How do you plan your withdrawals?

[Scuba]

I agree with the need to track. The good news is that I've been tracking our spending for years. Our retirement spend budget is higher than current spend, as I know we'll have more time to travel and entertain ourselves, plus we will spend more on healthcare. Of our total budget, about 60% is essential and 40% could be reduced or cut out completely for months or even years if things don't go as planned. Our WR is planned to be higher in the early years before SS kicks in, but can be reduced if the market drops substantially. Also I have a pension I can start taking anytime that will cover about half of our mandatory costs, but want to defer as long as possible as it goes up 7-8% for every year I don't take it.


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[rayvt]

Also I have a pension I can start taking anytime that will cover about half of our mandatory costs, but want to defer as long as possible as it goes up 7-8% for every year I don't take it.

Don't forget to factor in that it costs you 100% now to get that extra 7%-8% later.
It takes 14.25 years (100/7) to 12.5 years (100/8) to get back to even. That's an awful long payback period.

 

[Dave in VA]

We are on year 3 in this position. Fortunately I have a pension that provides about 1/3 of our monthly needs. We keep 2 years of expenses in a money market account with Discover bank that pays 1%. We transfer funds to our checking account quarterly. Watching our budget, we found that we are expending more than we anticipated, but still a manageable amount.

 

[Montecfo]

Well, if you think of your SWD as your "means" then if you keep living below your means, you should have plenty of money for non-monthly or larger ticket items (including vehicle replacement) as needed.

 

[Scuba]

To rayvt, I hadn't thought of it that way. If our investment portfolio can't be counted on to generate 7-8% each year, isn't it better to take from that vs start the pension? What am I missing?


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[rayvt]

To rayvt, I hadn't thought of it that way. If our investment portfolio can't be counted on to generate 7-8% each year, isn't it better to take from that vs start the pension? What am I missing?

First off, you can never "count" on investments generating any particular gain each year. It may be 0%, it may be +25%, it may be -15%.
Fun fact: from 1950 to 2016, the one year (12 month) returns of a 60/40 (S&p500/10 yr Tbill) portfolio has ranged from low of -27% to high of +40%, with a median of +10.4%.

A 100/0 portfolio has ranged from low of -43% to high of +61%, with median of 13.4%

But the key point, which you are missing, is that your portfolio and your pension are completely independent of one another. Whether the portfolio goes up or down, the math for delaying the pension is the same -- it costs you 100% now to get 7%-8% every year in the future. The math is: 100/7 (or 100/8) to compute how long it takes you to get back to even.

FWIW, I went through all this when I decided when to start taking my pension. Every month that I delayed the start bumped my pension check by around $14, and I wanted to wait until it crossed the next $100 boundary. Then I said, "Wait--I have to forgo $2000 next month in order to get an extra $14 thereafter, so I'm really buying $14/mo for $2000. So for the next 142 months, I'm just getting my own money back."

 

[Perryinva]

Well, yes, that's the definition of an annuity. Guaranteed income for life for an up front cost. A $14/mo increase for $2000 is a 12 year payback and is actually quite good as far as annuities go. That's an 8.4% rate for life. I'd take that in a heartbeat.

 

[lem1955]

I am 9 months into my first year retired. I was very anxious about retiring in a losing year for the stock market (which hasn't materialized so far, thank goodness). So I took a portion of my income producing portfolio at Vanguard and bought enough CD's within the IRA at Vanguard for two years of withdrawals in quarterly amounts. Each year represented about 3.6% of my portfolio as of December 2015. When those CD's come due I've been rebalancing and buying another quarter (if the portfolio is down) or half year's (if the portfolio is up) worth of CD's. I think I will stop buying quarterly CD's in 2017. Maybe I'll get brave and buy a whole year at a time. When the CD's mature I withdraw the cash, pay estimated taxes, and deposit at Ally Bank Savings. Then I take monthly "paycheck-like" withdrawals from there. I've been looser with spending than I should be. I think I may reduce the "paycheck" and try to build up more after tax cash in the Ally Savings account.