Kitces on Withdrawal Plans

[RobLJ]

It may have been posted already, but Kitces posted a nice succinct article on withdrawals, with a warning about the likelihood of 3x initial portfolio accumulation at the 4% withdrawal rate and average returns.

This will come as no surprise to those of you who review FireCalc and its diagram.



https://www.financial-planning.com/news/managing-potential-sequence-of-return-risk-in-retirement

 

[audreyh1]

Sequence of return risk truly cuts both ways. While a bad sequence coupled with ongoing withdrawals can catastrophically deplete a portfolio, a good sequence can compound the portfolio to such a degree that substantial excess wealth accrues. In fact, owing to how long-term returns compound to the upside, favorable sequences can produce far more excess wealth than unfavorable sequences produce to the downside.

How should retirees combat risk not just to the downside, but to the often-overlooked upside? In short, they need to be equipped with spending strategies that can flex to accommodate changing market conditions and set clear guardrails around spending — namely, when to cut spending in a bad sequence, and potentially when to raise it in a more favorable one. But for that to happen, some baselines need to first be established.

Long-term rates of return on a balanced portfolio suggest that investors should be able to spend at least 6% of their starting account balance in retirement, adjust their spending each year for 3% inflation and still be able to maintain their spending levels for 30 years.

Thanks! I always love Kitces thorough articles on this topic. Although this one is more of a review.

Well, I adopted a dynamic spending (actually withdrawal) method for precisely the reason of the portfolio growing too large as well as automatically reducing withdrawals when markets drop.

 

[Cut-Throat]

VPW

 

[CardsFan]

This will come as no surprise to those of you who review FireCalc and its diagram.

Quite true. Over the past few years I have come to the realization that DS will likely inherit more than we had at retirement 3 years ago, adjusted for inflation.

And as long as we can live the life we want while on this earth, I'm good with that.

 

[DrRoy]

I raised my WR from 1.6% (plus small pension) to 2.4% this year to fund a remodel. Even 4% would seem like an unnecessary amount to spend, but I will have to think it over pretty seriously.

 

[Dtail]

VPW

Or could use "% of remaining portfolio" (or Clyatt version) methodology at constant "X" WR%.

 

[HI Bill]

Because my goals are to not run out of $, and to leave nothing on the table, I'm also considering using VWP. I'm hoping that the SORR is favorable, and as I grow older, my standard of living can go up, so that I can afford more travel, and some first class tickets for longer trips. But if not, I'll be happy with my current planned withdrawal rate.

 

[Mdlerth]

If I were a rich man

"Excess wealth"? I can think of worse fates.

It puts me in mind of a scene from Fiddler on the Roof. Perchick has just learned from Tevye of Tzeitel's betrothal to the wealthy Lazar Wolf.

Perchick: "Money's the world's curse."

Tevye: "May The Lord smite me with it! And may I never recover!"

I'm with Tevye.

 

[joeea]

a warning about the likelihood of 3x initial portfolio accumulation at the 4% withdrawal rate and average returns.

Good warning! I was at risk of leaving 3x my initial portfolio!
Can't have that.

So I should spend more that I want to, in order to avoid this horror, right?

 

[RobLJ]

You can get some cool tips on the "Blow That Dough" thread.

Good warning! I was at risk of leaving 3x my initial portfolio!
Can't have that.

So I should spend more that I want to, in order to avoid this horror, right?

 

[big-papa]

Or could use "% of remaining portfolio" (or Clyatt version) methodology at constant "X" WR%.

Or a PMT method (similar to VPW) using estimated future returns based on current valuations and interest rates ( my fave ). Or RMD method - which is the same as VPW with 0% expected returns. Or Guyton-Klinger decision rules. Or Kitces Ratcheting Method. Or, or, or.

The possibilities are endless but the point is there are many methods out there that will most likely result in you withdrawing more over a lifetime, significantly reduced possibility of running out of money before you die, and which allow for leaving a bequest, if that's what you want.

The only difference in all of the other methods vs a fixed-percentage-update-withdrawals-each-year-for-inflation type of methods is that the withdrawals, year on year, will vary.

 

[COcheesehead]

Or a PMT method (similar to VPW) using estimated future returns based on current valuations and interest rates ( my fave ). Or RMD method - which is the same as VPW with 0% expected returns. Or Guyton-Klinger decision rules. Or Kitces Ratcheting Method. Or, or, or.

The possibilities are endless but the point is there are many methods out there that will most likely result in you withdrawing more over a lifetime, significantly reduced possibility of running out of money before you die, and which allow for leaving a bequest, if that's what you want.

The only difference in all of the other methods vs a fixed-percentage-update-withdrawals-each-year-for-inflation type of methods is that the withdrawals, year on year, will vary.

This is your 666th post.

 

[big-papa]

this is your 666th post.

omg!!!

 

[joeea]

You can get some cool tips on the "Blow That Dough" thread.

I don't need tips on how to spend more than want to.
I guess I'll just have to take the risk and hope for the best.

 

[audreyh1]

I don’t look at how much I “want” to spend. That’s not obvious to me.

I look at how much our income is increasing and think about things I’d like to do (including gifting) that I haven’t been able to do yet.

Gosh, we could.......