pschuman[at]interserv.com wrote:
- quote -

Those 4%-5% kinds of rules of thumb assume the following:
You begin in Year One with that withdrawal amount (e.g. 4%)
You increase that withdrawal each year by the inflation rate
You don't change your withdrawals at all even if they become 20% of the
account value
You invest in - often - some kind of rote "balanced" mix like 60/40
stocks/bonds, with returns and their variability estimated by
broad-market indices in those asset classes

And the 4%-5% rates are deemed "acceptable" if you stand a minimal
chance of outliving your assets.

But if you simply withdraw 4.5% of principal per year, and your assets
earn 2.5%, there's a simple answer for how long you can do that:
"forever". The same is true if they earn 0%. If you withdraw a flat 4.5%
of the account in year one and never change the dollar amount, while
earning 2.5%/year, you deplete the account in about 33 years (use any
financial calculator: PMT=.045, PV=-1, FV=0, %i=2.5, solve for N). If
you increase withdrawals each year a bit, how long the account lasts
will depend entirely on how much you increase them.

Much of "wealth preservation" during retirement hinges on not taking out
money, and not backing off from long-term investment choices for the
portion of your account you'd use 15, 20 years from now, at the times
that your investments perform poorly. That's why this year's waiver of
minimum distribution requirements for IRAs is such a good idea, even for
those owning relatively conservative investments like high-grade
corporate bonds (which had a bad year alongside stocks) or TIPS (-20%+
peak to trough?).

-Tad

On Dec 23 2008, 12:56*pm, tighwad <ahorse...[at]yahoo.com> wrote:
- quote -

I was searching for old threads about retirement funding,
and how much in general you need,
along with how much to withdraw...

SO - if you are withdrawing 4.5% -
then how do you calc the future.... amount needed, time line, etc
ie - if withdrawing 4.5%, then if it was a static account,
how long would it last ?
next - if it is growing - say with a fixed income of 2.5% - how long
would it last
and then, if it needs to last till say 90 - then what portfolio
changes are needed ?

So are you saying she should take out 4.5% from her trust? If so, to
calculate what that would generate; wouldn't I just multiply her
balance by 4.5% ($330,000 X 4.5% = $14,850)?


, my proposal would be to calculate
- quote -

tighwad wrote:
- quote -

I support the above plan with one caveat that I should have mentioned
earlier: What provisions have been made for long term nursing care for
the one day when she may need skilled nursing round-the-clock? This is
the time to start considering this, rather than when, gosh forbid, she
suddenly has a stroke and decisions have to be made hurriedly.

Remember to consider taxes. Make use of the moderated newsgroup
misc.taxes.moderated as needed. Once you get used to the mod's
unfortunate beer hall humor ;-), it is a pretty helpful forum.

Ditto Skip's suggestion, modified a tiny bit for the new specifics
given above.

- quote -

I wish I could say the past predicts the future. Take it all year by
year, with intermittent monitoring and careful queries and study of
the situation throughout.

- quote -

I think this is crossing into the "friendly sibling advice needed"
area. Which is fine and still on topic. It is just getting subjective
and morals-oriented. What I call "elder wisdom" is key: What serves
families' happiness best? I am no spring chicken but neither am I in
the "elder wisdom" category. All I would note is that you do not have
legal authority over her financial affairs, correct? Hence I advise
not lending lend money to your mother with an expectation you will get
it back. Lend it/give it with love, or do not give it at all.

On Dec 23, 2:05*am, tighwad <ahorse...[at]yahoo.com> wrote:
- quote -

IIRC she has no control over the investments in the trust, correct?
So the only control she has is how much to take out every year? Just
as everyone has to take a hard look at his/her budget, retirees will
have to do the same. She'll have to tighten up her belt just like the
rest of us.

She thinks she needs around $50,000 total. She can get about $39,000
from other sources, so actually she may only need about $11,000 from
her trust. So perhaps she could get by with about a 3-4% withdrawal
from her trust, correct? There could be a problem if the balance of
the trust goes down a lot more in 2009.

I could lend her some money if she needs it. I have a fair bit in my
money market account.


- quote -

On Tue, 23 Dec 2008 09:30:22 -0600, honda.lioness[at]gmail.com wrote:

- quote -

To generate some discussion, here is a we're-in-a-recession
alternative:

Given she is 70ish, in good health and finds herself in (hopefully
temporary) reduced circumstances, my proposal would be to calculate
what income 4.5% will generate, and make a budget on that amount
(include the items lioness mentioned). If that is too tight, it
nevertheless is what we have and her job is to make lifestyle changes
so that 4.5% works.

There are consequences to our actions. In this case ignoring her
investments has put her in this situation. Trying another approach
(by any name, spending more than 4.5%) is what I call the "Watergate
reaction". Some of us remember the Watergate affair, where the
coverup was far worse than the actual deed. In Watergate, had those
who made bad decisions had just taken their medicine, the problem
would have been significantly less damaging than what ultimately
occurred.

As a side note, it seems that her investment allocation is skewered.
But a severe bear market is not the time to be making investment
decisions or changes, so my standing suggestion is to wait for Dow
14,000 then revisit her allocations. Until then, it is what it is and
her job is to make changes so that 4.5% works.


-HW "Skip" Weldon
Columbia, SC

tightwad wrote:
- quote -

How much does she estimate she really needs? If she has not done so
already, compute her expected monthly living expenses on a
spreadsheet. Deduct income from other sources, like IRAs, social
security, pensions, interest on CDs, etc. Only then can we talk
intelligently about how much to withdraw.

My mother has to decide what percent she wants to withdraw from her
retirement trust by the end of the month. The percent she decides on
will be what she gets each month for all of 2009. The account is way
down this year, from around $700,000 to $330,000. Almost all of it is
in stocks and stock funds, and it’s not a great time to sell at these
low prices.

In the past 8% has always been taken out. I would guess that may be
too much. I have read that around 4% is often recommended.

I don’t have much confidence in her bank. They created a risky
portfolio of 98% stocks and they have been having her withdraw 8% all
the years she has had the trust. My mother is in her seventies, but
healthy, and may need the money for years to come.

She has never paid a lot of attention to her finances before, and
neither have I. She put together a budget for the first time, but I
don’t know how accurate it is. I think it would probably be good for
her to go to in independent financial planner or accountant.
Unfortunately there isn’t much time to evaluate planners by the end of
the month.

What suggestions does anyone have?