What withdrawal strategy do you use / plan to use?

[reeshau]

The fixed percentage constant withdrawal strategy pulled head and wins the poll!

It would be interesting to know how many people who are already in the withdraw phase are consistently using that method.  I’m dubious! 

A number of people confirmed they do this, actually.

In my case, again, 5 years in, my stache has increased so much that I have never had to contemplate something fancier.  The 4% rule was the basis of my initial 10 year budget plan for retirement, and we spend less, and have accumulated more, than plan.

The rule does not compel you to withdraw.  It is a maximum for safety in hard times.

[TempusFugit]

The fixed percentage constant withdrawal strategy pulled head and wins the poll!

It would be interesting to know how many people who are already in the withdraw phase are consistently using that method.  I’m dubious! 

A number of people confirmed they do this, actually.

In my case, again, 5 years in, my stache has increased so much that I have never had to contemplate something fancier.  The 4% rule was the basis of my initial 10 year budget plan for retirement, and we spend less, and have accumulated more, than plan.

The rule does not compel you to withdraw.  It is a maximum for safety in hard times.

Sure, that makes sense.  What I mean is how many people really spend consistently a fixed percentage of their starting portfolio balance.  I suspect that most recent (past 10 years?) retirees would be in a similar situation as you describe, that the long bull market has pushed up the portfolios so much that it is no longer a factor.  Would you say that you are spending more now, as a percentage of your starting balance, or are you spending what you anticipated in inflation adjusted dollars (4%)? 

When I say that I am dubious that many people really stick to that strategy I mean never reducing your withdrawals and never increasing them either (beyond the inflation adjustment). That is what the 4% rule describes, after all, regardless of having a good, or bad, 5-10 year start. 

[reeshau]

The fixed percentage constant withdrawal strategy pulled head and wins the poll!

It would be interesting to know how many people who are already in the withdraw phase are consistently using that method.  I’m dubious! 

A number of people confirmed they do this, actually.

In my case, again, 5 years in, my stache has increased so much that I have never had to contemplate something fancier.  The 4% rule was the basis of my initial 10 year budget plan for retirement, and we spend less, and have accumulated more, than plan.

The rule does not compel you to withdraw.  It is a maximum for safety in hard times.

Sure, that makes sense.  What I mean is how many people really spend consistently a fixed percentage of their starting portfolio balance.  I suspect that most recent (past 10 years?) retirees would be in a similar situation as you describe, that the long bull market has pushed up the portfolios so much that it is no longer a factor.  Would you say that you are spending more now, as a percentage of your starting balance, or are you spending what you anticipated in inflation adjusted dollars (4%)? 

When I say that I am dubious that many people really stick to that strategy I mean never reducing your withdrawals and never increasing them either (beyond the inflation adjustment). That is what the 4% rule describes, after all, regardless of having a good, or bad, 5-10 year start.

We have not needed to spend beyond the original planned amount, so we haven't.  That's not surprising, because we set up this phase of life specifically for that: we moved to Houston, bought a house, and planned amenities and utilities to this.  We were able to engineer our life exactly to fit the budget, rather than the other way around--saving up to have a budget to fit our life.  We are ahead of plan on both fronts.

I will say, one factor that has kept my discipline is that I am living off of one account--our taxable account.  The original plan had it running dry somewhere between years 9 and 12, so either just before or just at 59 1/2.  In the first years when I was putting this plan into practice, I was very cognizant of this milestone, and had a secondary goal to build in a little more cushion.  It wasn't really a worry--we have plenty of Roth contributions to withdraw as a plan B, so I didn't even have to think of a brief SEPP or anything else.  But I would rather get it in from just this.  As we sit now, we are quite comfortable for that.

With some experience under my belt, I am ready to learn about the next phase, which will include switching to IRA withdrawals primarily, paying for college for DS, Medicare, Social Security, and eventually RMD's.  At that point, we will adjust; not necessarily spending, or just spending.  Quite likely charitable giving.

[Metalcat]

The fixed percentage constant withdrawal strategy pulled head and wins the poll!

It would be interesting to know how many people who are already in the withdraw phase are consistently using that method.  I’m dubious! 

A number of people confirmed they do this, actually.

In my case, again, 5 years in, my stache has increased so much that I have never had to contemplate something fancier.  The 4% rule was the basis of my initial 10 year budget plan for retirement, and we spend less, and have accumulated more, than plan.

The rule does not compel you to withdraw.  It is a maximum for safety in hard times.

Sure, that makes sense.  What I mean is how many people really spend consistently a fixed percentage of their starting portfolio balance.  I suspect that most recent (past 10 years?) retirees would be in a similar situation as you describe, that the long bull market has pushed up the portfolios so much that it is no longer a factor.  Would you say that you are spending more now, as a percentage of your starting balance, or are you spending what you anticipated in inflation adjusted dollars (4%)? 

When I say that I am dubious that many people really stick to that strategy I mean never reducing your withdrawals and never increasing them either (beyond the inflation adjustment). That is what the 4% rule describes, after all, regardless of having a good, or bad, 5-10 year start.

No one does this.

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

But no, it's simply not a human behaviour to spend exactly 4%+estimated inflation (not real inflation, the calculators can't model that), year over year, with absolutely no deviation, regardless of whether their 'stache drops enormously in value due to economic hard times.

No human behaves like the simulations model.

The models are best used to understand the relative impact of various decisions, they're deeply flawed for trying to predict the future.

They're amazing for comparing various SORR hedge strategies, seeing if having a lower overall WR or a variable WR is more efficient for different circumstances.

But they're not so great for actually trying to project out what kind of NW you will actually have in different circumstances. It cannot model real human behaviour over time, so anything it projects are very, very rough estimates.

I never had a megacorp job. I've never even been an employee since graduating. I've always been self employed and always had total control over how much of how little I work. This means I have way more control over the inputs in my FIRE calculations.

That also means that from the beginning, I had WAY MORE decisions to make than most people. Work 5 super hardcore years and then coast? Just start with coasting and work part time for many years? Work more regular hours until FatFIRE? Work regular hours for a decade and then coast?? Fully retire and never work again with a Fat 'stache? "Retire" leaner but maintain the ability to jump in and out of work so that I can add income when needed???

The FIRE calculators were amazing for me comparing the impact of various approaches. Like, exactly how many years of part time work compares to 3 additional years of full time? Just how flexible does a WR need to be to compare to 0.5% lower steady WR?

But in terms of actual numbers?? I kind of ignore that part. The numbers will be what they will be, I just need to figure out what strategy is most effective to harness my human capital.

Planning is not about predicting the future, it's about having the capacity to make decisions TODAY.

