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Earning Income vs. Withdrawing savings
Old 07-15-2004, 01:36 PM   #1
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Earning Income vs. Withdrawing savings

Now into my 3rd month of Early Retirement...
Only problem I have (if it is a problem) is spending my own money. That wasn't a problem when I was spending the company's money (wages); but now I find it somewhat difficult to reconcile to the fact that from now on I have to spend my own money. Fortunately I do have a pension, doesn't cover everything, but still nice and reliable.
I've played around with FireCalc and noticed that I can spend much more than the recommended 4% safe withdrawal rate if I withdraw less at age 62 when social security begins (4 more years). That's comforting, but I still don't want to overspend. I don't want to draw down my savings; would like to see it go up, if ever so slightly until I can get social security.
Anyone else have these feelings ?

Ray
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 01:55 PM   #2
 
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Re: Earning Income vs. Withdrawing savings

Hi Ray! The only time I felt like that was when I
traveled. I found that traveling was more enjoyable when I was spending someone else's money.

John Galt
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 02:26 PM   #3
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Re: Earning Income vs. Withdrawing savings

Only problem I have (if it is a problem) is spending my own money.

A lot of people have that problem, especially initially. I think it is part knowing you aren't bringing in more income and part uncertainty. It's a little nerve-wracking to go from a steady paycheck to the vagaries of the market. The fact that you have a pension should help. I'm all on my own.

Time will help.

arrete
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 03:48 PM   #4
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Re: Earning Income vs. Withdrawing savings

I got the same problem since I er'ed threee years ago...can quite get myself to fully enjoy the fruits of my labor...kind of unfortunate, but its darn hard to know whats going to happen over the next 50 years...even with all the firecalc's, spreadsheets, SWR's etc...most people who retire at 65 only need to plan for 20 years (more or less)...much harder to feel comfortable about the next 45-50 years!
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 05:02 PM   #5
 
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Re: Earning Income vs. Withdrawing savings

Hey farmerEd. I feel your pain, man! When I semiretired
at 49 I was nervous as a whore in church. Now?
I'm almost 60 and really settled in. Got SS kicking in
soon (if I live) and secure in the knowledge that in the
long run we are all dead anyway. You will get used to it.
Trust me.

John Galt
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 06:56 PM   #6
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Re: Earning Income vs. Withdrawing savings

Ray, FarmerEd;
I know exactly what you're feeling. My solution is to keep repeating my 'mantra' about a 4% SWR being safe over the long run if I have a well-diversified, low-cost portfolio. Study Bernstein, study the SWR research, run the Monte Carlos, and hang in there.

btw, when it comes to following my SWR, I made the following modification which I think helps me stay on a course to preserve the real value of the portfolio in perpetuity (if future looks at all like history, obviously a big 'if').

I take out 4% of the nominal, set each January, so that I tighten down in bad years, and give myself a little raise after up years. 4% won't all come from interest, so you will be 'spending principal' which is another big mental hurdle, but on average you are accumulating even more capital gains in the portfolio so spending some of it (and being taxed at very low cap gains tax rates -- 5% if your income tax rates are the 10% or 15% bracket -- is perfectly fine, maybe even smart.

Your appreciating portfolio is your proxy for a hedge against inflation, and portfolios seem to preserve much better under this scenario than the 'adjust your initial withdrawal up by inflation every year' method.

Unless an ER has early pensions or a short time to bridge until they get a real defined benefit pension, then you'll need to wrestle these demons down and win: you've got decades of this ahead of you (at least I do), so it's worth grappling with the investment theory and practice until you convince yourself your SWR method works and is real. You won't be _sure_ it's safe until years from now -- just the nature of the beast.

ESRBob
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 07:06 PM   #7
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Re: Earning Income vs. Withdrawing savings

Quote:
* I don't want to draw down my savings; would like to see it go up, if ever so slightly until I can get social security.
Anyone else have these feelings ?
On that specific point, Ray, it is very hard to predict over a 4 year period whether you'll have real values going up or not, even if you weren't making any withdrawals at all. The historical average return for a reasonable 40/40/20 portfolio (bonds/stocks/other) with value, small and international tilts is an average of 8-9% per year nominal return. Your 4% SWR and 3% inflation should leave you with 1% or so of forward movement, real accumulation. But that is based on historical averages, and I wouldn't want to bet on what would happen over the next 4 years or any short period.

You're actually in a really safe position, with a current pension, 4 years to SS and/or perhaps a bigger pension, I'd say don't worry, be happy, and recycle your dryer sheets. (finding neat new ways to spend more $ is your only real risk).
ESRBob
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 10:38 PM   #8
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Re: Earning Income vs. Withdrawing savings

Took me a year. But then I got a years pay out the door from the old company, so I started ER thinking of it as a years paid vacation and if I liked it and could figure out how to keep it going, I'd do so.

