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Old 04-27-2018, 08:14 AM   #41
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So, my question is a little different. What is the least safe withdrawal rate and/or method that you find is still sensible, for planning purposes that will maintain your standard of living?
Our situation is impacted by having a pension (non-COLA), which gives us the ability to have relatively lower SWR.

Our plan is simple, and will be re-evaluated yearly. Our initial SWR will be based on the difference between my pension and our budgeted expense level, which will be 2.3%. We will review yearly adjust based on our (a) our actual spending, and (b) our portfolio gains/losses. In the best case, if we come in under budget and we have portfolio gains, we can consider to increase our spending and go for a larger SWR. In the worst case, we will keep our SWR as a percent of our remaining portfolio and, if necessary, adjust our budget (the pension will cover the majority of our "need" expenses, so any impact will be on "wants" and thus not as severe).

When I reach 63 we will begin evaluating taking SS - that will reduce our SWR somewhat, but we not we have to account for inflation with my non-COLA person. But in "normal' estimates, whenever we choose to take SS our SWR would be under 2%, so that gives us some margin for error.
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Old 04-27-2018, 08:15 AM   #42
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I don't know what my annual withdraw rate is because I don't know how much I spend.

I know how much I've got and that's enough for me.


Intuitively that is basically my approach as well...
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Old 04-27-2018, 09:38 AM   #43
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Our situation is impacted by having a pension (non-COLA), which gives us the ability to have relatively lower SWR.

Our plan is simple, and will be re-evaluated yearly. Our initial SWR will be based on the difference between my pension and our budgeted expense level, which will be 2.3%. We will review yearly adjust based on our (a) our actual spending, and (b) our portfolio gains/losses. In the best case, if we come in under budget and we have portfolio gains, we can consider to increase our spending and go for a larger SWR. In the worst case, we will keep our SWR as a percent of our remaining portfolio and, if necessary, adjust our budget (the pension will cover the majority of our "need" expenses, so any impact will be on "wants" and thus not as severe).

When I reach 63 we will begin evaluating taking SS - that will reduce our SWR somewhat, but we not we have to account for inflation with my non-COLA person. But in "normal' estimates, whenever we choose to take SS our SWR would be under 2%, so that gives us some margin for error.
It appears that many people in this forum who do use some form of WR% versus a more generic budgeting/spending, are gravitating towards some form of % of remaining portfolio.
I do like this concept, as IMO it does effectively subtract out the inflation portion of the equation.
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Old 04-27-2018, 10:28 AM   #44
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It appears that many people in this forum who do use some form of WR% versus a more generic budgeting/spending, are gravitating towards some form of % of remaining portfolio.
I do like this concept, as IMO it does effectively subtract out the inflation portion of the equation.
I like the "% of the prior 12/31 portfolio balance" method because so far it seems easier and more foolproof.

However, every year I figure out what I spent, and record three percentages:

(1) what percentage of the prior 12/31 value of my portfolio that was;
(2) what percentage it would have been if I was following the traditional CPI increased method based on my initial portfolio value; and
(3) what percentage it would have been based on my lowest portfolio value at the depths of the Great Recession (on 3/9/2009).

That way I know I am not hiding my head in the sand.
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Old 04-27-2018, 10:48 AM   #45
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I like the "% of the prior 12/31 portfolio balance" method because so far it seems easier and more foolproof.

However, every year I figure out what I spent, and record three percentages:

(1) what percentage of the prior 12/31 value of my portfolio that was;
(2) what percentage it would have been if I was following the traditional CPI increased method based on my initial portfolio value; and
(3) what percentage it would have been based on my lowest portfolio value at the depths of the Great Recession (on 3/9/2009).

That way I know I am not hiding my head in the sand.
Do you use one of the 3 methodologies mentioned above or just use as a "am I doing okay" reference?
Interesting that you still use number 2 as a reference point.
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Old 04-27-2018, 11:09 AM   #46
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Do you use one of the 3 methodologies mentioned above or just use as a "am I doing okay" reference?
Interesting that you still use number 2 as a reference point.
I regard number 1 as my main methodology, but I don't actually spend the full 3.5% that I feel would be OK because I am used to a certain lifestyle and only spend that much. So, I have been under 3.5% both by #1 and #2 each year since I retired in 2010.

