Portfolio Spend Down

[steelpony10]

         I just listened to this “expert” and I see no hint if this would work for retirees if a market like this lasts 5-10 years. She also is  still recommending foreign investments. I compared her recommendation to VTI and this seems like really poor advice also.

         wealthtrack.com/build-a-better-more-resilient-retirement-portfolio-with-morningstars-christine-benz/#more-25578

         Why I’m at it is anyone using the 4% rule to spend down based on blind faith in past studies? 

          Spend down always scared me since Stagflation and the flash crash in the late 80’s which in part led me on another path leading into retirement.  If I had chose to spend down I would have gone into skinflint mode in 2020 and waited things out until the smoke cleared which seems to have been a bad choice also.

           If anyone asked and they’re not looking for a part time job what would be sound advice to novices that prefer to spend down?  As far as investments I would probably say VTI or VOO, my muni fund VWAHX and 1-2 years cash with distributions going to cash., 55/35/10.

[steadyeddy]

steelpony10, agree that many on this forum have developed their own portfolio to manage their retirements. One size doesn't fit all. I am picking up more bond funds now than I did prior to 2022 rate hike cycle. The cash yields and bond yields pose a hurdle to potential equity gains going forward.

So, I design my own cow-food and eat it.

[win1177]

“Spend down” always scared the CRAP out of me!!! Part of that was growing up relatively “poor” in Georgia (lower middle class according to my wife, who was much better off), our Dad basically abandoned our mother, who was a school librarian with five kids to raise. We struggled financially when I was in high school, and she really worried about paying bills, making ends meet, etc. I was the oldest, so I think I internalized a lot of that anxiety.

Anyway, I always planned to save WAY more than I would need to retire, and fortunately we did. I retired last year (beginning 2022), and so far we have just lived off income (dividends/ interest) plus my pension as a Professor at the local University Medical School. The pension is OK, but it does provide some “stability”. Have NOT started SS, will wait at least another year or two (age 64 and 1/2). May wait until 70? We have a pretty large portfolio, and so far it has generated more than we need. Travel is starting to increase, but we are doing fine.

My plan is to continue to live off dividends/ interest, NOT touch principle unless we need NH, big health issue, etc. So far, our portfolio has continued to grow in retirement. Plan to leave to kids/ charity. I would NOT be comfortable with 4% withdrawal, except maybe late in life.

Win

[richardsok]

"Spend down" is anathema to me as well. My lifetime plan is keep gaining and to never spend more than half of what my portfolio generates in gains + divs. (Better if I spend only a third or less.) If I have a negative year, I will live solely on pension + SS + required IRA withdrawal, as by themselves they are still enough -- but with inflation continuing, who knows?. If mental decrepitude or LTC becomes an issue, my wife will take me to live in Colombia. I always wanted to try fly fishing in Colombia's mountain rivers. I understand they have some monster fish -- really vicious fighters. But all I really need is a balcony with a view, a fast internet connection and a few books.

With inflation relentless, I have this never-ending fear (neurosis?) that whatever I leave to my heirs will not be enough.  I love them dearly, but investment-wise, they are hopeless.

[Deleted]

Twenty five years ago I started modeling my retirement. I modeled three scenarios....me alone, my spouse alone and us together. Worst case was my spouse alone since she has been a homemaker the whole time. I decided I could not retire until that worst case scenario was was planned satisfactorily. That was the only scenario that required a minimal draw down. We are both around 16 years into retirement and those 16 years of draw downs are now party money. We are very fortunate.
My two children, Physician and Co. Controller, are doing very well income wise but only one is saving appropriately and it's not the accountant.

[Chahta]

Why is the assumption that 4% is spend-down mode?

[Chahta]

Apr 4, 2023 16:11:37 GMT win1177 said:

“Spend down” always scared the CRAP out of me!!! Part of that was growing up relatively “poor” in Georgia (lower middle class according to my wife, who was much better off), our Dad basically abandoned our mother, who was a school librarian with five kids to raise. We struggled financially when I was in high school, and she really worried about paying bills, making ends meet, etc. I was the oldest, so I think I internalized a lot of that anxiety.

