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Old 04-28-2018, 07:05 AM   #41
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I like this calculator. The FourPercentRule Retirement Calculator

However I am a little confused, We are fixed income investors averaging 3% annually Today. If I put that in with a modest inflation and modest COLA. Our total stash does not seem to go down much by age 95 (30 years from now). While it looks great, I feel that it may not be so accurate. Also we do not have any heirs, so we do not want it to be so high when we kark it.
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Old 04-28-2018, 07:06 AM   #42
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+1 An RMD is not a withdrawal if you take the RMD and reinvest it in your taxable account.
Yes, mostly. But if you pay tax on it, that tax is gone. I have not reached RMD age yet (but I have done Roth conversions). I sort of mentally treat the tax on these distributions as a split of the partnership shares (me, IRS) - although I do include the tax as spending when I do my annual tally.
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Old 04-28-2018, 07:20 AM   #43
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While it is true that the tax needs to be paid, in some cases it is already included in someone's planned spending so would be implicitly already included in withdrawals.

IOW, if my planned withdrawals includes taxes, and those taxes include RMDs since I know they are going to happen, then the entire RMD can be reinvested and the impact is that it is not a withdrawal.

In my case, taxes are already included in my planned withdrawals so the entire RMD (Roth conversion in my case) is reinvested. Once I hit RMDs it would be the same.

OTOH, if the tax is not included in planned withdrawals then it is leakage and adds to the withdrawals for the year.
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Old 04-28-2018, 07:36 AM   #44
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Just goes to show you there are multiple methods that work for various people. It is easier for me to just consider assets as either there or not. The "withdrawal" for me occurs when the assets escape my circle.

In a similar vein, I don't consider dividends as income - they didn't really "come in". A bit unconventional, I agree but it simplifies the model for me.
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Old 04-28-2018, 08:56 AM   #45
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So you arenít using a target withdrawal rate. Some of us do.

I actually physically remove X% from my brokerage account every Jan, and then rebalance to my target AA. Withdrawn = taken out.

Those funds go to savings and checking from which I can spend. Thatís not part of my retirement portfolio - itís money I can spend whenever I please.

Maybe I choose to take a bigger trip next year because I didnít spend all my travel budget this year?

There is no rule that says you must spend money in the same year for it to ďcountĒ as a withdrawal.
Funds withdrawn from your brokerage account is no longer part of retirement portfolio, AA is rebalanced, withdrawn funds kept in separate savings and not part of AA. Got it, all of this makes sense to me - if you didn't keep the withdrawal separate from your AA then it wouldn't be a withdraw.

You use an example of what you would do with the excess funds, "Maybe I choose to take a bigger trip next year because I didnít spend all my travel budget this year?" Do you agree with a previous poster that the savings could also be used as sort of a reverse dollar cost averaging, maybe reducing sequence of risk, in addition to increasing discretionary spending as per your example?
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Old 04-28-2018, 09:49 AM   #46
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Funds withdrawn from your brokerage account is no longer part of retirement portfolio, AA is rebalanced, withdrawn funds kept in separate savings and not part of AA. Got it, all of this makes sense to me - if you didn't keep the withdrawal separate from your AA then it wouldn't be a withdraw.

You use an example of what you would do with the excess funds, "Maybe I choose to take a bigger trip next year because I didnít spend all my travel budget this year?" Do you agree with a previous poster that the savings could also be used as sort of a reverse dollar cost averaging, maybe reducing sequence of risk, in addition to increasing discretionary spending as per your example?
Yes, I actually have several potential uses for my short-term pile, and supplementing income for years the portfolio is hit is definitely one of them. Since my withdrawal is dependent on end of year portfolio value (a feature of %remaining portfolio withdrawal method), I felt I needed a way to help weather the down years and allowing unspent funds to accumulate after good years is one way to do that.
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Old 04-28-2018, 10:07 AM   #47
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Who cares whether the withdrawals are ďunnecessaryĒ? That has no bearing on portfolio survival which is what choosing a safe withdrawal method is all about. It is totally up to the discretion of the retiree. Having more withdrawn income than one is currently spending is simply an indication that one has the option to spend more if they so choose, or do anything else with...

