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Up 16%. I've reached a lean FI, but not RE.

V
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<<

Up 16%. I've reached a lean FI, but not RE.

V

>>



One weakness of 4% early withdrawal rate types of strategies is that they encourage and signal retirement at the height of stock market booms, when a reversal may be imminent.


I retired in 2007, with the Great Recession right around the corner. As it happens, I had ample resources, and stock market declines were a buying opportunity. But they could have been damaging for someone with marginally adequate retirement resources.


I've been living entirely of my assets for more than 10.5 years now. Comparing my net worth at retirement with my net worth now, after living on my assets for 10+ years, my net worth has INCREASED by 50%.



Seattle Pioneer
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I won't retire for another 5 years.

Turns out getting married and having kids really does delay retirement. Who knew?!

The 4% withdrawal rate is based on a worse case scenario, designed for retiring at the peak and having a crash. I'm not too worried.

V
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<<The 4% withdrawal rate is based on a worse case scenario, designed for retiring at the peak and having a crash. I'm not too worried.

V >>


Betting your life on the most extreme part of a theoretical system doesn't appeal much to me.


But help yourself if you like.



Seattle Pioneer
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No - I wouldn't do that. So are you saying a 4% SWR is wrong. Then what is correct?
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Turns out getting married and having kids really does delay retirement. Who knew?!


I once tried to figure out how much each kid cost. The main reason was to take a stab at what my "Childless Budget" was. Counting the known expenses, and assigning a pro-rated share of gas and electric usage, I came up with $6700 per kid per year (elementary school). I averaged the medical expenses of all of them, and the energy was pro-rated on half the bills. (I figure half is "background" and won't change, and half is a per-person usage.)

At driving age, add about $1000 for insurance and extra vehicle costs, and then when college comes add anything from zero to 10's of thousands, depending on how much you're paying for. It goes higher if you find it useful to have another car for kid/kids use.

Being a dad is my calling, but I was a little surprised to see how much it cost.
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One weakness of 4% early withdrawal rate types of strategies is that they encourage and signal retirement at the height of stock market booms, when a reversal may be imminent.

That's a good point, especially now that fewer people are getting a pension to dampen the effect of ups & downs on their portfolio. It's good to have some cash on hand to take advantage of the stock price lows, and also to avoid "having" to sell at the low points ad on the way down.
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Volucris,

The 4% guideline is a conservative estimate to allow for 30 years of withdrawals from a fairly conservative portfolio.

Here is a link:

https://www.investopedia.com/terms/f/four-percent-rule.asp

We retired in 2005. Initially, our withdrawals were slightly higher. When we sold our old home, most of that cash stayed in our savings account after paying off contractors for this place. In 2006, we had about 3 years of cash to fully cover our planned living expenses. Our last sale of stock was July 2007 until we sold some in Oct 2010. We took the dividends from our taxable account and slowly used money from the cash cushion. In 2010, we still had about 1 year of planned expenses in the cash cushion (savings account.)

Last year, we pulled over 6% from our portfolio with the majority going to charity(20% of our gain{33%+}) and the remainder to replenish our cash cushion.

The reason I can do this by having a plan. I know what we spend, on what and when. I know this since 2002, prior to retiring. Based on that, I have an amount of planned expenses. Since retiring, we have not met our planned amount.

I project those expenses with a 3.8% inflation rate(which we have not had yet) and project our portfolio growth at 6%(which we did not meet in 2008 but have surpassed by a wide margin in every other year.)

With those numbers, 3.8% inflation/6% growth(2.2% effective growth), our portfolio will continue to grow into the future beyond our withdrawals.

Since retiring, we have made 177 withdrawals and 18 deposits to our portfolio. For every $10,000 we withdrew, we deposited $1,586.

For every dollar in our portfolio the day we retired, we have remove $1.46.

Today, I sold small pieces of IRBT, HAIN, SPLK, SHOP, PLOW and CGNX. That will pay-off a 30 year mortgage on a small farm we bought in 2008.

