The psychology of saving for and spending money in RE

[DawgMan]

See if some (or many of you) can relate to this and perhaps share what you have done/learned by living it...

I have found myself feeling somewhat strange (and fortunate) in my my pursuit of FIRE. Like just about everyone on this site, I have planned for the day of FIRE for many years being motivated by the dream of ER. While I have moved the goal posts many times, I was fortunate to hit my FI number a couple/few years ago. None the less, my "master plan" called for me to hang it up at the end of this year, age 55, when kid #4 graduated. I continue to run my business which has been very lucrative over the last few years mainly for "sport"... arguably just running up the score is about my only real motivation. I am fortunate to be self employed and actually enjoy what I do so I am not on any kind of countdown other than the end of 2019 was my set date. Additionally, my FI dough has grown another 20% so my SWR continues to drop. So I am one of the lucky ones, but can't help but feel a little weird/confused...

- I have been telling people I have been thinking about retiring this year thinking I would do it because it was my plan... but frankly, I feel too young and perhaps don't have that something to motivate me on the other side yet Begs the question why I am not more jacked up to RE when the goal of FI was so motivating?

- While I have plans for FAT FIRE, I wonder if I will be a little fearful of spending per my plan once I am no longer generating any income and am in the withdrawal mode (in my case, no pension , just my assets). How did you reconcile your conservative nature of LBYMs and the "what if" thoughts about the market in the early RE years... did you stay with the plan or get even more cautious?

- At a high level, my FI number should produce a pretty large annual cash flow if I keep it between 3% - 4%/yr(my RE expenses have a significant amount of discretion in them at this level). While my plan allows for this, I tend to believe the earlier healthy years (subject to health issues) will offer the greatest opportunity to spend $$ (i.e travel, toys). That said, I can see my frugal gene kicking in once I RE and tempering my "withdrawal plan", despite my plan saying "blow the dough!" Were you intentional with making sure you spent your plan, specifically on the toys and travel in the early years?

- My original FI plan was all about making sure my wife and I were financially sound when I retired, and in theory, if we were broke when the last one went, then the plan worked. Well, in theory that is still the plan, but the reality is my kids will most likely inherit 8 figures of net worth. Do any of you separate your FI $$ from excess FI $$ investing them differently for legacy reasons? Or, do you just throw it all in 1 pot and just look at it as a lower SWR and then let the chips fall where they fall and the kids get what they get?

- Other than kid's weddings (I have 2 out of the way) and grand kids (have one 8-month old now) and perhaps health issues, what other bogies are you finding you are spending more $$ on in RE that maybe were not part of your RE spend plan? What are you spending more & less on than you had planned?

The journey created quite the motivation and has obviously worked. I just didn't expect to feel a little "so what" after hitting FI, not feeling completely "ready" once I got there, and then feeling these potential spending tensions despite all my plans saying just do it.

[Dtail]

I believe your Fatfire budget is 300k on 7m+ investments. When all is said and done, it just doesn't sound like you truly wish to RE.
Perhaps I am wrong, but are there some hidden concerns, or are you just a very cautious person and that's okay too.

[JDARNELL]

What you are feeling sounds about normal to me. It is hard to shift gears from what got you to the dance. And when purchasing I think you will still look for value and just not blow the dough because you can. I am still intentional but with a larger range of flexibility.

I find that routine living costs ie taxes and insurance have gone up a lot more than I expected. Not a big deal but still ticks me off.

I was having a conversation today with someone about abundance. It seems to be kicking in for me after 5 yrs of ER. Things almost seem like Monopoly money in some instances. Yes kids will inherit a good sum but my focus is now changing to generational wealth building the next few years as kids finish up college and start their path with a good head start. But to be clear they have to have a vision and be able to handle funds.

Keep in mind you have been and are successful. If the crap hits the fan there should be no reason you won’t still be a successful individual. Just now you have a lot more experience.

[RobbieB]

I never had a plan so dunno.

[SecondCor521]

Quote:

Originally Posted by DawgMan - I have been telling people I have been thinking about retiring this year thinking I would do it because it was my plan... but frankly, I feel too young and perhaps don't have that something to motivate me on the other side yet Begs the question why I am not more jacked up to RE when the goal of FI was so motivating? [1] - While I have plans for FAT FIRE, I wonder if I will be a little fearful of spending per my plan once I am no longer generating any income and am in the withdrawal mode (in my case, no pension , just my assets). How did you reconcile your conservative nature of LBYMs and the "what if" thoughts about the market in the early RE years... did you stay with the plan or get even more cautious? [2] - At a high level, my FI number should produce a pretty large annual cash flow if I keep it between 3% - 4%/yr(my RE expenses have a significant amount of discretion in them at this level). While my plan allows for this, I tend to believe the earlier healthy years (subject to health issues) will offer the greatest opportunity to spend $$ (i.e travel, toys). That said, I can see my frugal gene kicking in once I RE and tempering my "withdrawal plan", despite my plan saying "blow the dough!" Were you intentional with making sure you spent your plan, specifically on the toys and travel in the early years? [3] - My original FI plan was all about making sure my wife and I were financially sound when I retired, and in theory, if we were broke when the last one went, then the plan worked. Well, in theory that is still the plan, but the reality is my kids will most likely inherit 8 figures of net worth. Do any of you separate your FI $$ from excess FI $$ investing them differently for legacy reasons? Or, do you just throw it all in 1 pot and just look at it as a lower SWR and then let the chips fall where they fall and the kids get what they get? [4] - Other than kid's weddings (I have 2 out of the way) and grand kids (have one 8-month old now) and perhaps health issues, what other bogies are you finding you are spending more $$ on in RE that maybe were not part of your RE spend plan? What are you spending more & less on than you had planned? [5]

[Bracketed numbers added by me.]

