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It is far more complicated than what you are laying out here.
We are withdrawing in the low 3% range and that will go down to 2.5% when I start SS but we don't live frugally, we pretty much live as we did before retirement. No we don't have a ton of money but we just don't feel the need to go out to dinner every night or buy a new car every 3 years or whatever. This was true before retirement and is the same after. We are very happy with our situation.
I am not determined to spend it all, either. I have no problem with dying with money in the bank. It will go to our favorite charities and I am 100% fine with that.
One other factor in low withdrawal rates: Long term care is a distinct possibility for any of us. In fact statistically you are more likely to need it than to not need it. LTC insurance is a bad deal if you look closely at it so we don't have it. Instead we self-insure which means we have budgeted within our retirement plan to have to pay for LTC in the future. So if we need it, it will be covered. If we don't, well, more money for the charities.
what people don't understand is that whether you delay or not your draw in dollars will be about the same through retirement inflation adjusted . so at 62 your income will be the same more or less delaying as it would be if you filed .
you are just laying out the missing ss money up front from your portfolio .
so when that check kicks in down the road it is not in addition to the dollars you are drawing .
the excess dollars you now get have to go back in to refill the extra you laid out so you can maintain that draw .
I can't help but feel a healthy dose of skepticism about withdrawing money at the very low rates espoused by the financial industry. Of course it is in their best interest to hold onto your hard-earned money as long as they possibly can.
what people don't understand is that whether you delay or not your draw in dollars will be about the same through retirement inflation adjusted . so at 62 your income will be the same more or less delaying as it would be if you filed .
you are just laying out the missing ss money up front from your portfolio .
so when that check kicks in down the road it is not in addition to the dollars you are drawing .
the excess dollars you now get have to go back in to refill the extra you laid out so you can maintain that draw .
That is not a true blanket statement if I understand your point.
For example, if you have a portfolio, that irrespective of SS payments, can fund your projected expenses then any incremental receipts from SS when finally received are exactly that: incremental. And, as such, do not need to be viewed as $s to repay early higher draw. In my example, the SS $s are indeed extra money to spend if you so wish.
That is not a true blanket statement if I understand your point.
For example, if you have a portfolio, that irrespective of SS payments, can fund your projected expenses then any incremental receipts from SS when finally received are exactly that: incremental. And, as such, do not need to be viewed as $s to repay early higher draw. In my example, the SS $s are indeed extra money to spend if you so wish.
You certainly are welcome to use SS to add to your total annual spending amount but I think most retirement advisors recommend keeping the annual spending constant in which case SS works as MJ described. But it really is up to you. It's your money after all.
... Don't they know that they won't have as high of standard of living in retirement and will likely die with most of their retirement money sitting in their account?
I do not know that, neither do you.
Our portfolio is in a cluster of LLCs. [in fact with the exception of our vehicles all of our properties are held by LLCs]. My wife, myself and both of our sons are partners of each LLC. My will and my wife's will give our shares of these LLCs to our sons equally. After we die it is no longer our concern what our sons do with the LLCs. Our portfolio grows each year. We are NOT drawing it down at all. I would never think of drawing a portfolio down.
I can't help but feel a healthy dose of skepticism about withdrawing money at the very low rates espoused by the financial industry. Of course it is in their best interest to hold onto your hard-earned money as long as they possibly can.
I am not sure about that. I have all our retirement money at Schwab, where I manage it myself. It is 98% invested and they do not make any money off that; there is no annual fee for Schwab to be the custodian. Perhaps they make some money off the 2-3% cash we have. I think they hope I will use some of their services that cost money, but trading fees is about it, and I only execute maybe 10 trades per year.
As to recommending a low withdrawal rate - that is pretty universal and does not come just from brokers like Schwab. You can go to independent retirement web sites, like FIRE and use their income planning tools and get the same result.
You certainly are welcome to use SS to add to your total annual spending amount but I think most retirement advisors recommend keeping the annual spending constant in which case SS works as MJ described. But it really is up to you. It's your money after all.
But that is only relevant if you have ramped up early withdrawals (prior to receiving SS) in anticipation of receiving future SS $s. If not, as I stated, SS $s are truly incremental; and, if you don't spend you are simply driving SWR lower for no reason (i.e. There is no need to replenish assets.).
I recognize that my example is only relevant for those already comfortably living on a sub-2.5 to 3% SWR before SS payments.
That is not a true blanket statement if I understand your point.
For example, if you have a portfolio, that irrespective of SS payments, can fund your projected expenses then any incremental receipts from SS when finally received are exactly that: incremental. And, as such, do not need to be viewed as $s to repay early higher draw. In my example, the SS $s are indeed extra money to spend if you so wish.
your exception is not typically how it is done. it is rare anyone delays but changes their lifestyle and draw midstream in life when ss kicks in 8 years later if they retired at 62 . in fact why not set a lifestyle based on 2% initially ? then you don't need the ss money or 1/2 the money your portfolio can generate ..
so what i said is that typically the draw at 62 and 70 would be the same dollars inflation adjusted for someone living off their portfolio whether they delayed or not . it would make little sense to wait until 70 to enjoy the extra money in my opinion and the opinion of planners . . .
if the ss is extra money than it can't be counted in the original draw rate at 62 as an integral part of the draw .
so as an example if i had a million bucks and needed 40k from my portfolio and 50k from ss to meet my 90k budget. if i delayed ss i need to pull another 50k a year out of my portfolio plus the 40k .
that portfolio would be quite depleted 8 years later so when ss kicks in the 69% bigger check has 50k going towards spending and the excess going towards refilling what was layed out .
your example is taking less draw at 62 when delaying and as an example only drawing the 40k . then when ss kicks in it is like extra money ,.
very few do it that way or should do it that way. you want to enjoy a safe ,secure, continuous level of income from beginning to the end of your retirement regardless of when you decide to take ss
Last edited by mathjak107; 03-07-2017 at 10:40 AM..
very few do it that way or should do it that way. you want to enjoy a safe ,secure, continuous level of income from beginning to the end of your retirement regardless of when you decide to take ss
I fully appreciate the math. And what you are saying makes sense for most people. But not all.
If one has more than enough assets to cover SWR, and does not need SS to cover that SWR, than SS is "irrelevant" and is simply excess dollars to be spent, or saved, or burned in a great big bonfire.
Once, again, my comments are directed at those with substantial assets, which, of course, most do not have.
again , then they are not part of what we are saying about safe withdrawal rates . the same as someone who has a pension that meets all there spending needs does not NEED money from the portfolio. they do not take a "DRAW RATE " they just pull what they want . the portfolio is not an integral part of the draw amount .
it is like my consulting i do . it is extra money . it is not calculated as part of the draw rate .
not the same situation as when delaying social security as an integral part of the draw amount that is "needed "and setting a safe withdrawal rate . this kind of situation would be classified outside the scope of a discussion on setting safe withdrawal rates since the social security is just added on income not part of the calculation .
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