Anyway, I always planned to save WAY more than I would need to retire, and fortunately we did. I retired last year (beginning 2022), and so far we have just lived off income (dividends/ interest) plus my pension as a Professor at the local University Medical School. The pension is OK, but it does provide some “stability”. Have NOT started SS, will wait at least another year or two (age 64 and 1/2). May wait until 70? We have a pretty large portfolio, and so far it has generated more than we need. Travel is starting to increase, but we are doing fine.

My plan is to continue to live off dividends/ interest, NOT touch principle unless we need NH, big health issue, etc. So far, our portfolio has continued to grow in retirement. Plan to leave to kids/ charity. I would NOT be comfortable with 4% withdrawal, except maybe late in life.

Win

Way to go....you showed your old man!

This is the first time I have heard this part of your story. I thought you just another wealthy doctor. 

[steelpony10]

steadyeddy,win1177,richardsok,

You get the feeling few manage their retirement savings like those two examples then? I know we all invest differently. I was wondering how those 2 types do things.

My brother in law was asking questions this past weekend. I basically told him I do things differently which took more money and some would say involves more risk. He liked the reward but not the risk of course. I then said you want to spend down instead? So I wanted more facts to tell him how those types do it besides scrimping by afraid to spend money.. As an aside he’s what I call loaded, they both have poor health and habits, spend frugally which apparently is the plan. I thought those were the two most common methods.

[Mustang]

The Bucket Approach. I've read about it before. It can be a spend down withdrawal method. There are only a couple of methods that aren't. For dividend/interest only withdrawals the investor either needs a portfolio big enough to meet his needs or else he needs riskier investments with higher yields. With a variable or dynamic method The investor needs to accept the possibility of getting less than desired income half the time.

And yes I intend to use a modified version of the 4% Rule. It isn't blind faith if you dig in and understand it. Like everything else that is rational, it is based on past studies - Bengen (1994),Trinity Study (1998) and Wade Pfau's update of the Trinity Study (2018) are three. These studies used historical data. All of them found that 1968 was one of the worst times to retire. That retiree was immediately hit with two big bear markets (1969-1970 and 1973-1974) and high, often double-digit inflation.

The 4% Rule is a fixed dollar withdrawal method. 4% is only used during the first year to determine the dollar withdrawal. The dollar withdrawal is then increased each year for inflation. It is called the 4% Rule because that is the maximum safe withdrawal during the worst 30 year retirement period in history. An initial withdrawal rate of 7.5% was OK for an average 30 year period and 10% could have been used for the best.

The greatest risk to a fixed withdrawal method is a sequence-of-return failure. There are studies that break a 30 year retirement into thirds. These studies show that average returns mean nothing. Three scenarios all having the same average return can have significantly different results. The greatest chance of failure is when returns are low and inflation is high during the first 10 years of retirement. This is exactly what happened to the 1968 retiree and why his portfolio would have failed if he had taken the average initial withdrawal of 7.5%.

Studies have also shown that sequence-of-return problems occur when the investor retires at the peak of a bull market. The initial dollar withdrawal is to large to be supported by the bear market's lower returns.

But history is history and we all know that history doesn't repeat itself exactly. Analysts are now using Monte Carlo simulations to try to predict the maximum safe withdrawal rate. Using historical data show past success rates. Using simulations show probabilities of success.

John Rekenthaler wrote (The “Math for Retirement Income Keeps Getting Worse: Revisiting the 4% Withdrawal Rule,” Morningstar, October 8, 2020) that in 2013 he thought everything was OK. He now thinks we are in changing times. He compared a 2013 retirement to a 2020 retirement. He said in 2013 the yield on treasury bonds was 3.6% and inflation was 2.3%. That made the real return 1.3%.

As for stocks, Rekenthaler said in 2013 the price/earnings ratio of the S&P 500 was 17. In 2020, it was 27. According to the Shiller CAPE (Cyclically Adjusted Price Earnings) ratio he was using that meant the market was overvalued, that prices were too high and a correction was coming. (He was correct.) Using Buffet’s forecasting formula he tested the 4% Rule using a portfolio of 50% S&P 500 stocks and 50% treasury bonds and it lasted the entire 30-year payout period. In spite of his eye catching headline his analysis showed the 4% Rule worked.

