"An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

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Gort
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"An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by Gort » Mon Mar 12, 2018 11:12 am

I found this article interesting:
https://obliviousinvestor.com/an-ideal- ... -strategy/

In short, the strategy works as follows (copied from Oblivious Investor)...

Delay Social Security until 70.
For the part of the portfolio that is used to fund the delay, invest in something safe, such as a money market fund or short-term bond fund. (For example, if you are forgoing $150,000 of Social Security benefits by waiting from 62 until 70, set aside $150,000 in something safe in order to fund the extra spending necessary until age 70.)
For the rest of the portfolio, use IRS required minimum distribution (RMD) tables to determine the amount of spending each year.
And with regard to asset allocation for the rest of the portfolio, the authors write:
“Our metrics support investing the RMD portion significantly in stocks – up to 100% if the retiree can tolerate the additional volatility (which is modest because of the dominance of Social Security benefits). However, the asset allocation to stocks for a typical target date fund for retirees (often around 50%) or balanced fund (often ranging from 40% to 60%) also produces reasonable results.”

Sounds reasonable to me if you have enough money to set aside until receiving SS benefits at age 70.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by David Jay » Mon Mar 12, 2018 11:27 am

Mike Piper (blogger @ oblivious investor) is the author of "Social Security Made Simple" which I depend on for my SS answers. He also shows up on BH from time to time.

[edit] from the Summary introduction (link at Oblivious Investor):

Social Security is close to the perfect retirement income generator [RIG]

Our analyses demonstrate that Social Security meets more retirement
planning goals than any other RIG, as follows:
• It helps maximize amount of expected retirement income through a
thoughtful optimization strategy.
• It helps minimize taxes by excluding part or all of income from taxation.
• It protects against most common risks:
• Longevity
• Inflation
• Investment
• Death of a spouse through the survivor’s benefit
• Cognitive decline and mistakes
• Fraud
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by gaspr » Mon Mar 12, 2018 12:01 pm

It seems to me like the study endorses The Variable Percentage Withdrawal (VPW) method found right here in the Wiki...

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by willthrill81 » Mon Mar 12, 2018 12:52 pm

It's basically the same strategy as that put forward in the 'Stanford Retirement Income' study. It's a very plausible one, but it's also very likely to leave a lot of money on the table at the passing of the retiree(s). Spending only RMDs (or using the RMD method to calculate withdrawals) is a very conservative withdrawal strategy (partly because the RMD approach assumes no ongoing returns), especially if SS can cover a significant portion of one's non-discretionary spending. If safety and a hefty bequest are their primary goals, then that's fine. If not, then other strategies are likely preferable.
David Jay wrote:
Mon Mar 12, 2018 11:27 am
Mike Piper (blogger @ oblivious investor) is the author of "Social Security Made Simple" which I depend on for my SS answers. He also shows up on BH from time to time.

[edit] from the Summary introduction (link at Oblivious Investor):

Social Security is close to the perfect retirement income generator [RIG]

Our analyses demonstrate that Social Security meets more retirement
planning goals than any other RIG, as follows:
• It helps maximize amount of expected retirement income through a
thoughtful optimization strategy.
• It helps minimize taxes by excluding part or all of income from taxation.
• It protects against most common risks:
• Longevity
• Inflation
• Investment
• Death of a spouse through the survivor’s benefit
• Cognitive decline and mistakes
• Fraud
SS does indeed possess all of these benefits, and these overlap largely with inflation-indexed annuities. But SS and annuities both hold three potentially big downsides in the view of many retirees:
- (1) they hold no upside potential,
- (2) they provide no bequest beyond one's spouse (unless specifically paid for in the case of annuities), and
- (3) they are tied to CPI (though some annuities use a fixed rate for 'inflation'), which may not be an accurate reflection of real inflation.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by getrichslowly » Mon Mar 12, 2018 1:12 pm

