Should we be withdrawing more sooner?

[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.

- Not sure he was ever exposed to a SWR method even though he had a FA and a very conservative portfolio (33/33/33). I suppose he got more conservative during his treatment, but never heard more than 40% in stocks.

- His 2015 return implied he lived off of dividends, SS, and RMD which was more than enough.

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?

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?

 

[MrFlish]

Seems like finding the right balance between need and want is key to me and that balance varies from person to person thankfully otherwise life would be pretty boring...

 

[perrytime]

exactly, i agree on scaling down with age, and which i like the spend it while you can capability of the ORP retirement calculator, which i just looked at, now there are many choices of spending plans.

 

[RunningBum]

There have been a lot of discussions about this, though this may not be an easy topic to search for.


Sorry to hear about your father. That must've been a tough time for everyone.
But, my opinion is that you shouldn't base your retirement planning on an isolated case. A family case is certainly more valid than the inevitable celebrity case (OMG, Bill Paxton died in his 60s, retire now!), but my parents have outlived theirs by a significant amount. As far as spending while active, certainly there are expenses that will drop, but others may increase. Back to my parents, they are spending more now because they are in a place where they get all their meals, and might need further care before too long.


Everyone's case and preferences are different. I didn't regret working part time a few extra years to build a good buffer, and I'm not shorting myself on any experiences due to hoarding money now, but I'm not going to be eating ramen noodles wrapped in a blanket because I can't afford to eat well or heat my home in 80s.

 

[exnavynuke]

1- I'd say "too conservative" is a personal choice. I personally think that many people who RE want an effective "100% guarantee" that their money will last their entire lifetime and then some. As such, their withdrawal rates are more conservative than they might "need" to be.

2. I plan on taking SS at 62 (40 currently) and have planned for getting ~75% of the calculated value for that (calculated assuming no earnings after I RE using the downloadable calculator from SS).

3. I don't plan on having any significant amount of RMD's as I plan on having my pension and SS cover ~100% of my expenses starting at 62. As such, I plan on using "most" of my investments between now and then and using the remainder to pad my lifestyle after 62.

4. I have medical issues and my older family members have had some serious issues as well, so I'm very inclined towards the "spend the extra early while you still can" philosophy since it's unlikely I'll be able to "do" much in my later years.


I'd probably lean towards being more conservative if I didn't have a pension to supplement SS in "normal" retirement years though. However, since my pension + disability estimates would cover 100% of my expenses currently (after I finish paying off the mortgage which will be long before I'm using them), I don't feel compelled to be extra conservative in my planning otherwise. As such, my planning is more focused on "getting me there" and if the "bad case" scenarios don't come to pass then I'll likely still need to be spending a decent amount out of my portfolio after 62.

 

[Whisper66]

Very sorry for your loss. Eventually I will be in your role, last parent passing with a relatively large estate after living below his means for many years. To answer your questions.....

1. Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR? -- Really depends on how much risk aversion one requires to be comfortable. Hopefully people on this board think this through rationally and have picked appropriate paths.

2. Are you factoring in SS in your future income projections and at what age are you planning to take it? -- Yes. 62 yrs old is the plan. We are not in the position of needing "longevity insurance" that many rely on SS for.

3. 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? -- We are using ORP to plan aggressive Roth conversions. Using ORP and Firecalc to help us understand the level of "excess" we expect when we pass. Gifting much of the excess to kids (within yearly tax exemption amounts) as a tax efficient way to give them inheritance early. Also continuing to donate to organizations we like.

4. ...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? -- We are allowing our yearly spending in early years (including gifts / donations) to rise to the level ORP and Firecalc suggests are sustainable for our assets to barely outlive us. We still have "saftety factors" built in. Our calcs are "reasonably" conservative in our opition. We have the ability to cut significantly in discretionary expenses if needed. But bottom line is we are spending what we want now, recognizing we may not be in condition to enjoy the assets later.

Lastly, our current plan does not include using any inherited assets that we may get. These will also be passed on to the next generation. But I suppose it's another "safety factor".... though we haven't really considered it as such.

 

[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.

 

[MichaelB]

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

It would help if we all knew just how long we were going to live and how much we would need toward the end.

 

[mystang52]

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.

DW is still w*rking so we are not yet in SWR mode. But our philosophy is the same as in the quoted last 2 sentences.

 

[kcowan]

You have to decide when you are likely to die. Life expectancy is the 50% median number so then you decide how much risk you will take. In my case, it was 82 to 98, i.e. an 80% chance of living to 82 and a 20% chance of living to 98.

Then you do the budget. Then you add in the sources of income. This kind of spreadsheet exercise will give you more insight than most other methods.

You LBYM lifestyle will service you well in both building the stash and making it last.

Sorry to hear about your Dad. However I encourage you to use other means to forecast your life. I had a boss whose Dad died of a heart attack at 52. He let that influence his life planning. He is 82 and going strong.

 

[eytonxav]

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.

This is my approach and especially so if you have heirs.

 

[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.

 

[MichaelB]

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.

Yes, because most people don't just go from "perfectly normal" to "low functioning". You may spend years in-between, needing care and assistance but still with enough cognitive awareness to appreciate the difference additional spending can make. The additional financial resources can also extend the amount of time you are able to live at home.

 

[2017ish]

1. Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR? From prior discussions, there are vanishingly few people here who have hitched themselves to a iron-clad SWR once they retire. I have used the SWR literature as a planning tool prior to retirement, and will use variable withdrawal method once we pull the trigger this year... In any event, I personally think many folks here are pretty conservative in their spending models; likewise, many of them probably think I am planning to spend too quickly. Have a plan that you've thought carefully through, with plenty of wiggle room. If 1 or 2% of your initial portfolio supports your "need to" spending that remains after pension/social, any additional spending is quickly slashable in bad times.

