I Like Wine…..and prefer to alter my SWR, Thank You!

As time goes by, I am learning a lot more about personal finance blogging. There are literally thousands of sites out there where people are blogging about their financial lives. Someone once said a first cut to understanding these sites is to separate those that are savings maniacs from those that are chronicling their battle with debt. This site is neither……….it is about practical application of solid financial principals as a way to achieve financial peace of mind.

I am not in debt of any kind, and am not a maniac saver………I Like Wine! Wine can be an expensive hobby that offers great olfactory/gustatory rewards. However, it is kryptonite to the maniac saver. These guys/gals are saving like mad, retiring super early, and watching their pennies with a magnifying glass. Not my cup of tea.

SWR = Safe Withdrawal Rate. This concept is the rate at which one can safely withdraw funds from their retirement nest-egg and not run out of money during retirement. It is a big part of financial planning. For a maniac saver, it is the Holy Grail. Get enough money saved up so that you can live on a budget determined by your SWR, and kiss that job good-bye! However, the safer you want to make your SWR, the larger your nest-egg must be.

{For example, if your goal is to live on 100K, you need 3.3mm saved for a 3% SWR and  2.5mm saved to live on a 4% SWR. Big difference in savings required to generate the same yearly budget.}

There is an alternative to this draconian math – and that is to be flexible with your budget during retirement. If you are able to spend less in years when the market is down, and more in years where the market is up, you can use a higher SWR to help figure out the size of nest-egg you will need.  All at the same level of risk.  Pretty powerful stuff. (A good financial planner can help you set the “guard rails” for this approach)

So, this is all to say that I’ll continue to drink my wine and alter my overall budgetary expenses in retirement as opposed to obsessing over every nickel. Conversely, I can have a larger budget from the same nest-egg – if I am willing to be flexible with my spending as outlined above. This will allow me to retire sooner and enjoy the ride while getting there! Flexibility in your spending pattern is powerful. Cheers!