Ready to pull the plug - Advice on avoiding SORR

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

Emergency funds: None

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.75% State

State of Residence: VA

Age: 50

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Total Assets: 9.5M



Current retirement assets

Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)


His 401k
11.61% US LARGE CO INDEX (UNK)

His Roth IRA at Fidelity
0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)

His Exec Deferred Plan at Fidelity
6.84% US LARGE CO INDEX (UNK)

_______________________________________________________________
Note: 100%

Contributions
N/A (Retiring)

Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
livesoft
Posts: 85760
Joined: Thu Mar 01, 2007 7:00 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by livesoft »

First, have you read the ERN SWR series: https://earlyretirementnow.com/safe-wit ... te-series/

That is all you need to know, so this comment should be the end of this thread. :)
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
retired@50
Posts: 12422
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Ready to pull the plug - Advice on avoiding SORR

Post by retired@50 »

Since you've got over $1.3 million in cash / t-bills, that will easily last for 10 years with no replenishment. I don't think you can screw this up. Just avoid selling equities when they are low to replenish cash.

Enjoy your retirement.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
aristotelian
Posts: 12194
Joined: Wed Jan 11, 2017 7:05 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by aristotelian »

The best protection against sequence of returns risk is a large accumulation and low withdrawal rate which you have achieved. I would suggest larger bond allocation with a portion in TIPS or a TIPS fund so you have some inflation protection. Otherwise you are all set.
Last edited by aristotelian on Sun Feb 11, 2024 2:18 pm, edited 1 time in total.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

retired@50 wrote: Sun Feb 11, 2024 2:14 pm Since you've got over $1.3 million in cash / t-bills, that will easily last for 10 years with no replenishment. I don't think you can screw this up. Just avoid selling equities when they are low to replenish cash.

Enjoy your retirement.

Regards,
Thank you, that is the plan. At about 6-7 years, refresh cash. I still think I may sell some equities during "good years" just to capture solid gains.
coffeeblack
Posts: 766
Joined: Wed Jun 19, 2019 10:20 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by coffeeblack »

hornet74 wrote: Sun Feb 11, 2024 2:05 pm Emergency funds: None

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.75% State

State of Residence: VA

Age: 50

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Total Assets: 9.5M



Current retirement assets

Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)


His 401k
11.61% US LARGE CO INDEX (UNK)

His Roth IRA at Fidelity
0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)

His Exec Deferred Plan at Fidelity
6.84% US LARGE CO INDEX (UNK)

_______________________________________________________________
Note: 100%

Contributions
N/A (Retiring)

Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
The best way to avoid sequence risk is your AA. With an 85% stock allocation you have more sequence risk than someone with a 60% stock allocation.
The next way is to avoid spending too much. You want to spend 2% from your 9.5 million portfolio. The dividends and interest will cover that without touching your principal.
In my opinion you should simplify your portfolio and perhaps lower your stock allocation. But the amount you want to spend (2%) is basically dividends and interest.
The questions I have is are you spending 2% because you don't need any more or are you doing it because you think you are going to run out of money with 9.5 million in investments?
User avatar
Ben Mathew
Posts: 2678
Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle

Re: Ready to pull the plug - Advice on avoiding SORR

Post by Ben Mathew »

As suggested by the lifecycle model in economics,
  • 1. Amortize the portfolio to calculate withdrawals. See amortization based withdrawals (ABW)
  • 2. Maintain a fixed asset allocation on the portfolio. The asset allocation should ideally adjust for pensions/Social Security. But in your case it's likely small relative to the size of the portfolio, so won't affect the asset allocation much.
The above strategy of combining ABW with a fixed allocation minimizes sequence of return risk (SORR) because the same amount of risk is applied to spending at all times. A sequence of poor market returns earlier in retirement is not worse than the same sequence of poor market returns in late retirement. Both result in a decline in spending during the temporary crash and a full recovery post-crash.

