Flat spending rate

[explanade]

I'm coming up on 7 years since FIRE.

My spending rate has been flat. I'm not talking flat percentage, but flat sum.

Meanwhile the value of assets are up over 80%, not even adding up the money I've withdrawn.

Or more accurately, I've mostly lived off dividends and the savings I had 7 years ago. I've not sold shares other than some minor numbers for tax loss harvesting.

So in the first year, my spending represented maybe 2% of total assets.

In 2020, with reduced spending from the pandemic, spending is less than 1% of asset value at the end of 2020 (market was down a lot around April and May and had gone up a lot by the end of the year).

In 2019, which was my highest spending year since RE (and also the highest spending year ever), it was 1.7% of total asset value at end of 2019.

So at about half way point in 2021, I would be on pace to spend less than 1.2% of my current assets, as of Friday.

In dollar terms, I've been at the same level, give or take maybe $10-15k?


It's not that I'm necessarily trying to LBMY. The first few years were tentative, uncertainty about living only on retirement assets, uncertainly about the market direction, which had already risen a lot in the 5-10 years before I FIRE'd, even accounting for the 2008 Financial Crisis.


But do I need to pick a higher withdrawal rate and stick to it no matter what?

A lot of folks seem to rebalance at the start of the year so they're selling their SWR calculated against their ending asset value at the end of the previous year?

I'm 60 so there would be SS to add to the spending in a couple of years and RMDs in no more than 10 years.

 

[Yipper]

Seems your experience confirms the Bernicke findings somewhat... essentially a small percentage reduction in retirement spending each year - not driven by financial situation or hardship.

 

[RobbieB]

No, you don't need to pick a higher WR. You can spend a lot more if you want to or you need to.

 

[youbet]

I'm 60 so there would be SS to add to the spending in a couple of years and RMDs in no more than 10 years.

Keep in mind that only the taxes you pay on your RMD's add to spending. The balance of the RMD goes into your non-deferred account where it can remain unspent.

 

[chassis]

I'm coming up on 7 years since FIRE.

My spending rate has been flat. I'm not talking flat percentage, but flat sum.

Meanwhile the value of assets are up over 80%, not even adding up the money I've withdrawn.

Or more accurately, I've mostly lived off dividends and the savings I had 7 years ago. I've not sold shares other than some minor numbers for tax loss harvesting.

So in the first year, my spending represented maybe 2% of total assets.

In 2020, with reduced spending from the pandemic, spending is less than 1% of asset value at the end of 2020 (market was down a lot around April and May and had gone up a lot by the end of the year).

In 2019, which was my highest spending year since RE (and also the highest spending year ever), it was 1.7% of total asset value at end of 2019.

So at about half way point in 2021, I would be on pace to spend less than 1.2% of my current assets, as of Friday.

In dollar terms, I've been at the same level, give or take maybe $10-15k?


It's not that I'm necessarily trying to LBMY. The first few years were tentative, uncertainty about living only on retirement assets, uncertainly about the market direction, which had already risen a lot in the 5-10 years before I FIRE'd, even accounting for the 2008 Financial Crisis.


But do I need to pick a higher withdrawal rate and stick to it no matter what?

A lot of folks seem to rebalance at the start of the year so they're selling their SWR calculated against their ending asset value at the end of the previous year?

I'm 60 so there would be SS to add to the spending in a couple of years and RMDs in no more than 10 years.

With a 1% withdrawal rate you can do whatever you want. You can quadruple your spending, indefinitely. If you have the time and energy to consume four times of your actual needs.

Or you can continue consuming (spending) at your current rate and your assets will grow in perpetuity if you are not all bonds or cash.

 

[youbet]

Seems your experience confirms the Bernicke findings somewhat... essentially a small percentage reduction in retirement spending each year - not driven by financial situation or hardship.

I get it that "on average" folks will spend less as they age. But you do need to be thoughtful in your planning as to whether you'll be "average" or not. DW and I definitely are not. We're beginning to pay for services to be able to continue the same activities and life style we had when younger, just with help (sometimes quite expensive) to do so. In our mid-70's and FIRED 16+ years, our total spending is increasing due to increases in discretionary spending.

As on all subjects related to FIRE, folks need to consider carefully whether they're gong to be "average" or not. I'd hate to be at this particular stage and not have planned for the extra expense of using fishing guides instead of continuing to do it on our own, for example. For us, there is a long list of things like that. We don't want to stop, we just need to buy a little help.

So, Bernicke be damned! On we go!

YMMV

 

[TheWizard]

Couple different things here.
Foremost should be managing your AGI and taxable income for the long run so you don't have a major increase in AGI and tax once SS and RMDs are active.
This generally takes the form of Roth conversions prior to age 72.

How much you *spend* from your cash flow and assets is a separate issue...

 

[RunningBum]

But do I need to pick a higher withdrawal rate and stick to it no matter what?

No, why would you even think that you have to withdraw more than you need? What would be the purpose, force yourself to spend it all? That's silly too. If you don't spend it, what are you going to do, pile it up in a low-interest savings account?