Chistrine Benz and John Rickenthaler (“What’s a Safe Retirement Spending Rate for the Decades Ahead”, November 11, 2021) found that the initial withdrawal needed to be 3.3% for the portfolio to last 30 years. They also pointed out that the initial withdrawal rate could be increased from 3.3% to 3.9% (an 18% increase) by reducing the probability of success from 90% to 80% or by using lower than inflation annual increases. This analysis assumed we were nearing a peak and their data inputs reflected lower future returns would.

In December 2022 Benz and Rikenthaler updated their study (What’s a Safe Withdrawal Rate Today?, Morningstar) they said, “equity valuations declined and cash and bond yields have increased.” With updated computer inputs they said an initial rate of 3.8% is safe with a 90% probability of success even after factoring in more inflation. This went to 4.3% ( a 13% increase) with inflation adjustments one percentage point lower than inflation.

Not only does historical data suggest that a 4% initial withdrawal is safe but so does Monte Carlo simulations that predict future returns.

Remember, 4% is specifically for the worst 30 year retirement period in history. In an overwhelming number of the scenarios the retiree is left with a sizable ending balance.  It can be a spend down withdrawal method because it provides a stable inflation adjusted income.  But it usually isn't.

One last thought: 30 years takes someone who retires at age 65 to 95. Average life expectancy is around 74 for men and 81 for women.

Using the 4% Rule doesn't have anything to do with blind faith if you have done your research.

[steelpony10]

Chahta ,

      So isn’t the method 4% or your personal inflation rate now plus a a personal inflation rate yearly raise? It works because that’s what my parents wanted, just break even each year. When the s**t hit the fan when my mom turned 90 (got to the other side of the U shaped spending pattern) I had to take on more risk for her, CEF’s. I don’t think that is the time to do that. I left the option of backing off risk at a later stage by doing the reverse.

       win1177 ‘s story has been around for awhile wippersnapper. I think he’s younger then you.
      

[steelpony10]

Mustang ,

    I was hopping you’d chime in. That outline might be tough to explain to novices. That’s why I say blind faith but you are correct.

    How does the 4% method or bucket system apply or perform when monthly needs go from 3k to 6k a month then 10k a month two years later? If one makes it past 85 to the other side of the U spending pattern in a possible life span how can those be modified to handle those situations? Income, the higher the better or a set aside, puts a break on the downward spending slide so can those 2 methods be adapted for a better outcome?

[Deleted]

My personnel story is close to Win, no Father in picture he left us when I was 3 years old. My Mom raised us (2 brothers). She never got married again. This is the reason I felt financially unsecured even when I was working and thus saved a reasonable amt over years. I don't follow any % withdrawals. I started putting my expenses on xls sheet, 3 years before the retirement to get an idea what is needed. I have been retired for couple of years now, wife claimed SSN and withdrawing may be 1% from 401K. I saved enough cash to live for at least 5+ years before retirement (this is my comfort level, all in MM making 4% or so). I have not touched my 401k and taxable accounts yet. Plan to do Roth conversion for at least 3 more years or if I run out of my cash. We have 3 houses, two in WI (house and a cottage) and one in FL (we spend winters in FL). I also started increasing my monthly withdrawals totaling 1% per year, so far it is good.

[Fearchar]

Spend down is divisive topic. There are people with more than they need. So much so that spending 4% is excessive. Very excessive especially if one is accustomed to living modestly.

Others have far less and will have needs prompting the spending of 4% or even more.

If markets are good, then 4% is plausible, but only if markets are good. So, the risk is much greater for people without as much.

[retiredat48]

Whew, count me in the rarified air SPEND-DOWN CAMP.

Look, there is the "olden way" to retire, and the new FIRE way.

The olden way is that the retiree wanted his social security, pension, dividends and income, to equal his annual spending.  If so, OK to retire. Most of my fellow GE employees retired with this view.   Problem is most worked to age 65 or beyond.  (Many only lived two more years).

