Stop saving in retirement at "enough"

[calmloki]

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.

This sounds like a good plan if you can implement it. Our net worth and income continue to rise - we keep raising the rent and lending money. The problem, for us, is that we are so used to and comfortable with our lifestyle that we find it painful to spend more than our norm. Our enough is just plenty.

People mention that if your nest egg doesn't keep growing it isn't keeping pace with inflation and is shrinking in real terms. I've wondered about that - if I have x nest egg and a 20 year life span anticipated then if I live a year and my nest egg is the same size it seems the egg only needs to last 19 years, so it effectively HAS grown as the divisor has shrunk.

 

[samclem]

People mention that if your nest egg doesn't keep growing it isn't keeping pace with inflation and is shrinking in real terms. I've wondered about that - if I have x nest egg and a 20 year life span anticipated then if I live a year and my nest egg is the same size it seems the egg only needs to last 19 years, so it effectively HAS grown as the divisor has shrunk.

Works great if we know, even roughly, how many years we have left. Few of us do until very late in the game.

A 65 YO American woman has a life expectancy of 20.5 additional years. Five years later, when she is 70, she does not have a life expectancy of 15.5 years, but instead it is 16.5 years. And even at age 65, though there was a 50% chance she would die by age 87, there was a 25% chance she'd still be alive at age 92 (27 years). And if she >were< alive at 92? Then her average number of years left is about 4 more, but there's a 1-in-10 chance she'll be alive at 100.

The "probable" goalposts keep moving back like this, and the "good chance that you'll make it to" goalposts do, too (would any of us be comfortable with a WR that gives a 50% chance of portfolio failure? Then we shouldn't plan on the average or median life expectancy, either). That makes it really hard to burn down to a very low portfolio unless we live a very long time: A 100 year old should feel safe with a 20% WR.
The obvious way to avoid this is to buy an annuity, which absolves us of the need to carry a big pot of money to the end "just in case." An annuity sure reduces the chance of leaving a big pot of money unspent for use by heirs or charities--because an insurance company has the money instead.

 

[Fedup]

Early retirement years are the years you can spend and still enjoy your money. I have different buckets for different things. My travel bucket is different from retirement savings. Right now, I just plan for my travel, I have no budget. I suspect, we have about 5 years to enjoy traveling in good health. Who knows what happens after that. Maybe I just watch Rick Steves on TV.
So in short, I agree about spending money now vs later.

 

[Rustic23]

I guess we are in the save until you die category. Before the round of boo's, I'll try to explain. First we are self funded LTC. So, when is enough, enough. Pension and SS will cover current expenses and leave about half the necessary funds for LTC. If you add in SWR from IRA's it's up to about about three quarters of the necessary funds. So currently LTC would require a withdraw from IRA's above SWR. So we continue to not spend all the money coming in, and move RMD to a taxable fund. If one of us dies, the pension, SS are enough to cover LTC even is the IRA's are at $0.

Now, having said this, we do not skimp! Our annual expenses include all the big and little spending things DW and I desire. We travel when and where we want, we fund part of out grand kids college, (because we want to) and buy a new car ever three or four years. (so far in retirement going from base model Honda Pilot to an Acura MDX) And, we enjoy our retirement!

So, we save, but we spend aldo.

 

[nun]

I guess we are in the save until you die category. Before the round of boo's, I'll try to explain. First we are self funded LTC. So, when is enough, enough. Pension and SS will cover current expenses and leave about half the necessary funds for LTC. If you add in SWR from IRA's it's up to about about three quarters of the necessary funds. So currently LTC would require a withdraw from IRA's above SWR. So we continue to not spend all the money coming in, and move RMD to a taxable fund. If one of us dies, the pension, SS are enough to cover LTC even is the IRA's are at $0.

Now, having said this, we do not skimp! Our annual expenses include all the big and little spending things DW and I desire. We travel when and where we want, we fund part of out grand kids college, (because we want to) and buy a new car ever three or four years. (so far in retirement going from base model Honda Pilot to an Acura MDX) And, we enjoy our retirement!

So, we save, but we spend aldo.

Right now my pension and rental cover my income needs and I'm reinvesting dividends....so I'm still accumulating. When my US and UK SS checks start I'll probably just invest those too. I bought LTC at age 38 and that will cover $300k before I need to spend.

