Should we be withdrawing more sooner?

[Chuckanut]

I factor in SS at 70% of what they currently say my payment will be. The 30% reduction seems in line with what may happen if SS is not reformed in the next decade or so.

 

[DrRoy]

- Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR?

- Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less.

- Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner?

None the less, particularly after seeing my dad's situation play out, there is a part of me that says go bigger in the early years while more physically able and then perhaps scale down in the later years. Thoughts?

1 - I'd say there is no single answer to this. It depends on the individual (or couple).

2 - I am 57, will RE in 1 mo. I do not factor SS into my calcs, as I do not know if it will change. My plan is to wait to 70 to max the benefit and consider it an inflation adjustment.

3 - Roth conversions are my plan. That way, you tax shelter the future gains. That is better than earlier distributions.

4 - DW and I are planning several expensive, guided trips for 2018. That is mainly due to the unexpected benefit of the recent market rally and our having more $ to work with than we thought we would.

 

[Fedup]

I think you should if you can enjoy spending your money. However, I have problem spending money now that I'm retired. I don't care wasting my money. And that with spending in line with what I planned before I retire and I have not touched my retirement portfolio. Pension/SS/rental income covers almost all of our spending.
Edit to add, before retirement, I wouldn't blink spending $2000 a night at a 5 stars in Bora Bora, now it would be over my dead body. Now I'm willing to spend less than $500 a night kind of hotel.
Foodwise, we still eat and purchase food from top notch quality, in fact this is one area we don't cut back.

 

[Lsbcal]

First, I acknowledge the answer is personal and depends on numerous factors, but this continues to have an affect on my willingness to launch into RE (targeting 3 yrs at age 55). My personal dilemma has been heightened by my dad's past 12 month battle with cancer, his recent death (age 77), and as Executor of his estate being exposed more specifically how he held/used his assets. Observations...

- He always lived below his means, very frugal other than a few vices, all the way till the end despite having more than enough to splurge on indulgences. I suppose it can be tough for many of us to change despite having saved for the rainy days.

....

My parents passed at 68 or so. Right where we are now.

Did your Dad enjoy his years before bad health set in? Did he deny himself life experiences that he might have regretted missing and could have splurged on? Did he have a good plan or just so,so.

I ask these questions because it is what I ask myself. We have a big fun/discretionary budget that currently provides more then we probably would spend yearly. But it is based on a plan and historical returns data.

We spend but we don't just buy into stuff that seems overpriced. For instance, we stay at well reviewed hotels in Europe but not at 5 star ones. We eat out at moderately priced restaurants that don't make us feel overly formal and stuffy. We try not to eat elaborate meals that are more show then substance.

For me the bigger test will come when the portfolio starts turning down should we enter a bad sequence of years. It will take some courage to spend when the plane is loosing altitude. I think I'm up to the task.

 

[LARS]

It will take some courage to spend when the plane is loosing altitude. I think I'm up to the task.

The good news is we're gaining speed... the bad news is we're losing altitude! ;-)

 

[Danmar]

I think flexibility is key. Perhaps start ER with a conservative spend and SWR then see how it goes. I retired 10 years ago at 56. And generally held to a pretty conservative spend percentage (around 3.5%). Portfolio has done well and I am starting to spend a little more. Haven't noticed a lack of creativity in our pending level or what we spend on yet, although I can see the risk. Still very active, enjoy travel, nice things, etc. Stay open to new things.

I'm Canadian so health care not much of an issue. Will defer the Cdn equivalent of SS to age 70 but it won't be material to our other income levels. All investments are taxable so no RMD issues.

 

[W2R]

I put my comments in blue:

- Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR?

I am pretty conservative, but I'd rather err on that side than risk living under a bridge when I'm 85. Besides, I am still able to buy whatever I want to buy. I did wait until after those earlier years before buying my dream home in my 7th year of retirement. I'm glad I did wait because there wasn't one this nice on the market until this one became available.

- Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less.

I'm older than that, and started SS when I was 66. I spend more now than I did before SS. I did factor it into my projections although I didn't know if it would crater before I got old enough for it - - so I made sure I had enough to survive without it. By now, at age 68 with SS, I spend more on frivolous Amazon purchases than I did. But also, my medical expenses are higher than they used to be, which I didn't expect. So, my SS helps with that.

- Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner?

I did that for a few years (took more of my retirement income from the TSP, and less from taxable investments, than I do now). I'll be 70 1/2 in 2018.

It seems to me that most people on this site are planners and probably more conservative by nature as am I. I also know peace of mind and the "sleep factor" weigh into at least my strategy along with planning for "what ifs". None the less, particularly after seeing my dad's situation play out, there is a part of me that says go bigger in the early years while more physically able and then perhaps scale down in the later years. Thoughts?

