How to psychologically switch from a "saving mode" to a "withdrawing mode".

[MBAustin]

... I volunteer often in the US and abroad and spend tens of thousands of dollars on mission projects, which is another variable I need to account for. Knowing all this, does it make sense to FIRE when one turns 47 ? ...

First, thanks for your service to those less fortunate.

One reason I decided to do some consulting after 6 months of ER is to earn income for charitable contributions. My goal is to keep our contributions at the same level they were when I ER'd. We included significant contributions in our ER spending plan (way more than a tithe of our much lower income) but not up to that level. I hope to consult a few days a month and use that income to make up the difference.

A dentist friend who just retired found a consulting gig reviewing Medicaid claims 1-2 days a week - just right for him. You might look into something like that to fund your mission work. And you'll have plenty of time to do the work! Good luck!

 

[teejayevans]

Assuming you pay cash for them so you don't carry the debt into retirement unless you can well afford it. Same goes for RVs, second homes, aircraft, ATV, snowmobiles, etc. Toys are nice to have especially now that you don't have to waste your time w*rking.

Keep in mind that during retirement things will break, cars will need to be replaced, roofs leak, AC units stop, etc. Have a realistic Repair/Replace fund unless you can fund from from your investments or savings.

All true, but getting back to the subject line, there is something psychologically painful about having to pull out a big chunk of money just after retiring.
TJ

 

[W2R]

All true, but getting back to the subject line, there is somethingpsychologically painful about having to pull out a big chunk of money just after retiring.
TJ

Not necessarily, at least if you plan for it ahead and set that money aside. That is how I bought my Venza in cash right after retiring. I had been saving for it for 10 years, and looking forward to the time when I could spend that money. Despite my LBYM habits, washing out sandwich bags and not even buying dryer sheets, buying my retirement car was part of my plan so I completely enjoyed the experience and there was nothing painful about it at all.

I can do the same now for my next car, putting money aside each year. I don't think that I will buy another car since I am already 63, but some people here that are pretty smart say that I will think differently about driving in my 70's after I turn 70.

 

[rescueme]

All true, but getting back to the subject line, there is something psychologically painful about having to pull out a big chunk of money just after retiring.
TJ

It's better than having to get a loan ...

Seriously, I also paid cash for a car (volunteer for Meals on Wheels) and had no problem doing it. I put away $500/mo. in my car fund for future purchases - regardless if I buy one or not, due to the little mileage I actually accrue these days.

If you anticipate and budget your expenses for big ticket items (such as a new roof for your house, HVAC replacement, etc.) there should be no problem. Anyway, it's something you should have been doing all along, retired or not...

 

[Birchwood]

Here is my plan. I'm going to do it early next year.
1. I have 10 yrs living expenses in cash equivalent accounts. I am 62 yrs old. The rest in equities & MFs which will give me some time to move in the cycles.
2. I will draw SS at 62 to help pay for insurance etc.
3. I will downsize in housing.
4. I will downsize in the numbers of vehicles, although the 3 are fully paid.
5. I will buy certain hobby stuff while still working as I will have difficulty buying it during retirement. (Camera lenses and target pistols)>
6. Will concentrate on doing things than buying stuff.
7.Will buy only on sale or discount.
Psychologically it may still be difficult, but the alternatives are, well, even worse. So I'm willing to jump.

 

[youbet]

.
5. I will buy certain hobby stuff while still working as I will have difficulty buying it during retirement. (Camera lenses and target pistols)>
.

Actually, it won't be harder to buy hobby things pre or post retirement, all other things being equal, so buy these things when it is the best time to buy them.

Remember, if you don't buy the camera lenses or target pistols pre-retirement, that money goes into your retirement savings and those exact same dollars will be there for your post retirement hobby purchases......

I only mention this because I watched a friend load up on hobby and personal entertainment items during his last couple of years working in prepartion for RE. A couple of years into RE, he found that some of the stuff wasn't as important to his retirement lifestyle as he'd anticipated. He should have just set the money aside in savings and then purchased the items at the time of need and when he could be confident that they would be an important part of retirement.

 

[ERD50]

All true, but getting back to the subject line, there is something psychologically painful about having to pull out a big chunk of money just after retiring.
TJ

I dunno, but that sounds like twisted psychology to me. How is taking a planned $X out right before retirement or right after retirement any different? It leaves you in the exact same place. Is it really that hard, psychologically? I'll agree with W2R's response...

