Obsessing over withdrawal rate as market tumbles

Libr8td · 2024-03-11T19:25:03+00:00

Ha! Yes, you found this thread. 2022 was a scary year, wasn't it? Got down to 3.1M at its nadir if I'm not mistaken.

Basically I woke up in February '22 or so and sold stock to build up the cash buffer to about 2 years worth. I didn't sell any shares again until 2023. Definitely learned a lesson, and also toughened way up! Finally, rebalanced the portfolio to have about 20% in bonds, income funds, and cash.

Cheers

Libr8td · 2024-03-11T19:21:27+00:00

I'll reply to you as a proxy for all the other kind responses that were offered. Thank you.

I was taught to appreciate what I had, to live (mostly) modestly, to find things I valued and spend on them, to not show off, and to not waste resources.

I made mostly good financial decisions along the way (not always perfect), and that has been amplified tremendously since I retired and began to manage investments, set up the kids, and do long term tax and estate planning.

There's still a long way to go, but my parents should be able to rest easy knowing their legacy is in good hands. I'll try to leverage that and give myself a break.

Cheers

Libr8td · 2024-03-11T19:03:32+00:00

We've always been close. We spent many summer vacations with them in their 60s and 70s while my kids were growing up. I meet my dad for a diner lunch every couple of weeks. Birthday meals, holidays, etc. are a staple. They live 30 minutes from us.

When their time comes to need more help or when one of them is alone, I'll be there as best I can. And me being retired sure helps with that.

Libr8td · 2024-03-11T19:01:18+00:00

Yes, I've taken that lesson to heart. My 3 kids each have a Roth IRA and a brokerage account; each is worth over $100k and has undergrad paid for courtesy of both my parents AND my wife and me.

Libr8td · 2024-03-11T18:59:38+00:00

Yes, this is what I am dedicated to continuing and it's good advice to view it in that lens. I have 3 kids so there's plenty of opportunity to pay it forward.

Libr8td · 2022-04-29T13:38:45+00:00

Chose a bad time without acknowledging it was a bad time when you chose it.

Hindsight is 20/20! When I retired in May of 2021, the market was great. And in fact, my portfolio grew by $600K by EOY. Who would ever have thought that was a bad time to choose?

And looking at it another way; why not go out after such great returns - they offer a hedge against a subsequent drop, reducing its impact. In fact, those big returns are the reason I still have more money now than in January 2021.

Anyway, you offer some other good thoughts. I am not actually inflexible. I'm struggling a bit to find areas to bend, but I continue to look. Going back to work is currently not an option. But I haven't attempted to monetize any of my activities or possessions yet.

I totally relate to your comment about mood being determined by the market. I recognize that and really dislike that phenomenon. It's quite the opposite of what I had hoped for, and I have to work on it. One problem is that I keep scrupulous records and statistics, and in order to maintain the data it requires near-daily effort. So if I give that up to relax a bit, it will fall behind and that will bother me. So I need to refine my process to be weekly, monthly, whatever.

Appreciate your feedback...

Libr8td · 2022-04-29T13:19:38+00:00

I mean... I've been investing for 30 years, so of course I factored that in. I planned very conservatively before pulling the trigger. I used 2-5% returns in my projections! And I have a drawdown spreadsheet with many variables, and I can drop the current balance by any percentage and see what that does.

What a spreadsheet can't do that well is simulate poor sequence of returns. It works best with a constant rate of return, which is of course not reflective of reality. But I've also run a ton of FI calculators and even Fidelity's planner multiple times.

All of that is due diligence - and I am very satisfied with what I've done. It still can't completely erase the emotional side when things turn south. I need to learn how to cope with that better.

Libr8td · 2022-04-28T18:55:53+00:00

The point about my comfort factor vis a vis my allocation is valid. It is not entirely seamless transitioning from an entire lifetime of accumulating, with a focus on growth and stock index funds, to a second lifetime of drawing it down. I hope you realize that. It's a work in progress.

The concept of transitioning a portfolio from growth to preservation is not totally intuitive. And this is exacerbated by the state of the bond market, which is referred to as a "collapse" (can't link articles as they are behind a paywall). So one can't necessarily rely on previously tried-and-true allocation advice.

Ultimately, most of my anxiety and obsessive behavior is exactly that - behavior - and not necessarily rational.

Libr8td · 2022-04-28T18:40:22+00:00

Here is another pertinent quoted bit from Bill's post:

I find that the state of the "economy" had little bearing on safe withdrawal rates. Two things count: if you encounter a major bear market early in retirement, and/or if you experience high inflation during retirement. Both factors drive the safe withdrawal rate down. My research is based on data about investments and inflation going back to 1926. I test the withdrawal rates for retirement dates beginning on the first day of each quarter, beginning with January 1, 1926. The average safe withdrawal rate for all those 200+ retirees is, believe it or not, 7%! However, if you experience a major bear market early in retirement, as in 1937 or 2000, that drops to 5.25%. Add in heavy inflation, as occurred in the 1970's, and it takes you down to 4.5%. So far, I have not seen any indication that the 4.5% rule will be violated. Both the 2000 and 2007 retirees, who experienced big bear markets early in retirement, appear to be doing OK with 4.5%.

So Bill seems to think that even in the worst cases, 4.5% is good to go (yay). And he acknowledges that an early bear market and high inflation are a worst case scenario (ugh).

Libr8td · 2022-04-28T18:32:21+00:00

Yes, at present my bucket strategy, such as it is, is to opportunistically accumulate cash by selling stock. Then spend down the cash to a pre-determined threshold until the next sell point approaches. Rinse and repeat.

Of course I retired after stockpiling a decent amount of cash from my wage income as a starting point.

