ER ramp-up withdrawal strategy

[The Onceler]

Here is something that must have been discussed (or is being executed) but I cannot find a topic identified as such.

I-orp allows one to view a few different withdrawal scenarios (e.g., constant, life cycles, age banding, etc.). The below got a little bit long — the short question is whether there is a calculator/analysis/study that says “go lean during ER so you can go more fat during regular retirement”?

I have not seen one that caters to an ER circumstance where:

1. The perceived value of ER is greater than the value of continued employment.

2. There is a gap period between employment end date and inception of (a) pension; (b) social security; and (c) perhaps, access to 401k/IRA funds.

3. Based on a combination of 1 and 2, the hopeful retirees are content to minimize withdrawal during the gap period in order to allow their assets to grow in those years (say 5-15 years, depending on (2), for the purpose of funding a larger withdrawal in the moderate-term years (e.g., say from 65-75).

4. The consequence of this approach would yield a curve that might ramp up (or step up) to account for deferred withdrawals in the gap period, then reach a high plateau during the “golden years” of say 65-75), then ramp down a bit for the next 10 (say 75-85), then perhaps go up again.

5. Obviously this approach implies a significant amount of discretionary spend in the overall plan.

6. I think I could probably concoct a plan by stitching together a few different scenarios from I-orp or the like. Has anyone seen a thoughtful write up of this and perhaps a calculator that allows adjustment of withdrawal rate in this way? I hope I haven’t missed it in I-orp but if so I’d appreciate the help in find where that can be adjusted.

 

[joylesshusband]

Has anyone seen a thoughtful write up of this and perhaps a calculator that allows adjustment of withdrawal rate in this way?

I have not seen any of those, and have no regrets.

If you want something done well, do it yourself.
I consider myself a pretty advanced Excel user, and have used it to model a bunch of scenarios similar to the ones you describe. They serve me well.

 

[Spudd]

VPW does this to some extent, except for the part where it ramps down again. Essentially VPW takes a percentage of your existing portfolio (not your starting portfolio) every year, and that percentage increases as you get older.

Personally, I retired early (42) and am doing a 4% withdrawal rate from my nest egg. At 55, my pension will kick in (that's taking it early, but I plan to do that because it's a COLA pension and the COLA doesn't occur unless you're actually taking it). At 65/70 my government pensions will kick in, depending on when I choose to take them. Sometime in the next 25 years I will also inherit money from my parents.

So, in a nutshell, I am doing what you suggest. I am living on far less money now than I will be once all those other income streams come online. However, I'm not a risk-taker, and I'm happy enough with my current lifestyle, so I'm not looking at increasing my current withdrawal rate to create more of a smooth lifetime income. I'll just have to figure out ways to spend more once my income goes up.

 

[Dtail]

VPW does this to some extent, except for the part where it ramps down again. Essentially VPW takes a percentage of your existing portfolio (not your starting portfolio) every year, and that percentage increases as you get older.

Personally, I retired early (42) and am doing a 4% withdrawal rate from my nest egg. At 55, my pension will kick in (that's taking it early, but I plan to do that because it's a COLA pension and the COLA doesn't occur unless you're actually taking it). At 65/70 my government pensions will kick in, depending on when I choose to take them. Sometime in the next 25 years I will also inherit money from my parents.

So, in a nutshell, I am doing what you suggest. I am living on far less money now than I will be once all those other income streams come online. However, I'm not a risk-taker, and I'm happy enough with my current lifestyle, so I'm not looking at increasing my current withdrawal rate to create more of a smooth lifetime income. I'll just have to figure out ways to spend more once my income goes up.

But isn't Firecalc also doing the same thing albeit in an historical sequence concept?

 

[RunningBum]

My thought is, if you're retiring with Firecalc showing 100%, you're planning for the historical worst. 95%, almost the worst. The worst sequences most likely either start of with a stock market drop or high inflation. If you can get through the first few years with neither, you're very unlikely to hit a worst case scenario, and you're free to spend more.

VPW is one way to model the increased spending. Your investment worth is likely a little increased, and your spending % increases, so you can spend more.

There are other ways to reset your spending rather than limit it to X%+inflation. VPW is the one I use so I'll let others talk about the other ways.

If you do have bad sequence of returns early, obviously you can't ramp up your spending, but hopefully you retired enough to handle a bad scenario as long as it's not worse than historically bad.

The summary is, you plan to be able to handle the bad cases, and adjust up if you are on a normal or favorable track.

 

[Reach]

I don't know anything about I-orp, but in retiring early with my husband at 39/45 in your scenarios #1-2, I had a different mental picture/model of withdrawal.

I envisioned this as "two" retirements, one for the ~25 years that took me to retirement age and one from age ~65 onward.

We use non-taxable funds for retirement #1 and will have IRAs/401k/pension/SS for retirement #2 (all untouched and growing now).

In any case, we are under a 2% withdrawal rate. In practice we still tried to minimize spending early in retirement. We also didn't count on pension/SS, so will be in "golden years" for sure once that kicks in.

 

[Dtail]

My thought is, if you're retiring with Firecalc showing 100%, you're planning for the historical worst. 95%, almost the worst. The worst sequences most likely either start of with a stock market drop or high inflation. If you can get through the first few years with neither, you're very unlikely to hit a worst case scenario, and you're free to spend more.

VPW is one way to model the increased spending. Your investment worth is likely a little increased, and your spending % increases, so you can spend more.

There are other ways to reset your spending rather than limit it to X%+inflation. VPW is the one I use so I'll let others talk about the other ways.

If you do have bad sequence of returns early, obviously you can't ramp up your spending, but hopefully you retired enough to handle a bad scenario as long as it's not worse than historically bad.

The summary is, you plan to be able to handle the bad cases, and adjust up if you are on a normal or favorable track.

Yeah just used the Firecalc reference in relation to his statement. I don't think many at all use the Firecalc %WR + inflation increase yearly for actual withdrawals.
I am using some version of % of remaining portfolio.

 

[HI Bill]

I plan to take SS at age 70, or 67 if SS is not fixed. If my portfolio survives intact until I start SS withdrawals, I should be able to ramp up the spending then, as 50% of my month expenses will be covered by SS. Problem is, I'll be 67 or 70 then, and presumably wont' have as much energy/health to enjoy extended travel and scuba diving.

 

[tb001]

You can use the ‘manual spend’ function in firecalc to model this. It requires a donation, but well worth it IMO.

 

[The Onceler]

Thanks all for the insights. I’ll call this leanFIRE/fatFIR.