Dynamic spending strategy

[Focus]

I think this is an interesting Vanguard blog post on a dynamic spending strategy with ceiling and floor spending limits:

Vanguard: How to put a dynamic retirement spending strategy in place

Before I ERed three years ago, I thought I'd be following something like this. However, my spending has been so much lower than expected that I haven't had to follow any strategy at all.

 

[audreyh1]

I like the super simple % of remaining portfolio to determine withdrawal. But my spending hasn't been keeping up with my portfolio growth!

However I am very aware that current market valuations are stretched, and we could suffer a big hit to the portfolio any year now. And my income could drop below spending.

So I keep withdrawing, and put aside what I don't spend in case I need it someday soon. I suppose if it ever gets "big enough" - I don't yet have a criteria for that - i could splurge on something outrageous. In the meantime my spending has been ramping up rather slowly.

That's pretty simple IMO - draw % of remaining portfolio and bank unspent funds.

 

[Focus]

That's pretty simple IMO - draw % of remaining portfolio and bank unspent funds.

In a sense, I guess what I'm doing is equivalent. That is, spending less than what would have been my percentage and keeping the difference invested.

 

[audreyh1]

In a sense, I guess what I'm doing is equivalent. That is, spending less than what would have been my percentage and keeping the difference invested.

When I said "bank" unspent funds I meant that I keep them in safe, no volatility short-term accounts like CDs or high yield savings available to me whenever. I don't actually reinvest them back into the retirement portfolio (long-term investments).

A lot of people do reinvest unspent funds which effectively lowers their withdrawal rate.

It all depends on your goals.

 

[Scuba]

It's early days for me as I haven't been retired for even a year yet, but calculating and managing to these rigid %'s seems unnecessarily complex to me. Why not just withdraw as needed to fund desired lifestyle, and evaluate portfolio value a couple of times a year? If value looks good, carry on with no changes. If value drops beyond your comfort zone, whether due to excessive spending or market declines, adjust spending as needed. Does it need to be more precise than this?

 

[donheff]

When I said "bank" unspent funds I meant that I keep them in safe, no volatility short-term accounts like CDs or high yield savings available to me whenever. I don't actually reinvest them back into the retirement portfolio (long-term investments).

A lot of people do reinvest unspent funds which effectively lowers their withdrawal rate.

It all depends on your goals.

I keep my unspent funds in the portfolio and track then as a pseudo fund. The idea being that I can tap them in a downturn. I don't include that amount in what I label the portfolio SWR total. After a big crash both the SWR portfolio and the psuedo account would be depressed. Not sure I would be comfortable spending a lot from the psuedo account in those circumstances. But, if I put the money in CDs I don't know if I would be any more comfortable spending them. The future crisis psychology is hard to gauge. Maybe we will get an opportunity to discuss how it worked out for us after North Korea explodes a hydrogen bomb over the Pacific.