Our portfolio growth YTD is 5.59% which in dollars is 2.8 years of our living expenses.

Long story short: Knowing what you spend and how all the financial parts fit together can allow you to manage retirement finances.

Does that help you?

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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TheBreeze,

"It's good to have some cash on hand to take advantage of the stock price lows, and also to avoid "having" to sell at the low points ad on the way down."

I manage our cash as 2 completely separate piles:

1. Expense Cash Cushion: This is not part of our portfolio. It is kept in passbook savings and in a Roth IRA annuity(not annuitized, just pays 4.5% interest.)

2. Brokerage Cash: This is included in our portfolio total and performance. I manage it to be around 10% of the portfolio. After today's sales, it will be around 11.25%. All cash dividends contribute to this cash. The amount of cash in excess of our target can be used to invest or withdrawn for use.

During down-turns, I have a table of percentages, market drop and cash to invest. I use the average of the NASDAQ Composite and the S&P500 to determine the "market drop" from their 52 week highs. A 10% drop is the first trigger.

Pile #1 is what pays our living expenses daily and will sustain us through a market down-turn.

Pile #2 is investing cash to push into stock when we are living off Pile #1.

This, for us, eliminates anxiety associated with having to sell at a loss when the market is going to hell-in-a-handbasket. Instead, I have cash to invest. It isn't "mixed together" where I have to remember to leave X-dollars for expenses.

Does that help you?

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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Hi, folks!

Gene has a good system which is doing well.

I just wanted to say that there are many different approaches that can work, from conservative to aggressive. It appears that I'm somewhere out on the aggressive end of the spectrum.

I started out just withdrawing money from a cash account, but after I reached 59 1/2 I started withdrawing from one of my IRAs at the rate of about 9%-10% of the total of all our accounts per annum. Ridiculously high and against all guidelines I know, but I figured I could manage it by building the account fast enough even though I wasn't terribly comfortable with that rate.

Moving to the present, we're starting to increase the dollar amount withdrawn. But the withdrawal rate has dropped to about 5%-6% since our accounts have grown (despite the heavy withdrawals). I may continue at this 5%-6% rate because I'm pretty comfortable with it. It should mean continued increases in withdrawal amounts as the portfolio grows. This year has been crazy so far this year with the market up so much and our accounts are up about 16% so far. The market growth may not continue, but our portfolio growth should continue to do quite well.

Why do I mention this?

To emphasize what is POSSIBLE if one actively manages one's portfolio and invests aggressively.

Aggressive too risky?

Over my 52 years of investing, I have found that investing "aggressively" is not risky if due care is taken because your big gains will overwhelm the losses. Do I have losses? You bet! I lost over 10% of my portfolio last year on a couple poorly chosen investments that were admittedly very risky (some call options on two companies with a short history). But my other investments gained about 50% for a net around 40% or so (pre-withdrawal).

My suggestion: If you are not already subscribers to Stock Advisor, that would be a first step. Lots of good, growing companies with bright futures. Some losers too....don't buy those. ;) Kidding aside, I prefer companies that make a lot of money and will make a lot more in the future, so it's not like I need to take exceptional risk in order to have high returns. Like I said, it's possible. Is it sustainable over the long term? Well, I went from near bankruptcy due to a failed business to being able to retire at age 57 in 17 years through investing. And I've been retired 7 years. It takes dedication and boldness to have high returns. I prefer a mix of small and large fast growing companies. Large ones won't grow as fast, but they help provide stability.

But all this isn't necessary if you're satisfied with the usual retirement approaches.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
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Hi Gene -

Nice post. Thanks

For every dollar in our portfolio the day we retired, we have remove $1.46.

So, over the 12 years you have been retired, you have withdrawn $146,000 from a $100,000 initial portfolio (for example). That is pretty interesting.

Our portfolio growth YTD is 5.59% which in dollars is 2.8 years of our living expenses.

