No. of Recommendations: 5
for SusiQ

but I could easily envision myself not enjoying ANY of what I'm working so hard to accumulate out of fear of running short many years down the road.

Rational approach: I have a spreadsheet for my personal financial planning. It knows about

--> my pension, its size, that it has started already and will never be adjusted for inflation

--> my Social Security, which I bull-headly keep planning on receiving, its size, that it will start in five years at age 65, and that it will be adjusted for inflation

--> how much is in my taxable account and the basis in that account for computing capital gains taxes

--> how much is in my IRA and how to compute minimum required withdrawals

--> likely dividends in the taxable account, both ordinary income and capital gains.

The spreadsheet lets me postulate an inflation rate and rate of return in the market. I use 4% inflation, and 8% return, leaving 4% real return. 8% is conservative, considering that I am invested primarily in an S&P index fund.

The spreadsheet also does a credible job estimating future income taxes, year after year, up to age 95. Of course, congress will change the law, but you gotta plan something!

I quantified the capitalist injunction -- do NOT touch your capital -- by computing the standard deviation of the distribution of inflation-corrected value of the assets at the end of each year of retirement. I use the mathematical optimization routine called Solver in Excel then to pick a budget for me for the current year which will minimize that standard deviation. Each subsequent year's budget is determined from the preceding by correcting for inflation. I budget living expenses and income taxes separately, because my income taxes will triple when I have to start taking IRA withdrawals.

All this tells me that I should spend about 3.2% of my assets each year (after tossing the pensions into the pot of assets), leaving the rest for income taxes and to repair the damage inflation does to the capital.

I make myself spend the money, too. In the first six or seven years of retirement: ocean cruises to Greece, the Caribean, Quebec and Alaska; trips to New England for the fall foliage, Washington DC for the spring cherry blossoms, Washington State for the rain forest, Florida for a conference, New Orleans to see family, Maui to ride a bicycle forty miles down a volcano (Haleakala) to the ocean; laser vision-correction surgery, gifts to some deserving people, a new computer, a French Horn, Modern Greek lessons, and, soon, a new house near Las Vegas, moving there from Los Angeles.

Emotive reason I have seen my father, my brother and my uncle die younger than I am now. I owe it to myself to enjoy the results of my years of hard work and disciplined investing.

Take good care of yourself, and, after some planning, give yourself permission to spend,

Best regards,


Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.