Retirement spending cuts small, permanent or temporary

[Chuckanut]

Here's something to consider on a rainy day when you feel like exercising your brain a bit.

Dynamic Retirement Spending With Small-But-Permanent Cuts


https://www.kitces.com/blog/dynamic-retirement-spending-small-but-permanent-variable-adjustments/?utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=a032028753-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-a032028753-57089725

Except as it turns out, engaging in a more rapid series of smaller – but permanent – spending cuts can be even more effective. For example, rather than cutting spending by 20% for 3 years after a market decline, if the retiree simply commits to trimming real spending by 3% (permanently) in any year that market returns are negative – approximately the equivalent of forgoing an inflation adjustment during the down year, and a fairly trivial spending adjustment for most retirees – the safe withdrawal rate rises by almost 0.5% (to more than 4.5%). With the large-but-temporary cut, the safe withdrawal rate only rises by 0.1%, instead.

Of course, the flip side to this is that it may be equally appropriate to make upward adjustments in retirement spending once a retiree has the benefit of hindsight to inform their sustainable withdrawal rates in retirement. Particularly given the conservativeness of safe withdrawal rate methodologies (i.e., they are testing against the worst case scenarios experienced to date), there’s reason to believe that many retirees will get further into retirement and have an option to increase their spending, which can be implemented through spending policies such as the Guyton-Klinger withdrawal rate rules and a ratcheting safe withdrawal rate.

 

[athena53]

I'm way ahead of them on this- always looking for painless ways to cut my monthly payments. How cheap am I? I finally got tired of the $3 monthly rent on the huge garbage can the hauler provides-after 2 years I've probably paid more than it cost them! Just bought my own. It was $19- much smaller but I really don't generate that much trash.

 

[2017ish]

Easier link: https://www.kitces.com/blog/dynamic-retirement-spending-small-but-permanent-variable-adjustments/

Good article by his associate. I liked this paragraph, the concept of which we've touched on here a lot:

Thus, retirement spending strategies can be considered as part of a continuum, from spending a fixed dollar amount (e.g., 4% of the initial portfolio value, adjusted each subsequent year for inflation regardless of market performance) to spending a fixed percentage of the portfolio each year (e.g., 4% of the then-current portfolio value, recalculated annually). And in between lie any number of strategies that apply at least partial spending adjustments in bad (or good) times, with less rigidity than fixed lifetime real-dollar spending, but more stability than simply recalculating annual spending as a fixed percentage of a volatile portfolio.

 

[audreyh1]

Easier link: https://www.kitces.com/blog/dynamic-retirement-spending-small-but-permanent-variable-adjustments/

Good article by his associate. I liked this paragraph, the concept of which we've touched on here a lot:

I don't find variable (volatile) income to be a problem. Probably because we are underspending our income and allowing unspent funds to build in short term funds.

If we had mostly fixed expenses and the portfolio income was barely large enough to cover them, I might have a problem. But our expenses are highly discretionary, so cutting back, after we run through all of our other accumulated funds, is not a problem.

We routinely cut "fixed" expenses when the opportunity arises. This is a lifelong habit. But that usually means the spending moves to something discretionary that is important to us.

 

[2017ish]

I don't find variable (volatile) income to be a problem. ....

From what your posting since I've joined the forum, I think you live in a manner similar to what we plan. Discretionary > fixed; much travel; willing to trim/slash expenses as needed, hence comfy with a fixed percentage of 12/31/XX balance.

Our belief is that we won't have any problem with it--but unlike you, we haven't lived it yet!

 

[Fedup]

I did cut almost $100 from my budget this month with no change in spending pattern.

 

[Blue Collar Guy]

So is the guide saying when the market goes down take out 3% less than last years withdrawal and do you include inflation? so i withdraw 100k, market goes down ,inflation is 10 %, do i take out 97k, or 106.7k? thank you is this better than the guyton-klinger approach? I also didnt master that advice either.