I have thought through many usage models for our savings/assets. How should we pay for our life expenses and desires over time?
We all know about the 4% rule of thumb, other Safe Withdrawal Rate research—and a famous blog series —, various guardrails, the wing it methods, the MDF and Fun Number, the Base Great Life, The Fun Bucket, the FI Bucket, Die With Zero, etc., etc., etc. Yes, we needed three etc’s because there are so many thoughts.
Personally, we are currently using the MDF approach with Fun Bucket/FI Bucket strategy.
In the past, we used more a of portion of the previous year’s growth, or the recent year’s average growth model with a lot of Wing It thrown in. This has worked great because the returns since we left our careers in 2014 have been so good. In 2021 Mark Trautman and I were discussing the growth of our savings (portfolios) and realized we needed, or could, take some of the icing off the investment cake. Not to mention the sprinkles and cherries that had appeared on top due to extra returns.
Mark and I each had low household spending rates that kept us way below an overall portfolio withdrawal rate of 4% and we realized it was truly a great time to enhance our “hell yes” lifestyle with this extra icing.
NEED:
I was thinking in my commute this morning, “Is there a logical withdrawal rate per year to bring your portfolio down to a target End of Plan amount?” Is there a Use It rate?
It’s often stated that over a 30-year retirement, the 4% SWR is pretty much a worse case/safety distribution. Meaning in all but the worst historical case(s) your money ended with more than enough, sometimes multiples higher than the start. Is this good?
Tracking
I’m sure most of us (geeks) have tracked our savings balance totals and/or net worth totals over time in spreadsheets (yes, more than one). If we are doing this planning stuff correctly, the overall progression has been to the right and up. (Do countries that read right-to-left have their charts going up in the opposite direction? That’s one of my random thoughts).
example chart. Start to today
I had this brilliant idea of creating a possible visual of our Use It (savings) over time. A rough target for our future “milestone” targets. But these future target amounts should be decreasing based on our plan of use.
In my mind, the goal is to have conscious spending now for some/much of our previously deferred spending. Logic: Why did we save it? Isn’t the goal to use it? Or some of it? It’s not all just a safety blanket.
How, how much, when to spend, when to stop, when to slow, when to speed up spending—are all considerations I pondered. I keep pondering this over and over. To me, at least I’m working on the mindset shift from accumulation to decumulation.
I thought about spending bend points in the chart—much like Social Security does for income replacement percentage rates.
Our descending bend points will follow something similar to life phases/life seasons: MoJo, GoGo, SloGo, NoGo. The goal is a future chart that shows net worth declining down to the right.
example chart. Start–today–EOP
The logic is somewhat of a Die/Drawdown to Base. A plan of using our money. To be clear, we have separated out Base Great Life/Minimum Dignity Floor requirements as if we had no savings left and are making sure those needs are met with guaranteed income (“from a deep-pocketed 3rd party”).
We also have separated out Aging, Buffer, and some inheritance/charity planning, and are left with the Fun Number that goes towards our Fun Bucket, which also has a FI Bucket as part of the Fun Bucket.
So when I see the net worth declining, that is separate from core life expenses that are secured. It’s also separate from Aging and buffer. (To be transparent, I haven’t sorted out the assignment/set aside for all those categories, but of course, I will before spending too much of the fun bucket.
It is all still in the first year of locking all of this together. But for me, it is so extremely helpful to have money/savings/assets/investments that are clearly not needed (as planned) for the important required/needs of life—including buffer. Safety planners need buffer to feel safe…extra safe—“Belt & suspenders” and super glue.
As I post this, our FI bucket should be getting some serious use. I’ll probably share some of those thoughts in the future.
Takeway: figure out what assets are not for your core lifetime needs, take a portion of those, and use them on things you (or your partner/family) love.
DO THAT NOW. Tomorrow is never guaranteed.
Excuse me, we need to go spend some money today.
*** Nothing in this article is to be construed as financial advice. I am not a financial planner, nor do I pretend to be. You should always consult your own professional when seeking advice. This post is not a piece of literary mastery, just a random thought I had.