My relatives (and probably many on the forum) think I am cuckoo for not spending more and living the high life. But, I am happy with things like they are now and I have no desire for any more possessions or experiences than what I have been paying for. Now if I could pay for an extra 20 years of expected lifespan, I would, but unfortunately everyone has to deal with the Grim Reaper at some point.

Aside from the dream home, my average spending percentages so far have been 1.98% and 2.17% by the #1 and #2 methods. So, I have had a lot of wiggle room.

If I *did* withdraw 3.5% and then bank the excess over what I spent, like Audreyh1 does, that would have been more than enough to cover the cost of my dream home in 2015 and related costs, as well as the rest of my living expenses.

As for method #3 (percent of my 3/9/2009 portfolio value), I spent 3.68% in 2013 but otherwise have been below 3.5%. I calculate that mostly out of curiousity and to reassure myself that I would be OK in the event of another Great Recession of that magnitude.

So in answer to your question, a lot of this is used as "am I doing OK?" information. But #1 is my main method and what I rely upon. If I ever decide to spend more, #1 will be my limit.
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Old 04-27-2018, 11:32 AM   #47
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I regard number 1 as my main methodology, but I don't actually spend the full 3.5% that I feel would be OK because I am used to a certain lifestyle and only spend that much. So, I have been under 3.5% both by #1 and #2 each year since I retired in 2010.

My relatives (and probably many on the forum) think I am cuckoo for not spending more and living the high life. But, I am happy with things like they are now and I have no desire for any more possessions or experiences than what I have been paying for. Now if I could pay for an extra 20 years of expected lifespan, I would, but unfortunately everyone has to deal with the Grim Reaper at some point.

Aside from the dream home, my average spending percentages so far have been 1.98% and 2.17% by the #1 and #2 methods. So, I have had a lot of wiggle room.

If I *did* withdraw 3.5% and then bank the excess over what I spent, like Audreyh1 does, that would have been more than enough to cover the cost of my dream home in 2015 and related costs, as well as the rest of my living expenses.

As for method #3 (percent of my 3/9/2009 portfolio value), I spent 3.68% in 2013 but otherwise have been below 3.5%. I calculate that mostly out of curiousity and to reassure myself that I would be OK in the event of another Great Recession of that magnitude.

So in answer to your question, a lot of this is used as "am I doing OK?" information. But #1 is my main method and what I rely upon.
Thanks W2R.
Seems to be opinions on both sides on whether to use the Audreyh1 methodology for the excess or to just take out one's actual usage (or reimburse at year end) for the year.
I know money is fungible in the end.
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Old 04-27-2018, 12:00 PM   #48
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Thanks W2R.
Seems to be opinions on both sides on whether to use the Audreyh1 methodology for the excess or to just take out one's actual usage (or reimburse at year end) for the year.
I know money is fungible in the end.
Emphasis added.

It is fungible except for (at least) three things:

1. What it is invested in. If the excess amount left in the portfolio would have been in stocks but being withdrawn is held in cash, obviously that increases the percentage of the total portfolio allocated to cash and decreases the percentage off the total portfolio allocated to stocks. This may or may not be what someone wants, but it obviously can result in a different AA which results in different responses to inflation and risk and rate of return.

2. Taxes. I think often but not always, withdrawing money from the portfolio and putting it into a reserve account of some kind has an effect on one's taxes. Roth conversions and traditional IRA disbursements both create taxable ordinary income. Distributions from taxable accounts if not done in-kind are likely to create capital gains and the associated taxes.

3. Reversability. In some situations (like mine) putting any money back into a tax-sheltered account after it has been withdrawn is difficult to impossible. 72(t)'s preclude contributions to the IRAs being used for it. Contributions to a 401(k) are typically not allowed if one has left service. Contributions to a traditional IRA or Roth IRA if one is using Roth conversions are limited to taxable earned income, which some people, including me, don't currently have.

