Stop saving in retirement at "enough"

[TOOLMAN]

We decided to stop saving in retirement when we reach a certain network figure - our "enough money figure". Each year after tax time, we give each half the amount over that "enough" figure as a bonus to spend.

We know that some years we may not get any bonus but also there seems no point in saving past your "enough money" figure. Just wondering if anyone else has a similar plan.

 

[Mdlerth]

Too early for me to know for sure, since I'm still at TMY.

But, being brutally honest about myself, I am a bit reluctant to adopt your bonus approach. I fear I might like it too much.

 

[exnavynuke]

I'm not sure what you mean by "saving in retirement". Did you have fixed income outside of investments that you were putting away in savings/investments while retired?

 

[2017ish]

Our only income in retirement (other than from portfolio and conversions) will be whatever Social is given to us. Unless really dire things happen to the world, we'll be spending more than that, so savings won't happen.

 

[exnavynuke]

Or are you saying that you pick a number now, say $5 million, and spend your withdrawal rate plus any growth above and beyond that number?

The downside of that plan, to me, would be a long retirement period would result in that set number being worth a lot less 30 years from now due to inflation. Allowing it to grow in really good years is part of what lets it cover inflation in the later years.

 

[2017ish]

Or are you saying that you pick a number now, say $5 million, and spend your withdrawal rate plus any growth above and beyond that number?

The downside of that plan, to me, would be a long retirement period would result in that set number being worth a lot less 30 years from now due to inflation. Allowing it to grow in really good years is part of what lets it cover inflation in the later years.

+1. As well as providing cushion against market corrections; if using SWR approach, you can't eat more of your corn just because recent harvests have been plentiful.

 

[Teacher Terry]

Because I still work p.t. we put $ in savings each month. That will stop once I don't want to work anymore.

 

[TOOLMAN]

I'm not sure what you mean by "saving in retirement". Did you have fixed income outside of investments that you were putting away in savings/investments while retired?

My only source of income is investment gains now. We will take SS in three years. In effect I am capping my net worth once I think I have saved enough.

 

[TOOLMAN]

Or are you saying that you pick a number now, say $5 million, and spend your withdrawal rate plus any growth above and beyond that number?

Yes, that's our plan (our enough limit is set at 4M in invested assets.)

 

[daylatedollarshort]

We decided to stop saving in retirement when we reach a certain network figure - our "enough money figure". Each year after tax time, we give each half the amount over that "enough" figure as a bonus to spend.

We know that some years we may not get any bonus but also there seems no point in saving past your "enough money" figure. Just wondering if anyone else has a similar plan.

Is your enough in nominal or inflation adjusted dollars?

 

[samclem]

My only source of income is investment gains now. We will take SS in three years. In effect I am capping my net worth once I think I have saved enough.

From my perspective, you aren't "not saving in retirement," you are increasing your withdrawal rate. It's not clear exactly what you are reducing it from, but if your plan is to keep your portfolio at a constant dollar amount and just spend anything above that, then you have a plan that may not work well at all.
1) A portfolio that stays at the same dollar amount every year is actually getting smaller (by the rate of inflation). Now, letting a portfolio get smaller as we reac advanced years probably makes sense, but it doesn't make sense to allow inflation to dictate the rate at which its real value declines.
2) If you have a sizeable amount of equities (e.g 30% or more), in some years the portfolio will not grow in value, it will shrink This could happen for a long time. What's your plan to get money to live on in those years, and what's your plan to help the portfolio balance recover?

 

[pb4uski]

Or are you saying that you pick a number now, say $5 million, and spend your withdrawal rate plus any growth above and beyond that number?

The downside of that plan, to me, would be a long retirement period would result in that set number being worth a lot less 30 years from now due to inflation. Allowing it to grow in really good years is part of what lets it cover inflation in the later years.

Yes on the last part but partially offsetting the erosion of inflation is that the OP will have less future years to fund. So while at 2.5% annual inflation in 20 years that $4 million will only have the buying power of $2.4 million, on the other hand assuming that the OP is now 65 and plans to live to 100 then he will only have 15 years left to fund.

 

[euro]

We decided to stop saving in retirement when we reach a certain network figure - our "enough money figure". Each year after tax time, we give each half the amount over that "enough" figure as a bonus to spend.

We know that some years we may not get any bonus but also there seems no point in saving past your "enough money" figure. Just wondering if anyone else has a similar plan.

I'm only a year into RE so I'm sure things will evolve, but I have not set such a cap. My goal has always been to spend what "feels right". We pretty much spend on what we enjoy without a lot of limitations, but we don't FORCE ourselves to spend more even if for some reason, our portfolio grows more than expected.
I don't make an effort to squirrel away extra money for the kids to inherit (they are supposed to be independent, so perfectly fine if we use it all up). However, I'm OK if they do inherit, should there be anything left. If that weren't the case, then I might take a "cap and donate to charity" approach similar to what you describe each year

 

[euro]

Yes on the last part but partially offsetting the erosion of inflation is that the OP will have less future years to fund. So while at 2.5% annual inflation in 20 years that $4 million will only have the buying power of $2.4 million, on the other hand assuming that the OP is now 65 and plans to live to 100 then he will only have 15 years left to fund.

