To hell with the perfect WR

[Car-Guy]

So far in retirement my WR has equaled what I want (not need) to spend. It becomes clearer to me as each year passes, that I won't outlive my money. (barring a major economic collapse) I still keep a couple of spreadsheets to track my total net worth, but as long as it keeps going up, I'm not going to worry about my annual withdrawal or spend rate.

[pb4uski]

+1

[Focus]

Another indication that withdrawal rates vary considerably in the life of a retiree:

The Retirement Café: Spending Typically Declines as We Age

A reassuring excerpt:

Quote:

Both show that expenditures generally decline with age, as have earlier studies. Blanchett additionally shows that expenditures drop more rapidly each year of early retirement and drop more slowly each year of late retirement, but both show that the amount of spending almost always declines. Medical expenses late in life can increase expenditures significantly, but both studies appear to show that even when medical expenses do increase expenditures at older ages, they are lower than early retirement spending in real dollars.

But then this is all about averages again, and an individual's mileage will vary.

[Options]

Quote:

Originally Posted by clifp ... It is interesting to see the difference attitudes between the young dreamers, those folks near 50 almost retired and those who are retired. For most the young dreamers the search for a SWR is almost a gospel, the 50 years get it it is a guideline, and the retires it is of little importance to their daily lives.

This. I've made the same observation. Although I've calculated an overall SWR (perhaps for fun?), it's basically useless for me. My actual WR will be all over the map due to delayed income streams coming online in different timeframes.

[audreyh1]

Quote:

Originally Posted by Car-Guy So far in retirement my WR has equaled what I want (not need) to spend. It becomes clearer to me as each year passes, that I won't outlive my money. (barring a major economic collapse) I still keep a couple of spreadsheets to track my total net worth, but as long as it keeps going up, I'm not going to worry about my annual withdrawal or spend rate.

Do you track inflation adjusted net worth?

We do. It went down in the late 2000s, and took several years to recover.

By 2012 we had caught back up in real terms. And 2013 really gave it a boost.

Pretty nice pull ahead of inflation at this point (knock on wood!!! - knock, kncok!)

Maybe that's why these days I put effort in looking at how to make good use of our money today (spend it - but well) rather than falling into the inertia of spending less because it's easier.

[Car-Guy]

Quote:

Originally Posted by audreyh1 Do you track inflation adjusted net worth?

Yes I do.

[brett]

Same here. I never bother with it any more. Our expenses are less, our travel budget has increased, and we are still living under our income. Don't even bother with the firecalc type spreadsheets anymore.

[ERD50]

Quote:

Originally Posted by Focus ... Does this resonate with you?

No. For the following reasons:

Quote:

In the years before I retired, I read lots of books and online articles about financial planning and obsessed about finding the perfect WR. ...

What the heck is the 'perfect WR'? I don't even understand the concept. Outside of a time-machine to know when you are going to die, and what your expenses would be between then and now, and determining how much you wish to leave to others, how would this be determined? It's nonsensical to me.

Quote:

... After retiring about seven months ago, I've done a complete 180.

Years of searching for the perfect WR, and then just seven months in you change your mind about it? Maybe you should give it more time?

Quote:

It now seems to me that the world of financial theory and averages is a fair distance from real life.

You mean I don't have 2.6 children?

Quote:

Withdrawal rates will vary considerably from year to year depending on circumstances (many of them unknowable in advance). I'm not planning to withdraw a set amount each year,

I think you are confusing (as others in this thread have done), WR and spending. Why would you withdraw more than you spend (RMDs is one answer) - but then you just plow the RMD back into an investment - no one is forced to spend it.

Quote:

... now that it's apparent I can live on less than I originally estimated. By continuing to apply LBYM principles in retirement, I give myself room, I hope, to absorb the occasional unexpected expense or market drop along the way. I know some retirees want to determine their ideal WR for other reasons: to avoid underspending and to make the most of their hard-earned savings. I get it, but I really like living simply and don't feel I'm missing out if I fail to spend my last dollar on my dying day. I've actually lost my taste for spending and have come to realize that a fair amount of my comparatively modest buying over the years was simply a way to reduce work-related stress.

