Withdrawal rates for 2017, and planned for 2018

[Tallman4123]

The rubber has officially hit the road for us today.

While I RE'd in mid-2016, DW just retired two weeks ago. I've been tracking our expenses for a number of years in anticipation of this day but there's always been a small component of fuzzy math, wishful thinking and excuse-making (i.e. "how often could you need a dental implant?", or "well, we won't always fly first class" or "I'll drive so much less when RE'd that those four new tires will last me 10 years!"). Suddenly it's all very, very REAL.

Being a newbie to this RE circumstance, my intentions are to apply - in a very rigorous fashion - everything I've learned through this forum and the research it has pointed me to. If I do, what could go wrong, right? At the very least I'll apply everything that is convenient to my circumstance and ignore the rest (more of that excuse-making and fuzzy math).

The budget I've developed has us withdrawing 5% of our initial portfolio balance as of 12/31/17. My plan is to use the Guyton Klinger spending rules to determining future withdrawal amounts. The 5% will continue for nine and a half years when I'll hit 70 and my DW hits 62 (that happens in 2027 for both of us). At that point - assuming SS is still at current projected levels - our WD will be reduced to 2.6% of our current portfolio balance.

The whole plan feels slightly aggressive to me, but the one thing I hang my hat on is that 36% of our annual budget is for discretionary spending. I believe we could reduce our WD to 4% of current portfolio and still be comfortable (by our admittedly inflated standards).

So off we go!! Happy New Year to all of you!!

[NW-Bound]

Quote:

Originally Posted by Tallman4123 ...Being a newbie to this RE circumstance, my intentions are to apply - in a very rigorous fashion...

No rigor here. My expenses have been quite lumpy, though nowhere near the same level as that of REWahoo.

As long as one does not insist on "blowing that dough" when the market turns south, he can survive. Out with XO Cognac and caviar. In with rum and canned tuna.

[ejman]

2017 expenses were 2.53% of our starting liquid assets upon ER on 12/31/2002 or 1.17% of liquid asset balance on 12/31/2016. This aging business seems to take away the desire for expending more - will have to work on that.

[bbbamI]

Both retired in 2009. At the time dh was 54 and yours truly 51. DH receives a small non cola'd pension. The WR is based on the portfolio balance at the beginning of each year.

2009 Projected WR.....0 (dh worked part of that year, we had to take no reserves)
2010 Projected WR....3%......Actual 2.71%
2011 Projected WR....3%......Actual 3.27% (health issues)
2012 Projected WR....3%......Actual 2.87%
2013 Projected WR....3.5%...Actual 4.94% (new car)
2014 Projected WR....3.5%...Actual 2.68%
2015 Projected WR....3.5%...Actual 3.57%
2016 Projected WR....3%......Actual 2.01% (dh started SS in June)
2017 Projected WR....3%......Actual 1.5%
2018 Projected WR....3%

I like to stay under 3% each year, but will not panic if we spend more. Each year brings new 'surprises'....gotta roll with it.

Need to add...I include all expenses...from Federal taxes to marshmallows.

[Chuckanut]

My withdrawal rate was 2.5%.

2017 was a lackluster travel year for me after a very active 2016 and I want to get back on the horse and do more traveling withing North America. So, I anticiapte an increase for 2018 to about 4%. It would be more but I finally paid of my auto loan in December and found a cheaper Medicare supplement plan. That will add about $7k of dough to spend this year.

[Tallman4123]

Quote:

Originally Posted by NW-Bound No rigor here.

Trust me when I say...I truly aspire to that attitude in MANY facets of life. I fight my uptight DNA every day!

[Chuckanut]

Quote:

Originally Posted by audreyh1 It’s way more than we spend but I withdraw it anyway.

+1 for the extra.

I put it into some relatively short term CDs (1-3 years) or a short term bond fund. I figure if we get another Bear market like 73-74, it will provide a useful buffer.

