Current Retirees: Do you touch your principal?

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hirlaw
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Current Retirees: Do you touch your principal?

Post by hirlaw » Sun Nov 18, 2018 7:45 pm

Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.

nalor511
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Re: Current Retirees: Do you touch your principal?

Post by nalor511 » Sun Nov 18, 2018 7:47 pm

4% rule is one of the common models, expected to last 30 years or so. Personally, more conservative so 2% feels more comfortable. This percentage can come out of dividends, interest, or principal, it's all the same really. Do you eat food out of your fridge or freezer? It's all part of your total return/assets

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Re: Current Retirees: Do you touch your principal?

Post by AlohaJoe » Sun Nov 18, 2018 7:48 pm

hirlaw wrote:
Sun Nov 18, 2018 7:45 pm
Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.
Yes, I withdraw from principal.

nodenuff2
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Re: Current Retirees: Do you touch your principal?

Post by nodenuff2 » Sun Nov 18, 2018 7:51 pm

Five years into retirement we have more than we retired with. So no we have not gotten into retirement amount yet. Withdrawing around 4% as needed.
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Gill
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Re: Current Retirees: Do you touch your principal?

Post by Gill » Sun Nov 18, 2018 7:52 pm

I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill

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Re: Current Retirees: Do you touch your principal?

Post by ResearchMed » Sun Nov 18, 2018 7:58 pm

hirlaw wrote:
Sun Nov 18, 2018 7:45 pm
Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.
Not retirees just yet (well, I am, but DH is still working), but when we retire we *absolutely* plan to include some principal each year.

In part, we'll do this by annuitizing some, but also spending from remaining principal.
We have no serious legacy desires, and we've saved so that we can enjoy retirement.

RM
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scrabbler1
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Re: Current Retirees: Do you touch your principal?

Post by scrabbler1 » Sun Nov 18, 2018 8:00 pm

No. My early retirement plan included being able to live off monthly and quarterly dividend payments. If anything, I have had some excess dividends over the years I have been able to reinvest somewhere. I am 55 now and this has been going on for the last 10 years.

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Will do good
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Re: Current Retirees: Do you touch your principal?

Post by Will do good » Sun Nov 18, 2018 8:07 pm

Doesn't it all depends on how much you have saved and what your expenses are?

So far after 2 years of early retirement we have not touch our principal.

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Re: Current Retirees: Do you touch your principal?

Post by Sheepdog » Sun Nov 18, 2018 8:08 pm

20 years retired lliving off of investments and SS. Yes is my answer, but my nominal balance is the same.
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Re: Current Retirees: Do you touch your principal?

Post by freebeer » Sun Nov 18, 2018 8:15 pm

This seems like an anachronistic way to frame the question. Many stocks pay no dividends and there is no fundamental difference between selling some of such stock for spending and spending instead of reinvesting dividends. Either way the value of your holdings declines. So we are in that sense all spending some principal.

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Watty
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Re: Current Retirees: Do you touch your principal?

Post by Watty » Mon Nov 19, 2018 12:16 am

I do.

Trying to live on the interest and dividends is a really bad idea because;

1) When interest rates are low you will limit the amount you can safely spend.

2) When interest rates and inflation are high your interest and dividends may be well above the safe withdrawal rate for someone that is your age. You could spend too much and risk running out of money.

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Re: Current Retirees: Do you touch your principal?

Post by Sandtrap » Mon Nov 19, 2018 1:16 am

Yes.
Carefully.
Gently.

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cinghiale
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Re: Current Retirees: Do you touch your principal?

Post by cinghiale » Mon Nov 19, 2018 1:21 am

For the first two years of retirement, a technical, mathematical answer was “no,” as portfolio appreciation outdistanced the withdrawal rate. But this year? Looks like portfolio returns will be flat to slightly negative. Therefore, principal will come into play. This perspective can be easily criticized. If there’s no income but portfolio-generated income, then it could be said, as freebeer mentioned, that “we are in that sense all spending some principal.”
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Re: Current Retirees: Do you touch your principa

Post by smectym » Mon Nov 19, 2018 3:33 am

freebeer wrote:
Sun Nov 18, 2018 8:15 pm
This seems like an anachronistic way to frame the question. Many stocks pay no dividends and there is no fundamental difference between selling some of such stock for spending and spending instead of reinvesting dividends. Either way the value of your holdings declines. So we are in that sense all spending some principal.
Anachronistic ways of framing the questions are often the best ways.

What OP is getting at, whether OP knows the term yet, is are we living as “rentiers,” with a corpus of capital that throws off sufficient dividends and other income to allow independent living without the necessity of work. To some this is the promised land; to others, an abomination that must be abolished.

