I just realized I've doing my WR calculations incorrectly

[audreyh1]

Quote:

Originally Posted by CardsFan 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

I think it's instinctive to most here, who got where they are through careful planning, saving, and investing, to take out less if they don't need it and leave as much invested as possible for the long term.

But one problem with this approach, is that in the long term we die, and unspent funds invested just means a bigger legacy for heirs rather than being spent during our lifetimes. And in the short term, such investments can get creamed occasionally when we go through one of our bear markets.

I prefer to take out as much from long-term investments as I am "allowed" to based on my SWR calculations. My strategy is to have the minimum exposed to the markets that I have to (to meet certain survival criteria) rather than the maximum. So even if I don't spend it all this year, I can spend it the next year, or the next, or splurge, or whatever without worrying whether the unspent funds will be cut in half next year due to a bear market. I also feel that extra money to spend now is more valuable than extra money to spend when I am 80+.

It's just a different way of looking at retirement investments.

[audreyh1]

Quote:

Originally Posted by pb4uski 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).

A lot of folks treat a large expense, like real-estate, as a one time withdrawal from the nestegg which reduces the income going forward. This seems like a reasonable approach as long as the remaining nestegg is sufficient to support future income needs, and as long as the lower nestegg is taken into account by lowering withdrawals proportionally.

So - a big expense can be treated as a giant one-year over withdrawal, or amortized over however many years the portfolio is expected to last.

[NW-Bound]

I ran FIRECalc in the past, and when I included SS it told me the amount I could spend for a 30-year retirement. There's little difference in the SWR dollar amount between taking SS at 62, FRA, or 70 for my set of numbers.

So, each year, as I spend less than that amount, I feel quite OK. Even in my most profligate year, I underspent by about 20% or more. I should live quite comfortably on 1/2 to 2/3 that FIRECalc amount.

I suppose I have some "surplus" built-up, but I never add it up to see what it it. Do I feel the need to spend it? Nope. If the market keeps on rising, I may find something to spend it on, such as travel upgrade or more gifts and donations. But I want to see my stash grow first before doing that. My chicken that keep laying eggs may get sick or something.

[ejman]

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.

Exactly what I do as described in your first paragraph.

As I was planning how to get funds prior to ER back in 2002 I considered the predetermined draw at the beginning of the year method but decided against it mainly because of the unpredictability of fund distributions (particularly CG) and just not knowing what retirement would really be like. I quickly got used to not having a regular paycheck.

[marko]

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. 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

I always said that if I won the lottery the only thing I'd want is a private jet. Leave in the morning from Boston, go skiing in Utah and have dinner in SFO; sleep in a bed all the way back for a morning stroll on the beach in Florida. (Actually, I've done exactly that before; my boss had a jet and it's a great time saver)

[W2R]

Quote:

Originally Posted by audreyh1 A lot of folks treat a large expense, like real-estate, as a one time withdrawal from the nestegg which reduces the income going forward. This seems like a reasonable approach as long as the remaining nestegg is sufficient to support future income needs, and as long as the lower nestegg is taken into account by lowering withdrawals proportionally.

This is how I am approaching the cash purchase of my Dream Home in 2015. I have a lot of wiggle room. Other than money for the house, my withdrawal/spending amount has averaged 2% for the past 7 years. I am one of those who doesn't withdraw more than I spend, or if I do, the excess is effectively returned at the end of the year.

I plan to continue withdrawing and spending about the same amount, but from a smaller portfolio due to buying the house. So, the percentage will not be quite as low as previously. I'll probably still average below 2.5%.

This year it was 2.2% (based on the lowered portfolio value) so it's all working out.

[SecondCor521]

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.

I've only been retired about a year, but the above is essentially what I do.

I take my last six months' worth of spending from Quicken, double it, and divide by my portfolio balance. Given all my particulars, I try to keep the result under 3.5%.

Unfortunately or fortunately depending on how you look at it, this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.), as I noted above.

Since my outside income this year was about twice what I spent this year, I guess I have a negative 3.5% withdrawal rate for this year. I have just left the excess funds there in the portfolio and bank as a hedge against future risks such as a market decline, ACA issues, and my kids' educations.

