Retirement - 3% - 4% Withdrawal

[audreyh1]

Enjoying this thread.

One thing I'm curious about--The folks talking about their percentage withdrawal rate, are your figures back of the envelope kind of estimating or do you still track your expenses?

I don't, so I'm envious of those who have the discipline to do this.

We track all expenses as we always have, so I always know how much of my withdrawal I spent. It's quite easy to do for me as all transactions are downloaded into Quicken - from the banks, credit cards, etc. I can see how much I have spent year to date at any time.

NOTE: I don't just spend and then calculate my withdrawal. I actually withdraw the funds each year, and then spend them, and it's usually less than I withdrew.

Some folks here do spend the funds - taking whatever they need - and then calculate their annual withdrawal rate after the fact.

 

[Danmar]

Enjoying this thread.

One thing I'm curious about--The folks talking about their percentage withdrawal rate, are your figures back of the envelope kind of estimating or do you still track your expenses?

I don't, so I'm envious of those who have the discipline to do this.

I track all our spending. Divs and any stock liquidations are recorded as "income" in my spreadsheet. Over(under) spend is simply a (decease) or increase in our cash balances which is (opening cash) +-(under) over spend. Percentage withdrawal of the opening portfolio is a calculation I do throughout the year based on actual sales to date and projected for balance of year.

I know, a little anal, but I'm an accountant.

 

[Dd852]

Enjoying this thread.

One thing I'm curious about--The folks talking about their percentage withdrawal rate, are your figures back of the envelope kind of estimating or do you still track your expenses?

I don't, so I'm envious of those who have the discipline to do this.

Track religiously .

 

[scrabbler1]

I track my spending, but mainly as an after-the-fact item. My SWR has been well under 3% even in years where it has spiked. It has averaged just over 2% and has often been just under 2%.


At the start of the year I plan out a list of cash inflows (monthly and quarterly dividends) and cash outflows (expenses) for the purpose of figuring out where my surpluses of dividends over expenses (beyond the $750 cushion I carry forward from month to month) lie. When they occur, which is in some months, I reinvest them into one of my mutual funds. I often dip into those monthly cushions to pay for small, unforeseen expenses which is fine All it means is that I may go more months without being able to reinvest excess dividends beyond the normal cushion.

 

[athena53]

I track all of my spending except cash in Excel- I download credit card activity and manually record checking account activity and classify each item. I'm a numbers person. That's what I do. It also helps me monitor trends (yes, utilities and other carrying costs DID decrease substantially when DH and I downsized) and helps me answer the question of where I'd cut back if needed. The actual amount going out the door is surprisingly high but a lot of it is charitable donations and discretionary spending (including Business Class international flights!). I go through maybe $1,000 a year in cash so not worth monitoring.

I withdraw a fixed amount per months (4 months at a time) plus additional for an extraordinary items, always keeping under 4% for the year. The most recent withdrawal, sadly, included additional for an anticipated large tax bill.

 

[Tadpole]

I have always tracked everything, updating spreadsheets weekly and creating yearly summary spreadsheets with categories of spending and everything. I noticed for the first time this year that my enthusiasm for this is waning. My husband reached RMD this year and I will in a couple of years so my waning enthusiasm may be because, baring a government/dollar collapse or the loss of SS and pensions, I am feeling more and more "home free".

 

[W2R]

I am in my 8th year of retirement, and I still keep track of my spending and income to the penny in a spreadsheet. At the end of each month I add up the month's spending and divide it into categories.

This is despite the fact that I withdraw my year's spending money in January, so I can easily see how I'm doing overall. But I want to know the details.

I work on my spending spreadsheet almost every day, but now that I have been retired so long sometimes I will let it go for two or three days between updates.

 

[NW-Bound]

I am among those who spend, then check after the fact.

That's because I know what my fixed costs are, and they add up to much less than the 3.5%. With a big margin reserved for discretionary spending, I am able to be cavalier about budgeting.

And yes, I have had some years where one big "unexpected" expense happened after another. In a way, that's not really true. I knew, but permitted myself to spend money on these home improvement things that could really wait. I told myself that it was better to spend it now to enjoy the results, then future years' spending would be less. Will see if that is true.

In 2016, my expenses were 75% of what they were in 2015. Will see if that continues. And if it doesn't, no biggies. I may not live past 80 or even 70 to worry that much about money, nor have time to enjoy counting it if I stay a miser and do not spend it.