The above is intended as food for thought, not as any sort of criticism of audreyh1's or anyone else's methods. Everyone has to do what works for them and their situation and is something that they understand and feel comfortable with.
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Old 04-27-2018, 01:41 PM   #49
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Regarding WR using a percentage of the current portfolio, I will not fool myself that I can maintain the current 2.5% in a future recession.

I may be frugal, but I have a certain living standard I like to keep. Besides, I cannot take it with me. At the bottom of the market in March 2009, I had 63% of what I had in October 2007. My current 2.5% would have to be 4% to get the same dollar amount.

Ah, but that will also be when I seriously think about starting SS.
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Old 04-27-2018, 02:10 PM   #50
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Yes, and I agree.

A prodigious poster on this forum, and it may be you, I can't remember their name, mentioned that their plan was to withdraw a fixed percentage of remaining portfolio and keep any unused amount that year in a separate savings account to draw from when the portfolio is down or they just needed additional income.

I liked this idea, and that is my plan. I understand money is fungible, so if your using a reduced withdrawal from your investment accounts for the current year (2.5%) and making up the difference from a separate savings you built from previous year's excess withdraws, your actual current withdrawal is higher than the 2.5 and previous year's withdrawal is actually lower since the entire withdraw wasn't spent.

But I like this idea of keeping some powder dry, if nothing else it builds some variability into your WR.

I don't honestly know what I would do in a prolonged down market. I know I would feel uncomfortable if I was drawing on a dwindling balance, so I would either have to drastically cut spending along with a reduced WR or maybe even throw in the towel and look for supplemental income.
Maybe it was me . Since the markets have done well for the past several years our portfolio has grown such that our annual withdrawal well exceeds our spending. So we have been letting unspent funds accumulate in short term investments as I prefer not to expose them to long-term market risks. One day our retirement portfolio could shrink and we might find ourselves with a much smaller withdrawal.

No, your current withdrawal rate is not necessarily going up if you spend some of your excess savings - it depends on how you manage your assets. For me those funds were already withdrawn in prior years. They no longer count as part of any withdrawal. It really does not matter when you spend them. If you withdrew the funds in year 1 but don’t spend some of them until year 3, it makes no difference.

Some people like to consider their entire investable assets when they calculate their AA and withdrawal rate. Or sometimes they reinvest unspent funds which means they actually lowered their withdrawal rate, or they reduce their withdrawal the next year since they don’t need as much. It depends on your long-term goals. If you want more to pass on to heirs then it may make sense to reduce your withdrawal rate. It’s no longer about portfolio survival if you have already picked a conservative withdrawal rate.

I only withdraw annually from my retirement portfolio, and maintain an AA and rebalance that portfolio. What I do with funds outside of that portfolio has no bearing on the AA or rebalancing. For me this keeps things clean and simple.

The “money is fungible” motto does not quite apply, as it makes a huge difference what that money is invested in. You have to be very clear in terms of what you are withdrawing from, what you apply an AA to, what you calculate your portfolio survival on. I always approached it from the point of view that as long as I had a big enough chunk invested long term to meet my retirement income goals, it didn’t matter what I did with the rest of it.
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Old 04-27-2018, 02:29 PM   #51
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I do the 4% of portfolio on Jan,1 .I have used this method since I retired in 2008 just before the big drop .I did have to take a reduced amount due to the drop but it was not extremely painful .At 4% a 100,000 drop only equals 4 thousand dollars so a big drop of $500,000 is $20,000 hit to your budget . Most of us can handle that easily without eating cat food .
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Old 04-27-2018, 02:43 PM   #52
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... At 4% a 100,000 drop only equals 4 thousand dollars so a big drop of $500,000 is $20,000 hit to your budget . Most of us can handle that easily without eating cat food .
I lost more than $500K, even back in the recession of 2002-2003. A $500K loss is a much smaller percentage now for me. And $500K then is worth $685K now, due to inflation.

