I just realized I've doing my WR calculations incorrectly

[ejman]

Quote:

Originally Posted by perez99 Is 'liquid net worth' similar to 'investable assets' ? wondering why the OP is using some version of Net Worth...

Yes, that's how I look at it.

[ejman]

Quote:

Originally Posted by Koolau Don't know what your NW is, but if you really want to splurge on a private jet, there are services out there that can accommodate you. You don't have to buy your own. If you really need to "burn" some NW, that would do it quite nicely - and be lots of fun. I've toyed with the idea of at least flying first class in the future - especially now that SS has kicked in. My WDR has fluctuated but has rarely hit 4% with less-than-3% more typical. At my age of nearly 70, I'm beginning to wonder who I'm saving it for. Back to the private jet for a second, if you take a group (say, kids and kids of kids) you could fill a private jet and the cost per person wouldn't be dramatically more than say first class airfare. Live a little!! YMMV

Intriguing idea but frankly, just the thought of doing such would probably send my pacemaker into overdrive. As many others have noted a lifetime of LBYM does cause some preconditioning. I thought I was really upping the game by buying what to me is a semi luxury car...

[NW-Bound]

Quote:

Originally Posted by ejman Very nice speakers. I listened to them when I went to Denver a few years ago for the Rocky Mountain Audio Fest...

That's more than I have done. I only ran across these French speakers on the Web, and thought they would be a quick way to blow $260K for people who are rolling in dough.

Another Web page says they are only $180K, but it may be because of the varying conversion rate of the euro at the time they write about these speakers.

[audreyh1]

Quote:

Originally Posted by ejman age I was simply looking at my expenses divided by liquid net worth and thinking that as long as I was around 4% it was OK. I do not actually take a percentage of assets at the beginning of the year or such. I simply take all fund distributions in cash and top off as needed by actually selling some shares. Most years no need to sell anything. I had simply not adjusted my WR thinking to adjust that's all. When I take into account SS and a small pension, it turns out that I'm only spending about 2% of liquid NW per year to cover expenses.

OK - I see. You were just comparing your spending to your net worth and forgot that you were getting income from SS and pension that was covering some of those expenses.

I assume that spending include taxes paid, in which case yes, your spending your NW at a pretty low rate.

The way this is usually done is you determine what your spending needs (including income taxes) are for most years. Subtract the income you expect to receive from income streams such as SS and pension or annuity. Then the remainder is what needs to be financed by your investments. SWR studies are then used to determine how large your retirement fund needs to be to supply the additional income from investments and what asset allocation should be used to meet survival/volatility goals.

Overall, sounds like you can give yourself a raise!

[45th Birthday]

I'm in a similar situation, investment income more than covers spending. So, my "withdrawal" rate is actually a negative number. My net worth is 25% higher today than the day I stopped working for money. Been ratcheting up the spending and will continue to do so, but don't see my withdrawal rate becoming a positive number ever.

[ejman]

Quote:

Originally Posted by 45th Birthday I'm in a similar situation, investment income more than covers spending. So, my "withdrawal" rate is actually a negative number. My net worth is 25% higher today than the day I stopped working for money. Been ratcheting up the spending and will continue to do so, but don't see my withdrawal rate becoming a positive number ever.

The way I see it, investment income ( dividends, cap gains etc) is actually part of the withdrawal rate so as long as one is taking something out of one's investments the withdrawal rate would be positive no? If one reinvests everything then withdrawal rate would be zero. If one puts money in from outside sources i.e. work, gifts etc then withdrawal rate would be negative?

[audreyh1]

Right. If you spend your dividends, you are withdrawing that amount.

Withdrawals only go negative if you add more money than you take out.

[gauss]

Quote:

Originally Posted by ejman Intriguing idea but frankly, just the thought of doing such would probably send my pacemaker into overdrive. As many others have noted a lifetime of LBYM does cause some preconditioning. I thought I was really upping the game by buying what to me is a semi luxury car...

Similar to my thoughts.

Personally, the biggest luxury to having a low WR is being able to sleep well at night knowing that money worries are hopefully not in the cards for me.

-gauss

P.s. I was glad to see the topic of your thread was the opposite of what it could have been by just reading the subject.

[Huston55]

Quote:

Originally Posted by ejman I started working on my year end numbers and I've been simply taking my expenses divided into my liquid NW as the % of withdrawals and my average has been about 4.3% since ER back in 2002. (This includes 3 new vehicle purchases). I just realized however that I really should take SS and a small non cola pension into account in this calculation. When that is done then it turns out that my actual WR is closer to 2%. Maybe I should start living it up a little - just in time for Christmas! Merry Christmas and Happy New Year to all

I'm surprised to be the first to offer....but, I would be happy to help you increase your WR. And, I know several of our forum colleagues over at the "Golf Talk Tuesdays" thread would likely join me in taking an expensive international golf holiday to help.

http://www.early-retirement.org/foru...ays-78866.html

Just let us know what we can do; we're here for ya man!

[SecondCor521]

I'm in a similar situation. My spending is right at about 3.5% of my investments, but I have what I call "non portfolio income" - money that comes into my possession that isn't dividends or capital gains in my taxable account or IRAs.

I just ran a Quicken report and this year my non-portfolio income is slightly more than twice what I spent this year. Oh dear...

[ejman]

Quote:

Originally Posted by Huston55 I'm surprised to be the first to offer....but, I would be happy to help you increase your WR. And, I know several of our forum colleagues over at the "Golf Talk Tuesdays" thread would likely join me in taking an expensive international golf holiday to help. http://www.early-retirement.org/foru...ays-78866.html Just let us know what we can do; we're here for ya man!