New way is to incorporate the concept of drawdown...drawing down some assets to live on, annually if necessary, to retire, and the notion of in rare cases have death coincide with becoming penniless.

This new way was studied by various guru's (I like James Otar's work and details), who developed a Safe Withdrawal Rate whereby portfolios would last for 30 years, incorporating drawdown, without running out of money.  That is, an age 65 year old retiree getting to age 95.  Most studies converge on a 4% SWR, increased for inflation annually, and an asset allocation of between 60/40 and 40/60.  Success is above 99%...very few failures.  Studies covered all periods back to let's say 1920.

I did not have or was aware of these studies when I retired 30 years ago.  I did my own analysis and concluded, with drawdown, I could get from age 48 to age 88 with about a 20% chance of running out of money.  Of course, would still have a pension, and (increasing) Soc. Security...so not penniless.  Plan if this happened was to call out kids and tell them to come and get us!  Also could envision an inheritance on wife side, but her 103 year old mother lived to just two months ago. ( A rare outcome).  Did not count on it to retire.

I needed about 7+% to live on, from age 48 to age 60, when a GE pension would kick in.  Then reduce takeout, and at age 62, SS kicks in, permitting lessor takeouts.  Biggest unknown was the inflation rate to assume in computer runs.  Guru's were urging 6% inflation in early 1990.  I used 4.5%.  Actual inflation during this period was less than 4%.  Note also I could always go back to work doing something if needed.

Bottom line results...made it to age 78.  Portfolio now at least triple in size (no permanent drawdown occurred).  Own three houses.

A contingent of younger people in ages 20's to 40's have adopted a FIRE goal.  Financial Independence Retire Early.  Google it.  Most will absolutely count on some degree of "drawdown."  Like why does anyone want to work longer only to leave a huge portfolio to heirs (the old fashioned way)? FIRE people save hugely, spending little, and let it all go when financially independent.

BTW my three daughters will use a degree of FIRE.  Each at age 50 now, oldest (with hubby) is financially independent; others close.  When second granddaughter goes to college in 2 years, my oldest daughter is heading back out to the high seas on a saliboat, to live. 

Not for everyone, but for many today, who are actually saving less for retirement, drawdown may be the ONLY WAY for them to retire at a reasonable age.  Change your mindset, folks...don't work until you die!

R48

[habsui]

This calls for a definition of spend-down.

If one makes 8% per year, inflation let's say is 3%, why would 4% spending equal spend-down?

It sounds that some people define living off dividends only as not spend-down.

[Mustang]

Apr 4, 2023 18:39:29 GMT steelpony10 said:

Mustang ,

    I was hopping you’d chime in. That outline might be tough to explain to novices. That’s why I say blind faith but you are correct.

    How does the 4% method or bucket system apply or perform when monthly needs go from 3k to 6k a month then 10k a month two years later? If one makes it past 85 to the other side of the U spending pattern in a possible life span how can those be modified to handle those situations? Income, the higher the better or a set aside, puts a break on the downward spending slide so can those 2 methods be adapted for a better outcome?

The purpose of any fixed withdrawal method is a stable, livable income.  You mentioned the U spending pattern, I'm assuming you are talking about the study that shows retirees spend 1% less per year in their 60s, 2% less per year in their 70s and 1% per year in their 80s.  The increase part of the U is late in life health care.

Unless an investor has a very large portfolio and a small spending budget I don't know of any withdrawal method that can jump permanently from $3k to $6k and then to $10k without impacting principle.  If an investor's portfolio has enough dividends/interest to support $3k per month it can't just magically become big enough to support $6k.  The way to get that jump is to have a portfolio that could have supported $6k to begin with but not spend it.

All of the studies talk about "maximum safe withdrawal."  The 4% Rule is the maximum safe initial withdrawal for 30 years.  Taking less is always an option. There are a couple of different ways to take less: start with a lower initial withdrawal rate (i.e. 2%) or take less than full inflation increases each year.  Using 4% as the initial withdrawal rate an investor with a $1M portfolio can start with $3,333 per month.  If that is absolutely necessary to put food on the table then reducing the initial withdrawal rate is not a viable option. But someone with a $2M portfolio can have a 2% initial withdrawal rate if all they need is $3,333 per month.  If the portfolio is large enough then one option is to divide it as to purpose: one sleeve for retirement and another for to bequeath to beneficiaries or use for late in life health care.  $1M each,  I've read that the average stay in a nursing home is three years.  My half-brother stayed five years.