willthrill81 wrote:
Mon Mar 12, 2018 12:52 pm
SS does indeed possess all of these benefits, and these overlap largely with inflation-indexed annuities. But SS and annuities both hold three potentially big downsides in the view of many retirees:
- (1) they hold no upside potential,
- (2) they provide no bequest beyond one's spouse (unless specifically paid for in the case of annuities), and
- (3) they are tied to CPI (though some annuities use a fixed rate for 'inflation'), which may not be an accurate reflection of real inflation.
Those aren't really downsides as that is by design to optimize.
- (1) they hold no upside potential,
A bird in the hand is worth two in the bush.
- (2) they provide no bequest beyond one's spouse (unless specifically paid for in the case of annuities), and
The purpose is limited to lifetime consumption. If there was a bequest component then the payout would be less. I think if you do the math you find that bequest actually increases through this strategy because now SS can meet more of your spending needs and you can then bequeth more of what is left of your wealth.
- (3) they are tied to CPI (though some annuities use a fixed rate for 'inflation'), which may not be an accurate reflection of real inflation.
Is there a better method? Do you think equities are better tied to inflation or something?

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by David Jay » Mon Mar 12, 2018 1:49 pm

willthrill81 wrote:
Mon Mar 12, 2018 12:52 pm
SS does indeed possess all of these benefits, and these overlap largely with inflation-indexed annuities.
From what I am reading, it is getting difficult to find inflation-indexed annuities. A fixed escalator (2%, 3%) is easy to find but insurance companies seem to be shying away from offering CPI.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by nisiprius » Mon Mar 12, 2018 1:57 pm

David Jay wrote:
Mon Mar 12, 2018 1:49 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:52 pm
SS does indeed possess all of these benefits, and these overlap largely with inflation-indexed annuities.
From what I am reading, it is getting difficult to find inflation-indexed annuities. A fixed escalator (2%, 3%) is easy to find but insurance companies seem to be shying away from offering CPI.
I think The Principal may be the only one. And for some reason, Vanguard (and its annuity partner) are no longer offering policies from The Principal.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by Tyler Aspect » Mon Mar 12, 2018 2:52 pm

Gort wrote:
Mon Mar 12, 2018 11:12 am
I found this article interesting:
https://obliviousinvestor.com/an-ideal- ... -strategy/

In short, the strategy works as follows (copied from Oblivious Investor)...

Delay Social Security until 70.
For the part of the portfolio that is used to fund the delay, invest in something safe, such as a money market fund or short-term bond fund. (For example, if you are forgoing $150,000 of Social Security benefits by waiting from 62 until 70, set aside $150,000 in something safe in order to fund the extra spending necessary until age 70.)
For the rest of the portfolio, use IRS required minimum distribution (RMD) tables to determine the amount of spending each year.
And with regard to asset allocation for the rest of the portfolio, the authors write:
“Our metrics support investing the RMD portion significantly in stocks – up to 100% if the retiree can tolerate the additional volatility (which is modest because of the dominance of Social Security benefits). However, the asset allocation to stocks for a typical target date fund for retirees (often around 50%) or balanced fund (often ranging from 40% to 60%) also produces reasonable results.”

Sounds reasonable to me if you have enough money to set aside until receiving SS benefits at age 70.
These descriptions are somewhat different than the typical Bogleheads recommendations.

We generally advocate a single asset allocation ratio for the entire portfolio, instead of assigning asset allocation ratios to different compartments of portfolio.

We recommend the taxable account to hold stock funds if that allows your target asset allocation to be met.

Annual withdrawals can be from taxable account or IRA accounts to maintain asset allocation target, and tax obligations.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by midareff » Mon Mar 12, 2018 2:56 pm

How does that work if you die at 72 or 74?

