Why take a much smaller SWR than you can??

[pstille]

Z

 

[ESRwannabe]

I'm always amazed at some of the members of this forum who take very low (<1%) WR when they could easily triple or quadruple it SAFELY. You can't take it with you so why leave so much $$ behind? One only gets a single go around in life.

I'm pretty close to being able to retire now. I should be able to retire at 45 in 3 years if I want to.

My current plan is to live off of the dividend income from Vanguard's US and Foreign High Dividend Yield Index funds in my taxable brokerage account. That would be similar to a 3% withdrawal rate.

The benefit of this strategy is I have a very high confidence in the dividend income growing pretty much every year. I want my income and assets grow over time. So, I can have a more expensive lifestyle as time goes on.

One thing I would like to do once I have enough money is to own more than one condo/apt. So that I can live up north during the summer and down south in the winter. I'm sick of all the heat and humidity, but I'm pretty sure if I lived up north I'd be equally sick of the snow/ice.

I know I will end up leaving a lot of money on the table eventually, but it is what it is. I would have liked to have retired already at 40, but it doesn't really matter. I can suck it up for a few more years.

At age 60 I'll have a pension (17 years vested currently) plus access to 401k/Roth. I'll have a stupid amount of excess money then. My withdrawal rate can drop to 0% at that point.

 

[calmloki]

Pretty much always went down my own path. No pension and a grand $199.60 in monthly SS after the Medicare and drug contributions are subtracted. I appreciate it (and the Medicare!) but don't want to survive on $199.60/month. We don't need much, but I like things like light and heat and food. Just about to turn 69 and our rental/real estate entreprises continue to add to the stack. Gal's Mom lived to 95. No compelling reason to stop piling it up.

 

[Lawrencewendall]

I am on track to spend 0.53% this year which I agree, is just plain ridiculous.

It is difficult to think of anything to spend it on, that would be of value to me. Spending money on cr*p that has no value to me, would just leave me feeling empty and sad. I have been poor earlier in my life and just can't bring myself to throw money away like that.

So anyway, this is why I pay close attention to threads like the Blow That Dough thread, and why I started that Amazon thread. I think, or at least hope, that spending money for pleasure is a learnable behavior. I don't like to travel, but despite that, surely there must be some way to spend money that has value to me. Sometimes I find something! Then, whether it is costly or cheap, I buy it. I was looking at the splurge thread and thinking about another new laptop. So, I browsed on Amazon but nothing jumped out at me, and my present laptop is still pretty nice and suitable for my needs.

As for extravagant gifts and gargantuan donations, I prefer to leave most of that sort of thing until after my demise. To me it makes sense for that money to be my emergency money until I croak, and it will be just as useful to loved ones and charities at that time as it would be now. Meanwhile my gifts are average, substantial but not over-the-top, and I leave it at that.

+1

 

[socaldonnan]

I’m confused about withdrawal rates. DH will be 70 next year and I’ll turn 70 in four years. Isn’t there a mandatory minimum distribution rate used based on the year you turn 70 as of December 31? I read quite often about members here take a very small amount from their IRA. What am I missing?

 

[audreyh1]

I’m confused about withdrawal rates. DH will be 70 next year and I’ll turn 70 in four years. Isn’t there a mandatory minimum distribution rate used based on the year you turn 70 as of December 31? I read quite often about members here take a very small amount from their IRA. What am I missing?

This thread has nothing to do with required minimum distribution rates from IRAs. It’s about how much people pull from their total retirement investments each year to cover their annual expenses.

 

[Dtail]

I’m confused about withdrawal rates. DH will be 70 next year and I’ll turn 70 in four years. Isn’t there a mandatory minimum distribution rate used based on the year you turn 70 as of December 31? I read quite often about members here take a very small amount from their IRA. What am I missing?

The Withdrawal rates being discussed here typically are the percentages of one's portfolio which are withdrawn for living expenses year, usually after subtracting for SS/Pensions, etc. These WR% rates are not related to age.

The required minimum distributions (RMD) at 70.5 years old are based on set government requirements and start at 3.65% and move higher each year.
Let's say your withdrawal needs are 3% at 70 (with no SS/Pensions, etc) and you only have 401k/TIRA investments to draw from, you would still need to withdraw 3.65%, but only use 3% and the .65% would go to a taxable account less taxes for example.
Your WR% at 70.5 would still be considered 3% for this discussion.

 

[Dtail]

Z

That is some first post.

 

[gauss]

Simple.

I have spent a lifetime learning to LBYM and feel proud of the result and not envy etc. I have taught myself to be immune to the tactics of Madison Ave and their attempts to make me feel inadequate if I don't purchase their product or service.

I am talking about physical brain chemistry here to take advantage of the neuroplasticity in one's brain.

I will gladly take a lower than needed SWR if there is nothing that I need/crave and I am truly happy, rather than spend the money just for the sake of "spend it before I die" and risk letting Madison Ave back into my psyche and jeopardize my current happiness and contentment.

Additionally having significant capital reserves help manage the anxiety of the possibility that challenges can be thrown your way.

-gauss

 

[NW-Bound]

I'm in the "it's work to spend" category, and also, the things I buy can take a lot of time.