 

[tdv2]

I'm planning to under-spend long term WR in third year of retirement. I'm close to pulling the plug.....now inside of 1 yr. Have been building a cash cushion to cover expenses in first two years. Since we plan to buy our retirement house before we sell our current one, the cash number is significant. We are also going to do a couple of big 5 figure vacations in the first two years. After that we will mellow out a bit on the spending....at least that's the plan.

 

[bradaz2488]

Only 4 years into ER and not comfortable spending excess funds. Inflation and healthcare costs can drain those excess funds very fast. I assume 2.5% inflation in my plan, but I use 7.5% for healthcare. Currently we are $16K under budget and $185K above "plan" portfolio for the past 4 years. However, I just plug in our renewed BCBS premiums which increase 18% from last year and now we are tending $200K below end-of-plan portfolio 44 years from now. Doing this kind of analysis helps be appreciate how much inflation impacts our plan down the road. It is tempting to spend excess funds, but will not until we are well above the "plan" line that I locked in at day 1 of ER. Our biggest buffer is assuming no SS or Medicare so when we get within a 5-7 years window for collecting those benefits then we will most likely increase spending to match the line we locked in at ER. Too many unknowns with SS/Med and there will most likely be a lot of changes in the next 15 years.

 

[audreyh1]

We're underspending our withdrawal, so I guess that means we're still saving - retired over 16 years. I let funds accumulate in short-term accounts - it's there to use whenever we want.

We set a budget above our spending level. It's what I call our "generous" budget - but that's mainly for planning purposes. We don't deprive ourselves.

Haven't started paying for business class international flights yet - some might consider that depriving ourselves.

 

[Fedup]

Spend $30k a year on British Airways credit card and you get one free companion ticket. That's how I play to get my business/ first class ticket. Plus I get to skip the line at the airport when I get to London.

 

[Nature Lover]

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

Toolman,

There are so many ways to work a plan. Your numbers are solid (3 years WD's <2%; after that, WR of <0.5%--these are absent the bonus). If this bonus approach works best for you, use it.

The input from others above have correctly identified many of the highest risk factors we all face when retired (inflation, market downturns, LTC/unexpected health costs). We all face those whether we use a WR basis for max spending or some other method...and we adjust. As long as you are providing for these and any other material risks you believe apply to you, you should be good.

NL

 

[Scuba]

This sounds like a good plan if you can implement it. Our net worth and income continue to rise - we keep raising the rent and lending money. The problem, for us, is that we are so used to and comfortable with our lifestyle that we find it painful to spend more than our norm. Our enough is just plenty.

People mention that if your nest egg doesn't keep growing it isn't keeping pace with inflation and is shrinking in real terms. I've wondered about that - if I have x nest egg and a 20 year life span anticipated then if I live a year and my nest egg is the same size it seems the egg only needs to last 19 years, so it effectively HAS grown as the divisor has shrunk.

+1

 

[traineeinvestor]

A combination of time horizon still being 40+ years (at least for DW) and an awareness of both the damage inflation can cause and the slings and arrows of outrageous financial fortune, would make it impossible for me to not try and keep up with inflation.

I just vetoed DW's latest attempt to buy a car (completely unnecessary where we live) but will revisit when our home mortgage is paid off in 3.5 years. That said, as the gap between income and expenses remains solid I can see us allowing ourselves a few more expenses in the years ahead, but I hope there will always be a surplus of income over expenses to be reinvested. I would get very stressed if I thought there was a risk of outliving our money.

 

[Retireatee1]

No reason to not keep funding a Roth IRA if you're not sure, you can always withdraw the cost basis back out.

 

[walkinwood]

Is your enough in nominal or inflation adjusted dollars?

Sort of unrelated, but....

After a certain age (63+), your time left here, even assuming a long life span (90), is reduced each year, in percentage terms, by more than 3% inflation. So you could use a fixed, nominal amount after that.

 

[timemoveson]

Sort of unrelated, but....

After a certain age (63+), your time left here, even assuming a long life span (90), is reduced each year, in percentage terms, by more than 3% inflation. So you could use a fixed, nominal amount after that.

That's a very nice and simple way of looking at a complex concept for most people - well played!

 

[Chuckanut]

Haven't started paying for business class international flights yet - some might consider that depriving ourselves.

,

I find myself upgrading to Economy Plus (or whatever the airline calls it) on flights over 4 hours. But, I am tall and the ever decreasing seat pitch is really hard to deal with. A few months ago I bought a 'regular' seat on a 2 hour flight. It would have been OK, but the guy next to me did not fit into his seat very sell so he spread his legs into my area. Then he wanted to move the arm rest up. At that point I politely said 'no'.