All of my plans had to drastically change when I was forced to medically retire from my profession in my 30s. But all of those hours reading Big ERN and fussing with simulations to compare strategies were enormously valuable to me.

The insights I gained from understanding relative impacts of decisions is what allowed me to make really optimal decisions with my disability settlement, with the investment I made into retraining, and with the career decisions I've made with my new career.

I have no idea what I'll spend in the future. No clue. I like to move regularly, I like to change up my lifestyle regularly, I can't possibly predict what I'll spend, so the projections from the calculators are essentially useless to me.

But I have a solid sense of how much impact a life decision would have on my future relative to other choices, and that's really what matters. I know how I would pivot and adjust to various market factors and life changes.

I refuse to make a plan where if things don't go exactly as expected, that constitutes plan failure. That's fucking insane. And if that were the case, my whole life would be an epic failure.

But the truth is that I've had plans go absolutely batshit sideways, and because I'm so equipped to make responsive decisions with a clear understanding of what impacts are most favourable for me, with each massive upheaval I've experienced, my quality of life has improved.

So yeah, we shouldn't agonize over how close to a robotic model we can behave to get as close to the projected outcome as possible and call that "success." That's downright irrational and pathological.

Instead, conceptualize success to be a level of knowledge and adaptability where you feel competent and capable to adjust and pivot to the various unpredictabilities of life.

And the FIRE calculators and Big ERN are amazing for helping with that.

[Greystache]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

[Villanelle]

I doubt that most (or maybe even any?) of the people who voted for "constant withdraw rate" mean they spend precisely that % every year.  That's kinda insane.  Like, "crap, it's December and I've only spend 3.5% this year.  I guess I'd better buy some shit"?   Or even, "Oh no it's December 1 and a tree went through my roof. Sure, I have $1m in the bank but I guess I'll put up a tarp and deal with more damage and the resulting increased expense of that. Once I pay the mortgage this month and utilities and buy groceries, I'll be at 4% on Dec 31, so I can't get my new $10,000 roof until Jan 1." 

Humans don't act this way.  And it's a good thing, because that's ridiculous.  When most people say they plan a constant withdraw rate, they are speaking about averages and generalities.  Anyone with money is going to get that new roof on Dec 2 to prevent more water damage and a freezing cold house and increased water bills., and then perhaps aim to spend less on groceries for a few months or wait another year to buy an eBike so that they bring their average closer to their target.  They are going to remove the tree from their roof and fix the hole because they have plenty of money to do so, even if it puts them at 4.5% for a calendar year, or a rolling 12 mo period. 

[41_swish]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

[TempusFugit]

No one does this.

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

But no, it's simply not a human behaviour to spend exactly 4%+estimated inflation (not real inflation, the calculators can't model that), year over year, with absolutely no deviation, regardless of whether their 'stache drops enormously in value due to economic hard times.

No human behaves like the simulations model.

Definitely agree.

The models are best used to understand the relative impact of various decisions, they're deeply flawed for trying to predict the future.

...

The FIRE calculators were amazing for me comparing the impact of various approaches. Like, exactly how many years of part time work compares to 3 additional years of full time? Just how flexible does a WR need to be to compare to 0.5% lower steady WR?

...


The insights I gained from understanding relative impacts of decisions is what allowed me to make really optimal decisions with my disability settlement, with the investment I made into retraining, and with the career decisions I've made with my new career.

...

Instead, conceptualize success to be a level of knowledge and adaptability where you feel competent and capable to adjust and pivot to the various unpredictabilities of life.

And the FIRE calculators and Big ERN are amazing for helping with that.

 

"Plans are worthless, but planning is everything" - Eisenhower

[Villanelle]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

This thread is making me think that I might add a "lump fund".  (Maybe $20kish?)  Have it in place when we retire and then for a few years if we spend less than our withdraw rate, scrape off some (half?) of the difference to add to it, then leave it alone.  When unexpected lumps come along, use that and then start refilling it with some of any underspending in subsequent years, until it's build back up.

Some expenses, like a replacement car, we would anticipate and not use the lump fund for.  But if we'd planning on driving a car another 3-4 years and the transmission dies, then we use some of the lump fund for it. 

Or maybe a CD ladder (3 years at 7-10k each, perhaps), that acts as a rolling lump fund, and if we spend it, then we use future underages to get it built back up. 

[TempusFugit]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

This thread is making me think that I might add a "lump fund".  (Maybe $20kish?)  Have it in place when we retire and then for a few years if we spend less than our withdraw rate, scrape off some (half?) of the difference to add to it, then leave it alone.  When unexpected lumps come along, use that and then start refilling it with some of any underspending in subsequent years, until it's build back up.

Some expenses, like a replacement car, we would anticipate and not use the lump fund for.  But if we'd planning on driving a car another 3-4 years and the transmission dies, then we use some of the lump fund for it. 

Or maybe a CD ladder (3 years at 7-10k each, perhaps), that acts as a rolling lump fund, and if we spend it, then we use future underages to get it built back up.

I posted a question about this very thing a week or so ago looking for insights into what others are doing.  What prompted this for me was that as I was reviewing my year-to-year spending in my plan, looking at withdrawal/spend rates I saw a few little spikes above my SWR.  When I looked into that spending, it was things like a planned new car purchases or anticipated big repairs (roof). 

The eye opener though was that it wasn't just the dollars for the car, but the tax hit that resulted from making a larger withdrawal from a retirement account to fund the purchase and being pushed into a higher marginal rate.  That got me thinking about how to smooth those withdrawals for tax efficiency. 

When people mention 'sinking funds' where they might, well, I'm not sure exactly what they do in a practical sense.  If you aren't spending that money, you're putting it someplace or leaving it someplace.  If you are amortizing a big expense over a period of several years, you have to consider what that might be doing from an asset allocation standpoint, etc.  If you aren't moving money at all then the concept is just a mental accounting trick. 

One response led me to thinking about leveraging Roth conversions as a quasi-sinking fund. Still thinking about that.  Roth conversions would be meant to achieve the same thing that this amortization would, namely reducing taxes, so in a sense they're what we might call a "two-fer".  The idea cause me a little mental stumble though because of the general rule that you want to keep the money in your Roth for as long as you can to maximize your tax-free growth. Using funds from Roth to buy a car in year 7 or retirement seemed wrong somehow.  But in the end, money is fungible so push on a lever here and something over there moves, too.  I think tax planning is something that we'll just have to do in short time horizons. 

[tooqk4u22]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

That is what I do and always did on my path to FIRE - I needed a way to smooth it out for planning and psychological reasons.   

