Milwaukee Bogleheads I: Withdrawal Strategies from I-ORP.com Retirees or soon to retire investors need a spending plan in retirement, and this tool analyses several options for portfolio withdrawal.

1. Withdrawal Strategies
Avoiding the Merry Widow Syndrome
• Laura Ricci
• Milwaukee Bogleheads I
• November 7, 2017
Accomplished DIY Investor Age: Retired

2. Looking Beyond 4%
• A traditional method advocated by a variety of sources is
to withdraw 4%, and adjust for inflation each year of
retirement.
• BUT in almost every scenario, you’ll end up leaving
significant assets behind.

3. Looking Beyond 4%
• The Merry Widow Syndrome describes the result of too
conservative withdrawals, resulting in too much money
left to an elderly widow(er), after the first person passes.
Sadly, the surplus is often un-spent, after a lifetime of
striving for a secure retirement.

4. 5 approaches to Spending
• Constant Spending
• Reality Retirement Planning
• Changing Consumption
• Lifecycle of Spending
• Age Banding

5. 5 approaches to Spending
• The idea is to spend it while you can enjoy it.
• I-ORP models all of these approaches.

6. 5 approaches to Spending
70
80
90
100
110
120
87
113
101
116
101
Thousands
* – This is 1st Year withdrawal only! Later years decline significantly.

7. Constant Spending
• The Constant Spending model computes maximum
initial spending for the first year of retirement and adjusts
it for all subsequent years by the spending inflation rate.
• This tends to be above 4% of portfolio.
o (Depends on your portfolio asset allocation and other assumptions you enter, but
5% and 5.5% are common.)

8. Reality Retirement
Planning
• Reality Retirement Planning: A New Paradigm for an Old
Science, 2005 By Ty Bernicke
• Reviewed the U.S. Bureau of Labor's Consumer
Expenditure Survey:
• Retirees 60 - 70 spend more each year
• People ages 75 + spend half of what they spent between
the ages of 45 and 55.

9. Reality Retirement
Planning
• Only health care expenditures increase as people age.
• Everything else -- including entertainment, housing
costs, food and transportation -- decreases, resulting in
an overall decline in spending before adjustments for
inflation.
• Caveat: There is some possible error in his calculations,
discussed on the Bogleheads Wiki.

10. Reality Retirement
Planning
40
50
60
70
80
90
100
65 70 75 80 85 90
Reality Retirement Planning
Age
$000

11. Changing Consumption
• Estimating the True Cost of Retirement by David
Blanchett
• uses different demographic data sources for the curve of
retirement spending.
• show increased spending early in retirement and toward
the end with reduced spending in mid plan. A zero
inflation rate will cause retirement spending to form the
shape of a smile.

12. Changing Consumption
40
50
60
70
80
90
100
65 70 75 80 85 90
Changing Consumption
Constant Spending
Age
$000

13. Lifecycle of Spending
• The Lifecycle of Spending by S. Katherine Roy of J.P. Morgan
Asset Management
• 1.5 million U.S. Households with relationships with Chase
Bank.
• In an environment with 2.5% inflation, actual spending
increases just 0.545% per year.
• The Lifecycle of spending option, because it is effectively a
lower inflation rate, will result in a higher spending than does
the constant inflation adjusted spending option.

14. Lifecycle of Spending
40
50
60
70
80
90
100
65 70 75 80 85 90
Lifecycle of Spending
Constant Spending
Age
$000

15. Age Banding
• Age Banding: A Model for Planning Retirement Needs by
Somnath Basu
• Divides spending into 3 categories (Basic Living, Leisure, and
Healthcare) and assigns each category its own inflation rate.
• Each category is assign a proportion of the total spending,
which, when multiplied times its inflation rate, is used to
compute an overall inflation rate for each year.
• At ages 65, 75, and 85 these proportions are adjusted to
reduce Basic Living and Leisure spending while increasing
Healthcare spending.

16. Age Banding
40
50
60
70
80
90
100
65 70 75 80 85 90Age
Age Banding
Constant Spending
$000

17. Conclusions
• Use I-ORP to calculate these strategies for your own
circumstance.
o No need to rely on Rules of Thumb when you can get the calculations tailored to
your situation.

18. Caveats
• These are academic studies. While based in actual
performance, they do not have the rigor that might be
prudent.
• However, the logic of each is similar and derived from a
variety of sources that appear to be independent.
• Good “food for thought” rather than a guidance for
withdrawals.

19. Sources cited
• Optimal Retirement Planner: I-ORP.com
• Bogleheads Wiki:
https://www.bogleheads.org/wiki/Withdrawal_methods
https://www.bogleheads.org/wiki/Models_of_spending_as_retirement_p
rogresses

20. Milwaukee Bogleheads®
• A DIY investment group, followers of John Bogle's Index
investing strategies, the Milwaukee local chapter of
Bogleheads.
20

21. Disclaimer
• All examples are for illustration purposes only and are
not investment recommendations.
• The views expressed in the presentation, are those of
the presenter, commenters, guests and participants and
may not reflect the views of the Bogleheads
organization.
• Use your discretion in using examples presented here
for your own investment purposes.
21