FWIW, I use the cash rewards from various credit cards to pay for upgrades in flight and in hotels. I have a separate bank account with Simple Bank where I stash the cash awards. When I travel I use the money to upgrade if possible and I feel the need. I find that works better than trying to use miles/points. Less hassle and they can't devalue my dollars quite as easily as they can miles and points.

Back on topic, I do not save anymore in the sense of having a monthly savings plan as I did when I was working. OTOH, I don't go out of my way to spend money for the sake of spending it. And, I do try to get the best deal I can without going to extremese. For example, I like to get a cheaper airfare, but I won't turn a 8 hour non stop flight into a 20+ hour flight just to save $100.

 

[samclem]

Sort of unrelated, but....

After a certain age (63+), your time left here, even assuming a long life span (90), is reduced each year, in percentage terms, by more than 3% inflation. So you could use a fixed, nominal amount after that.

Using your method, you'd still need to keep track of inflation to be sure it (by chance) happened to be close to your expected longevity. Sometimes inflation exceeds 12%, which only works for someone who is a lot older than 63.

We could set our withdrawal rate every year as the last digit of the barometric pressure at Greenwich at midnight Dec 31st, and that might work out, too. But, likely it would not, just like using the inflation rate.

 

[kcowan]

+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.

I disagree! You will hoard your excess returns and then you will be too infirm to enjoy them.

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.

Exactly. VPW

+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.

Our WR has decreased steadily as other income kicked in and the portfolio grew, reaching 1.8% last year with another decrease (God and the S&P willing!) this year.

We're under-spending our planned withdrawal, so I guess that means we're still saving - retired over 16 years. I let funds accumulate in short-term accounts - it's there to use whenever we want.

We set a budget above our spending level. It's what I call our "generous" budget - but that's mainly for planning purposes. We don't deprive ourselves.

Haven't started paying for business class international flights yet - some might consider that depriving ourselves.

We will not fly to Europe without fully-reclining bed seats. And it will probably get worse if we get arthritis. When we go out to dine, we will not get the cheapest wine but the nicest wine for the price. We no longer "go without" because of the costs.

Life is good and we are enjoying it to the fullest. My Dad lived to be 95 but he had no desire to travel in his last 10 years, even when we invited him. He wanted the comforts of home. Same with MIL who lasted until 93. In the end she would not even let me drive her to our place for Christmas so we had to have a drop-in one on the 26th.

 

[Fedup]

My in laws won't travel after 70ish. Live your life while you can.

 

[Surewhitey]

My enough is different than DW enough...Her enough is when she says I can call it quits.

 

[TOOLMAN]

Sort of unrelated, but....

After a certain age (63+), your time left here, even assuming a long life span (90), is reduced each year, in percentage terms, by more than 3% inflation. So you could use a fixed, nominal amount after that.

Good observation

 

[mickeyd]

We Have ben retired 15+ years now, but still find that we are not spending all that our income feeds into our checking account monthly. Rarely a month goes by when I do not hack off a bunch of cash from the checking account and send it to our Ally online savings act. We're looking at a future expense of moving into a CCRC, so that front-end entrance fee will make a pretty good dent in our short-term assets, but that is over a year away. So, we just continue to save the excess cash.

 

[marko]

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.

Agreed. Doing this each and every year is risky IMO.

I think it's ok to splurge once in a while if you see a comfortable cushion building. But to do it on an annual basis blindly seems to be ignoring the inflation/bad market end of things.

We splurge big time on things (two new luxury cars this year and a new kitchen) but only when we can predict future balances getting way out of whack on the positive side.

 

[marko]

Sort of unrelated, but....

After a certain age (63+), your time left here, even assuming a long life span (90), is reduced each year, in percentage terms, by more than 3% inflation. So you could use a fixed, nominal amount after that.

This is an interesting take but I'm not sure I get the math behind it. (a question not a challenge)

Care to spell it out? Are you saying that due to the short(er) time left ahead inflation doesn't make any difference?

 

[2017ish]

Quote:
Originally Posted by 2017ish View Post
+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

.I disagree! You will hoard your excess returns and then you will be too infirm to enjoy them.
....

I think we actually agree. We will not be using an SWR approach for the reason you cite. BUT, if one needs/wants the stability of SWR, not removing extra in high portfolio years is part of the construct for a reason.