What would you do in this scenario?

[David1961]

You are 60 and recently retired. Portfolio is 2m and you have decided on a WR of 3%.
The first year you take the $60k out and learn that you spent only $50. And after reviewing your expenses, you determine this is a fairly typical year for your expenses. What would you be inclined to do? Here are some options off the top of my head.

1 Change your WR to 2.5%. It seems reasonable and having a lower WR will lower your chances of running out of money. You can always up it later if you need to.

2 Stay the course, put the extra 10k in some kind of reserve for emergencies, and continue using 3% WR. Besides, expenses will fluctuate from year to year.

3 Keep 3% WR and look at your expenses and figure out how you could spend a little more in the future. Not wasting it though.

4 Plan a nice vacation with the 10k and continue with 3% WR.

Others?

 

[Sittinginthesun]

Probably a combo of #2 and #4. Stay at 3%, put $10k into HISA and maybe use some of it for a luxury/want purchase or in the future vehicle fund.

 

[exnavynuke]

A combination of #3 and #4 for me. Your portfolio is your "reserver" imo so that puts #2 out of the running. #1 is just giving more money to whoever gets your estate when you pass imo. So that leaves #3 and 4, which I put in the category of "spend more to increase your quality of life". Take longer or more luxurious vacations, pick up that car you didn't want to spend the money on, renovate that room in the house, etc

 

[2017ish]

#5: Try to determine what happened to DW to cause our spending to come in less than allowed.

More seriously, probably 3 & 4. You already are spending quite conservatively from the portfolio, so no need for 1 or 2, unless you just can't imagine spending the additional monies. OTOH, as you said, would be silly to waste by spending solely for the purposes of spending.

 

[growing_older]

I like #2.

I'm pretty good with sticking to sensible expenses, but there are occasional big ticket splurges I'd like to consider. With the #2 account, I can see if I have enough to go on a trip or indulge in a hobby that I otherwise might not have, without exceeding the SWR I set. I imagine I would typically let this pile up for several years before blowing it all on some delightfully expensive and otherwise out of budget indulgence.

 

[joeea]

You are 60 and recently retired. Portfolio is 2m and you have decided on a WR of 3%.
The first year you take the $60k out and learn that you spent only $50. And after reviewing your expenses, you determine this is a fairly typical year for your expenses. What would you be inclined to do?

I would withdraw only as much as I actually needed.

I would talk to my tax adviser and decide if I needed to do something now to save on taxes later (ROTH conversions, for example, depending on my tax bracket status).

I don't believe in sticking to an arbitrary withdrawal rate in retirement, if the funds aren't needed.

 

[Paracelsus]

For right now, I'd choose 1, as long as life is steady for you. Your financial needs may increase in the future if you need to hire help around the house to do what you can physically do these days, or in case something bad happens to you and you need to be in care in the future ($$$).

 

[Moemg]

I would do #2 . That extra will come in handy some year when you either have some big ticket expenses or want to take a dream trip .

 

[Scuba]

I would do #1 for now which should allow your funds to grow faster while you think about whether there is something you'd like to spend on that wasn't in your original plans. If you do think of something, then increase your WR and do it! I also don't believe in a constant WR. I am sure we will spend more in some years than others. I wouldn't increase my spending just to hit some arbitrary WR, nor would I set up a separate account to accumulate the excess.

 

[euro]

I would withdraw only as much as I actually needed.

I would talk to my tax adviser and decide if I needed to do something now to save on taxes later (ROTH conversions, for example, depending on my tax bracket status).

I don't believe in sticking to an arbitrary withdrawal rate in retirement, if the funds aren't needed.

This. It's all the same money, so I don't see how creating extra reserves makes a difference. Also, the reason why I was able to RE is that Imnever spent more than I felt I needed. Still the same. I definitely don't deprive myself - but I won't go out of my way to blow extra cash just because it is there. If I really have too much left over, then there will be plenty of worthy charitable organizations. It's not all going to my heirs by default

 

[folivier]

I'd do whatever I feel like doing. Don't make this so complicated that you can't enjoy retirement. Some years we take more, other years less. I still have more than I started with 7 years ago.

