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Old Yesterday, 03:37 PM
 
Location: Haiku
4,158 posts, read 2,591,176 times
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Some recent threads here and in Economics forum have touched on the topic of managing the process of withdrawing money from your investments in order to live on it. I thought it might be worthwhile to capture the different ways people have of doing that.

For us:

We retired in 2012. I did research and decided we would use a combo of constant dollars (a set dollar amount that is inflation adjusted every year) and fixed percentage (of current assets). Simply take the greater of the two. The constant-dollar was set to 3.0% of our assets when we retired. The fixed percentage was set to 3.5%. So really the constant-dollar is a floor that is only hit in a bear market.

But after a few years I saw that the above wasn't working. Our spending habits are really spikey - one year we would spend an equivalent to 2%, the next year we would spend an equivalent to 6%. Travel eats up a lot of money but we don't travel every year. And one year we remodeled the house. And when we are not spending much money, the 3.5% fixed percent was way too much and I would end up putting back (reinvesting) a bunch of the withdrawal.

So now my method is to just withdraw money when we need it in whatever amount that we need. The only thing we do is keep an eye on the average, in real dollars, since we retired. As long as the average stays below about 3.2% of starting assets I am fine with things. If it creeps up, we will tighten our belts a bit to get it down. So far the average is less than 3%. But we are not spend-thrifts so this loose system works well for us.

The other thing is I don't rebalance. In 2012 we were 60% equities. Now we are 62% equities. If it gets above 65 or 66%, I will probably nudge it back down. But making withdrawals has kept the equities from growing too much.

If you are wondering why the goal is 3.2% rather than 4%, the answer is LTC. We have no LTC insurance so I want to make sure we have the money to pay for LTC if need be. Basically, we are self-insured.
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Old Yesterday, 03:42 PM
 
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do you actually pull that money for self insuring out of the asset generation pool and protect it in appropriate investments .

most do not ...they leave it as part of their pool of assets but don't realize those assets can always go to zero generating that income so it is best to segregate them .

our estate attorney is one of the top attorneys in ny.. he said the bulk of his clients are the self insurers who did nothing other than to call it self insuring ... now the stay at home spouse realizes she can be impoverished now that one of them needs care . everyone has a plan it seems until punched in the face.

we purposely stopped self insuring because of the fact the expenses can be open ended as well as just leaving those assets alone in our pool of assets invested we could take a little portion of those gains , buy a ny partnership plan and have 100% asset and income protection . it was a no brainier for us ... we took 3 years insurance and have no look back , no trusts , no nothing and after 3 years we hand a special version of medicaid the bills for the private home ... the homes will take medicaid assignment if you are there at least 2 years as a paying customer .. perfect for our purpose .... plus all income is unlimited to the stay at home spouse ... don't forget typically you may preserve a million bucks in assets but the income to the stay at home spouse can be a very very low level ... so we would have no cap either.

we use a dynamic draw which sets goal posts based on each year ... it is simple to use and of course if we don't spend that much next years budget gets even bigger and just carry's over

Last edited by mathjak107; Yesterday at 03:50 PM..
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Old Yesterday, 04:05 PM
 
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I use the 4% rule...sort of. I have a separate emergency account that I do not include so in fact I have also been pulling less than 4%, but probably well above your 3.2%. I have a modest LTC insurance policy, but my wife does not qualify for a policy.

I am probably pretty close to your approach. First I hate budgets. We never plan with expenses categorized or budgeted. Second, our expenses have been quite variable. We tend to balance out over the period of a year or so but not always. We ran high the year we had an unexpected $20K roof shingling expense and then needed to replace some siding do to a long standing water leak. Last year I bought a late model used car with cash.

Investing is a whole other issue. Part of our portfolio is in an account managed by TIAA. They pick all the investments and constantly rebalance to keep us at about 60% equities. The remainder, which I manage, has been growing equities so my overall allocation is getting high. I plan on cutting back some primarily due to our ages.
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Old Yesterday, 04:30 PM
 
Location: Florida
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Your procedure is fine.
I assume you have an emergency fund. You could also add a travel, major repair etc fund if it makes life easer.
I like the theory of rebalancing but I think over the years I have done worse by rebalancing and I think I can get along ok without rebalancing.
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Old Yesterday, 05:30 PM
 
Location: Haiku
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Quote:
Originally Posted by mathjak107 View Post
do you actually pull that money for self insuring out of the asset generation pool and protect it in appropriate investments .
No, I don't liability match, as they call that technique. I don't use buckets either. Everything is in one pool. We do keep about 3-4% cash though. It goes up and down a bit.

Liability matching gets discussed a lot on bogleheads. Like everything else in investing, everyone has his own opinion on it.
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Old Yesterday, 05:42 PM
 
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I wouldn’t call it as much liability matching as I would say if one wants to self insure then they have to think , act and invest as an insurer would not like an investor would .

By the way I was in your camp , self insuring was my plan too ...but when I did that article with money magazine and spoke with their team of pros they made me realize it really was not a good idea unless you act like an insurance company .....just doing nothing but saying I am self insuring was likely not a great idea .

Actually it is now 13 years since the article , and more than a decade later our attorney proved they were right as that now is his biggest work load , the self insurers who basically self insured with words and not action
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Old Yesterday, 06:05 PM
 
26,023 posts, read 33,032,767 times
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I'm not retired yet, but the only money I plan to take out is what is required - RMDs. Unless something happens, or I decide to buy a new house or something else crazy, I won't even need that money and will most likely just reinvest it. It is essentially my LTC policy. Paying for a policy now would prevent me from saving - just too expensive.
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Old Yesterday, 07:05 PM
 
Location: Cebu, Philippines
4,448 posts, read 1,689,855 times
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My SS is direct deposits into my bank with the rest of my money. I use ATM to take it out when I need it. I live on less than my income. I don't think about it much.

i don't know any of the words you are using.

Last edited by cebuan; Yesterday at 07:14 PM..
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Old Today, 04:40 AM
 
26,023 posts, read 33,032,767 times
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Quote:
Originally Posted by cebuan View Post
My SS is direct deposits into my bank with the rest of my money. I use ATM to take it out when I need it. I live on less than my income. I don't think about it much.

i don't know any of the words you are using.
He is not referring to SS money. OP is talking about your invested retirement savings, that which you are using to supplement SS and whatever other income you have.

If you don't have any, then this thread is of no interest to you.
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Old Today, 05:04 AM
 
Location: Cebu, Philippines
4,448 posts, read 1,689,855 times
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Quote:
Originally Posted by ChessieMom View Post
He is not referring to SS money. OP is talking about your invested retirement savings, that which you are using to supplement SS and whatever other income you have.

If you don't have any, then this thread is of no interest to you.

I have savings, which at times have to supplement my SS. I guess I misunderstood th part that said
Quote:

I thought it might be worthwhile to capture the different ways people have of doing that.
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