Financial independence is a legitimate objective, if one wishes to pursue it ; and it’s achievable on any scale. Doesn’t mean one must be seen as “rich.” Because one can live modestly in a small home with a paid off car, and wake up every morning feeling like a king: oweing no debt, and with an income, great or small, sufficient to cover necessities. The rentier may work or not, at discretion.

To directly answer OP’s query, No, we haven’t yet touched the principal.

Smectym

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Re: Current Retirees: Do you touch your principal?

Post by GerryL » Mon Nov 19, 2018 3:38 am

Four years into retirement. Given my spending rate, I expect that my net worth will grow or stay steady, but if it declines I'm okay with that. I may eventually push it along with gifts. I am not trying to die with more money than I started retirement with.

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Re: Current Retirees: Do you touch your principal?

Post by bearcub » Mon Nov 19, 2018 4:46 am

Principle. Between 3-4%.

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Re: Current Retirees: Do you touch your principal?

Post by Longdog » Mon Nov 19, 2018 4:53 am

Gill wrote:
Sun Nov 18, 2018 7:52 pm
I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill
Does that mean you reinvest all dividends, and sell off assets as needed? Or, do you allow dividends to accumulate in a money market (or similar cash-like) account, use that first and sell off assets to fill in remaining needs?
Steve

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Re: Current Retirees: Do you touch your principal?

Post by bertilak » Mon Nov 19, 2018 6:45 am

hirlaw wrote:
Sun Nov 18, 2018 7:45 pm
Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.
I have touched my principle and may do so again.
  • I had one very heavy expense, an new $20K septic system.
  • Then there were a few general house maintenance things that all piled up at once (gutters, trim painting, etc.).
  • I emptied my Roth IRA to pay off my mortgage. This gave me a huge increase in positive cash flow.
I see these things trailing off to where I will be able to live off of SS+pension. That will be possible because I no longer have a mortgage.
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Re: Current Retirees: Do you touch your principal?

Post by Dandy » Mon Nov 19, 2018 6:57 am

income from various sources covers our basic expense run rate. Draw down a bit from principal to cover large expenses e.g. new roof, car etc.
Decided to use most of RMD to gift "early inheritance" to heirs so that would count as a principal draw down.

Not using principal can be comforting but can lead to living unnecessarily below ones means. I try to make sure we have the lifestyle that we want and look to gradually increase it.

Having been frugal during the accumulation stage often makes increased spending more of a challenge than it should be. Watching your nest egg, that you have worked hard to build over decades decline, can be a different, often unsettling, experience and we seem to avoid considering that our years are actually numbered.

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Re: Current Retirees: Do you touch your principal?

Post by Grasshopper » Mon Nov 19, 2018 7:19 am

Thirteen years into retirement and late 60's in age, no I can't live on SS and dividends alone. That being said after 13 years my principle has increased by neatly another million bucks and we have spent $150,000. in travel in that time period. Plus I have no one to leave the wad of cash to. :beer

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Re: Current Retirees: Do you touch your principal?

Post by Gill » Mon Nov 19, 2018 7:21 am

Longdog wrote:
Mon Nov 19, 2018 4:53 am
Gill wrote:
Sun Nov 18, 2018 7:52 pm
I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill
Does that mean you reinvest all dividends, and sell off assets as needed? Or, do you allow dividends to accumulate in a money market (or similar cash-like) account, use that first and sell off assets to fill in remaining needs?
The latter exactly. I reinvest dividends in my IRA but not in my taxable account. Spend those taxable dividends and the balance from selling off assets. Actually, while spending 3% is my target (budget) I generally spend less than that because some of my budget is accruals for large purchases in the future, if ever.

Gill

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Re: Current Retirees: Do you touch your principal?

Post by rkhusky » Mon Nov 19, 2018 7:24 am

Difficult to separate dividends from cap gains. Portfolio value has stayed about the same.

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Re: Current Retirees: Do you touch your principal?

Post by Nicolas » Mon Nov 19, 2018 7:24 am

bearcub wrote:
Mon Nov 19, 2018 4:46 am
Principle. Between 3-4%.
Actually it’s principal.
https://www.thoughtco.com/principal-and ... le-1692772
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Re: Current Retirees: Do you touch your principal?

Post by tennisplyr » Mon Nov 19, 2018 7:38 am

Retired almost 8 years and living off SS and investments. Surely some of that is "principal" but given my downsizing and market performance overall things are up.
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Re: Current Retirees: Do you touch your principal?

