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First Year Withdrawals - Getting the right system down
Old 08-03-2020, 03:13 PM   #1
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First Year Withdrawals - Getting the right system down

I plan on starting at least a partial withdrawal in 2021 as I wind down my business (maybe 1/3rd of my planned spend will be earned income). Right now, plans are to put 1 year's planned spend in two high yield online accounts (1 account holds the budgeted planned spend, the other account holds my contingency/capital funds which will grow year to year assuming there is surplus). From there, I plan on moving maybe 3 month chunks of cash from my budgeted planned spend account to a checking account to pay the bills. When/if there is a capital need, plans would be to move over the cash from that account as needed. Additionally, will probably continue to use Mint to track all these expenses to make sure I am staying inside the lines. While planning for significant discretionary spending, I am sensitive to my former LBYMs thinking... and will it pull back my spending, despite the fact I know I can. At the same time, if say some big expensive fancy trip opportunity presents itself that I did not plan for that takes me above my yearly planned spend, I want to pull the trigger and avoid the fear of overspending that year. I suspect time will cure these concerns once I cross over, but what tricks/rules/systems did you put in place to 1) make sure you were not reckless in your retirement spending, and 2) made sure your did the things you know you can afford to do, even if they bump you over a particular year's spending plan. Oh, and if you are married, what changes, if any, were made to keep mama happy with her spending (my mama is somewhat of a free spender!)
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Old 08-03-2020, 03:46 PM   #2
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No plan survives first contact with the enemy. If this is what you want to try, go ahead and try it. Prussian General Karl von Clausewitz: “The enemy of a good plan is the dream of a perfect plan.”

See how it goes. Adjust as needed.
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Old 08-03-2020, 04:04 PM   #3
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What I do is somewhat similar, but I don't bother to bifurcate planned spend and contingency... I have just one account. For now I'm using an online savings account.

I have an automated monthly "paycheck" transfer from my online savings account to the checking account that I use to pay our bills. I use Quicken to track everything.

I have our main income and expenditures defined as income and expense reminders in Quicken... my monthly pension, the monthly "paycheck", our main credit card bill, a couple electric bills, etc. I also have other bills defined... quarterly HOA fee, property taxes a few times a year, insurance a few times a year, etc. I update the amounts as bills come in... for example, I have $x per month for our credit card bill and when the credit card bill comein I update the next instance for the amount of the credit card bill.

Quicken has a neat tool that projects my checking account balance for the next 90 days (or more) based on the current balance and the income and expense reminders.... I monitor the balance and do "special" transfers to top up the account as needed.

It works well for us.

As far as spending, we're both naturally frugal so spending hasn't been a problem.
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Old 08-03-2020, 04:19 PM   #4
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@pb4uski, if you keep your credit card account in Quicken, you can set up an expense reminder that is equal to the current account balance. It's one of the options in the expense reminder screen. That way you don't have to update the next instance as you describe. (If you're not keeping the credit card account in Quicken, I kinda wonder why not.)

@DawgMan, I can tell you're getting close and getting nervous as your posts all sound like mine from about five years ago. I too developed an intricate plan and posted here for feedback. After being FIREd for four years, my intricate plan has devolved to: (a) check my asset allocation every so often, (b) fill up my bank accounts from my investment accounts when money runs low, and (c) every so often, check to make sure I'm not spending too much.

My answers to your two main questions:

1. I track spending in Quicken - because I'm a nerd - and every so often I download the last six months' expenses, multiply by 2, then make sure that's less than 4% of my FIRE stash.

2. I don't have a good answer here yet, because I don't do this myself. But one idea that I think would help is to set up some sort of automatic transfer from your investments to your spending accounts on a monthly basis that is 4% of your FIRE stash (or whatever you've decided is safe for you). Then if you're not spending fast enough, the cash will just build up in the spending account and it'll be a signal to you to spend more. (Currently with my "pull when needed" method, I am always in a dumb contest with myself to spend as little as possible. The money then piles up in the investment accounts, which is harder to interpret as a "you need to spend more" signal.)

I'm not married, but I was. As far as keeping Mama happy, make sure she has a vote and is bought into your overall FIRE plans. If you have a plan that looks like scrimping to make it work, then even if you're OK with it she might not be. Involve her in the planning and make sure her goals are included in your spending plan just as much as yours are. There is probably heartache if you don't truly listen to her. The fact that all of the sentences (except the last) of your original post use first person singular instead of first person plural could indicate that you haven't involved her as much as you might need to.
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Old 08-03-2020, 04:31 PM   #5
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Quote:
Originally Posted by SecondCor521 View Post
... (a) check my asset allocation every so often, (b) fill up my bank accounts from my investment accounts when money runs low, and (c) every so often, check to make sure I'm not spending too much. ...
After 15+ years in retirement that's pretty much what we do, too. Re Mama, we have separate check books and separate IRAs, so monitoring each other's spending is not really in the cards. Not much risk there, though, as we are both cheapskates.
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Old 08-03-2020, 04:43 PM   #6
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Thanks fellas!