These posts go more into how this works:

How retirement income responds to a poor sequence of returns (temporary crash)

Why retirement income recovers fully after a poor sequence of returns (temporary crash)

Time diversification of stock risk
Total Portfolio Allocation and Withdrawal (TPAW)
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

coffeeblack wrote: Sun Feb 11, 2024 2:27 pm
hornet74 wrote: Sun Feb 11, 2024 2:05 pm Emergency funds: None

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.75% State

State of Residence: VA

Age: 50

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Total Assets: 9.5M



Current retirement assets

Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)


His 401k
11.61% US LARGE CO INDEX (UNK)

His Roth IRA at Fidelity
0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)

His Exec Deferred Plan at Fidelity
6.84% US LARGE CO INDEX (UNK)

_______________________________________________________________
Note: 100%

Contributions
N/A (Retiring)

Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
The best way to avoid sequence risk is your AA. With an 85% stock allocation you have more sequence risk than someone with a 60% stock allocation.
The next way is to avoid spending too much. You want to spend 2% from your 9.5 million portfolio. The dividends and interest will cover that without touching your principal.
In my opinion you should simplify your portfolio and perhaps lower your stock allocation. But the amount you want to spend (2%) is basically dividends and interest.
The questions I have is are you spending 2% because you don't need any more or are you doing it because you think you are going to run out of money with 9.5 million in investments?
This may be a repost, but I didn't see it.
The reason for 2% is complicated. I live on 8k a month, going to 10k-12k would be awesome. I need to keep the WR low as I have a kid going to college in 4 years, a GF who has 2 kids going to college in 4 and 6 years and need to eventually buy a house to handle 2 adults, 3 kids (summers and beyond) and my aging mother. I expect to move to 3.25 in about 5 years. I chose the lower WR 1) I have everything I need on 8k and 2) need to be ready for a higher SWR in bout 5 years to accommodate the above.
doobiedoo
Posts: 827
Joined: Fri Jul 23, 2021 1:10 pm
Location: Southern CA

Re: Ready to pull the plug - Advice on avoiding SORR

Post by doobiedoo »

hornet74 wrote: Sun Feb 11, 2024 2:05 pm Emergency funds: None
Debt: None
Tax Filing Status: Single
Tax Rate: 37% Federal, 5.75% State
State of Residence: VA
Age: 50

Desired Asset allocation: 85% stocks / 15% bonds Desired International allocation: 0% of stocks
Total Assets: 9.5M

Current retirement assets
Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)

His 401k 11.61% US LARGE CO INDEX (UNK)
His Roth IRA at Fidelity 0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)
His Exec Deferred Plan at Fidelity 6.84% US LARGE CO INDEX (UNK)
_______________________________________________________________
Note: 100%
hornet74 wrote: Sun Feb 11, 2024 2:05 pm Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?
The conventional recommendation is to replenish the cash only in the years the market is up.
The idea is to avoid selling equities in down years [which helps avoid the SORR].
hornet74 wrote: Sun Feb 11, 2024 2:05 pm 2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
[ SORR occurs when there are bad returns in the first few years after retiring. When withdrawing a fixed amount [or an increasing inflation-adjusted amount] from a declining asset base, there is a real risk or running out out money! ]

The conventional ways to protect against SORR include:
-- retiring later [e.g. having 35x expenses instead of 25x],
-- keeping extra cash on hand for the first few years,
-- adjusting asset allocation for the first few years.

I did all three, but SORR wasn’t a problem for me. [I retired in 2012.] But better safe than sorry.

SORR doesn't look to be a problem for you. Congrats!
User avatar
Wiggums
Posts: 6955
Joined: Thu Jan 31, 2019 7:02 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by Wiggums »

I don’t see a reason to worry about SORR based on your portfolio size and withdrawal rate. You are in terrific shape.

We are retired and have about the same portfolio size. We have the three fund portfolio and treasuries. Our asset allocation in retirement is 65/35. We spend $150k with one in college and the other recently graduated. We maintain a list of big lumpy expenses and move that to T-Bills 2-3 years before the money is needed. Example: new roof, new car, etc. We spend the dividends first, and then decide annually where to withdraw the rest.

