Should we be withdrawing more sooner?

[Independent]

Quote:

Originally Posted by travelover I've said it before, but I have no idea what the last years of my and DW's life will cost. We could both die quickly (and cheaply) or live for years in an extremely expensive Alzheimer's ward. The worst case would be one of us bankrupting the other. My solution is to continue to live well, but not extravagantly. If we leave money on the table, so be it.

+1

I think we have the "Can afford to live a long life at our current spending rate" covered for all except the most unlikely circumstances.

The uncertainty isn't "how long we'll live", but rather "how many of those last years will we live in a nursing home"

[travelover]

Quote:

Originally Posted by Amethyst Does it matter what kind of Alzheimer's ward you end up in? I mean, you won't know the difference, right? My aunts and uncles seemed unable to appreciate what was being done for/to them; they didn't even know their own kids.

Maybe not, but I couldn't put my DW in a facility where I felt she was not getting cared for with respect, in a dignified manner. I don't think she'd accept less for me, either.

That said, I'd have no objection to being snuffed once I'm totally out of it, but she'd never do it.

[LARS]

I retired at 38. I am now approaching the big 60. There is no question that my view of husbanding assets has evolved. I've yet to really change my general approach, but as the "end" point becomes more real I am devoting more and more thought to the issue.

I am hopeful I will not miss the window of change: and become too set in my financial ways to change if I so desire. I suspect receiving the "free" money of SS (I still take a "I will believe it when I receive it" approach to SS) will be in inflection point.

I should add that one of the areas I have been thinking seriously about increasing "budget" is in the area of housing. Living larger in housing (i.e. ocean front property) seems to be a way to spend more, but hedge the future as the property can always be liquidated if necessary.

[Cobra9777]

I was one of those who completely discounted SS throughout the accumulation phase. I never would have guessed it would survive this long and I'm still pessimistic about it's future, especially for people like us with other means. Nevertheless, it's now in the spreadsheet but with a 30% reduction factor vs promised benefit. That's part of the reason all the retirement tools say we're under-spending, as mentioned in my prior comment. If we end up collecting the full amount for a long time, then our two millennial kids will at least get something in return for their payroll deductions.

[pb4uski]

Quote:

Originally Posted by DawgMan ....I suppose this makes me ask the questions... - Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR? - Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less. - Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner?....

Sorry for your loss DawgMan... but you are right... dealing with winding up the affairs of a loved one makes us more cognizant of how such issues will affect our plans and our heirs.

Yes, most of us probably are too conservative and it is more likely than not that we will die rich, but that is much better than dying poor and having to rely on our kids or society in our final years. I plan to mitigate the possibility of dying rich by ratcheting spending up if investment results are good and standing pat if investment results are flat or down.

I am over 50 and was 56 when I retired 5 years ago but do include SS in my plans... I also run a what-if scenario with a 25% haircut to SS benefits.

My plan is to continue to do Roth conversions to the top of the 15% tax bracket until I am 70... my projections indicate that I will avoid the 25% tax bracket if i do that... however the projections are based on conservative investment return assumptions and an assumption that DW and I both are living (using MFJ tax brackets). If DW or I die then I'm sure we will be in the 25% tax bracket no matter what we do now, but to me it makes no sense to pay 25% now to avoid paying 25% (or even 28%) later.

[Chuckanut]

I factor in SS at 70% of what they currently say my payment will be. The 30% reduction seems in line with what may happen if SS is not reformed in the next decade or so.

[DrRoy]

Quote:

Originally Posted by DawgMan - Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR? - Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less. - Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner? None the less, particularly after seeing my dad's situation play out, there is a part of me that says go bigger in the early years while more physically able and then perhaps scale down in the later years. Thoughts?

1 - I'd say there is no single answer to this. It depends on the individual (or couple).

2 - I am 57, will RE in 1 mo. I do not factor SS into my calcs, as I do not know if it will change. My plan is to wait to 70 to max the benefit and consider it an inflation adjustment.

3 - Roth conversions are my plan. That way, you tax shelter the future gains. That is better than earlier distributions.