Right on!

 

[samclem]

Yes on the last part but partially offsetting the erosion of inflation is that the OP will have less future years to fund. So while at 2.5% annual inflation in 20 years that $4 million will only have the buying power of $2.4 million, on the other hand assuming that the OP is now 65 and plans to live to 100 then he will only have 15 years left to fund.

Yes, but if inflation is 10% (we've been there before), the portfolio will rapidly lose value. That's fine if the OP is 98 YO, maybe not fine otherwise. It makes sense to manage the decline of the portfolio in a deliberate way, not just leave it up to inflation.

I also don't want my portfolio to grow to the sky, and I don't want to run it dry, either. For that reason I will use a "fixed % of year-end portfolio value" as my annual withdrawal amount: This means I get more dollars if the portfolio does well that year, and need to tighten our belts if Mr Market frowns that year. Also, I will track my portfolio's value against inflation, and if it is losing ground (i.e. becoming smaller in real value) over time, then I will reduce my end-of-year withdrawal percentage. As I get quite a bit older and it's clear we have enough dough to see us to the finish line, then I'll spend more, or give it away.

 

[TOOLMAN]

More numbers.
Today Dividends = expenses @77K/yr, without SS income.
mix is now 65/10/25
Taking SS in 3 yrs which add 60K/yr

Lets say we live 25 more years, then my 4M figure back tested would be only worth 2.3M at death. My goal is not to be the richest guy in the cemetery.
250K at death would be closer to my dead NW target.

If inflation spikes then I can always adjust my plan as I have good control on limiting my "needs expenses".

By using a fixed number instead of SWR % it's easy for the wife understands she gets half of our NW above 4M at tax time each year.

I do understand and appreciate the comments. Thanks for the check.

 

[TOOLMAN]

Is your enough in nominal or inflation adjusted dollars?

Todays dollars no inflation adjustment.

Will adjust my plan if inflation spikes up a lot. I do notice that fixed asset investment rates rise along with inflation, which helps the picutre.

 

[MichaelB]

We know that some years we may not get any bonus but also there seems no point in saving past your "enough money" figure. Just wondering if anyone else has a similar plan.

I think it's positive to be able to say "we have enough" and then focus on other things, both when accumulating and enjoying.

 

[nun]

This is just a variable withdrawal rate. If 3% of $4M will cover your retirement expenses go ahead and spend any amounts above that if you want.

 

[TOOLMAN]

I think it's positive to be able to say "we have enough" and then focus on other things, both when accumulating and enjoying.

I have drawn my "that's enough" line in the sand from a rational POV, but it will take some time for me to be fully comfortable emotionally no longer saving by choice.

 

[Midpack]

Our only income in retirement (other than from portfolio and conversions) will be whatever Social is given to us. Unless really dire things happen to the world, we'll be spending more than that, so savings won't happen.

+1, us too. We hope to spend less than WR in some/many years first 15 years or so, but actual "savings" were never in our plan.

 

[dunkelblau]

My plan is partly like this, instead of a fixed withdrawal rate I'll take out two and twenty, that would be 2% of AUM and 20% of the annual marked to market change. This effectively pulls more out during boom years. I haven't yet backtested this against a fixed 3% of initial value indexed to inflation. In principle my way can't deplete to zero, but it can reach a state where withdrawals get too low to cover basic cost of living.

 

[samclem]

By using a fixed number instead of SWR % it's easy for the wife understands she gets half of our NW above 4M at tax time each year.

Okay, I can understand why this might be attractive. But then:

If inflation spikes then I can always adjust my plan as I have good control on limiting my "needs expenses".

Will your wife do the adjusting if you aren't around? Does she know when and how?

In your boots, I'd consider something that is nearly as simple and doesn't require any changes/adjustments if inflation goes bonkers, if investments do poorly, etc. It's no more complex and a lot more bulletproof to tally the NW and multiply by X than to tally the net worth and subtract 4M.

I do understand and appreciate the comments. Thanks for the check.

Best wishes. You've got a "good" problem.

 

[daylatedollarshort]

Todays dollars no inflation adjustment.

Will adjust my plan if inflation spikes up a lot. I do notice that fixed asset investment rates rise along with inflation, which helps the picutre.

Our current plan has us spending .6% of the portfolio once SS kicks in, which is probably the real return we will get with our conservative portfolio. So no saving for us in real dollars unless we downsize and reduce expenses, but inflation adjusted NW should be close to the same when we die as it is today except for extraordinary expenses like LTC.

 

[RunningBum]

This is just a variable withdrawal rate. If 3% of $4M will cover your retirement expenses go ahead and spend any amounts above that if you want.

Not as I have seen VPW defined, and how I use it. I target spending to an increasing % each year, based upon my start of year balance. If I'm over "enough", the bonus is spread out over the remaining years, not all spent in a splurge. This way I get a little extra as a bonus, but if the market turns, I still have more padding.

One nice thing about the OP's strategy is that it seems to encourage extra spending only when the market is high, which is a good time to sell or not be reinvesting in the market. Seems fine to me as long as "enough" isn't "just barely enough". I'd be too worried about a prolonged downturn and inflation for "just barely enough".