Enjoy your retirement.
"I started with nothing and I still have most of it left."
User avatar
snackdog
Posts: 2978
Joined: Wed Nov 12, 2014 3:57 am
Location: PNW

Re: Ready to pull the plug - Advice on avoiding SORR

Post by snackdog »

Another way to minimize SORR is to start retirement shortly after a massive stock market crash. By old boss retired in 2009 when the Dow had crashed from about 13,000 to less than 8,000. He was scared spitless. His wife wanted to splurge on some retirement leisure things and he told her she had to hold off until the Dow passed 11,000. She got her wish late the next year and many more as the dang index shot all the way up to where it is today pushing 40,000.
BH Consumer FAQ: | Car? Used Toyota, Lexus or Miata. | House? 20% down and 3x salary. | Vacation house? No. | Umbrella? $1 million. | Goods? Costco.
User avatar
dogagility
Posts: 3169
Joined: Fri Feb 24, 2017 5:41 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by dogagility »

hornet74 wrote: Sun Feb 11, 2024 2:05 pm 2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan...
OP, I agree with Wiggums that your low withdrawal rate makes you immune to SORR. I agree with Ben Mathew that the best way to avoid SORR is to match portfolio withdrawals to portfolio size (i.e. have flexible withdrawal amounts).

On another topic, I think your portfolio size and age makes you a good candidate for setting up a TIPS ladder. You might consider dividing your portfolio into two parts: a stable, TIPS ladder-based part to meet expenses over several years (decades?) and a "risk" part composed of 100% equities. This certainly isn't needed given your portfolio size and withdrawal rate, but it may give you some piece of mind knowing your expenses are covered for a long time.
Make sure you check out my list of certifications. The list is short, and there aren't any. - Eric 0. from SMA
dcabler
Posts: 4384
Joined: Wed Feb 19, 2014 10:30 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by dcabler »

You can't 100% avoid any sort of SORR risk unless you have so much saved that just about anything is going to work.

But you can determine how SORR manifests itself.
1. With fixed % withdrawal where the withdrawals are adjusted for inflation, SORR manifests itself as the risk of running out of savings before running out of life.
2. With a variable withdrawal method (such as amortization methods used in VPW, ABW, and TPAW), SORR manifests itself as the risk of having any of your withdrawals be lower than what you need to pay your bills.

In either of these, choice of AA as well as having a solid floor of income (like SS, Pension, SPIA, TIPS ladder, etc) helps mitigate the effect of SORR.

I've chosen #2

Cheers.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

snackdog wrote: Mon Feb 12, 2024 12:40 am Another way to minimize SORR is to start retirement shortly after a massive stock market crash. By old boss retired in 2009 when the Dow had crashed from about 13,000 to less than 8,000. He was scared spitless. His wife wanted to splurge on some retirement leisure things and he told her she had to hold off until the Dow passed 11,000. She got her wish late the next year and many more as the dang index shot all the way up to where it is today pushing 40,000.
I agree, but there is no way to predict. My gut tells me there is a recession looming, but it could be soon, never or somewhere in the middle. The thought of waiting an indefinite period of time for a crash and then retiring is exhausting.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

dogagility wrote: Mon Feb 12, 2024 4:37 am
hornet74 wrote: Sun Feb 11, 2024 2:05 pm 2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan...
OP, I agree with Wiggums that your low withdrawal rate makes you immune to SORR. I agree with Ben Mathew that the best way to avoid SORR is to match portfolio withdrawals to portfolio size (i.e. have flexible withdrawal amounts).

On another topic, I think your portfolio size and age makes you a good candidate for setting up a TIPS ladder. You might consider dividing your portfolio into two parts: a stable, TIPS ladder-based part to meet expenses over several years (decades?) and a "risk" part composed of 100% equities. This certainly isn't needed given your portfolio size and withdrawal rate, but it may give you some piece of mind knowing your expenses are covered for a long time.
Thank you. I did look into the TIPS ladder calc that someone posted here. I could do a TIPS ladder for 10 years along with dividends and get a, relatively guaranteed, low risk decade. The only thing is lumpy expenses such as college tuition (if he goes somewhere expensive, new car, home, etc.). I might revisit this, maybe a 7 year TIPS ladder with the rest in cash for "other things". Thank you for reminding me about this approach.
User avatar
Watty
Posts: 28651
Joined: Wed Oct 10, 2007 3:55 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by Watty »

hornet74 wrote: Sun Feb 11, 2024 2:05 pm Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
Sequence of returns risk can only happen if you will be selling investments when they are down.