4 - DW and I are planning several expensive, guided trips for 2018. That is mainly due to the unexpected benefit of the recent market rally and our having more $ to work with than we thought we would.

[Fedup]

I think you should if you can enjoy spending your money. However, I have problem spending money now that I'm retired. I don't care wasting my money. And that with spending in line with what I planned before I retire and I have not touched my retirement portfolio. Pension/SS/rental income covers almost all of our spending.
Edit to add, before retirement, I wouldn't blink spending $2000 a night at a 5 stars in Bora Bora, now it would be over my dead body. Now I'm willing to spend less than $500 a night kind of hotel.
Foodwise, we still eat and purchase food from top notch quality, in fact this is one area we don't cut back.

[Lsbcal]

Quote:

Originally Posted by DawgMan First, I acknowledge the answer is personal and depends on numerous factors, but this continues to have an affect on my willingness to launch into RE (targeting 3 yrs at age 55). My personal dilemma has been heightened by my dad's past 12 month battle with cancer, his recent death (age 77), and as Executor of his estate being exposed more specifically how he held/used his assets. Observations... - He always lived below his means, very frugal other than a few vices, all the way till the end despite having more than enough to splurge on indulgences. I suppose it can be tough for many of us to change despite having saved for the rainy days. ....

My parents passed at 68 or so. Right where we are now.

Did your Dad enjoy his years before bad health set in? Did he deny himself life experiences that he might have regretted missing and could have splurged on? Did he have a good plan or just so,so.

I ask these questions because it is what I ask myself. We have a big fun/discretionary budget that currently provides more then we probably would spend yearly. But it is based on a plan and historical returns data.

We spend but we don't just buy into stuff that seems overpriced. For instance, we stay at well reviewed hotels in Europe but not at 5 star ones. We eat out at moderately priced restaurants that don't make us feel overly formal and stuffy. We try not to eat elaborate meals that are more show then substance.

For me the bigger test will come when the portfolio starts turning down should we enter a bad sequence of years. It will take some courage to spend when the plane is loosing altitude. I think I'm up to the task.

[LARS]

Quote:

Originally Posted by Lsbcal It will take some courage to spend when the plane is loosing altitude. I think I'm up to the task.

The good news is we're gaining speed... the bad news is we're losing altitude! ;-)

[Danmar]

I think flexibility is key. Perhaps start ER with a conservative spend and SWR then see how it goes. I retired 10 years ago at 56. And generally held to a pretty conservative spend percentage (around 3.5%). Portfolio has done well and I am starting to spend a little more. Haven't noticed a lack of creativity in our pending level or what we spend on yet, although I can see the risk. Still very active, enjoy travel, nice things, etc. Stay open to new things.

I'm Canadian so health care not much of an issue. Will defer the Cdn equivalent of SS to age 70 but it won't be material to our other income levels. All investments are taxable so no RMD issues.

[W2R]

I put my comments in blue:

Quote:

Originally Posted by DawgMan - Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR? I am pretty conservative, but I'd rather err on that side than risk living under a bridge when I'm 85. Besides, I am still able to buy whatever I want to buy. I did wait until after those earlier years before buying my dream home in my 7th year of retirement. I'm glad I did wait because there wasn't one this nice on the market until this one became available. - Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less. I'm older than that, and started SS when I was 66. I spend more now than I did before SS. I did factor it into my projections although I didn't know if it would crater before I got old enough for it - - so I made sure I had enough to survive without it. By now, at age 68 with SS, I spend more on frivolous Amazon purchases than I did. But also, my medical expenses are higher than they used to be, which I didn't expect. So, my SS helps with that. - Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner? I did that for a few years (took more of my retirement income from the TSP, and less from taxable investments, than I do now). I'll be 70 1/2 in 2018. It seems to me that most people on this site are planners and probably more conservative by nature as am I. I also know peace of mind and the "sleep factor" weigh into at least my strategy along with planning for "what ifs". None the less, particularly after seeing my dad's situation play out, there is a part of me that says go bigger in the early years while more physically able and then perhaps scale down in the later years. Thoughts? Just that maybe you could take a middle road in this. People *say* that you don't need as much money when you are older, but that has not been my experience at least thus far. My dental bills (implants) are a lot more than I expected, for example, even though I knew my teeth were bad. They just got a lot worse with age a lot faster than I thought would be possible for anyone. Talk about a budget buster! An implant can mess up your year's projected spending for sure. Also I have spent some in making my already elderly-friendly dream house, even more elderly-friendly in preparation for the future. On the other hand, if there is a dream trip that would mean a lot to you, I think you should do it now while you are more physically able to handle travel. Maybe you could do the same trip for less money if you look into ways to travel inexpensively.

