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

[obgyn65]

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

One of my biggest challenges when I FIRE in 2012 will be to switch from saving mode to withdrawing mode. Please let me know how easy (or difficult) it has been for you to overcome this challenge. Thank you.

 

[Alan]

I set a spending budget before I RE'ed and treat it like a pay check - this is the 'income', no more, no less.

My non-COLA pensions on year 1 met about 70% of the target so I withdraw enough funds from the ER savings to meet that budget, putting the money into a savings account.

If we want something above and beyond what the budget is we 'save' for it by not spending all our withdrawals and growing the savings account until we can afford it. When we RE'ed a couple of years ago we started with $30k in our 'savings' account. I'm sure it is not financially efficient but suits us mentally.

We are having no trouble psychologically in spending up to our budget.

 

[obgyn65]

Thank you, Alan. I would like to have an approach that suits me mentally also. Until I feel that way, I may keep a part time position when I FIRE from my full time job. Happy to read you are having no trouble psychologically in spending your budget.

I'm sure it is not financially efficient but suits us mentally.

 

[Ronstar]

Obgyn65 - I'm breaking into the withdrawal mode gradually. This year I'm still working, but averaging 3 days a week. And I'm also maxing out my 401k. So I'm not getting enough take home pay to meet expenses. So my checking acct balance is dropping instead of rising.

At first the psychological part of this was difficult. But after a while I saw the consistency of it and realized that the withdrawal rate fit my plan - so everything is ok

 

[donheff]

I'm doing almost exactly what Alan does. I have a COLA'd pension and set my initial SWR rate at about equal to it based on a 3.5% rate. That is actually a fair amount more than we need for living/playing so the excess stays in the portfolio earmarked as "mad money" to be used for a rainy day. I use a spread sheet to track all the funds and don't consider the "mad money" as part of the portfolio for ongoing withdrawal calculations. I also carry columns to show what the SWR "would" be under various scenarios (standard, Guyton, % of remaining portfolio, PE/10). For now I plan to keep the withdrawal at the low end of everything with Guyton as a sort of fall back if things get tight. I suppose another way of expressing this is that I haven't a clue as to what I should really do long term so I plan to stay conservative and watch the numbers until I get comfortably into my 70s. Then Katie bar the door.

 

[WB52]

What is the Guyton term that you referred to?

 

[donheff]

What is the Guyton term that you referred to?

It is a variation on the standard SWR method that limits both the upside and the downside to keep withdrawals within a reasonably acceptable range and prevent the portfolio from dropping drastically. Or so the idea goes. Here is a thread about it. There are probably many more.

 

[rescueme]

I retired a bit over 4.5 years ago and have been getting my income from an SPIA (purchased at retirement, at age 59 with funds from my retirement portfolio) along with a small VA disability check each month, including retirement portfolio withdrawls.

My personal "psychological challenge", if you will was to put aside the traditional 4% withdrawal guidance, which is touted in many articles/blogs.

It might be a good target for those that retire with all their income sources (pension, SS, SPIA's, etc.) starting on day one of retirement, but for us the idea did not work as advertised.

While DW was to retire the same month as me she decided she was not emotionally ready, and still remains in "contribution mode" today. However, our plans were as such that she could have retired back in early 2007 as I did, or retire tomorrow if she wishes.

Regardless of that, our planning was always based upon not having any income (beyond the SPIA/VA benefit) from age 59 till age 65, when her two small pensions would start.

Additionally, our plan is based upon the SS option of her drawing at FRA (in just over two years at age 66), my 50% spousal claim at that time (we're the same age - within a few months), and delaying my SS till age 70 (primarily for her benefit, assuming I die first).

While our plan shows current withdrawals more than doubled that 4% goal (assuming she retires tomorrow) it really doesn’t mean a thing in our case.

Why? Simply because in just over six years (when I turn 70, and all our income sources come "on-line"), our retirement portfolio withdrawls drop to less than 3%, even accounting for funding most of our early retirement expenses outside of most benefits. That includes the fact that our annual portfolio draw will be 75% less than today (assuming we were both retired).

Sure, we could adhere to that 4% by cutting back our standard of living to much less than we had just before we retired, but why? If we would, we would (at age 70) have a withdrawal rate of a fraction of a percent, while living a lifestyle before that time much less than what we planned on.

That's one point that is often overlooked in planning for retirements that start much before any benefits start and you need to draw down assets at an advanced rate - contrary to advertised "good practice".

Just some facts from our situation, concerning the OP's question - and no, it was not hard psychologically to do so. You still have income, but the sources are different as you age, rather than depending on a j*b. While we were of the 4% "rule", our planning and expectations showed that the 4% guidance need not be followed from day one of retirement assuming you ER. Our plan was on solid ground, and the last 4.5 years have confirmed our planning...