Post by MikeG62 » Mon Nov 19, 2018 7:54 am

Gill wrote:
Mon Nov 19, 2018 7:21 am
Longdog wrote:
Mon Nov 19, 2018 4:53 am
Gill wrote:
Sun Nov 18, 2018 7:52 pm
I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill
Does that mean you reinvest all dividends, and sell off assets as needed? Or, do you allow dividends to accumulate in a money market (or similar cash-like) account, use that first and sell off assets to fill in remaining needs?
The latter exactly. I reinvest dividends in my IRA but not in my taxable account.

Gill
+1.

I supplement dividends and interest in taxable accounts by drawing from excess cash. At some point I will need to sell some equities, although that should not be for several years at least.
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Re: Current Retirees: Do you touch your principal?

Post by The Wizard » Mon Nov 19, 2018 8:18 am

Gill wrote:
Sun Nov 18, 2018 7:52 pm
I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill
I'm sort of like this also.
In my tax deferred 403(b) account, dividends are seamlessly reinvested anyway.
So the $3000/month I withdraw can all be viewed as sale of principal, I suppose...
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Re: Current Retirees: Do you touch your principal?

Post by Blues » Mon Nov 19, 2018 8:52 am

Near 15 years in, (retired at 51), and are better off now than when we retired. Have not needed to draw down principal at all.
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Re: Current Retirees: Do you touch your principal?

Post by Old Guy » Mon Nov 19, 2018 9:08 am

RMDs only on investments. Do spend cash left over from RMDs. Because we have very good pensions, federal and state, it’s easier for us then it probably is for other folks.

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Re: Current Retirees: Do you touch your principal?

Post by mtmingus » Mon Nov 19, 2018 9:12 am

I think the OP, and some of us, would like to know: is your net worth keeps decline during retirement years, steady, or actually rises?

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Re: Current Retirees: Do you touch your principal?

Post by rixer » Mon Nov 19, 2018 9:18 am

Yes, we spend from principal. Retired 5 years now and started drawing 3 years ago. Our balance is more than when I retired and we've been taking about 4%. I plan on spending it wisely and enjoying the days I have left. :beer

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Re: Current Retirees: Do you touch your principal?

Post by TN_Boy » Mon Nov 19, 2018 9:24 am

mtmingus wrote:
Mon Nov 19, 2018 9:12 am
I think the OP, and some of us, would like to know: is your net worth keeps decline during retirement years, steady, or actually rises?
I can't speak for others, of course, but I am going to assert that given:

1) A rising stock market over the last 9 years or so
2) Generally conservative BH spending
3) Modest inflation

That almost all recent retirees have seen their retirement portfolios (a different thing than net worth) grow in real terms*, at the very worst hold steady.

OP: as others have noted, "living off your principal" simply means a conservative percentage of investments is being taken -- in the general range of 2%. Extremely conservative.

* sometimes people forget to distinguish between nominal and real values.

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Re: Current Retirees: Do you touch your principal?

Post by ruralavalon » Mon Nov 19, 2018 11:44 am

hirlaw wrote:
Sun Nov 18, 2018 7:45 pm
Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.
I have no pension.

I do withdraw from principal to meet spending needs.

I retired in January 2011, and have a larger investment portfolio now than the day I retired.
Last edited by ruralavalon on Mon Nov 19, 2018 12:04 pm, edited 1 time in total.
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Re: Current Retirees: Do you touch your principal?

Post by munemaker » Mon Nov 19, 2018 11:51 am

The Wizard wrote:
Mon Nov 19, 2018 8:18 am
Gill wrote:
Sun Nov 18, 2018 7:52 pm
I really don’t know or care. I target spending 3% of my portfolio plus SS, pension and annuity income. I pay no attention to the amount of income generated by the portfolio.
Gill
I'm sort of like this also.
In my tax deferred 403(b) account, dividends are seamlessly reinvested anyway.
So the $3000/month I withdraw can all be viewed as sale of principal, I suppose...
I don't know or care either. Why would it matter?

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Re: Current Retirees: Do you touch your principal?

Post by adamthesmythe » Mon Nov 19, 2018 12:04 pm

I'm newly retired, but I hope to use up most of my principal.

I may need to annuitize a significant fraction in order to do this safely.

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Re: Current Retirees: Do you touch your principal?

Post by The Wizard » Mon Nov 19, 2018 12:25 pm

adamthesmythe wrote:
Mon Nov 19, 2018 12:04 pm
I'm newly retired, but I hope to use up most of my principal.