Is that growth after withdrawals, or gross?

Does that help you?

Yep - Thanks again.

V
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V,

"For every dollar in our portfolio the day we retired, we have remove $1.46.

So, over the 12 years you have been retired, you have withdrawn $146,000 from a $100,000 initial portfolio (for example). That is pretty interesting."


I posted somewhere here on the Fool when I realized we had withdrawn more than our portfolio value when we retired. Not really sure, but I believe it was 2014.


"Our portfolio growth YTD is 5.59% which in dollars is 2.8 years of our living expenses.

Is that growth after withdrawals, or gross?"


We have just 1 small withdrawal so far this year, just 19 days in to the year. It would add maybe .01% or .02%. Besides, the current number is 5.89% and 2.98 years of expenses, but we still have NAV to post around 5PM CST.

Next Wednesday or Thursday, I will transfer the sale cash from today to checking as a withdrawal. It will be about 1% of our portfolio.

In the past, I maintained mortgages. With rates below 6%, we easily made more money than the interest we paid on that amount. The only year since retiring that this was not true was 2008, when we bought the property. This mortgage isn't deductible for us now. (has nothing to do with the recent tax changes.) Paying off the mortgage now will simplify our monthly cash flow and more importantly, make it easier for DW in the future when I "depart." Her ability to manage has always been my number one concern when planning.

Does that help you?

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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Does that help you?

Yep
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...more importantly, make it easier for DW in the future when I "depart." Her ability to manage has always been my number one concern when planning. -- Gene

Thanks for mentioning that. That is a major failing on my part. We are not set up for me getting run over by a bus. I need to put together a document suggesting what to do if I'm gone.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
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Rob,

A lot of people don't think about what happens when one half of a living partnership is suddenly gone.

Here is a link to an article and a PDF in RYR that was mainly put together by Repurposed(TMFHockeypop):

https://www.fool.com/premium/rule-your-retirement/coverage/1...

http://newsletters.fool.com/13/pdfdownload.aspx?f=DeadLetter...


It should provide a lot of ideas for you.


I try to have DW do some things each month. Although she was gone today while I did the small sales, I have had her do some buys/sells in the past. She is able to do the monthly entries in Quicken for our VFD by herself.

I talk to her about investing and our finances. I explain what some of her companies do. When we go to a place we hold stock in, I tell her we own some shares and if some are in her trad IRA or Roth.

Most market days, I tell her something about what happened with some interesting tidbits like how much we "made or lost" during the day or what happened with one of her companies. I show her account balances on our broker site. I have her transfer funds when I can get her in "the seat."

I had her setup some automatic transfers in Billpay under her login. That way they are already there if I ...

Thursday we were sitting in our brush truck waiting for a dozer to crush and bury a burning house and she asked me a series of questions about dividends. I knew at that point that many years of talking about these things has made an impact.

Make sure you work on the document with your spouse so both of you understand what is in it. Once a quarter or so, update it as needed.

Does that help you?

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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I remember the Hockeypop post.

I should sit down with her on a regular basis as you mention. So far, I make commentary about investing things and she listens politely.... with no interest. And I like the idea of having her enter buy/sell orders too, although it's something she'll pick up in about two nanoseconds. :)

I'll just have to put it out there: "This is so you can take care of this if I die."

I hate to put it like that, but it's for the best.

And, in reverse, I need her to show me where she has all the passwords and login info for the bills. She handles that and I would have a hard time finding it all if she were unavailable. After all, death is not the only issue... there is incapacity due to illness or accident. Stuff happens.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.
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I have a lot of fun playing with my own portfolio...and happily reported to DH that it is now the highest it has ever been. I love tech stocks.( low 6 figures total but 30% in cash.)I had joined a housewives' investment club when I was young and even tho it closed, I kept doing my own thing.

I also do all the household bills the old fashioned way.

But "my" portfolio has nothing to do with our main assets. DH has carefully and always annually( over Christmas break) worked on our very detailed financial plan.He is not in the least interested in money but is just a responsible guy.

