Managing RE spending based on market performance

[foxfirev5]

We had a 10 year period with no other income. Basically used judgement. Actually, we spent a bit more in 2009 and 2010 than other years because prices for travel and home improvement contractors were too good to pass up.

No pension or other income?

 

[jebmke]

No pension or other income?

No

 

[foxfirev5]

Good call. I don't know if I'd repeat the moves I made in '08 or '09. We had numerous unemployed people remove 14 trees, and do extensive drywall and roofing. All for less than 10k. However I hope we don't get to that point again.

 

[RunningBum]

No pension or other income?

I wouldn't think that to be unusual around here. I haven't had any other income in 7 years, and won't for another 8 unless I start SS early.

 

[audreyh1]

No pension or other income?

Many of us ERs live off our investments alone. It's been over 18 years for us.

Still a ways out before collecting SS, and it will not be significant.

 

[Bryan Barnfellow]

We withdraw funds from our investment portfolio, in the form of dividends, on a quarterly basis for living expenses that we augment with US and Swiss SS and two 403(b) accounts converted to single payment annuities. We use these as our bond equivalent.

Our budget, which we finalize in December of each year for the coming year, is complicated by the exchange rate. We earn our income in USD but spend it in Swiss francs (CHF) We have to make educated guesses on direction and intensity of USD:CHF pair fluctuations. Sometimes, we have to reduce our spending if the rate works against us. I spend a fair amount of time monitoring these currency trends, but it comes with living outside the US. For those thinking of being an expat, give this careful thought.

-BB

 

[bingybear]

I think the variable withdraw rate is "spending based on market performance". I don't track all spending. I mainly track things like medical expenses that I will need for taxes or dealing with HSAs.

During down times we likely would spend less by nature, not by plan. I don't follow a strict budget. Since a couple years after college I have run my budgets without one.

So, I follow budget by feel. No real defined method.

 

[foxfirev5]

I wouldn't think that to be unusual around here. I haven't had any other income in 7 years, and won't for another 8 unless I start SS early.

The no pension question i posed was not intended to imply anything. I simply asked a question of one individual. I've been around long enough to have a grasp of the makeup of the forum. Some do, some don't. While I have a pension it is so small that I am able to carry the groceries it buys with one arm.��

 

[pb4uski]

I REd at 56 and for the first 5 years we were totally dependent on portfolio, then my pension started but that is only about 20% of our spending... SS reinforcements will be arriving in about 4-8 years. It helped big time that since I retired that we have had only periodic modest declines in equities and for all intents just erasing earlier paper gains. I don't bob or weave with market fluctuations at all.

I have a monthly "paycheck"/automated withdrawal from my online savings account portion of out 60/35/5 AA that I have not changed since I established it when I first retired. When I started my pension after 5 years that gave us a bump that more than covered any inflation for the first 5 years and then some.

My sensitivity would be if our portfolio ever got down to 80% of what it was when we retired... but it is currently about 125% of what it was when we retired, so I sleep very comfortably at night. When markets are good I am more likly to do an occasional splurge (major purchase that could be deferred, extra vacation or travel or whatever) than when markets are moving sideways.... but we are really pretty comfortable.

As I've become more knowledgable with sequence of returns risk, if I had to do it over again and was nervous about sequence of returns risk (I wasn't), I might have started with a lower equity allocation and a plan to increase it between RE and a certain age so I was in effect living more off of fixed income in those early, risky sequence of returns years. For example, I might have started with 30/65/5 with a plan to increase equities 3%/year for the first 10 years so I was 60/35/5 after 10 years and maintain that thereafter.

 

[Offgrid Organic Farmer]

I retired on a small military pension 17 years ago [2001]. We also have a bit of rental income and farm income to augment my pension. I do not have any of my portfolio tied to market performance. I dont think I have the patience for that.

Nor would I want to pay that level of taxes

 

[SecondCor521]

Planning to RE at the end of 2019 (age 55) and will be totally dependent on investments for RE income (no pension, no working spouse). Plan on using total return/rebalance approach once a year effectively funding a full year's (coming year's) expenses at the time of rebalance. While working under the basic 4% SWR, I have underwritten effectively 3 budgets which will give me flexibility to ratchet down my SWR should the market not cooperate. For those of you who may be in a similar situation where you are 100% dependent upon your investments for your RE income, I would be curious to know how you weave and bob with market fluctuations? [1] Some specific questions...

- Are you blindly taking your set SWR % every year despite market performance to fill your annual expense budget and ignoring previous years returns or current portfolio balance, or do these variables change what you withdrawal from year to year? [2]

- Say like 2017 you had a strong market performance and you fill your 2018 annual budget to cover expenses, but then 2018 begins to tank say 10%+... are you pulling back on 2018 expenses based on the current market movements, or do you figure you will just cross that bridge at the end of 2018 and access the final market returns/portfolio balance at that time to plan for 2019 expenses? [3] I suppose asked another way, what factors/sensitivities/frequency drive you to get more conservative with your withdrawals/expenses? [4]

While I am sure the more margin you have in your RE budget, the less concern you may have for making any reductions from year to year, it would seem logical that many in RE have some "if this happens, then I do this" formulas they implement to steady the ship during the storms. Conversely, I suppose many of you have formulas that say spend more during the good times. Much of this gets back to what helps you sleep at night, but I suspect many of you 10 yr plus RE veterans out there have lived this and can share their wisdom.

[Numbers added]

I thought you already asked these questions on a different thread and I answered them there...? Oh well, here's my answers to this set of questions:

[1] Like most here, I watch the market, and when it's up I'll spend a little more freely and when it's down I'll spend a little more carefully. Beyond that, I rebalance periodically to my AA. My AA has changed once since 1987, and will likely change once more in the near future and perhaps once more some time after that, for a total of three times in my life.

[2] I spend what I need and monitor my WR to make sure it stays under 4%. So far in 2 years of retirement it has been between 1% and 2%.

[3] I will probably withdraw several times per year instead of once per year. (Although I've been FIREd for two years, I haven't had to pull from my portfolio yet.) In the scenario you describe, I will naturally become more cautious with my spending, which will result in my withdrawals during that period becoming smaller and/or less frequent.

[4] If my WR ever goes above 4%, I'll ask myself why. Depending on the answer, I'll probably invoke one of my documented contingency plans to either reduce expenses or increase income.

Hope that helps. There's lots of ways to address these questions, and all I'd suggest is do what makes sense and is comfortable for you, while meeting your goals and risk sensitivities. I also suggest researching via FIREcalc or other tools that your plan will likely work based on historical data at least.