"How much can you spend in retirement without outliving your money? It's one of the most fundamental questions confronting anyone who has retired--or is getting ready to."
"Anyone embarking on retirement should understand the basics of spending rates: how to calculate them, how to make sure their spending passes the sniff test of sustainability given their time horizon and asset allocation, and why it can be valuable to adjust spending rates over time."
"One of the best starting points for testing the viability of your current spending rate is the 4% guideline."
"Sequence-of-return risk can be mitigated, at least in part, by having enough liquid assets to spend from early on in retirement so that the more volatile assets that have slumped (usually stocks) can recover."
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "It is no exaggeration to say that the superb Morningstar service provides all the information an investor could possibly need to evaluate a fund's characteristics, to understand a fund's persona, and to make informed decisions."
"Simplicity is the master key to financial success." -- Jack Bogle
Unfortunately, my wife and I are spending way too little since we saved too much. And with the pandemic, it's impossible to spend much because we can't go anywhere. It may be a nice problem to have and certainly the opposite problem would definitely be a bummer.
TBH, my first 6 years of RMD's have been a breeze. No deterioration in net portfolio value. Rather the opposite. A lot of growth in net portfolio valuations. I have taken what I was required to take (RMD's) from the tax deferred accounts. I have taxable investments in addition. Spending too much hasn't presented itself as any kind of problem. We aren't wild consumers or spenders. Just living decently.
An important factor -- which generally isn't given enough attention in this kind of article -- is having insurance against large, burdensome expenses. We have excellent health insurance. We have no debt. We own our properties outright.
Last edited by Garco on Sat Jan 30, 2021 7:00 pm, edited 1 time in total.
Also in the spending too little camp. Recently had a call from our Fidelity Private Client Group person who wanted to discuss our retirement spending plans to make sure we had a well thought out withdrawal strategy. After a few minutes he had to shift the conversation to what our plans were to passing things on the children and charities. Living below our means and investing the Boglehead way our whole life has made for a worry free retirement.
AstroJohn wrote: ↑Sat Jan 30, 2021 7:30 pm
Also in the spending too little camp. Recently had a call from our Fidelity Private Client Group person who wanted to discuss our retirement spending plans to make sure we had a well thought out withdrawal strategy. After a few minutes he had to shift the conversation to what our plans were to passing things on the children and charities. Living below our means and investing the Boglehead way our whole life has made for a worry free retirement.
I have been retired for about 8 years and have keep very close track of my spending. I have been consistently spending less than one half of the level of my salary in the last year of employment. I could spend more but my conservative midwest upbringing by parents who were children of the depression has left an indelible impression. They too always lived below their means.
Many of my co-workers retired only to return as "consultants" a few years later after splurging on motorhomes, vacation homes, expensive cars and luxury travel. Their retirement nestegg shrank far faster than they planed for. When I retired I had no debt and haven't taken any on since then. I already had my retirement home in the countryside (mortgage free) with a big shop and enough projects on hand to keep myself occupied and happy for a couple of decades. My biggest looming problem will be how to re-invest the money that I have to start withdrawing (RMDs) from my 401K in a couple of years.
"How much can you spend in retirement without outliving your money? It's one of the most fundamental questions confronting anyone who has retired--or is getting ready to."
"Anyone embarking on retirement should understand the basics of spending rates: how to calculate them, how to make sure their spending passes the sniff test of sustainability given their time horizon and asset allocation, and why it can be valuable to adjust spending rates over time."
"One of the best starting points for testing the viability of your current spending rate is the 4% guideline."
"Sequence-of-return risk can be mitigated, at least in part, by having enough liquid assets to spend from early on in retirement so that the more volatile assets that have slumped (usually stocks) can recover."
Best wishes
Taylor
Jack Bogle's Words of Wisdom: "It is no exaggeration to say that the superb Morningstar service provides all the information an investor could possibly need to evaluate a fund's characteristics, to understand a fund's persona, and to make informed decisions."
MathWizard wrote: ↑Sat Jan 30, 2021 7:32 pm
I suspect he has few clients in your situation.
Dubious, since he is Private Client he is only taking to fido folks with at least 1 million in their accounts at fido. I just talked to my fido guy yesterday and he did the same thing, talked about charitable giving with my traditional IRAs.