...And if your retirement portfolio is bigger then you need, it certainly doesnít say that you should reduce your withdrawal rate.
I think with your % of balance method, you are definitely insulating yourself from a survivability standpoint. And keeping some of those withdrawals for a rainy day fund I think makes sense in that context.

But withdrawal rates do in fact affect the survival of the portfolio. Withdrawing less will increase the life of the portfolio.

Stated differently, I do not think you can increase the life of the portfolio by withdrawing more.

Accordingly, the amount withdrawn does matter. And, as you said, it is within the discretion of the retiree.
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Old 04-28-2018, 10:16 AM   #48
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I think with your % of balance method, you are definitely insulating yourself from a survivability standpoint. And keeping some of those withdrawals for a rainy day fund I think makes sense in that context.

But withdrawal rates do in fact affect the survival of the portfolio. Withdrawing less will increase the life of the portfolio.

Stated differently, I do not think you can increase the life of the portfolio by withdrawing more.

Accordingly, the amount withdrawn does matter. And, as you said, it is within the discretion of the retiree.
Of course reducing the withdrawal rate increases portfolio survival. You have to decide what rate is “good enough” for your goals. Is 100% good enough (constant method)? We don’t know as we can’t predict the future and the survival rate was based on the past.

In the case of the %remaining portfolio, you won’t run out of money. The higher withdrawal rates mean wider swings in income but you also get to spend more initially. Even low withdrawal rates will see wide swings. Only after you exceed 4.35% for the 50/50 AA case does the portfolio start to shrink on average in the later years.
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Old 04-28-2018, 10:44 AM   #49
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My RMD is my withdrawal rate. I have read that the IRS tables indicate I'll still have money at age 95. I hope they're right.
That is good enough for my goals: (1) to live to 95+ (2) to be healthy then and (3) to be financially independent.
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Old 04-28-2018, 11:04 AM   #50
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I think some of the choices can be to some extent psychological. At least it is for me. Will use the below example (let's set aside the exact math/compounding, etc for illustrative purposes).

If one is fine for portfolio survival with a withdrawal rate of 3.5%, but only uses 3.0% in a typical year and banks the 0.5%, then when one needs to use 4.0%, I would rather use the banked 0.5% vs withdrawing the 4.0% for that year.
More comfortable using the reserve than the higher WR%.

Thus for me, I will effectively use the concept similar to audreyh1 in conjunction with a % remaining portfolio methodology.
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Old 04-28-2018, 11:18 AM   #51
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Of course reducing the withdrawal rate increases portfolio survival. You have to decide what rate is ďgood enoughĒ for your goals. Is 100% good enough (constant method)? We donít know as we canít predict the future and the survival rate was based on the past.

In the case of the %remaining portfolio, you wonít run out of money. The higher withdrawal rates mean wider swings in income but you also get to spend more initially. Even low withdrawal rates will see wide swings. Only after you exceed 4.35% for the 50/50 AA case does the portfolio start to shrink on average in the later years.
I do like your approach. Previously I was a bit puzzled that you kept your "excess withdrawals" as a rainy day/equalizing find.

But now i understand it. Thanks.
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Old 04-28-2018, 03:56 PM   #52
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Withdrawing means selling Stocks/Bonds and moving to a Cash Account.
No it doesn't. If you sell stocks/bonds and move the proceeds into a cash account, that cash account is still very much part of your portfolio until you spend it. If you don't spend it, all you've done is change your asset allocation. Someone living off dividends and interest (and never selling stocks/bonds) is withdrawing from his portfolio.
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Old 04-28-2018, 10:48 PM   #53
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No it doesn't. If you sell stocks/bonds and move the proceeds into a cash account, that cash account is still very much part of your portfolio until you spend it. If you don't spend it, all you've done is change your asset allocation. Someone living off dividends and interest (and never selling stocks/bonds) is withdrawing from his portfolio.
When you withdraw annual funds for your retirement income, you have to put those funds somewhere - savings, checking, etc. You don’t spend it all on Jan 1.

