3wood wrote: ↑
Sat Oct 20, 2018 3:23 pm
Sandi_k wrote: ↑
Sat Oct 20, 2018 12:28 pm
3wood wrote: ↑
Sat Oct 20, 2018 9:49 am
wrongfunds wrote: ↑
Sun Sep 30, 2018 3:35 pm
I came across this one while surfing. I think this is reasonable argument for front loading the expenses early years given the actual chance of running out of money while still being alive. I would have thought that this particular article would have been already ripped to shreds in the past but my limited memory does not recall any discussion about it.
How To Spend More Now, Less Later
https://assetbuilder.com/knowledge-cent ... less-later
I've read this a while ago and I think it can work for many. I would have no problem doing this myself if the numbers fell that way. Obviously a bad sequence of returns would have an amplified negative effect if you are pulling over 6% like he suggests. Maybe a higher constant withdrawal with some flexibility based on sequence of returns?
Or you set aside the 6% of the investment portfolio for years 1-10 in bonds, TIPs, CDs, etc., long before you retire. The Sequence of Return risk won't make any difference. You can leave the invested portion alone, and draw down only from your set aside. SoR is most dangerous in the first 10 years - so that will solve the problem.
Our example: We're assuming an investment portfolio of $1.3M on my retirement date. I will have $250k set aside in cash/TIPs/CDs/bonds by that date, leaving an investment portfolio of ~$1M.
In years 1-5 of my retirement, I'll use the $50k each year (of that $250k pot) to live on (5 years x $50k). Plus disperse 3.75% of the remaining portfolio for additional income at a SWR . Thus 3.75% x $1M = Another $37k annually.
In years 6-10, our mortgage is paid off - so that's $30k to the good annually. DH files for Social Security: another $25k per year in income. And 3.75% SWR of ~ $800k = another $30k annually to play with each year.
That gets me to age 70, with my filing for Social Security, and RMDs plus discretionary withdrawals of 4%+ annually from the investment portfolio.
So we plan on at least an extra $50k each year in the first 10 years - which will allow travel, cars, entertainment, etc. that we're sure will be harder and less appealing once we're over 70. And if we're wrong, and we still want to do more at 70? We'll be able to take 4-5% and still be in the SWR territory, since our timeline is now 20 years, instead of 30...
Sounds like a decent bucket strategy approach. I think most gurus recommend a total return approach. Kitces wrote something about it I remember reading. There was no advantage to the buckets. The buckets aren’t really an actual thing. More of a mental construct to help us understand and get comfortable. If it allows you to stick to your plan than I guess it’s fine but it isn’t necessary. I’m sure someone smarter than me can comment further.
Yep, it is a bucket strategy, combined with a Variable Percentage Withdrawal strategy, given my baseline pension. But for me:
- It means I can model it in a simple spreadsheet to share with DH.
- It deals with my fears over Sequence of Return risk by "lockboxing" what we WANT in our early retirement spending bucket.
- It's easy for DH to implement, in case anything happens to me.
- It means we have more money to play with in years 1-10, when we really want to be playing instead of worrying about spending.
- It allows us some possible room for Roth conversions.
- It doesn't rely on any magical thinking, or inheritances.
It gives me a lot of peace every time I update the numbers, and so I feel that it meets the criteria of not taking risk when we don't need to.