 

[haha]

I track spending. It isn't hard and I have been doing it for 30 years or so. Before I started, I would wonder, "where did all that money go?, and I didn't enjoy that feeling.

I have even taught my girlfriend (who does not live with me) to track her expenses also. Prior to this she might ask me some financial question, and I always had to answer that I couldn't even guess with some more information.

Ha

 

[mpeirce]

Enjoying this thread.

One thing I'm curious about--The folks talking about their percentage withdrawal rate, are your figures back of the envelope kind of estimating or do you still track your expenses?

I don't, so I'm envious of those who have the discipline to do this.

Most of our spending is out of our checking account and we transfer the same amount of money to it each month (our "paycheck"). That covers over 50% of our spending and I don't have to do anythings specific to keep track of it. We do use mint, so we can look into things if we want to, most of the time mint just runs on autopilot.

The other stuff comes in big lumps. Stuff like property taxes, insurance, maybe an appliance or some such.

Finally there is health and travel. I do track those closely. The health pending so we can (some day) take money out of our HSA. Must keep the IRS happy - it's the law. And travel isn't really to hard to track. A lot of it is big stuff like airfare, cruise fare, hotels, meals, and so on. I don't mind tracking that.

 

[Koolau]

Just because... I tracked one year post retirement (think it was 2011). Looking at the results, I was a bit surprised at some of the category totals, but the overall total was within a couple percent of what I had guessed mentally. Our fixed expenses don't change much, our travel doesn't change much, we don't buy toys, etc. so our expenses rarely vary. We have settled into a lifestyle that seems to work for us without a budget and without tracking. So I have not felt the need to track again. I don't even do more than a back-of-the envelope Net Worth anymore. I know. Sounds sacrilegious!

Haven't calculated a "hard" % for several years. It's varied around 3% whenever I've done a back-of-the envelope calculation. My thinking on the 4% rule (or whatever it has now morphed into) is that it is primarily for planning retirement - no so much living it. IOW figure what you need and multiply by 25 (if using 4%). Having a relatively low stock allocation in the port helps as the net worth rarely drops significantly.

I realize this isn't for everyone (maybe no one else.) But since we LBYM it's not that big a stretch to sort of monitor the big picture and just "live" ER.

Obviously YMMV.

 

[Koolau]

Heh, heh, full disclosure (and a bathroom break - TMI TMI.) It DOES help to have more than you planned on at the time of retirement. My original plan was age 51 (and I WAS FI at that point). Didn't actually FIRE until 58 (long story) so the port had swelled rather dramatically by then. Just didn't want anyone to think it's too easy. Having more than you planned allows for a more relaxed living of FIRE and allows one to keep a lower stock allocation in the port. Yeah, I know, I'm leaving money on the table (theoretically) by not allocating more to stock. But, the living (and the sleeping) is easy this way. Again, YMMV.

 

[sengsational]

One thing I'm curious about--The folks talking about their percentage withdrawal rate, are your figures back of the envelope kind of estimating or do you still track your expenses?

I am among those who spend, then check after the fact.

Me too. I look at actuals every year or maybe twice a year, comparing against history. Then I say "gee-whiz" and move on, since there's usually no news that I don't know already.

I track spending. It isn't hard and I have been doing it for 30 years or so. Before I started, I would wonder, "where did all that money go?, and I didn't enjoy that feeling.

That feeling is why for me too. It was back when I first got out of college. I've entered transactions (or downloaded them) ever since. I started the year the IBM XT came out, so that would be 1983.

 

[jj1981]

How many out there are using the 3 - 4% withdrawal rate during retirement? Have you continued with this formula for years during retirement or have you changed the percent and still been successful?



Currently we are planning our retirement this year. DH could take early SS (age 62) later this year but we planned to wait until his FTA to begin receiving ss benefits.



However, due to the unstable ACA and health insurance industry the plan to start his ss in 4 years becomes more murky. This year our ACA premium would eat up 25% of our annual retirement money. Next year, who knows but we are trying to prepare for the worst case scenario. Our ACA premium increased 50% from last years premium.



Running our numbers through FireCalc we have 100% success rate for 33 years at a 5% withdrawl (expenses) at investment ratio of 65% equities. This formula also based on FRA on DH. Fidelity Income Planner also calculates a high success rate based on this plan.