I may need to annuitize a significant fraction in order to do this safely.
That may not work.
I annuitized a significant fraction of my tax deferred accumulation five years ago.
As a result, my income exceeds my expenses most months.
And once I start maximal age 70 SS in 16 months, I expect to have even more excess income, which I invest in my taxable account, causing my overall portfolio value to increase, on average...
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Re: Current Retirees: Do you touch your principal?

Post by randomizer » Mon Nov 19, 2018 12:36 pm

scrabbler1 wrote:
Sun Nov 18, 2018 8:00 pm
No. My early retirement plan included being able to live off monthly and quarterly dividend payments. If anything, I have had some excess dividends over the years I have been able to reinvest somewhere. I am 55 now and this has been going on for the last 10 years.
Basically the duration of the bull market.
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Re: Current Retirees: Do you touch your principal?

Post by Nowizard » Mon Nov 19, 2018 12:42 pm

We do in the sense that we each draw RMD's annually, though some, or all, is then reinvested in non-retirement accounts since SS and a pension meet most of our expenses. We do not keep track of the performance of individual funds in our portfolio but keep it up-to-date on-line, including bank accounts that fund ongoing expenses. This allows us to compare principal amounts from year-to-year. Generally, the portfolio keeps pace with inflation, though in years when there are unusual expenses such as more travel, automobile purchase, remodeling, etc., it may be less on December 31 than January 1 of the same year. In our thinking, the focus is not on fund appreciation but the condition of our overall portfolio relative to our lifespan.
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Re: Current Retirees: Do you touch your principal?

Post by cleosdad » Mon Nov 19, 2018 1:10 pm

Nicolas wrote:
Mon Nov 19, 2018 7:24 am
bearcub wrote:
Mon Nov 19, 2018 4:46 am
Principle. Between 3-4%.
Actually it’s principal.
https://www.thoughtco.com/principal-and ... le-1692772
Thank you,thank you, thank you!!

quantAndHold
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Re: Current Retirees: Do you touch your principal?

Post by quantAndHold » Mon Nov 19, 2018 1:22 pm

It’s all principal to me. Once the dividend is paid, it becomes part of the principal. So i live off the principal.

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Re: Current Retirees: Do you touch your principal?

Post by WhiteMaxima » Mon Nov 19, 2018 1:24 pm

Money is supposed to serve the people. You are not the server of money. So I will touch the principle when I need and out it pack when I don't need.

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Re: Current Retirees: Do you touch your principal?

Post by MathWizard » Mon Nov 19, 2018 1:47 pm

Soon to be a retiree.

Note that for many, tax deferred accounts make up the bulk of my retirement funds. At some point, RMDs will force me to withdraw principal from tax deferred.

Now, I do not have to spend it, I could just invest it in a taxable account, but it has been touched, and could very well be spent at that point.

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Re: Current Retirees: Do you touch your principal?

Post by retiredjg » Mon Nov 19, 2018 1:55 pm

Will do good wrote:
Sun Nov 18, 2018 8:07 pm
Doesn't it all depends on how much you have saved and what your expenses are?
Yes, but that is not all. I retired right before the last market unpleasantness and was therefore spending principal almost from the get go. Took many years to come back from that. :?

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Re: Current Retirees: Do you touch your principal?

Post by Duckie » Mon Nov 19, 2018 7:09 pm

hirlaw wrote:Curious to hear from current retirees as to whether they live off of interest and dividends (plus social security, rental income, pensions) or also withdraw from the principal/capital of their portfolio to meet your spending needs.
I am retired 12 years. My COLA pension covers 95% of my expenses; the rest is covered by dividends. I am reinvesting most dividends and have not needed to withdraw principal. My retirement assets have almost doubled since retirement.

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Yes...as needed

Post by hudson » Mon Nov 19, 2018 7:32 pm

I try to live off of my income, but I tap my principal as needed. I think that many people try to protect their principal because they're worried about running out.
I keep a basic spreadsheet that summarizes my holdings. I have a column to the right of the total principal that shows 3% of the principal....maybe I could withdraw that amount. There are several more columns that show how long I could last withdrawing say 50k, then 60k, then 70K per year. In a comment column to the right, I enter the yearly amount that I could draw according to Longvest's VPW. I use these columns as guides as to what I can get away with. The numbers above are made-up. I actually have more columns. I also have 2 columns for the 3% figuring....monthly and yearly.

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Re: Current Retirees: Do you touch your principal?