Since I calculate the number on at least a weekly basis, I'm effectively doing a VPW. If the market declines significantly in the near term and I want to consider myself as doing a Trinity-style withdrawal, I'll have to modify my approach.

[NW-Bound]

Quote:

Originally Posted by SecondCor521 ...Unfortunately or fortunately depending on how you look at it, this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.), as I noted above. Since my outside income this year was about twice what I spent this year, I guess I have a negative 3.5% withdrawal rate for this year...

Oh my! What a calamitous happening. You need to remedy this ASAP.

Either stop that source of extra income if you can, or drain it quickly. Posters here can help you with the latter. Can't let that hot money burn a hole in your pant pocket.

[SecondCor521]

Quote:

Originally Posted by NW-Bound Oh my! What a calamitous happening. You need to remedy this ASAP. Either stop that source of extra income if you can, or drain it quickly. Posters here can help you with the latter. Can't let that hot money burn a hole in your pant pocket.

Yes, I understand I can sponsor either a luxury golf tournament for some of my online friends. Or I could have W2R say the W word once.

;-)

[braumeister]

Quote:

Originally Posted by SecondCor521 this method totally ignores income I receive from outside my portfolio (rental income from a spare bedroom, credit card hacking, gifts, etc.)

So you're the one who hacked my credit card! I always wondered who did it and now I know. But surely it's not worth the risk, since the fraud department caught it before you even got away with $100. Are you still doing it?

[ejman]

Quote:

Originally Posted by audreyh1 I think it's instinctive to most here, who got where they are through careful planning, saving, and investing, to take out less if they don't need it and leave as much invested as possible for the long term. But one problem with this approach, is that in the long term we die, and unspent funds invested just means a bigger legacy for heirs rather than being spent during our lifetimes. And in the short term, such investments can get creamed occasionally when we go through one of our bear markets. I prefer to take out as much from long-term investments as I am "allowed" to based on my SWR calculations. My strategy is to have the minimum exposed to the markets that I have to (to meet certain survival criteria) rather than the maximum. So even if I don't spend it all this year, I can spend it the next year, or the next, or splurge, or whatever without worrying whether the unspent funds will be cut in half next year due to a bear market. I also feel that extra money to spend now is more valuable than extra money to spend when I am 80+. It's just a different way of looking at retirement investments.

I understand the logic of taking an "allowed" amount from a calculated SWR from an intellectual standpoint. I've read the original Trinity study and some of the subsequent elaborations. Still, from an emotional standpoint, setting the unused portion of a withdrawal as a spend kitty separate from ones investments has a "left pocket vs right pocket" feel to me.

For example, I wonder if one would still feel as free to spend that "set aside" money after a market drop of 75% that has been ongoing for 3-4 years or whether one would say something like "better trim the sails a bit"

I fully agree with the better spend it now as opposed to age 90 (feeling prosperous earlier this year I bought a nice new car and gave my daughter and her husband a very large gift) A health scare later on in the year with a resulting brand new pacemaker also helped concentrate the mind. Next year? dunno it's a work in progress

[SecondCor521]

Quote:

Originally Posted by braumeister So you're the one who hacked my credit card! I always wondered who did it and now I know. But surely it's not worth the risk, since the fraud department caught it before you even got away with $100. Are you still doing it?

Ha.

Credit card *travel* hacking, like this: Travel Hacking Resources : The Art of Non-Conformity

So I *am* signing up for credit cards to get miles and points and have for a long time, but I *am not* committing fraud on other people's accounts and never have done so.

[CardsFan]

Quote:

Originally Posted by audreyh1 I think it's instinctive to most here, who got where they are through careful planning, saving, and investing, to take out less if they don't need it and leave as much invested as possible for the long term. But one problem with this approach, is that in the long term we die, and unspent funds invested just means a bigger legacy for heirs rather than being spent during our lifetimes. And in the short term, such investments can get creamed occasionally when we go through one of our bear markets. I prefer to take out as much from long-term investments as I am "allowed" to based on my SWR calculations. My strategy is to have the minimum exposed to the markets that I have to (to meet certain survival criteria) rather than the maximum. So even if I don't spend it all this year, I can spend it the next year, or the next, or splurge, or whatever without worrying whether the unspent funds will be cut in half next year due to a bear market. I also feel that extra money to spend now is more valuable than extra money to spend when I am 80+. It's just a different way of looking at retirement investments.

