We earned a real pay increase for 2025!
Posted on November 30, 2024
Wow! Patti and I calculate to a real increase for our Safe Spending Amount for next year (SSA; Chapter 2, Nest Egg Care [NEC]. It’s small – 3% – but we’ll take it. After the steep decline in 2022, I thought it would be MANY YEARS to earn back enough for a real increase: we only went two years with no real increase. This post shows 22.1% real portfolio return in the last 12 months and 50% real increase in our SSA in ten years.
You should calculate to a real increase in your SSA for your spending in 2025 – or be very close to a real increase – if your portfolio mix is close to ours. You will not have done as well if you have a greater mix of bonds than we do. Stocks have recovered from their -18% real decline in 2022 and are now about 13% more than they were at the end of November 2021. Bonds are down about 15% from a similar decline in 2022 and need to climb 20% to get to where they were in November 2021.
Details:
My historical table assumes that Patti and I withdrew our full SSA each year. This table is not directly applicable to us, because we don’t withdraw the calculated SSA shown on the table. We now fall in the category of having “more than enough.” (Chapters 5 and 10, NEC).
Patti and I were happy when we started our plan with $44,000 SSA. Now we’re older and our Safe Spending Rate (SSR%, Chapter 2, NEC) is greater. If we reverted back to to our original SSA, we’d calculate that one-third of our portfolio is “more than enough” – not needed to support $44,000 real SSA ($58,000 after inflation). (Since we haven’t taken our full SSA for a several years now, our “more than enough” would be greater that this.)
If we took our calculated 50% greater SSA, we’d pay greater income taxes on sales of securities and distributions from our traditional IRA accounts for no reason.
== The past year ==
• Our real portfolio return for the 12 months ending November 30 was 22.1% – almost 3½ times the long-term, expected return – long run, historical average annual return – on our portfolio of about 6.4% real return per year: our mix applied to 7.1%/year for stocks and 2.4%/year for bonds.
== Last Ten Years ==
• Our SSA has increased 50% in real spending power: $44,000 per $1 million starting Investment Portfolio in December 2014 to $66,100 for this December.
• My spreadsheet starts with an assumed Initial Portfolio value of $1 million in December 2014; the sheet does not show my off-the-top Reserve of about five percent. I took our first $44,000 SSA from that $1 million Investment Portfolio. After ten years, we would have taken ~$480,000 SSA withdrawals and would have $1.2 million – 20% more in real spending power – before the withdrawal we would be taking now.
• Our real portfolio return for ten years is 6.6% per year – a bit better than the expected real return of 6.4%.
== My Task List ==
I describe my tasks to complete in the first days of December. One task is to rebalance as I sell; that can be an awkward: this post provides a template to help.
Conclusion: I calculate our Safe Spending Amount (SSA) for the upcoming year based on our 12-month returns ending November 30. Our 12-month real portfolio return was 22.1%. I calculated to a real increase of 3% for our SSA. I am happy. After the steep decline in 2022, I thought it would be MANY YEARS to earn back enough for a real increase: we went just two years with no real increase.