I want to add my thanks; it was a clear explanation, and interesting reading.
On Sun, Oct 6, 2024 at 4:22 PM Bruce Griffis <bruce.grif...@gmail.com> wrote: > That is a great explanation! And I really like Jane Bryant Quinn's book. > It was good reading through that and getting an understanding. I think I > need to reread it again and ask my wife to read it so we are both on the > same page. I've tried Wade Pfau's book a few times, but that is too in > depth for me. I'll take a closer look at guardrails. > > > On 10/6/24 14:10, Stan Brown (using GC 4.14) wrote: > > This may not be relevant to GnuCash, but I'm a retiree too, and > > strategies for retirement spending are certainly interesting to me. I'm > > not a financial professional, nor was I one before retirement, but I've > > done a lot of reading over the past 10 years and will be happy to > > exchange knowledge, which we can each take with a pinch of salt. > > > > I've written some initial thoughts below. If this is too off topic for > > the mailing list, feel free to email me off list if you want to talk > > more about this. (That's not just for Bruce, but for anyone interested.) > > > > On 2024-10-06 09:56, Bruce Griffis wrote: > >> So I also misunderstood the 4% rule. I figured I would calculate it as I > >> can take out 4% of my investments in 2024, then in 2025 take out 4% > >> based on what I had in my portfolio as of 1/1/2025. And I misunderstood > > Maybe you were confused because that's actually how the Required Minimum > > Distribution from an IRA works.(*) Each calendar year you must withdraw > > a certain fraction of the balance in your IRA at the end of the previous > > year. In 2024 you withdraw that fraction of your balance on 2023-12-31, > > in 2025 the fraction of your balance on 2024-12-31, and so on. The > > "certain fraction" is in the mortality tables in Publication 590-B. > > > > (*) I assume you're in the US. > > > > But that's how much you must withdraw from your IRA, and what you > > actually need to spend may well be different. The IRS tables are > > designed to have the average person draw their account down to zero > > before they die. To accomplish this, the withdrawal amounts are > > typically above the 4% level, and the percentages increase as you age. > > > >> it. I recalculated based on 4% of what was in investments on the day I > >> retired, then checked inflation rate (2.5% on August 2024 - I would need > >> to check again at the end of the year) - and compared it to 4% of what I > >> have in my portfolio today - and there was over a 2K difference in > >> calculations. I could have taken out too much. > > This sounds like the strategy in many books, such as Jane Bryant Quinn's > > excellent /How to Make Your Money Last/. The idea is you look at your > > total portfolio (not just IRA) when you retire, and spend no more than > > 4% in the following year. Each year after that your spending limit is > > the same number of dollars, adjusted for the year's inflation, not the > > same percentage. If you stick with this plan, conventional wisdom > > (backed up by some computer analyses) is that you have a very good > > chance of not running out of money before you die. > > > > If the amount you must withdraw from your IRA for your Required Minimum > > Distribution exceeds your spending limit for the year, you don't spend > > the excess but plow it back into investments. (You can't put it back > > into a traditional IRA, nor into a Roth IRA.) > > > > Quinn discusses how you can determine whether the right starting number > > is 4%, 4½%, or something else. > > > > But this strategy has a couple of vulnerabilities. For one, what if your > > portfolio really tanks one year? Since this strategy does not take > > investment performance into account, spending on your regular schedule > > could dangerously drain your assets, locking in losses. Then when the > > portfolio rises again, the shares you liquidated are gone, so your > > assets don't recover as much as they would have if you'd cut back on > > spending. > > > > One solution for this is to add "guardrails" to the basic strategy. Do a > > google search for "guardrails retirement withdrawal" (without quotes), > > or begin at > > < > https://www.cnbc.com/select/guardrails-approach-retirement-withdrawal-strategy-how-it-works/ > >. > > > > > >> So, note to self. Each year check what was in investments on date of > >> retirement. Check inflation rate. Recalculate safe withdrawal amount. > > What matters in year N is not what your portfolio was at retirement, but > > rather what your spending limit was in year N-1, and the year's > > inflation. Your portfolio's _current_ value will be relevant, if you add > > a guardrail strategy, but the historical value at retirement isn't part > > of the calculations. > > > >> Now I need to go back and read up on what to do in years three, four, > >> five, ... - I only know what to do in years one (4%) and two (4% plus > >> annual inflation rate). > > Suppose you retire with $1,000,000. In year 1, you will spend up to 4% > > of your portfolio, which is $40,000. Suppose the year's inflation is 8%. > > Then in year 2 you will spend $40,000 + 8%, which is $40,000 + 3200 = > > $43,200. In year 3, supposing inflation was 2%, you will spend up to > > $43,200 + 2% = $43,200 + 864 = $44,064. And so forth. > > > > If that seems too simple, that's because it is. Especially in the early > > years of retirement, if your portfolio has a real crash one year, > > robotically sticking to last-year's-spending-plus-inflation can prevent > > you from making a full recovery when your investments rise again. That's > > where guardrails come in. They do complicate the calculations a bit, but > > a basic spreadsheet will take care of that. > -- _________________________________ Richard Losey rlo...@gmail.com Micah 6:8 _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