Your generosity, as well as that of the forum colleagues over at the "Golf Talk Tuesdays" site is amazing and certainly a welcome relief particularly at this time of need. My heartfelt thanks

[audreyh1]

I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high.

As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

[cooch96]

If I ever get to the point where it feels difficult to responsibly spend down my assets, (it might happen) I'd become a "patron of the arts." It Sounds so lofty. Just find a starving artist whose work you appreciate and give them a living wage to do sculpture or murals.

[45th Birthday]

Quote:

Originally Posted by ejman The way I see it, investment income ( dividends, cap gains etc) is actually part of the withdrawal rate so as long as one is taking something out of one's investments the withdrawal rate would be positive no? If one reinvests everything then withdrawal rate would be zero. If one puts money in from outside sources i.e. work, gifts etc then withdrawal rate would be negative?

Yes, based on the theory of the withdrawal rate concept, that might be true. This concept being: the maximum rate at which the portfolio can be depleted over time without being fully depleted by a certain date, given a range of possible market movements.

But, if in practice the portfolio throws off enough income that, even with sustained market decline, the portfolio doesn't diminish, has a "withdrawal" really taken place?

[audreyh1]

Quote:

Originally Posted by 45th Birthday Yes, based on the theory of the withdrawal rate concept, that might be true. This concept being: the maximum rate at which the portfolio can be depleted over time without being fully depleted by a certain date, given a range of possible market movements.

Yes, It is true. The safe withdrawal rate studies are all based on total return of portfolios over history. That total return includes all income generated by the portfolio such as dividends and interest.

Quote:

Originally Posted by 45th Birthday But, if in practice the portfolio throws off enough income that, even with sustained market decline, the portfolio doesn't diminish, has a "withdrawal" really taken place?

Not going to happen. A portfolio will diminish with a sustained market decline. Throwing off income has nothing to do with it. It's all about total return.

Even with no stocks, bonds can diminish as well during period of rising interest rates and/or financial credit crises (of you hold those lower quality, high income ones), and they definitely won't keep up with inflation if you are taking all the interest/dividends. So - over time your portfolio will decline if the markets behave poorly especially if you aren't reinvesting your dividends/interest.

[CardsFan]

Quote:

Originally Posted by audreyh1 I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high. As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

This what we have been doing. Just finishing our 1st year in ER. That being said, I had tracked our actual expeneses for the previous 5 years, took the highest of the 5, added HI and taxes, and calculated a maximum expected WR of 3.3%.
Looking back at 2016, the actual WR was only 2.6%. When SS kicks in in 4 years (FRA) WR will be 1-1.5%. I guess we need to up our game

[brucethebroker]

Quote:

Originally Posted by cooch96 If I ever get to the point where it feels difficult to responsibly spend down my assets, (it might happen) I'd become a "patron of the arts." It Sounds so lofty. Just find a starving artist whose work you appreciate and give them a living wage to do sculpture or murals.

I'm not starving, but I can fingerpaint.............does that count?

[pb4uski]

Quote:

Originally Posted by audreyh1 I get the impression that quite a few retirees on this forum just take what funds they need for spending and later calculate their withdrawal rate as a check that it's not too high. As opposed to taking a predetermined withdrawal amount out of a retirement portfolio each year and spending from that.

That is exactly what we do. I have a monthly "paycheck" transfer from our retirement nestegg to the local bank account we use to pay our bills for our normal living expenses. Taxable account distributions also go directly to this local bank account. I monitor our bank balances and do special transfers if necessary. At the end of the year I take the total transfers and taxable account distributions as the numerator.

For the denominator I usually use the balance of our retirement nestegg at the beginning of the year... or if I want a result more consistent with the Trinity study then I use the balance of our retirement nestegg when I retired.

As long as the calculated WR is in a reasonable range then I'm happy. Our WR is currently on the high side because we have not yet started SS. If I want I can reduce the numerator by an estimate of SS to get a notion of our "ultimate" WR once SS starts.

The only thing I am debating with myself is how to treat the cost of the winter condo that we bought for cash this year, but I'm leaning towards adjusting the numerator to exclude that withdrawal and ignoring the value when I calculate the denominator in future years (IOW, viewing the winter condo similar to our home and outside our retirement assets rather than as an investment in real estate within our retirement assets).

Also, for clarity, when I use the term nestegg I mean our taxable accounts, tax-deferred IRAs, tax-free Roth IRAs and HSAs, etc... but excluding our homes, cars, boats, local bank accounts and credit cards that have minimal balances, etc.

[Danmar]

Retired 10 years and up to this point have generally just spent divs and pension. Divs represent around 3.25-4% of market value over this period, depending on current prices. Portfolio has almost doubled over retirement period. Have decided to change strategies a bit for next year. Will systematically sell .5-1% throughout the year and add to my cash balance. I will eventually figure out something to spend/gift it on. In theory this will allow me to bump spending/gifting by about 15%. Looking forward to this.

[GTFan]

Yep, that's the position we're going to be in after the ACA goes bust (if it does) and we don't have to suppress income anymore. Only been retired a couple of years but I can see that we're going to need to draw way more in future than we're doing now because we can easily live on divs, interest, my small pension and my wife's PT work. Then decide on whether to build cash like audrey does (for splurges or whatever) or just gift it out. Or if the healthcare market really hits the fan it'll all go towards ridiculously priced insurance and OOP expenses.

Sure is nice to know that no matter how the market does we can make it work.