I'm tightening the screws and looking for all the ways the ship will take on water!

Once I give up my super powers, I will be relying on the ark I have built so I will probably brain storm a few more posts until I get my wings! Standby!
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Old 08-03-2020, 06:26 PM   #7
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Quote:
Originally Posted by SecondCor521 View Post

@DawgMan, I can tell you're getting close and getting nervous as your posts all sound like mine from about five years ago. I too developed an intricate plan and posted here for feedback. After being FIREd for four years, my intricate plan has devolved to: (a) check my asset allocation every so often, (b) fill up my bank accounts from my investment accounts when money runs low, and (c) every so often, check to make sure I'm not spending too much.
Bingo! It does not need to be complicated. Like pb4uski we take a monthly paycheck (Funded by int/Div/cap gains in after tax account). It doesn't cover everything, but comes close. Every once in a while I sell something to fill up the account, and once a year take a bigger distribution to cover the rest.

If the SHTF we have a significant cash/MM/CD stash that will cover us for several years.

We all tend to over think this, but after a while you get more comfortable with pulling from the stash, instead of adding to it.
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Old 08-03-2020, 10:35 PM   #8
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Before I retired I was getting semimonthly pay. So I just pay myself semimonthly by doing an automated transfer from my short-term cash account to checking to use to pay bills.

I tend to underrun the budget, at least so far. So as money accumulates I adjust my "paycheck" or move some back to short-term cash account.

I continue to track expenses in quicken and I tally everything a couple of times a year to measure exactly how far under budget I am.

So far so good.
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Old 08-04-2020, 05:59 AM   #9
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Oh, and if you are married, what changes, if any, were made to keep mama happy with her spending (my mama is somewhat of a free spender!)
To keep PAPA happy, we each have an amount each month we can spend freely on anything we want.. an allowance if you will.

We budget and transfer anticipated money into checking each month. Have a separate savings account where the years money goes for taxes, insurance, and medical, and draw from that as spent.
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Old 08-04-2020, 06:17 AM   #10
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I like to keep it simple. I have everything at Fidelity. I keep a month or two of expenses in cash since it pays nothing and I refill the cash as needed from fixed income investments, either maturing bonds or interest payments. The few dividends I get from index ETF’s in my taxable account also flow to cash.
It makes taxes and management easier just to have one set of statements, one website.
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Old 08-04-2020, 08:00 AM   #11
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Your mechanics for spending money seems too complicated, but go for it if it makes you feel comfortable. You can always simplify later.

We charge almost everything to credit cards & have set everything up for automatic payments. Towards the end of the month, I examine & add all the bills (stored in an email folder as they come in) into Quicken & move that money from a short-term bond fund to the bank checking account. I use Quicken's Bill Reminder function to make sure I don't forget any bills. Takes me about 15-30 minutes.

Regarding making sure you're staying close to your budget, keep a rolling 12 month total of expenses. I do a monthly "expense report" that lists the past month's expenses broken down to major categories with some explanation of unusual spending, and a 12 month total v/s our planned budget for the year. Using quicken, it takes me about 15 minutes to get the report, look through it and write up the email to DW. I think that's time well spent.

I've been doing that for 12 years now & we're still solvent.

Good luck to you.
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Old 08-06-2020, 08:08 AM   #12
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My after tax bucket was dry after some years of retirement and I was shooting for limited income, so I felt I needed to have a plan that went beyond "refill when low". My objective was refill in December to dial in the taxes for the year.

So my plan was laid out in a spreadsheet where each month had a column, and the main output was total $ in the spending accounts by month, into the future. The top of each column had the spending accounts total on the first of the month. Then there were rows for adding and subtracting, and the last row was the total of the spending accounts on the last of the month. I split spending into burn-rate stuff (almost everything) and lumpy stuff that might change a lot (income tax, etc). It surprised me how well the burn rate predicted our spending. BTW, DW gets an auto transfer to her account. I consider it spent when it's transferred, hehehe! And there's a row for transfers to and from spending accounts. So there's a bright line between spending accounts and other accounts.

I would agree that not everyone needs to do this level of planning, but it gives me solice to see the line on the graph (spending accounts total) going out into the future and my planned inflows, burn rate, special outflows and transfers causing the line to keep in comfortable range, without surprises.
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