Lawrence of Suburbia wrote: ↑Sat Aug 13, 2022 2:02 pm
Boy, all these variable withdrawal guideline things seem to involve a
lot of work and
math for something that's basically unknowable (future returns, inflation, the economy, etc.) ...
I couldn't get through the first page, my own fault for being ADD and rather innumerate.
I retired four years ago in blissful ignorance; I had enough $ at that time to supplement my S.S. income by only taking dividend income from my savings. Yup; no retirement plan, hadn't
heard of the 4% rule, none of it.
Foolish? Yes it was. Or is.
What I'm doing now is, I just spend based upon my needs, as frugally as possible, with the notion of doing that for the next 5-6 years, until hopefully sequence of returns risk has passed, for me (I'll be 75 or so). Doesn't mean I'll not be doing modest interesting/fun stuff; but not lavishly. Being semi-quarantined due to Covid19 has probably helped, my spending in 2020/2021 had to have been minimalistic. But, I don't really follow any rule -- I'm just mindful of what I pull out of the portfolio, figure out what the % was at year end (last year was around 3.4%), adjust if I need to (or can), and continue breathing.
Apology if this is a threadcrap.
Lawrence of Suburbia, there's no complexity.
At the end of July 2022, for example (
link), the retiree only filled the yellow cells of the worksheet with the following information:
- Age
- Portfolio balance
- Portfolio asset allocation
- Portfolio withdrawal frequency
- Social Security start age, monthly payment amount, and indicating that payments are subject to annual cost of living adjustments
- Work pension payment amount and indicating that payments aren't subject to annual cost of living adjustments
Actually, the worksheet was already pre-filled with previous month data, so the retiree only needed to update the
portfolio balance. That's a single cell!
Based on the above information, the worksheet suggested a withdrawal amount ($5,773) in green cells.
This is as simple as it could be. Starting with a $1,000,000 portfolio in late June 2019, the retiree was able to get the following retirement income amounts (available for taxes and expenses) so far:
- 2019: $76,406 (annualized) -- $38,203 in 6 months, starting retirement in July
- 2020: $76,743
- 2021: $82,388
- 2022: $84,506 (annualized) -- $56,337 in 8 months
This
more than double the amounts the retiree would have gotten using
your approach (Vanguard LifeStrategy Moderate Growth Fund (VSMGX) distributions + $12,000/year work pension payments), which would have oscillated around
($25,000/year from VSMGX + $12,000 from work pension) = $37,000/year! The worksheet's approach gracefully handles the delayed Social Security pension. It is based on the
Variable Percentage Withdrawal (VPW) method which adapts portfolio withdrawal amounts to the retiree's age, asset allocation, and portfolio returns during retirement. By adapting withdrawals to market returns, VPW will
never prematurely deplete the portfolio. The worksheet's instructions suggest to consider
around age 80 to buy a SPIA* with annual 2% cost of living adjustments with part (not all) of the remaining portfolio, when necessary to dampen financial risks associated with living beyond age 100.
*
Single Premium Immediate Annuity.
The worksheet is simple to use, yet it implements a robust approach to retirement which helps the retiree
spend most of the portfolio while alive, instead of dying with a gigantic unspent portfolio.
Note that there's a
single forward test post per month. It's quite simple and involves updating the worksheet's yellow cells, making a withdrawal, and using simple arithmetic to dampen short-term income fluctuations with a small
withdrawal cushion (an Ally savings account containing approximately 5 months of withdrawals). That's all. Here's a link to the
latest one which contains a link to the previous one, and so on.
All other posts are commentary. Some posts explain in details the worksheet's calculations. Others show how market returns and interest rates affect portfolio and savings account balances. Some posts look inside the chosen globally-diversified balanced index Vanguard fund. There are inflation-adjusted illustrations of the
forward test, too. Everything is explained to provide complete transparency about this
forward test so that any reader can independently check the validity of calculations.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)