First, I find it hard to buy something without a lot of research and comparative shopping. So that takes time and effort. Then, after I get an item, it might take a while to integrate it into my life. And of course if I'm doing that, I'm not figuring out what I want to buy next...

Spending takes time only because you do not have enough. When you are rich enough, you do not have to face the difficult choice between Audi, BMW, or Mercedes. Get one of each, and the best they have. You do not have a garage large enough, nor care to have so many cars? Drive one for 6 months to see if you like it, and switch to the next.

I read somewhere that Steve Jobs, being as OCD as he was, got bent out-of-shape if his car got a small dent or a scratch. He would get a new car to get that damaged good out of his sight. Do you imagine he had to drive to a dealership to get a new car? Or did he just call the dealer and tell them to bring a new car to him ASAP, and take the existing car off his garage.

 

[DayDreaming]

Simple.

I have spent a lifetime learning to LBYM and feel proud of the result and not envy etc. I have taught myself to be immune to the tactics of Madison Ave and their attempts to make me feel inadequate if I don't purchase their product or service.

I am talking about physical brain chemistry here to take advantage of the neuroplasticity in one's brain.

I will gladly take a lower than needed SWR if there is nothing that I need/crave and I am truly happy, rather than spend the money just for the sake of "spend it before I die" and risk letting Madison Ave back into my psyche and jeopardize my current happiness and contentment.

Additionally having significant capital reserves help manage the anxiety of the possibility that challenges can be thrown your way.

-gauss

Well said and exactly what I'm thinking.


The title of this post "Why take a much smaller SWR than you can?" is like asking "Why aren't you spending as much money as you safely can?" The answer to that is that it's just not my lifestyle. I'm happy right now and spending as much money as I can is not going to make me any happier - honestly, I think that might make me less happy.

 

[kcowan]

Our WD was 1.8% last year. So we are good for any meltdown. Travelling business class and upgraded from a Ford to a Mer. Upgrading charitable giving this year. Also giving the kids a good gift. But keeping such transfers to annual events.

 

[youbet]

Current WR is quite modest (well under 4% with a 50/50 AA). However, we did commit to the kids that we'd send the three grandkids to college on our nickle, so that's coming up starting shortly and will last about a decade. The kids, in return, are focusing on their retirement investing and doing so with some success, a great source of pleasure for me.

 

[scrabbler1]

I'm pretty close to being able to retire now. I should be able to retire at 45 in 3 years if I want to.

My current plan is to live off of the dividend income from Vanguard's US and Foreign High Dividend Yield Index funds in my taxable brokerage account. That would be similar to a 3% withdrawal rate.

The benefit of this strategy is I have a very high confidence in the dividend income growing pretty much every year. I want my income and assets grow over time. So, I can have a more expensive lifestyle as time goes on.

One thing I would like to do once I have enough money is to own more than one condo/apt. So that I can live up north during the summer and down south in the winter. I'm sick of all the heat and humidity, but I'm pretty sure if I lived up north I'd be equally sick of the snow/ice.

I know I will end up leaving a lot of money on the table eventually, but it is what it is. I would have liked to have retired already at 40, but it doesn't really matter. I can suck it up for a few more years.

At age 60 I'll have a pension (17 years vested currently) plus access to 401k/Roth. I'll have a stupid amount of excess money then. My withdrawal rate can drop to 0% at that point.

I'm glad to see someone who has a fairly similar ER plan to mine.

I have been living for the last 10 years (when I ERed at 45) on the monthly dividends from Fidelity's Focused High Income fund. The DPS have dropped over the years but I have added shares in the fund through rebalancing and from buying more shares outside of rebalancing. To supplement this income, I have been using quarterly dividend income from a stock fund, also in the taxable account.

And like you, I have what I call my "reinforcements" waiting for me once I turn ~59.5 in 4 years. Those include unfettered access to my rollover IRA, my frozen company pension, and SS. After all 3 kick in, my withdrawal rate will drop to maybe 1%, as I, like you, will have a "stupid amount of excess money."

 

[tb001]

Such interesting responses! While we already have a pretty high rate of spend, we could *easily* double it and be quite happy. Upgraded/more travel, oceanfront home, nicer cars, more dining out, nice vacation home, etc... No problem with the spending part here!

Our plan is for a 4% withdrawal rate, but I imagine we’ll likely come in closer to 3.5% in most years in actual spending. So not the ultra low withdrawal rates you’re talking about, but certainly on the conservative side. DH and I both draw comfort from seeing those dollars in the bank and knowing we’re prepared for a bad scenario. We also have young kids, so our $ amount includes a lot of buffer for the unknowns. We hope to have enough left over that we can give our kids the jumpstart we didn’t have.

 

[Octogirl]

we lived in the Detroit Michigan area during the recession - and remember the friends who lost jobs and houses lost due to foreclosures. We are happy to LBYM and so when we do calculate a SWR in 2021, we will choose a conservative % .

