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Retired x 6 months, trying to adjust to spending
Old 01-19-2013, 10:25 AM   #1
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Retired x 6 months, trying to adjust to spending

Took early retirement summer 2012. No problems finding things to do (writing, photography) but I am at a loss in terms of understanding if and how much to draw down (spend) from my savings. Being frugal and saving so much for 25 years is not an easy habit to break. So, I am hoping to absorb knowledge from this site on now much and how fast to spend my retirement savings. I can perhaps offer my meager wisdom on investing for those still planning for retirement, as I did pretty good over the past couple of decades-- no magic formula, just a lot of pre-tax and after tax savings, diversification, living frugal.
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Old 01-19-2013, 10:33 AM   #2
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Originally Posted by beowulf18 View Post
...I am at a loss in terms of understanding if and how much to draw down (spend) from my savings.
If you are like many of us, your first year of retirement you'll be very sparing with your withdrawals and spending. Assuming no 'economic unpleasantness' like we saw in and around 2008, the second year you'll feel more comfortable and loosen up the purse strings a bit. Takes time to make the adjustment from years of saving to the 'now it is OK to spend it' mode.
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Old 01-19-2013, 10:38 AM   #3
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Welcome, beowolf.

Have you run your numbers through firecalc FIRECalc: A different kind of retirement calculator and i-orp http://i-orp.com/ ?

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Old 01-19-2013, 10:49 AM   #4
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As Rewahoo said - it took me about 1 1/2 years to let go of the saving "bug" and start enjoying spending. It's all good - I've got more now than when I retired 6 1/2 years ago. Enjoy your freedom - you are still wet behind the ears!

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Old 01-19-2013, 10:57 AM   #5
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As Rewahoo said - it took me about 1 1/2 years to let go of the saving "bug" and start enjoying spending. It's all good - I've got more now than when I retired 6 1/2 years ago. Enjoy your freedom - you are still wet behind the ears!
Sounds exactly like me! I think I need to spend a few thousand on a nice vacation, maybe even fly first class so Greece, etc., I mean sheeet just this week I saw my savings increase by $5,000, the cost of a first class flight and hotel to Greece, so what I am being so stingy with my savings for? Oh I know, the fricken historically uncertain economy and deficit mess, I have never seen this in my life, really messing up planning for so many; but yeah i need to learn to spend more and enjoy a bit of life; just need to sort out what it will cost me to live, such as health insurance that I need to start paying for come August (I started another thread on that).
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Old 01-19-2013, 11:00 AM   #6
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I do not understand the form at i-orp, there are two adjacent boxes to enter "Thousand $". Why two boxes? What goes in the first box, the second box?
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Old 01-19-2013, 11:05 AM   #7
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Sounds exactly like me! I think I need to spend a few thousand on a nice vacation, maybe even fly first class so Greece, etc., I mean sheeet just this week I saw my savings increase by $5,000, the cost of a first class flight and hotel to Greece, so what I am being so stingy with my savings for? Oh I know, the fricken historically uncertain economy and deficit mess, I have never seen this in my life, really messing up planning for so many; but yeah i need to learn to spend more and enjoy a bit of life; just need to sort out what it will cost me to live, such as health insurance that I need to start paying for come August (I started another thread on that).

my 401k does this some weeks-then some weeks it goes down
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Old 01-19-2013, 11:12 AM   #8
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I'm confused, do you think you need to spend more, or are you
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at a loss in terms of understanding if and how much to draw down (spend) from my savings.
I wouldn't spend any more than I have to until I understood what it meant. A $5,000 rise in savings means nothing - if it went down $5,000 would you sell off some possessions to make it up? Portfolios that aren't in dollar-good investments (CDs, MM, cash) will vary in their $ amounts (and those CDs, MM, cash will vary in buying power, but some people don't like to think about that).

The 4% inflation adjusted WD is a guideline for a 75/25 stock/fixed portfolio for 35 30 years (edit/corrected my mistake) years and 95% historical success rate. Many of us feel more comfortable with a lower WD, to allow for longer time frames, and possible worse conditions and provide a buffer for unexpected expenses.

-ERD50
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Old 01-19-2013, 12:05 PM   #9
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Like many others here, it took me a while to get use to the notion of spending and not saving and accumulating. For me, what was helpful was having a realistic budget (including categories for stuff I enjoy) and making sure to not over spend on the budget.

While w*rking, the budget was more optional but in retirement, for me that is more of a requirement.
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Old 01-19-2013, 12:12 PM   #10
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Took early retirement summer 2012. No problems finding things to do (writing, photography) but I am at a loss in terms of understanding if and how much to draw down (spend) from my savings. Being frugal and saving so much for 25 years is not an easy habit to break. So, I am hoping to absorb knowledge from this site on now much and how fast to spend my retirement savings. I can perhaps offer my meager wisdom on investing for those still planning for retirement, as I did pretty good over the past couple of decades-- no magic formula, just a lot of pre-tax and after tax savings, diversification, living frugal.
not trying to be nosy-do you have a wife.let her decide-i'm sure she'll spend it
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Old 01-19-2013, 12:21 PM   #11
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I do not understand the form at i-orp, there are two adjacent boxes to enter "Thousand $". Why two boxes? What goes in the first box, the second box?
The first box is for the retiree's data.

