What to do with portfolio when pension covers expenses.

[utrecht]

Quote:

Originally Posted by Midpack How do you know any of the people you describe aren't perfectly happy with their choices? You seem to gauge happiness in terms of 'things' - some people don't believe it or not. The most important things in life aren't things...

I buy less things than anyone else I know. We've only splurged a bit in retirement because like the OP says, pension covers expenses and we still have a portfolio on top of that. Not replacing old matted down carpet so you can have a bigger portfolio that you will never spend is a far far cry from gauging happiness on how much stuff I have. Old carpet is disgusting and unsanitary. Why would a person live like that so they can look at bigger numbers on a computer screen? Living with old carpet because you are saving for retirement is one thing. Living with it when all your expenses are covered by a pension and you still have a large portfolio makes no sense to me.

Having a house that is too small for family gatherings has nothing to do with "things" It has to do with family memories.

Spending more money on travel has nothing to do with "things". Is about new experiences, new cultures and more memories.

[Gumby]

Quote:

Originally Posted by JoeDreaming There are some interesting replies here on what to do with one's surplus money, but to address the original question, withdrawing 4% and holding it in cash isn't really withdrawing anything, it's just shifting your investments to a slightly more conservative AA each year. I might be in the same situation as you for a while, until my non-COLA pension is no longer enough. But until then I don't think I'd want my AA to get more and more conservative each year, I might go more aggressive on equities instead.

This was actually my intent in starting this thread. FIRECalc (and other models) assume that you actually withdraw and spend a certain amount each year. Then, based on historical performance (for FIRECalc) or monte carlo simulation, offer an estimate as to whether your particular asset mix will survive your projected retirement period.

So, for example, FIRECalc takes my input that I will spend $50k every year and then gives me a 100% success rate for that withdrawal. Alternatively, I can set the success rate and it gives me the allowable spend. Why should I not look at that money as essentially "found money" if I don't need to spend it in a particular year? And why should I leave that found money to the vicissitudes of the market if FIRECalc, assuming I have spent it, still gives me a 100% success rate. As someone here said (I think it was Nords), why run up the score if you've already won the game?

...

In any event, the actual responses on this thread have been more informational and entertaining than the dry discussion I originally envisioned. So carry on, everyone.

[rodi]

Interesting scenario, Gumby. Like REwahoo - it's science fiction to me... although I have about 1/3 of our budget covered by rental income and DH's SS. I suppose with the cost savings that might occur when the kids are launched, and when my SS comes online, we may be in that position....

I guess I'd be shifting *some* of the unneeded withdrawal money to cash, hypothetically,... to remove risk and to fund whatever I want it to... more charity, more trips, gifts to kids... But since the world isn't hypothetical and I'm early in my retirement, relatively young (54), and fearful of sequence of returns... I think I'll leave any excess unspent money in my portfolio.

[pb4uski]

Mom has that situation... between SS and her income property it brings in about what she needs. Her investments are invested as if they were for a 55 yo (the average age of her heirs)... started about 60/40 but after 10 years are more towards 70/30. There hasn't been a deposit or withdrawal for about 10 years but we did one recently to fund some capital improvements at the investment property.

[Rustic23]

Why we don't spend more? A very health respect for the unknown!

The list of things that should not go wrong, that could go wrong is quite lengthy. So what really is enough? For us, it's enough so dinner out whenever we want, giving our GD money towards college expenses, DW's ability to spend what ever she wants on scrapbooking, and me on technology. But, overall, we are still savers. We sleep great at night, even if the carpet does need cleaning.

[NW-Bound]

I do not pre-withdraw the money at the beginning of the year and put it elsewhere. I just draw money as I need it. Money is money, no matter where it sits. As long as it shows up on my Quicken screen total, it's all good.

This year, I have spent only 80% of the amount that FIRECac says I can. That's my safety margin. Yet, I had some big non-recurrent expenses that I will not have next year. Or maybe I will buy a new car. Nah! My cars still run well.

If the market is good and my stash grows, I may spend more later. Right now, I have all that I need, all the toys that I want. I also have enough travel that I can handle. Any more, and it becomes work.

[audreyh1]

Quote:

Originally Posted by rodi But since the world isn't hypothetical and I'm early in my retirement, relatively young (54), and fearful of sequence of returns... I think I'll leave any excess unspent money in my portfolio.

To me, returning unspent money to the portfolio is subjecting it to sequence of returns risk. It's certainly subjecting it to market risk.

Say at the end of the year you had $10K left over. If you reinvest it back in the portfolio, and the next year is a down 20% year, then ouch!

Also by returning it to the portfolio - your portfolio is a little larger, so you can theoretically increase your annual withdrawal, but only by $400 a year! For the rest of your life, sure, but you could have spent $10K now, when younger, on something special or important. Or maybe things aren't so good the next year and you wish you still had that surplus to smooth things out.

Now if someone tells me that they wish their portfolio to be larger to meet some long term need, then I understand that too.

We withdraw more than we spend. But I definitely see the excess more like "found money" or "we one the game" and our goal is to spend it sooner rather than later.

[Danmar]

This thread had degenerated into the pit of
"money doesn't make you happy". Been there, done that.

Edit. And then I start into it. Sorry

[REWahoo]

Quote:

Originally Posted by Danmar This thread had degenerated into the pit of "money doesn't make you happy".

I had no idea the concept money didn't make you happy was a pit. I learn something new every day.

[kcowan]

Quote:

Originally Posted by Mulligan I don't believe it is perceived so much as a "mortal sin" as other people may find no "utility value" in it. As an example, lets use the $12 martini. If you have the money and choose to buy or not buy it instead of an $8 shelf drink, isn't so much depriving yourself as it is individuals perceived value in the purchase.