In my succession plan I have recommended dividing her portfolio and using 1% point less than inflation increases each year.

[FD1000]

If your portfolio is big enough then everything work for diversified hardly trading portfolio. This means 20/80 to 80/20 will make it.
If you don't have enough, you must be in mostly in stocks, because stocks will do the best during the next 30 years.

The tough one is in the middle.  The best way is always looking at risk-adjusted return portfolio. The biggest mistake could be depending on higher income.
Last year was a great example of that. 
If a retiree depended on 50/50 SPY/BND, she lost about 15.5%.
If she invested for high income and used PDI/SPY, she lost even, about 17.5%, and that included huge income. Your $500K portfolio at the end of the year was lower by 17.5%.
If she invested in MM=VMFXX, she made only 1.55% with the lowest income, but TOTAL performance was 1.55%.
What portfolio was the best?

Conclusion: risk-adjusted return will always be the main criteria first.

=============
It was an excellent summary by mustang !!!!
BTW, a good portfolio that builds around risk-adjusted return DO NOT need 2 years of cash, far less than that.

=============
The following real life story proves that a 2 simple fund portfolio survived a lost decade for the SP500 during 2000-2010 with huge 50+% losses twice, without any cash, no trading, no high income, no fuss.  see (fd1000.freeforums.net/thread/11/simple-case-when-retirement)

[steelpony10]

habsui ,

         There were a few posters 15-20 years ago that lived for Monte Carlo simulations and the 4% rule of the past. I was just interested if any were still around and how that worked out. As Mustang pointed out those “studies” were being reevaluated. All this stuff seems way more hands on to manage as we age so we found another way for us that seems more feasible for us and was easy to pick up the basic process.

[Mustang]

Apr 4, 2023 20:56:13 GMT habsui said:

This calls for a definition of spend-down.

If one makes 8% per year, inflation let's say is 3%, why would 4% spending equal spend-down?

It sounds that some people define living of dividends only as not spend-down.

Typically, spend down is a reduction in principal to make the portfolio last the entire payout period.  A success is not running out of money.  A failure is depleting the portfolio before the end of the payout period.

P.S.  I've read the FIRE articles.  Good information.

[steelpony10]

Mustang

       We use a barbell set up, one side is HY to live on as long as possible without spend down along with SS and the other as a reserve, equities and a muni which have been on reinvestment for a long time. The reserve can be converted to HY or used for spend down. My parents each had a stay in LTC.

[Chahta]

Doesn’t 8% of X equal 4% of 2X?

[Chahta]

“The tough one is in the middle. The best way is always looking at risk-adjusted return portfolio. The biggest mistake could be depending on higher income.
Last year was a great example of that.
If a retiree depended on 50/50 SPY/BND, she lost about 15.5%.
If she invested for high income and used PDI/SPY, she lost even, about 17.5%, and that included huge income. Your $500K portfolio at the end of the year was lower by 17.5%.
If she invested in MM=VMFXX, she made only 1.55% with the lowest income, but TOTAL performance was 1.55%.
What portfolio was the best?”

It doesn’t matter if she doesn’t care about the value of her portfolio. She lives on the income, as long as the income is excess to needs. However the excess to needs better be big enough to count in a long time because the value of the portfolio cannot be touched.

[Deleted]

"Everyone has a plan until they get punched in the mouth.”

Mike Tyson

[retiredat48]

Apr 5, 2023 0:27:54 GMT @axe said:

"Everyone has a plan until they get punched in the mouth.”

Mike Tyson

And what if you had a plan, and three decades later you were never "punched in the mouth."??