 

[Ken11]

THis is my second ER year and the first that requires me to seel some stuff for income. Like the poster above Ive got several years before SS kicks in at 62. So, my WDR may exceed 4% for those years- and then decline substanbtially when SS kciks in.

Firecalc tells me Im fine.
A long term average return of 5.5% and my spreadhsheet tells me Im fine.
However, I am having a hard time pulling the trigger and selling something I worked so hard to build. It is an adjustment to be sure.

It helps that everything that I can control (the monthly budget) I am controlling very well.

Ive done all the analysis I can possibly do. I think I will sijmply need to live through a few years of this to get more comfortable with it.

 

[dm]

Ive also been ER for a little over 4 years. We set up a budget and try to stay within it. But in 2008, when the market was dropping, we cut back. We have some cushion and we put off any big purchases. I watch how our net worth is doing and it definatly affects how I feel about withdrawing from the nest egg. Even though I know we should be fine, unless something really drastic happens, I don't like to see big drops in the net worth.

I'm 54 and my wife is 50, so we have awhile before SS and medicare kicks in. We can be fine with a 2.5% withdraw rate, but with 4% the vacations and new toys are much nicer. So I guess I'm saying in good years we are closer to 4%, in bad more like 2.5%.

 

[W2R]

It has been very easy for me to transition to "withdrawal mode". I retired in 2009.

I pay myself the same amount each month. I adjust that amount during the first week of each year based on dividends but never over my SWR (3.5% ceiling in my case until I claim SS, then 3.0%).

These regular payments from me to myself, plus my tiny pension, provide a steady and predictable income for me throughout the year, just as a regular paycheck did while working. I like most things in my life to be steady and predictable.

I am pretty conservative in both my investing, and in my SWR, and so I don't worry about income any more than I did when working.

 

[Rich_by_the_Bay]

The mechanics of automating your withdrawals is the easy part - Boglehead books, Lucia and his buckets combined with the appropriate automatic transfers. Now might be a good time to start reading those books if you haven't already.

I also sense that your concerns include questions about whether you are ready personally, financially, etc. Can you focus us a bit as to what challenges you are most concerned about? I am sure lots of folks have been there, whatever they may be. I sure have, including the infamous thread "One more year" cited in the archives here.

 

[bbbamI]

After keeping track of our expenses for several years and figuring until I was blue in the face about how much we needed for retirement...then attained that number, I was satisfied.

Then DH retired. ...and it was game on.

I remember feeling a bit stressed about buying a $7 plant instead of a $4 plant three months into his retirement in May, 2009.

It didn't take long for me to relax. DH retired in Feb, 2009 and our planned WR of 3% (along with a non cola'd pension) worked/works very well...as planned.

The best thing is...we have more money now than we've ever had. No work, all play and the pot still grows.

 

[Rich_by_the_Bay]

No work, all play and the pot still grows.

Is that how you are funding your play money account?

 

[bbbamI]

Is that how you are funding your play money account?

Ooooops....game found out.

 

[FIREd]

Once my wife retires, we will be living only on interests and dividends generated by our portfolio. I think the transition from saving mode to withdrawing mode would be far more difficult for us (psychologically) if we had to sell investments to pay the bills. Right now, interests and dividends are reinvested but, with a few clicks of a mouse, I can have them paid automatically into our checking account.

 

[JmfromTx]

I set a spending budget before I RE'ed and treat it like a pay check - this is the 'income', no more, no less.

My non-COLA pensions on year 1 met about 70% of the target so I withdraw enough funds from the ER savings to meet that budget, putting the money into a savings account.

If we want something above and beyond what the budget is we 'save' for it by not spending all our withdrawals and growing the savings account until we can afford it. When we RE'ed a couple of years ago we started with $30k in our 'savings' account. I'm sure it is not financially efficient but suits us mentally.

We are having no trouble psychologically in spending up to our budget.

This is my approach also. My non-Cola pension is half of my needs and I have very reasonable health insurance. It also helped that the guys at Vanguard said they had absolutely no problem with the withdrawal rate I had in mind.

 

[Koolau]

I remember feeling a bit stressed about buying a $7 plant instead of a $4 plant three months into his retirement in May, 2009.


The best thing is...we have more money now than we've ever had. No work, all play and the pot still grows.

Sounds like the $7 plant was a GOOD investment after all.

 

[gerntz]

I retired a bit over 4.5 years ago and have been getting my income from an SPIA (purchased at retirement, at age 59 with funds from my retirement portfolio) along with a small VA disability check each month, including retirement portfolio withdrawls.

