REWahoo did not do as well, but he still retired in a middle of a bull market.

I hope not to sound too pessimistic, but we like to hear from someone who retired at the top of the market, such as 2000 or 2007.

That brings to mind an immediate question. Are we at a market top right now? I guess we will not know until another 5 years have passed.

If the market does not do well, I myself may have an interesting story to tell. You see, I retired in 2012, not a bad year. However, I turned into a spendthrift, and my expenses scale up with the rising portfolio, instead of with inflation as FIRECalc assumes. If the latter, my WR would be lower in terms of percentage of present portfolio.

Because I am drawing constant WR of the current portfolio, I am in the same boat as someone who retires right now. If I do not scale back, I may be in trouble. Or I may have to draw SS before 70.

 

[Lsbcal]

Well NW Bound, I'm not so sure you are really a spendthrift. Dictionary words like "extravagant" and "irresponsible" are unlikely to describe you. Am I sounding like a fortune cookie?

For myself, VPW says I can spend 4.7% this year but we'll be well under that even with some vacations and lots of discretionary house spending.

 

[Options]

REW, forgive me if you've answered this elsewhere, but how old were you when you retired, and did you take SS at 62 (I know it was before FRA based on an above post).

I ask because just having retired at 60, I hadn't previously considered your strategy of claiming SS early to stem the PF bleeding should another 08 occur. It's a good back up plan.

 

[REWahoo]

REW, forgive me if you've answered this elsewhere, but how old were you when you retired, and did you take SS at 62 (I know it was before FRA based on an above post).

I retired at 58 and yes, took SS at 62.

 

[NW-Bound]

Well NW Bound, I'm not so sure you are really a spendthrift. Dictionary words like "extravagant" and "irresponsible" are unlikely to describe you. Am I sounding like a fortune cookie?

For myself, VPW says I can spend 4.7% this year but we'll be well under that even with some vacations and lots of discretionary house spending.

For the last 12 months, my WR is 4.5%. Gasp! I console myself that if I take out non-recurrent expenses such as my daughter's wedding, home upgrades, gifts and charities, etc..., it is less than 3%.

But will I come up with different "non-recurrent" expenses? What if I suddenly get a flashback to my youth and want a high-performance car? Or go crazy and want a bigger home? I thought I was done with buying clothes, and suddenly the salesman at the local Men's Wearhouse treats me like a buddy.

 

[Options]

I retired at 58 and yes, took SS at 62.

Thank you. You're officially my role model.

Edit: Here's another question: Did you rebalance during 08/09? If not, what did you do?

 

[Theseus]

I retired at 58 and yes, took SS at 62.

Interesting, I pulled the plug at 57 in 2014, and greatly appreciate your historical view, it is very enlightening, and encouraging.

DW and I both have modest non-COLA pensions, and must say I am liking the current low inflation as my fear was the pensions would quickly fade in purchasing power. For now, I feel challenged to keep our WR below 5%, but if we both bring SS online at 62 with current spending levels WR could drop to 0, for a while anyway. My revised plan is now calling for DW to claim in 2 years at 62, and withdraw from my pre-tax to reduce RMD impact further down the road. Then, depending on circumstances, I could claim at somewhere between FRA and 70. My PIA is about 32% larger than DW's so it would provide a larger compounding effect of COLA, at least that's how I look at it. Collecting her SS earlier reduces drawdown on our pretax funds, keeping a more balanced "three-legged stool" of pensions, SS, and savings to maintain agility if required to adapt to changing conditions and/or needs.

 

[youbet]

I retired at 58 and yes, took SS at 62.

Perfect! (Me too....... ) But while you retired in mid-2005, I retired in mid-2006. Started SS mid-2009.

 

[Corporateburnout]

As someone who used Firecalc and liked having 135 years of data available to determine the reasonableness of my retirement plan before I pulled the plug I'm glad to see REWahoo's 10 yeras black line close to the chart's green line.

Granted that past history does not guaranty future success but it sure gives me a certain level of confidence that my balanced portfolio of stocks, bonds and cash will survive my WR.

 

[Alan]

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. The chart is explained at the beginning of this thread.

