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I will do a big withdrawal in the first few years. Then I might do 3-4% after the first few years. If the market is up, I might withdraw more and less when it's down. I like to live my life well when I can. Have told my kids that they get nothing and they are ok with it. The house is the last for my husband and I to tap, but I don't think we get there, very low chances though, not zilch.
I'm with you. I just hit 65 and am trying to figure out what I really need in addition to my SS. I don't have a huge retirement account, but it's not bad. I don't want to scrimp at this age; I figure if things start looking bad in my 70's, then I can start cutting back. I certainly don't want to scrimp and end up leaving the whole thing to my child, who would probably blow through it in two weeks.
Interest rates in the 4.5% + catagory could often times carry many a retiree through bad times. Today, interest rates are barely 1%. Dividends are also at an all time low. Current evaluations are such that we are told not to expect much in the way of growth over the next 10 years. Even discounting corrections or another melt down, this means people will be drawing more from principal than ever before.
Almost everyone involved and knowledgeable in the financial market states that the market according to real numbers (profits vs cost) says the market is overvalued. Does that mean, it could never go up. Of course not. We have been there before. It's called a financial bubble. Whatever drives the market up irrationally (without earnings), will always come down in due time. So why are evaluations so high now?
Many believe it is because of the low interest rate conditions. Nowhere else to run. (besides real estate)
When someone has sufficient income flow, whether through bonds, cd's, dividends, social security or pension to weather the storm, they usually will recover in due time. But for people who require this income from the stock/bond market to help carry them through, may not be so fortunate.
I am just saying for the benefit of the OP, that perhaps this is not the time for their parents to take such risks. They are only in their early 60's. Now if we were told they were in their mid 70's instead, then that may be a horse of a different color. You know it's the same philosophy we hear talked about when arguing saving for retirement. Some people adhere more to the living for the moment, while others chose a more cautionary approach to spending with the future in mind. Who's right can depend largely on when you die.
the flaw in theses study's for determining safe withdrawal rates is they assume retirees need an inflation raise every single year of their lives forever.
these study's are done in the lab with no human intervention and spending patterns considered . rightfully so since if you are comparing you need to remove the variables between people .
the truth is they do not need these massive amounts of adjusting . . a major part of their inflation adjusting comes just from the fact as we age we tend to spend less and less on lots of things . what we no longer do , buy or go to pays for much of the increases in inflation .
both tye bernicke's study and the sun life study's on retiree spending showed we spend in a smile shape .
this issue was covered several years ago in the Journal of Financial Planning, in an article by Ty Bernicke entitled "Reality Retirement Planning: A New Paradigm for an Old Science". In his article,
Bernicke drew on data from the Consumer Expenditure Survey conducted by the Bureau of Labor Statistics to analyze retiree spending patterns. The data was quite an eye opener , suggesting that those in the
later half of retirement (age 75+ by the BLS data) spend an average of almost 30% less than early retirees (those aged 65-74). In fact, Bernicke shows that this gap has been remarkably persistent
over time; the difference is almost the same (on a relative basis) whether you look at the data from 2014 , 2004, or 1984. The BLS data – along with data from the Health and Retirement Study conducted
by the National Institute on Aging that show a smaller but similar decline – have also been widely examined in analysis by the Bogleheads community.
we spend more in the early stages , by mid 70's to - 85 spending drops big time and then ramps up again because of healthcare .
for most of the middle stage very little actual inflation adjusting has been needed .
the wild card is healthcare costs . but for the most part once you stop calculating much of this yearly inflation adjusting the safe withdrawal rate take a big jump up and even in today's climate once outside the lab when you have real world spending patterns 4% should be just fine . .
the results of these study's suggests that as a baseline, we probably should project spending to decrease by at least 10%, if not 20% to 30%, in the later years (e.g., age 75+, or especially age 80+), on an inflation-adjusted basis. This is especially true if you put reasonable insurance in place for health care and long-term care.
Last edited by mathjak107; 12-02-2015 at 02:54 AM..
Can someone on this board please tell my parents that they should not be taking an inflation adjusted 5-6% out of their retirement accounts each year. I tell them they should only take 3% if they don't want their money to run out. They say they can't afford to live a decent living at 3%, and instead take 5-6% instead.
They are in their early sixties and are both collecting Social Security and have about a million in their account.
Take my poll.
My kids wouldn't dare try to tell me what to do unless I asked for their advice.
IMO, their mistake was to take out their SS early as they could have delayed SS, increased what they took out of their 401K, which would be at a reduced tax rate without SS, until they started drawing a much better SS amount at FRA, then reduce their withdrawals of their 401K. Basically that's what I plan to do.
