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March 18, 2012


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Syd, with the stock market back at the 13,000 level, have you been selling off any stocks while they are at these high water marks?

I have been doing some rebalancing in my IRA (whose purpose is the same as yours in my ER budget/plan) so I have sold some shares in my IRA's stock mutual fund.

And didn't Jacob end his ER and go back to work? His last blog entry from 12/1/2011 suggests this.

Retired Syd

deegee: Yes! I have sold some of my large- and mid-cap U.S. stock funds as they have done especially well and caused my allocations to get out of whack. I'm keeping my eye on it as the market keeps marching upward.

And yes, Jacob has unretired:


This interview was started back in October, before he went back to work.


WOW, I did not realize that you retired 6 ,months prior to the Meltdown!

That must have been a little stressful, to watch your savings decrease by 35%, given your allocation! Especially with, a possible, 50 years to fund...


I am a 45-year-old retiree, with only two months experience. My secret to retiring early was selecting a career that offered a pension and investment opportunity. Immediately following our country's most recent stock market crash, I doubled up on my 401k contributions, putting in the maximum allotment for three years -- a gambler at heart! I was eligible for 94% health insurance coverage at the time I left my employment, but chose not to use it since I have 100% coverage via my husband. Despite purchasing our dream retirement home about two years ago, the transition into retirement, although quite new, has left me with a feeling a wanting to relocate and begin a new life. We'll see what happens......

Jen W

I like your writing style and am looking forward to your future posts. I retired early and treasure every minute of it.

Mark Johnson

I'm creating a retirement budget and would like to hear your opinion on long term care insurance. Our newspaper reported that rates will increase by 45% - 90% this year for many policy holders because insurers underestimated their costs. With few limits on future rate increases, I'm reluctant to purchase this. If the rates keep climbing like they have, LTC insurance could consume a huge portion of retirement income. On the other hand, not purchasing this could be a big risk. We are 57 and 55. Your thoughts?

New to this

So I have a nagging detailrf question about the 3% rule you've often written about.

As I understand it, on the day of your retirement you caluculated 3% of your investible assets and then simply plan to live on that inflation adjusted budget amount for the rest your life. The part I don't get though, is that if you happened to retire in March 2009, the budget you'd be comitted to stick to for the next 50 years is only about half of what it would be if you had arbitrarily waited to retire, say, today (e.g. Dow = 13000 in 2012; Dow = 7000 in 2009). How does this make sense...?


New-to-this, one's budget, retirement or otherwise, has nothing to do with the value of the stock market. One's budget includes spending items such as food, housing, insurance, and utilities, to name a few. The cost and inflationary growth of these items has nothing to do with whether the stock market is at 7,000 or 13,000.

New to this

Deegee - thank u for your somewhat condescending reply. Let me try again using math symbols.

3% * investible Assets = Annual Budget.

Let's say you have determined your Annual Budget = $100K.

Now solve for the value of "Investible Assets" that satisfies above equation.

Assuming half of your Investible assets are in the stock market, can't u see that this simple rule of thumb can produce disturbingly different answers depending on the value of the market on the day you decide to retire.

Syd - Insights?

Retired Syd

@ New to this: I do, but it's kind of long winded and involves some math examples, so stay tuned for a whole post on the issue. I do get a lot of questions on the 3% rule in general, so I think it's time for a post dedicated to that subject.

@Canadianmdinvestor: Yes, it was stressful--I think I'll write a post about that too!

@Kris: Well done! I do NOT call that gambling, I call that smart. Few people have the intestinal fortitude to buy low, sell high. For a good book on the subject, read Irrational Exuberance. You behaved exactly as you should have. Many people in the working world that have plodded away dollar cost averaging into their 401k's over the last 4 years have been handsomely rewarded for their discipline. (As a side note, I did NOT sell while the market was tanking -- another action I will not call gambling but intestinal fortitude.)

JenW: Thank you! Welcome, and good for you for enjoying the life that you have created for yourself!


I'm the author of the piece that was on Bankrate/Yahoo et al. Syd's interview with me was wonderful--enlightening, interesting, informative--but sadly, as she mentioned, space constraints meant that only a sliver of the information could fit.

I've been surprised probably more than anyone at the tremendous response this article has gotten.

Thanks again for participating, Syd!

Retired Syd

@Mark: Sorry I missed you in the last comment. I have no advice on long-term care coverage, sorry. I don't have it but I'm not advocating that, just admitting that I don't have it. I really have not researched it well at this point.

Retired Syd

Michael: Thanks for stopping by here. Thank YOU for including me!