Spend where you want to. Take more trips, but only if you want to. Stay in better hotels, upgrade your airline seats and hotels, etc. Eat at nicer restaurants. Buy filet mignon and pacific salmon instead of hamburger and tilapia. If that's what you want to do. Don't force it.

If you don't want that stuff or are still underspending, save it for a rainy day. You might find that money really handy if you need managed care. You can have a caretaker come to your house, or get better managed care than Medicaid would give you. Help a family member or friend in need. Make a real impact to the charities of your choice, before or after you go.

 

[walkinwood]

Keep a daily diary for a while & see if there are tasks/things/activities that you like/dislike that would benefit from throwing money at it. Would a better hotel room make you feel better about your stay? Would a faster computer make surfing more enjoyable? a nice, new bicycle. Someone to mow your lawn or clean your home. A better cut of meat..


Now that I've suggested it, I'm going to try doing it too (though our withdrawal rate is much higher as a %age of our portfolio.)

 

[audreyh1]

Just think about your priorities and also realize that if you don't spend it someone else will. You might want to see if annual gifting fits into your life priorities.

 

[jollystomper]

Look at your low spending rate as giving you flexibility. If something comes along that you decide (or are possibly forced) to spend on, it will not impact your finances nor bring concern about your spending level.

 

[DireWolf]

I’d probably switch to using VPW to tell me what I *can* spend each year, knowing that I could live just fine under even the historical worst case for VPW (iirc it squeezes down into the low 2% WR range in that case). I’d then focus on optimizing things for taxes, knowing RMDs + SS are going to hit (IOW, figure the optimal mount to start converting to Roth now). Beyond that, if you want to actually spend what VPW says you can one you, have at it. If you don’t, don’t. Figure out what you’d like done with your assets once you pass.

 

[braumeister]

Spending is all over the map for some of us.
I've been retired for a long time, so I don't have all the records, but here is a chart of my spending for the last 14 years.

It goes up and down depending on so many things. Within this 14-year period, my highest spending year was 3.9% of my stash, and the lowest was (naturally) last year when it was actually below zero.

Granted, there are pensions here, and then Social Security came into the equation, so way too many moving parts for me to model. I just rely on the calculators (mainly FIRECalc) to keep me grounded.

 

[TheWizard]

Spending can be a tricky topic in retirement.
I have excess retirement income most months and invest that in my taxable account, into stock funds eventually.
At some point, I'll buy a new Mustang for $40k or so, using funds from my taxable account and possibly from my Roth IRA.

So it's good to have retirement income that exceeds my immediate needs most months...

 

[Gumby]

Until international travel becomes possible again, I expect our withdrawal rate will be negative.

 

[TheWizard]

Until international travel becomes possible again, I expect our withdrawal rate will be negative.

Mine certainly has been...

 

[scrabbler1]

I'm coming up on 7 years since FIRE.

My spending rate has been flat. I'm not talking flat percentage, but flat sum.

Meanwhile the value of assets are up over 80%, not even adding up the money I've withdrawn.

Or more accurately, I've mostly lived off dividends and the savings I had 7 years ago. I've not sold shares other than some minor numbers for tax loss harvesting.

So in the first year, my spending represented maybe 2% of total assets.

In 2020, with reduced spending from the pandemic, spending is less than 1% of asset value at the end of 2020 (market was down a lot around April and May and had gone up a lot by the end of the year).

In 2019, which was my highest spending year since RE (and also the highest spending year ever), it was 1.7% of total asset value at end of 2019.

So at about half way point in 2021, I would be on pace to spend less than 1.2% of my current assets, as of Friday.

In dollar terms, I've been at the same level, give or take maybe $10-15k?


It's not that I'm necessarily trying to LBMY. The first few years were tentative, uncertainty about living only on retirement assets, uncertainly about the market direction, which had already risen a lot in the 5-10 years before I FIRE'd, even accounting for the 2008 Financial Crisis.


But do I need to pick a higher withdrawal rate and stick to it no matter what?

A lot of folks seem to rebalance at the start of the year so they're selling their SWR calculated against their ending asset value at the end of the previous year?

I'm 60 so there would be SS to add to the spending in a couple of years and RMDs in no more than 10 years.

Have your expenses varied at all due to the introduction of the ACA and its premium subsidies in 2014?

While I have separated my medical expenses from my non-medical expenses when analyzing my overall, annual picture, I have also been separating my income taxes from the rest of my non-medical expenses because those, like my medical expenses, have been the most volatile in the 12+ years I have been retired.

At the end of 2019, I made a major change to my portfolio - I sold off an actively managed stock fund I had been in since 1996, and replaced it with a similar, index stock fund. This change did 2 big things in 2020 - it lowered my income taxes due to those huge cap gain distributions I had been seeing since 2015 disappeared ; and it put me back on the ACA premium subsidy train I had fallen off of since 2017, and the subsidy I had been forgoing was growing quickly.

In 2020, my medical expenses dropped by nearly 50%, and my income taxes nearly disappeared (counting the relief checks as negative income taxes). Together, this dropped my WR to its lowest point in my ER. My growing portfolio has also contributed.