Initially I seeded the account with a decent amount (basically what could likely occur in the next 5 years based on age of everything plus an oh'sh&t amount for a one or two large out of nowhere things).  Then I make automatic monthly transfers (fixed amount) for current or future repairs, replacement, upgrades, and travel on what we think we will spend in an average year (such as 1% of home value and such). 

The funds in the account are not included in my FIRE funds but the fixed transfers are part of my annual spending.  A lot would have to go wrong with the things we own or the things we want to do for it to become a financial problem, and even then we would just not travel in that year or get a loan to spread it out or something else.   

Actually taking funds out of the account when expenses were incurred has been a problem though......saver mentality.   

[Much Fishing to Do]

I've never worked with it before but do like what the VPW suggested I withdraw for now (when plugged into FIREcalc it basically is a rate that would, on average, keep the portfolio level (inflation adjusted), instead of growing, which is something I always thought would be a good WR to shoot for as long as you understood there could be cuts at some point.  Its definitely not for LeanFire, as any future cuts could hurt big time, but maybe what I'm looking for to decide what to give to the kids each year over and above my spending.

[41_swish]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

That is what I do and always did on my path to FIRE - I needed a way to smooth it out for planning and psychological reasons.   

Initially I seeded the account with a decent amount (basically what could likely occur in the next 5 years based on age of everything plus an oh'sh&t amount for a one or two large out of nowhere things).  Then I make automatic monthly transfers (fixed amount) for current or future repairs, replacement, upgrades, and travel on what we think we will spend in an average year (such as 1% of home value and such). 

The funds in the account are not included in my FIRE funds but the fixed transfers are part of my annual spending.  A lot would have to go wrong with the things we own or the things we want to do for it to become a financial problem, and even then we would just not travel in that year or get a loan to spread it out or something else.   

Actually taking funds out of the account when expenses were incurred has been a problem though......saver mentality.

I am nowhere near FIRE yet, but in the book Psychology of Money the author talks about how some of things he does are not truly optimal, like paying off the mortgage early. He says that taking the psychological part out of money as much as possible goes a long way.

https://www.youtube.com/watch?v=8yNsKxbq0Ak&t=445s

In this video the one thing he says he wish he did was build up a little bigger of a nest egg to take the psychological stress off.

If something makes it mentally easier for you, do it within reason.

[Metalcat]

We sort of did what Metalcat suggested:

Spending over time is too lumpy to do this, although theoretically, someone could withdraw exactly 4%+estimated inflation every single year and create separate sinking funds for the larger, lumpier spending years, like when they need a new roof or a new car.

We started out 10 years ago with a budget that was 4% of our portfolio and an extra $100K for big lumpy expenditures. We planned to increase our budget for inflation, but found that we just sort of got into a rhythm of spending and did not find it necessary to increase until 9 years after we started. We also got by 9 years until we finally tapped the "big lumpy expense fund". Starting this year, we are both on Medicare and no longer have to be concerned about keeping our income low, but I still don't see us spending significantly more than usual.

I have always wondered how the 4% rule would work with big unexpected expenses, because that is life after all. I still think it would be good to have cash set aside for just that for piece of mind sake

This thread is making me think that I might add a "lump fund".  (Maybe $20kish?)  Have it in place when we retire and then for a few years if we spend less than our withdraw rate, scrape off some (half?) of the difference to add to it, then leave it alone.  When unexpected lumps come along, use that and then start refilling it with some of any underspending in subsequent years, until it's build back up.

Some expenses, like a replacement car, we would anticipate and not use the lump fund for.  But if we'd planning on driving a car another 3-4 years and the transmission dies, then we use some of the lump fund for it. 

Or maybe a CD ladder (3 years at 7-10k each, perhaps), that acts as a rolling lump fund, and if we spend it, then we use future underages to get it built back up.

I have a separate "oh shit" fund. It's a solid amount and I will never touch it unless shit absolutely hits the fan. If shit hits the fan, I have a solid way to weather the storm, and if it doesn't, then I have a massive quality of life fund to tap into later in life (see our whole conversation about late life spending in your other thread).

I don't factor the "oh shit" fund into any withdrawal models because it's designed to have a 0% WR as a default

[Ron Scott]

There are a few responses along the lines of "I'm only spending 1%-2% every year and I can't imagine needing more", or "I cover all of my spending with other income", etc.  Now maybe that's something that just happened after retirement because of good market returns. I can understand that.  But if that's your actual plan?

When I read that sort of thing, I just can’t help thinking “so what’s the money for, then?”

It's a fair question, if you aren't experiencing it yet.  I would phrase it differently:

There is a risk of running out of money.  Many people are worried by this, and (particularly in this forum) spend a lot of time planning for it.

There is also a risk that you may have too much money.   Not many people think of that.

If you look at the maximum withdrawal curve in Bengen's original study, if you retired at the right time, your rule would be 8%. But nobody will know if it was a good or bad time to retire until far later, so we know it as the 4% rule.

Someone following the 4% rule in an 8% time will have significant additional accumulation.  That will need to be disposed of in some way.  Also, thinking about this could guard against regrets about the plan they did follow, based on the results rather than the process.

I understand that the 4% rule holds true in most circumstances, but I have gone for a much more conservative route because I like having peace of mind - I don't want to think about the bottom 1-3 percentile outcomes and having to go back to work, budget more aggressively than I would like, etc

As for the rest of the 'what is the money for', the answer (at least for me) is nothing in particular. Money is arbitrary and I think for those of us who aren't retiring super early, it just accompanies the hitting of career goals. Even if you gave me a billion dollars I still wouldn't retire before 45 because I have certain career goals I want to hit independently of money.

Regarding the purpose of money, I see it differently. What it can do is give you flexibility and options in life you would simply not otherwise have and, just as important, that optionality can be transferred to love ones. That’s pretty valuable.

I do agree with you completely that money is not a substitute for achieving career goals or doing other things you want to accomplish in a your life. YOLO right? Determining at too young an age to hit a number and retire might not be the optimal approach to life and some might regret setting priorities like that.

Re: 4%, right on.

[TempusFugit]

I am interpreting a few of these comments to mean that folks have a completely separate account that they consider their ‘lumpy’ fund.  Or maybe they just have an additional amount within an existing account. Sort of walks like and quacks like an old school emergency fund. 

That's fine, of course, but let’s say I have $200,000 of planned lumpy spending in my retirement.  That’s new cars and expensive maintenance items, or a kids wedding.  Most of those things are several to many years in the future.  It would seem… suboptimal to just stash that much in a money market fund for the next 15-20 years.  This would be separate - at least conceptually - from an active spending “bucket” where I transfer my normal monthly / quarterly / annual cash needs for my regular spending. 

