No. of Recommendations: 33
Thanks for posting a link to my article. I tend toward extreme conservatism when it comes to spending and most of what I wrote about psychological impediments of doing so without an actual cash dividend stream applies to my own psychology. That being said, I do need a drawdown strategy and figure that Buffett's approach to his charitable giving is quite sound, although I probably will use 2.5% rather than 5%.
For "early retirees", there are several key milestones to be concerned with:
1) Age 59 1/2 when IRAs may first be tapped without penalty.
2) Age 62 when one has the option to take social security.
3) Age 65 when Medicare kicks in and one must be concerned with AGI thresholds triggering higher premiums.
4) Age 67 when "full" social security can be taken.
5) Age 70 when maximum social security benefits are reached and should definitely be taken.
6) Age 75 when required minimum distributions are triggered for traditional IRAs.
I am approaching 50 and keeping all of these milestones in mind as I plan drawdown strategies. I am also keeping in mind the 0% federal income tax rate for long term capital gains and the desirability of maximizing that benefit as long as I am able to, and keeping my AGI below thresholds where higher medicare premiums are triggered in fifteen short years.
Given that a 2.5% rate on my Berkshire is more than adequate for the two decades before I am likely to tap social security, I have few concerns about the future and am not particularly bothered by the lack of "diversification" given Berkshire's internal diversification. I have healthy sized traditional and Roth IRAs as well that I can manage with the knowledge that I have a quarter century before any of those funds will be used and there I can be more venturesome if I desire.
The lack of a cash dividend at Berkshire does not bother me. However, I suspect that regular or special dividends will occur within my drawdown timeframe. If that happens, I plan to simply deduct the amount of the dividend from my annual drawdown. For example, if there is a 1.5% dividend starting in 2028, my drawdown will be 1% for 2028, etc...
Many in the "die with zero" camp would criticize my conservatism since, barring some catastrophe, I will certainly die with a positive net worth. This does not bother me for two reasons: First, I have seen what old age can do and it is cruel ... should I end up in a bad health situation, I wish to fund in-home health care and that is unbelievably expensive. Second, I happen to want the individuals who will inherit the residual of my estate to have financial security and it doesn't bother me in the least if they enjoy Berkshire shares with a step-up in basis at my death. I live very simply, need very little, and take to heart Jack Bogle's mantra of knowing what is "enough".
