Draw Down Plan - Stanford Longevity Report

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stickman731
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Draw Down Plan - Stanford Longevity Report

Post by stickman731 » Thu Jan 25, 2018 5:10 am

I found this report interesting on drawing down your IRA/401 plan and Social Security and would love to here Boglehead's opinions.

http://longevity.stanford.edu/wp-conten ... -final.pdf

AlohaJoe
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Re: Draw Down Plan - Stanford Longevity Report

Post by AlohaJoe » Thu Jan 25, 2018 5:29 am

It was a bit wordy, so to help others, here's a summary:
  • "work just enough to pay for living expenses until age 70 in order to enable delaying Social Security benefits"
  • use IRS RMD tables to determine how much you can withdraw from your portfolio every year
  • since so much of your income is coming from Social Security you can invest your portfolio in a lot of stocks (up to 100% if you're comfortable with the volatility)
I wouldn't go far as to say there is a consensus on all of those points but the plan is reasonable enough and you'll find many people (advisors, academics, forum posters) who would support a plan like this. Lots of plans are reasonable; this is one of many reasonable plans.

rj49
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Stanford papers on retirement withdrawal strategies

Post by rj49 » Fri Feb 23, 2018 2:42 pm

[Thread merged into here, see below. --admin LadyGeek]

I saw this article in Marketwatch, describing a Stanford study on optimal retirement withdrawals. The short answer is to use savings to delay SS until age 70, and then use RMDs for discretionary spending.

https://www.marketwatch.com/story/heres ... 2018-02-23

And here are the long papers going into details about retirement income and withdrawals:

http://longevity.stanford.edu/wp-conten ... -final.pdf
http://longevity.stanford.edu/wp-conten ... ersion.pdf

Finally, the Stanford Center for Longevity site has many articles about retirement issues, including health, cognition, and health issues:

http://longevity.stanford.edu/#financially-secure

pkcrafter
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Re: Stanford papers on retirement withdrawal strategies

Post by pkcrafter » Fri Feb 23, 2018 10:43 pm

Thanks for the links.

Paul
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Greg in Idaho
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Re: Stanford papers on retirement withdrawal strategies

Post by Greg in Idaho » Sat Feb 24, 2018 11:09 am

I just took a quick look at that Stanford site...and saw regular references to retirement planning based on % of pre-retirement income (rather than spending). That seems like a red flag to me...

The Wizard
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Re: Stanford papers on retirement withdrawal strategies

Post by The Wizard » Sat Feb 24, 2018 11:23 am

Greg in Idaho wrote:
Sat Feb 24, 2018 11:09 am
I just took a quick look at that Stanford site...and saw regular references to retirement planning based on % of pre-retirement income (rather than spending). That seems like a red flag to me...
I scanned a few of those links quickly and didn't pick up on that.
However, I think that planning on replacing 100% of your net working income in retirement is a fine starting point for most people.
When I say "net" in this case, I mean gross working income minus FICA, minus 401(k) contrib, minus Roth IRA contrib...
Attempted new signature...

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willthrill81
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Re: Stanford papers on retirement withdrawal strategies

Post by willthrill81 » Sat Feb 24, 2018 11:26 am

rj49 wrote:
Fri Feb 23, 2018 2:42 pm
I saw this article in Marketwatch, describing a Stanford study on optimal retirement withdrawals. The short answer is to use savings to delay SS until age 70, and then use RMDs for discretionary spending.
That's a perfectly plausible strategy. However, like many withdrawal strategies, it 'back loads' withdrawals (i.e. withdrawals increase over time). This doesn't match well with retirees' spending, which tends to fall 1-2% each year in retirement.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

EddyB
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Re: Stanford papers on retirement withdrawal strategies

Post by EddyB » Sat Feb 24, 2018 11:49 am

willthrill81 wrote:
Sat Feb 24, 2018 11:26 am
rj49 wrote:
Fri Feb 23, 2018 2:42 pm
I saw this article in Marketwatch, describing a Stanford study on optimal retirement withdrawals. The short answer is to use savings to delay SS until age 70, and then use RMDs for discretionary spending.
That's a perfectly plausible strategy. However, like many withdrawal strategies, it 'back loads' withdrawals (i.e. withdrawals increase over time). This doesn't match well with retirees' spending, which tends to fall 1-2% each year in retirement.
Which is to say, hardly “optimal.”

jwa
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Re: Stanford papers on retirement withdrawal strategies

Post by jwa » Sat Feb 24, 2018 11:56 am

Not sure I agree with you. The withdrawal percentages required do increase over time. However, those percentages are designed to decumulate that pot of money because Uncle Sam wants his tax dollars. Thus, the withdrawal percentage does increase over time but over that time span the pot of money is getting smaller.

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midareff
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Re: Stanford papers on retirement withdrawal strategies

Post by midareff » Sat Feb 24, 2018 12:04 pm

The Wizard wrote:
Sat Feb 24, 2018 11:23 am
Greg in Idaho wrote:
Sat Feb 24, 2018 11:09 am
I just took a quick look at that Stanford site...and saw regular references to retirement planning based on % of pre-retirement income (rather than spending). That seems like a red flag to me...
I scanned a few of those links quickly and didn't pick up on that.
However, I think that planning on replacing 100% of your net working income in retirement is a fine starting point for most people.
When I say "net" in this case, I mean gross working income minus FICA, minus 401(k) contrib, minus Roth IRA contrib...
Frankly, with the removal of FICA and MICA, retirement contributions and such I was targeting 140%.

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Re: Draw Down Plan - Stanford Longevity Report

Post by LadyGeek » Sat Feb 24, 2018 12:31 pm

I merged rj49's thread into the on-going discussion. The combined thread is in the Personal Finance (Not Investing) forum (withdrawal strategy).
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willthrill81
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Re: Stanford papers on retirement withdrawal strategies

Post by willthrill81 » Sat Feb 24, 2018 4:31 pm

jwa wrote:
Sat Feb 24, 2018 11:56 am
Not sure I agree with you. The withdrawal percentages required do increase over time. However, those percentages are designed to decumulate that pot of money because Uncle Sam wants his tax dollars. Thus, the withdrawal percentage does increase over time but over that time span the pot of money is getting smaller.
Keep in mind that RMDs were calculated using the assumption of zero returns going forward. Even for conservative growth rates during retirement, the dollar amount of most RMDs will not begin shrinking until retirees are well into their 80s; good growth can easily delay this until their 90s.

Spending only SS and RMDs is a very conservative strategy that would historically have been very likely to leave behind a pile of cash. If that's the retirees' goal, then it's great. Otherwise, it's probably not so great.

That's a big problem with these withdrawal rate studies: they do not take into account the retirees' goals. They may desire to leave behind a substantial bequest, or they may want to spend everything they have (which is quite possible). They may want to delay spending 'excess funds' until later in retirement, or they may want to front-load their spending. They may highly value a consistent income, or they might be very comfortable with a fluctuating income. I think those three variables, bequest/none, delay spending/spend early, and consistent/variable income, might be the key variables to understand what type of strategy is preferable for individual investors.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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