Hope this helps! I think it is great that you are thinking about these things in advance.

[Silver]

I agree 100% with Travelover's statement about not knowing what the final 10-15 years will cost. My husband and I have no family whatsoever. No children, no siblings....no one we can depend upon. We believe we will move into a continuing care facility sometime in our mid to late 70's because of the requirement to be self sufficient when entering. Any sudden health event can sideline that plan.

My husband's father is very long lived. He is still alive, age 96, and overall healthy although slowing down. (A WWII fighter pilot still fighting a good fight.)

The CCRC we have in mind has a $145k buy in and will be approximately $6-7k a month in costs. There may be less expense ones....but haven't found one yet that is worth living in.

I am 65 and my husband is 64 yrs. I'm taking SS at FRA next year, and my husband will wait until 70. We will continue to live under our income believing that that the last several years will require most if not all our assets in order to be comfortable and in a safe environment. It's fine with me if there are any remaining assets....it all goes to animal welfare organizations.

[Walt34]

Quote:

Originally Posted by H2ODude After all, I have 4 pair of jeans and a bunch of tee shirts, flannel for winter.

Quote:

Originally Posted by Cobra9777 And I only have 2 pair of jeans that DW allows me to wear outside the house.

Man, you guys need to loosen the purse strings a bit. I have FIVE pair of jeans that I can wear outside. Six if you count the black pair. Livin' large!

Admittedly, DW insisted that I buy them because the old ones were too faded for her sensibilities....

[Koolau]

Having just started SS at nearly 70, let me assure all you young'uns it DOES still exist. Kind of nice seeing that much cash going into the account this month. I too never figured (in my 50's) that SS as we know it would still exist, but it does and I think it will be around for quite a while. I'm sure some tweaking will have to happen (mentioned elsewhere that my MC premium is higher than expected while DWs was grandfathered.)

A lot of my "withdrawing" early on was to covert to Roths. I had WAY too much qualified money which would have/still will require RMDs. But, as to spending, I'm pretty happy with where we are. I know we could spend more, but it not only feels "weird", but the marginal added pleasure doesn't seem worth it. The example I typically use is flying first class instead of cattle car. First class gets to the scene of the crash, er, I mean to the gate a few seconds faster than those in the back, and first class may have a few less aches and pains due to cramping, but for roughly 3 times the cost, I still haven't been able to fork over the money I could afford to fly first class. I have other examples, such as the cars we drive. But, in short, as long as we are happy, spending a lot more would not affect that happiness by very much as nearly as I can tell. I guess if we die with a big pile of money, our beneficiaries will enjoy it. YMMV

[RetiredGypsy]

I was reviewing the Trinity Study this last week and realized there was an outlook for withdrawing a fixed percent of the initial portfolio value, instead of the most often cited 4% inflation adjusted model.

At 25-30 years, 6% fixed withdrawal rate at a 75/25% split was 95% successful from 1926-1997, and while 7% was 88% successful for the same period, it was 100% successful between 1946-1997.