I modeled my spending by going a couple years without any budget or spending controls, and tallying the actual spend at the end of the year. Basically, the amount of money I would spend if I didn't care how much I spent. A valuable science experiment. Eat out, travel the world, etc. Turns out, I really don't spend that much even when I have no limits, relative to my means. Slightly disappointing really lol.
However, that made me realize that it is virtually impossible for me to outspend my investments now even when I am profligate. Consequently, I stopped tracking my spending and just spent whatever I wanted. My NW still continues to grow year after year. Much easier than tracking my spending, now that I have confidence that I won't inadvertently spend more than I can afford.
MathIsMyWayr wrote: ↑Sat Jan 30, 2021 10:48 pm
How can anyone spend way more than he used to spend unless some big ticket items come up?
I think that is a matter of personality. I spend the same amount almost regardless of income once my take home income clears a certain (five figure) threshold. It is well-established that many people will spend up to their current income and beyond given the opportunity.
Even if you spend on big ticket items, if you buy quality goods you actually like, you'll probably keep them for a really long time over which you can amortize the cost. That probably also factors into this. I buy top-of-the-line phones without much regard for cost, but I only do it once every 3-4 years. For cars I might spend more money than the average person but I'll own them for 10+ years. Churn rates matter.
There is only so much you can spend on lifestyle, like eating out and travel. The stuff that kills you is buying really expensive things that you don't actually use.
MathIsMyWayr wrote: ↑Sat Jan 30, 2021 10:48 pm
How can anyone spend way more than he used to spend unless some big ticket items come up?
I think that is a matter of personality. I spend the same amount almost regardless of income once my take home income clears a certain (five figure) threshold. It is well-established that many people will spend up to their current income and beyond given the opportunity.
Even if you spend on big ticket items, if you buy quality goods you actually like, you'll probably keep them for a really long time over which you can amortize the cost. That probably also factors into this. I buy top-of-the-line phones without much regard for cost, but I only do it once every 3-4 years. For cars I might spend more money than the average person but I'll own them for 10+ years. Churn rates matter.
There is only so much you can spend on lifestyle, like eating out and travel. The stuff that kills you is buying really expensive things that you don't actually use.
Your posting reminds me a story of Michael Jordan's father. After he got a big NBA contract, he bought his father an expensive Cadillac. Where did his father go in a fancy Cadillac? McDonald's.
What were my favorite restaurants 20 years ago when I had almost nothing in savings? Family style Italian restaurants. How about now? Family style Italian restaurants.
David Jay wrote: ↑Sat Jan 30, 2021 11:00 pm
Buy a boat
The answer to "Too Much?" is to spend relative to remaining portfolio value across the retirement years, not on a base of only the retirement day asset amount.
I salute Bengen's originality, he was far better than all who preceded him. However, retirement spending research has continued past his work, which has the significant flaw of being based on only one point in time, retirement day portfolio value.
The article only brings us up to what was known in the mid-1990s, so it is now very dated instead of informative, except for those who have no knowledge on the topic. I'm surprised at Blanchett being quoted there, considering his own more thorough, retirement spending research.
There is some personal responsibility to not living beyond your means, whether working or during retirement. Using an outdated spending method is better than having no clue or choosing to spend only interest and dividends, which was the suggestion prior to Bengen's research.
My choice is the longevity-based, RMD percentage applied to the entire recent annual portfolio value (plus spending dividends and interest), developed by Sun and Webb at Boston College's Center for Retirement Research. Note how the income can vary from year to year, but that is precisely what helps portfolio survival, it is those small annual spending adaptations (based on portfolio value) made as retirement proceeds. Note how the slowly rising % somewhat compensates for falling portfolio value, and the spending of recent interest income would help to buffer inflation changes.
celia wrote: ↑Sat Jan 30, 2021 7:03 pm
They should also ask “Are you spending enough?” That is the issue some Bogleheads have.
+1.
One of the main reasons I track our retirement spending is to try and ensure we are spending "up to" the level of our means. Don't want to leave experiences on the table out of an abundance of caution.