Our calendar year withdrawal rates to date shown as a percentage of our initial portfolio value the day we retired in 2005:

Year 1: 4.8%
Year 2: 9.8%
Year 3: 7.9%
Year 4: 6.1% (SS begins for me)
Year 5: 5.4% (SS begins for DW)
Year 6: 4.2%
Year 7: 3.9%
Year 8: 3.5%
Year 9: 3.7%
Year 10: 4.5%

As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit.

Still, so far, so good...

Thanks for updating your progress, made me go back and check mine. Again, these figures are based on my starting balance the year I retired.

Year 1: 0.0% Unexpected profit sharing bonus based on year before
Year 2: 0.99% Legacy money when our remaining parents passed
Year 3: 1.96% Still spending that legacy
Year 4: 5.89%
Year 5: 9.84%
Year 6: 8.43%

Next year (and ongoing) we will spend much less on travel as we plan on 6 months in the UK and expect a WR of 3% of the original balance.

Over the next 9 years we expect another 4 incomes to come online from pensions and SS from both the US and UK, but we also plan to purchase a house in the UK within the next couple of years.

 

[REWahoo]

Over the next 9 years we expect another 4 incomes to come online from pensions and SS from both the US...

Your statement immediately triggered this memory:

 

[Alan]

Your statement immediately triggered this memory:

Brilliant

 

[REWahoo]

Re-reading this thread, I see a question I didn't answer:

Edit: Here's another question: Did you rebalance during 08/09? If not, what did you do?

Yes I did - or I should say the fine folks who manage the Vanguard Wellesley and Wellington funds did. Roughly 2/3 of our portfolio is invested in those two balanced funds. Not sure I would have had been able to sell bonds to buy equities in the middle of that "market unpleasantness" but those fund managers evidently have nerves of steel.

 

[haha]

Death (and taxes). Every year we survive is another year of beating back the grim reaper, and winning this game.

Unknown to me in advance, my retirement date of 11/9/2009 would be a nearly ideal time to retire because the market has boomed ever since. My WR sure took a big jump this year when I bought my Dream House. Whew.

year | WR % initial portfolio (not CPI adj., to be like REW's)| Portfolio size % of initial
2010 | ............ 2.6% | ............ 100%
2011 | ............ 2.1% | ............ 108%
2012 | ............ 2.3% | ............ 108%
2013 | ............ 2.8% | ............ 116%
2014 | ............ 2.1% | ............ 126%
2015 . | ............ 8.5% (estimated) | ............ 126%

Of that 8.5%, 6.5% was for house buying/selling expenses, and 2.0% was for regular living expenses. The latter is lower because I started getting SS in June of 2014.

Is the new home expense the all-in delta over what you got from your old home? I mean, does that figure =(All-in costs of new home-(net proceeds of old home after prep expenses, commissions, any non-in come taxes, etc.)?

Separately, is a capital expense like a home really an annual withdrawal? Couldn't it also be seen as an attempt to prepay the difference of rent above home ownership costs for the future?

Ha

 

[rodi]

Separately, is a capital expense like a home really an annual withdrawal? Couldn't it also be seen as an attempt to prepay the difference of rent above home ownership costs for the future?

Ha

Not W2R - but voicing my opinion on this. Capital expenses have to be paid for out of the nest egg - unless you have separate accounts, not included in the portfolio. Some folks put $X aside each year towards planned capital expenses like cars, new roof, new heater. Others just include it as lumpy spending from the overall portfolio.

We kind of combine the two models in our household... I budget $X/year for home maintenance and car replacement... It is set aside in savings... but used if needed. Once that savings is fully funded, I stop adding to it... but if I do WR from this fund, I start adding to it again.

That said - as ERD50 reminds me regularly , all money is fungible.

 

[W2R]

Is the new home expense the all-in delta over what you got from your old home? I mean, does that figure =(All-in costs of new home-(net proceeds of old home after prep expenses, commissions, any non-in come taxes, etc.)?

