Should we be withdrawing more sooner?

[RobLJ]

Part of this depends on whether you plan to leave a legacy to children or charity or family, etc.
I'm still working online parttime for half of my former salary, and can set my own hours, so it's a perfect ease into retirement. I semiretired 20 months ago tp Reno, DW is still working (although for less than half her salary in Houston), I was renewed for another 2 years (I'm 58). I feel very lucky (fortunate?) That context down

• in two years (at 60 with DW at 56), I plan to draw 5-5.5%
• I plan to see what happens; in the event of a stock crash I would consider taking SS early and letting DW wait until either full retirement or later.
• At the point I draw SS, I intend to cut back withdrawals to 4-4.5% (or less)
• When DW draws SS, I probably will cut back further to 3.5-4%.
• We have a great deal of slack in the budget, with about 30% targeted to vacation, some money to the sons and the new grandbaby. That can be cut, if needed.
• At 70.5, I will consider increasing withdrawal %, certainly at 75.
• I've considered some withdrawals for Roth in a few years after I am no longer working, but not a lot. The variables are too high.
• The above is flexible; the known unknowns are bear markets, duration, etc.
• FIRECalc gives me a 100% success factor, assuming we continue working for a few years. If not, I'll dial down the withdrawal number and the European vacations every year may go. Upping the planned withdrawal/amount 10% makes it dicier, but with a 93% success rate, which I would take.
• We don't intend to leave a lot of money to the kids, but FIRE indicates that's likely anyway. I'd prefer to increase withdrawals and give most to them while we're alive.

I'm going skiing tomorrow morning, if I-80 west is still open.

..

- Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR?

- Are you factoring in SS in your future income projections and at what age are you planning to take it? This question is primarily for those of you in your 50's or less.

- Other than Roth conversions and managing your tax rate, how are you looking at the impact of RMDs at 70 1/2? Should we be taking more $$ sooner?

It seems to me that most people on this site are planners and probably more conservative by nature as am I. I also know peace of mind and the "sleep factor" weigh into at least my strategy along with planning for "what ifs". None the less, particularly after seeing my dad's situation play out, there is a part of me that says go bigger in the early years while more physically able and then perhaps scale down in the later years. Thoughts?

 

[marko]

The first question- "Are we (most people on this site who have a RE strategy) being too conservative in our earlier years SWR?" is one that everyone worries about I think.

My mom is 87, quite spry and alert, still drives etc but she's lucky to spend a tenth of what she used to spend. She mostly goes out to breakfast and then spends the rest of the day reading and watching TV.

I know she wished she'd had had a better time when she was able (in her case, that's hard to imagine how much more of a better time, but...)

I often tell the story of a guy who asked me my age at the time (60). He said: "You do realize that even if you live to be 90, you only have 15 or 18 good summers left, right? 20 at the max!"

Having said all that, one of the fundamental issues discussed on this forum is the longevity vs spending vs quality of life issue.

We all know someone who died or became disabled right before or after RE (my brother for instance). Then we all know someone who'd lived to be 96 and is in a nursing home drooling.

In my brother's case, our consolation is in the knowledge that when he was able, he had a good time, lived well and did all the things he wanted to do. "At least he had a good time when he could" is what we say.

On this forum, I often malign my grandfather who had a NW of mid 8 figures but never spent a dime in his old age; sat in the dark watching TV. On second thought however, he did have a great time as a young man...like his daughter, perhaps too much of a good time.

Personally, (maybe genetics) I'm for spending a bit more now and scaling back as time goes on. You never know. If I'm 95 years old, I'm not sure I'll care how my LTC is getting covered.

 

[FIREmenow]

I think this is just risk management. you can't have it both ways. You want the money there if needed at the end, but there is a probability of some number that you won't need it. You can't know.

How best to manage the risk? It comes down to longevity insurance, right? Doesn't buying an SPIA or similar with some LTC and other coverages move this risk management out of one's own financial domain into the insurance company's world?