I retired year end 1998 from a Mega Corp. I was worried about a stock market bubble and not having enough money to stay retired but I wanted a new job or life style. I only spent about 4% per year for many years. I was able to stay retired by doing a few key things.
First. I downsized out of my large kid home to a smaller retirement home. My youngest kid was off in college so this was an easy decision.
Second. When I down sized and sold my big house I had BIG $$$ to invest after paying off my retirement house. I decided to buy a lot of muni bonds (instead of stocks) with this $$ in my taxable account. This gave me a good sized emergency fund and plenty of spending money for many years with little tax costs. This let me sleep good at night knowing I could live for many years with a big stock downturn and still be OK. I got this idea from reading Morningstar.
Third. I reduced my asset allocation to 50/50 (from 65/35) when I retired to reduce risk and before the market crash I expected. I also sold all my Mega Corp stock options. This was 1999. I was early but wanted lower risk.
Fourth. I found a part time play job as a ski instructor and kept it up for 5 winters. It was fun and I got into good physical shape. This covered my skiing expenses and avoided a lot of skiing travel costs. This part time play job thing was a good bridge to full retirement.
Fifth. I goofed big time by not doing any Roth conversions during this period to save taxes on RMDs in later years.
celia wrote: ↑Sat Jan 30, 2021 7:03 pm
They should also ask “Are you spending enough?” That is the issue some Bogleheads have.
+1.
One of the main reasons I track our retirement spending is to try and ensure we are spending "up to" the level of our means. Don't want to leave experiences on the table out of an abundance of caution.
Yes. I think, after a few years in retirement, one would really try hard to spend money.
celia wrote: ↑Sat Jan 30, 2021 7:03 pm
They should also ask “Are you spending enough?” That is the issue some Bogleheads have.
+1.
One of the main reasons I track our retirement spending is to try and ensure we are spending "up to" the level of our means. Don't want to leave experiences on the table out of an abundance of caution.
Yes. I think, after a few years in retirement, one would really try hard to spend money.
Have need of spending money or need to spend money?
celia wrote: ↑Sat Jan 30, 2021 7:03 pm
They should also ask “Are you spending enough?” That is the issue some Bogleheads have.
+1.
One of the main reasons I track our retirement spending is to try and ensure we are spending "up to" the level of our means. Don't want to leave experiences on the table out of an abundance of caution.
Yes. I think, after a few years in retirement, one would really try hard to spend money.
Have need of spending money or need to spend money?
Have to figure out some new needs or desire to spend money, because most people here are likely to face the problem of too much money.
First three years of retirement have just been completed. Spending is as follows:
Y1: 0.49%
Y2: 3.99%
Y3: 4.26%
Cumulative: 2.92%
At the end of Y2 and for about 1/2 of Y3, we moved, purchased a “new” single-level home and remodeled, renovated and re-furnished. I think we’re just about done with the big expenses, and expect to see Y4 finish out somewhere around 3%. Despite the above retirement expenses, my entire reasonably-conservative portfolio is up over 20% since retirement! Can’t say whether or not we’re spending too much, but we can significantly scale back spend levels if conditions require.
1. Thank you for posting the article.
2. If any current BH'ers do no know this already, they are guilty of cognitive dissonanc.
3. Send the link to cousin Billy who just bought a new Raptor for a retirement present for himself.
(Or not, he won't listen anyway.)
Retired just about 10 years...boy did it go fast.. I have considerably more now than when I retired. Downsizing and market growth (50/50) account for that. We spend whatever we need...emphasis on need. I'm very blessed. I also think BH are wildly conservative.
“Those who move forward with a happy spirit will find that things always work out.” -Retired 13 years 😀
Like many people here, I spent a lot of time saving and planning for the worst case. But anything better than the worst case will leave you with "too much".
It is impossible to spend more.
I am still working and doing something experimental and little crazy: keeping take home pay to 0 using mega roth backdoor ($55,000+ after tax> roth) and tax deferred accounts, and live completely on a taxable account since 2017. My goal is to swap my income and tax-deferred accounts with roth.
After all the expenses and taxes (MFJ about $185K) and bought a 40k car with cash, my taxable account was still up 30% in 2020.