I don't target a WR, it's just a final effects number I determine afterward. It doesn't affect my spending habits. It's good to see how low it has become (1.2%), of course.

 

[explanade]

No, why would you even think that you have to withdraw more than you need? What would be the purpose, force yourself to spend it all? That's silly too. If you don't spend it, what are you going to do, pile it up in a low-interest savings account?

Spend where you want to. Take more trips, but only if you want to. Stay in better hotels, upgrade your airline seats and hotels, etc. Eat at nicer restaurants. Buy filet mignon and pacific salmon instead of hamburger and tilapia. If that's what you want to do. Don't force it.

If you don't want that stuff or are still underspending, save it for a rainy day. You might find that money really handy if you need managed care. You can have a caretaker come to your house, or get better managed care than Medicaid would give you. Help a family member or friend in need. Make a real impact to the charities of your choice, before or after you go.

Because my WR has been under 2%.

And my equity allocation is around 75% so it needs to go down.

Yes I've increased my spending but on the trip I just completed, I stayed in some nice places and also shopped for bargains which in retrospect, would have made for more pleasant stay if I chose nice-sized hotel rooms than Airbnbs, which turned out to be smaller than I expected, though they were in optimal locations.

I also should have had more nicer meals. though often I didn't want a big meal nor necessarily wanted to devote a lot of time for a sit-down meal.

I had a long car rental and when I purchased, they tried to get me to upgrade. Again, maybe another couple of hundred and it might have been more comfortable if not enjoyable.

Still what I will end up spending on this trip is certainly not insignificant and I've had healthy travel budgets.

 

[explanade]

Couple different things here.
Foremost should be managing your AGI and taxable income for the long run so you don't have a major increase in AGI and tax once SS and RMDs are active.
This generally takes the form of Roth conversions prior to age 72.

How much you *spend* from your cash flow and assets is a separate issue...

I haven't looked enough into Roth conversions.

But my 401k balance is less than 10% of my assets.

So it would seem like my retirement savings wouldn't benefit as much since over 90% is in after-tax accounts, which has big unrealized gains.

 

[explanade]

Until international travel becomes possible again, I expect our withdrawal rate will be negative.

International travel is possible now.

You have to jump through some hoops but it's not unbearable IMO.

I wouldn't assume international travel next year will have less uncertainties than now.

Have two more international trips booked through mid September and there is still the chance that travel restrictions will be reimposed.

 

[explanade]

Have your expenses varied at all due to the introduction of the ACA and its premium subsidies in 2014?

While I have separated my medical expenses from my non-medical expenses when analyzing my overall, annual picture, I have also been separating my income taxes from the rest of my non-medical expenses because those, like my medical expenses, have been the most volatile in the 12+ years I have been retired.

At the end of 2019, I made a major change to my portfolio - I sold off an actively managed stock fund I had been in since 1996, and replaced it with a similar, index stock fund. This change did 2 big things in 2020 - it lowered my income taxes due to those huge cap gain distributions I had been seeing since 2015 disappeared ; and it put me back on the ACA premium subsidy train I had fallen off of since 2017, and the subsidy I had been forgoing was growing quickly.

In 2020, my medical expenses dropped by nearly 50%, and my income taxes nearly disappeared (counting the relief checks as negative income taxes). Together, this dropped my WR to its lowest point in my ER. My growing portfolio has also contributed.

I don't target a WR, it's just a final effects number I determine afterward. It doesn't affect my spending habits. It's good to see how low it has become (1.2%), of course.

I've never qualified for ACA subsidies. Only got some relief this year because of the relief package they passed, which cut my monthly premium by $400-450.

Most of my assets are in index or low-cost VG funds. However, I do still have some active funds and some individual stocks. I guess I will target trimming those first.

If I need my WR at 2% or less, it's unlikely I would outlive my money.

I can certainly live well at 2%, with a good 5-figure travel budget and probably as much entertainment and dining as I would want.


It is a good point raised about possibly needing managed or long term care and making sure to have enough to fund that type of care.

 

[Yipper]

DW and I definitely are not. We're beginning to pay for services to be able to continue the same activities …”

So, Bernicke be damned! On we go!

YMMV

Please share some examples of what types of services you’re paying for now.

 

[RunningBum]

Because my WR has been under 2%.

That's really not a valid reason. What bad thing will happen if you don't do this extra spending you think you need to?

And my equity allocation is around 75% so it needs to go down.

You can adjust your equity allocation without spending the money.

I understand it's hard to stop being frugal even when you're so far ahead, because you got there in part by being frugal. My WR the last 6 years has been between 2-3%, and it'll probably only be a little higher than 2% this year. And yet I caught myself trying to come up with a cheaper solution than some hobby supplies that might cost me $32 because I think I can make something else work. But I've never felt I have to spend more.

It's your life, I'm not going to argue about your choices. I'm just trying to offer some perspective. I'll stop now.

 

[explanade]

The bad thing that could happen is leaving too much money unspent.

 

[RobbieB]

You said it yourself, nicer hotels, better food and bigger cars. Go ahead and blow that dough!