"Risk of under-spending"?
"OMG, OMG, batten the hatches, call out the artillery! Somebody died and left some spare change on the table!"
OK, I understand. The phrase just struck me as funny so I had to joke around about it. No slam intended.
At the end of every year, I compute the percentage I spent according to three different methods:
1) The traditional SWR method, that is only increased with inflation
2) The method I mostly use and relate to the best; percent of the prior 12/31 balance
3) Percent of my lowest low portfolio balance on 3/9/2009
I figure that if I am under 4% every year using all three methods, I'll be fine. But I never spend anywhere near that amount, so there is a buffer there to protect me.
Meanwhile, I am using some of the excess $$$ from this thriving market, to prepare for cutting back when (not if) the next market crash comes along. To me, this involves cutting back pretty ruthlessly on regular monthly expenses that I can live without. We have had a lot of threads about cutting the cable, cheaper cell phone service, and dropping the landline, for example. I have no debt and pay my credit card off in full every month.
But I do want to enjoy the money I have at the moment, so I tend to spend my discretionary money more on one time purchases. See the Amazon thread for examples of the kind of silly stuff I fritter away my cash on. Plus, I bought a house in cash, which is definitely a one time purchase for me at this stage in my life. Avoiding the risk of underspending now, while the market is so high, I have been spending on the needed new appliances for my new house, and other big item necessities in order to prepare for the inevitable future crash. I am spending in order to position myself well for the future crash.
I also have several years in cash or cash equivalents.
If/when the Big Crash comes, I'll immediately cut back sharply on the one time discretionary purchases. I have been getting my teeth fixed as much as possible, and had my HVAC completely replaced. OK, that was necessary but theoretically the new, energy efficient system will mean lower monthly electric bills. Gradually I'm trying to position myself well for hard times in the future. Hopefully after the crash I will be able to live off SS and mini-pension and dividends, until the economic mess is over, or mostly over. Meanwhile, to keep from selling low, during the crash I can use my cash and cash equivalents to supplement my spending money. I can also use it for rebalancing which would involve buying low.
This is how I plan to spend less when that becomes necessary.