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If You Were Me, Would You Spend More?
Old 06-23-2014, 01:23 PM   #1
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If You Were Me, Would You Spend More?

I realize this is a subjective question, but I'm truly interested in your answers. I have no one else to ask, because money is a verboten topic with my friends and family. So, understanding that nothing is certain for the future regarding the market, events, and potential additional expenses due to aging, I welcome your input.

DH (63) and I (56) have been retired for 4 years. For income, I have a non-COLAed state pension that covers 80% of our current expenses. (I realize that the value of the pension will shrink as time goes on.) The other 20% of our expenses is funded with interest and dividends. We have no children and no wish to leave a financial legacy. We plan for DH to take SS at 70 and for me to take it at 62. The amount as estimated by the SSA, combined with the pension, will more than cover our current expenses.

Our stash is currently $1.9M, invested in Vanguard mutual funds, TIAA-CREF, and several individual US Treasury bonds and notes (these were inherited - we're keeping them because they'll pay between 4.5% and 7.5% from now until 2027). Our asset allocation is 50/50 equities/fixed income. We're in the 15% Federal tax bracket and the 4% bracket for State tax.

Our expenses for the last 4 years have averaged $57K. The biggest single expense is for health insurance at $12K/yr. The next highest expense is for HOA fees for our co-op, at $9K/yr. (We live in a 55+ community with 16,000 residents and many amenities. The $9K includes our property tax.) As for the rest of our expenses, we live in southern California. (Enough said?) We live a very low-key lifestyle -- we have one car, eat out once each week ($20 max total), and shop at resale stores. We don't feel at all deprived -- except for the travel issue.

While we're relatively young, we'd like to travel more. When we were both working, we took two trips per year -- one international and one domestic. Now that we're retired, we have the chance to take much longer (and therefore more expensive) trips. DH is all for this; I'm the foot-dragger. I've run several FireCalc simulations and get 100% success for 35 years if we spend up to $30K more annually than we do now. That would pay for some nice trips, but I can't seem to get past the "what-ifs" -- what if the market tanks for several years; what if inflation goes back to 1970s levels; what if we have a health catastrophe?

Until now, we haven't touched our stash because we haven't needed to. Spending another $30K/yr will require us to start withdrawals, especially before we take SS. Intellectually, I know that the whole reason for having a stash is to fund one's retirement expenses, but for some reason I feel "safe" as long as we don't touch it. But, DH's wishes are very important to me, and he wants to travel.

So, what do you say? If you were me, would you spend more -- on travel, or anything else?
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Old 06-23-2014, 01:33 PM   #2
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Wow, there is a lot in there to think about. We are somewhat similar from the standpoint we don't spend much and I think we could spend more. My problem is it is hard mentally to go against everything I believed in and worked for for 40 years (I retired at 60, 2 1/2 years ago).

We spent all this time saving and investing and watch our assets build. It is so hard for me to imagine taking them down. We live fine off all the various income streams we have built, so yes, we could spend down the nest egg.

We haven't done that yet but, like you, the thought is there.

We will probably go on as we are and maybe, at some point, we will treat ourselves to something that will require a drawdown. (It won't be a little red Corvette though....kidding).

I will be curious to read the other responses to your question and good luck to you what ever you decide.

Aloha!
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Old 06-23-2014, 01:33 PM   #3
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Looks like you have more than enough money to go on some nice trips. Go for it. Enjoy.
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Old 06-23-2014, 01:36 PM   #4
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Quote:
Originally Posted by ocdokie View Post

So, what do you say? If you were me, would you spend more -- on travel, or anything else?
We are retired and our circumstances are similar to yours with three significant differences:

1. We have far less pension income - only a tiny non-cola pension currently supporting about 7% of our annual spending

2. We are 66/67, so roughly ten fewer retirement years to fund.

3. We have a smaller nest egg having spent down $650K of it, mostly due to having to rely on it to fund 100% of our expenses prior to SS kicking in.