We are considering a 5% withdrawl for 4 years and then dropping it down to 3-4% in 4 years when FRA ss benefits kick in.



I did not include my ss benefit in the equation because I want to make sure our retirement money will last with only one income.



Any recommendation or advice would be welcome.

If it were me, and it is, I would "fly on manual" for a couple of years with detailed records of AT LEAST 12 months prior and see what the withdraw rate actually is. It's not a short term concern so live life, see how you pan our and adapt. We should not always pound the keys on the calculator.

 

[NW-Bound]

I am among those who spend, then check after the fact...

Me too. I look at actuals every year or maybe twice a year, comparing against history. Then I say "gee-whiz" and move on, since there's usually no news that I don't know already...

I checked mine more often though. With Quicken, it is easy. I do worry about lifestyle creep because we spend as needed, although we are frugal. Most of my big expenses are non-recurrent types (or so I hope).

Though I have no rigid budget, let alone for things like food, it is interesting to see our grocery bills going down and down. Either we shop better or we eat less or both. I should project the number to see if we need to eat at all when we get to 70.

 

[Fedup]

I'm not tracking my spending but just recording the actual amount at the end of each year so I can have them in my records. I don't want to be too obsessive about it so I did build in a huge buffer before I retired as in not put everything in FIRECALC. As a former spendthrift and never LBYM person, I would hate to worry about running out of money, so there is a huge cash buffer in my checking account earning zero percent. I know what you are thinking but I sleep well at night and that's all it counts.

 

[nun]

I'm not tracking my spending but just recording the actual amount at the end of each year so I can have them in my records. I don't want to be too obsessive about it so I did build in a huge buffer before I retired as in not put everything in FIRECALC. As a former spendthrift and never LBYM person, I would hate to worry about running out of money, so there is a huge cash buffer in my checking account earning zero percent. I know what you are thinking but I sleep well at night and that's all it counts.

I check the stock markets and my accounts less now that I'm retired and my income is covered by a pension and rent with a around $5k left over. When that and dividends are reinvested I expect to contribute about 3% to my accounts....so a negative withdrawal rate. US and UK SS checks will start in 11 years and with those I expect to be reinvesting around 6%.

 

[Fedup]

I check the stock markets and my accounts less now that I'm retired and my income is covered by a pension and rent with a around $5k left over. When that and dividends are reinvested I expect to contribute about 3% to my accounts....so a negative withdrawal rate. US and UK SS checks will start in 11 years and with those I expect to be reinvesting around 6%.

I suspect we are in this category. Negative withdrawal rate. I have been raising rent since I planned for retirement, and a few things have been going up with inflation. The U.K. SS pension is in this category. I often told my husband, the longer we live, the higher our account balance will be. Our after tax account will eventually be much higher than the taxable account. More reasons for both of us to stay healthy. The only uncertainty is the cost of nursing home when we get much older.

 

[nun]

I suspect we are in this category. Negative withdrawal rate. I have been raising rent since I planned for retirement, and a few things have been going up with inflation. The U.K. SS pension is in this category. I often told my husband, the longer we live, the higher our account balance will be. Our after tax account will eventually be much higher than the taxable account. More reasons for both of us to stay healthy. The only uncertainty is the cost of nursing home when we get much older.

Some decisions I made a long time ago have work out well. One was continuing to pay voluntary UK National Insurance for the past 30 years that I've lived in the US, another was buying a two family home 20 years ago and supplementing my income with rent, and the final one was taking a slight salary decrease to work for the state because of the retirement pension and health benefits. Those all reduced my disposable income slightly, but they have compounded to make my retirement quite secure.

At age 67 I expect the following COLA'ed income

UK SS .......$15k
US SS........$20k (after WEP due to state pension)
State pension...........$25k
Rent ........$25k

expected budget..........$45k

 

[Fedup]

Some decisions I made a long time ago have work out well. One was continuing to pay voluntary UK National Insurance for the past 30 years that I've lived in the US, another was buying a two family home 20 years ago and supplementing my income with rent, and the final one was taking a slight salary decrease to work for the state because of the retirement pension and health benefits. Those all reduced my disposable income slightly, but they have compounded to make my retirement quite secure.

At age 67 I expect the following COLA'ed income

UK SS .......$15k
US SS........$20k (after WEP due to state pension)
State pension...........$25k
Rent ........$25k

expected budget..........$45k

Snap! We did the same thing but some decisions are more conscious than others. The last job my husband took, he almost didn't, gave him healthcare for life. Otherwise we would be living in UK right now.
I also made more contribution to his UK SS when we were both unemployed.

