{"id":164371,"date":"2021-01-27T21:23:00","date_gmt":"2021-01-27T18:23:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/outside-the-box-building-a-nest-egg-is-easy-spending-it-is-much-harder\/"},"modified":"2021-01-27T21:23:00","modified_gmt":"2021-01-27T18:23:00","slug":"outside-the-box-building-a-nest-egg-is-easy-spending-it-is-much-harder","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/outside-the-box-building-a-nest-egg-is-easy-spending-it-is-much-harder\/","title":{"rendered":"#Outside the Box: Building a nest egg is easy. Spending it is much harder"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3bf6c6f0538\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3bf6c6f0538\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-building-a-nest-egg-is-easy-spending-it-is-much-harder\/#3_strategies_to_determine_how_much_you_can_safely_spend_in_retirement\" >3 strategies to determine how much you can safely spend in retirement<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-building-a-nest-egg-is-easy-spending-it-is-much-harder\/#Brian_White\" >Brian White<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#Outside the Box: Building a nest egg is easy. Spending it is much harder<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"3_strategies_to_determine_how_much_you_can_safely_spend_in_retirement\"><\/span>\n  3 strategies to determine how much you can safely spend in retirement<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000143499\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       Building a nest egg is relatively easy: Save as much as you can starting as early as you can. Invest in a diversified mix of low-cost mutual funds. Rebalance periodically. And tune out the noise.<\/p>\n<p> By contrast, determining how much you can safely spend in retirement is far trickier. Consider three strategies.<\/p>\n<div class=\"paywall\">\n       First, there\u2019s the much-discussed 4%\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/four-percent-withdrawal-rate\/\" class=\"icon none\">withdrawal<\/a>\u00a0rate. In the first year of retirement, you spend 4% of your portfolio\u2019s beginning-of-year value. In subsequent years, you increase that amount by the inflation rate. With that simple strategy, and a mix of 50% stocks and 50% bonds, your retirement savings should last\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/2020\/11\/rate-debate\/\" class=\"icon none\">30 years<\/a>. The problem is, you could run out of money sooner if the market performs poorly\u2014and, of course, there\u2019s a danger you may live longer than 30 years.<\/p>\n<p>Read: Should you use a Monte Carlo simulation to determine if your retirement savings will last?<\/p>\n<p>A second, even simpler <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roach: Spend a fixed percentage of your portfolio\u2019s value every year. Let\u2019s say your portfolio finishes the year at $900,000. You might spend 5% of that sum, or $45,000, the following year. With the percentage-of-portfolio strategy, you can never run out of money, because each year you\u2019re limited to a percentage of whatever remains. But your spending could vary widely from year to year. For example, if the market falls and you finish the year with a portfolio that\u2019s 20% smaller, you\u2019re forced to spend 20% less the following year.<\/p>\n<p>That brings me to a third way of determining how much to spend: the ceiling-and-floor method suggested by\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/investornews.vanguard\/sustaining-retirement-income-in-a-lower-return-world\/\" class=\"icon none\">Vanguard Group<\/a>. With this strategy, you again aim to spend a fixed percentage of your nest egg\u2019s year-end value. But unlike with the second strategy, if last year was bad, there\u2019s a limit\u2014or floor\u2014on how much you reduce your spending. Similarly, if the market\u2019s performance last year was stellar, there\u2019s a limit\u2014or ceiling\u2014on how much you increase your spending.<\/p>\n<p>Say you start with $1 million and you\u2019ve chosen a target of 4% spending per year, but the amount your portfolio withdrawals can change each year is limited by a 5% ceiling and a \u20132.5% floor. In the first year of retirement, you spend your target percentage, which is 4% or $40,000.<\/p>\n<p>Read: What robots will mean for your retirement<\/p>\n<p>During that first year, your portfolio soars 20%, reaching $1.2 million at year-end. But instead of spending 4% of that sum in year two, or $48,000, you increase your spending by just 5% from the first year\u2019s level, to $42,000. Conversely, if the market performed really badly in year one, the most you\u2019d reduce your spending in year two is 2.5%, equal to $39,000.