I’m planning to keep about 2% - 3% of my portfolio in cash just as my working bucket. That’s going to be less than a year’s normal spending, so as part of maybe semi-annual rebalancing, I would top off that cash.  If I were to ‘juice’ that to include all future lumpy spending, that would be a lot higher percentage and the ‘cash drag’ would be something of concern. 

If you just partially fill that portion of cash with future lumpy money, you still have to come up with a process for when and how much and from where you move your working capital into that parking spot. 

[tooqk4u22]

I am interpreting a few of these comments to mean that folks have a completely separate account that they consider their ‘lumpy’ fund.  Or maybe they just have an additional amount within an existing account. Sort of walks like and quacks like an old school emergency fund. 

That's fine, of course, but let’s say I have $200,000 of planned lumpy spending in my retirement.  That’s new cars and expensive maintenance items, or a kids wedding.  Most of those things are several to many years in the future.  It would seem… suboptimal to just stash that much in a money market fund for the next 15-20 years.  This would be separate - at least conceptually - from an active spending “bucket” where I transfer my normal monthly / quarterly / annual cash needs for my regular spending. 

I’m planning to keep about 2% - 3% of my portfolio in cash just as my working bucket. That’s going to be less than a year’s normal spending, so as part of maybe semi-annual rebalancing, I would top off that cash.  If I were to ‘juice’ that to include all future lumpy spending, that would be a lot higher percentage and the ‘cash drag’ would be something of concern. 

If you just partially fill that portion of cash with future lumpy money, you still have to come up with a process for when and how much and from where you move your working capital into that parking spot.

Yup, it is an actual entirely separate pool of funds that is not counted in any WR calculations.

Everybody is going to have something different and it doesn't mean that if you are planning for a $30k wedding 20 years from now you should have $30k in the account - but $30k inflated by 20 years at 3% is $54k and then discount it back by your expected return (say 7%), then you either need $14k in the account today or you can transfer $103/month over the next 20 years.

Granted 20 years is a bit extreme, but no different than saving for college or any other big expense. 

But if my HVAC was 20 years old, and my car was becoming less reliable such that repairs are consuming more money and headaches or its just rusting to crap or I was paying for a kids wedding in the next 5 years - I would want those dollars (and that would be a lot) set aside in a separate fund outside of my WR fund.   

[rmorris50]

I delink withdrawal rate from spend rate. I wish more people in the FIRE community delinked the two when talking. In my projections I manage to our "cash surplus" or "cash reserve" position, which for us means our joint checking and joint brokerage account.

I project our expenses and taxes, and set a level of withdrawals to keep cash surplus to be no less than a certain amount, say $100k, while also managing to our tax situation. In some poor return scenarios the cash reserve is staying right around 100K, and might require spending cuts. In high return scenarios our cash reserve position may keep growing and growing. If the cash reserve gets too high, we may either withdraw nothing for a while, do Roth conversions, or continue to do withdrawals to turn tax uncertainty into tax certainty. It'll be a year by year decision.

Based on this approach I find our "net asset spend" (our own money we spend net of any earned income and social security) to vary year to year, between 3% and 6%. But I just use these percentages as reasonability checks, I don't manage to them. I do also look at projected effective tax rates and make sure they are reasonable.

[TempusFugit]

I delink withdrawal rate from spend rate. I wish more people in the FIRE community delinked the two when talking. In my projections I manage to our "cash surplus" or "cash reserve" position, which for us means our joint checking and joint brokerage account.

I project our expenses and taxes, and set a level of withdrawals to keep cash surplus to be no less than a certain amount, say $100k, while also managing to our tax situation. In some poor return scenarios the cash reserve is staying right around 100K, and might require spending cuts. In high return scenarios our cash reserve position may keep growing and growing. If the cash reserve gets too high, we may either withdraw nothing for a while, do Roth conversions, or continue to do withdrawals to turn tax uncertainty into tax certainty. It'll be a year by year decision.

Based on this approach I find our "net asset spend" (our own money we spend net of any earned income and social security) to vary year to year, between 3% and 6%. But I just use these percentages as reasonability checks, I don't manage to them. I do also look at projected effective tax rates and make sure they are reasonable.

How would your cash reserve position keep ‘growing and growing’ if it is in fact cash / cash equivalents unless you are adding more cash from someplace else?  Do you just mean natural interest growth?  That’s the nature of these assets to basically (hopefully) stay up with inflation at best. 

Sounds like you have this $100K minimum balance in cash that you would potentially use for some of these irregular but large expenses?  And then refill…. But that’s the same issue as withdrawing it before the expense.  Pay now or pay later, the money comes from somewhere. 

[Metalcat]

I am interpreting a few of these comments to mean that folks have a completely separate account that they consider their ‘lumpy’ fund.  Or maybe they just have an additional amount within an existing account. Sort of walks like and quacks like an old school emergency fund. 

That's fine, of course, but let’s say I have $200,000 of planned lumpy spending in my retirement.  That’s new cars and expensive maintenance items, or a kids wedding.  Most of those things are several to many years in the future.  It would seem… suboptimal to just stash that much in a money market fund for the next 15-20 years.  This would be separate - at least conceptually - from an active spending “bucket” where I transfer my normal monthly / quarterly / annual cash needs for my regular spending. 

I’m planning to keep about 2% - 3% of my portfolio in cash just as my working bucket. That’s going to be less than a year’s normal spending, so as part of maybe semi-annual rebalancing, I would top off that cash.  If I were to ‘juice’ that to include all future lumpy spending, that would be a lot higher percentage and the ‘cash drag’ would be something of concern. 

If you just partially fill that portion of cash with future lumpy money, you still have to come up with a process for when and how much and from where you move your working capital into that parking spot.

My separate account isn't for "lumpy" expenses that I can reasonably predict, it's for the shit I can't predict.

I have lived a life where shit has gone spectacularly badly, many times over. So yeah, I have a totally separate fund that I don't include in any regular financial planning.

I don't make plans that don't account for shit going absolutely and completely sideways, because that's just my normal.

[rmorris50]

I delink withdrawal rate from spend rate. I wish more people in the FIRE community delinked the two when talking. In my projections I manage to our "cash surplus" or "cash reserve" position, which for us means our joint checking and joint brokerage account.

I project our expenses and taxes, and set a level of withdrawals to keep cash surplus to be no less than a certain amount, say $100k, while also managing to our tax situation. In some poor return scenarios the cash reserve is staying right around 100K, and might require spending cuts. In high return scenarios our cash reserve position may keep growing and growing. If the cash reserve gets too high, we may either withdraw nothing for a while, do Roth conversions, or continue to do withdrawals to turn tax uncertainty into tax certainty. It'll be a year by year decision.

