EmergDoc wrote:Why not spend more in good years and less in bad years?
Seriously, all these mental exercises on developing withdrawal rules seem to be trying to do too much with very limited data that may have little to no relationship to future data. The point of the SWR studies was to show the number isn't 8%, not to figure out if it is 3.5% or 4%. If 4% of your portfolio is $50K, and you spend $38K or $53K, what's the big deal? As long as you're not spending $70K-100K I think you're okay. I plan to just reassess each year, see how I'm doing, and if I'm doing particularly well, ramp up my lifestyle a bit. If I'm doing badly, well, I'll take cheaper trips and give less to the grandkids. If you have to obsess about the withdrawal plan, perhaps you should have worked a couple more years.
Great common sense post, EmergDoc. Basically, we've been flexible all our working life, adjusting spending as life circumstances dictated (loss of job, pay increase, receiving nice bonus, etc.), so there's no reason the same principles shouldn't apply when it comes to our retirement spending.
All of the retirement literature I see for people in that position seems to use the following general approach:
Find your total annuitized income (Social Security, any defined-benefit pension annuity, etc)
Take a specific percentage of your total savings (generally near 4%) as the income per year you can draw from your savings (and increase this by inflation in each successive year)
Adjust your spending to that total amount/year (and spend that same amount in real $ for all your retirement)
The underlying assumption is that with the right asset allocation and constant spending (in real $) you won't run out of money for your entire retirement, right up to your mid 90's (or whatever other age you choose).
curmudgeon wrote:This is a topic I've been giving consideration to lately, in various forms. It has made me reflect on how my parents and grandparents and others I've known have tended to live out their retirements. My family has tended to be fairly long-lived, and you can see quite definite trends that apply to their levels of activity and expenditure. I'm starting to think of this as phases; for some reason they actually make more sense to me when I consider them starting from the oldest phase.
SGM wrote:Dad lives off company pension with a cola and SS, continuing to do so for the last 23+ years. House long paid for and real estate taxes lowered for the elderly helped. He never saved much.
Pensions are great if you can get them. Sounds like a case for living off income only. Most think. going forward, retirees in private industry will not get as good a deal.
wildspender wrote:Burt said:
Pensions aren't evil, just math, statistics and actuarial tables. This works until they are manipulated and corrupted.
Actually, setting aside manipulation and corruption, pensions were a hidden savings feature of many jobs. In addition to the pay they told you about, the company was setting aside money in your name toward your pension. So they were paying you significantly more than what your paycheck said. In some cases they did this due to union pressure, in other cases they did it because pensions were common enough that businesses felt they needed to offer them to be competitive in hiring good people (my case-). But I think most people didn't pay attention to pension contributions as part of their income during a lot of their working life (I didn't, at least in my 20's and 30's), so businesses weren't getting much value for that added spending. As soon as it became possible to hire good people without offering a pension (since other companies were doing that too, by offering 401K/403B, etc), businesses were all too happy to lower costs by offering 401K matches (if that) to new employees. As the ball got rolling, capping plans for existing employees became feasible without causing people to run for the door (since competing businesses were doing the same thing).
Watching the evolution of retirement savings from a hidden part of compensation to an explicit one makes me wonder how quickly medical insurance will follow the same path.
On corruption and manipulation, the manipulated pension plans and bankrupcies got a lot of press, but I'll bet that the vast majority of pension plans over the years paid out the pensions they promised. Companies just stopped promising them at some point (for some, in mid-career). Actually, in recent years, Federal guarantees protect all private pensions up to something like $50K/year (which certianly includes my pension).
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