 

[kaudrey]

Sorry for your loss. My thinking lately has adapted a little due to my family's experiences. Parents both alive at 80; mom starting to suffer from Alzheimer's (and her mother lived to 94 in a nursing home for 13 years with it); dad healthy; other grandparents lived mostly healthily until their mid-80s.


I expect to spend a bit more when I first retire at 57 (I am 48 now). I want to travel while I am hopefully healthy and very mobile. Then I expect some middle years with lower WRs as I slow down but hopefully don't face too many health issues. Then in the later years plan for retirement community or nursing home. So that's the "U" shaped spending curved linked to earlier by others.


I do plan on SS; my spreadsheet has it at 75% of what I would get if nothing changes. And my retirement #s are conservative, because I'd retire earlier if I wasn't handcuffed by my desire to keep my Federal health benefits, which I lose if I retire before I turn 57. I'm not willing to do that (at least right now).

 

[Big_Hitter]

https://www.advisorperspectives.com...quences-of-overestimating-retirement-expenses

"Research has shown that individual and household spending declines in real-dollar terms upon and following retirement. Yet most financial advisors still use traditional retirement planning approaches that target constant real-dollar spending for the client’s planning period. This targeting of constant dollar spending in retirement has more to do with following traditional practice and software limitations rather any specific desire to meet client needs."

this should probably be in its own thread

 

[FreeBear]

I've said it before, but I have no idea what the last years of my and DW's life will cost. We could both die quickly (and cheaply) or live for years in an extremely expensive Alzheimer's ward. The worst case would be one of us bankrupting the other. My solution is to continue to live well, but not extravagantly. If we leave money on the table, so be it.

Yep, that's the rub. If I were single, I would be far more aggressive living it up while still younger. In reality, I'm concerned that one of us could develop an expensive illness that could bankrupt the other. I'm also very concerned about the future of ACA and the rising cost of healthcare, regardless of the outcome. These are just the "known unknowns", who knows about the "unknown, unknowns".

In all fairness though, we are spending 15% below budget after 2 yrs of FIRE. Now that I'm not compelled to go to w*rk everyday, I'm just plain happy hanging out at home or with club and church friends.

DW and I can't seem to agree on how to best spend this "extra 15%". One of us would propose something like travel or home remodeling, but the other thinks it's too much of a bother. So we end up not spending, but this is fine with me since a lower SWR helps me sleep better.

 

[jollystomper]

My guess is that most folks are being conservative with their SWR due to the vast unknown of future health care costs. It was much more predictable when retiree health benefits were common, but are much more unpredictable these days. I know of many at my Megacorp who can retire with a pension, but hope to keep working until they are eligible for Medicare because of this. Even though I have factored in a large amount for healthcare costs, it is probably the major reason keeping me from being totally "all-in" on retirement.

At 59 we have factored in SS, but are not planning to take it early unless we really need it. It will more be a question of our desired lifestyle and financial situation at the time.

RMDs are definitely a consideration.. with a pension, cash, and investments outside of our retirement accounts, we are not forced to withdraw form them, but that would mean a very large RMD hit if we wait. SO our planning does take into account drawing down retirement accounts to reduce the forecasted RMD.

Just from observing my mom, who lived to 86 (Dad died at 72 so did not have a lot of years to enjoy his retirement), her spending definitely slowed down in her last several years. She did not get Alzheimers or cancer, her body just sort of wore down. But she did a lot for traveling and activities up through her early 80s, and was very content with taking things easy and enjoying more "time with family and friends" than time with things, or going to see things, her last few years.

 

[rayvt]

Doesn't buying an SPIA or similar with some LTC and other coverages move this risk management out of one's own financial domain into the insurance company's world?

No it does not. It just changes the specific risk. You have simply changed the risk to a counter-party risk.

 

[Danmar]

No it does not. It just changes the specific risk. You have simply changed the risk to a counter-party risk.

Yes, but surely this is a much lower risk?

 

[kcowan]

Just BTW - planning-wise, what do you all use as an inflation factor? I've been using 3%, but am curious about other's thoughts.

I use 4% mostly because much of our costs are in Mexico and it is being hit by peso deflation. I also distrust government figures as not being representative of retired people.