If you just set your investments to not automatically reinvest any dividends, interest, or capital gains distributions from mutual funds that will more than cover your expenses so you will not need to sell any investments, other than to rebalance, so you will not have any sequence of returns risk.

If you have not already you should talk to an estate planning lawyer since between portfolio growth and possible changes in the estate tax exemption you have enough assets that estate taxes will a concern.
User avatar
Watty
Posts: 28651
Joined: Wed Oct 10, 2007 3:55 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by Watty »

One more thing. It will be more tax efficient to hold your bonds in your retirement accounts and the stocks in your taxable account. There is a wiki on this.

https://www.bogleheads.org/wiki/Tax-eff ... _placement
deltaneutral83
Posts: 2446
Joined: Tue Mar 07, 2017 3:25 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by deltaneutral83 »

I'd get to a three fund portfolio. I wouldn't worry about SORR (for an AA of TSM/Intl funds) as your desired burn ($150k) is still under 2%, however, I would get rid of the tech fund that's 15% of the portfolio. I'm not worried about the overall market and SORR with your numbers, that's the point of 2%, but I definitely would worry about the tech fund as we all watched the Nasdaq crash 80-90% in the dot com bust (Cisco has made considerably less money than a money market account since Jan 2000, let alone equities). OP, the majority of your portfolio will not be consumed by you so the legacy plan is probably more of an action item. One interesting thing I thought was that the topic of SORR being mentioned while also holding a triple leveraged ETF has to be a first!
KlangFool
Posts: 31171
Joined: Sat Oct 11, 2008 12:35 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by KlangFool »

OP,

The only potential problem to your plan is that your estimate of your retirement expense is totally way off. So, you may want to verify that by the following formula.

Gross Income = Annual Expense + Annual Savings/investment + Taxes

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

Watty wrote: Mon Feb 12, 2024 7:07 am
hornet74 wrote: Sun Feb 11, 2024 2:05 pm Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
Sequence of returns risk can only happen if you will be selling investments when they are down.

If you just set your investments to not automatically reinvest any dividends, interest, or capital gains distributions from mutual funds that will more than cover your expenses so you will not need to sell any investments, other than to rebalance, so you will not have any sequence of returns risk.

If you have not already you should talk to an estate planning lawyer since between portfolio growth and possible changes in the estate tax exemption you have enough assets that estate taxes will a concern.
Thank you! I have already met with an estate planner, about a year ago. All good on that side I think.
sambb
Posts: 3245
Joined: Sun Mar 10, 2013 3:31 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by sambb »

Is your withdrawal rate your spend amount, or is it your spend + taxes? Make sure to consider this nuance.
User avatar
snackdog
Posts: 2978
Joined: Wed Nov 12, 2014 3:57 am
Location: PNW

Re: Ready to pull the plug - Advice on avoiding SORR

Post by snackdog »

Watty wrote: Mon Feb 12, 2024 7:07 am
Sequence of returns risk can only happen if you will be selling investments when they are down.

If you just set your investments to not automatically reinvest any dividends, interest, or capital gains distributions from mutual funds that will more than cover your expenses so you will not need to sell any investments, other than to rebalance, so you will not have any sequence of returns risk.
...
This is a good point. I retired in 2020 but we haven't really sold investments for living expenses yet. I'm always horrified at our income tax situation.
In 2021 I got a 1 yr severance and we sold a house.
In 2022 we sold another house and a chunk of company vested stock at all-time highs.
In 2023 I was offered a lucrative part time consulting gig from home and overseas (free travel!).
In 2024 will receive a large state tax refund on 2023 overpayments (weird state quirk) plus an inheritance and a bit more consulting. And another large home sale cap gain.
In 2025 may claim a foreign pension lump sum that would cover expenses for a year.
In 2026 we should have a six figure dividend income but may finally start selling investments. Not much time left for Roth conversions before early SS.

