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Transitioning from saving to RE.
Old 08-16-2012, 04:22 PM   #1
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Transitioning from saving to RE.

I’m 51 and am about to RE. For all my working years, I’ve been focusing on saving money, LBYM and watching my portfolio grow, etc in preparation for ER. And I think I’ve done very well. Seems like when you RE, there is a shift from growing your portfolio to living off of it. Basically, instead of seeing my portfolio grow by over 10% a year on average (including my savings being added), all I need it to do is keep up with inflation. It’s kind of like “I made it” and can take my foot off the pedal now. I know that is not the case, as I may live another 50 years and need to continue to invest prudently. I’m not planning on making many changes to my investments, except keep a little more in liquid cash (so I can sleep a little better at night). In some ways, I feel like I’m the football coach of a team that is up by 21 points with less than five minutes to play – just don’t screw up and you will win. Does this make any sense or am I just over-analyzing this? One thing I have learned with investing (as well as in life) is the biggest risk you can take is not taking any risks. Thanks for your insights.
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Old 08-16-2012, 04:38 PM   #2
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You are right, it's a big mental switch. I've been getting my head around this recently as we've just started withdrawals. Like you, I'm not planning any big portfolio changes (we're about 70% stocks / 30% bonds+cash). I do plan to sell one of our taxable funds in the next year and move that money into short-term bond fund(s) to replenish our "spending money". As we have several different funds with significant LT cap gains, part of this is also portfolio simplification as well as rebalancing as we start spending. I expect to move closer to a 50-50 mix over the next 10 years, but don't have any specific plans to get there yet.

I'm completely in agreement that not taking any risks is a huge risk. But I also know there are others on the board in recent threads that are close to 100% bonds/cash and that's all they are comfortable with.

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Old 08-16-2012, 04:40 PM   #3
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It does take some getting used to. I sort of backed into it. I did some consulting during 2008-9 that basically covered our out-of-pocket spending. So I went from saving (pre 07) to neutral to finally withdrawing (2010 and beyond).
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Old 08-16-2012, 04:51 PM   #4
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Many people have a very difficult time shifting gears from accumulating to spending. Not sure how to advise on easing the transition, but for me it was a non-event. I had been planning for so long and knew exactly how much, from where and when I was going to withdraw from my nest egg that I never gave it a second thought. Perhaps I was so giddy to finally be retired I was blinded by the euphoria.
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Old 08-16-2012, 05:15 PM   #5
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I retired in November, 2009, so that transition is still very fresh in my mind.

At the time, I felt awfully unsure. But also, like you, I tried my best to figure out how to eliminate my fears one by one.

I was afraid that I would over-spend, so I decided to withdraw the entire year's money from Vanguard to my savings account right after New Year's, and then not allow myself to withdraw anything more from Vanguard until the next January. I was also feeling insecure about not getting a regular paycheck, so to help with that I also paid myself "paychecks" by moving money from savings to checking regularly every month.

After about six months I realized that everything was going to be fine, and my worries about going from accumulation to spending pretty much vanished as I settled into my retirement routines.

Also it is great that you already know what asset allocation you want for your portfolio. I was lucky in that I had the 2008-2009 recession for practice, so that I could test my risk tolerance before I ever retired. I transitioned to my 45:55 (equities:fixed) retirement asset allocation in 2006, in preparation for retirement so I didn't have to make any changes there. Before then I had as much as 100% equities during the height of my accumulation phase.

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In some ways, I feel like Iím the football coach of a team that is up by 21 points with less than five minutes to play Ė just donít screw up and you will win. Does this make any sense or am I just over-analyzing this?
I think that is a perfect description of how I felt on the verge of retirement, too. You're on the home stretch.
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Old 08-16-2012, 05:42 PM   #6
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After about six months I realized that everything was going to be fine, and my worries about going from accumulation to spending pretty much vanished as I settled into my retirement routines.
W2R, I'm envious. I just can't seem to spend money happily. DH and I both retired in mid-2010 -- he at 59 and I at 52 -- and we haven't reached your worry-free level. According to FIRECALC, we allegedly can spend $100K per year for 40 years with 100% success. Even though our expenses, including taxes, have settled into about $50K annually (with the biggest by far being health insurance), I obsessively track every expenditure to be certain we're well below our self-imposed limit.

When we were working, one of our joys was traveling in Europe for two weeks each year, but now, I hyperventilate even thinking about shelling out money for a trip. (What if we regret this expense later?) Our expenses for a typical trip were between $6K and $7K. DH wants to start traveling again while we're healthy enough to do it, and thinks we can spend about $10K per year on traveling. However, I can't seem to unstick myself from saying "no" to unnecessary expenses.