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by LadyGeek » Mon Mar 12, 2018 3:42 pm

I removed an off-topic post (future of Social Security - a political process). As a reminder, see: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by JoeRetire » Mon Mar 12, 2018 4:00 pm

Gort wrote:
Mon Mar 12, 2018 11:12 am
I found this article interesting:
https://obliviousinvestor.com/an-ideal- ... -strategy/

Sounds reasonable to me if you have enough money to set aside until receiving SS benefits at age 70.
The Oblivious Investor article just summarized this full report: http://longevity.stanford.edu/wp-conten ... ersion.pdf

It seems very reasonable to me.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by vested1 » Mon Mar 12, 2018 4:11 pm

This is also a derivation on a previous post which was eventually locked because members kept trying to speculate on the future of SS, so please refrain from doing so. Mike Piper also took part in that thread and it appears that his thinking on the subject has continued to evolve.

viewtopic.php?f=10&t=102609

This is sometimes referred to as a bucket approach to fund the delay, and I used a version of it to get me to FRA this year by funding withdrawals from a matured annuity, which will be exhausted in July when we begin receiving SS benefits. I will continue to fund the delay until my age 70 with MM, refilled with distributed dividends and capital gains, all taxed as regular income when withdrawn.

Rather than do Roth conversions for the next 4 years we will pay off the mortgage, having run through all the tax planning and withdrawal strategy, which will require selling stocks and bonds for 4 years exactly, starting in January of 2019, and repeated every year to January 2023 (1st RMD year). The withdrawal on 1/2/23 that pays off the last of the mortgage should satisfy the 1st RMD. This plan will allow us to cut withdrawals for living expenses in half in July 2018, eliminate them entirely in the last 6 months of 2022, and all of 2023.

The investments will stay invested during each year with the exception of a once a year withdrawal for a lump sum plus taxes large enough to make the plan work. This method will hopefully defeat the opportunity loss of isolating the entire amount needed to pay off the mortgage or for funding the delay with living expenses coming from MM, pension, and partial SS.

The plan will consume 28.5% of our current portfolio balance to pay off the mortgage while funding living expenses for 4 years, 5 tax seasons. 30K additional taxes are included in that amount for the mortgage payoff. 17 years of mortgage payments and $76,908 in mortgage interest will be eliminated.

In our case, spendable income after taxes rises by $550/month in July of 2018, another $200/month from 7/22 to 1/23, and another $2,600 in 2024. Spendable monthly income will increase from $6,100 currently to $9,253 in 2024 because at that point, my age 71.5, the RMD can be spent on anything or reinvested/gifted. Expenses will drop by $1,241 a month on 1/23. Non-discretionary expenses at that time will be under 2k/month. The net affect on taxes is an evening out of percentages in Federal and a lowering of federal taxes due at RMD. My State doesn't tax SS, and since SS is taxed more favorably, it is the primary reason for the rise in spendable income.

Assuming our current balance is maintained, the withdrawal percentages needed to satisfy our short term plan including paying off the mortgage and funding partial living expenses are:
2018 - 4.5%
2019 - 2021 - 6.6%
2022 - 5.1%
2023 - 3.6%
2024 and beyond - RMD only

If gain at least matches those percentages we will maintain our same balance in the portfolio. If cumulative losses are experienced it won't matter (at least to me), as the portfolio won't be needed after age 70. If this plan were not instituted, and the same average growth occurred, taxes levied on the TIRA's would be much higher, with the 3.77% of the difference taxed at the 22% federal rate and 5% State, even taking into account the withdrawals for living expenses during that time.

Now substitute a paid off mortgage and Roth conversions to realize the possibilities. Moral: do something that matches your circumstance to improve your taxable situation and spendable income.

I offer this as an illustration of how Mike's basic plan can be altered in your favor.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by Nestegg_User » Mon Mar 12, 2018 4:11 pm

Tyler Aspect wrote:
Mon Mar 12, 2018 2:52 pm
Gort wrote:
Mon Mar 12, 2018 11:12 am
I found this article interesting:
https://obliviousinvestor.com/an-ideal- ... -strategy/

In short, the strategy works as follows (copied from Oblivious Investor)...