My personal "psychological challenge", if you will was to put aside the traditional 4% withdrawal guidance, which is touted in many articles/blogs.

It might be a good target for those that retire with all their income sources (pension, SS, SPIA's, etc.) starting on day one of retirement, but for us the idea did not work as advertised.

While DW was to retire the same month as me she decided she was not emotionally ready, and still remains in "contribution mode" today. However, our plans were as such that she could have retired back in early 2007 as I did, or retire tomorrow if she wishes.

Regardless of that, our planning was always based upon not having any income (beyond the SPIA/VA benefit) from age 59 till age 65, when her two small pensions would start.

Additionally, our plan is based upon the SS option of her drawing at FRA (in just over two years at age 66), my 50% spousal claim at that time (we're the same age - within a few months), and delaying my SS till age 70 (primarily for her benefit, assuming I die first).

While our plan shows current withdrawals more than doubled that 4% goal (assuming she retires tomorrow) it really doesn’t mean a thing in our case.

Why? Simply because in just over six years (when I turn 70, and all our income sources come "on-line"), our retirement portfolio withdrawls drop to less than 3%, even accounting for funding most of our early retirement expenses outside of most benefits. That includes the fact that our annual portfolio draw will be 75% less than today (assuming we were both retired).

Sure, we could adhere to that 4% by cutting back our standard of living to much less than we had just before we retired, but why? If we would, we would (at age 70) have a withdrawal rate of a fraction of a percent, while living a lifestyle before that time much less than what we planned on.

That's one point that is often overlooked in planning for retirements that start much before any benefits start and you need to draw down assets at an advanced rate - contrary to advertised "good practice".

Just some facts from our situation, concerning the OP's question - and no, it was not hard psychologically to do so. You still have income, but the sources are different as you age, rather than depending on a j*b. While we were of the 4% "rule", our planning and expectations showed that the 4% guidance need not be followed from day one of retirement assuming you ER. Our plan was on solid ground, and the last 4.5 years have confirmed our planning...

DW & I are similar ages and our plan is very similar wrt to SS. However, we have no pensions but do have signifcant cap gains in hand and will sell those stocks/funds at the 0% cap gains rate first and withdrawal the balance of our needs. As with you, once we reach 70 with SS payments maxed out, our withdrawal needs will be small.

 

[bbbamI]

Sounds like the $7 plant was a GOOD investment after all.

Mmmmm.....you should see the buds...errr...blooms.



Mmm, wait...what were we talking about?

I need a cookie.

 

[rescueme]

I need a cookie.

Brownies - deliver the goods and satisfy the munchies (so I'm told ) ...

 

[CyclingInvestor]

Very easy. When the dividend flow (no pension) from my stocks (adjusted for taxes, health insurance, etc) surpassed my paycheck, I was ready to retire (never had a budget). 2 years later in 2006 (as a very nice job environment changed for the worse) I retired with a comfortable margin. I just turned on the 72t spigot and withdraw a few times per year. This currently works out to about a 3.1% withdrawal rate, which is more than covered by the dividends. Any SS I get (in 9+ years) or Medicare (in 12 years) will just be gravy. Psychologically the 72t transfers feel just a a paycheck.

 

[obgyn65]

Hello Rich - you are correct. My concerns include questions about whether I am ready personally, financially and emotionally. First, I will be 47 when FIRE, and planning for 45-50 years of retirement can be tricky. Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful. Third, I have no idea what is going to happen to SS, Medicare in 15 + years. Fourth, 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 ? Maybe I am having the "One more year syndrome" - not sure. Your thoughts please ?

I also sense that your concerns include questions about whether you are ready personally, financially, etc. Can you focus us a bit as to what challenges you are most concerned about? I am sure lots of folks have been there, whatever they may be. I sure have, including the infamous thread "One more year" cited in the archives here.

 

[MichaelB]

Not Rich, but I can comment. No one can plan effectively for 45-50 years. There are simply too many variables. What you can do is determine if you have enough assets to provide for your needs indefinitely, have enough additional assets to finance your mission objectives, and have a viable fallback plan that you can implement if something goes wrong.

You don’t need to plan for 50 years. You do need to plan for, say 10 years, with a specific threshold or milestone for that point in time. If you don't meet your objective you have a fallback plan. If you do, another 10 year plan. At some point you will reach an age where you are can go with one "final" plan that has a greater level of confidence.

 

[SkisALot]

I have always been a saver, so spending our "savings" was very difficult for me. The idea of it kept me awake many nights, but then, when I realized that it worked, I was fine. DH did not have any problem with it, but he did work part-time for a year before fully retiring so we were able to ease into it. That helped too.