For context of my replies, I am 50, have been FIREd for 3 years, but have more of a middle class FIRE portfolio and lifestyle rather than the fatFIRE you're working with.

[1] You could feel differently because they're two different goals and two different steps and two different things. For me, I pursued FI because I wanted the pressure off my back - so if I lost my job I wouldn't have to freak about getting a new one right away to prevent foreclosure, so my kids could go to college, etc. I hit FI about age 44. I kept working and chose RE at age 46 only when my work environment got toxic. Even so, I was retiring away from work rather than to something, so I still had the work drive that you're alluding to for a while. If you've achieved FI and don't want to RE, that's OK too. RE whenever you want; that's the point of being FI.

[2] For the last three years, I've mostly stayed conservative. Lately I've been able to loosen up a little bit more and spend a little more, but my WR still is around 1.5% and intellectually I know I can spend more if I want to. And that is even with a rising stock market since I retired! I can't imagine how tight I'd be if the market had gone down. It's a real problem, even if it's a #firstworldproblem. But what I have noticed is I worry more about runaway wealth than I do about ending up under a bridge.

[3] I agree with the theory, but for me I haven't spent more early on toys and travel. I did "splurge" on a 10 day Caribbean vacation in April. While I was gone, my portfolio went up by multiples of my vacation cost.

[4] I do separate them. What I do basially is take what I'm currently spending, and then multiply that by 25 to get the size of portfolio that is for me. Anything in my portfolio above that I mentally earmark as being my kids' inheritance. My portfolio is invested according to the AA I want (happens to be 90/10); my kids' inheritance is invested 100% stocks. So hypothetically if I'm spending $40K a year, and had a $2M portfolio, $40K x 25 = $1M would be "mine" and $2M - $1M = $1M would be my kids. I'd have 90% * $1M = $900K in stocks for me, $100K in bonds for me, and $1M in stocks for my kids.

[5] No real surprises here yet for me. Anyone who has tracked their spending for a while and thought about what may change when retiring probably isn't too surprised about anything. It is astonishing how taxes went from being my biggest expense category to essentially zero. Also, I didn't realize how much of my spending was "stress reduction" - I really haven't gone out to eat hardly at all in retirement and I'm totally fine with that. I have heard some people talk about how dental care can get pretty expensive later in retirement, I assume due to things like bridges and root canals and implants and dentures and stuff. I'm not there yet on that one though.

HTH. Good luck!

[brett]

It took us a while to adjust to spending and to the notion that we can spend more without fear of running out. Trying hard to spend more!

Our resources have grown over the past 8 years of retirement. Spending is spot on from a macro level. We need to spend more, travel in a more deluxe manner.

[HI Bill]

Quote:

Originally Posted by DawgMan While I have plans for FAT FIRE, I wonder if I will be a little fearful of spending per my plan once I am no longer generating any income and am in the withdrawal mode (in my case, no pension , just my assets). How did you reconcile your conservative nature of LBYMs and the "what if" thoughts about the market in the early RE years... did you stay with the plan or get even more cautious?

My 3+ decades of LBYM has been in preparation for 'blowing that dough'. I've deferred the nice house, nice sports cars, and some vacations to be able to retire early. I'm having the opposite problem...trying to determine the max SWR that will still allow me to buy a nice house a few years after the intense period of travels are over.

Such problems to have!

[Kwirk]

FatFI is its own reward, regardless of when or if you ever retire. It's nice to know that you can tell the working world to "shove it" whenever you feel the urge. Obviously, you can. Figure out what makes you happy (not what the world says will make you happy) and do that.

COLA'd pensions (CSRS and state) and SS allow my wife and me to live with roughly the same income we lived on prior to retirement (due to reductions for savings) but with far fewer expenses (no mortgage, one car). That leaves us plenty of income for travel and whatever else we actually want. We've only used a small amount of our significant savings for large remodeling projects. We've never been especially frugal but did live well within our means. So, in effect, we are still LBYM and very comfortable.

Grandchildren tend to keep us closer to home than we expected.

We take great satisfaction in knowing that we provide financial security for our children and grandchildren, even if they don't fully know about it. They may never need an inheritance but we feel very good knowing that it's there if they do need it. It seems to be our way to "blow that dough."