R48

[FD1000]

Apr 5, 2023 0:11:02 GMT Chahta said:

“The tough one is in the middle. The best way is always looking at risk-adjusted return portfolio. The biggest mistake could be depending on higher income.
Last year was a great example of that.
If a retiree depended on 50/50 SPY/BND, she lost about 15.5%.
If she invested for high income and used PDI/SPY, she lost even, about 17.5%, and that included huge income. Your $500K portfolio at the end of the year was lower by 17.5%.
If she invested in MM=VMFXX, she made only 1.55% with the lowest income, but TOTAL performance was 1.55%.
What portfolio was the best?”

It doesn’t matter if she doesn’t care about the value of her portfolio. She lives on the income, as long as the income is excess to needs. However the excess to needs better be big enough to count in a long time because the value of the portfolio cannot be touched.

An example is the best proof. Suppose a retiree has $550K needs $50K annually adjusting for inflation from her portfolio.  She has only 2 choices: SPY or PDI. If she selected the income choice, PDI, because only PDI can support he needs, she made a terrible choice.
She started the above in 01/2013(10+ years).  The PV results (link) show that her PDI portfolio shrank after 10+ years to just $416K+ while SPY finished with $813K+. 
BTW, the income of PDI was larger than what she needed in the beginning, but if the portfolio shrink, it may not support her for 30 years.

The lesson is: income should never leads your decision, unless your portfolio is big enough, as I said in my first post, but then why use income? The TR risk-adjusted portfolio is a much better choice.
TR has been, and always will be the golden standard of investing. Income can be considered after risk-adjusted returns. High income isn't a guarantee for better performance or better risk-adjusted performance, so why selected as the main, first choice? 

[Deleted]

Apr 5, 2023 3:26:28 GMT retiredat48 said:

Apr 5, 2023 0:27:54 GMT @axe said:

"Everyone has a plan until they get punched in the mouth.”

Mike Tyson

And what if you had a plan, and three decades later you were never "punched in the mouth."??

R48

Clairvoyant and brilliant

[steelpony10]

     I guess other then Mustang , there aren’t any other bucket investors or 4%ers posting here.

      Personally I don’t think investing methods based on past facts are reliable to address personal needs unless constantly tweaked when personal facts change as one ages. Of hand boiler plate stick to the past recommendations seems like really bad advice. Evidently this is a two part series of bad advice in my opinion.

[Mustang]

Apr 5, 2023 10:28:30 GMT steelpony10 said:

     I guess other then Mustang , there aren’t any other bucket investors or 4%ers posting here.

      Personally I don’t think investing methods based on past facts are reliable to address personal needs unless constantly tweaked when personal facts change as one ages. Of hand boiler plate stick to the past recommendations seems like really bad advice. Evidently this is a two part series of bad advice in my opinion.

There are a lot of old sayings about the effectiveness of a plan.  My favorite is "A plan is only good until first contact with the enemy.  After that you have to innovate and adapt."

The only withdrawal method that is a start and forget method that I know of is RMDs.  The government is very specific about them. Even then if needed you can take more but not less.

Bengen did his original analysis because advisors were using averages to determine client withdrawals and some clients were going broke.  But the 4% Rule isn't a start and forget method.  Based on his findings, Bengen recommended that a portfolio be between 50% and 75% stock for the best chance of success.  This asset allocation has been confirmed by other studies.  The FIRE articles recommend a higher proportion of stock.  But that is because early retirement requires a longer payout period such as 40 years, not 30.

In spite of his study, I have read reports that Bengen sometimes took his clients to 100% cash. He adapted to market conditions.

Micheal Kitces once wrote that a 50% probability of success can be acceptable but he re-defined what the probability of failure meant.  It didn't mean the retiree ran out of money.  It meant that there is a 50% chance that changes will be necessary.  A 90% probability of success still leave a 10% chance that changes will be needed.

There is a very easy way to check to see if withdrawals are going according to plan.  In general the initial withdrawal can be 3% if planning a 40 year payout, 4% for 30 years, 5% for 20 years and 6% for 15 years.  These withdrawal rates have been shown to have a 99/100% success rate.  Since the worst case scenario doesn't happen all the time most investors will find they are building portfolio value not spending it down.