Not necessarily, at least if you plan for it ahead and set that money aside. That is how I bought my Venza in cash right after retiring. .... buying my retirement car was part of my plan so I completely enjoyed the experience and there was nothing painful about it at all.

It's like when I hear people say they can't retire until the kids are out of college. Really? Maybe they mean ' I can't retire for X more years because I need to save up some more $', but the college costs are the same retired or not (ignoring tax and aid issues).

It's better than having to get a loan ...

Why? If the loan is on good terms, why not? People act like 'debt' and 'loan' are four letter words... oh . More seriously, a loan is just a financial decision with pros/cons, it's not voodoo demon magic. Although I've always paid cash for cars, when I look at the rates now, I might consider a loan. It's money - do the math.

Here is my plan. I'm going to do it early next year.
1. I have 10 yrs living expenses in cash equivalent accounts. I am 62 yrs old. The rest in equities & MFs which will give me some time to move in the cycles.

Using the round 4% WR number, that is ~ 40% cash equivalent accounts. Your choice, but take a look at what FIRECALC reports about having that much cash sitting around. And can you keep it all FDIC insured? There are times I've been more concerned about my cash holdings than my stock holdings.

5. I will buy certain hobby stuff while still working as I will have difficulty buying it during retirement. (Camera lenses and target pistols)>

...

7.Will buy only on sale or discount.

Actually, it won't be harder to buy hobby things pre or post retirement, all other things being equal, so buy these things when it is the best time to buy them.

Remember, if you don't buy the camera lenses or target pistols pre-retirement, that money goes into your retirement savings and those exact same dollars will be there for your post retirement hobby purchases......

I only mention this because I watched a friend load up on hobby and personal entertainment items during his last couple of years working in prepartion for RE. A couple of years into RE, he found that some of the stuff wasn't as important to his retirement lifestyle as he'd anticipated. He should have just set the money aside in savings and then purchased the items at the time of need and when he could be confident that they would be an important part of retirement.

A big +1 to youbet. If you look again, you'll see that Birchwood is actually contradicting himself in #5 and #7. You will very ikely spend this more wisely after retiring. In addition to matching it to your post-retirment needs, you'll have more time to shop out the bargains.

If this is really that hard for you psychologically - take the amount you would spend pre-retirement, put it in a separate account. You are then 'free' to spend that to zero after retirement with no guilt issues. Personally, I can do this on a spreadsheet (or just in my mind) easier and cheaper than with separate accounts, but to each their own.


-ERD50

 

[dandetour]

ObGyn: My experience is what you fear. I FIREd 2.5 years ago at 56.
I am very comfortable that all the withdrawal calculations I did before
then, and since, are the best I can do. My calculated SWR is 3% for
the first 3 years, then 3.5% for 3 years, then 2% until both the wife
and I kick the bucket.

But mentally I cannot make the shift to withdrawals cleanly. Every
month, instead of just moving the 3% to checking I have to go
through some mental anguish and drama. "How little can I take?"
We are living well, spending on vacations and whims regularly. It
must be a mental defect I have that in 2.5 years I cannot switch
thinking yet. I'm not complaining, just reinforcing your concern.

Dan

 

[SteveR]

All true, but getting back to the subject line, there is something psychologically painful about having to pull out a big chunk of money just after retiring.
TJ

No doubt that for some there is pain in the process. I have felt the pain and still do when I have to convert some asset into cash for living expenses. It is indeed hard for some to go from a savings mentality to a selling one. For some the savings becomes an end to itself and the act becomes much more than the mere collection of money in an account. When that activity stops mental and emotional trauma can be created for that individual which results in pain in some manifestation or another. I think all of us have some elements of this to some degree. I know it hurts me to do it but not so much that it makes me lose sleep over it.

We plan so we can.

Withdraws are a fact of life for many of us not living on dividends or pensions. Selling off is part of the whole process and should have been in the plan before one retired. It is is a surprise now one might think the plan was incomplete at the time of retirement.

 

[chinaco]

I think it comes down to how solid you believe your plan is and if you have adequate financial resources.


I recently FIREd. We (americans... and much of the globe) are in an extreme time right now. But I have tried to position our assets for tough times and to benefit when markets (and economy) turn around. This gave (and continues to give) me the confidence to not change our plans.