[Golden sunsets]

Our past, current and future planned withdrawal rates are:

2016 .94% - first year of our decumulation phase and big wedding expense
2017 1.28% - 2017 was what I called "the year of the inside of the house Home Improvement" and legacy gift to one child for house downpayment. Also the first year for RMD for DH so taxes were greater.
2018 1.44% - This year is what I am calling "the year of the outside of the house Home Improvement"
2019 1.70% - We plan to replace our SUV at the end of Q1 2019. It will be 8 years old later this year. This is also the year that our second RMD kicks in and I claim SS under my own record so Fed and State taxes increase a lot.
2020 .61% - So far not a lot planned for lumpy expenses for 2020.
2021 .42% - So far no lumpy expenses planned. So room to grow both 2020 and 2021 additional expenses.

Note: We are blessed with two pensions and two social security checks, so WR's are very low.
We divide our withdrawal by year end balance from previous year. If we used end of current year instead of beginning the withdrawals would be lower.

[Chuckanut]

Quote:

Originally Posted by NW-Bound REWahoo fearlessly went as high as 9.8% in his 2nd year of retirement. Anybody can beat that? Here's a man who is not afraid of the fearsome "sequence of returns".

Heck, that mean tough guy, doesn't even fear the asteroid!

[Moemg]

In 2018 I plan to return to my usual 4% but anything can happen .

[sengsational]

Although I went back and calculated WR for past retirement years, and it was 3.5%, I don't have one in advance. If I did, it would have to factor in the fact that I'm not getting SS or pension yet, and I will be getting those later (if I last that long, hehe!) in 6 years.

Before I retired, I ran the i-orp simulation and I've never been able to spend that much, so figured I was fine. I know the i-orp results ignores sequence of returns risk, my asset allocation should manage that risk. i-orp, "knowing" SS and pension are in the future is allowing a 4.7% WR, but I'll probably be more in the 3.5% range.

I have a simple cash flow spreadsheet that subtracts the usual "burn rate" every month, and it has rows for pre-tax account withdrawals, Roth withdrawals, and "off the burn rate" values, like income tax and big one-time expenditures. The pre-tax comes out in December and Roth "whenever" to keep the after-tax from going below a comfortable level (my after-tax essentially goes to "zero" in November). So it's a saw-tooth pattern.

[rodi]

Quote:

Originally Posted by markelp What do you all use for the denominator in your withdrawal rate calculations?

Good question. I use all brokerage and tax preferred accounts. I also include the treasury direct bond account.

I do not include savings/checking accounts, 529 accounts, nor the value of our rental property. (That would be challenging since it's on the same lot as our primary home since it's a granny flat cottage and can not be sold separately.).

[Surewhitey]

Since we're still w*rking, we're not really relevant. However, we're at 3.6% of NW at the moment. Working on building after tax accounts to pay for retirement prior to tapping the tax deferred accounts at 59.5...only 47 & 53 at the moment...

[Plantman]

We've been in the 2.25-2.75 range over the last few years. However, now that I am fully retired and we have an extended European trip planned for this year, I expect that number to go up!

[Alan]

year	percent	comments
2010	0.0%	First full year of ER but unexpected bonus in June that year
2011	0.86%
2012	1.27%
2013	3.51%
2014	5.4%
2015	5.43%
2016	5.44%
2017	25.3%	Bought a house and a new car with no trade in. It is what it is

Figures are based on portfolio value at the start of each year. This year’s withdrawal was 38.9% of the initial portfolio value. I expect this year’s withdrawal to be back in the 5-6% range. Between us we have 4 private pensions and will both be receiving SS from the USA and UK so have no worries about running out of money. I have also been aggressively doing Roth conversions to avoid an HMRC tax torpedo at age 70.5 so that 43% of our portfolio is now tax free and 29% is tax deferred, so taxes will continue to be a major component of our expenses for the next 4 or 5 years then drop off dramatically. (At least that is the plan).

[audreyh1]

Quote:

Originally Posted by Chuckanut +1 for the extra. I put it into some relatively short term CDs (1-3 years) or a short term bond fund. I figure if we get another Bear market like 73-74, it will provide a useful buffer.

Yep - high yield savings, short-term CDs, a little bit of short-term bond funds. I really am not interested in withdrawing less or exposing excess to the vagaries of equities or intermediate-term bonds. I don’t think I ever expected to say the retirement fund was big enough, but here we are! (Knock on wood).

We have enough built-up in short-term investments for some serious splurges. It’s nice to have that flexibility.

