Ron Scott wrote: ↑
Thu Oct 18, 2018 5:48 pm
What if you realize your plan is obviously failing?
...what’s Plan B?
I have more than one.
- (Plan B1) If it happens early enough in my retirement, try to get some part-time work.
- (Plan B2) If that's not possible, reduce spending, which means 2 vacations a year instead of 4 (or 4 cheaper vacations). We're NOT talking about eating cat-food under a bridge.
- (Plan C) Sell the lake condo. Reduces expenses, and generates some cash.
- (Plan D) SPIA.
- (Plan E) Sell the primary house or get a reverse mortgage.
My 4% withdrawal plan has plenty of discretionary expenses. A full 1% is travel and vacations. Cutting back to 3% would not be painful for me at all (since I'm not that keen on traveling anyway - my wife would be sad though - we'd still be able to visit family and friends - just no more cruises or trips to Australia).
We also have a lake condo. Technically, if things were going bad, we should sell the primary house and move to the cheaper lake condo, but I doubt my wife would go for that. So we could sell the condo, reduce expenses even further. 3% for sure, maybe even 2.5% at that point.
If we got 15 years into our retirement, and our portfolio was 50% depleted, at that point, I would indeed seriously look at SPIAs (Plan D). It would some pretty bad times for a 3% withdrawal rate to drop that far, but let's pretend it happens. At older ages, SPIAs could pay in the 8%-10% range.
So say I started with $2 million at age 60. At age 75, we're at $1,000,000. I would have already cut back to the 3% withdrawals (See Plan B and C), so instead of pulling $80,000 a year (plus SS), I've been living just fine on $60,000 a year (plus SS). To make sure the $1,000,000 lasts, I could buy a 9% SPIA for $666,000 which would guarantee $60,000 a year (plus SS) for life. And I'd still have $333,000 in the bank.
Yep, the kids get less inheritance, but this is Plan D.
If I hit some big medical emergency and deplete all my remaining savings, I guess it's time to tap the equity in the paid-off primary house (Plan E).
I expect plan A to work. But I AM prepared if it doesn't.