Based on this approach I find our "net asset spend" (our own money we spend net of any earned income and social security) to vary year to year, between 3% and 6%. But I just use these percentages as reasonability checks, I don't manage to them. I do also look at projected effective tax rates and make sure they are reasonable.

How would your cash reserve position keep ‘growing and growing’ if it is in fact cash / cash equivalents unless you are adding more cash from someplace else?  Do you just mean natural interest growth?  That’s the nature of these assets to basically (hopefully) stay up with inflation at best. 

Sounds like you have this $100K minimum balance in cash that you would potentially use for some of these irregular but large expenses?  And then refill…. But that’s the same issue as withdrawing it before the expense.  Pay now or pay later, the money comes from somewhere.

Because I am withdrawaling more than needed to cover expenses every year, maxing out a tax bracket. Most of our NW is in pre-tax accounts so in good scenarios I focus on turning tax uncertainty into tax certainty and max out the 25% tax bracket. In reality we could just decide to do Roth conversions, but to keep my model simple I just assume the excess goes into the after tax cash/brokerage bucket. Roth conversions will be year by year decision in reality. I also don't model interest on the after-tax cash surplus, another simplification. We also never touch our Roths in our projections, so that could be use for lumpy expenses as well as whatever is sitting in the cash surplus bucket.

[PhilB]

Similarly to @rmorris50 , the amount we spend, the amount of investments we sell and the amounts we move between wrapped and unwrapped accounts are all separate decisions driven by separate factors - the last one being driven by tax optimisation.  The balancing figure is a cash buffer which has a definite tendency to accumulate because we naturally spend less than our investment withdrawals. 

[Greystache]

Regarding the idea of a lumpy expense fund, one of the main motivations was to avoid large increases in taxable income in a given year. When we retired at age 55 ten years ago, we knew we would be using the ACA for health insurance for 10 years. Because of this, it was important to manage our MAGI. If we had to pull a large amount from our 401K or IRA to fund a replacement vehicle or other large expense, it could raise our MAGI and affect our health insurance costs. So, before we retired, we made sure we had enough money in our Roth accounts to handle any large expenditures without impacting our MAGI. The money in this account is invested pretty conservatively but is not just lying around in cash. As it turned out, we did not need to tap it much in our first 10 years of retirement and the size of this account is larger than when we started. Now that we are both 65 and on Medicare, we are a little less sensitive to jolts to our MAGI, but it's nice to have that block of money available.

[TempusFugit]

Regarding the idea of a lumpy expense fund, one of the main motivations was to avoid large increases in taxable income in a given year. When we retired at age 55 ten years ago, we knew we would be using the ACA for health insurance for 10 years. Because of this, it was important to manage our MAGI. If we had to pull a large amount from our 401K or IRA to fund a replacement vehicle or other large expense, it could raise our MAGI and affect our health insurance costs. So, before we retired, we made sure we had enough money in our Roth accounts to handle any large expenditures without impacting our MAGI. The money in this account is invested pretty conservatively but is not just lying around in cash. As it turned out, we did not need to tap it much in our first 10 years of retirement and the size of this account is larger than when we started. Now that we are both 65 and on Medicare, we are a little less sensitive to jolts to our MAGI, but it's nice to have that block of money available.

That makes sense.  I am coming around to the idea that simply doing Roth conversions over a period of years can do double duty of reducing future RMDs (though in my case that may not be much of an issue, but still) and also not just sitting on a big pile of cash in excess of what I plan to spend near term while providing this store of money for lumpy expenses.  I fully expect these things to be year by year determinations but having a basic idea of how to manage some of these issues at least provides a starting point.

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not! 

[secondcor521]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

When I first FIREd, I had a large cash cushion because of some life insurance proceeds from my Mom's passing, which coincidentally was just after I FIREd.  My initial FIRE plan was to always have six months of spending on hand in cash and to refill it every six months.

My thinking and plan has changed over time.  I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.

Another option that some people on other forums do is to finance lumpy expenses.  This usually spreads the cost out over multiple tax years, which spreads out the cash flow, which evens out the tax hit.  There's the interest cost, but that can be viewed as the convenience fee to obtain the tax benefit.

[TempusFugit]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

… I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.
 ….

Yeah that’s the tradeoff.  By the time we’re FI, most of us don’t really need an ‘emergency fund’ in the sense that we have access to money if we need it, even if that means selling some stocks.  What kind of emergency are we likely to encounter that requires an immediate large sum of cash that we can’t just float on a credit card for 30 days and pay off with funds we transfer from our brokerage?   Likewise, storing up tens of thousands of ‘extra’ cash in order to have that ready for the new car or roof is - on average - sub optimal for our total returns. 

Last year I had over $40K in lumpy type expenses (HVAC, Fence replacement, new car).  I had the cash in a MM fund but I still didn’t enjoy spending it!    It really is part of what has prompted me to start thinking more deeply about how to handle these things once I’m in retirement. 

[2Birds1Stone]

I spend money without budgeting and keep an eye on trailing twelve months of expenses.

If the expenses approach or exceed 4% of current portfolio I ask, why?

It appears that most people here who come from the engineering/accounting/finance backgrounds fail to grasp that most of the risk lies not in the specific mechanics of their withdrawal strategy but in predicting the next X decades of their lives.

Humans gonna human, you can run a billion calculations and still fuck things up because you're human and not an excel formula.

[TempusFugit]

I spend money without budgeting and keep an eye on trailing twelve months of expenses.

If the expenses approach or exceed 4% of current portfolio I ask, why?

It appears that most people here who come from the engineering/accounting/finance backgrounds fail to grasp that most of the risk lies not in the specific mechanics of their withdrawal strategy but in predicting the next X decades of their lives.

Humans gonna human, you can run a billion calculations and still fuck things up because you're human and not an excel formula.

You take that back!

[41_swish]

What do you mean that I can't just make an excel spreadsheet for everything to try and make everything a cost benefit analysis question?

Just kidding, we can plan all we want, but you can't expect the unexpected.

[Dicey]

DH has a Defined Benefit Pension with COLA (Max. 3% per year, but excess is banked and applied in future years, when inflation is <3%.)

He will probably take SS at 65, I will most likely wait until 70.

We also have a modest income from our rentals, but it's steadily increasing.

After that, we have no idea wtf we're going to do. Honestly, it doesn't matter that much.

Mostly posting so I can read everyone's answers and maybe get some good ideas.

[PhilB]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

When I first FIREd, I had a large cash cushion because of some life insurance proceeds from my Mom's passing, which coincidentally was just after I FIREd.  My initial FIRE plan was to always have six months of spending on hand in cash and to refill it every six months.

My thinking and plan has changed over time.  I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.