MathIsMyWayr wrote: ↑Sat Jan 30, 2021 10:48 pm
How can anyone spend way more than he used to spend unless some big ticket items come up?
Some decide to make a major lifestyle change. Just as some have a midlife crisis, some have a retirement crisis. For example, dump the current spouse/partner, get a new "trophy" spouse/partner which likely costs more to "maintain"... I have seen this play out in the lives of more than one friend/co-worker/acquaintance.
I'll stick with my wonderful wife. As was mentioned above, it is very unlikely followers of this forum to put its practices into action will fall into spending too much, and those practices can bring a level of contentment that IMHO becomes very important for enjoying life.
GerryL wrote: ↑Sat Jan 30, 2021 6:59 pm
If you know how much you can afford to spend each year...
For you, would this be a variable number of dollars based upon the previous year's performance, a fixed number of dollars simply based upon a one-time calculation, or something else? By no means a trick question. I am just wondering what you've found to be useful to calculate how much you can afford to spend each year.
Starting my third year tracking spending on online/cloud YNAB. Highly recommend this - I can check monthly, YTD spending very easily. I can also tag expenses very easily every few days, rather than let them build up, to the point that it becomes a chore.
72 yrs. mostly-retired lawyer. Boglehead since day 1 (and M* Diehard long before that) under various names
MathIsMyWayr wrote: ↑Sat Jan 30, 2021 10:48 pm
How can anyone spend way more than he used to spend unless some big ticket items come up?
My Mom would love to be able to move into a CCRC if Dad were to pass.
Yup. $500k+ buy in and $5k / mo for unassisted living. Assisted living is $12k/mo and full nursing care is $15k / mo. That'll eat through the nest egg fast.
Consistently sets low goals and fails to achieve them.
GerryL wrote: ↑Sat Jan 30, 2021 6:59 pm
If you know how much you can afford to spend each year...
For you, would this be a variable number of dollars based upon the previous year's performance, a fixed number of dollars simply based upon a one-time calculation, or something else? By no means a trick question. I am just wondering what you've found to be useful to calculate how much you can afford to spend each year.
Shortly before retirement, I had my plan evaluated (by a Vanguard CFA). Based on my planned spending, the worst-case scenario was that I would reach the age of 100 with more $$$ than I started with at retirement. Since I didn't really want to die with all my money in the bank, a few years later I had the plan run again with a 60% increase in spending. Worst-case scenario was still more than adequate.
So, my "target spend" at this point is that larger number with an adjustment for inflation each year. I have not yet hit the target in any year, but I will probably do another evaluation in a few years with a higher target, in order to accommodate bigger QCDs.
GerryL wrote: ↑Sat Jan 30, 2021 6:59 pm
If you know how much you can afford to spend each year...
For you, would this be a variable number of dollars based upon the previous year's performance, a fixed number of dollars simply based upon a one-time calculation, or something else? By no means a trick question. I am just wondering what you've found to be useful to calculate how much you can afford to spend each year.
Shortly before retirement, I had my plan evaluated (by a Vanguard CFA). Based on my planned spending, the worst-case scenario was that I would reach the age of 100 with more $$$ than I started with at retirement. Since I didn't really want to die with all my money in the bank, a few years later I had the plan run again with a 60% increase in spending. Worst-case scenario was still more than adequate.
So, my "target spend" at this point is that larger number with an adjustment for inflation each year. I have not yet hit the target in any year, but I will probably do another evaluation in a few years with a higher target, in order to accommodate bigger QCDs.
Sounds reasonable. Thanks for your reply and best wishes.
MathIsMyWayr wrote: ↑Sat Jan 30, 2021 10:48 pm
How can anyone spend way more than he used to spend unless some big ticket items come up?
My Mom would love to be able to move into a CCRC if Dad were to pass.
Yup. $500k+ buy in and $5k / mo for unassisted living. Assisted living is $12k/mo and full nursing care is $15k / mo. That'll eat through the nest egg fast.
The money is not spent by you, but taken away from you.
Here's a Forbes column I did 10 years ago about switching to spending mode after a lifetime of being in saving mode. It's not an easy thing to do for many folks, as witnessed by some of the Bogleheads I interviewed for that column.
Switching Gears at Retirement: Going from Savings to Spending Mode