Author Topic: Questions for Tyler  (Read 1973 times)

Peter Gibbons

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Questions for Tyler
« on: April 15, 2017, 03:39:30 PM »
Tyler - I've spent a lot of time at portfoliocharts.com and firstly want to thank you very much for your work as it has been very beneficial to me.  Since you don't have a forum at that site and folks might have questions for you, I thought I would start this thread.

Here's my question:  I am planning to use your baseline % withdrawal strategy.  I set my last monthly withdrawal rate on January 1.  But the market went up nicely in the first quarter.  Can I go ahead and give myself a raise to the highest monthly closing value (March 31) rather than waiting until the same January 1 date every year?

Thanks !

marty998

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Re: Questions for Tyler
« Reply #1 on: April 15, 2017, 04:18:27 PM »
Why would you need to withdraw more than your expected expenses (assuming you already have an emergency fund on hand?)

Why would you want to withdraw more to put in cash when it is more beneficial to keep money invested for as long as possible?

Peter Gibbons

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Re: Questions for Tyler
« Reply #2 on: April 15, 2017, 07:13:01 PM »
Marty998,  Good question -- I am allocating a portion of my monthly allowance (based on 4.5% SWR) to 3 different sinking funds to save up for home improvement, next car upgrade, and next vacation lump sum expenses.  I can grow those sinking funds a bit quicker if I give myself a little raise now rather than waiting until January 1.
-Peter

Tyler

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Re: Questions for Tyler
« Reply #3 on: April 16, 2017, 10:14:20 AM »
Hi Peter.  I'm glad you find the site useful!

Here's my question:  I am planning to use your baseline % withdrawal strategy.  I set my last monthly withdrawal rate on January 1.  But the market went up nicely in the first quarter.  Can I go ahead and give myself a raise to the highest monthly closing value (March 31) rather than waiting until the same January 1 date every year?

Technically speaking, when you switch from annual to monthly or daily data you're likely to see more "noise" including temporarily higher highs and lower lows.  Recalibrating every time you see a brief new high may not necessarily be a good idea.  I can't say definitively what the effect will be until I get more data.

Philosophically speaking, I'd recommend focusing on maintaining a happy level of expenses rather than bumping them up at every opportunity.  Just because you can increase expenses doesn't mean you must.  This is MMM, after all.  :)  I'm more comfortable using the baseline % method as a guide for giving yourself permission to occasionally increase expenses beyond inflation rather than a system for maximizing the money you can burn. 

Practically speaking, I like to think of withdrawal rates as a guideline to measure the cutoff for what does not work rather than a recipe for the only way to succeed.  Good money management is about so much more than mechanical withdrawal rates.  So if your investments are doing well and you'd like to allocate some money towards a personal project, go for it.  Just be prepared to delay or cut back if markets move the other direction.  As much as I enjoy using data for guidance, spreadsheets are no substitute for your own good judgment.