Delay Social Security until 70.
For the part of the portfolio that is used to fund the delay, invest in something safe, such as a money market fund or short-term bond fund. (For example, if you are forgoing $150,000 of Social Security benefits by waiting from 62 until 70, set aside $150,000 in something safe in order to fund the extra spending necessary until age 70.)
For the rest of the portfolio, use IRS required minimum distribution (RMD) tables to determine the amount of spending each year.
And with regard to asset allocation for the rest of the portfolio, the authors write:
“Our metrics support investing the RMD portion significantly in stocks – up to 100% if the retiree can tolerate the additional volatility (which is modest because of the dominance of Social Security benefits). However, the asset allocation to stocks for a typical target date fund for retirees (often around 50%) or balanced fund (often ranging from 40% to 60%) also produces reasonable results.”

Sounds reasonable to me if you have enough money to set aside until receiving SS benefits at age 70.
These descriptions are somewhat different than the typical Bogleheads recommendations.

We generally advocate a single asset allocation ratio for the entire portfolio, instead of assigning asset allocation ratios to different compartments of portfolio.

We recommend the taxable account to hold stock funds if that allows your target asset allocation to be met.

Annual withdrawals can be from taxable account or IRA accounts to maintain asset allocation target, and tax obligations.
Actually, Tyler...that’s not quite accurate

while one considers the portfolio as a whole in determining their risk tolerance/asset allocation, most would put the assets which put off higher amounts of interest (like bonds) into the tax deferred area of the portfolio, those that can be held for long term capital appreciation (and thus have long term capital gains at preferred rates) in taxable accounts.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by heyyou » Mon Mar 12, 2018 4:36 pm

Okay, stocks for the long run, bonds for immediate spending to delay Social Security(SS) to boost your steady, inflation protected income, and use a longevity based withdrawal(WD) plan (progessively larger WDs taken from a shrinking portfolio) based on recent annual portfolio values. Sounds like an echo of what Michael H. McClung wrote about. He too suggested spending from bonds first, to let the equity portion grow longer, and that variable income fluctuations would be somewhat buffered by steady income sources. I'm glad to see other, better known authors, recommending the same.

I agree that it doesn't feel good, and there is plenty of behavioral risk, but the math on it is unassailable. As usual, there is also risk in being too safe for too long.

Here are links to a couple of early papers that found that spending first from the lower expected performing assets was good for portfolio longevity since that let the higher performing assets perform longer.
http://www.twenty-first.com/pdf/Spitzer ... ayouts.pdf
http://www.retailinvestor.org/pdf/SpitzerSingh.pdf
It is not a new idea, as much as it is an unpopular idea that is slow to be adopted.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by willthrill81 » Mon Mar 12, 2018 4:37 pm

getrichslowly wrote:
Mon Mar 12, 2018 1:12 pm
willthrill81 wrote:
Mon Mar 12, 2018 12:52 pm
SS does indeed possess all of these benefits, and these overlap largely with inflation-indexed annuities. But SS and annuities both hold three potentially big downsides in the view of many retirees:
- (1) they hold no upside potential,
- (2) they provide no bequest beyond one's spouse (unless specifically paid for in the case of annuities), and
- (3) they are tied to CPI (though some annuities use a fixed rate for 'inflation'), which may not be an accurate reflection of real inflation.
Those aren't really downsides as that is by design to optimize.
No upside potential isn't a downside of an income option?? :confused
getrichslowly wrote:
Mon Mar 12, 2018 1:12 pm
- (1) they hold no upside potential,
A bird in the hand is worth two in the bush.
Tell that to most retirees, most of whom aren't interested in buying annuities.
getrichslowly wrote:
Mon Mar 12, 2018 1:12 pm
- (3) they are tied to CPI (though some annuities use a fixed rate for 'inflation'), which may not be an accurate reflection of real inflation.
Is there a better method? Do you think equities are better tied to inflation or something?
The availability of other options is not the point. The point is that many believe that CPI understates the actual inflation. And yes, there are options out there that historically do a good job of outpacing inflation, equities being one of them.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by SGM » Mon Mar 12, 2018 5:11 pm

Another solid summary from Mike Piper is why I check his website on a regular basis. I think it was Joe Tomlinson who wrote about combining delaying SS until 70 and using SPIAs for increased portfolio longevity. Personally, I have not yet bought an SPIA, but expect to ladder a few later on. My completed Roth conversions will allow me to control my taxation should I choose to withdraw any from the Roth account.