Apparently we may run out of money by the time he turns 97 and I will be 98. As I want to be sure to join the "90 Plus Club" here in the Old People's Home ( they do a lot of fun things) I can see I may have to up the income, go to the corner of Safeway and Valley Avenue and start selling my body again....Guys like experience right? Anyone in their late 70's has had a lot of "experience" so I'll probably do quite well.

Meanwhile I keep my little stocks for a future emergency, and we stick to DH's plan. I appreciate the way he goes over it carefully with me and trusts me with the bills.

Maryanne
P.S my mother believed inherited money was very bad for the character, so she did not leave it to her five kids, but donated it all to her favorite charities. In addition, she left us with 10 "foster children" that she had been supporting all over the world. I have always felt that was/is one of my favorite charities.
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And, in reverse, I need her to show me where she has all the passwords and login info for the bills. She handles that and I would have a hard time finding it all if she were unavailable. After all, death is not the only issue... there is incapacity due to illness or accident. Stuff happens.

We keep a password manager and both know the master password to access the records. Since I do most of the financials, both investments and bills, I do have to remember sometimes to go back to the manager and record the passwords. I need to work more on sitting down with him and going over everything now and then.

Since he's still the primary income maker (and has pensions that greatly reduce for the survivor) but I'm both younger, in better health, have family with longevity and am female, we usually assume barring getting hit by the bus, I'll probably outlive him - so I tend to mind the store with that in mind - and as I tell him, I run the financials with the thought of not having to eat cat food if he dies unexpectedly (it's expensive!).

Always ;-)
Hunzi
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Hunzi,

"and has pensions that greatly reduce for the survivor"

I did mine with 100% survivor to my wife and her pension only to her, none to me. This with her SSA, gives her the most "guaranteed" income if I dissolve first. She would not need to use portfolio funds.

If she goes first, I have SSA and my $206/month pension to get me through plus our portfolio.

My primary goal was to have her self-sufficient in my absence.

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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Sadly, the military only offers a 55% survivor benefit, and as he also receives a monthly VA disability benefit which will end on his death, it's about a 75% loss in that income stream, plus SSA will go from 1.5x his benefit (with the two of us) to 1.0 as my half increases to his full amount. I tell him the insurance will keep me off the cat food.

Always ;-)
Hunzi
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I'm retiring in about 2 months with a pension. The survivor benefit was a maximum of $777. Based on how much my pension would be reduced, this is what I'm doing.

I'm taking the full benefit.

I'm getting a life insurance policy for much more than $777 times 25 at a much cheaper cost then it would cost me for my reduced pension.

I started this board a long time ago. I'm glad to see posts are picking up so much.

Fool on,

mazske
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mazske,

"getting a life insurance policy for much more than $777 times 25"

Do you mean $777 X 12 X 25 as in $233K?

Seems like a good idea.

Gene
All holdings and some stats on my profile page
http://my.fool.com/profile/gdett2/info.aspx
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Do you mean $777 X 12 X 25 as in $233K?

Thank you, Gene. Yes, that is what I meant.

Fool on,

mazske
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"No - I wouldn't do that. So are you saying a 4% SWR is wrong. Then what is correct?"

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

typically, you'd figure that you'd put spending needs - then wants - then
maybe dream spending together in a budget. After that you'd have three or
more spending estimates that would indicate what range of spending you might
actually need.
This approach aims you toward what you might need to accumulate - I have to accumulate X
in order to have Y. The 4% approach is pointed the other direction - i.e.
what can I spend, Y if I have saved X.
Both approaches have a place in planning - and both have errors which can
influence life after FRA.

Howie52
And both end up having to assume inflation and rates of return - which introduce
other errors.
In passing, I have found my initial estimates of spending following a lay-off
were not correct. The estimates for "needs" were higher than actual spending.
The estimate for wants appear to be more on target. This is a "good" error to
my perspective.
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