Yes, but let me figure it out again now that I have the final numbers. I'll get back to you later today. It includes costs of buying, selling, and moving such as you have detailed, that I otherwise would not have incurred. It doesn't include costs like not being able to prepare much food at home for 6 weeks due to living out of boxes while closing was delayed 5 times unexpectedly, but it does include the cost of those boxes and the movers to move them.

Separately, is a capital expense like a home really an annual withdrawal? Couldn't it also be seen as an attempt to prepay the difference of rent above home ownership costs for the future?

Ha

I agree with your statement about the home purchase as a capital expense. Like rodi pointed out, some people (like me) just include big expenses with other expenses normally instead of setting money aside for them. While I was working, I did set money aside for big expenses but I don't do that any more in retirement because I don't need to.

To be honest, I regard the house transaction costs as a permanent reduction in principal and thus a sort of re-set. I wasn't spending the full 3.5% that I felt I could, so I figured why not? With a smaller portfolio, my 2016 spending should be closer to 3.5%.

I haven't rented since 2002 so I am a little confused about the rent comment. Basically I don't get it. But both my old home, and my new home, were completely paid off with no mortgage. I am in the "no mortgage camp" myself, so I like it that way. Rents here have been sky high since Katrina, plus I feel less stressed with no mortgage. My withdrawals do not include rent or a mortgage.

 

[W2R]

OK, Haha, here are my final numbers. They do not include income taxes on selling some of my taxable portfolio to pay for the new house, because I haven't yet done my income taxes.

year | WR % initial portfolio (not CPI adj., to be like REW's)| Portfolio size % of initial
2010 | ............ 2.6% | ............ 100%
2011 | ............ 2.1% | ............ 108%
2012 | ............ 2.3% | ............ 108%
2013 | ............ 2.8% | ............ 116%
2014 | ............ 2.1% | ............ 126%
2015 . | ............ 9.8% | ............ 126%

Of the 9.8%, 2.1% was for living expenses unrelated to the house transaction, and 7.7% was for the total house transaction costs.

Now, let me tell you what the house transaction consisted of.

Cost of buying and selling: 73% of total house transaction costs
This included things like closing costs, silly repairs the buyers of my old house wanted done, inspection fees, surveyor, cost of new house minus money received from old house, etc.

Fixing up the new house the way I wanted it: 25% of total house transaction costs
This included garage door opener, keypad entries on all doors, very extensive yard renovation/re-do (actual interior renovations needed were almost negligible but included too).

Cost of maintaining two properties at once: 1% of total house transaction costs
Included are utilities, lawnmowing, utility deposits paid less those refunded, etc, any expense that was duplicated due to maintaining 2 houses.

Cost of the move itself: 1% of total house transaction costs
Here we have the cost of a local moving service, plus the cost of moving supplies like boxes and tape.

 

[haha]

OK, Haha, here are my final numbers. They do not include income taxes on selling some of my taxable portfolio to pay for the new house, because I haven't yet done my income taxes.

year | WR % initial portfolio (not CPI adj., to be like REW's)| Portfolio size % of initial
2010 | ............ 2.6% | ............ 100%
2011 | ............ 2.1% | ............ 108%
2012 | ............ 2.3% | ............ 108%
2013 | ............ 2.8% | ............ 116%
2014 | ............ 2.1% | ............ 126%
2015 . | ............ 9.8% | ............ 126%

Of the 9.8%, 2.1% was for living expenses unrelated to the house transaction, and 7.7% was for the total house transaction costs.

Now, let me tell you what the house transaction consisted of.

Cost of buying and selling: 73% of total house transaction costs
This included things like closing costs, silly repairs the buyers of my old house wanted done, inspection fees, surveyor, cost of new house minus money received from old house, etc.

Fixing up the new house the way I wanted it: 25% of total house transaction costs
This included garage door opener, keypad entries on all doors, very extensive yard renovation/re-do (actual interior renovations needed were almost negligible but included too).

Cost of maintaining two properties at once: 1% of total house transaction costs
Included are utilities, lawnmowing, utility deposits paid less those refunded, etc, any expense that was duplicated due to maintaining 2 houses.

Cost of the move itself: 1% of total house transaction costs
Here we have the cost of a local moving service, plus the cost of moving supplies like boxes and tape.