If you have a spouse, the second box, (alongside the first), is where your spouse's data goes. If no spouse, just leave them blank.

This is critical: Be sure to enter your data in thousands (e.g. $1,230.00 in real life = 1.23 as an i-orp data entry).

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Old 01-20-2013, 07:27 AM   #12
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... but I am at a loss in terms of understanding if and how much to draw down (spend) from my savings...
Here's a guy who researches your question and a recent post on Safe Withdrawal Rate:
Retirement Researcher Blog: New research article: The 4% Rule is Not Safe in a Low-Yield World

"The success of the 4% rule in the U.S. may be an historical anomaly. What should one do about this? Exploring this question is really one of the fundamental purposes of this blog". Wade Pfau
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Old 01-20-2013, 07:46 AM   #13
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Here's a guy who researches your question and a recent post on Safe Withdrawal Rate:
Retirement Researcher Blog: New research article: The 4% Rule is Not Safe in a Low-Yield World

"The success of the 4% rule in the U.S. may be an historical anomaly. What should one do about this? Exploring this question is really one of the fundamental purposes of this blog". Wade Pfau
This is not rocket science. You should simply LBYM in both the accumulation and spending phases......in fact the spending phase should also be an accumulation phase. Never spend principal, keep your withdrawals less than your gains. This might be difficult to do, but aiming for it will improve your chances of success. The 4% rule has worked in the past for historical market conditions, but who knows what will happen in the future.
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Old 01-20-2013, 08:00 AM   #14
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Everyone has a different method to some degree or another. Some of us have a hard time breaking away from the savings mode; in my case it's simply that there's little to spend money on (other than what I already do) that appears to be worth what a buck is to me. In other words, I already have what I want and do what I want to the extent I'm comfortable parting ways with my money.

Your description does set off a bit of an alarm though, as mentioned by others. Because there's a good run in the markets is no reason to blow the profits. The essential thing is to determine a rate of withdrawal with Firecalc or other method, and assume that as your cash flow for expenses. In our case, the investments stay untouched other that our withdrawal rate, taken monthly. Just as we shrug and go, "great!" when the investments are up, we shrug and go "Hmm, too bad" when they drop. But neither case is reason to change anything, for us. Remember, all those ups and downs are built into calculators like Firecalc.
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Old 01-20-2013, 09:27 AM   #15
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This is not rocket science. You should simply LBYM in both the accumulation and spending phases......in fact the spending phase should also be an accumulation phase. Never spend principal, keep your withdrawals less than your gains. This might be difficult to do, but aiming for it will improve your chances of success. The 4% rule has worked in the past for historical market conditions, but who knows what will happen in the future.
Agreed. The % (vs fixed $ amt) rule has been used successfully by various foundations for generations. FWIW- decades ago the prescribed % SWR used to be 5+% !!!
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Old 01-20-2013, 10:19 AM   #16
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Agreed. The % (vs fixed $ amt) rule has been used successfully by various foundations for generations. FWIW- decades ago the prescribed % SWR used to be 5+% !!!
Foundations want to stay in business perpetually and so they never touch principal. This is very different from the current retirement income dogma that has you spending you nest egg at some rate derived from two unknowable numbers; the performance of the stock market and your life expectancy. That might work for the average retiree with an average AA under past market conditions, but what about my personal situation and market returns. Those models are great for people who sell annuities, but not for me.

I want to maximize my chances of ER income success and also to pass on money to my heirs. I see LBYM as a way to do that so my planning for ER is closer to that of those foundations than some 4% rule. From 55 to 66 I'm looking at a 2% WR and I'll withdraw less if returns are worse than that. This might require me to do some part time work or rent out the larger of the apartments I own rather than living in it. After 66 my WR should be 0% as long as pensions, SS checks and rental income work out.
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Old 01-20-2013, 10:30 AM   #17
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I had the same "problem" as the OP shifting from accumulating to spending but it subsided within a year, it is just a matter of adjusting and getting used to it.

What I do is I have two "buckets": 1) my liquidity "bucket" which is about 2 years of living expenses, one year in online savings (FDIC insured, 0.8% interest) and another year in a short term bond fund and 2) my retirement nestegg (stock and bond mutual funds).

I set up a monthly transfer from online savings to my regular checking account so it is similar to when I was working and had a regular paycheck coming in.

My taxable account dividends and capital gain distributions go into online savings and I top it up when I rebalance my retirement investments.

The short term bond fund is a buffer in the event my retirement investments have a bad year- I'm not convinced that I need it but until I have more experience in this spending mode I'll keep it but I may ultimately fold it in with my retirement investments.
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Old 01-20-2013, 10:31 AM   #18
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After 66 my WR should be 0% as long as pensions, SS checks and rental income work out.
Nun,

Do you have IRAs? If so, at 70.5, you must take RMDs. I'm wondering about your plans for the RMDS...save, spend, or a combo of both?

omni
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Old 01-20-2013, 12:53 PM   #19
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Nun,

Do you have IRAs? If so, at 70.5, you must take RMDs. I'm wondering about your plans for the RMDS...save, spend, or a combo of both?

omni
Yes I have IRAs. I'll be doing IRA to ROTH rollovers. When I have RMDs I'll save what I don't need.
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Old 01-22-2013, 06:26 PM   #20
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