Just that maybe you could take a middle road in this. People *say* that you don't need as much money when you are older, but that has not been my experience at least thus far. My dental bills (implants) are a lot more than I expected, for example, even though I knew my teeth were bad. They just got a lot worse with age a lot faster than I thought would be possible for anyone. Talk about a budget buster! An implant can mess up your year's projected spending for sure. Also I have spent some in making my already elderly-friendly dream house, even more elderly-friendly in preparation for the future.

On the other hand, if there is a dream trip that would mean a lot to you, I think you should do it now while you are more physically able to handle travel. Maybe you could do the same trip for less money if you look into ways to travel inexpensively.

Hope this helps! I think it is great that you are thinking about these things in advance.

 

[Silver]

I agree 100% with Travelover's statement about not knowing what the final 10-15 years will cost. My husband and I have no family whatsoever. No children, no siblings....no one we can depend upon. We believe we will move into a continuing care facility sometime in our mid to late 70's because of the requirement to be self sufficient when entering. Any sudden health event can sideline that plan.

My husband's father is very long lived. He is still alive, age 96, and overall healthy although slowing down. (A WWII fighter pilot still fighting a good fight.)

The CCRC we have in mind has a $145k buy in and will be approximately $6-7k a month in costs. There may be less expense ones....but haven't found one yet that is worth living in.

I am 65 and my husband is 64 yrs. I'm taking SS at FRA next year, and my husband will wait until 70. We will continue to live under our income believing that that the last several years will require most if not all our assets in order to be comfortable and in a safe environment. It's fine with me if there are any remaining assets....it all goes to animal welfare organizations.

 

[Walt34]

After all, I have 4 pair of jeans and a bunch of tee shirts, flannel for winter.

And I only have 2 pair of jeans that DW allows me to wear outside the house.

Man, you guys need to loosen the purse strings a bit. I have FIVE pair of jeans that I can wear outside. Six if you count the black pair. Livin' large!

Admittedly, DW insisted that I buy them because the old ones were too faded for her sensibilities....

 

[Koolau]

Having just started SS at nearly 70, let me assure all you young'uns it DOES still exist. Kind of nice seeing that much cash going into the account this month. I too never figured (in my 50's) that SS as we know it would still exist, but it does and I think it will be around for quite a while. I'm sure some tweaking will have to happen (mentioned elsewhere that my MC premium is higher than expected while DWs was grandfathered.)

A lot of my "withdrawing" early on was to covert to Roths. I had WAY too much qualified money which would have/still will require RMDs. But, as to spending, I'm pretty happy with where we are. I know we could spend more, but it not only feels "weird", but the marginal added pleasure doesn't seem worth it. The example I typically use is flying first class instead of cattle car. First class gets to the scene of the crash, er, I mean to the gate a few seconds faster than those in the back, and first class may have a few less aches and pains due to cramping, but for roughly 3 times the cost, I still haven't been able to fork over the money I could afford to fly first class. I have other examples, such as the cars we drive. But, in short, as long as we are happy, spending a lot more would not affect that happiness by very much as nearly as I can tell. I guess if we die with a big pile of money, our beneficiaries will enjoy it. YMMV

 

[RetiredGypsy]

I was reviewing the Trinity Study this last week and realized there was an outlook for withdrawing a fixed percent of the initial portfolio value, instead of the most often cited 4% inflation adjusted model.

At 25-30 years, 6% fixed withdrawal rate at a 75/25% split was 95% successful from 1926-1997, and while 7% was 88% successful for the same period, it was 100% successful between 1946-1997.

In fact, they have this to say about the 3-4% withdrawal rate:

Finally, the lower
withdrawal rates of 3% and 4% recommended by some
analysts appear to be excessively conservative for
portfolios with at least 50% stock, unless the investor
wishes to leave a substantial portion of the initial
retirement portfolio to his/her heirs.
Since the choice of a withdrawal rate involves
individual preference for current consumption,
uncertainty of life expectancy, and variable financial
needs, there is no single globally optimal withdrawal
rate. Each investor must determine the appropriate
balance of the risk of running out of funds versus a
higher, more enjoyable standard of living early in
retirement. Most authors tend to favor a more
conservative approach that virtually guarantees a
substantial positive terminal value of the retirement
portfolio. Such an approach exchanges post-retirement
quality of life for end of life financial security. Some
retirees may prefer not to make that tradeoff.

As they state, it's entirely up to each individual to make of that what they will. Personally, I find it inspiring that something of a higher withdrawal rate could be sustained for decades if needed.