Thanks very much W2R, this makes your meaning clear. Regarding my comment about prepaying rent, I just meant that in the abstract, what we will always need is shelter. This can be bought outright, bought with leverage, rented or like some people have mentioned, bartered for home sitting or whatever.

For many of us and certainly for me, the still acceptable bottom line would be renting. This is also easily measured.

Ha

 

[W2R]

Thanks very much W2R, this makes your meaning clear. Regarding my comment about prepaying rent, I just meant that in the abstract, what we will always need is shelter. This can be bought outright, bought with leverage, rented or like some people have mentioned, bartered for home sitting or whatever.

For many of us and certainly for me, the still acceptable bottom line would be renting. This is also easily measured.

Ha

Oh, ok, thanks! I get it now, and you are right. My annual spending is smaller because it doesn't include a mortgage or rent, so in a way that is pre-paying my housing costs.

 

[Meadbh]

Oh, ok, thanks! I get it now, and you are right. My annual spending is smaller because it doesn't include a mortgage or rent, so in a way that is pre-paying my housing costs.

Exactly. You gotta live somewhere, and unless that somewhere is under a bridge, there's going to be a financial cost involved.

 

[W2R]

Exactly. You gotta live somewhere, and unless that somewhere is under a bridge, there's going to be a financial cost involved.

Right. I just prefer to pay for my house outright, and then take a smaller annual withdrawal (that doesn't include rent or mortgage) from a similarly smaller nestegg (smaller because I paid for the house in cash).

The recommended WR isn't affected AFAIK.

 

[Meadbh]

The recommended WR isn't affected AFAIK.

True, but your house is an asset that you could sell if you needed the money for residential long term care. Renters don't have that option.

 

[W2R]

True, but your house is an asset that you could sell if you needed the money for residential long term care. Renters don't have that option.

I suppose. We do have to live somewhere, though, and residential long term care can involve buying into a CCRC and/or renting, so I am thinking that one is still faced with the buy/rent/pay-off-the-housing dilemma.

 

[RobLJ]

I'm planning a similar 5-6.5% withdrawal rate in 3 years and for 3-4 years until I'm 64 and eligible for early SS. If the portfolio is high enough to take a 4% at that point, I'll defer until full SS; if not, I'll consider taking early after considering the RMD at 70.5.
I'm currently on "modified employment" that pays 40% of my prior salary to work part-time, pretty much on my own schedule, and DW is younger and will work longer, although at about 60% of her salary before we moved from Houston to here. I may get extended at least one more year, so unlike what I initially planned, I probably won't start making withdrawals until 2018, which probably will allow me to boost the withdrawal rate a little more. The joker in the pack is if DW loses her job, but my plan is for her to stop when I did, at 57. That's when the 6.5% to 7% rate would kick in, for 3-4 years.

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. The chart is explained at the beginning of this thread.

Our calendar year withdrawal rates to date shown as a percentage of our initial portfolio value the day we retired in 2005:

Year 1: 4.8%
Year 2: 9.8%
Year 3: 7.9%
Year 4: 6.1% (SS begins for me)
Year 5: 5.4% (SS begins for DW)
Year 6: 4.2%
Year 7: 3.9%
Year 8: 3.5%
Year 9: 3.7%
Year 10: 4.5%

As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit.

Still, so far, so good...

 

[audreyh1]

MuirWannabe posted a link to this old thread so I thought I would update my chart to show where we are after 10.5 years of retirement. The chart is explained at the beginning of this thread.

Our calendar year withdrawal rates to date shown as a percentage of our initial portfolio value the day we retired in 2005:

Year 1: 4.8%
Year 2: 9.8%
Year 3: 7.9%
Year 4: 6.1% (SS begins for me)
Year 5: 5.4% (SS begins for DW)
Year 6: 4.2%
Year 7: 3.9%
Year 8: 3.5%
Year 9: 3.7%
Year 10: 4.5%

As you can see from the jump in our withdrawal rate this year, we've loosened up the purse strings a bit.

Still, so far, so good...

Isn't it actually that your portfolio shrank in 2015? It dropped due to your withdrawal at the beginning, then probably went down some due to market drops.