Wednesday, August 21, 2013

Revising our Retirement Withdrawal Process

Since retiring in 2007, we've been withdrawing funds based on an expense based budget.  Due to the Great Recession, this was a relatively tight budget since we didn't want to overspend the funds in our taxable saving accounts.  Also, I took on some part time jobs to reduce the withdrawal rate from our savings.

Since mid-2013, we've been living entirely on our retirement savings.  So I have been reviewing how to calculating available annual funds going forward.  Based on analysis our financial advisor and some personal calculations, we will be moving from spending based funding to a withdrawal based faced funding, using a 4% withdrawal rate.  This will give us a 69% raise over our spending

Financially, there are several reasons we can make the change.  First, my stock option income, at current share prices, will be significantly above our expenses through 2017.  This by itself will support over 4% withdrawal rate through 2017.   Second, we had a cash windfall from an inheritance, which can support a 4% withdrawal for two years, if my company stock price declines significantly.   Third, in 2017, I can start withdrawing from retirement account funds without any penalty, which is expected to support a 4% withdrawal rate in perpetuity at a 85% confidence limit.

I will fully implement the new 4% withdrawal process in 2014 by withdrawing 4% of the December 31, 2013 liquid investment value and placing the fund in our checking account.

The analysis and revised withdrawal/spending process has given me much higher confidence that we have saved more than sufficient funds for retirement.

For more on The Practice of Personal Finance, check back every  Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

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