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Greetings, Pshaffer, and welcome. You wrote:

<<I have recently gained a great interest in the question of how to manage one's funds after retirement, as I am on the edge of retiring (or as I prefer to call it interest-shifting) at age 48. These are my musings on the subject, I have no definite conclusions here, but I am actively researching this topic, and perhaps in a few weeks or months will have something more concrete than musings to share.

Most of the recommendations, projections, and spreadsheets I see are a bit unreal when I try to put myself into the scenario and project 5 - 10 years.

What do I mean by this? Lets say I have a million in retirement funds, and as several people suggest, I want to begin taking 50K per year. So far fine. But where are these funds? in my retirement (pension and profit sharing) and IRA. If I take them out of my P/PS then I get a 10% pretax penalty unless I take out a programmed amount, which doesn't permit me to increase with inflation. >>

Essentially, that is correct.

<<What if I use the Foolish four approach? If my funds are in a sheltered retirement account, then I can change the allotment every 18 months as recommended without problem. But if they are outside of a sheltered account, then I have an additional (unplanned for) capital gains hit. (of course if they are in a retirement account, and I withdraw funds, it is even worse, while I avoid the cap gains, I get hit with regular income tax)>>

Actually, you would change every 12 months plus one day in a taxable account to achieve a capital gains rate. And, as you noted, it doesn't really matter in the traditional IRA because only regular rates apply there. Additionally, you've got the 10% penalty again, too, unless you're using substantially equal periodic payments.

<<Another point: lets say everyting is saling along wonderfully, and my 1,000,000 after 15 years of 50,000 withdrawals and 15-20% appreciation is now worth 29,000,000. I think that I would be very happy to declare the start of a NEW retirement and begin taking out 5% of the amount present at this time or 1,450,000 per year (of course, we have to be sure to index for inflation, the cost of fuel for the yacht MUST be accounted for). This scenario is presented as an illustration of what I see is some lack of reality basing of the scenarios I have read. WHo among us, 10 years into a retirement, where you have been taking 50k per year would look at our 12M nest egg and say, "I'm sorry dear, but that trip to see ancient greek ruins with the kids and grandkids is simply outside of our 4,000 travel budget"
Since reality is a theme here, I think it is more realistic that we wouldn't let things get this far out of hand. It is more likely that one would adjust one's payout to match the apprecation (or, perish the thought, depreciation) experienced for that year. You would do this after perhaps 5 years of stable withdrawals, to sheild you from the possibility of depreciation of the account in the early years of the withdrawals.

IMHO the part of your statement I highlighted is precisely what would (and probably should) happen. Also, bear in mind that expenses do tend to change in retirement. From what I've observed (at least for older retirees) is that expenses tend to be higher in the early years, decline significantly in the middle to late years, and then increase due to medical problems in the final years. What those expenses are is also a function of lifestyle.

<<All these thoughts leave me as confused as when I first started looking into this. One advisor suggested 11% withdrawals (whoopee!). Then some suggested 4% (Burgers and Beans again??!). Coming from a science background, it would seem to me that there would be an algorithm possible to account for these variabilities. When I discover it, you may purchase my book!;) >>

Truth be known, the latter was probably much closer to realism for a conventional portfolio considering how long your funds must last. But again, that must be tempered with judgment or you could die with far too much money that could have been used for you to enjoy life. As to the first advisor, I trust you sent him packing in short order.

<<ONe parting thought, something else that I have discovered while working on these topics. I only ask that I don't get a chorus of Duh's if I am the last one on the planet to realize this, but I haven't seen it printed. When I began to manage my retirement portfolio, I thought how generous of the government to allow this to accumulate tax deferred. Silly me, I presumed that that meant I would be paying capital gains rates on my withdrawals. Nope, regular income tax rates. So all those capital gains I have made, the goverment gets a much higher amount of money out than they would have otherwise.>>

And now you have discovered why I preach that tax deferral is not the be all and end all of investing. There are many occasions when it's totally inappropriate if the idea is to come up with a large stash after all taxes have been considered.

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