I'm not aware of anyone posting here who just spends based on some pre-determined WR. I think you have set up a straw man.

The rest makes sense to me - if you are content with spending less, that's fine, it adds a buffer for the unknown (or even a change in tastes), and your heirs/charities will appreciate it.

I also found that some after-work activities were stress busters, and I don;t have that kind of stress anymore. Ahhhhh.

-ERD50

[petershk]

Not retired yet but doing a pseudo as if (impossible 100% because of taxes) but basically save 100% of income and "withdraw" money needed to live.

What were seeing is flexibility is what matters. Even after looking at spending for years it's pretty amazing what you REALLY need.

Hardest thing for me is the psychological fear of "money going down" instead of up... Which everyone on here has had. So... Yeah. SWR is a directional guideline.

I'm trying to focus on being flexible. If we have a lot more... Can always find something good to do with it

Sent from my HTC One_M8 using Early Retirement Forum mobile app

[Focus]

Quote:

Originally Posted by ERD50 What the heck is the 'perfect WR'? I don't even understand the concept. Outside of a time-machine to know when you are going to die, and what your expenses would be between then and now, and determining how much you wish to leave to others, how would this be determined? It's nonsensical to me.

Exactly. I've seen the light. What caused the change, I think: Leading up to retirement there was the tremendous weight of making sure this was going to work financially, since I saw it as a one-way ticket. Once I retired, that weight was gone -- now it just has to play out.

Quote:

Originally Posted by ERD50 I think you are confusing (as others in this thread have done), WR and spending. Why would you withdraw more than you spend (RMDs is one answer) - but then you just plow the RMD back into an investment - no one is forced to spend it.

I'm not confusing withdrawals with spending. My point is that I withdraw what I need to spend rather than take out a set amount on a monthly or annual basis based on some WR calculation. I'm getting the impression you don't think people do that. Maybe you're right, but the WR-focused threads I've seen seem to indicate otherwise.

[ERD50]

Quote:

Originally Posted by Focus ... I'm not confusing withdrawals with spending. My point is that I withdraw what I need to spend rather than take out a set amount on a monthly or annual basis based on some WR calculation. I'm getting the impression you don't think people do that. Maybe you're right, but the WR-focused threads I've seen seem to indicate otherwise.

I think those threads are just thinking through the planning stages - what could I take out, historically, at what safety level.

What you actually take out, will vary in many cases. Now, some people might have a regular monthly or quarterly withdraw set up, so that part is on auto-pilot for a while. But I think most of us would change that if the cash built up too much, or take out more if needed.

Other wise, you'd need to level-load every single expense. I'll probably buy a car this year - how does that work on a rigidly fixed WR? Or home repairs, etc.

No, I think any WR is just a guidepost estimate for planning purposes. Just like life expectancy tables - if I take that literally, I can predict the month I pass on. Same thing.

-ERD50

[Greg V]

There is no perfect withdrawal rate solution since we don't know how long we'll need the funds. However, I believe a withdrawal scheme that fits your circumstances is a useful tool.

We annually set a maximum withdrawal amount for normal circumstances. When surprises happen, we’ll adjust, either in the short or long term depending on the surprise.

I find adjustments easier and the implications of those changes clearer when I already have a plan and am familiar with its assumptions, calculations and projections. I build a better Plan B when I start with a Plan A. Or as I was told in my younger years..."If you fail to plan, you plan to fail."

Just another point of view to add to the mix...

[Which Roger]

Most people on this board have wiggle room, so the role of the SWR is to determine whether one has enough to retire, then to ensure that in retirement, the actual withdrawal rate averages out to be <= the SWR. The analogy to working years is that someone in this situation is able to save and has discretionary spending.

But if a retiree's finances are tight, they need to budget carefully and withdraw and spend the maximum "safe" amount each period, with little or no discretionary spending. The analogy to working years is that this person is living paycheck-to-paycheck. Most retirees probably fall into this category. We are different.