[RunningBum]

I use VPW, a slowly rising WR rate on the start of the year portfolio balance, including all investment/banking accounts + a value of my pension and 75% of SS based on what I'd have to pay for an annuity of those benefits. I think I did the latter part right, but it's under 10% of the entire portfolio so not critical if it's off some.


Last year my target was 3.1%, and my outflows were actually 2.2%. As mentioned in W2R's spending thread, I had no big unusual expenses this year so this is the most I've been under.


This year my target is 3.15%. Since I spent less last year and investment returns were great, I seriously doubt I'll come close. That's fine.


"Target" probably isn't the right word. I make no effort to spend at a certain level, nor do I limit myself to that amount because I could have a lot of extra expenses in a year and I'm not going to skip eating in December to come in at that number. It's not a withdrawal rate because I withdraw from my investment account as needed. I'm just looking for a number that I'd be concerned about if I was going over it every year.

[W2R]

Quote:

Originally Posted by W2R [...] year percent comments 2010 2.61% First full year of ER. Small FERS pension too, nice. 2011 1.98%   2012 2.12%   2013 2.40%   2014 1.70% Social Security began 2015 8.64% 6.92% (house) + 1.72% (all other) = 8.64% 2016 1.75%   2017 1.58%   2018 3.78% 2.04% (car) +1.74% (all other) = 3.78% [...] 2018: I always withdraw more than I [...] spend, and then return the excess at the end of the year. [...] So anyway, tomorrow I plan to withdraw 3.78% for 2018, [...]

I rebalanced this morning, although Vanguard cannot put the transactions through until tomorrow. But it's done, and for me, 3.78% is now a fact.

One more year wrapped up and put away - - on to 2018!

[Tallman4123]

Quote:

Originally Posted by audreyh1 I’ve been withdrawing 3.5% of our taxable retirement account Dec 31 value each year for several years now. I withdraw it around Jan 2 and rebalance. That’s actually ~3% of our total retirement accounts including the IRAs. We’re not withdrawing from our IRAs yet. It’s way more than we spend but I withdraw it anyway.

Quote:

Originally Posted by Chuckanut +1 for the extra. I put it into some relatively short term CDs (1-3 years) or a short term bond fund. I figure if we get another Bear market like 73-74, it will provide a useful buffer.

Can you help me understand this exchange? If I withdraw 4% but ultimately only spend 3% and keep the remaining 1% in cash or reinvest it into a CD, I'd consider my withdrawal rate for the year to be 3%. From this exchange, I'm getting that you folks would consider your withdrawal rate to be 4%. Is that correct? I guess in my thinking Withdrawal Rate and Spending Rate are somewhat synonymous..

[audreyh1]

Quote:

Originally Posted by Tallman4123 Can you help me understand this exchange? If I withdraw 4% but ultimately only spend 3% and keep the remaining 1% in cash or reinvest it into a CD, I'd consider my withdrawal rate for the year to be 3%. From this exchange, I'm getting that you folks would consider your withdrawal rate to be 4%. Is that correct? I guess in my thinking Withdrawal Rate and Spending Rate are somewhat synonymous..

For some people that might be true - if they are withdrawing from all their assets.

But Chuckanut and I withdraw from a subset of our assets labeled “retirement assets” and invested for the long term and thus subject to market volatility. As long as we don’t reinvest that excess in the retirement assets, our withdrawal rate holds regardless of how much we spend in the current year.

Many folks like to use all their investments (except perhaps for checking, some savings, 529s, HSAs, current year or quarter money, set asides for certain major purchases, etc., etc.) to calculate their withdrawal rate. I don’t. I only withdraw from and rebalance the retirement assets. Other assets outside the retirement fund are treated independently.

Clearly in our case withdrawal rate and annual spending rate are not synonymous, although withdrawn funds could be spent at any time in the future, just not necessarily in the same year as withdrawn.

I’m not interested in rebalancing across all my assets - just the retirement assets. Many people do prefer to treat it all as one big pot. I prefer to distinguish between retirement assets which are invested in long-term investments and non-retirement assets which cover a variety of shorter term goals and are generally invested in short-term instruments and can be spent at anytime without impacting the retirement assets or withdrawal rate.