Another option that some people on other forums do is to finance lumpy expenses.  This usually spreads the cost out over multiple tax years, which spreads out the cash flow, which evens out the tax hit.  There's the interest cost, but that can be viewed as the convenience fee to obtain the tax benefit.

What I don't get is why you would particularly care about chasing more investment returns?  If you are several years post FIRE, then with the way markets have gone, you presumably have way more invested now than you originally planned.  Unless your original FIRE was very lean, I would imagine you are sitting pretty, so why not let some cash pile up. Particularly if you have a list of things that you want to spend it on.  If you've already won the game why keep playing?

[Metalcat]

I spend money without budgeting and keep an eye on trailing twelve months of expenses.

If the expenses approach or exceed 4% of current portfolio I ask, why?

It appears that most people here who come from the engineering/accounting/finance backgrounds fail to grasp that most of the risk lies not in the specific mechanics of their withdrawal strategy but in predicting the next X decades of their lives.

Humans gonna human, you can run a billion calculations and still fuck things up because you're human and not an excel formula.

Facts.

If I've learned anything, it's that life can be unpredictable, and the most important thing is to understand yourself, what you need to thrive, and what levers you have to adapt if/when things change.

Our spending patterns have changed wildly each year for the past 5 years, and yet we usually roughly spend around the same amount because we can adjust and adapt to maintain that amount.

It's given us huge insight into what future factors could make spending substantially more desirable, and also promoted us to being even more creative about where we could move to in order to change the calculus on what our most important factors cost.

Humans gonna human. We can be remarkably adaptable creatures.

I see our wealth not as a specific, prescriptive formula with rigid rules by which we need to live by in order for our plan to "succeed," but I see it more as generating a window of possibilities to chose from, optimize, and re-optimize as things change over time.

How many options we have available to us depends on how flexible we are able to be, and wealth is just one part of that flexibility.

[rmorris50]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

… I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.
 ….

Yeah that’s the tradeoff.  By the time we’re FI, most of us don’t really need an ‘emergency fund’ in the sense that we have access to money if we need it, even if that means selling some stocks.  What kind of emergency are we likely to encounter that requires an immediate large sum of cash that we can’t just float on a credit card for 30 days and pay off with funds we transfer from our brokerage?   Likewise, storing up tens of thousands of ‘extra’ cash in order to have that ready for the new car or roof is - on average - sub optimal for our total returns. 

Last year I had over $40K in lumpy type expenses (HVAC, Fence replacement, new car).  I had the cash in a MM fund but I still didn’t enjoy spending it!    It really is part of what has prompted me to start thinking more deeply about how to handle these things once I’m in retirement.

After reading some responses, I am probably not using the word "cash reserve" or "cash surplus" quite correctly. What I really mean is I manage our retirement account withdrawal strategy to the level of our after-tax accounts, which are much more easily accessible than retirement accounts, and our tax situation. The after tax accounts includes a "cash like" checking/savings account, and an invested, tax-efficient after-tax brokerage account. So to the extent we have excess cash flow in any given year in retirement, it would add to these two buckets. How much is in each bucket will depend on our financial/tax situation year to year, but I won't be leaving too much excess after-tax dollars sitting uninvested to handle lumpy expenses. I would withdrawal from after-tax buckets or potentially Roth IRAs.

[rmorris50]

I spend money without budgeting and keep an eye on trailing twelve months of expenses.

If the expenses approach or exceed 4% of current portfolio I ask, why?

It appears that most people here who come from the engineering/accounting/finance backgrounds fail to grasp that most of the risk lies not in the specific mechanics of their withdrawal strategy but in predicting the next X decades of their lives.

Humans gonna human, you can run a billion calculations and still fuck things up because you're human and not an excel formula.

Facts.

If I've learned anything, it's that life can be unpredictable, and the most important thing is to understand yourself, what you need to thrive, and what levers you have to adapt if/when things change.

Our spending patterns have changed wildly each year for the past 5 years, and yet we usually roughly spend around the same amount because we can adjust and adapt to maintain that amount.

It's given us huge insight into what future factors could make spending substantially more desirable, and also promoted us to being even more creative about where we could move to in order to change the calculus on what our most important factors cost.

Humans gonna human. We can be remarkably adaptable creatures.

I see our wealth not as a specific, prescriptive formula with rigid rules by which we need to live by in order for our plan to "succeed," but I see it more as generating a window of possibilities to chose from, optimize, and re-optimize as things change over time.

How many options we have available to us depends on how flexible we are able to be, and wealth is just one part of that flexibility.

Totally agree that human adaptability and flexibility is our greatest asset. It's so easy to lose sight of than when deep-diving into one's numbers and creating over-engineered financial plans.

My biggest takeaway from my overly complex financial plan is that we have lots of levers to pull for many different situations, and we will adapt and change as needed and be just fine.

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

[TempusFugit]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

When I first FIREd, I had a large cash cushion because of some life insurance proceeds from my Mom's passing, which coincidentally was just after I FIREd.  My initial FIRE plan was to always have six months of spending on hand in cash and to refill it every six months.

My thinking and plan has changed over time.  I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.

Another option that some people on other forums do is to finance lumpy expenses.  This usually spreads the cost out over multiple tax years, which spreads out the cash flow, which evens out the tax hit.  There's the interest cost, but that can be viewed as the convenience fee to obtain the tax benefit.

What I don't get is why you would particularly care about chasing more investment returns?  If you are several years post FIRE, then with the way markets have gone, you presumably have way more invested now than you originally planned.  Unless your original FIRE was very lean, I would imagine you are sitting pretty, so why not let some cash pile up. Particularly if you have a list of things that you want to spend it on.  If you've already won the game why keep playing?

I am not yet RE but even after I am, a return on investment is still necessary to fund a 35-45 year retirement.  Returns matter.  Granted, if I find myself on a pile of money 5-10 years after RE that has exceeded all expectations, I will likely think differently about storing more of it in cash.  That time is not now. 

[secondcor521]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

When I first FIREd, I had a large cash cushion because of some life insurance proceeds from my Mom's passing, which coincidentally was just after I FIREd.  My initial FIRE plan was to always have six months of spending on hand in cash and to refill it every six months.

My thinking and plan has changed over time.  I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.

Another option that some people on other forums do is to finance lumpy expenses.  This usually spreads the cost out over multiple tax years, which spreads out the cash flow, which evens out the tax hit.  There's the interest cost, but that can be viewed as the convenience fee to obtain the tax benefit.

What I don't get is why you would particularly care about chasing more investment returns?  If you are several years post FIRE, then with the way markets have gone, you presumably have way more invested now than you originally planned.  Unless your original FIRE was very lean, I would imagine you are sitting pretty, so why not let some cash pile up. Particularly if you have a list of things that you want to spend it on.  If you've already won the game why keep playing?