None of my pre-retirement modeling really reflected all this income the first five years of retirement.
BH Consumer FAQ: | Car? Used Toyota, Lexus or Miata. | House? 20% down and 3x salary. | Vacation house? No. | Umbrella? $1 million. | Goods? Costco.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

KlangFool wrote: Mon Feb 12, 2024 7:57 am OP,

The only potential problem to your plan is that your estimate of your retirement expense is totally way off. So, you may want to verify that by the following formula.

Gross Income = Annual Expense + Annual Savings/investment + Taxes

KlangFool
KlangFool,
I am not sure what you mean. Are you saying my burn rate? I have tracked expenses for 2 years, and it is about 8k a month all in. My updated tracker for retirement includes 1k for health insurance in VA (I think you are in VA as well) which is about 50% more than the marketplace. I also have a 1k expense that is gone next month so 10k a month is more than enough. I have modeled taxes and need about 161k before taxes to get my 10k a month burn rate. There is also a lot of discretionary expense in the 10k, so I could live on 7-8k with health insurance if needed. Since I am winding down saving, I don't fully understand your comment. would you mind expanding? thank you!
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

sambb wrote: Mon Feb 12, 2024 8:14 am Is your withdrawal rate your spend amount, or is it your spend + taxes? Make sure to consider this nuance.
It is after tax spend. I need about 161k for 10k a month (added some buffer).
KlangFool
Posts: 31171
Joined: Sat Oct 11, 2008 12:35 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by KlangFool »

hornet74 wrote: Mon Feb 12, 2024 8:48 am
KlangFool wrote: Mon Feb 12, 2024 7:57 am OP,

The only potential problem to your plan is that your estimate of your retirement expense is totally way off. So, you may want to verify that by the following formula.

Gross Income = Annual Expense + Annual Savings/investment + Taxes

KlangFool
KlangFool,
I am not sure what you mean. Are you saying my burn rate? I have tracked expenses for 2 years, and it is about 8k a month all in. My updated tracker for retirement includes 1k for health insurance in VA (I think you are in VA as well) which is about 50% more than the marketplace. I also have a 1k expense that is gone next month so 10k a month is more than enough. I have modeled taxes and need about 161k before taxes to get my 10k a month burn rate. There is also a lot of discretionary expense in the 10k, so I could live on 7-8k with health insurance if needed. Since I am winding down saving, I don't fully understand your comment. would you mind expanding? thank you!
hornet74,

1) I budgeted 20K per year for medical/dental insurance and expenses for myself and my spouse.

"I don't fully understand your comment. would you mind expanding? thank you!"

2) My post is about just make sure that your expense estimate is not way off.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
coffeeblack
Posts: 766
Joined: Wed Jun 19, 2019 10:20 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by coffeeblack »

hornet74 wrote: Sun Feb 11, 2024 2:34 pm
coffeeblack wrote: Sun Feb 11, 2024 2:27 pm
hornet74 wrote: Sun Feb 11, 2024 2:05 pm Emergency funds: None

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.75% State

State of Residence: VA

Age: 50

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Total Assets: 9.5M



Current retirement assets

Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)


His 401k
11.61% US LARGE CO INDEX (UNK)

His Roth IRA at Fidelity
0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)

His Exec Deferred Plan at Fidelity
6.84% US LARGE CO INDEX (UNK)

_______________________________________________________________
Note: 100%

Contributions
N/A (Retiring)

Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
The best way to avoid sequence risk is your AA. With an 85% stock allocation you have more sequence risk than someone with a 60% stock allocation.
The next way is to avoid spending too much. You want to spend 2% from your 9.5 million portfolio. The dividends and interest will cover that without touching your principal.
In my opinion you should simplify your portfolio and perhaps lower your stock allocation. But the amount you want to spend (2%) is basically dividends and interest.
The questions I have is are you spending 2% because you don't need any more or are you doing it because you think you are going to run out of money with 9.5 million in investments?
This may be a repost, but I didn't see it.
The reason for 2% is complicated. I live on 8k a month, going to 10k-12k would be awesome. I need to keep the WR low as I have a kid going to college in 4 years, a GF who has 2 kids going to college in 4 and 6 years and need to eventually buy a house to handle 2 adults, 3 kids (summers and beyond) and my aging mother. I expect to move to 3.25 in about 5 years. I chose the lower WR 1) I have everything I need on 8k and 2) need to be ready for a higher SWR in bout 5 years to accommodate the above.
New information.
So he comment about reducing your chances of SORR are the same. AA and WR. However, from the sound of it you will not have a net worth of 9.5 million after paying for college for 3 kids and a new house and aging mother. Lets say you have around 7.5 to 8 million and a paid off house. At 3.25 WR that's 243K to 260K. You may spend that much for the first 20 years. After 75 your spending will decline. Before 75 you spending will decline some unless you are traveling significantly. Lets not forget social security either.
In my opinion you should read some of the writing from Kitces. Articles such as this one https://www.kitces.com/blog/the-problem ... ing-rules/ or this PDF chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.kitces.com/wp-content/uploa ... search.pdf

Also remember that SORR is caused by selling stocks during bad markets. With your current level of spending over the next 5-6 years the dividends and interest alone will cover all of it after taxes.
I still think you need a simpler portfolio.
Topic Author
hornet74
Posts: 106
Joined: Sun Mar 31, 2019 5:19 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by hornet74 »

coffeeblack wrote: Mon Feb 12, 2024 9:03 am
hornet74 wrote: Sun Feb 11, 2024 2:34 pm
coffeeblack wrote: Sun Feb 11, 2024 2:27 pm
hornet74 wrote: Sun Feb 11, 2024 2:05 pm Emergency funds: None

Debt: None

Tax Filing Status: Single

Tax Rate: 37% Federal, 5.75% State

State of Residence: VA

Age: 50

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 0% of stocks

Total Assets: 9.5M



Current retirement assets

Taxable
4.19% cash
9.75% Treasury Bills
22.05% Fidelity Total Market (FSKAX)
18.11% Ishares Total Market (ITOT)
2.48% iShares U.S. Technology ETF (IYW)
2.41% SP500 (SPY)
15.95% Vanguard Technology Fund (VGT)
5.75% Vanguard Total Market (VTSAX)
0.17% Fidelity No Fee Total Market (FZROX)


His 401k
11.61% US LARGE CO INDEX (UNK)

His Roth IRA at Fidelity
0.67% 3x Nasdaq (Leveraged) 100 (TQQQ)

His Exec Deferred Plan at Fidelity
6.84% US LARGE CO INDEX (UNK)

_______________________________________________________________
Note: 100%

Contributions
N/A (Retiring)

Questions:
1. Currently at 86/14 (Equities/Cash & Tbills) and no debt -Trying to determine the optimal withdrawal strategy. Current plan is 82k from dividends and 50k from TBills and Cash. Need to withdraw or sell equities for the additional 40k (Sub 2% WR). Is it better to sell equities to get the 40k or just increase cash withdrawal until a predetermined midway and refill cash bucket?

