HomerJ wrote: ↑
Fri Sep 01, 2017 2:28 pm
bligh wrote: ↑
Thu Aug 31, 2017 2:23 pm
Awesome podcast. One thing I dont get is why more people dont break their retirement spending down into required and discretionary. I dont see why you couldn't say something like 'Your required spending should be less than 3% of your portfolio (ie. worst case) and your discretionary spendings should not be more than 1.5% of your portfolio."
So in good times you spend 4.5% but in bad times you drop it to 3%. Let's face it, I'm probably not going to be eating out as much or going for that Alaskan cruise when the the next 2008-2009 crash comes along. Vacations, restaurants and such are part of my planned/budgeted retirement expenses, but they are discretionary.
Personally that is what I am planning. Stick with an inflation adjusted 4% withdrawal rate, but make sure that I would be able to live a non-miserable existence on 3% if needed. Plus like, most people, I don't account for Social Security at all. That is just a safety factor built into the numbers. I think it will probably be there when I am eligible for it, but am I willing to depend on it being there? No.
Good post. It's exactly the point I make when people talk about 4% withdrawals and the chance of "failure".
For most of us here, failure doesn't mean you're eating under a bridge
. Failure means you may cut back to 2 vacations a year instead of 4 for a few years during a big crash.
This isn't noted often enough (in my mind, anyway).
Very few of us (any of "us" in BH?) would just sit back, continuing to spend "just the same" for discretionary expenses, oblivious to the poor performance of the portfolio.
Even if it means "only one vacation in two or three years" and a few other cost-cutting measures in a timely fashion, there's a good chance that IF one cuts back a bit, things will recover and you'll be back to the planned 2 per year, or just one for a while.
Or it could be 2 per year, but shorter, less expensive, etc.,and ditto other budget cuts.
That "4%" model is very conservative.
To go from a "comfortable but not extravagant" retirement to eating cat food under a bridge... how likely is that, really, for those who plan ahead, aka "Bogleheads"?
(Or from extravagant, to "only" comfortable, or very comfortable, etc.)
With the "4% + portfolio growth", it's also fairly likely that there will be enough for 3 vacations each year (or the money spent however one wishes).
Those simulations show a rather remarkable proportion of outcomes with an even more remarkable fortune "left over".
For those with serious legacy desires, fine. More than fine!
For others, if the portfolio is "not declining" (this is most of the cases), back to the vacation planning forum! (Or the luxe car, or the philanthropy, or new hobbies...)
The "failure" percentage in these models means that the particular simulation did not end with a positive balance.
And that would have been without any alteration of spending pattern, as if the portfolio performance was simply invisible.
But the shortfall could have been very low in some of those cases, and that's far from "failure" in practical, realistic terms. That means, what? That the last check bounced?
Yes, some of the failures could be catastrophic (very
few in the models, hence the very conservative nature of this model), but... would one *really* not notice and make some adjustments, most likely starting some time in advance of that "failure" (meaning, running out entirely
Also, not meaning to focus on the grim, a good number of "us" wouldn't actually make it to the endpoint anyway.
This is only a potential problem for those who live a nice long life, which cuts down dramatically the proportion of retirees who will actually encounter this.
And again, IF one was in an unfortunate time period where things weren't going very well (the majority of time periods would go very well indeed), one should have been paying attention before hitting zero. Long before
, when there is time to make budget adjustments.
Sure, be prudent, but don't ignore the option to cut back a bit, by instead starting/continuing forgoing some retirement choices one might have desired.
This signature is a placebo. You are in the control group.