Good questions.

Yes, I do have more invested now than I originally started with.  About 3x I think.

Most would view my AA as aggressive.  Personally I view it as conservative, because it is the AA that, given my particular financial situation, results in the safest historical WR situation for me.

Also, I realize that whatever I don't spend (which at this point is about 80% of what I have) will go to my kids, probably/hopefully 30 years from now.  Since I am essentially a caretaker for that money for them, I invest it in 100% equities based on that timeframe and their risk tolerances.

But you're right, I do need to get over my spending hangups a little better.  I'm working on it.

[tooqk4u22]

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

Sadly, that is the retirement outlook for most with Social Security being primary source of funds. Boomers are not retiring because (1) they don't have the $ and (2) they worry that their kids don't have $.  Sure there are some that want to stay engaged but I don't believe that is the majority, although with the white collar boomers that have made their way to middle management or above I think they are just milking it because they have the $ and it really doesn't take much effort, and also because they have nothing outside of their job which has defined them for 40+ years (this different than staying for engagement).

[bacchi]

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

Sadly, that is the retirement outlook for most with Social Security being primary source of funds. Boomers are not retiring because (1) they don't have the $ and (2) they worry that their kids don't have $.  Sure there are some that want to stay engaged but I don't believe that is the majority, although with the white collar boomers that have made their way to middle management or above I think they are just milking it because they have the $ and it really doesn't take much effort, and also because they have nothing outside of their job which has defined them for 40+ years (this different than staying for engagement).

This was my dad. Megacorp finally kicked him out a few years after reaching full retirement age.

[41_swish]

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

Sadly, that is the retirement outlook for most with Social Security being primary source of funds. Boomers are not retiring because (1) they don't have the $ and (2) they worry that their kids don't have $.  Sure there are some that want to stay engaged but I don't believe that is the majority, although with the white collar boomers that have made their way to middle management or above I think they are just milking it because they have the $ and it really doesn't take much effort, and also because they have nothing outside of their job which has defined them for 40+ years (this different than staying for engagement).

This is my parents to a tee. They have plenty of money and a paid off home. They can live off of my dad's pension alone, but really don't have anything going on outside of work, so they just keep working.

[TempusFugit]

… then the other 95% of America is SOL.

And yet, most retirees report being content and able to support their lifestyles.  Retirees are also, as a group, I think the wealthiest cohort in the US.  Expectations play a huge role, one would think. 

If you are retiring with $1M + you are definitely in the fortunate top 5%.  It may even be top 3%.  So yes, certainly if you are in that group you can manage a retirement because 95% of people have done it and will have to do it with significantly less. 

[Villanelle]

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

Sadly, that is the retirement outlook for most with Social Security being primary source of funds. Boomers are not retiring because (1) they don't have the $ and (2) they worry that their kids don't have $.  Sure there are some that want to stay engaged but I don't believe that is the majority, although with the white collar boomers that have made their way to middle management or above I think they are just milking it because they have the $ and it really doesn't take much effort, and also because they have nothing outside of their job which has defined them for 40+ years (this different than staying for engagement).

I talk a lot about my parents here, and have recently come to realize that in many ways, they are my retirement idols.  While the "nothing outside their job" part doesn't ring true for them, some of the rest of it does.  Shortly after I got married (20+ years ago), my dad told my  husband that they hoped to leave my sister and me $1m each.  IDK if they are there, and I don't especially care as I don't need that money, but I think that was one motivator in his continued employment. If that were the only reason he kept working, I'd feel awful about it. But he was also very engaged in his work and the job he took after he retired from what he thought would be his last job made an offer he couldn't refuse, then kept in on a ridiculously generous retainer for years for what most weeks was logging into one conference call from his living room.  I know he got a sense of purpose and value from that work though.  And I suspect he did worry about what life would feel like and who he'd be without work, but as it turned out, he found plenty of other ways to be engaged and enriched and as busy as he wants to be, once he finally retired for good.

It's a good reminder for me that even if it feels scary, we will find things to fill both our schedules and our minds and hearts, as long as we are proactive about doing so. 

[41_swish]

So so so many people are screwed when it comes to their nest egg. It kind of surprises me just how many people at my office job don't put into the 401k at all. I get that the mustache lifestyle is not for everyone but just neglecting retirement because you can save later is bonkers. I feel like of all people engineers would understand the math of compounding gains.

[tooqk4u22]

… then the other 95% of America is SOL.

And yet, most retirees report being content and able to support their lifestyles.  Retirees are also, as a group, I think the wealthiest cohort in the US.  Expectations play a huge role, one would think. 

If you are retiring with $1M + you are definitely in the fortunate top 5%.  It may even be top 3%.  So yes, certainly if you are in that group you can manage a retirement because 95% of people have done it and will have to do it with significantly less.

Yeah, of course they do....because they are in the 5% the other 95% isn't retiring and will hold on to work as long as body and mind will let them, or go on disability. 

I finally got my financial advisor to stop saying "we are behind on retirement" when we have a very large NW. I tell him we will adapt as needed and be fine. If we can't retire on the money we have right now, then the other 95% of America is SOL.

Sadly, that is the retirement outlook for most with Social Security being primary source of funds. Boomers are not retiring because (1) they don't have the $ and (2) they worry that their kids don't have $.  Sure there are some that want to stay engaged but I don't believe that is the majority, although with the white collar boomers that have made their way to middle management or above I think they are just milking it because they have the $ and it really doesn't take much effort, and also because they have nothing outside of their job which has defined them for 40+ years (this different than staying for engagement).

This is my parents to a tee. They have plenty of money and a paid off home. They can live off of my dad's pension alone, but really don't have anything going on outside of work, so they just keep working.

Unfortunately, this dynamic also negatively effects the career prospects for the generations behind them, it's a log jam.   

[41_swish]

I do wonder what happens to the job landscape as these boomers do inevitably have to retire for one reason or another. I wonder how AI will play into all of it. Nobody really knows.

[Metalcat]

… then the other 95% of America is SOL.

And yet, most retirees report being content and able to support their lifestyles.  Retirees are also, as a group, I think the wealthiest cohort in the US.  Expectations play a huge role, one would think. 

If you are retiring with $1M + you are definitely in the fortunate top 5%.  It may even be top 3%.  So yes, certainly if you are in that group you can manage a retirement because 95% of people have done it and will have to do it with significantly less.

There's also a very real survival bias in retiree data.

Some people work until they die or work until they can't anymore and then soon after that they die.

So all data on what retirement is like is going to have at least some degree of bias towards happy, healthy retirees.