I do not think the lower payouts of inflation adjusted SPIAs is worth it. I will handle the inflation aspect of that income stream by laddering SPIAs at some point.

I put aside a sum to cover the years from retiring until taking delayed SS, fortunately I have had enough other income that I did not need to spend anything from that sum. It will be used for the SPIAs in the future.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by LadyGeek » Mon Mar 12, 2018 6:50 pm

This thread is now in the Personal Finance (Not Investing) forum (withdrawal strategy).
gaspr wrote:
Mon Mar 12, 2018 12:01 pm
It seems to me like the study endorses The Variable Percentage Withdrawal (VPW) method found right here in the Wiki...
Here's the link: Variable percentage withdrawal

And the discussion thread: Variable Percentage Withdrawal (VPW)

Canadian investors can discuss the VPW strategy in our sister Canadian site: Re: Variable Percentage Withdrawal (VPW) for Canadians
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by AlohaJoe » Mon Mar 12, 2018 8:39 pm

Gort wrote:
Mon Mar 12, 2018 11:12 am
Sounds reasonable to me if you have enough money to set aside until receiving SS benefits at age 70.
I probably wouldn't call it "ideal" but it is clearly a pretty okay strategy. But honestly, almost any strategy is better than "adjust based on our feelings", which appears to be the default.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by hoops777 » Mon Mar 12, 2018 9:23 pm

Like everything else,how good any system is depends upon the individual circumstances.If the numbers work,using SS and your RMDS is a very sound and simple way to go.The study did not say only spend your RMDs so criticisms of it being too conservative make no sense.In our case, as in most people,we have our taxable accounts,Roth’s and Ibonds as well.
What it does is it takes away the need for all the complicated withdrawal methods if the numbers work for your situation.The key of course is how much of your basic needs are met just by SS.For us,SS will cover our basic spending and a decent amount of travel,so the RMDS starting out in the mid thirties,certainly does not sound conservative to me.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by AlohaJoe » Mon Mar 12, 2018 9:34 pm

hoops777 wrote:
Mon Mar 12, 2018 9:23 pm
The study did not say only spend your RMDs so criticisms of it being too conservative make no sense.In our case, as in most people,we have our taxable accounts,Roth’s and Ibonds as well.
You've misunderstood what the study is recommending. That's a somewhat common problem with discussions about RMD-based withdrawal strategies. You are thinking that "RMD" means "the IRS mandated RMD from my IRA and 401k". That's not what it means here. It means look in the IRS RMD table and use that percentage across your entire portfolio. That's why Mike Piper says "for the rest of your portfolio".

That means someone who is 70 years old is only withdrawing 3.6% of their total portfolio. They aren't allowed to "top it up" from taxable accounts, Roths, or iBonds. 3.6% of everything is the max they are allowed to spend from their portfolio.

That's why people talk about it being too conservative. Many feel that 3.6% for someone who is 70 is too conservative. And someone who is 65 is only allowed to withdraw 3.1% of their portfolio. If you're under 65 then the number is even smaller....

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by hoops777 » Tue Mar 13, 2018 11:48 am

AlohaJoe wrote:
Mon Mar 12, 2018 9:34 pm
hoops777 wrote:
Mon Mar 12, 2018 9:23 pm
The study did not say only spend your RMDs so criticisms of it being too conservative make no sense.In our case, as in most people,we have our taxable accounts,Roth’s and Ibonds as well.
You've misunderstood what the study is recommending. That's a somewhat common problem with discussions about RMD-based withdrawal strategies. You are thinking that "RMD" means "the IRS mandated RMD from my IRA and 401k". That's not what it means here. It means look in the IRS RMD table and use that percentage across your entire portfolio. That's why Mike Piper says "for the rest of your portfolio".

That means someone who is 70 years old is only withdrawing 3.6% of their total portfolio. They aren't allowed to "top it up" from taxable accounts, Roths, or iBonds. 3.6% of everything is the max they are allowed to spend from their portfolio.

