Preventing Your Own Withdrawal Rate Problem

As I was reading Benz' article a twist on the raising cash option occurred to me in the context of being willing/flexible enough to alter spending patterns in the face of an adverse market sequence. Ideally, how much would you want to take from your portfolio in the first couple of years, maybe three or four years, of retirement? Now, what is the absolute minimum you need to take from your portfolio in the first X years of retirement? Maybe your ideal is $39,000 but you could get by taking just $23,000 by forgoing traveling and eating out less. If your comfort zone was having three years of expected ideal portfolio need in cash then you could set aside $117,000 ($39,000 times three years). The twist is setting aside $69,000 ($23,000 times three years) of just getting by portfolio need. If nothing bad happens in the stock market you'd still be able to take the $39,000 but the ability to just take $23,000 goes a long way to solving your problem that could be caused by an adverse sequence of returns.

Not everyone can have the flexibility that I am talking about here but to the extent you can, you will make your retirement much easier (less stressful).


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