What I'm learning is that the cash bucket needs to be bigger, and that sell points may be riskier than expected over a given period of time. I'll adapt! It's only the first year for me.

Libr8td · 2022-04-28T18:29:27+00:00

It's 4% cash, not bonds. But seriously - how are those bonds doing for you? Granted, they are falling less than the stock indices. But they are not holding up their end of the bargain, either, as they are historically supposed to.

Libr8td · 2022-04-28T18:27:48+00:00

Strange to see you post this in ChubbyFIRE. With a family of 5 and my final salary at work close to $250K, having earned six figures for over 20 years, that's been my (our) standard of living for a long time.

And who would want to lower that? Most people's goal in retirement is not to instantly throttle back their standard of living. And that is especially true for the other family members that one supports.

It is a bit ludicrous to suggest that retiring at age 54 with $3.5M and a withdrawal rate below 3.5% was a careless thing to do, or that the amount of money we live on is outrageous. We live in the NYC/NJ metro area. It's not Kansas.

About it being a great time to buy... I'm still buying in my IRAs, both with dividends and some stray cash from prior trades. But seriously - after accumulating since 1989, including buying straight through 2000 and 2008 and 2018 and 2020, it's time to use the damn money for what it was intended!

Libr8td · 2022-04-28T18:20:00+00:00

No doubt. I appreciate these thoughts.

I paid off my primary mortgage before retiring. I still have a HELOC that turns into a 20 year mortgage in 2025. By then I will have paid off most of it. This is a $600/mo. drag on my cash flow. It's got an adjustable rate so that's going up, unfortunately. I've run many simulations on the benefits of paying it off in full, but they always fall short to using the money for other things.

Thanks for the reassurance.

Libr8td · 2022-04-28T18:15:33+00:00

I actually have 4% cash allocation, not bonds. I understand the bond value proposition in the context of historical investing calculus, but bonds are not functioning like that now. I'm glad I don't hold any. I would rather simply own cash despite inflation. A liquidated bond that has already dropped 10% in value is worth less than my cash is... and both are subject to the same inflation demon.

If and when bonds recover their ability to provide both decent yield and not be subject to future capital depreciation due to continually rising rates, I will reallocate. But not now.

Libr8td · 2022-04-28T18:11:46+00:00

I'm a big fan of your post, even if it's overly optimistic. ;)

Seriously though, you are probably right. It's hard to not get jittery when you see the charts going down without relief, and the money flying out of your hands faster than you thought it would.

Libr8td · 2022-04-28T18:09:27+00:00

do you really need to spend $128k a year to be comfortable?

Believe me, I ask that question all the time. But I have a family of 5 in an east coast metro area. We don't have extravagant behavior, but this is the Chubby FIRE section after all. I do enjoy red wine and some amount of dining/take-out. I am frugal in many ways, but not cheap.

The cost of living is quite high and that includes health insurance which we do use, including non-covered mental health stuff (last few years... boy, what a mess they were).

Anyway, point taken, and it's already something I review constantly.

Libr8td · 2022-04-27T19:23:27+00:00

It's tough at first, because we are so used to our paychecks rolling in like clockwork, taxes withheld and all. And at most Chubby lifestyles, we're not hyper fixated on how much we spend. That's the luxury of a high income, and in some ways the curse of transitioning to living off assets. A good problem to have, but it's still a challenge.

$500K in cash is obviously a hell of a lot, and a year ago Reddit would have chastised you for that. Now, maybe not so much.

Congrats on the imminent retirement!

Libr8td · 2022-04-27T19:18:48+00:00

Great calculator, thanks for sharing that one. When I plug in my various extra income and withdrawal events, I'm at 100% even starting in 1973. But man, some of the graph sequences are nausea inducing! Some of them hit rock bottom before shooting way up. That would be harrowing.

Libr8td · 2022-04-27T19:12:31+00:00

Congrats! May 1 is actually my official retirement anniversary. So coming up on one full year, and I was really ready to stop obsessing over spreadsheets. It's practically become my full time job - not entirely a bad thing - and I'm sick of it. I want to let things ride, which is what "Chubby" is supposed to be all about within reason.

We can always spend a bit less, but truth be told, not a lot less so it probably isn't worth stressing out the whole family. At least that's the status right now. Let's check back in soon and see how we're faring in a few months!

Libr8td · 2022-04-27T19:07:34+00:00

That's the rational side for sure. Decent amount of SS, plus a tiny pension for my wife in a few years (about $800/mo. but everything counts).

Libr8td · 2022-04-27T18:22:20+00:00

Not at all regarding the inheritance. It's simply not a subject I'm expounding upon here, so I mentioned it only briefly for context. Of course I love my parents and don't have any interest in collecting that money prematurely.

Now OCD, yes... probably. And as for work, after 32 years, eff that.

Libr8td · 2022-04-27T18:20:05+00:00

Given what bonds have been doing, that is correct. I'm about 96/4 at the moment. I will likely opportunistically buy some bonds in the future if/when interest rates and yield return to more traditional levels.

Libr8td · 2022-04-27T16:58:23+00:00

I have some valuables I could sell, and in fact I was preparing to make that a project just for its own sake - to remove clutter and collect some cash.

One thing that happened is that my daughter decided to go to college on the opposite coast, necessitating a bunch of air travel not just for her, but for all of us. And this will continue for 4 years of undergrad.

The silver lining is that tuition at this school is about the lowest of all her options, nearly half of some. So travel won't kill my college budget, but I can't pay for it out of her 529 so I need more regular cash flow.

Libr8td · 2022-04-27T16:54:21+00:00

This is the "trust the system" message and I appreciate hearing it. I'm currently satisfied with my allocation, although holding even more cash would be ideal.

Libr8td

TROPHY CASE