In fact, they have this to say about the 3-4% withdrawal rate:

Quote:

Finally, the lower withdrawal rates of 3% and 4% recommended by some analysts appear to be excessively conservative for portfolios with at least 50% stock, unless the investor wishes to leave a substantial portion of the initial retirement portfolio to his/her heirs. Since the choice of a withdrawal rate involves individual preference for current consumption, uncertainty of life expectancy, and variable financial needs, there is no single globally optimal withdrawal rate. Each investor must determine the appropriate balance of the risk of running out of funds versus a higher, more enjoyable standard of living early in retirement. Most authors tend to favor a more conservative approach that virtually guarantees a substantial positive terminal value of the retirement portfolio. Such an approach exchanges post-retirement quality of life for end of life financial security. Some retirees may prefer not to make that tradeoff.

As they state, it's entirely up to each individual to make of that what they will. Personally, I find it inspiring that something of a higher withdrawal rate could be sustained for decades if needed.

But I'm a cheap sod whose biggest entertainment expense tends to be a $60 game every now and again, but the rare time I want to blow $4k on a custom extremely cool gaming PC to play those on, I'm not going to sweat about an abnormally high expense.

[Gumby]

The young wife and I plan to retire in 28 months. At that time, our combined pensions will cover our current spending, with the exception of vacations. So we won't have to change our standard of living at all. 1.5 years after we retire, I will start Social Security, which will be twice as much as necessary to cover our current vacation spending (a one week trip to Italy every year and a 2 week summer rental in Maine).

I estimate that our portfolio at retirement will be of sufficient size that a 4% withdrawal rate would generate as much cash as our pensions and social security combined. I expect we will use some of our stash to travel more, as well as to pay "lumpy", out of the ordinary course expenses, such as painting the house or buying a new car. However, I don't expect we'll be spending anywhere near 4% on these activities.

In addition, we own our house free and clear. If necessary, we can sell it and increase our portfolio by an additional 25%, although I expect the main purpose will be to fund our move into a continuing care community at the appropriate time.

I have no idea how much things like health care and nursing homes will cost in the later years of our retirement, and we need to plan to deal with it totally by ourselves, as we have no children. Given that our pensions are from public sector employment, they are likely subject to the political winds that will blow in the future, as is Social Security. Accordingly, I think it best to consider that source of income not an entirely sure thing.

Is all this much too conservative? Maybe it is, and we'll be leaving a fortune on the table. I don't really care about that. I do care that we have enough to live our final years in dignity and comfort.

[travelover]

Quote:

Originally Posted by Gumby ............. I do care that we have enough to live our final years in dignity and comfort.

Too bad there is not good long term care insurance available to the general public. It would free up a lot of what-if money hoarding - myself included.

[Lsbcal]

Quote:

Originally Posted by Gumby ... Is all this much too conservative? Maybe it is, and we'll be leaving a fortune on the table. I don't really care about that. I do care that we have enough to live our final years in dignity and comfort.

It sounded somewhat conservative (like only 1 week in Italy?) but I think you have to do the calculations. What I do can be done with the VPW tool if you are OK with spreadsheets or maybe FIRECalc is enough.

My pretty conservative approach is to arrive at a personal SWR:
1) Count on SS, it will not be going away
2) Figure a minimum acceptable inflation adjusted portfolio is about 50% of present portfolio for all the simulation years
3) Count on living a long time, probably beyond age 100 (it might happen)
4) Be able to withstand a bad sequence of years like those starting in 1966 or 1929 (inflation or deflation)
5) Set as aggressive an AA as I can stand (right now it is 60/40)

Point #2 will naturally leave a lot on the table but let's remember we are simulating past history. Our future retirement sequence could be worse then those past bad sequences...but probably will not.

[Silver]

Quote:

Originally Posted by travelover Too bad there is not good long term care insurance available to the general public. It would free up a lot of what-if money hoarding - myself included.

Indeed.

We (DH and I) expect that one of us will need to survive for many years after the other is gone, so are using only half of our anticipated SS income in any calculation. And we know that the prices of a CCRC are in current dollars, and will probably increase at least 15-20% more in the 10-12 years we wait before we buy-in. Plus, the CCRC costs do not include any medical testing, intervention, surgery, drugs, or therapy, mostly covered by Medicare and insurance supplements, but not all.

We are thinking that needing to spend between 800k and one million of our investments in the final years is probable in order to be safe and comfortable.