But I'm a cheap sod whose biggest entertainment expense tends to be a $60 game every now and again, but the rare time I want to blow $4k on a custom extremely cool gaming PC to play those on, I'm not going to sweat about an abnormally high expense.

 

[Gumby]

The young wife and I plan to retire in 28 months. At that time, our combined pensions will cover our current spending, with the exception of vacations. So we won't have to change our standard of living at all. 1.5 years after we retire, I will start Social Security, which will be twice as much as necessary to cover our current vacation spending (a one week trip to Italy every year and a 2 week summer rental in Maine).

I estimate that our portfolio at retirement will be of sufficient size that a 4% withdrawal rate would generate as much cash as our pensions and social security combined. I expect we will use some of our stash to travel more, as well as to pay "lumpy", out of the ordinary course expenses, such as painting the house or buying a new car. However, I don't expect we'll be spending anywhere near 4% on these activities.

In addition, we own our house free and clear. If necessary, we can sell it and increase our portfolio by an additional 25%, although I expect the main purpose will be to fund our move into a continuing care community at the appropriate time.

I have no idea how much things like health care and nursing homes will cost in the later years of our retirement, and we need to plan to deal with it totally by ourselves, as we have no children. Given that our pensions are from public sector employment, they are likely subject to the political winds that will blow in the future, as is Social Security. Accordingly, I think it best to consider that source of income not an entirely sure thing.

Is all this much too conservative? Maybe it is, and we'll be leaving a fortune on the table. I don't really care about that. I do care that we have enough to live our final years in dignity and comfort.

 

[travelover]

............. I do care that we have enough to live our final years in dignity and comfort.

Too bad there is not good long term care insurance available to the general public. It would free up a lot of what-if money hoarding - myself included.

 

[Lsbcal]

...
Is all this much too conservative? Maybe it is, and we'll be leaving a fortune on the table. I don't really care about that. I do care that we have enough to live our final years in dignity and comfort.

It sounded somewhat conservative (like only 1 week in Italy?) but I think you have to do the calculations. What I do can be done with the VPW tool if you are OK with spreadsheets or maybe FIRECalc is enough.

My pretty conservative approach is to arrive at a personal SWR:
1) Count on SS, it will not be going away
2) Figure a minimum acceptable inflation adjusted portfolio is about 50% of present portfolio for all the simulation years
3) Count on living a long time, probably beyond age 100 (it might happen)
4) Be able to withstand a bad sequence of years like those starting in 1966 or 1929 (inflation or deflation)
5) Set as aggressive an AA as I can stand (right now it is 60/40)

Point #2 will naturally leave a lot on the table but let's remember we are simulating past history. Our future retirement sequence could be worse then those past bad sequences...but probably will not.

 

[Silver]

Too bad there is not good long term care insurance available to the general public. It would free up a lot of what-if money hoarding - myself included.

Indeed.

We (DH and I) expect that one of us will need to survive for many years after the other is gone, so are using only half of our anticipated SS income in any calculation. And we know that the prices of a CCRC are in current dollars, and will probably increase at least 15-20% more in the 10-12 years we wait before we buy-in. Plus, the CCRC costs do not include any medical testing, intervention, surgery, drugs, or therapy, mostly covered by Medicare and insurance supplements, but not all.

We are thinking that needing to spend between 800k and one million of our investments in the final years is probable in order to be safe and comfortable.

 

[imoldernu]

To the subject of planning for long term care. This article gives average costs for differing types of care, as well as ranges for CCRC expenses.

Obviously the numbers will vary greatly depending on the level of care and the location of the facility.

Do not miss the part about "Contracts" (continuing care), as this can make a very big difference in cost, and long term security. I am aware of upfront continuing care costs that have been as high as $300K.

The study was from 2015.

https://www.payingforseniorcare.com/longtermcare/costs.html

For assisted living costs near to you...
http://www.assistedliving.com/

 

[Gumby]

It sounded somewhat conservative (like only 1 week in Italy?)

The young wife is a teacher, so we are currently limited by the school vacation calendar and one week in the spring is all we can get. In the past, we've been there for longer in the summer, but found it too hot for our comfort. I expect we'll take longer trips there after retirement.

 

[MichaelB]

The young wife is a teacher, so we are currently limited by the school vacation calendar and one week in the spring is all we can get. In the past, we've been there for longer in the summer, but found it too hot for our comfort. I expect we'll take longer trips there after retirement.

Not being subject to the school year made traveling much more enjoyable for us, and also easier to arrange. Early fall has been particularly good, with many options and good climate.

 

[joeea]

First, I acknowledge the answer is personal and depends on numerous factors, but this continues to have an affect on my willingness to launch into RE (targeting 3 yrs at age 55). My personal dilemma has been heightened by my dad's past 12 month battle with cancer, his recent death (age 77), and as Executor of his estate being exposed more specifically how he held/used his assets. Observations...