Bottom line, we have spent more than you and fully intend to continue to do so. So that should answer your "would you spend more" question. I think it is important to (within reason) enjoy your money while you have the physical and mental ability to do so.
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Old 06-23-2014, 01:36 PM   #5
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Personally, if I was in your situation then, yes, I would spend more if there were things I wanted to spend the money on.

On the other hand, if it would drive you crazy to do it (regardless of whether that is rational or not), then your peace of mind might cause you to spend less.
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Old 06-23-2014, 01:39 PM   #6
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Maybe ease into it? Start with perhaps an $10K increase for the first year for travel as a one-time expense and see how it goes. That might make you more comfortable to increase the amount in subsequent years.
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Old 06-23-2014, 01:39 PM   #7
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Looks like you have more than enough money to go on some nice trips. Go for it. Enjoy.
+1. What are you waiting for?
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Old 06-23-2014, 01:46 PM   #8
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I too am similar, with my rental income. I plan on RVing for a while, taking 4-6 week excurions several times a year. We would bring the dog with.

You could do some smaller trips until you get comfortable, see the USA even more.

You could also give neices and nephews or grandkids an extra $100 for christmas, or donate a bit for an animal shelter to buy some equipment or similar.

But spend a bit more. Don't go hog wild, but do multiple short vacations so you can stop quickly if you think you are spending too much.
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Old 06-23-2014, 01:48 PM   #9
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For income, I have a non-COLAed state pension that covers 80% of our current expenses. (I realize that the value of the pension will shrink as time goes on.) The other 20% of our expenses is funded with interest and dividends. ... The amount as estimated by the SSA, combined with the pension, will more than cover our current expenses.

...

Our stash is currently $1.9M, ...

... if we spend up to $30K more annually than we do now. That would pay for some nice trips, but I can't seem to get past the "what-ifs" -- what if the market tanks for several years; what if inflation goes back to 1970s levels; what if we have a health catastrophe?

Until now, we haven't touched our stash because we haven't needed to. Spending another $30K/yr will require us to start withdrawals ...

So, what do you say? If you were me, would you spend more -- on travel, or anything else?
Here is how I see it. You are covering everything now without tapping the principle. SS will add more to the mix. The basics are covered.

Here is how I look at the 'what-ifs': If you have a health situation that threatens to sink your boat, $200K less isn't going to make any difference. Eat your dessert while you can enjoy it. If the economy goes into a tail spin, you are in better shape than the vast majority of people. I would be more concerned in that situation about the pitchforks and torches than I would be about what happened to my $1.9 million.

Here is one way to approach this: Pull (on paper) $200K into your 'vacation account'. That leaves $1.7M in your investment account. That will fund $30K for almost 7 years, assuming no growth. Maintain your $1.7 year after year. Anything over it goes into the paper vacation account. If the market has a bad year, you don't put anything into the vacation account.

You said that you see no need to leave a legacy, so there is the problem of what to do with the $1.7 down the road. I would volunteer to help you out with that, but that would make me look like an Variable Annuity Salesman! Allowing yourself to have a stash of mad money that you can spend without guilt should allow you to take some very nice vacations. If the market continues to grow, you have allowed yourself to enjoy some travel while you are able. Down the road is an unknown that can be dealt with down the road.

Rerun your Firecalc with $1.7 instead of $1.9. I would guess that it is still 100%.
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Old 06-23-2014, 01:48 PM   #10
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We are in a very similar situation, with me age 59, DW age 58, retired for 0ver 4 years and at age 70 we'll have enough income from pensions and SS to cover expenses.

Currently pensions + dividends cover expenses including a couple of trips each year however we are spending much more in order to do extensive traveling. As long as the WR from our stash each year is ~3% I don't worry about it.
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Old 06-23-2014, 01:51 PM   #11
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If You Were Me, Would You Spend More?

I certainly would. I love to spend other people's money.