I'd welcome any advice on how my fellow retirees balance the need to watch expenses with allowing yourselves some expensive "unnecessary" pleasures.
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Old 08-16-2012, 05:51 PM   #7
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W2R, I'm envious. I just can't seem to spend money happily. DH and I both retired in mid-2010 -- he at 59 and I at 52 -- and we haven't reached your worry-free level. According to FIRECALC, we allegedly can spend $100K per year for 40 years with 100% success. Even though our expenses, including taxes, have settled into about $50K annually (with the biggest by far being health insurance), I obsessively track every expenditure to be certain we're well below our self-imposed limit.
Oh, well I do that too. I guess I just do it out of habit but I do it. I even keep track of the money in my wallet, to the penny! I track my cash spending, and everything I spend any other way, like on my card or by check or automatic bank deduction too. All of that goes on my spending spreadsheet. And then at the end of every month, I balance everything out to make sure I didn't miss anything I might have spent.

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When we were working, one of our joys was traveling in Europe for two weeks each year, but now, I hyperventilate even thinking about shelling out money for a trip. (What if we regret this expense later?) Our expenses for a typical trip were between $6K and $7K. DH wants to start traveling again while we're healthy enough to do it, and thinks we can spend about $10K per year on traveling. However, I can't seem to unstick myself from saying "no" to unnecessary expenses.

I'd welcome any advice on how my fellow retirees balance the need to watch expenses with allowing yourselves some expensive "unnecessary" pleasures.
Why not save up the money for the trip this year without traveling, set the money aside, and then go next year? That way you would already know that you hadn't over-spent before you leave. If you go in 2013, using 2012 money, then you would not need to worry about running out of spending money in 2013 because you will still have as much 2013 money as you originally planned to have. There is no rule that we have to stop saving for big expenses in advance, just because we are retired.
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Old 08-16-2012, 05:58 PM   #8
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Many people have a very difficult time shifting gears from accumulating to spending.
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W2R, I'm envious. I just can't seem to spend money happily. DH and I both retired in mid-2010 -- he at 59 and I at 52 -- and we haven't reached your worry-free level. According to FIRECALC, we allegedly can spend $100K per year for 40 years with 100% success. Even though our expenses, including taxes, have settled into about $50K annually (with the biggest by far being health insurance), I obsessively track every expenditure to be certain we're well below our self-imposed limit.
When we were working, one of our joys was traveling in Europe for two weeks each year, but now, I hyperventilate even thinking about shelling out money for a trip. (What if we regret this expense later?) Our expenses for a typical trip were between $6K and $7K. DH wants to start traveling again while we're healthy enough to do it, and thinks we can spend about $10K per year on traveling. However, I can't seem to unstick myself from saying "no" to unnecessary expenses.
I'd welcome any advice on how my fellow retirees balance the need to watch expenses with allowing yourselves some expensive "unnecessary" pleasures.
It's a tough transition if you've been averse to spending. In REWahoo's case, he had his eye on an RV or two, along with maintenance & repairs, and then gas prices jumped right up to help him spend his money.

Our top two expenses over the last decade have been home improvement-- stamped-concrete sidewalks/lanai/driveway and a new familyroom. Both were eye-wateringly expensive but we knew they'd be necessary. We spent almost a decade planning & pricing both of them, but they've brought us tremendous enjoyment. Someday they'll bring our heir more resale value than they cost.

Our #3 and #4 expenses have been our Priuses. Again both very spendy, not at all frugal, but totally worth the money in their utility & engineering.

Otherwise... surfing is pretty cheap. Spouse and I run a thought experiment all the time: "Let's spend $10K!" and the answer is usually "What the heck for?"

To make the transition from saving to spending, you have to figure out what brings you value. If you value travel, then think how you'll feel in 20-30 years if you haven't fulfilled your values... or if you're no longer able to enjoy it. Once you figure out what you value, then you can go about figuring out how to find the bargains that will make it enjoyable.
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Old 08-16-2012, 06:07 PM   #9
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Spouse and I run a thought experiment all the time: "Let's spend $10K!" and the answer is usually "What the heck for?"
What a neat thought experiment! I think I'll start a thread on this topic.
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Old 08-16-2012, 06:21 PM   #10
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Iím 51 and am about to RE. For all my working years, Iíve been focusing on saving money, LBYM and watching my portfolio grow, etc in preparation for ER. And I think Iíve done very well. Seems like when you RE, there is a shift from growing your portfolio to living off of it. Basically, instead of seeing my portfolio grow by over 10% a year on average (including my savings being added), all I need it to do is keep up with inflation. Itís kind of like ďI made itĒ and can take my foot off the pedal now. I know that is not the case, as I may live another 50 years and need to continue to invest prudently. Iím not planning on making many changes to my investments, except keep a little more in liquid cash (so I can sleep a little better at night). In some ways, I feel like Iím the football coach of a team that is up by 21 points with less than five minutes to play Ė just donít screw up and you will win. Does this make any sense or am I just over-analyzing this? One thing I have learned with investing (as well as in life) is the biggest risk you can take is not taking any risks. Thanks for your insights.
I am 49 and have been ERed for nearly 4 years. When I was creating my ER plan, I split it into two parts. The first was getting to age ~60 and the second was beyond. The first part was more important because I had to get by with only my taxable accounts before my "reinforcements" became available. Those items included unfettered access to my TIRA, my frozen company pension (age 65) and SS (as early as age 62). If you have similar reinforcements then you can do the same thing.