 

[H2ODude]

This is an interesting thread to me as it has seemed in the past discussion of relatively low WR's generated a lot more criticism than agreement. As in "why don't you just spend closer to what you obviously can?" We're one of those who can't seem to comfortably dispose of the ~3% we draw out from the portfolio. It has nothing to do with wanting to keep the portfolio large; it has everything to do with being fully comfortable with everything we have and currently do. All those years of saving and valuing a dollar just can't be wiped out.

 

[NW-Bound]

I don't think it's criticism as much as wondering, "why don't you spend more to enjoy life". But one can have enough without spending more. And spending too much can bring more trouble.

I read about billionaires' yachts all the time, but not about Bill Gates's or Buffett's. That's because they don't have one. They can afford a bigger yacht than any, but they don't. Out of curiosity, I searched the Web and found that Gates rented a 460' yacht for a vacation. The rent was $5M/week. I don't think Gates was thinking about LBYM, but more about no worry of maintaining the boat and its staff.

 

[NW-Bound]

Out of curiosity, I just looked at the $5M/week yacht rental, and relative to his net worth, Gates paid much less than what I have to pay for a lowly Airbnb with my net worth. Darn!

 

[audreyh1]

Out of curiosity, I just looked at the $5M/week yacht rental, and relative to his net worth, Gates paid much less than what I have to pay for a lowly Airbnb with my net worth. Darn!

We saw this big yacht sitting unused in Friday Harbor and found it online. Impressive, although I don’t know about “gracefully discrete” as it was very noticeable. I think it was available for around $200,000 per week for 12 passengers. https://www.yachtcharterfleet.com/luxury-charter-yacht-22304/legend.htm

Still, way out of my budget.

We’d be happy chartering a crewed sailboat for a week though.

 

[dtbach]

I guess I started this thread because I was just curious. My parents did the ultra low WR and ended up giving us kids all the dough. But they overdid it in my opinion, never giving themselves even a small treat now and then. I think my father rather begrudged it as he really loosened the purse strings after my mother passed. But by then he was 95 and really couldn't spend much anyway. At least he splurged on some nice shoes that were actually comfortable.


I worked 2, sometimes 2.5 jobs, scrimped on eating out, vacations, cars, you name it. Now that I basically "won" the game, I have no trouble at all spending a SWR on trips for my kids, going out to theater, dining, travel, etc.


I saw that my mom and dad couldn't take it with them, so have no desire to follow their example.

 

[braumeister]

My parents did the ultra low WR and ended up giving us kids all the dough. But they overdid it in my opinion, never giving themselves even a small treat now and then.

Very understandable, and I agree. I used to beg my parents to splurge a little on themselves, because I didn't need it. But the answer was always "No, we'd rather let you have it." Frustrating, but they grew up in the Depression so it was an ingrained part of them.

 

[NW-Bound]

We saw this big yacht sitting unused in Friday Harbor and found it online. Impressive, although I don’t know about “gracefully discrete” as it was very noticeable. I think it was available for around $200,000 per week for 12 passengers. https://www.yachtcharterfleet.com/luxury-charter-yacht-22304/legend.htm

Still, way out of my budget...

Very nice. And it's only 168' vs. Gates' rental of 460'. Mind boggling.

Maybe one of these days, you will blow the cash that you stockpile from underspending your WR for one heck of a cruise party?

If you have empty cabins, maybe invite some forum buddies here? Nah, you probably have enough relatives to invite. So, if you ask for volunteers as deckhands on this forum, there may be plenty of people interested.

 

[kgtest]

Our WR has been about 2.5%. We have everything we need/want. We travel, we eat out, we gift, we donate ... Not sure where we would spend more money on.

My kid wants to learn how to skate and downhill ski. I can get the account # to his 529 if education is something you adorn more? All kidding aside, it's hard to switch from Saving to Spending, I see it with DF.


He doesn't save it for his heirs, but he does save it because he has 'enough'. Plus he likes watching it grow. I do remind him no point being richest in the graveyard.



He has been trying to spend money on his children, but it always comes back as a loan because of his LBYM ways. For instance we are traveling together this winter. Instead of offering to pay for lodging, he is offering to pay his half...because to him that is fair. DF could totally afford the entire lodging expense, but fair is fair lol.


I suggested he gift some while he is alive, but that does not interest him either. He is struggling with the taxes, and when RMD comes I don't want to be near him. His SWR is currently 0%, 2 years into retirement. Talk about having a spending problem, he has a problem...he doesn't know how to spend! (okay in all fairness, he did remodel the entire home, bought a new 2500, went on 2 cruises and 3 trips, upgraded to the biggest OLED TV he could find, bought a new PC to run his new VR).



This is why you work so hard early on, so you have stupid money problems later.

 

[audreyh1]

I suggested he gift some while he is alive, but that does not interest him either. He is struggling with the taxes, and when RMD comes I don't want to be near him. His SWR is currently 0%, 2 years into retirement. Talk about having a spending problem, he has a problem...he doesn't know how to spend! (okay in all fairness, he did remodel the entire home, bought a new 2500, went on 2 cruises and 3 trips, upgraded to the biggest OLED TV he could find, bought a new PC to run his new VR).

Well that doesn’t sound so bad for someone who has only been retired for 2 years and is learning how to spend stuff on himself in retirement.