 

[Mdlerth]

I'm not tracking my spending but just recording the actual amount at the end of each year so I can have them in my records. I don't want to be too obsessive about it so I did build in a huge buffer before I retired as in not put everything in FIRECALC. As a former spendthrift and never LBYM person, I would hate to worry about running out of money, so there is a huge cash buffer in my checking account earning zero percent. I know what you are thinking but I sleep well at night and that's all it counts.

What I am thinking is "Fedup understands a lot better than she lets on".

I have attempted before (and unsuccessfully) to articulate my thoughts on the superiority of maximizing the utility of an asset over maximizing the asset's nominal value. Here is a good example of what I have tried to suggest.

Keeping a cash buffer in checking which earns no interest isn't maximizing the nominal value of that money. But it provides other benefits that may outweigh the forgone interest:

• The reserve alleviates worry about bouncing checks on routine purchases;
• It frees the owner from the repetitive, menial task of computing balances before/after every transaction;
• Maintains a cushion against adverse market returns on invested capital;
• Allows wide discretion over what one's short-term spending level can be;
• Provides liquidity to allow spontaneous purchases.

All of these benefits have genuine utility, even if the utility can't be quantified. They save time, effort and anxiety. These can be worth a lot more than a few bucks worth of interest.

I hope I have explained myself better. If not, I'll try again next time.

 

[ReadyAimFIRE]

What I am thinking is "Fedup understands a lot better than she lets on".

I have attempted before (and unsuccessfully) to articulate my thoughts on the superiority of maximizing the utility of an asset over maximizing the asset's nominal value. Here is a good example of what I have tried to suggest.

Keeping a cash buffer in checking which earns no interest isn't maximizing the nominal value of that money. But it provides other benefits that may outweigh the forgone interest:

• The reserve alleviates worry about bouncing checks on routine purchases;
• It frees the owner from the repetitive, menial task of computing balances before/after every transaction;
• Maintains a cushion against adverse market returns on invested capital;
• Allows wide discretion over what one's short-term spending level can be;
• Provides liquidity to allow spontaneous purchases.

All of these benefits have genuine utility, even if the utility can't be quantified. They save time, effort and anxiety. These can be worth a lot more than a few bucks worth of interest.

I hope I have explained myself better. If not, I'll try again next time.

I agree with your thinking but I wonder if you can at least try to get some financial benefit from the cash buffer. Why not open a checking and savings account at Ally Bank (just one example of an online bank paying reasonable interest)? Put your cash buffer in the savings account (earns 1% at the moment). You can tell Ally that if there are any shortages in checking, just go over to savings and grab it from there. Pretty much on auto-pilot. You can then have the same benefits you are mentioning above but have a little interest income flowing in. YMMV depending on the size of buffer we are talking about.

 

[audreyh1]

That cash doesn't need to earn 0%. Put most of it in a high yield checking account, and it will earn 1% or slightly better. Still FDIC insured and all the other benefits of bank checking. At most it's two or three days to transfer it to checking if needed. My experience is funds are available the next day after I initiate transfer from the high yield savings account.

 

[Fedup]

Honestly, I'm lazy. Even if I manage to have the energy to open an account. Whatever I earn, I have to pay tax. All that for a bit of interest. Thanks but no thanks. The bank suggests for me to do it, I never got around to it. I finally moved some of the cash to my Scottrade account. They gave me some money for the cash. My biggest reason is that when I keep moving all these money around and forgot to accidentally not fill out any form of beneficiary or what not, I might get into more trouble. But I always keep large amount of cash, not only I sleep well, I get no stress, and don't get sick from it. It must work because I'm much more relaxed and laid back in general, heck comparing to a lot of people I know, I'm reasonably healthy. The strategy allows me to focus on my health which I think is a better focus.

 

[joeprintz]

Sometimes when I read the replays I think we are often comparing "apples" to "oranges". To retire on $35,000/year must assume no taxes, funded health care, no significant gifting and no gifts to the kids/grandkids and very minimal travel. Tax free pensions( state taxes), free health care for life, etc is a whole different ballgame- No pension no Roth IRA, having to pay for medical and dental care and a few grandkids puts comfortable retiring under $100,000 hard( assume that is all taxed).