Poll: Retirees, do you keep your Excess Withdrawal? Or Spend it?

[W2R]

The market has been booming ever since the 2008-2009 recession. Some of us have kept more or less the same WR, but that provides us with more and more spending money each year.

I attached graphs of my spending, and the corresponding percentages of my 12/31 portfolio, for each of my first 7 retirement years. As you can see, I'm spending more or less the same percentage, around 2%, but after the first year the dollars spent have been going up, up, up. Last year I spent 135.8% of what I spent in 2010, in dollars. Yet, the percent of my portfolio spent was down 0.39%.

This produces some uncertainty and anxiety, as I can see myself getting used to a higher standard of living. When the next recession hits, ouch.

How are you handling this situation? I'm going to attach a poll so wait a minute and it will appear.

 

[RobbieB]

I don't worry about it. Don't track expenses, don't have a budget.

My overhead is low and my discretion is high.

 

[dtbach]

I don't worry about it. Don't track expenses, don't have a budget.

My overhead is low and my discretion is high.

+1

I get a "pay check" from my investments of around 3.5% for WR. I don't plan to change it much no matter what the market does. Of course we have two good SS checks coming in the next couple of years and I have a decent pension.

 

[Meadbh]

I estimate current year expenses in January following an analysis of previous year's spending including taxes. I check to see if that figure falls within my SWR guidelines (so far, it has). I then withdraw from several different sources, including tax sheltered accounts and a dividend from my holding company, trying to keep personal taxes within lower tax brackets to the extent possible. My January withdrawals are deposited to savings accounts linked to checking, and usually cover my annual expenses, but if necessary, they can be topped up later in the year. Sometimes there is a surplus, as there is this year. When that happens I will, in order of preference, (a) put it in my TFSA (tax free savings account), (b) keep it in savings to offset current year's expenses, or (c) prepay some investment mortgage debt. I do not go out and spend it just because it's there.

This year I would like to put the surplus in my TFSA as I have contribution room, but it's not clear what the best long term investment would be inside the TFSA as markets are currently overvalued. Perhaps a HISA might be the best choice, as this would enable me to invest in index funds within the TFSA in the event of a market crash, while also acting as an emergency fund. I will definitely not be paying down tax deductible mortgage debt, as all my mortgages are currently at historically low interest rates.

 

[Danmar]

So far just spend divs and pensions. Need to spend more in future as portfolio has grown quite a bit. Div yield in the 3.25-4% range since retirement 10 years ago. Extra liquidations will just go into cash and will be spent eventually. Liquidating and spending are two different decisions.

 

[DrRoy]

I RE in 3 months and my projected spending from the portfolio is around a 1.5% WR. I will just pull what I want to spend and let the rest roll over.

 

[Tom57]

Spending And W/D Rate is different each Year

Hi W2R,

Thanks for the inspiration for me to review my actual numbers.

The charts may look weird but are my actual history. They reflect a lot of travel from 2002 thru 2010 and the planned reduction in travel spending starting in 2012.

Also there were 3 new vehicles (for cash) and 3 remodel projects (for cash) that averaged $15800 each.

 

[GalaxyBoy]

Whenever I see "percent" I always mentally add the words, "of what?"

Are we talking about a WR calculated by using the portfolio value on the day of retirement as the denominator for all subsequent years?, or is it figured by dividing the current year's spending by the portfolio value on some arbitrary date, such as January 1st or the anniversary of FIRE?

 

[Options]

My retirement spending is approx the same every year based on a budget well in advance, with some categories turning somewhat deflationary. The deflation is offset by spending more in other categories, such as paying for dinner when going out with my FPITW (favorite people in the world: friends, to include SO and SO's parents), as well as clothing. I don't recall going over budget in my life.

 

[FIREd]

I pull a fairly fixed $ amount out of our portfolio each year and let my moderately low WR float. Even if the stock market tumbles 50% from here, our WR would remain under 4% of our original portfolio balance. I can live with that.

But 25% of the amount I pull out annually is also set aside to smooth out irregular spending year over year. Last year, for example, we spent almost none of that money, so the balance has been building up. It should give us a bit of cushion when we hit a rough patch.

W2R, it looks like your WR is still low enough, despite the increased spending, to stay at a reasonable level even in the event of a correction (your AA is around 45/55 IIRC, so your WR would only jump to the low 3% range if the stock market lost 50% tomorrow). I would not worry too much about it.

 

[Winemaker]

Right now, with 2 pensions and rental income, DW and I have taken distributions or Roth conversions up to the 15% threshold. That amount is less than 1.5% of portfolio, $100,000<spending<$150,000 and a while before SS.

Still trying to figure out the optimal strategy.

 

[check6]

I don't plan to change it much no matter what the market does. Of course we have two good SS checks coming in the next couple of years and I have a decent pension.

+1 Same

 

[NW-Bound]

I am with the majority who withdrew and spent a varying amount each year.

I have only a short history of 5 years, and my highest-spending year is 1.4X my lowest year. No big purchases, but major home repair projects and daughter's wedding did it.

 

[rodi]

I only have 2 full years of retirement under my belt. I withdrew the same amount each year. There was no excess - since medical bills managed to eat that up, both years. (2015 was the year of broken limbs due to sports injuries, 2016 had the jaw surgery for my son.)

