Withdrawal Averaging?

[pb4uski]

You may be overthinking this. ...

+1 Late to the party, but what happened in the past is irrelevant... interesting perhaps, but irrelevant. All that really matters is your current best estimate of annual withdrawals in relation to the current value of your portfolio and that ratio is not excessive.

 

[RunningBum]

So if the OP had withdrawn 3%, and tucked the unspent money in a side account to use for the cars, tuition, and kitchen renovation, it'd be fine. But since he kept it invested, his plan was broken by going over budget the last 2 years? I don't buy it.

Or are we only talking about the future? Let's turn the clock back two years. OP has been well under budget for 8 years, but knows these big expenses are coming. Are you saying he can't do them because they'd put him at 6% for the next two years?

 

[marko]

Or are we only talking about the future? Let's turn the clock back two years. OP has been well under budget for 8 years, but knows these big expenses are coming. Are you saying he can't do them because they'd put him at 6% for the next two years?

OP here. That's essentially how it plays out. I didn't really know these costs were on the horizon; that doesn't matter. But that's the essence of my question.

To be fair to everyone, this is not something that keeps me awake at night. Historically, my normal burn rate is below a generic safe 4% and as RunningBum noted earlier, I have still a lot of unspent 'reserve'...and separate upside potential in the wings.

My original question was just wondering how to view the unspent percentages and if one could use a longer term average to cover unexpected blips.

 

[audreyh1]

Regardless, it does sound like if I under spent for a few years in the future, that unspent % would be available as extra income; same as having set it aside.

It’s perhaps just a little different depending on how you choose to withdraw funds using a % of remaining portfolio method.

Say you withdrew your 4%, then found that you didn’t spend $10K of it, so the next year you decide to withdraw $10k less. Now your withdrawal rate is slightly lower. No prob.

What about that extra $10K you left in your portfolio? Well it increased your remaining portfolio a bit, so if you stuck to your 4% of remaining portfolio, your future income increased $400 a year assuming little volatility.

Or you could choose not to be that strict and just perhaps keep track of some unspent funds that were left invested but could be withdrawn as extra later if needed. This would generally be fine unless you went through a period where the portfolio took a bad hit in which case your annual income will go down plus that extra you planned to perhaps take in the future would also be hit. Temporarily.

Those are just the trade offs between keeping unspent funds in potentially volatile long-term investments.

 

[CardsFan]

PS. If the expenses kept growing, I would have to seriously think about early SS.

A very reasonable comment. I can't imagine anyone taking issue with that!

 

[marko]

It’s perhaps just a little different depending on how you choose to withdraw funds using a % of remaining portfolio method.

Say you withdrew your 4%, then found that you didn’t spend $10K of it, so the next year you decide to withdraw $10k less. Now your withdrawal rate is slightly lower. No prob.

What about that extra $10K you left in your portfolio? Well it increased your remaining portfolio a bit, so if you stuck to your 4% of remaining portfolio, your future income increased $400 a year assuming little volatility.

Or you could choose not to be that strict and just perhaps keep track of some unspent funds that were left invested but could be withdrawn as extra later if needed. This would generally be fine unless you went through a period where the portfolio took a bad hit in which case your annual income will go down plus that extra you planned to perhaps take in the future would also be hit. Temporarily.

Those are just the trade offs between keeping unspent funds in potentially volatile long-term investments.

Very interesting. But if I withdrew that $10k and put it in a safe deposit box? I'd have my 4% plus the $10k, as your first example shows.

However say 8 years of under withdrawing left me with $500k of "extra" in the portfolio....

 

[audreyh1]

Very interesting. But if I withdrew that $10k and put it in a safe deposit box? I'd have my 4% plus the $10k, as your first example shows.

Correct. Although my unspent funds go to high yield savings accounts and maybe CDs/treasuries/short-term high quality bond funds.

Just some ways to think about it.

If you can anticipate some spikes in your spending - new car, home remodeling, extra medical bills, major repair - you can build the “savings” to fund those over several years rather than having an occasional big spike higher withdrawal. If you have records of past spending it can help get an idea of what kind of costs might be involved.

But that’s just another option for dealing with year-to-year variances in spending.

 

[marko]

Correct. Although my unspent funds go to high yield savings accounts and maybe CDs/treasuries/short-term high quality bond funds.

Just some ways to think about it.

Thanks for all of this!

 

[audreyh1]

Thanks for all of this!

You’re very welcome!

 

[SecondCor521]

I would think about this in two ways:

1. The lifestyle creep issue...are these two years really one-offs or is it the start of a trend?

2. Forgetting the past, take 4% (or whatever SWR you use) of my current portfolio today. Do I feel comfortable with that as a budget going forward? If so, I would feel fine.

 

[GravitySucks]

1. Your portfolio is probably in better shape by spending 1.7% first 8 years th an 6% next 2 years than visa-versa.
2. You have 10 less years to fund.
3. As others said, where you are and what you do in the future is more important than what has happened. Regroup. Review.
I had the opposite this year, dodging some non recurring for another year or so. They'll be raiding my stash soon though.

 

[dtbach]

+1 Late to the party, but what happened in the past is irrelevant... interesting perhaps, but irrelevant. All that really matters is your current best estimate of annual withdrawals in relation to the current value of your portfolio and that ratio is not excessive.

Beat me to it but this is really the bottom line. I think you are in fine shape.

 

[HI Bill]

Whatever you have done in the past makes absolutely no difference going forward.

Examine your assets. Determine what rate of withdrawal you would like. Analyze to see if your assets can support that withdrawal rate going forward. If not, adjust accordingly. Repeat the process periodically.

Exactly! The only reason what withdrawal rates you took in the past MIGHT matter in the future is whether any of the higher spending years (due to ____) might reoccur. Just plug in the current balance and your planned withdrawal rates!

 

[highlan875]

Using delta

A bedrock of movement of money is the calculation of percent change. (Real analysts call it percent delta … just so you know.) We use these to show month-over-month (MoM) and year-over-year (YoY) changes in data, and they should be in every reporting dashboard you build. Without exception.

Using delta as the percentage change shows the movement of money, including living on money, living off money and living for money. Each category moves. So tracking movement of these dollars helps illustrate patterns including spending.

Adapting from the accumulation phase into the spending phase is aided using percent delta.