That's why people talk about it being too conservative. Many feel that 3.6% for someone who is 70 is too conservative. And someone who is 65 is only allowed to withdraw 3.1% of their portfolio. If you're under 65 then the number is even smaller....
I have read most of the study several times and I see no mention of using the RMD calcualations on money outside of retirement accounts, or maybe I just completely misunderstood because I was planning on using just our actual RMD’s in addition to our SS.I do not see where it says apply to your non IRA or non 401K accounts.Anyway,my plan works great for us so I guess it does not really matter.Even the title says how to pensionize any retirement or 401k plan.
Last edited by hoops777 on Tue Mar 13, 2018 1:39 pm, edited 1 time in total.
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by rj49 » Tue Mar 13, 2018 12:43 pm

The RMD method seems, like the 4% rule, unrealistic and doesn't fit spending patterns throughout life. Most retirees spend more earlier in retirement, for travel, bucket list things, expensive hobbies, home projects, a second home, finishing off a mortgage, buying toys (sports cars, etc). So lower spending during the 60s merely to get higher SS payments after 70 and then starting out with 3% or so of spending in one's 70s, even if it seems to make sense, doesn't seem the optimal way to ensure a happy retirement and to maximize lifetime spending (except for heirs). My parents took SS at 62, but then they were doing lots of travel, buying things, and enjoying life while they were still physically able to, but now in their late 70's they rarely travel, they don't have much to spend money on, and their main issues in life are health problems and dealing with boredom and finding social connections. If my risk-averse mother were widowed and left with significant investments, she'd either go into an Edward Jones and get expensive annuities sold to her, or she'd sell everything and put into CDs or bond funds, so any complex retirement spending plans would be also largely wasted unless a surviving spouse takes the same interest and has the same investing proficiency, or is going to be immune from cognitive decline.

Such plans usually don't work in reality, any more than a 100% stock allocation often don't survive a 2000 or 2007 market crash, despite market history showing it might be the best for long-term optimal returns. When you add in the significant possibility of early mortality, then delaying SS or higher portfolio withdrawals until later in life can also be a wasted strategy. Which is why 45% of people take SS at age 62 and another 30% at 65, and as a military retiree I took retirement at 21 years, when staying in longer would have resulted in a higher lifetime pension, but I wanted to enjoy life as much as possible in my 40s. Now that I've paid for a house and gotten plenty of travel and bought all the toys I need, I don't have as much use for money, so I was glad that I spent more money earlier, when I was able to enjoy bike touring and travel and an urban lifestyle more. Now I get more meaning out of reading, films, classes, exercise, cooking, friendships, volunteering, and other things that don't cost much, so to me the optimal retirement withdrawal is one that front-loads higher spending while providing a safe financial floor for the rest of my life and longevity/LTC insurance through a Roth IRA in case I need it.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by 2015 » Tue Mar 13, 2018 2:46 pm

rj49 wrote:
Tue Mar 13, 2018 12:43 pm
The RMD method seems, like the 4% rule, unrealistic and doesn't fit spending patterns throughout life. Most retirees spend more earlier in retirement, for travel, bucket list things, expensive hobbies, home projects, a second home, finishing off a mortgage, buying toys (sports cars, etc). So lower spending during the 60s merely to get higher SS payments after 70 and then starting out with 3% or so of spending in one's 70s, even if it seems to make sense, doesn't seem the optimal way to ensure a happy retirement and to maximize lifetime spending (except for heirs). My parents took SS at 62, but then they were doing lots of travel, buying things, and enjoying life while they were still physically able to, but now in their late 70's they rarely travel, they don't have much to spend money on, and their main issues in life are health problems and dealing with boredom and finding social connections. If my risk-averse mother were widowed and left with significant investments, she'd either go into an Edward Jones and get expensive annuities sold to her, or she'd sell everything and put into CDs or bond funds, so any complex retirement spending plans would be also largely wasted unless a surviving spouse takes the same interest and has the same investing proficiency, or is going to be immune from cognitive decline.