Ha
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Old 06-23-2014, 01:56 PM   #12
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Do a firecall using 100k less than you actually have.....if you're still at 100% for 35 years, set 100k aside and call if fun money.......take a trip, buy a car, go out to a nice restaurant that costs more than 20 bucks. Chances are you can do what ever you like since so much of your income is in pensions and eventually, social security which is indexed for inflation. I have the same problem.....I underspend.....but, all of my income except SS comes from my investments.......as you get older you become more fixed in your habits, you want to travel less and you reminess more.....you'll be far happier in old age if you travel and enjoy yourself now......boy, most people would envy your financial situation.....go enjoy!!!!!!
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Old 06-23-2014, 01:56 PM   #13
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Need reassurance? Try this book.

You Can Retire Sooner Than You Think by Wes Moss | 9780071839020 | Paperback | Barnes & Noble

Apparently, the key amount of cash one needs averages about a lousy one-half million dollars to have a happy retirement.

Interestingly, the author found that people with 3-4 areas of strong interest were happier than people with fewer strong interest areas. Makes sense to me.

The happiest people traveled about 2 1/2 times a year versus 1 1/2 for the less happy people.

Retired Japanese auto owners were significantly happier than BMW retirees. (Don't shoot the messenger, please! )
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Old 06-23-2014, 01:58 PM   #14
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You could always spend $10K or $15K to get your feet wet, but to answer your question - yes, if I were in your situation, I would travel more.

PS - full disclosure - I've built $25K a year into our retirement budget specifically for traveling for our 1st 10 years of retirement...
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Old 06-23-2014, 02:05 PM   #15
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Or you could buy a boat. A big one! You're welcome.
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Old 06-23-2014, 02:15 PM   #16
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Given your pensions and your sizable stash, I'd definitely say go for it.

Your future health is unknown, so if one of you gets sick, it may never happen at all.

As retirees, you can travel cheaper, for example by taking advantage of off / shoulder seasons, doing more of your own planning and reservations and staying longer in less expensive accommodations.

I like the idea of taking a part of your portfolio and sticking it in a separate guilt free fund, once you have assurance that you still have enough to cover your COLA and other anticipated expenses.
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Old 06-23-2014, 02:26 PM   #17
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Lemme see...

Quote:
Originally Posted by ocdokie View Post
DH (63) and I (56) have been retired for 4 years. For income, I have a non-COLAed state pension that covers 80% of our current expenses...

Our stash is currently $1.9M...

Our expenses for the last 4 years have averaged $57K...

... if we spend up to $30K more annually than we do now. That would pay for some nice trips...
OK, if you do not spend that money, I can spend it for you.

We are spending significantly more than your $57K. Our stash is larger, but that is far outweighed by the fact that we have no pension, and I am also younger than your husband for SS eligibility.
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Old 06-23-2014, 02:33 PM   #18
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Yes, do it.
The phrase "spend it while you can" has deep meaning. The older you get, the less you'll want to travel and the more you'll regret not doing it while you could have.
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Old 06-23-2014, 02:34 PM   #19
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but I can't seem to get past the "what-ifs" -- what if the market tanks for several years; what if inflation goes back to 1970s levels
Replace some of your stocks with TIPS?

For travel, maybe look into frequent flyer hacks for air fare and renting furnished apartments for housing? Buy a used RV? Go camping? Live some place smaller / less expensive if you want to spend a lot of time traveling and put the money you save on housing towards travel, then plan to buy a bigger place again when you are too old to travel?

Or just spend more. You have a lot of pad as it is.
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Old 06-23-2014, 03:35 PM   #20
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Personally I have been spending my pension + dividends only, so far in retirement. When I get my SS, I will just feel free to fritter it away on doo-dads or whatever... just more to spend at that age. So, my philosophy on this is very similar to yours, in some ways, ocdokie.

BUT - - your case is more complex because your DH wants to travel before he loses the ability to do so. That's different from my situation, because I have no desire to travel, myself. Your DH's desire to do so now, while he still can, is a very valid concern, IMO. (Otherwise I like your present approach to spending.)

I think you should spend a sensible amount more, in order to travel, in addition to your present level of spending. Enjoy! Take lots of photos.

As for the "what if"s: Maybe you can keep three years' living expenses in cash, to be used for living expenses in the event that the market tanks like it did in 2008.
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