2. Are you factoring in SS in your future income projections and at what age are you planning to take it? Not really factoring it in yet, although starting to realize that we will get something despite never planning for it. (We are 57/56) DW (primary earner) will take at 70, and I likely will too. If we get the amounts that are projected, it will be noticeable addition to cash flow. Unless we experience some truly nasty sequence of returns on our overall portfolios, whatever we get will likely be funnelled to now-hypothetical grandchildren's educations...

3. 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? Aggressive Roth conversions planned during the years we are living off after-tax money. Conversions to top of 28% tax bracket under current Code and if rates change, find the sweet spot and reach it. Once the after-tax money runs out, we'll likely continue to target the top of 28% bracket via roth conversions on top of our spending withdrawals. Wouldn't be that unhappy if that is all to no avail and we continue to have huge amounts in IRAs at 70.5; there are many worse options than that--and we'd still be paying at a lesser marginal rate than when we put the assets in.

4. ...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? https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/ is a good introduction to the literature on this. We are planning to be a bit aggressive up front, with a 4.5% fixed percentage withdrawal (unless we can't make ourselves spend that much). Many discretionary expenditures (3 separate trips totalling more than 6 months already planned in the first year...). If we can't keep that up due to $ or health, we'll be fine. We won't go overboard though; DW's parents were still doing a lot of traveling until past 80; they've slowed down now as they approach 90, but are still doing well....

_____
P.S. Thanks to Whisper66 for the formatting, which I stole!

 

[btdt22]

- 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.

Gosh forbid you would want input from those who have been there and done that?

 

[H2ODude]

We could well afford to up our spending significantly using Fido calculator, Firecalc, and just about any other method. Yeah, I track everything out of habit but not because I fear exceeding safe limits. Just something I do.

After 6 years of this, it's simply a matter of not seeing anything else we care to spend money on. We dabble with the idea of moving to beach, but it's just got too many issues not the least of which is inertia. We upped charitable, but are still somewhat conservative there. So just because we COULD spend more we don't. And my conclusion is there's nothing wrong with that. We have no desire to just spend so we can maybe zero down the portfolio. We do all the long distance traveling we care to, are happy with a 6 yo truck and 2 yo BMW. Buy good food and eat out whenever we care to. Nothing else attracts us. After all, I have 4 pair of jeans and a bunch of tee shirts, flannel for winter. Happiness is not having spent every dollar you could until you check out.

 

[calmloki]

We could well afford to up our spending significantly using Fido calculator, Firecalc, and just about any other method. Yeah, I track everything out of habit but not because I fear exceeding safe limits. Just something I do.

After 6 years of this, it's simply a matter of not seeing anything else we care to spend money on. We dabble with the idea of moving to beach, but it's just got too many issues not the least of which is inertia. We upped charitable, but are still somewhat conservative there. So just because we COULD spend more we don't. And my conclusion is there's nothing wrong with that. We have no desire to just spend so we can maybe zero down the portfolio. We do all the long distance traveling we care to, are happy with a 6 yo truck and 2 yo BMW. Buy good food and eat out whenever we care to. Nothing else attracts us. After all, I have 4 pair of jeans and a bunch of tee shirts, flannel for winter. Happiness is not having spent every dollar you could until you check out.

+1, though an older BMW and no truck.

Can't remember a time I haven't jiggered numbers to make a potential situation look it's bleakest. No pension, virtually no tax sheltered investments, pretty close to no social security income - if I was self-sustaining it behooved me to plan for the worst. Now all that planning for nothing but rainy days has resulted in an unexpected cache of cash. At 67 it dawns on me that I can do less and less physically and attractions are becoming fewer and fewer. Guess it's good I never wanted to go skydiving or bungee jumping anyway.

 

[CaliKid]

Gosh forbid you would want input from those who have been there and done that?

I think the OP was implying things may be different in the future with social security. I, being 50ish, assume I will get zero social security. If I happen to get any it's a bonus but it's not factored into my financial plan at all.

 

[RetireAge50]

I will keep in mind the worst cases (Firecalc) but will base my withdrawals closer to the expected result. Plan to recalculate the expected every time I withdraw money. A variable income but we also have pensions and SS as a base. So we are not going to do more sooner but not less either.

 

[Cobra9777]

We could well afford to up our spending significantly using Fido calculator, Firecalc, and just about any other method. Yeah, I track everything out of habit but not because I fear exceeding safe limits. Just something I do.

After 6 years of this, it's simply a matter of not seeing anything else we care to spend money on. We dabble with the idea of moving to beach, but it's just got too many issues not the least of which is inertia. We upped charitable, but are still somewhat conservative there. So just because we COULD spend more we don't. And my conclusion is there's nothing wrong with that. We have no desire to just spend so we can maybe zero down the portfolio. We do all the long distance traveling we care to, are happy with a 6 yo truck and 2 yo BMW. Buy good food and eat out whenever we care to. Nothing else attracts us. After all, I have 4 pair of jeans and a bunch of tee shirts, flannel for winter. Happiness is not having spent every dollar you could until you check out.

+2, although my truck is 20 years old and DW's BMW is 11. And I only have 2 pair of jeans that DW allows me to wear outside the house.

We have not changed our lifestyle at all since retiring. We do everything we did before... same quantity and quality. Yet all the retirement tools say we are under-spending 30-35% vs 95% success rate. We just don't think spending more would result in greater happiness. Plus, no one actually knows if we are being too conservative or too aggressive until the game is over and score is final. So that's our approach... just continue as we did before, maybe a bit more gifting to the kids and grand kids, and let the cards fall where they may.

 

[Independent]

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]

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]

Are you factoring in SS in your future income projections?

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]

....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.