My plan is to start withdrawing from my 401K once I'm eligible at 59.5 until I reach my SS FRA, then take SS and discontinue taking any more money out of my 401K till they force me to at 70. I should note that I have pension and investment income of more than $4K/mo starting in a year and have a paid off house so I'll only take from my 401K what I need.
Perhaps the OP knows that if his parents run out of money before they die he will be on the hook for supporting them. Some families share a lot of financial info about each other, while some families share nothing.
It's easy to say "My parents made their bed, now let them lie in it" but when push comes to shove if our parents are destitute there is an emotional pull to assist them (at least in many cases). Who among us could stand by while our parents become homeless? That would be heart-breaking unless the parents were mean and abusive and one hates them.
I manage my mother's affairs. She is 83, has a big dementia problem, and is in assisted living. She's on a trajectory to be out of money in about 5 years. At that point, my sister and I have to step in and supplement her income stream. At the moment, I see no point in trying to trim the cash burn while her dementia is just severe short-term memory loss. She can still play the Steinway grand piano in her apartment. I'm paying people she has known for a decade to come in every day to give her some social interaction and get her out for some exercise. I'd rather she had the best-possible quality of life while she is lucid enough to enjoy it since that's not where she will likely be a couple of years from now. I could chop out the outside help and downsize her apartment to string it out much longer but I would prefer not to.
It would be way easier to plan all this if we all had an expiration date stamped on us.
IMO, their mistake was to take out their SS early as they could have delayed SS, increased what they took out of their 401K, which would be at a reduced tax rate without SS, until they started drawing a much better SS amount at FRA, then reduce their withdrawals of their 401K. Basically that's what I plan to do.
My plan is to start withdrawing from my 401K once I'm eligible at 59.5 until I reach my SS FRA, then take SS and discontinue taking any more money out of my 401K till they force me to at 70. I should note that I have pension and investment income of more than $4K/mo starting in a year and have a paid off house so I'll only take from my 401K what I need.
An awful lot of people have no option but to start collecting Social Security. They don't have enough savings, they don't have a pension, and something bad happened with their job or their health and they can't work.
If I thought I could live comfortably on $4K per month, I could retire in 3 1/2 years at 59 1/2. I wouldn't have access to health care other than ACA and I don't trust that it will survive the next Presidential election. I have to assume in my planning that I'll be dumping $10K to $15K into health care until I'm Medicare-eligible.
Both my parents lost their jobs at age 60 weeks from each other and after two years of looking for something else gave up and decided that society did not want people in their sixties in the professional workforce. So they started collecting Social Security at age 62.
Their argument for a 5% withdrawal is that they believe that inflation has been beaten and their annual increase for inflation each year will be small. So they will not run out of money. And they need to spend five percent to pay for their bills.
An awful lot of people have no option but to start collecting Social Security. They don't have enough savings, they don't have a pension, and something bad happened with their job or their health and they can't work.
If I thought I could live comfortably on $4K per month, I could retire in 3 1/2 years at 59 1/2. I wouldn't have access to health care other than ACA and I don't trust that it will survive the next Presidential election. I have to assume in my planning that I'll be dumping $10K to $15K into health care until I'm Medicare-eligible.
In the OP scenario, his parents have about $1M in their retirement account so they didn't have to start drawing from SS, they could have taken from their 401K what they needed and let their SS amount grow.
I checked and the cheapest policy for wife and I under the ACA next year was $852/mo and $6500 each deductible. I wouldn't have any fear of them taking that away, it can only be better if they do.
Both my parents lost their jobs at age 60 weeks from each other and after two years of looking for something else gave up and decided that society did not want people in their sixties in the professional workforce. So they started collecting Social Security at age 62.
Their argument for a 5% withdrawal is that they believe that inflation has been beaten and their annual increase for inflation each year will be small. So they will not run out of money. And they need to spend five percent to pay for their bills.
They might want to consider getting part-time non-professional jobs. Something fun that they would enjoy, and would allow them to dial back the nest egg withdrawals a bit during the critical early years.
That was a little shocker for us when we went to a financial advisor. We were living off SS and pensions. I once found a chart on line that tells how much is mandatory to be taken each year. Our people just send my husband the minimum they can withdraw. I plan to start doing the same next year. The minimum percentage goes up each year but it is possible to get less money if the investments do not do well.
What has to be understood is this, if you do not take your RMD at 70.5 you will pay a 50% penalty of what you should have taken. They do forgive your first year if you ask them but do not miss the second year. What that 50% penalty means if if you were to take $1,000 you will pay $500 in a penalty. That number is from all of your ira 401k 403b sep keough accounts all added together. It dont matter what account you take it from and you can take it from multiple accounts or just one. Just hit that number.
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