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Transitioning from Saving to Spending at RE
Old 07-26-2014, 04:29 PM   #1
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Transitioning from Saving to Spending at RE

I have been squirreling away money as fast as I can, and have been for quite a while. Maxing out 401K and HSA, Roth and/or Traditional IRA, saving after tax money in an investment account, working a few odd side gigs to even make an extra few dollars to save. I even pick up pennies religiously… Heads or tails up.

At some point, I will start to withdraw my funds, and/or live on what I bring in through my rentals. I still have the notion I should be “saving for a rainy day”, and not spending all I am allocated or bring in through some retirement planner.

I will not have a pension (~14K) until I am 65, and plan on Social Security at 70 ($30K). Both of these combined will barely be enough to live on.

If you have a large pension, I can see spending it all. It will (probably) always be there.

What do you do when you have a set withdrawal rate or amount? Do you spend it all? Do you spend most, but leave a little bit back, just in case?
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Old 07-26-2014, 05:05 PM   #2
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Quote:
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.................................................

What do you do when you have a set withdrawal rate or amount? Do you spend it all? Do you spend most, but leave a little bit back, just in case?
My recco is don't spend it all if you don't have to/need to. Best to be a little conservative IMHO.

I'm only at 3.5 years or so since I retired and have also thought about this. Similar (though I imagine the number are bit different), I have a SWR from my nest egg, along with a non-COLA'ed pension that I am collecting now, and then I'll get SS at some point (haven't hit 62 yet and haven't decided when to start collecting).

Anyway my thoughts/plan on your question is that there will be years that I don't spend all of my yearly budget (e.g. medical expenses lower than planned, home maintenance lower, vacation deals...whatever). These years I certainly won't spend just to spend because I'm pretty sure there will be years that will have unexpected expenses and I'll draw more than my SWR.

What I am doing for now just a few years into ER is recomputing what I can safely withdraw (e.g. 2%, 3% whatever) and go by that. The markets (and low inflation) have been good since I ER'ed in 2011, but the bears market and/or higher inflation/interest rates could could anytime and I will probably need to tighten my belt a bit when that happens.
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Old 07-26-2014, 06:21 PM   #3
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My plan is to keep the withdrawal rate between 2 and 3% and we should be able to manage that. That will go down substantially when I start drawing SS, but I'm 61 and hope to wait till I'm 70. I retired 3 months ago and we're living off my final paycheck (which included 1.5 extra months plus unused vacation time plus some $$ for 1.5 months of COBRA), plus DH's SS and my small pension ($937/month!). I figure we'll need another $20K before the end of the year and there's already that much in cash in our brokerage accounts.

From there I'm going to cash $20K increments as we need it, making sure to stay below 3% in total. I've already changed our accounts so that dividends and interest are not reinvested. As we get closer to the end of the year and mutual funds announce their capital gain distributions I may elect not to invest some of those, depending on the magnitude and how I feel about the quality of the fund. My reasoning is that capital gain distributions are the equivalent of a forced sale; you're stuck with the taxes on them anyway, so why reinvest it and then have to sell something else to raise cash?

My checking account is kept in Excel and I actually have a ton of columns for various things and I transfer amounts from the general "living expenses" column to the other columns twice a month, as if I were getting a paycheck, because I'm used to budgeting that way. It's probably too much detail for most people.
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Old 07-27-2014, 11:38 AM   #4
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I'm only 6 months into ER at 55 and the decision was made easier for me by the ACA. My actual expenses are much lower than what I'm "allowed" to spend (based on various retirement calculators). If I spent the full amount I'm "allowed" to spend , I'd deplete my rather low percentage of after-tax funds and be suddenly have to pull hard from tax sheltered accounts. That would knock me out of getting the ACA subsidy. I expect the laws surrounding the ACA will change, but I'm doing what I can now, while the laws are favorable, to keep income in check. That might even mean taking out a HELOC after I've sold all my after tax stuff. Maybe I can squeek-by another year that way, if the laws haven't changed by then.
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Old 07-27-2014, 02:59 PM   #5
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...(snip)...
What do you do when you have a set withdrawal rate or amount? Do you spend it all? Do you spend most, but leave a little bit back, just in case?
If you set the withdrawal rate based on sound conservative principles, then why hold back? I would hold back only if:
1) There was a sudden dramatic dive (like fall of 2008) in equities. Not just a 5% decline but something far worse together with exceedingly bad economic news (not news like the Ukraine issues or the usual political squabbles). Usually the bad stock times come when the economy falls and the Fed has been tightening for quite some time.

2) I just didn't need to spend quite so much. We took some vacations this year and bought some house stuff. If it isn't all spent, I won't force the spending.
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Old 07-27-2014, 03:05 PM   #6
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Do you spend it all?
Spend whatever it takes to live as you wish. Manage your stash. LBYM...forever.
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Old 07-27-2014, 03:53 PM   #7
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Why not retire earlier when your conservative SWR meets your needs?
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Old 07-28-2014, 09:57 AM   #8
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RE - very early. Been fully retired for about 25 years. Have also "saved" for most of that time. Not easy (for me) to change the mindset to no longer save.
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Old 07-28-2014, 10:31 AM   #9
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Why not retire earlier when your conservative SWR meets your needs?
Great point, but since I am a conservative person in spending, I want to make doubly sure. I am thinking I will have at least 2x as much as I need in a worse case, even 4x as much I need in a average world.