2. How to best avoid SORR? Plan is to live on a Sub 2% WR for 4-5 years and perform the above plan, but would like to hear feedback. Current burn rate is 8k a month.
The best way to avoid sequence risk is your AA. With an 85% stock allocation you have more sequence risk than someone with a 60% stock allocation.
The next way is to avoid spending too much. You want to spend 2% from your 9.5 million portfolio. The dividends and interest will cover that without touching your principal.
In my opinion you should simplify your portfolio and perhaps lower your stock allocation. But the amount you want to spend (2%) is basically dividends and interest.
The questions I have is are you spending 2% because you don't need any more or are you doing it because you think you are going to run out of money with 9.5 million in investments?
This may be a repost, but I didn't see it.
The reason for 2% is complicated. I live on 8k a month, going to 10k-12k would be awesome. I need to keep the WR low as I have a kid going to college in 4 years, a GF who has 2 kids going to college in 4 and 6 years and need to eventually buy a house to handle 2 adults, 3 kids (summers and beyond) and my aging mother. I expect to move to 3.25 in about 5 years. I chose the lower WR 1) I have everything I need on 8k and 2) need to be ready for a higher SWR in bout 5 years to accommodate the above.
New information.
So he comment about reducing your chances of SORR are the same. AA and WR. However, from the sound of it you will not have a net worth of 9.5 million after paying for college for 3 kids and a new house and aging mother. Lets say you have around 7.5 to 8 million and a paid off house. At 3.25 WR that's 243K to 260K. You may spend that much for the first 20 years. After 75 your spending will decline. Before 75 you spending will decline some unless you are traveling significantly. Lets not forget social security either.
In my opinion you should read some of the writing from Kitces. Articles such as this one https://www.kitces.com/blog/the-problem ... ing-rules/ or this PDF chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.kitces.com/wp-content/uploa ... search.pdf

Also remember that SORR is caused by selling stocks during bad markets. With your current level of spending over the next 5-6 years the dividends and interest alone will cover all of it after taxes.
I still think you need a simpler portfolio.
1) Agree on simpler portfolio - Will sell off the smaller portions of tickers to get to just broad market ETFs. Can't just simplify as most holdings are in taxable
2) On the expenses. I didn't add in the 529, but we should be covered about 90% of tuition assuming a 5% inflation on current prices. I only have to pay for one kid, GF and their dad are on the hook for the other 2. As for the house, that will be a big one. Current house is paid off, will most likely need an additional 500k for a larger home that I want. Assumption is in 4+ years the riskier side of equities will have covered that. If not, will fix up this house for mom (not ideal, but ok)
3) 8M seems reasonable, at 2% would still be right around my target. I do see it going up though, not more than 2.5%

Thank you for the links!
fortunefavored
Posts: 1348
Joined: Tue Jun 02, 2015 8:18 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by fortunefavored »

I think you're totally fine.. the biggest risk of SORR for YOU is not running out of money.. it's panicing and selling out of your high stock AA.

If you can stay the course, you will be fine.

I retired Jan 2021 and then watched the 20%+ correction in early 2022. It was a little uncomfortable, but here we are on the other end 2 years later. How would you do if it was 50% and 10 years? Only you can answer that.
User avatar
Hacksawdave
Posts: 718
Joined: Tue Feb 14, 2023 4:44 pm

Re: Ready to pull the plug - Advice on avoiding SORR

Post by Hacksawdave »

As long as you understand your expenses, cashflow, what reliable income each holding produces, and your overall allocations then you are already set to go. You have the resources, just need the roadmap for the ‘what-ifs’ that can be thrown in the early retirement years. I modeled my SORR plan using the 1973-1974 bear market as the worst case scenario.

I had the plug pulled on me at the end of 2019 at age 56 but was already prepared for it. SORR struck four months later with the Covid crisis and again in 2022 when inflation was not so temporary. I have managed to get to year 5 without selling a single share of stock or bond.
vrr106
Posts: 325
Joined: Wed Feb 11, 2015 9:27 am

Re: Ready to pull the plug - Advice on avoiding SORR

Post by vrr106 »

Your position is enviable, congrats on getting to where you are!
My portfolio is a little smaller and I expect to pull the plug in 3ish years. While my overall allocation is similar, my stock positions are tilted more towards VTI and such, but I still do have individual stocks and a small array of other mutual funds beyond the classic 3-funds.

I have always hesitated to sell those positions since I would incur 20% LTCG vs 15% if I sold when I retire, and some of that stock has pretty high gains. My current plan (I admit this is market timing to some extent) is to:
1. Initially sell the individual stock and unwanted elements for retirement expenses the first few years - assuming they didn't crash
2. Turn off dividend reinvesting on the taxable ETFs/funds for the next few years to fund retirement, this will probably also require me to sell a few positions
Post Reply