So I partied like a rock star for a year, then decided i didnt want to go back, spent a few months figuring out what to do and how to do it, and then did it.

It may have been beneficial that I grew up in a frugal family and had to watch my pennies and work 3 jobs through my late teens into my mid 20's. I think if you have the silver spoon tatooed under your tongue you might have more problems.

The key was getting myself to a point where I could live comfortably off just the dividend throwoff from my portfolio (roughly 3.75% at this moment), with the understanding that my port contains enough non fixed income instruments to advance with moderate inflation. And knowing we can spend less and still enjoy life if we hit a rough patch.
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Re: Earning Income vs. Withdrawing savings
Old 07-15-2004, 11:14 PM   #9
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Re: Earning Income vs. Withdrawing savings

Quote:
I don't want to draw down my savings; would like to see it go up, if ever so slightly until I can get social security. Anyone else have these feelings?
I *have been retired 2 1/2 years, and I feel the same way. *I suppose it is just a habit. *After all, for much of my life, my goal was to make the portfolio grow. * Time may change this habit, I don't know. *For now, it just feels better to try and make the numbers go up, so I just do what makes me feel the best.
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Re: Earning Income vs. Withdrawing savings
Old 07-16-2004, 04:37 AM   #10
 
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Re: Earning Income vs. Withdrawing savings

My net worth went up pretty steadily for the first
4 years after my divorce. Now it has flattened out
but has not really dropped much (lots of reasons).
Anyway, being close enough to taste that SS money
certainly takes the pressure off.

John Galt
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Re: Earning Income vs. Withdrawing savings
Old 07-16-2004, 09:25 AM   #11
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Re: Earning Income vs. Withdrawing savings

It was hard for me to get a handle on this retirement mindset. I still have several months in savings 'just in case' and because I always felt that I needed a cushion. I still contribute the same amt each month as when employed, although my DBP plan covers my living expenses and I'm not touching my 457. It is hard to get out of the savings habit even though retired. And although I think I am spending more <and sometimes too much>, my net worth keeps increasing. Go figure :P

5 months in
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Re: Earning Income vs. Withdrawing savings
Old 07-16-2004, 11:52 AM   #12
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Re: Earning Income vs. Withdrawing savings

gayl, I think it's great that you can save in retirement.
Absolutely nothing wrong with that.

ESRbob, I like your strategy for withdrawal. I plan to
add a little twist to it by "forcing" my stock allocation
to increase annually each year at the inflation rate.
This will counter the "reverse" DCA effect that rebalancing to a fixed ratio creates in the withdrawal
phase (I hope). To do this, one would need a strong stomach and several years of withdrawal in your non-
volatile account to weather the storm of a multi-year
down market.

I have posted on this before, but the tender age of 70
allows me to be a little repetitious, right?

Cheers,

Charlie
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Re: Earning Income vs. Withdrawing savings
Old 08-17-2004, 10:01 AM   #13
 
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Re: Earning Income vs. Withdrawing savings

Same fears here.
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Re: Earning Income vs. Withdrawing savings
Old 08-17-2004, 06:33 PM   #14
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Re: Earning Income vs. Withdrawing savings

: Well, I plan to ER two weeks from now. I'm sure that I'll have similar feelings. The only way to find out for sure is to just do it. :P
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Re: Earning Income vs. Withdrawing savings
Old 08-17-2004, 06:48 PM   #15
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Re: Earning Income vs. Withdrawing savings

Marvyt,

How E are you going to R? Just curious.
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Re: Earning Income vs. Withdrawing savings
Old 08-18-2004, 06:22 PM   #16
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Re: Earning Income vs. Withdrawing savings

I'm 56. That's not terribly early, but it's still Earlier than most. Actually, I decided not to wait 2 weeks, I ER'd today!

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Re: Earning Income vs. Withdrawing savings
Old 08-18-2004, 07:04 PM   #17
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Re: Earning Income vs. Withdrawing savings

Marvyt, congratulations! How does it feel? Do you have an almost overwhelming sense of relief?
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Re: Earning Income vs. Withdrawing savings
Old 08-18-2004, 07:18 PM   #18
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Re: Earning Income vs. Withdrawing savings

Congratulations!!!!!
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Re: Earning Income vs. Withdrawing savings
Old 08-18-2004, 08:09 PM   #19
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Re: Earning Income vs. Withdrawing savings

Marvyt,

Let me add my congratulations! When you come right down to it, working another two weeks doesn't make much difference in the long run.

Like Bob_Smith, I would really like to know how you feel about taking the big step. Guess we will have to wait until the celebrating slows down a bit before we hear from you.

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