Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Withdrawal Rate Too Low?
Old 04-28-2017, 02:53 PM   #1
Recycles dryer sheets
 
Join Date: Aug 2016
Location: Cottage Grove
Posts: 212
Withdrawal Rate Too Low?

The author of this article (It's harder than you think to spend down your 401(k) account in retirement - MarketWatch) has concluded that people in retirement aren't spending enough and she thinks retirees should use the RMD approach from the start. At least, that's how I read it. I'm not sure that I agree.
Johanson is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-28-2017, 06:50 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 35,712
The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: http://www.helpage.org/global-agewat...ectancy-at-60/.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 04-28-2017, 07:15 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 2,525
I've been living off my taxable stash since ER at the end of 2002, Started SS @ 2012 and have not touched my tax deferred at all so far. (Amazingly, the nominal value of my taxable stash is 25% higher than when I started 15 years ago) When RMD's start in 2021 I figure that's the time to start spending like a drunken sailor - after all it'll be gummint approved
ejman is offline   Reply With Quote
42 % of 60 year old men dont make it to 80
Old 04-28-2017, 08:02 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Mar 2017
Location: New York City
Posts: 2,838
42 % of 60 year old men dont make it to 80

Quote:
Originally Posted by NW-Bound View Post
The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: Life expectancy at 60 | Data | Global AgeWatch Index 2015.
Social Security Life Table Charts - Business Insider, take the money, i suspect its lower for 83 years old
Blue Collar Guy is offline   Reply With Quote
Old 04-28-2017, 08:15 PM   #5
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 3,995
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
Ready is offline   Reply With Quote
Old 04-28-2017, 08:24 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,401
The thing about RMDs is, you have to take it out of the tax-sheltered account, but there's no law that says you have to spend it.
Meadbh is offline   Reply With Quote
Old 04-28-2017, 08:25 PM   #7
Dryer sheet wannabe
 
Join Date: Jun 2016
Location: Ottawa
Posts: 13
Jeez Ready, I think you nailed it........
boomer239 is offline   Reply With Quote
Old 04-28-2017, 08:35 PM   #8
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,927
Quote:
Originally Posted by boomer239 View Post
Jeez Ready, I think you nailed it........


Word.
Markola is offline   Reply With Quote
Old 04-28-2017, 08:44 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 9,417
Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
All of the above.
street is offline   Reply With Quote
Old 04-28-2017, 08:52 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 3,361
Quote:
Originally Posted by NW-Bound View Post
The problem with the RMD approach is that the withdrawal is a percentage of the current value of the portfolio, which can fluctuate wildly with market boom and bust cycles. During the Great Recession, it can result in one living on 60% in 2008 and 2009 than the amount in 2007. If one has enough discretionary expenses to cut, it can work. Else it is tough.

Hence, most people try to do a more constant WR method. Or if they withdraw more in a good year, they save part of it for future leaner years.

The nice thing about the RMD method is that it reminds us that we are not immortal. At my current age of 60, the life expectancy is 23. The RMD approach would have me withdraw 1/23 = 4.34%. That is not too far from the 4% rule of thumb.

PS. There are all kinds of life expectancy tables on the Web. Even the SS site has different ones for different purposes. It's confusing.

The number I quote above comes from the 1st page that a Web search found: Life expectancy at 60 | Data | Global AgeWatch Index 2015.
Actually if you look at table 3 the single life expectancy table for account owners the assumed life expectancy of a 70 year old is another 27.4 years, at 80 18.7, at 90 11.4 and at 100 6.3 , where as for beneficiaries of accounts, table 1 yields 17 years at 70, 10.2 at 80 and 5.5 at 90.
meierlde is offline   Reply With Quote
Old 04-28-2017, 08:53 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 35,712
Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
I plead guilty on 1), and 4).
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)

"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
NW-Bound is offline   Reply With Quote
Old 04-28-2017, 11:04 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Mar 2017
Location: New York City
Posts: 2,838
Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.

I think it's a combination of several things:

1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.

2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.

3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.

4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.
+1
Blue Collar Guy is offline   Reply With Quote
Old 04-29-2017, 12:16 AM   #13
Recycles dryer sheets
lwp2017's Avatar
 
Join Date: Feb 2014
Posts: 157
Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.



I think it's a combination of several things:



have plenty of money we can't bring ourselves to spend it.

Wow. My compliments to you.

This should be a sticky in a section titled " The Angst of FIRE".

I'm up at nights worrying about retirement- and clearly know we have more than enough money.