Since I FIRED... I have noticed that I am much more focused on our spending than I was when I was working. Partly because I have more time on my hands. But, we have not tightened our belt and cut spending... specifically discretionary spending.... maybe a better description would be "we have not cut consumption"... except w*rk related consumption.

Here some changes I have noticed in myself. There is nothing happening that I was not aware of before I FIREd... but I think I am much more focused on it... probably because of the economy and uncertainty of the times.

1. I am kind of handy with doing certain types of work around the house. When I was working, I would pay to have many things done. I am doing many more projects myself now (which save us money). I had always planned on doing that... but I think the current economy (and uncertainty) has me seeing the benefit even more. In this way, we have cut non-discretionary spending.... but not consumption. The other benefit... it keeps me occupied. Since I am in early FIRE days... it is good to have some built in structure (e.g., spend time doing projects at home).
2. We have a fairly large discretionary budget... in FIRE, it is an increased budget for travel. We are not cutting our traveling. But because we do not work... We do have the flexibility to seek out travel deals to try to save a few bucks here or there.
3. We are eating out less. Mainly because we have more time on our hands to prepare meals at home. This has been going on since DW ERd. But has increased now that we are totally FIREd.

 

[obgyn65]

Thank you for candid answer, Dan.

ObGyn: My experience is what you fear.

 

[Finance Dave]

All true, but getting back to the subject line, there is something psychologically painful about having to pull out a big chunk of money just after retiring.
TJ

I understand what you mean. I plan to buy all those things just PRIOR to FIREing....and then if you feel really sad about your spending spree, wo*k 2-3 more months to make up for it.

 

[donheff]

A big +1 to youbet. ...
If this is really that hard for you psychologically - take the amount you would spend pre-retirement, put it in a separate account. You are then 'free' to spend that to zero after retirement with no guilt issues. Personally, I can do this on a spreadsheet (or just in my mind) easier and cheaper than with separate accounts, but to each their own.


-ERD50

+1 that is what I did and what I do with excesses from my yearly withdrawals. I was originally going to put it in a separate account but ended up leaving it in the portfolio but identified as an amount in a spreadsheet. At the end of the year I adjust it up or down based on the performance of the portfolio as a whole. It will be interesting to see if I can maintain the mental separation when I want to tap that "fund" for a frivolous purchase after a big down year.

 

[Surewhitey]

We just retired at 40 & 46. Some of our decision is just doing it...I plan to try to keep our overall balances at even to slightly up. If I clear 3% annually, I can do this. Inflation would require me to get 6-7%...maybe wishful thinking...

We are moving (maybe temporary, maybe long-term) to Mexico to make our money extend a bit.

DW gets a pension at 55 or later (minor, but it would cover appx. 30-40% of expenses), then we have SS in our late 60's.

Friends think we're a little crazy (sometimes we do too), but I've run more spreadsheets than my accountant boss to come up with various scenarios and we decided the timing was good and we just needed a couple years off to "explore" our options.

We'll be living off of $2,500 monthly to start; that includes everything! HD health, car insurance, food, lodging...everything. Can we do it? I'll let you know 6 months from now how close we get to the goal.

 

[ejman]

It may sound crazy but the LBYM mode has become so ingrained that I have decided not to convert traditional IRA's to Roth's largely because I will be forced into taking RMD starting at 70 1/2 and then since the money is out, I'll probably feel like spending whatever is left after Uncle Sams cut. We've been retired for 8 years now and find that distributions from just our taxable accounts are more than sufficient to cover our expenses.

 

[Sue J]

We'll be living off of $2,500 monthly to start; that includes everything! HD health, car insurance, food, lodging...everything. Can we do it? I'll let you know 6 months from now how close we get to the goal.

DH retired June, 2010 and we are quite comfortable on $2500/mo. Most months it's more in the range of $2300-$2350. This includes having satellite TV, broadband internet, a generous grocery budget and $300 budgeted for "other" because sh*t happens, stuff breaks (garage door repair $233 this month) or wears out. Or sometimes you just need a new toy. No mortgage, low property taxes. Medical insurance is through retiree health plan so that helps a lot. There's a high deductible so I set aside a monthly amount for planned expenses.

What part of Mexico? Is it a lot cheaper there?