Such plans usually don't work in reality, any more than a 100% stock allocation often don't survive a 2000 or 2007 market crash, despite market history showing it might be the best for long-term optimal returns. When you add in the significant possibility of early mortality, then delaying SS or higher portfolio withdrawals until later in life can also be a wasted strategy. Which is why 45% of people take SS at age 62 and another 30% at 65, and as a military retiree I took retirement at 21 years, when staying in longer would have resulted in a higher lifetime pension, but I wanted to enjoy life as much as possible in my 40s. Now that I've paid for a house and gotten plenty of travel and bought all the toys I need, I don't have as much use for money, so I was glad that I spent more money earlier, when I was able to enjoy bike touring and travel and an urban lifestyle more. Now I get more meaning out of reading, films, classes, exercise, cooking, friendships, volunteering, and other things that don't cost much, so to me the optimal retirement withdrawal is one that front-loads higher spending while providing a safe financial floor for the rest of my life and longevity/LTC insurance through a Roth IRA in case I need it.
Your statements reflect what is overlooked in just about every one of these circular arguments/debates regarding the "best", "ideal" "right", "spreadsheet-supported", retirement withdrawal strategy. Such theory is all nonsense and does not fit real life (to your point), but I find many of these debates suffer from the same blind spots.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by House Blend » Tue Mar 13, 2018 2:56 pm

AlohaJoe wrote:
Mon Mar 12, 2018 9:34 pm
That's why people talk about it being too conservative. Many feel that 3.6% for someone who is 70 is too conservative. And someone who is 65 is only allowed to withdraw 3.1% of their portfolio. If you're under 65 then the number is even smaller....
Just curious, but how did they extrapolate RMD divisors for folks under 70?

The IRS tables start at age 70. Of course there are RMD schedules for inherited IRAs for all ages, but those are designed to drain the account over exactly N years, where N is the life expectancy of the beneficiary at the time of inheritance.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by hoops777 » Tue Mar 13, 2018 3:22 pm

So does the actual study,not Piper’s view of it,actually say the RMD calculation is done on all retirement assets or just those that are actually RMD’s in an IRA or 401K?If so,can someone reference it because I somehow do not see it.
K.I.S.S........so easy to say so difficult to do.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by AlohaJoe » Tue Mar 13, 2018 8:37 pm

House Blend wrote:
Tue Mar 13, 2018 2:56 pm
AlohaJoe wrote:
Mon Mar 12, 2018 9:34 pm
That's why people talk about it being too conservative. Many feel that 3.6% for someone who is 70 is too conservative. And someone who is 65 is only allowed to withdraw 3.1% of their portfolio. If you're under 65 then the number is even smaller....
Just curious, but how did they extrapolate RMD divisors for folks under 70?

The IRS tables start at age 70. Of course there are RMD schedules for inherited IRAs for all ages, but those are designed to drain the account over exactly N years, where N is the life expectancy of the beneficiary at the time of inheritance.
The IRS RMD table is just a variant on life expectancy using a slightly different set of tables. It is based on the joint life expectancy of the account holder and someone who is 10 years younger. So the RMD for age 71 is just "joint life expectancy of a couple that is 71 and 61".

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by LadyGeek » Tue Mar 13, 2018 8:57 pm

The RMD tables are in the wiki: IRA distribution tables
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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by hoops777 » Tue Mar 13, 2018 9:59 pm

Not to say I am hung up on this,but I just read several more articles about this plan and every one said SS delay until 70 and USE THE RMDS FROM YOUR RETIREMENT ACCOUNTS,IRA and 401K.This plan is simple and straightforward becauseTHE BROKERAGES WILL CALCULATE THE RMD AMOUNTS FOR YOU.I have yet to see anything written in the plan that says to use the RMD calculations on all of your accounts,not just IRA or 401K accounts.The plan does not say to use RMD calculations on all of your savings.
K.I.S.S........so easy to say so difficult to do.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by AlohaJoe » Tue Mar 13, 2018 10:30 pm

hoops777 wrote:
Tue Mar 13, 2018 9:59 pm
The plan does not say to use RMD calculations on all of your savings.
Let's take a step back. Assume the plan says you can do whatever you want with your non-IRA/401k savings. You can spend it all in the first year of retirement. (No one says you can't, right?) Do you think a plan like that can actually say anything meaningful to any retiree? Or does it seem more likely that any retirement spending plan needs to coordinate withdrawals across your entire portfolio in order to make any sense whatsoever?

