Financial Independence Daily FI discussion thread - March 01, 2020

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Daily FI discussion thread - March 01, 2020 Posted: 01 Mar 2020 12:09 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

Withdrawal strategies: constant dollar for needs, variable percentage for wants? Posted: 29 Feb 2020 07:21 PM PST I've been toying with this idea; please poke holes in it or tell me if it's a good one! I came across the variable percentage withdrawal strategy in the Bogleheads wiki. It basically entails withdrawing an increasing percentage of your portfolio each year as you age: between 3 and 4 percent until age 40, up to 10% by age 88. (It's advised to buy an annuity around age 80 so your needs are covered even if you live past 100). The benefits are that there's no risk of running out of money prematurely since the withdrawals are adjusted based on market returns, and that you're less likely to die with a giant pile of money you never got to enjoy since you withdraw increasing percentages as you age. The drawback is that there are bigger ups and downs in the amount of money you have to spend since withdrawals depend on market behavior. So, why not combine this with the constant dollar strategy to reduce those ups and downs? Divide your money into two pools: needs and wants. Needs is not necessarily strictly necessities; it's things you're not willing to cut back on. The wants pool is for things you're willing to vary your spending on depending on what the market does. For example, vacations, or buying art, or whatever. For the needs pool, we'll withdraw an inflation-adjusted 3-4% of the starting balance each year. This gives us a spending floor so we get to enjoy our minimum satisfactory lifestyle even in down years. For the wants pool, we'll do VPW. If you get more money next year, you'll plan a more expensive vacation, if not, you'll skip the vacation or go somewhere cheaper. It's also an extra safety net in case your needs end up costing more than anticipated. I like this idea because I'm not interested in frugality for its own sake--only as a means for buying freedom. If I have confidence that I can afford to spend more, I want to spend it. And I like the idea of having a spending floor, since many of my expenses are predictable. Is this dumb or smart? Is it overcomplicated, and is there a simpler way to accomplish the same objectives? What would be the simplest way to execute this plan--separate accounts for the two pools, or could you split them virtually? Would it make sense to use different asset allocations for the two pools? submitted by /u/Gary_Antoinette [link] [comments]

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