I understand your methodology, and considered it. In the end, we already have 10% sitting in low yield cash (our buffer for a down turn). I am now having all interest, dividends and cap gains put in to cash, and that is what we draw and spend. And we don't actually spend all of it, so the cash part will grow. So, this is actually similar to your plan, though the percentage is not fixed.

With only one year of experience, however, there is plenty of room to try other ideas.

[NW-Bound]

Quote:

Originally Posted by ejman I understand the logic of taking an "allowed" amount from a calculated SWR from an intellectual standpoint. I've read the original Trinity study and some of the subsequent elaborations. Still, from an emotional standpoint, setting the unused portion of a withdrawal as a spend kitty separate from ones investments has a "left pocket vs right pocket" feel to me. For example, I wonder if one would still feel as free to spend that "set aside" money after a market drop of 75% that has been ongoing for 3-4 years or whether one would say something like "better trim the sails a bit"

+1

Using my "chicken and the eggs" analogy earlier, suppose you have put aside some eggs and have not turned them into scrambled egg. Now, your chicken does not look too well, and god forbid, might have contracted the bird flu.

Do you still want to crack the saved eggs for that omelette, or try to hatch them into replacement chicken?

Quote:

I fully agree with the better spend it now as opposed to age 90 (feeling prosperous earlier this year I bought a nice new car and gave my daughter and her husband a very large gift) A health scare later on in the year with a resulting brand new pacemaker also helped concentrate the mind. Next year? dunno it's a work in progress

I am trying to talk myself into spending more, but I really do not crave anything. No new or fancy cars, nor bigger homes (my existing homes cost me plenty). I can use airplane seat upgrade though. Maybe when I see that my homes stop being moneypits, I will get psyched up enough. I need to convince my frugal wife too.

[ejman]

Quote:

Originally Posted by NW-Bound +1 Using my "chicken and the eggs" analogy earlier, suppose you have put aside some eggs and have not turned them into scrambled egg. Now, your chicken does not look too well, and god forbid, might have contracted the bird flu. Do you still want to crack the saved eggs for that omelette, or try to hatch them into replacement chicken?

That's a very good way to put it.

[NW-Bound]

And then, you realize that the eggs are infertile (you did not have a rooster with your hens)

[W2R]

Quote:

Originally Posted by SecondCor521 Yes, I understand I can sponsor either a luxury golf tournament for some of my online friends. Or I could have W2R say the W word once. ;-)

Remember, the moment when the Dow reaches 20,000 is on its way. Got to save my energy for one big, blow-out Wh***!

[SecondCor521]

Quote:

Originally Posted by W2R Remember, the moment when the Dow reaches 20,000 is on its way. Got to save my energy for one big, blow-out Wh***!

If I ask for a PM before you post publicly, am I guilty of insider trading?

[W2R]

Quote:

Originally Posted by SecondCor521 If I ask for a PM before you post publicly, am I guilty of insider trading?

Probably not, because it would be too hard to explain!! I think you would skate.

[audreyh1]

Quote:

Originally Posted by ejman I understand the logic of taking an "allowed" amount from a calculated SWR from an intellectual standpoint. I've read the original Trinity study and some of the subsequent elaborations. Still, from an emotional standpoint, setting the unused portion of a withdrawal as a spend kitty separate from ones investments has a "left pocket vs right pocket" feel to me. For example, I wonder if one would still feel as free to spend that "set aside" money after a market drop of 75% that has been ongoing for 3-4 years or whether one would say something like "better trim the sails a bit" I fully agree with the better spend it now as opposed to age 90 (feeling prosperous earlier this year I bought a nice new car and gave my daughter and her husband a very large gift) A health scare later on in the year with a resulting brand new pacemaker also helped concentrate the mind. Next year? dunno it's a work in progress

Regardless, that set aside was not exposed to the big market drop. So it's not really a left pocket vs. right pocket thing.