Let's also turn it around: there's not a single article that says "you can spend whatever you want from your taxable fund". Your interpretation isn't written anywhere.

All of the papers linked in this thread assume 100% of the retiree's portfolio is in tax-deferred accounts and they have $0 in taxable investment accounts (Appendix C) which is why they don't say anything about taxable accounts. That is a common simplification when modelling retirements.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by hoops777 » Wed Mar 14, 2018 12:39 am

AlohaJoe wrote:
Tue Mar 13, 2018 10:30 pm
hoops777 wrote:
Tue Mar 13, 2018 9:59 pm
The plan does not say to use RMD calculations on all of your savings.
Let's take a step back. Assume the plan says you can do whatever you want with your non-IRA/401k savings. You can spend it all in the first year of retirement. (No one says you can't, right?) Do you think a plan like that can actually say anything meaningful to any retiree? Or does it seem more likely that any retirement spending plan needs to coordinate withdrawals across your entire portfolio in order to make any sense whatsoever?

Let's also turn it around: there's not a single article that says "you can spend whatever you want from your taxable fund". Your interpretation isn't written anywhere.

All of the papers linked in this thread assume 100% of the retiree's portfolio is in tax-deferred accounts and they have $0 in taxable investment accounts (Appendix C) which is why they don't say anything about taxable accounts. That is a common simplification when modelling retirements.
The study I am referring to is the actual Stanford study which is similar but I guess not the same as the one Piper blogged about.

If you read the Stanford study,any lay person would assume they are talking about actual RMD’s.Nowhere does it say using RMD calculators to fund your retirement.It’s main point is waiting until 70 for SS will fund all or most of one’s living expenses,so relying just on actual RMD’s for the rest seems very reasonable.They also say it is reasonable to invest your accounts the RMD’s are taken from 100 pct in stocks.Does it sound logical that Stanford would suggest investing ALL of your money 100 pct in stocks?
They emphasize the simplicity of SS and your RMD’s which are even calculated for you by the financial institution holding them.Do financial institutions calculate RMD’s for your non retirement accounts?No.
K.I.S.S........so easy to say so difficult to do.

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by Prudence » Wed Mar 14, 2018 9:56 am

I like the strategy except that recently, as influenced by the comments of Buffet and others, I am inclined to substitute cash equivalents for bonds in the risk portfolio. So, instead of going 60/40 or 50/50 stocks/bond allocation, I think it makes more sense to go, for example, 80/20 stocks/cash equivalents (mainly CDs for me) in the risk portfolio. As others have stated, bonds have significant interest rate and credit risk, so, stocks are better if you can tolerate the volatility and have a long term horizon (say ten years or more).

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Re: "An Ideal Retirement Spending Strategy?" (from Oblivious Investor)

Post by Blues » Wed Mar 14, 2018 10:07 am

Prudence wrote:
Wed Mar 14, 2018 9:56 am
I like the strategy except that recently, as influenced by the comments of Buffet and others, I am inclined to substitute cash equivalents for bonds in the risk portfolio. So, instead of going 60/40 or 50/50 stocks/bond allocation, I think it makes more sense to go, for example, 80/20 stocks/cash equivalents (mainly CDs for me) in the risk portfolio. As others have stated, bonds have significant interest rate and credit risk, so, stocks are better if you can tolerate the volatility and have a long term horizon (say ten years or more).
We also, in large part, substitute CDs and TSP "G" Fund for the bond portion of our portfolio.

I always enjoy and find useful Mike Piper's input and perspective...both his own thoughts, and analyses of the work of others.

I have also found programs like the Vanguard Retirement Nest Egg Calculator or "FireCalc" useful in the past as well.

https://retirementplans.vanguard.com/VG ... ggCalc.jsf

https://www.firecalc.com/
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