It's just hard to let go of easy money...
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Old 07-28-2014, 10:52 AM   #10
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I understand Senator's reluctance to get into the "stash". It was a huge task to amass it. Much thought went into the decisions that made such a stash possible. Now, that I'm "using it", it makes me uneasy each time I take a withdrawal. It's doubly difficult for me since a good portion is in tax deferred accounts. Not only am I drawing down the stash, but I know I'll pay taxes on much of it. Bummer!

Still, we have to remember that we put the stash together to USE in the future. In my case, the future is NOW. Just stay with the plan (whatever draw rate made you comfortable when planning) and enjoy the fruits of your l@bor. But keep a few backup plans in your hip pocket, just in case, heh, heh. YMMV
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Old 07-28-2014, 11:54 AM   #11
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Taking SS at 64 (DW took it at 62) reduced the anxiety of spending for me. That and the stock market come back.

So for those planning on taking SS later in life, I would say to make sure you don't miss out on enjoying your 60's. You can easily plan to spend a bit more of the stash until you take SS. FireCalc helps in planning this.

BUT AGAIN ... for some this is psychologically almost impossible. They can see it on paper but putting it into practice is anxiety producing.
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Old 07-28-2014, 12:04 PM   #12
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If you have conservatively planned, have some margin to your safe withdrawal amount, and have Plans B, C, and D ready to go, then spend away. While I'm happy to leave any extra to my kids, we didn't work all that time just so we could amass a bulging portfolio.

On the other hand, I still hate paying the cable TV bill, and keep looking for acceptable ways to reduce it. No need to just throw your money away either.
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Old 07-28-2014, 12:15 PM   #13
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What do you do when you have a set withdrawal rate or amount? Do you spend it all? Do you spend most, but leave a little bit back, just in case?
I retired in November, 2009. I withdraw the entire year's withdrawal amount during the first week in January, because it makes it easier for me to see how I am doing as the year progresses. I don't rollover any leftover money to the next year; it goes back to Vanguard.

During each year, I have spent between 61% - 96% of my withdrawal amount for that year. A lot depends on what unexpected expenses come up. If I start having a lot of expensive, unexpected stuff happening, then I tend to put off discretionary "fun" purchases for a while until I get back on track.

It's like having a paycheck from work; some years it is harder to stay on track than others but you try to live within your means.
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Old 07-28-2014, 12:44 PM   #14
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Great point, but since I am a conservative person in spending, I want to make doubly sure. I am thinking I will have at least 2x as much as I need in a worse case, even 4x as much I need in a average world.



It's just hard to let go of easy money...

Senator, you strike me as being a candidate for "I have worked so hard to accumulate this nest egg, I don't want to spend it now." My Dad is almost 80 and he is like that. He still worries about increasing his nest egg (money he doesn't need) instead of spending it. Hopefully that will not happen to you. I think that would be the hardest part of converting to ER would be for someone who is doing it without a pension.


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Old 07-28-2014, 04:09 PM   #15
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During my entire adult life I have disliked purchasing ice and getting a haircut. Why you ask? Ice will soon melt and hair will continue to grow. I have no control over either. (I guess)

When I no longer care about the cost of ice and a haircut, I will be close to death. That's somewhat comforting to me.
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Old 07-28-2014, 04:14 PM   #16
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During my entire adult life I have disliked purchasing ice and getting a haircut. Why you ask? Ice will soon melt and hair will continue to grow. I have no control over either. (I guess)

When I no longer care about the cost of ice and a haircut, I will be close to death. That's somewhat comforting to me.
Marry a hairdresser and live up north. I did both, but not at the same time. I pay for ice and don't have a pension (except SS).
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Old 07-28-2014, 05:28 PM   #17
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r "I have worked so hard to accumulate this nest egg, I don't want to spend it now."
LOL, that's me. I am slowing making the mental transformation though.... maybe after the first year, it will be easier.
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Old 07-28-2014, 05:48 PM   #18
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LOL, that's me. I am slowing making the mental transformation though.... maybe after the first year, it will be easier.

The people who have retired during the past 4 years have benefited psychologically from a rising market, so their portfolio has grown, even though they have a spend down rate. I'm hoping the same thing happens for you Senator. That would definitely ease your mind into the ER process.


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Old 07-28-2014, 09:10 PM   #19
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I have been lucky in that since I retired at the end of 2011 my nestegg is 20% higher than when I retired despite spending ~3% a year.

If we had correction and I had to dip into "principal" that would be fine. I figure that the reason that I saved it was to spend it when I stopped working, not to hoard it.
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Old 07-29-2014, 09:08 AM   #20
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I joke that the most successful person is the one that dies the day he runs out of money. It is just kind of hard to predict that last day....

I am still working and in the saving mode, but do see this issue of the transition to be one that I will need some adjustment. I do know that I have no desire to leave a big chunk of money for the "38Chevy454 Memorial Library"
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