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Towards the bottom of Mr. Quinn’s lengthy thread on spreadsheets and budgets I mentioned that I expect to spend a bit under 1% of my portfolio this year. Dick said that he would feel nervous in that situation. I am not currently feeling nervous, but since that percentage will increase over time, maybe I should be. I thought I would ask my fellow contributors what they thought.
Some background: I agree with Dick in seeing my income as just Social Security, with COLA, and a company pension, with no COLA. In fact, the pension was frozen when I reached 30 years service in 2000, and has lost value ever since. I expect my SS to overtake it in a couple of years. It’s true, that at almost 78 I have been taking RMDs for several years, and the IRS considers that to be income, but since, after QCDs, I simply move the funds from my IRA to my brokerage account, I don’t. Equally, the interest and dividends in my brokerage account are on automatic reinvestment.
As I expect my medical costs to increase above the rate of inflation, and the monthly fees for my CCRC will probably do the same, I will need more than 1% from my portfolio in future years. I should mention that the portfolio exists solely to make up for the lack of a COLA on my pension. Leaving a legacy would be nice, but as I have no biological children it is not a priority.
If I take the current value of my portfolio (which has increased since the last time I looked), subtract a guesstimate $50,000 for what will likely be my last car and divide by 22 (years to 100), the result is 11.5% lower than my annual SS plus pension, before taxes. In other words, I believe I could nearly double my gross income without a risk of running out of money.
No doubt Dick would still feel nervous, but should I?
Longtime follower of Jonathon Clements, but rarely contribute. Always enjoy reading ‘mytimetotravel’ posts. I admire how well you have navigated through retirement. It is not particularly relevant to my situation, but I appreciate how you solve problems.
Rick Connor offered an excellent example of his mother-in-law’s finances. Spending $56k per year with savings of $675k or a burn rate of 8.3% per year. He used Excel to solve the problem using real return rates of 1% and 0%, 13 and 12 years respectively. I would simply divide $675 by $56 and get 12 years.
I studied physics in college and worked for 33 years as a geophysicist. In physics, we always make simplifying assumptions to make the math easy, e.g. frictionless surfaces or spherical cows. The trick is to make it as simple as possible, but no simpler. We really have no idea what our return rate or inflation rate will be, but use recent data as estimates. Using a real return rate of 0 makes the problem simple and is possible. The rate of inflation will about equal our investment return rate.
A 1% burn rate should last 100 years, given these assumptions. A 2% burn rate will last 50 years, etc. I think you should take a vacation.
John, I’m with you simplifying assumptions. I built the spreadsheet as a simple way to show the family the impact of real rates of return on portfolio longevity. It also helped answer the question why she had a modest amount of her portfolio in low cost index funds, to try and keep up or beat inflation.
I also ran the scenario through a few retirement planners, like MaxiFi, and a home grown one a colleague had built. Given her family genetics there was a real possibility she could live for many years needing even more expensive care. I know I worried more about her finances than I’ve eve worried about ours.
Absolutely makes sense. In my personal modelling I stress test around -1%, -2% real return over a 30 year horizon but if we believe in equity doing what it has done in the past then 0% or modelling in today’s money is a pretty conservative assumption.
It’s a problem I find with professional financial planners or tools – the inflation/RoI assumptions are obviously so critical and lead to an “impresssive” number of scenarios but the pros have no more actual insight over the time horizon concerned than we do.
Thanks! Love the spherical cows! Some people liken Continuing Care Retirement Communities to land-based cruise ships, so in a way I’m on a permanent vacation.
I saw a show once about a woman who retired on a cruise ship and lived on it permanently. When it was in dry dock, they temporarily moved her to another ship. She had been around the world dozens of times.
I had a few colleagues who did extended cruise trips. One couple did a trip the year after retirement. It was an LA to Australia 100 day cruise. 50 days at sea, 50 on land. They hit every South Seas Island I know of, New Zealand, and Australia. I remember him reviewing the cost with me, and it wasn’t absurd for loading and meals for 2.
Another friend did a semester at sea around the world trip after a layoff due to a plant shut down. He was one of a handful off “non-traditional” students. He loved it, and then came back to work for another 20 years. He was single and childless and he had the time. They sound exotic but I’m not sure I would like the extended time away, especially now with grandsons growing like weeds.
30 days was enough for me. I want to do an Atlantic crossing and return, but Connie is not keen on the idea.
You can still do that. Personally, I think I would hate an actual cruise ship, but my land-based one is working out just fine.
I can see some benefits, decumulation of stuff, rotation of a cast of people to meet and get to know.
I can’t conceive of a whole life like that though – the only escape being a day at a time in fleeting ports of call. 3-6 months maybe even a year possibly (if the personal tax prize was high enough to compensate for the “imprisonment”) but permanently?