 

[CaliKid]

#5 Long weekend in Vegas

 

[jollystomper]

I would treat it the way I treat receiving work bonuses today. Have fun with some of it, save/invest the rest of it, continue to live at the same level. Only if the trend continued for, say, 3 years would I decided to increase the withdrawal rate on a regular basis.

 

[Fedup]

I would just withdraw what I need to spend. I never have to worry about WR. I keep it simple.

 

[W2R]

Personally I'm doing #1. But, I think that any of the options you list should be just fine.

 

[Sunset]

I would add the 10K amount to my Roth conversion amount so I don't get the tax torpedo at age 70 when RMD's start and SS is taxed.

IF you are already doing RMD's and this 50K spending is there as well, I'd just put the extra into the bank for a rainy day, or think perhaps you need to learn to spend more.

 

[Live And Learn]

I had the exact same scenario last year ! I used a combination of #2 and #4.

The first thing I did was determine the reason my spending was less than expected by looking at it budget category by budget category. I budgeted for "worst case" medical expenses, so I was underbudget there. I considered to be a one time windfall so I spent it (your #4) on a boat Another item that came in low was home maintenance, and I know that is a tiger in waiting, so I will hold that amount (on paper) to make up for the years it comes in over budget (your #2).

 

[RunningBum]

What does "fairly typical" mean? Any major repairs, or capital replacements? Eventually you will have those expenses. If you budget $30K replace a car in 6 years, and 5 years in a row come out $5K ahead, you can't spend that money on extras every year or else you're going to be trying to buy a $30K car with $5K. Likewise for other non-annual major expenses.

 

[Huston55]

You are 60 and recently retired. Portfolio is 2m and you have decided on a WR of 3%.
The first year you take the $60k out and learn that you spent only $50. And after reviewing your expenses, you determine this is a fairly typical year for your expenses. What would you be inclined to do?

Others?

Dave Ole Pal!

You should continue to w/d $60k & send the extra $10k to me.

I promise it will bring great joy!

 

[David1961]

What does "fairly typical" mean? Any major repairs, or capital replacements? Eventually you will have those expenses. If you budget $30K replace a car in 6 years, and 5 years in a row come out $5K ahead, you can't spend that money on extras every year or else you're going to be trying to buy a $30K car with $5K. Likewise for other non-annual major expenses.

Good points. By " fairly typical" I mean that the expenses for the last year were typical of the expected expenses going forward.

 

[RunningBum]

Good points. By " fairly typical" I mean that the expenses for the last year were typical of the expected expenses going forward.

So that means you had some of the unusual (non-annual) expenses, or only the predicted annual expenses? That's the point I'm trying to make, to see if you were really $10K under or if you were just able to defer ~$10K of expenses that are coming down the line. My action would depend on that, because I sure wouldn't blow extra money if I just happened to have a fortunate year with the unusual expenses.

This is also why when I hear people talking about tracking expenses for two years, I take it with a grain of salt because you don't know whether those two years included any of those irregular expenses.

 

[Aerides]

To me the key in your scenario is "at 60". So you probably have SS coming as well as medicare in a few years. So 3 or 4.

At 50, more between 1 and 2, then go back to the 3 and 4 scenario if the lower spend is a true pattern after say 3 years.

 

[tmm99]

Personally, It's only been two years and I haven't come up with anything definite yet, but I am thinking of doing a modified 2&4. Left over money from the budget made for emergencies, auto maintenance, house maintenance, medical, 1/2 travel, 1/2 hobby to go into a rainy day reserve fund, and move the left over money from groceries/living expense/entertainment/eating-out to become extra "spend on anything I want" fund the following year. Or something like that.

 

[pb4uski]

None of the alternatives has a downside... what does David1961 think?

 

[LOL!]

#1 and #2 are really the same: You ain't spending the money unless you have to.

Sometimes spending money on frivolous stuff is not satisfying. I would probably let my wife make some more charitable donations. Those can always be cut back if one couldn't afford it. Or spend $10,000 on taxes for a Roth conversion.