But $20K still buys a lot of steaks, and has left-over for an European vacation.

OK. I would keep the steak, and forgo the vacation.
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Old 04-27-2018, 02:56 PM   #53
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What was I talking about?

I would start SS, and continue to go on long European vacations. Wasn't that what I said I would do?

By the way, from the market top of Jan 26, 2018 to less than 2 weeks later on Feb 08, 2018, the market dropped more than 10%. I lost a few hundred $K, but not yet $500K.
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Old 04-27-2018, 03:09 PM   #54
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What was I talking about?

I would start SS, and continue to go on long European vacations. Wasn't that what I said I would do?

By the way, from the market top of Jan 26, 2018 to less than 2 weeks later on Feb 08, 2018, the market dropped more than 10%. I lost a few hundred $K, but not yet $500K.
My equities only lost 8.2% between those dates, but I have a lot of international equities as well so perhaps that made a difference.
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Old 04-27-2018, 03:45 PM   #55
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When the loss came right after a ridiculous gain of the S&P of 7.4% from the beginning of year to that top day of Jan 26, it was not too bad (but I still kicked myself for not selling).

Anyway, back on WR, with the market as volatile as it is, one needs to not take the current value of his stash for granted. Some kind of withdrawal averaging will be needed. I do not use Audrey's method, but that is not a bad way to do it.

Personally, my expenses are somewhat stabilized now. If I decide to "blow some dough", it will be for non-recurrent items, which will of course be cut in bad years. And I don't even feel the need to blow any dough.
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Old 04-27-2018, 03:53 PM   #56
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As often mentioned here, I have no formal budget, nor any strict WR amount I get each year. I simply transfer money from my investable accounts to my checking account as needed. And it is about once a month, or every 2 months.

I use Quicken to download and classify my expenses. This allows me to keep an eye on the expenses to spot any bad trend. And I found that my expenses were quite lumpy. One year, I spent more on home remodeling/repair, and another year I spent more on travel or purchases.

But if looking back 1 year, 2 years, 3 years, if the expenses added up to a reasonable percentage of the assets, it's all OK to me. And I have found that it went down ever since I stopped working. As I keep saying, Bernicke is right.
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Old 04-27-2018, 04:01 PM   #57
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Similar here. My withdrawals these days are my monthly "paychecks"... transfers from retirement funds to the credit union account we use to pay our bills... more often than not those and my small pension are more than sufficient to cover our spending.

Said withdrawals are ~3% of our retirement date funds and 2.4% of our BOY funds.
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Old 04-27-2018, 04:02 PM   #58
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What was I talking about?

I would start SS, and continue to go on long European vacations. Wasn't that what I said I would do?

.
That is exactly what I did . I started SS early and still took vacations .
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Old 04-27-2018, 04:12 PM   #59
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I do the 4% of portfolio on Jan,1 .I have used this method since I retired in 2008 just before the big drop .I did have to take a reduced amount due to the drop but it was not extremely painful .At 4% a 100,000 drop only equals 4 thousand dollars so a big drop of $500,000 is $20,000 hit to your budget . Most of us can handle that easily without eating cat food .
Yes no cat food, but 20k right now would wipe out my complete travel budget.
So that is why I will use (at least try it next year) the Clyatt 95% of prior year protection on the downside. I feel good about this concept, since my WR% will probably be 3% vs. the 4%/95% standard Clyatt formula.
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Old 04-27-2018, 04:23 PM   #60
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But if you know that you can take $20K off and not change other aspects of your life, that's meaningful knowledge to have. Perhaps you could still cut something else to eke out a lower amount for a domestic car trip, for example...

As said earlier, I have no planned budget, but just looking at my Quicken screen summarizing the classified expenses, I know how much I spent on essentials such as housing, food, health, etc..., vs. discretionary items such as gift and donation, travel, purchases, home update, etc...

After I convinced myself that my essentials were so low, I stopped worrying about not having enough.
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