Sorry to hear about your Dad.

But you haven't indicated the most important point of all - Was your Dad happy with his life and his frugality?

We often focus on things like return on investment, breakeven points, maximizing returns, etc. But we forget to talk about the whole point of savings. Money is a means to an end, not an end by itself.

If your Dad was happy, it should be a lesson to you. If not, it's a different lesson.

For me, my grandfather died at 72. My parents are still around in their mid-80s. When I plan my finances and consider longevity, I use an age of 95.

I will not be collecting social security until 70. I withdraw what I need and want, which still projects to have plenty left over when both my wife and I are gone. I am very happy with my situation.

 

[calmloki]

Just BTW - planning-wise, what do you all use as an inflation factor? I've been using 3%, but am curious about other's thoughts.

 

[Shanky]

If you are drawing 2% to be conservative and are ok to live on that amount. All that means is you might have worked a decade longer then you needed to. After all, work was fun and what would you have done with that decade anyway? You were probably too young to appreciate it anyway.

 

[calico1597]

At our last FA meeting, we were advised that if we didn't want to leave a large inheritance for our kids we should start spending. We've been giving our granddaughter $1K per month for college expenses the last two years & haven't missed the $$$. She will graduate this summer so that expense will end. We now feel confident to purchase a winter home in AZ and will close on it in two weeks! I just made sure the expenses of owning didn't go over $1K per month. We're cashing in some non-IRA investments and taking out a small mortgage.

 

[DawgMan]

Sorry to hear about your Dad.

But you haven't indicated the most important point of all - Was your Dad happy with his life and his frugality?

We often focus on things like return on investment, breakeven points, maximizing returns, etc. But we forget to talk about the whole point of savings. Money is a means to an end, not an end by itself.

If your Dad was happy, it should be a lesson to you. If not, it's a different lesson.

For me, my grandfather died at 72. My parents are still around in their mid-80s. When I plan my finances and consider longevity, I use an age of 95.

I will not be collecting social security until 70. I withdraw what I need and want, which still projects to have plenty left over when both my wife and I are gone. I am very happy with my situation.

I don't necessarily think he had any regrets at the end of the day, but I think his frugal nature conflicted with some things that he would say publicly he wanted to do, but just never pulled the trigger. As mentioned earlier, I get that we all put some tangible value/$$$$ on peace of mind and it is probably more difficult for some, despite what the calculators and FA say, to perhaps spend/use/give away more when we can (and maybe would want to if we could get over some mental barriers). My question really comes from the premise of 1) want to RE early, 2) believe in 1 or more formulas/calculators/advice as to what the number needs to be, 3) have RE plans/wants that require some use of $$... are our fears/conservative natures/OMY syndroms keeping us from maximizing our plans?

 

[joeea]

I don't necessarily think he had any regrets at the end of the day...

My question really comes from the premise of 1) want to RE early, 2) believe in 1 or more formulas/calculators/advice as to what the number needs to be, 3) have RE plans/wants that require some use of $$... are our fears/conservative natures/OMY syndroms keeping us from maximizing our plans?

I think your premise is somewhat correct. Some folks get so caught up in calculators and numbers that they forget to live their life. And some are so fearful that they live a miserly and miserable life.

That doesn't mean that one should live a YOLO life and avoid planning for the future. It's not hard to fully enjoy your life now while at the same time doing intelligent and informed preparation for retirement.

For my wife and I, our careful planning and live-below-your-means lifestyle is paying off as we enter our early retirement years. We both come from frugal backgrounds and learned how to be happy without feeling compelled to keep up with the Joneses. We spent where it made sense, but never wasted money. We paid for our sons' college educations and helped make sure their adult life got off to a good start. We've enjoyed our life so far and expect to enjoy our future years.

Retiring early is a luxury. It's simply not possible for some due to the current lifestyle they wish to live. For others, it's possible if and only if the appropriate preparations are done. Few of us can "have it all".

Sounds like your Dad was at peace with his lifestyle. I think that's a good lesson.

 

[rayvt]

To the subject of planning for long term care. This article gives average costs for differing types of care, as well as ranges for CCRC expenses.

...
Do not miss the part about "Contracts" (continuing care), as this can make a very big difference in cost, and long term security. I am aware of upfront continuing care costs that have been as high as $300K.
/

We live aways out from the nearest large town where we do most of our shopping. On the drive to town, we pass a large building that was an extended care facility.
Operative word: WAS.

It was closed down several years ago and is now abandoned. All the contracts in the world won't help you if the facility goes bankrupt.

I always wonder what happened to the people who were living there.