Yes I think perceived value is the key. We will buy a nice wine in a restaurant that is way more than we normally pay because it is fine and is consistent with the ambience and service. Once we achieved this level of retirement, we felt truly liberated after all those LBYM years.

(As our friend said: Why would I struggle with $6/glass wine when I know my DIL will enjoy $9/glass wine when I am gone?)

[kcowan]

Quote:

Originally Posted by utrecht Im talking about people who are driving a 12 year old vehicle that needs repairs every other month but wont buy a new car because thats the way they have always been. Or people who have lived in the same house for 20 years and its too small for family gatherings and the carpet is matted down and worn badly, but they wont put in new carpet or nice hardwood floors or move to a bigger house with granite counter tops ect. You get the idea. If your carpet is worn out and new carpet wont give you more happiness then I dont know what will please you besides a large bank account.

Yes there are many older people who don't want change no matter what. My MIL was like that. Sh could easily afford the new carpets and counters but she did not want to change. And money was never a factor (she had plenty), but that was not why. She was never an LBYM type.

[kcowan]

Quote:

Originally Posted by Danmar This thread had degenerated into the pit of "money doesn't make you happy". Been there, done that.

I agree. And money makes me happy. Not having it. But spending it on good things....but not an everything.

[NW-Bound]

Quote:

Originally Posted by kcowan (As our friend said: Why would I struggle with $6/glass wine when I know my DIL will enjoy $9/glass wine when I am gone?)

A solution for me: I got the unlimited drink package when on the last cruise. That way, the frugal me did not have to think about costs when I imbibed.

Lemme see... A wine glass for lunch, a gin tonic for the pre-dinner show, two glasses of wine during dinner, a shot of cordial after dinner. That's 5 drinks/day. Ah, that makes the cruise more tolerable.

[utrecht]

"Money doesnt buy happiness" must've first come out of a rich persons mouth

Money doesn't buy happiness but not having money really sucks!

If you are already happy with your life, money will absolutely makes your life better than it would be without it.

[NW-Bound]

“While money can't buy happiness, it certainly lets you choose your own form of misery.” ― Groucho Marx

Or if you are already miserable, not having money makes it a whole lot worse.

Still, over a certain point, money brings diminishing returns. I recently read a biography of James Clark, the founder of Silicon Graphics, Netscape, and WebMD. He had his $100M, but could not be happy until he got $1B. Perhaps he's still unhappy because there's no way he can catch up with Buffett, Bill Gates, and Larry Ellison.

He built the world's largest sail boat at the time, but got upset when he found out that someone's boat had a higher mast than his. So, before he even finished making the maiden voyage of his boat, he already looked to build the next one. And he was very bored on that long maiden trip, and could hardly wait for it to end. So, he was not really into sailing, and the boat was just a status symbol.

I would not want any stinkin' boat, and don't necessarily want to even be on one. If I had a waterfront place in the Puget Sound, all I would want is a canoe so I could row out to check my crab traps.

[Danmar]

Being smart doesn't make you happy
Being handsome doesn't make you happy
Being sensitive doesn't make you happy
Being tall doesn't make you happy
Being healthy doesn't make you happy

Lots of things don't make you happy in isolation because happiness is very personal and very complicated. That doesn't mean they aren't desirable in their own right.

I've been poor and I've been rich. Which one do you think I like better?

Having said that, being satisfied with what you have in retirement is a good first step on the road to happiness, I think.

[Danmar]

Quote:

Originally Posted by NW-Bound A solution for me: I got the unlimited drink package when on the last cruise. That way, the frugal me did not have to think about costs when I imbibed. Lemme see... A wine glass for lunch, a gin tonic for the pre-dinner show, two glasses of wine during dinner, a shot of cordial after dinner. That's 5 drinks/day. Ah, that makes the cruise more tolerable.

Yes but only 5 drinks a day? Bad deal. I would certainly get a better deal than that. Beers by the pool? That alone would earn it for me.

[NW-Bound]

5 drinks a day is 5 more drinks than most of my days.

[Danmar]

Quote:

Originally Posted by NW-Bound 5 drinks a day is 5 more drinks than most of my days.

Right but you are on vacation. Besides its free at the margin.

[nun]

Quote:

Originally Posted by audreyh1 To me, returning unspent money to the portfolio is subjecting it to sequence of returns risk. It's certainly subjecting it to market risk. Say at the end of the year you had $10K left over. If you reinvest it back in the portfolio, and the next year is a down 20% year, then ouch! Also by returning it to the portfolio - your portfolio is a little larger, so you can theoretically increase your annual withdrawal, but only by $400 a year! For the rest of your life, sure, but you could have spent $10K now, when younger, on something special or important. Or maybe things aren't so good the next year and you wish you still had that surplus to smooth things out. Now if someone tells me that they wish their portfolio to be larger to meet some long term need, then I understand that too. We withdraw more than we spend. But I definitely see the excess more like "found money" or "we one the game" and our goal is to spend it sooner rather than later.

If you have your expenses covered why worry about sequence of return risk with the extra $10k. The question is "what would you do with $10k" and if you don't need the cash and the principles of investing don't change as soon as you retire then it seems sensible to put it in some low cost index funds....or even take a bit more risk with it. That 20% loss you mention could be a 20% gain. Once you have your income needs met you can "swing for the fences" with the rest of the portfolio and emphasize the potential final size of the portfolio rather than the chance that it will survive for 30 years.