[Scuba]

It sounds to me like you don’t really want to retire yet. That’s OK. A good friend told me I would know when I was ready, and she was spot on with that advice. Once I was emotionally ready, I stopped wondering and questioning whether it was time for me to RE, and began looking forward to it with excitement. I worked in the corporate world. I think it’s easier to leave a job working for someone else vs owning your own business. If you’re still enjoying the work and you can’t envision what you’d prefer to be doing, why retire? You could spend some time dreaming about how you’d like to spend your time if you didn’t work. That could help you become more clear whether there are things you’d like to be doing but don’t have time for now.

DH and I don’t have children. However, we are living primarily from our portfolio. I thought I might be afraid to spend but that hasn’t been an issue. We love to travel and have spent quite a bit of time and money doing that since we RE’d. The only two cost increases we didn’t fully expect are healthcare (we are both very healthy but our insurance has been going up 25%+/year) and property taxes because Los Angeles County voters continue to pass lots of propositions funded by property taxes. Finally last week a big one failed.

Even with these increases, our overall spending has been about what we used to spend plus a bit more, which I budgeted for pre ER. And despite living off our portfolio, we have substantially more than we did when we RE’d in 2016 due to market performance. I actually worry far less about finances than I did pre ER. Seems strange but I suppose pre ER I was obsessed with building wealth, and now I’m just having fun spending it. Grateful to be in this position.

[DrRoy]

1) You are financially ready for sure. Maybe not emotionally ready. I FIRE'd at 57 with half or less of what you have and am thoroughly pleased. Younger is better so you have the health and energy to enjoy it to the fullest.

2) In year one I only needed 1.5% WR plus small pension to equal past recent years spending. Year 2 I was at 2%. Year 4 I am planning 2.5% and it will feel quite flush. You get used to the switch from saving to spending and with the good market it is easier. I even withdrew more for spending at the end of last year with the near 20% correction.

3) TBD as I am in year 3 and spending plenty.

4) 1 pot. That will be plenty too for our 2 sons.

5) We were pretty thorough in planning. No surprises yet. Spending more for travel and to remodel the house.

Before RE I thought maybe I should go part time instead. I went all in instead, and that has been great.

[donheff]

If you like your work and are unsure about retiring wait. Your kids will appreciate the bigger nest egg.

[DawgMan]

Thanks all... I suppose I will know when I know as it relates to laying down the sword. Until then, may try and and ease into the "other side" by flipping the old model from work being a priority and scheduling the fun stuff around business to making my leisure/other personal/planned RE interests more of a priority and scheduling business around them.

On the RE spending side... well, may just have to play that one out once I start the draw down.

All 1st world problems for sure. Not complaining, it's just hard to find social circles where you can vet this stuff out often other than places like this site with people of like minds.

[HadEnuff]

I have a pal in a similar situation as you describe. Over many beers, and hours fishing, we have discussed his situation. I repeatedly ask him 2 questions:
1. Is the job (running a very lucrative business) keeping you from doing stuff you want to do?

2. Is there a way to hire someone to take a portion (50% say, or whatever portion you like) of the load off of your shoulders so you can keep your hand in, and your eye on the business, but not have to attend to every niggling detail that comes up regarding running the business. Obviously, you pay this person well, because they are hard to find, and of great value to you. Additionally, you would be grooming this person to eventually buy you out.

If you can afford to retire, but aren't sure you want to, you can certainly afford to semi-retire, give yourself some time off, and pay yourself less than what you are making now.

[Stormy Kromer]

I was a small business owner for 31 years. I sold the place and stopped w*rking cold turkey at 50. I'm convinced if I had stayed it would have affected my health, both physical and mental. I moved 350 miles away for many reasons, that was a good idea. I don't miss being known as the "business guy" at all. I don't even tell people here what I used to do and nobody really cares. The day I left I didn't feel all giddy, or free. It was a long time coming and I was too exhausted.


I live on less than 2% of investment assets. No pension, I will start SS and traditional IRA withdrawls at 62 to avoid a tax bomb at RMD time. That will easily cover living expenses, including health care. I do have a significant portion of after tax investments earmarked for legacy to the two kids. They're invested 100% in VG growth stocks, if I die in a down market the kids will have time to hang on til they recover.


I can tell you that you won't find many other people who have the goals and discipline to ER at 55, but we're out there and reading your post we all have a lot of traits in common.


Enjoy yourself, if that means keeping your business, keep it as long as its fun. When its not fun anymore move on. You didn't mention if you have a perpetuation plan for your business, you may want to groom a young person to take it over. That's what I did, its very satisfying to see a young person put new energy into a business.


One thing you need to do soon if you haven't already is to see an experienced estate attorney, for many reasons including peace of mind for you and DW. Also, fill up your HSA if you haven't already.


Glad you made it.

[Scratchy]

It seems to me based on your threads and posts here with similar theme and questions and from your financials that further insights into your misgivings about retiring may come from therapy, not from this forum.

I have been seeing a therapist for a couple years and found it quite helpful in terms of increasing my understanding of my emotions and motives. It is not a quick fix though, it usually takes months to years to see real benefits.