[PhilB]

Building up (or allowing to build up) a cash position that provides for those expenses isn’t consistent with my desired AA.  We’ll know in 20 years whether that’s a good strategy or not!

When I first FIREd, I had a large cash cushion because of some life insurance proceeds from my Mom's passing, which coincidentally was just after I FIREd.  My initial FIRE plan was to always have six months of spending on hand in cash and to refill it every six months.

My thinking and plan has changed over time.  I now keep very minimal cash on hand and keep everything invested according to my overall FIRE AA.  I figure - rightly or wrongly - that the opportunity cost of having cash on hand for the majority of the time when I do not have an emergency or lumpy expense would be outweighed by the investment returns I could get by having it invested.

Over the past nine years, I haven't had an expensive emergency or a large lumpy expense, and the investment returns have me well ahead of the game so far.

I am now in the situation where I am thinking about a new car ($XXK), and my roof needs to be replaced sometime in the next few years ($12K), and my carpet needs to be replaced ($8K).  And I am sort of delaying those because I don't have a big pile of cash hanging around.  I could tap my Roth contribution basis if it didn't make me queasy to do so.

Another option that some people on other forums do is to finance lumpy expenses.  This usually spreads the cost out over multiple tax years, which spreads out the cash flow, which evens out the tax hit.  There's the interest cost, but that can be viewed as the convenience fee to obtain the tax benefit.

What I don't get is why you would particularly care about chasing more investment returns?  If you are several years post FIRE, then with the way markets have gone, you presumably have way more invested now than you originally planned.  Unless your original FIRE was very lean, I would imagine you are sitting pretty, so why not let some cash pile up. Particularly if you have a list of things that you want to spend it on.  If you've already won the game why keep playing?

Good questions.

Yes, I do have more invested now than I originally started with.  About 3x I think.

Most would view my AA as aggressive.  Personally I view it as conservative, because it is the AA that, given my particular financial situation, results in the safest historical WR situation for me.

Also, I realize that whatever I don't spend (which at this point is about 80% of what I have) will go to my kids, probably/hopefully 30 years from now.  Since I am essentially a caretaker for that money for them, I invest it in 100% equities based on that timeframe and their risk tolerances.

But you're right, I do need to get over my spending hangups a little better.  I'm working on it.

My situation is similar, with my portfolio hopefully being bigger when I pass it on to the kids than it is now.  What works for me is a clear separation between the perpetuity fund money and the 'my' money. 

The perpetuity fund is ~ 100% equities for the same reasons as yours, but my annual withdrawal from it becomes my money. If I don't spend it this year, I bank it for lumpy spending in future years.  It sits in cash to remind me that I'm allowed to spend it.  If I added it back to the portfolio, or didn't withdraw it. then I'd feel I could only spend my set percentage of it each year rather than all of it.  YMMV.

[TempusFugit]

Yeah, of course they do....because they are in the 5% the other 95% isn't retiring and will hold on to work as long as body and mind will let them, or go on disability. 

That’s hyperbole.  Surely you don’t claim with a straight face that 95% of people in US and Canada face that future.  95% of retirees retired with < $1M.  That’s not people working until death or disability. They retired already (not all by choice, I grant).

There’s a wide range of outcomes and I’m sure there’s a high percentage of people who either cannot retire, or who will struggle when they have no choice. But it ain’t 95%. Even if you granted that the entire lower class was in this predicament, and a healthy percentage of the middle class, that doesn't get you near 95%.

Things are bad enough without exaggerating the issue, IMHO. People need to be realistic but not doomers. 

[Villanelle]

… then the other 95% of America is SOL.

And yet, most retirees report being content and able to support their lifestyles.  Retirees are also, as a group, I think the wealthiest cohort in the US.  Expectations play a huge role, one would think. 

If you are retiring with $1M + you are definitely in the fortunate top 5%.  It may even be top 3%.  So yes, certainly if you are in that group you can manage a retirement because 95% of people have done it and will have to do it with significantly less.

There's also a very real survival bias in retiree data.

Some people work until they die or work until they can't anymore and then soon after that they die.

So all data on what retirement is like is going to have at least some degree of bias towards happy, healthy retirees.

Right.  The 75yo Walmart Greeter that gets mentioned 'round these parts isn't retired, isn't take a retirement survey, and likely isn't super satisfied with his life. 

And yes, 95% of retirees may have quit with <$1m.  But they are, in most cases, the ones who felt that was enough.  So perhaps that's $900k plus a paid of house, which is very different than $900k and renting or having a large mortgage payment.  (It's not clear to me if that $1m is net worth or assets outside a home and property, but either way, the renters are still in a different situation than the paid-off-owners.)  Perhaps they are the ones in LCOL areas, or who plan to live with their adult kids, or they have a pension.

It's silly to think that there aren't factors in the decision to retire that make it highly probable that the many of the people--at any level of bank balance--who retire are in better positions than the ones who don't, even if their investment account balances are the same. Not all $900k retirements look the same.  $900k at 72yo in Detroit, living with family who help with bills, in your paid-off house, with a pension check is a lot different than $900k in San Francisco at 62, with no family support, complex medical needs, and a significant disability that requires some costly modifications and adaptations.  The first person is far more likely to actually retire and fill out that glowing life-satisfaction survey than the second. 

So the ones who end up working as long as their mind and body and employer allow are likely right, in many cases, to think they need to keep working. 

[markbike528CBX]

My pre-retirement plan was to either spend or withdraw (and cash-save) 4%.

I have not done so.

I track our spending vs 4% rule/guideline.  Up till last year, we were very below that value, last year we were substantially above.
No sweat, as our 4% of current liquid worth is still higher than our current spend.

Special spending (house upgrades/major maintenance) and special circumstances (two nephews in college at the same time), dictated a bit higher spend.

Not worried yet :-)
 

[TempusFugit]

My pre-retirement plan was to either spend or withdraw (and cash-save) 4%.

I have not done so.

I track our spending vs 4% rule/guideline.  Up till last year, we were very below that value, last year we were substantially above.
No sweat, as our 4% of current liquid worth is still higher than our current spend.

Special spending (house upgrades/major maintenance) and special circumstances (two nephews in college at the same time), dictated a bit higher spend.

Not worried yet :-)

I’m not sure what the research shows but as you probably know, the 4% Rule of thumb isn’t 4% of every years balance, but 4% of the initial balance.   Probably lots of people update every year and in effect ‘re-retire’ but I don’t know if historically that gives you the same result. Might be better, might be worse. 

My intuition is that when markets are high, and CAPE is high, that you should probably be taking less than 4% and then when markets are low you take a little more.  That’s the determination that BigERN has made with his toolkit, I believe.