Our WR is less than 3% of the portfolio at the time I retired. The portfolio is a bit bigger than when I retired...

I have no problem pulling out extra if I need it. But only if I need it. I'm still early enough in retirement to worry about sequence of returns. I'll loosen the purse strings after I get the kids out of the house and launched. So a few more years before I become a spendarina.

I have been toying with the idea of withdrawing a percentage of current portfolio rather than starting portfolio... but since my current WR covers things - I might as well keep it as is.

 

[H2ODude]

We don't budget but track pretty much everything (Quicken) going back to 15 or more years before retirement in 2011. Right now drawing 3.2% of financial assets which is about what pension is. "Draw" as in move to checking from portfolio once a month. Despite a vacation to Spain, house rental at beach for family, river cruise on Snake/Columbia River, and trip to Tanzania to see DS, still ended up with over $30k in checking (well, actually in savings account at credit union) at end of year. Take DW SS at 66, mine at 70, for additional $40k a year. Our "problem" is that we have everyTHING we need or want, and our traveling is limited by our travel tolerance, especially long flights. A dollar still means a dollar to us after many years of LBYM.

We have ramped up that WR over years, but we can't comfortably spend what it is now. Yeah, it's a great problem. But I'm the kind of person who when we went to REI today (after using a buy one get one lunch coupon) to finally get some nice socks was aghast at spending $20 a pair for three pair of (admittedly) nice socks. But it WAS 10% off if you buy three.

Truly, if market dropped us 50% we could probably keep spending right where we are and it would be safe. But, if that happened we'd probably cut out the "oh let's just spend it cause we have it" stuff; which is mainly travel. I've used the FIDO calculator and at current WR (that left us with $30k at end of year) it still says we're at 85% of what they use as safe (90%). Hence we are up over 25% since retirement 5 years ago.

Yes, I know we could have gone earlier. But, I enjoyed all but the last two years of my career and tolerated those to materialize a fairly good jump in pension.

 

[Corporateburnout]

Into our third year of retirement, we withdraw whatever we need from the portfolio which is around 4.75%. This percentage will go down when SS comes online in a few years or sooner if the market crashes.....

 

[kcowan]

Our wd this year was 1.77% (after pensions) and our portfolio grew 11.22% (68% equities) so I figure we are good for some down years if necessary. Part of this was spending 6 months in Mexico which substantially dropped our wd permanently.

(OTOH I am not expecting a big downturn in equities for at least 6 months. People have to adapt to Trump Economics!)

 

[exnavynuke]

In order to keep up with inflation I'd generally assume that a "constant spending" budget would increase over time. Have you accounted for inflation in your budget/spending changes?

 

[hesperus]

it varies, but typically we draw about 75K or 1.5% from our portfolio. The rest goes right back in.

 

[Moemg]

I take my 3.5 % on January 1 . Any excess and there is usually some goes into a fund for future use .

 

[sengsational]

While I understand spending less than you've calculated you're "allowed" to spend, I don't look at that as "tuck some away outside my portfolio, for future use"; it just remains in the portfolio.

For instance, let's say I've run various simulations and found that the upshot is I can spend $X this year. If I spend 90% of $X, that other 10% of X just remains as an asset. To me, it wouldn't really matter what account it was in (except of course it's worth a bit more if it happened to be already through the tax gauntlet), money is money.

If the difference was large (20% or more), I might feel inclined to seek out ways to enjoy the difference between what I'm "allowed" to spend and what it looks like the actual spending might turn out to be. Not to the level of the money "burning a hole in my pocket", as my dad used to say, but if I found something interesting to spend it on, it would be more likely than if I hadn't had an excess.

 

[RunningBum]

While I understand spending less than you've calculated you're "allowed" to spend, I don't look at that as "tuck some away outside my portfolio, for future use"; it just remains in the portfolio.

Same here. And you really better understand if you had a "lucky" year with no irregular expenses, like a new roof or furnace, or car replacement, or some other major expense that you have (hopefully) budgeted for but doesn't come every year. Those expenses are going to come some time, and if you've spent the savings from other years, or allocated it for fun, it's going to blow the budget for that year.

 

[Tom57]

Great Question

Whenever I see "percent" I always mentally add the words, "of what?"

Are we talking about a WR calculated by using the portfolio value on the day of retirement as the denominator for all subsequent years?, or is it figured by dividing the current year's spending by the portfolio value on some arbitrary date, such as January 1st or the anniversary of FIRE?

I sure don't know how everybody else does it, but my WR is calculated by dividing current year's spending (net of pensions and Social Security) by the portfolio value at 1/1 of each year.

 

[Dog]

I'm starting my third year of a 72t from my IRA. DH retired last year and has a moderate pension. The combination of the two cover our expenses. We also have 401ks, a cash reserve and small Roth accounts that we don't need to touch right now. Our WR is around 2.5% of our overall portfolio. We are still several years away from SS.
Any excess from my 72t just goes into our cash reserve.

 

[Hermit]

I withdraw enough to put me as close to the first Medicare high income step as I feel comfortable with. This gives me a fairly consistent withdrawal each year and the cash goes to the house building fund. The biggest thing to do with WR is that it is well under 3%. This will continue until I reach 70 and take my SS. At that point I will have to stop withdrawals or pay Uncle Sam lots more $$$.