I know some folks do their withdrawals monthly or quarterly or on an as needed basis - maybe that’s how often they are rebalancing too, trying to maintain their AA. But that is different from how the models work. The models and backtesting all run on an annual basis and are tied to the start of each calendar year. It was perhaps chosen to keep the models a bit simpler, and because more frequent rebalancing isn’t as beneficial.

So how can you withdraw your annual income from your portfolio at the start of each year and yet still count it as part of your portfolio since you didn’t spend it all Jan 1?
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Old 04-29-2018, 12:43 AM   #54
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I think some of the choices can be to some extent psychological. At least it is for me. Will use the below example (let's set aside the exact math/compounding, etc for illustrative purposes).

If one is fine for portfolio survival with a withdrawal rate of 3.5%, but only uses 3.0% in a typical year and banks the 0.5%, then when one needs to use 4.0%, I would rather use the banked 0.5% vs withdrawing the 4.0% for that year.
More comfortable using the reserve than the higher WR%...
If in a future year, when I need to spend more money or if my stash shrinks due to a market downturn and my WR rises up from its current value of 2.5%, I will look at past WR and say it's OK for me to go up.

So, yes, I also think that I am spending money that was "banked" in past years that I could have spent but did not. That money however is commingled inside the stash, and not sitting out in a separate account.

I know that I can spend more when I need to, because I know my past WR was low, but most importantly my stash is bigger than what it used to be.

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No it doesn't. If you sell stocks/bonds and move the proceeds into a cash account, that cash account is still very much part of your portfolio until you spend it. If you don't spend it, all you've done is change your asset allocation. Someone living off dividends and interest (and never selling stocks/bonds) is withdrawing from his portfolio.
In my case, I always have loose cash inside after-tax as well as tax-advantaged accounts. And it is always included in the total AA. I have not needed to sell anything to get cash. When I sell stocks or bonds, it is not for getting cash to spend.
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Old 04-29-2018, 03:32 AM   #55
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So how can you withdraw your annual income from your portfolio at the start of each year and yet still count it as part of your portfolio since you didnít spend it all Jan 1?
Because it is still part of the cash part of your portfolio until you spend it. If you were to to die without spending the entire Jan 1 amount, it would be included in your estate's portfolio.
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Old 04-29-2018, 05:37 AM   #56
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Because it is still part of the cash part of your portfolio until you spend it. If you were to to die without spending the entire Jan 1 amount, it would be included in your estate's portfolio.
When you withdraw your annual income and you rebalance the portfolio, you do not include the part you just withdrew in your AA and rebalancing calculation. That’s how the models including FIRECALC work. They assume an entire year of income is removed from the portfolio and they rebalance the remainder.
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Old 04-29-2018, 05:54 AM   #57
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Seems like some have too much time to overanalyze this stuff. We simply take what we need when we need it from the stash, and keep 3 years of expenses in cash in a MM Account for general use and unplanned for expenses. Job done.
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Old 04-29-2018, 05:54 AM   #58
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My solution to the above is to have a portion (5% in my case) of cash in a 1.5% online savings account that is part of my retirement portfolio. When I rebalance I replenish the cash back up to 5%. I have an automatic monthly transfer from this online savings account to the local credit union account that we use to pay our bills.... those transfers are my withdrawals since I don't view the local credit union account as part of my retirement portfolio. That account usually has $5-20k in it.

The models assume annual because it is easier with a 30-40 year model vs 360-480 months and the conclusions would not be any different.
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Old 04-29-2018, 06:01 AM   #59
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Honestly, we do not bother tying to get a max interest rate on our 3 years stored cash for expenses etc. Money. It is so insignificant in the grand scheme, so we keep it in the same CU that we use daily. OK we get only .5% interest, but Heck... "Blow that Dough".
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Old 04-29-2018, 06:05 AM   #60
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When you withdraw your annual income and you rebalance the portfolio, you do not include the part you just withdrew in your AA and rebalancing calculation. Thatís how the models including FIRECALC work. They assume an entire year of income is removed from the portfolio and they rebalance the remainder.
+1
It just shows that there are different opinions as to whether withdrawn monies for the year and unspent monies from prior years are part of NW and the Investment Portfolio, or just part of NW.
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