I have stocks and bonds (mutual funds) in both my taxable and TIRA accounts so they can grow over time while I use the bond fund's monthly dividends (most of them) to cover my expenses, reinvesting any surplus.
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Old 08-16-2012, 06:25 PM   #11
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It's a tough transition if you've been averse to spending. In REWahoo's case, he had his eye on an RV or two, along with maintenance & repairs, and then gas prices jumped right up to help him spend his money.
+1

And I have the withdrawal scars to prove it:
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Our withdrawals have varied every year, from a high of 9.8% (yikes!) in year two...
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Old 08-16-2012, 06:31 PM   #12
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Big switch for us. DW retired 6 years ago, I followed 4 years ago. Our portfolio has actually grown each year (not so hard to do with retirement starting in 2008 ) Wehave a pretty good spending plan (don't call it a budget, DW hates that word) and things have worked well for us.
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Old 08-16-2012, 06:41 PM   #13
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He wants to travel and you enjoyed it immensely when you did it while working. So obviously it is something that would provide enjoyment in your life. Can you set your yearly budget at $60,000 and reward yourself with a trip with the amount of money you saved that year from 60k? You sure appear to have a very safe cushion. Since you do, how about another option while you are flush with assets: Book the flight and make a promise to spouse that there will be no complaint or worry about the cost of the trip. After its over evaluate how the trip made you feel. If it brings enjoyment, the risk/fear may diminish as the intrinsic value of the trip becomes apparent. If it didn't and your excessive worries are still there, just punch in the firecalc numbers and it will still show 100% success, and you can chalk up the trip as a learning experience.
I play all sorts of money games to allow myself to spend some money. Here is an example of one. I set a rule at retirement that I can never dip into savings to finance a trip. So I will book it on my credit card and pay it off in 2 months from my pension check. Yes, it costs me a couple bucks interest, but that money comes out of my monthly budget not savings, or monthly contribution to savings. Another example is I couldn't make myself write the check for a membership to golf course. So I just withheld a few more bucks for taxes from my monthly pension check and now my tax refund that I receive a month before membership is due, I use to pay it. I "trick" my mind that refund money is "free" money and I can let loose of that money more freely. And yes, I have enjoyed the golf membership and played more because of it.
Good luck with working through the process as ultimately it is your decision.
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Old 08-16-2012, 07:11 PM   #14
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When we were working, one of our joys was traveling in Europe for two weeks each year, but now, I hyperventilate even thinking about shelling out money for a trip. (What if we regret this expense later?) Our expenses for a typical trip were between $6K and $7K. DH wants to start traveling again while we're healthy enough to do it, and thinks we can spend about $10K per year on traveling. However, I can't seem to unstick myself from saying "no" to unnecessary expenses.

I'd welcome any advice on how my fellow retirees balance the need to watch expenses with allowing yourselves some expensive "unnecessary" pleasures.

Maybe you can go to Europe one year and the next take a less expensive trip . After you are retired awhile it will be easier to gauge how much money you have for travel.You may also find that you are interested in different types of travel once you retire .
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Old 08-16-2012, 08:16 PM   #15
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I REd last December and the transition has been interesting to say the least. Similar to W2R, I plan to have a bucket of cash (DiscoverBank savings account) ~ 1-2 years of living expenses and replenish that with any nestegg rebalancings. I have an automatic transfer from the DiscoverBank cash bucket to my checking account each month. Once it his the checking account, it is freely available to be spent as we please.

The market rally has made it a lot easier to do than if the market have been heading south. I have a Quicken report of cash and investments by quarter and the current balance is actually more than what it was when we retired, so as W2R might say --- "whee"!
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Old 08-16-2012, 08:22 PM   #16
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I REd last December and the transition has been interesting to say the least. Similar to W2R, I plan to have a bucket of cash (DiscoverBank savings account) ~ 1-2 years of living expenses and replenish that with any nestegg rebalancings. I have an automatic transfer from the DiscoverBank cash bucket to my checking account each month. Once it his the checking account, it is freely available to be spent as we please.

The market rally has made it a lot easier to do than if the market have been heading south. I have a Quicken report of cash and investments by quarter and the current balance is actually more than what it was when we retired, so as W2R might say --- "whee"!
Whee indeed! Like you, I also have a larger portfolio than the day I retired, almost 3 years ago. The market has been kind.
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Old 08-16-2012, 08:25 PM   #17
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Whee indeed! Like you, I also have a larger portfolio than the day I retired, almost 3 years ago. The market has been kind.

Dang! Time for us market timers to sell everything.....
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Old 08-16-2012, 08:29 PM   #18
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Whee indeed! Like you, I also have a larger portfolio than the day I retired, almost 3 years ago. The market has been kind.
Sorry folks. It seems that I unleashed a monster!
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Old 08-16-2012, 08:31 PM   #19
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We've been struck by a wheesteroid....
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Old 08-16-2012, 08:35 PM   #20
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Whee indeed! Like you, I also have a larger portfolio than the day I retired, almost 3 years ago. The market has been kind.
I am up about 33% since I ERed in late 2008. Stock funds and bond funds up big despite using much of the bond fund dividends to live off (and to pay some income taxes on the company stock NUA).
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