These four items are exactly how I think.
lwp2017 is offline   Reply With Quote
Old 04-29-2017, 12:20 AM   #14
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
I think Ready might be onto something. Maybe some of us are not totally honest with ourselves. Maybe we want to leave a big legacy but too afraid to admit it. Heck I often told my kids to not expect anything. I want them to work hard, and not hardly working.
Fedup is offline   Reply With Quote
Old 04-29-2017, 12:27 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,401
Quote:
Originally Posted by boomer239 View Post
Jeez Ready, I think you nailed it........
Yes! We are all Scrooge.
Meadbh is offline   Reply With Quote
Old 04-29-2017, 01:53 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 9,358
My hobby is finding ways to live the high life on a low withdrawal rate. We optimize our spending but we have low overhead relative to our retirement income and never worry about running out of money. We were at an art museum today with discount tickets. Last night we saw a play with tickets I won in a contest. Tomorrow we're seeing a musical with seat filler tickets. Those are the kind of things we enjoy doing and I like the bargain hunting part so why spend more.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 04-29-2017, 03:23 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: NC
Posts: 21,202
Quote:
Originally Posted by boomer239 View Post
Jeez Ready, I think you nailed it........
+3. We're spending just as much now as when we were working, we don't need or want more. Maybe we'll spend more when we get much older, but I'd rather err on the side of caution while I have another 30 years ahead of us...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Withdrawal Rate Too Low?
Old 04-29-2017, 05:22 AM   #18
Thinks s/he gets paid by the post
Golden sunsets's Avatar
 
Join Date: Jun 2013
Posts: 2,518
Withdrawal Rate Too Low?

Quote:
Originally Posted by Ready View Post
I suspect that the majority of members in this forum will die with substantial fortunes, in spite of the comments many of us have made about wanting our final check to bounce on our way to the funeral.



I think it's a combination of several things:



1) We enjoy accumulating wealth, and resist seeing it being spent and watching the balance decline after so many years of seeing it grow.



2) We overanalyze the SWR rules in spite of the studies demonstrating that 4% easily survived over many years of stock market booms and busts. We think 3% is the new 4%, and then we reduce the 3% to 2.5% just to be safe.



3) We are so worried about needing end of life care that we are willing to sacrifice enjoying the money today just in case we need extensive care down the road.



4) We have become so accustomed to LBYM that even though we have plenty of money we can't bring ourselves to spend it.

Gotta chime in here. +4. We have a very detailed retirement budget, and track expenses in a similar detailed manner. I have to admit that we try to "beat the budget" (as in underspend) every single month and feel unsuccessful if we don't. To what end, I'm not sure.😕


Sent from my iPad using Early Retirement Forum
__________________
"Luck favors the prepared mind"
Pasteur
Golden sunsets is offline   Reply With Quote
Old 04-29-2017, 05:36 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Nemo2's Avatar
 
Join Date: May 2011
Posts: 8,368
Quote:
Originally Posted by NW-Bound View Post
I plead guilty on 1), and 4).
"Likewise" said Tweedledum.
__________________
"Exit, pursued by a bear."

The Winter's Tale, William Shakespeare
Nemo2 is offline   Reply With Quote
Old 04-29-2017, 06:01 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 8,362
+1 for Ready's comment.

HOWEVER... DW and I are slowly coming to the conclusion that we're under spending.

We have no direct heirs and a couple of hefty inheritances we never counted on are looking more and more unavoidable/likely and a couple of other family gyrations will add to the pot. Combined, they would drop our WR to about 2% despite the fact that we live fairly 'high' (Snowbirding, eat out 3X a week, good sized money pit boat etc).

We're nearing the point (almost there) where we plan to upgrade our car inventory, only fly first class, update our kitchen and perhaps move to a larger boat. I'll be 80 in 15 years and 'now is the time'.

I'm not eager to leave a large inheritance to a bunch of nieces who won't even talk to me unless I talk to them first.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Blood test : Calcium low, Vitamin D Low, Sodium low Lakewood90712 Health and Early Retirement 16 05-15-2016 05:07 PM
Assets too high for Medicaid, income too low for subsidy Mr. Paul Health and Early Retirement 32 12-12-2013 01:06 PM
Chart of Withdrawal Rate - Success Rate - Yrs Retired Midpack FIRE and Money 28 10-05-2013 11:02 AM
New article: 4 Percent Withdrawal Rate May Be Too High for Today's Retirees smjsl FIRE and Money 28 10-07-2011 08:30 AM
"Is the Safe Withdrawal Rate TOO Safe?" Nords FIRE and Money 13 10-20-2004 10:36 AM

» Quick Links

 
All times are GMT -6. The time now is 10:34 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.