But when is it safe to increase withdrawals? Kitces discovered that any time the account balance grows 50% above of its starting value (after withdrawals), the portfolio is already far enough ahead that it won’t be depleted during the 30-year payout period. This provides room to ratchet the withdrawals higher, but it’s important to not go too fast or the higher spending could overwhelm available assets. To avoid going too fast the increase should occur only once every three years and only 10% (or less) over and above the regular inflation increase.

I don't believe either the bucket approach or the 4% Rule were ever start and forget withdrawal methods.

Everyone has their own opinions.  I personally dislike annuities.  I think they are poor investments.  But I can see where annuities could be exactly what the retiree needs.  They guarantee income for life.  The drawback is the retiree's heirs get nothing when he or she dies.  Even though I dislike them I am purchasing an annuity for my wife.  Monthly payments are taken from my military retirement and when I die she will continue to receive 55% of my retirement pay.  If she dies first it was wasted money.  But I don't care.  We don't need the small monthly premium but she will definitely need the annuity payments if she doesn't.

A retiree doesn't have to have just one withdrawal method.  Mix and match them it that is what better fits your goals.

[mnfish]

From Wikipedia - Retirement spend-down, or withdrawal rate, is the strategy a retiree follows to spend, decumulate or withdraw assets during retirement.

Wouldn't one conclude from the above that "spend-down" is in-fact a plan to deplete your assets? If you don't want to deplete your assets then you need to adjust your spending so you can live off of SS, divs and interest, hustling pool, etc. If you're 87 and have $2M in assets you may as well figure out a way to start getting rid of it in a hurry and do it before the 5 year "look back" period for Medicaid nursing home care unless you feel obligated to pay your fair share of the cost which will probably be $500 a day on average in 5 years.

Mustang , "But someone with a $2M portfolio can have a 2% initial withdrawal rate if all they need is $3,333 per month. If the portfolio is large enough then one option is to divide it as to purpose: one sleeve for retirement and another for to bequeath to beneficiaries or use for late in life health care. $1M each, I've read that the average stay in a nursing home is three years."

IMO and what I do, is if you care about your beneficiaries then the time to give is now (a little each year). You can only hope they've listened to you over the years about being prudent with money and if they piss it away then that's on them.

[win1177]

Apr 4, 2023 17:56:03 GMT Chahta said:

Apr 4, 2023 16:11:37 GMT win1177 said:

“Spend down” always scared the CRAP out of me!!! Part of that was growing up relatively “poor” in Georgia (lower middle class according to my wife, who was much better off), our Dad basically abandoned our mother, who was a school librarian with five kids to raise. We struggled financially when I was in high school, and she really worried about paying bills, making ends meet, etc. I was the oldest, so I think I internalized a lot of that anxiety.

Anyway, I always planned to save WAY more than I would need to retire, and fortunately we did. I retired last year (beginning 2022), and so far we have just lived off income (dividends/ interest) plus my pension as a Professor at the local University Medical School. The pension is OK, but it does provide some “stability”. Have NOT started SS, will wait at least another year or two (age 64 and 1/2). May wait until 70? We have a pretty large portfolio, and so far it has generated more than we need. Travel is starting to increase, but we are doing fine.

My plan is to continue to live off dividends/ interest, NOT touch principle unless we need NH, big health issue, etc. So far, our portfolio has continued to grow in retirement. Plan to leave to kids/ charity. I would NOT be comfortable with 4% withdrawal, except maybe late in life.

Win

Way to go....you showed your old man!

This is the first time I have heard this part of your story. I thought you just another wealthy doctor. 

Ultimately I will inherit a small amount of money from my moms trust, which I helped her set up in her later years. To date, no inheritance, I paid my own way through college, med school, etc. Had to borrow for med school, but paid it off w/in 8 years. I invested and  managed my moms trust and (fortunately or lucky?) managed to hit a few “home runs” in her account. It grew to over 2 million, which will be split five ways. But I don’t need the money, it’s “extra” for us. So it will go to heirs. Main issue I have to do is work on my daughter, who spends WAY too much. Try to get her to rein it in before she inherits this large chunk of money. 

Win