[imoldernu]

As I read ha's post #2... Thought... "I don't even remember writing this"...
and so +1

[hnzw_rui]

Quote:

Originally Posted by clifp It is interesting to see the difference attitudes between the young dreamers, those folks near 50 almost retired and those who are retired. For most the young dreamers the search for a SWR is almost a gospel, the 50 years get it it is a guideline, and the retires it is of little importance to their daily lives.

I don't think it's so much gospel for young dreamers and pre-retirees. Rather, it gives an estimate of how much more needs to be saved or how much longer someone needs to keep working before being able to afford a comfortable lifestyle in retirement despite market ups and downs.

[rayvt]

Quote:

I'll probably buy a car this year - how does that work on a rigidly fixed WR?

Oh, that's easy. I can get a new car loan for 1.99% or 1.49% (Alliant CU or PenFed CU).
I can earn 5% - 6% on high-quality preferred stocks. So our last car we took out a loan and left the money in our preferred stock portfolio, with automatic bill-pay from that account to the car loan. Either way, 5 years in the car is fully paid for with the money that originally was in the portfolio.

[H2ODude]

Being fully retired, I just use the SWR concept to set what is a very conservative monthly draw from the portfolio: a tad less than 3%. I started out at less than that but have increased it as the markets have done well and I've become more comfortable (and hey, have less years to draw from it).

That money doesn't all get spent but it does get moved to the credit union checking with any residual at end of month going to CU savings. That's used for travel and still grows, to the point it was used for a new car we really didn't need. So we use the <3% WR as a very confident sustainable retirement source AND a means to sort of force us to "get it out of the portfolio" where we will spend it. We've used that to force up the lifestyle and charitable giving, and frankly we still have room to jump it up more (and we could always ratchet it back in hard times; we could very comfortably support us'ns on <2% of current thanks to a pension (and we haven't started SS yet). We'll take SS at 70 and it will just about all go to taxes on minimum withdrawals on the IRAs.

So I do like SWR concept, but you have to use it with it's conservative limitations in mind. I believe if we went to 4% we'd still end up with hoards of money simply because 4% is based on long lives and worst case scenarios. I know Firecalc is king here, but I like Fido RIP simply because it accounts for the taxes. I'm more interested in what my aftertax safe picture is than pretax and having to account for all that.

All that said, if I was truly going for ER at say 50 or less, I don't think I'd dare project with anything over 4%. Too many unknowns on healthcare, markets, and personal surprises. We've been at this, married 45 years, and have a lot of life experience with $ to pretty well define expenses in the short time we have left.

We're all different, and ya gotta find your own comfort zone.

[Mulligan]

Quote:

Originally Posted by rayvt Oh, that's easy. I can get a new car loan for 1.99% or 1.49% (Alliant CU or PenFed CU). I can earn 5% - 6% on high-quality preferred stocks. So our last car we took out a loan and left the money in our preferred stock portfolio, with automatic bill-pay from that account to the car loan. Either way, 5 years in the car is fully paid for with the money that originally was in the portfolio.

What? Someone else here actually likes those things? Scarce as hens teeth around here. Mine are high quality investment grade also, but I yield somewhat higher mostly because they are old issues that trade about as frequently as the Cubs win the World Series. Not the type to buy if you want liquidity.


Sent from my iPad using Tapatalk

[Car-Guy]

Quote:

Originally Posted by Mulligan about as frequently as the Cubs win the World Series. Sent from my iPad using Tapatalk

At the rate of winning once a century, they are now overdue.

[W2R]

Here's my take on the car buying issue.

When working people living off a paycheck want to buy a car, they often:

(1) get a loan for the car or
(2) save the money from excess take-home pay.

When retired people living off portfolio withdrawals want to buy a car, they often:

(1) get a loan for the car or
(2) save the money from excess withdrawal money.

In either case, if their base expenditures use up 100% there's a problem. If/when I buy another car, I will probably choose Door #2. Last year's excess would have covered more than I would spend on a car, for example. If that was not the case, I'd just use two or more years' combined excess.