<\/p>\n<p>Got that? To use the ceiling-and-floor approach, you\u2019d compute three numbers at the start of each year:<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<ul class=\"articleList\">\n<li>\n      Your portfolio balance as of Dec. 31 multiplied by your target percentage, which might be 4% or 5%.<\/p>\n<\/li>\n<li>\n      The preceding year\u2019s spending level increased by the 5% ceiling.<\/p>\n<\/li>\n<li>\n      The preceding year\u2019s spending level reduced by the 2.5% floor.<\/p>\n<\/li>\n<\/ul>\n<p>You then allow yourself to spend whichever of these three numbers falls in the middle. Result: You can spend more when you\u2019re coming off a good year and you spend less if it was a bad year, but your spending doesn\u2019t vary too much because of the limits imposed by the ceiling and floor.<\/p>\n<p>A\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/web.archive.org\/web\/20160413170938\/http:\/www.vanguard.com\/pdf\/icrmda.pdf\" class=\"icon none\">2010<\/a>\u00a0Vanguard study showed that, with a 5% ceiling and \u20132.5% floor, you\u2019re less likely to run out of money than if you adhere strictly to the standard 4% withdrawal rate. In addition, you\u2019re less likely to end up denying yourself and leaving behind an unnecessarily large estate, which is a danger with the percentage-of-portfolio approach. A<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/personal.vanguard.com\/pdf\/goals-based-retirement-spending.pdf\" class=\"icon none\">\u00a02020<\/a>\u00a0Vanguard paper looked at the strategy again, this time using a 5% ceiling and \u20131.5% floor, while also factoring in annual inflation adjustments.<\/p>\n<p>I like the ceiling-and-floor strategy, in part because my wife and I have no children and thus we don\u2019t feel the need to leave behind a large estate. But in practice, I don\u2019t use any of these approaches. Why not? They\u2019re fairly simplistic and don\u2019t take into account major life changes, such as selling your house or moving into a continuing care retirement community. They also don\u2019t consider tax nuances, such as whether you\u2019re selling investments that will trigger a big tax bill or not.<\/p>\n<p>Instead, before my wife and I retired, I looked at how much we were spending each year and then figured out how that would change once we retired. I use that amount as our spending target. Yes, each year, I also use the Vanguard ceiling-and-floor method to make sure we aren\u2019t too far off base. As long as we\u2019re close to that spending level, I can be reasonably confident that my wife and I won\u2019t run out of money.<\/p>\n<p><em>This column was originally published on <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/\" class=\"icon none\">Humble Dollar<\/a>. It was republished with permission<\/em>.<\/p>\n<p><em>Brian White is retired from the University of North Carolina, where he worked as a systems programmer and then director of information <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> in the computer <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/sciencee\/\" data-internallinksmanager029f6b8e52c=\"5\" title=\"Science\" target=\"_blank\" rel=\"noopener\">science<\/a> department. His previous articles include\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/2020\/11\/late-to-the-rescue\/\" class=\"icon none\">Late\u00a0to the Rescue<\/a>,\u00a0<\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/2020\/11\/a-simpler-life\/\" class=\"icon none\">A Simpler Life<\/a><em>and<\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/2020\/09\/time-to-retire\/\" class=\"icon none\">Time to Retire<\/a><em>. <\/em><\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Brian White\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Brian_White\"><\/span>Brian White<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=21005575-02D4-D4B5-4572-D2308B60DFD0&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;#Outside the Box: Building a nest egg is easy. Spending it is much harder&#8221; 3 strategies to determine how much you can safely spend in retirement Building a nest egg is relatively easy: Save as much as you can starting as early as you can. Invest in a diversified mix of low-cost mutual funds. Rebalance&#8230;<\/p>\n","protected":false},"author":1,"featured_media":164372,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-164371","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/164371","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=164371"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/164371\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/164372"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=164371"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=164371"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=164371"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}