New-to-this: Great question. Thought I was the only one who didn't understand how to take 3% of a "moving target"....The 3% rule sounds so neat and tidy, right up until you actually attempt to implement it in a roller coaster market. Will look forward to your post on this Syd. Karen


New to this/Karen

Think of the 3% rule like a dividend. You can spend 3% of your assets in any given year. Sometimes this means you have more to spend, and some years you will have less, depends on how the market is doing that year. But just because the NASDAQ reached 5000 for a day or two back in the year 2000 doesn't mean you can just arbitrarily designate that as the day you do the math to set your budget for the next 50 years. It would be great if it worked that way though!


The comments on the article were really bizarre, but almost all the haters were directed at Jacob, his rent, health care and $100/month food budget. I had to stop reading, it was too weird seeing everything evaluated out of context.

Nice to see that Jacob's still alive and well in Chicago according to his forum posts. But I still wish he'd loosen up and spend a bit more. ;-)

Retired Syd

Jacq: I read a bunch of the comments, and there were quite a few from actual retired people, which I enjoyed. But you do have to get past all the negative ones aimed at Jacob. Really, don't people have anything better to do?


Syd, I hope a future piece about the 3% (Safe Withdrawal Rate, or SWR) focuses more on developing an ER budget from the ground up, as in calculating and projecting expenses than in a percentage of investible assets.


New-to-This, I did not figure out my ER budget the way you described as I
was nearing my retirement back in 2008 at age 45 (similar to Syd's
situation). I separated my ER budget into two parts - one to get me to
age ~60 and the other to get me passed age ~60.

It is the first part I needed to be concerned about because I had
unfettered access only to my non-retirement investments while my IRA
remained untouched and can therefore grow unimpeded for at least 10 more

I found a bond fund which would generate most of my dividend income used
to cover my expenses while I had some other investments, mostly in a
stock mutual fund, which could also grow mostly unimpeded because the
dividends were taxed at 0% (federal) and the growth would be untaxed for
now because it was unrealized. At no time would principal be touched.

In my ER budgeting, I projected how many shares of the bond fund I would
buy (now and going forward) as well as the monthly cents per share it
would generate in dividends. I built into my budget a cushion so I would
reinvest any excess from any fund if not spent. The overall percent of
assets spent was merely an afterthought.


I saw the bankrate piece on yahoo. Congrats! And ... you DO look happy (and very young, too)!

New to this

Deegee. Thx for clarifying. Sounds like we r viewing from different perspectives. For me, whether you're pulling interest from a bond fund, dividends from stock, or spending some principle, your ultimately just withdrawing cash out of your nest egg to live on....and I want to make sure that the amount of cash I pull out each year doesn't deplete my assets before I am depleted. I'd like some historical statistics that support my withdraw percentages. But here lies the problem. In 2008 the $100k I'd like to spend represented 6% of my nest egg. But today with all the growth in the stock market, that same $100k is only 3% of my nest egg. Note that I didn't add any fresh capital to my nest egg. The stock market just went up.....So my "denominator" got bigger.

So the conundrum is, do I use the 2008 valuation or the 2012 valuation to set my safe withdraw amount?


@Syd, What I find fascinating about your responses to the interview questions above is how similar they are to what my answers would have been. The main differences, as you know, are that I've been retired for thirteen years now and am single.

I also had an aggressive portfolio mix when I retired at 45, for the same reason: I was young enough to wait out bear markets. The first thing I did when I did retire was shift more of the portfolio to bonds, primarily TIPS (and that 3.7% plus inflation rate I got in 1999 looks really good now!) and Series I savings bonds (3% plus inflation). Since then I've gone through two bear markets without difficulty because I learned long ago not to panic sell and my portfolio is sufficiently well diversified to muddle along ok despite market gyrations.

My hope was that it would be enough to get me to age 70 when I could claim the max Social Security benefit (which would be fairly luxurious by my thrifty standards). So far so good!


Syd, I'm only 28 so I highly doubt social security is going to be "around" when I'm ready to use it because the government keeps borrowing against it. Do you really think it will be available to you when you reach your 70's? -Not a condescending question, serious :)

Btw, I learned about your blog on that Yahoo! Finance article and absolutely love it! I'm so happy for you!

Retired Syd

@Jen: Well my crystal ball doesn't go that far (you are 20 years younger than I), but I seriously doubt Social Security will be gone. There's a lot of hype about how Social Security is bankrupt, etc. But the truth is, with a couple tweaks (raising the retirement age, raising the ceiling, and many any other options), the program is fine. But it behooves politicians to scream either "Social Security is going bankrupt!" or "The other guys want to take Social Security away from you!" Neither of which is totally accurate. If I were a betting woman, I would say your Social Security will be there--although you might have to wait until 68+ to retrieve it. I definitely believe it will be there for me, although it won't represent a whole lot of my income since I didn't work enough years to earn the maximum benefit. So kind of a moot point for me.

Retired Syd

@Jen: Oops more importantly, thanks for loving my blog and welcome!!!!

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