Post by scrabbler1 » Mon Nov 19, 2018 9:24 pm

randomizer wrote:
Mon Nov 19, 2018 12:36 pm
scrabbler1 wrote:
Sun Nov 18, 2018 8:00 pm
No. My early retirement plan included being able to live off monthly and quarterly dividend payments. If anything, I have had some excess dividends over the years I have been able to reinvest somewhere. I am 55 now and this has been going on for the last 10 years.
Basically the duration of the bull market.
While the bull market has increased the dividends from my stock fund, that gain has been more than erased by the drop in the bond fund's dividends. Only some careful rebalancing and lots of added bond fund shares have allowed me to break even overall.

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Re: Current Retirees: Do you touch your principal?

Post by celia » Mon Nov 19, 2018 10:30 pm

We don't need our savings for living expenses, but you could say we "touched" our tax-deferred by converting most of it to Roth (by paying the conversion taxes from our pension income).

We lived frugally in early retirement but loosened up once SS started. Roth accounts are nice and happy, too. :D
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: Current Retirees: Do you touch your principal?

Post by adamthesmythe » Mon Nov 19, 2018 10:48 pm

The Wizard wrote:
Mon Nov 19, 2018 12:25 pm
adamthesmythe wrote:
Mon Nov 19, 2018 12:04 pm
I'm newly retired, but I hope to use up most of my principal.

I may need to annuitize a significant fraction in order to do this safely.
That may not work.
I annuitized a significant fraction of my tax deferred accumulation five years ago.
As a result, my income exceeds my expenses most months.
And once I start maximal age 70 SS in 16 months, I expect to have even more excess income, which I invest in my taxable account, causing my overall portfolio value to increase, on average...
We could form a support group and try to learn to spend more money.

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Re: Current Retirees: Do you touch your principal?

Post by AlohaJoe » Mon Nov 19, 2018 11:22 pm

TN_Boy wrote:
Mon Nov 19, 2018 9:24 am
mtmingus wrote:
Mon Nov 19, 2018 9:12 am
I think the OP, and some of us, would like to know: is your net worth keeps decline during retirement years, steady, or actually rises?
I can't speak for others, of course, but I am going to assert that given:

1) A rising stock market over the last 9 years or so
2) Generally conservative BH spending
3) Modest inflation

That almost all recent retirees have seen their retirement portfolios (a different thing than net worth) grow in real terms*, at the very worst hold steady.
It is pretty easy to run the numbers and see what kinds of withdrawal rates have been required recently to "run down your portfolio".

First I'll show it in nominal terms (since people usually think this way in real life, "we retired with $1 million and we still have $1 million"):

(This is for a 60/40 portfolio.)

Image

Note how high the withdrawal amounts are in the vast majority of years. For someone who retired in 2010, they could withdraw up 9.3% and still have more today than when they retired.

As you say, seeing a portfolio grow (especially in nominal terms) is almost meaningless because virtually everyone, especially on Bogleheads, will have seen that happen.

If you're one of the rare people who thinks about their portfolio in real terms (quick test: what's the inflation-adjusted value of your portfolio in 2008 dollars?), we can look at the same thing using real, not nominal, portfolio sizes:

Image

There are a few years where the number is low but not many. Even if you take inflation into account, virtually anyone other than the unlucky few who retired right around the 2000 crash has seen their portfolio grow as long as they are withdrawing less than 4.5%. Since 4.5% is >10% higher than the 4% rule everyone thinks is too aggressive...I'm guessing not many people are withdrawing 4.5%.

(Is anyone who has replied actually withdrawing 4.5%? Or 5%? Or 6%?)

So everyone saying "my portfolio is bigger than when I retired" isn't really telling us much except that the 4% rule still behaves the way it always has: 4% withdrawals are so conservative that the overwhelming majority of portfolios increase in real terms even while people are retired.

The OP's question, restated, seems to be: "is anyone using a 5% withdrawal rate?"

flyingaway
Posts: 1931
Joined: Fri Jan 17, 2014 10:19 am

Re: Current Retirees: Do you touch your principal?

Post by flyingaway » Mon Nov 19, 2018 11:39 pm

If you don't (or do not plan to) spend the principal ever, why bother to have saved so much in the first place?

jalbert
Posts: 3947
Joined: Fri Apr 10, 2015 12:29 am

Re: Current Retirees: Do you touch your principal?

Post by jalbert » Mon Nov 19, 2018 11:45 pm

What is the difference between stock dividends and stock principal? There is no contractual rule that says the value of a company stays the same after a dividend is declared, like there is for bonds after a coupon payment. If a company distributes X number of dollars in a dividend, the company’s book value becomes reduced by X number of dollars because that amount of money was shipped out of the company from the company coffers. If burglars stole X dollars in cash from the company, the effect on the company’s book value would be the same.
Risk is not a guarantor of return.

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