What will you pay yourself for 2024?
Posted on December 1, 2023
Yesterday I withdrew from our Investment Portfolio the amount we would safely spend throughout 2024: the same amount as last year adjusted for 3.2% inflation. This post describes my actions and the status of our portfolio right before our withdrawal for our spending. In summary, our calculated SSA is 46% greater in real spending power relative to our first withdrawal in December 2014. The spending power of our portfolio right before this tenth withdrawal is ~5% greater than it was at the start of our plan.
I enclose a spreadsheet that shows the history of withdrawing our calculated Safe Spending Amount (SSA; Chapter 2, Nest Egg Care [NEC]) since the start of our plan in December 2014.
Details:
== Portfolio Return for the last 12 months ==
The nominal return on our portfolio for the last 12 months was 9.81% and the real return was 6.37%. Image of returns. This was a lot better than I expected from my last look; our real portfolio return at the 11-month mark was -1.6%. Stocks in November were up about 9%.
I definitely like the upturn from the horrible results of last year. It may turn out that these two years are NOT the start of the most harmful sequence of return that would really deplete our portfolio. The next few years will be telling.
== Nine Years of History ==
The spreadsheet shows the history of our SSA and the status of our portfolio relative to our start in December 2014. It has one key assumption and one key highlight.
• The spreadsheet assumes I always withdraw our full, calculated Safe Spending Amount (SSA, Chapter 2 Nest Egg Care [NEC]). Under that assumption, our SSA has increased by 46% in real spending power over ten years.
Patti and I don’t withdraw that total. We were happy with our SSA when we took our first withdrawal in December 2014. I was very happy with the early increases. The three-year period 2020, 2021 and 2022 shot our real SSA from 22% better than at our start to 46% better. We aren’t geared to spend 46% more per year from our portfolio that we first did in 2015. If we had continued to take our full SSA, we’d be paying taxes on amounts that we will not spend, and that’s not a smart move.
• The calculation of the value of our Investment Portfolio reflects the fact that I used our Off-The-Top Reserve (NEC, Chapter 7) for our spending last year. I therefore did not withdraw from our Investment Portfolio at the end of last year: the spreadsheet shows we started on December 1, 2022 with the same Investment Portfolio that we had on November 30, 2022. We no longer have an Off-The-Top Reserve. I’m happy with our 15% mix of bonds; that’s roughly three years of insurance: I can sell those bonds and not stocks for about three years, as I did in 2023, if stocks crater again.
== SSA +46% ==
The sheet shows our SSA is $64,200, measured in the same, real spending power of December 2014. That is the unchaged from two years ago. It is 46% greater than the $44,000 at the start of our plan.
== Withdrawn: 48%. Portfolio value +4.8% ==
• The value of our Investment Portfolio before this year’s withdrawal is about 4.9% greater in real spending power than it was when we started in 2014. The table assumes we started with $1,000,000 Investment Portfolio in 2014. Total withdrawals for the nine years – right before this year’s withdrawal – have been $479,000. We have $1,048,100: we started with $1 million; we withdrew ~48%; we have 4.8% more than we started with.
Our portfolio value is well below its peak of two years ago (-17.5%), but I think it’s correct to compare it to what it was at the start of our plan.
== Checklist of Tasks ==
I enclose my checklist of tasks for this time of year. Yesterday I placed the orders in our IRAs to withdraw our RMDs. Those transactions took place at yesterday’s closing prices. 1) I sold shares to get cash for taxes to withhold; 2) I sold shares and transferred cash for some spending in 2024; 3) I transferred the balance of our RMDs as shares and held more shares in our taxable account that I’ll sell throughout 2024 for our spending.
Conclusion: I calculated our Safe Spending Amount for the upcoming year based on our 12-month returns ending November 30. Our 12-month real portfolio return was 6.4%. That matches our expected portfolio return. But because of the very poor returns in 2022, none of us who follow the steps in Nest Egg Care calculate to a real increase in our SSA this year. We all inflation-adjust last year’s amount.
I placed the sell order for FSKAX to get the cash to pay Federal and State taxes that I want to withhold; I sold to get cash we’ll spend in January; I transferred the balance of our RMDs as shares from our Traditional IRAs to our taxable account. I’ll sell those and other shares of FSKAX for the 11 “paychecks” that will be transferred to our checking for February through December 2024.
Yes, November was indeed a very good month to end 2023 as I sold my investments today to fund our 2024 “paychecks”. Next year is my wife’s first year to collect Social Security so the amount we’re taking from investments is decreased from 2023 to provide the same level of overall spending in 2024. Best wishes to you and your family in 2024 and a Merry Christmas to you as well!