Psychology of Retirement Income Satisfaction

[FIREd_2015]

Came across an interesting article that talks about spending retirement income. "... People have trouble spending their assets, not spending their income. “Once we start viewing money as wealth, as a stock of money and not necessarily as a flow, then we seem to get less happiness out of spending it than we do from money that’s automatically turned into a flow..." "...When retirees spend their assets and see their retirement savings decrease, they become negatively affected. Alternatively, spending income, not assets, has no negative effect on the mental or emotional state of retirees..." The article then talks about some strategies for turning assets into Guaranteed Income. Psychology of Retirement Income Satisfaction

 

[ownyourfuture]

At least for me, this is spot on.
I've only been retired about 22 months, but it seems like I insist on living off the income, not the assets.

Although part of the reason for that, involves me being on the ACA, & therefore needing to keep my income down.

Since the vast majority of my 'assets', have substantial capital gains, it would be difficult for me to sell any of them at this point, & not go over the income threshold.

But I suppose trying to keep income down, is a problem a lot of people would love to have

 

[Fedup]

I don't have ACA so that's not a concern. But it seems spot on. I only spend my income. I think I started with a budget and was pleasantly surprised that the expenses were going down. Like car insurance and college expense. Next will be cell phone expense. I still have room to cut like life insurance payment. In two years, I think I will be done with big traveling. I mean after seeing Europe for 3-4 months for two years, I'm not sure I have any desire left to see Europe. I can only get excited over visiting so many museum and church. Hopefully I will keep the lust of traveling after my next big trip. But who knows.

 

[W2R]

I think the article is correct, in that it is easier to spend income than it is to spend part of one's nest egg. That only makes sense to me, because the income just keeps coming but once the nest egg is gone, it is gone.

My usual spending money has been a little less than my dividends, plus SS and mini-pension. These are my three income sources. I have zero problems in spending all of my income.

For me, getting into principal has created conflicting emotions that are not too pleasant. When I bought my dream home in cash, I had to invade the principal to pay for the difference in house prices, closing costs, repairs, upgrades, move, and so on. That was a bit unsettling, I admit, even though I could afford it.

 

[audreyh1]

I just don't have a problem withdrawing 3.5% from my portfolio each year, even if I have to sell some assets to do it. I usually don't have to sell assets m as I take my distributions in cash, but even I know that capital gains distributions result from assets being sold on my behalf. So it already happened, and it's not really income, although it looks like income, it's principal.

I've never tracked principal. It's all about total return to me.

I do occasionally check net worth growth versus inflation compared to when I retired. If my net worth is ahead of inflation (as it is now), I am quite pleased. If it falls behind (as it did 2008/2009), I just hope that it catches back up some day.

 

[braumeister]

That study was from Wade Pfau's place, so (as expected) it's biased toward annuities.

retirees who turn their pension plans into annuitized streams of income are happier in their retirement than those who try to maintain an income from a lump-sum of money.

 

[Fedup]

Oh no, I feel manipulated. What a shame. Same with the longevity calculator. It says I might live till 99. No way in hell.

 

[haha]

Selling assets stopped for me when SS started. I live in a fairly expensive area, but live pretty cheaply, with a paid off condo, Medicare, and walking and public trans at my door.

My social spending is as I want it, and I do not have the remodeling gene, though a few things may become necessary over time. I try to keep my AGI low enough to not have to pay Medicare stepped up premiums.

Ha

 

[RobbieB]

I get just as much fun spending dough I have stashed as I do with dough (SS) coming in.

 

[Souschef]

I get just as much fun spending dough I have stashed as I do with dough (SS) coming in.

I agree! My spending down assets comes from my IRA RMD's, which run about 4% right now. I divide most of it among our 4 children (2 hers, 2 mine), and leave some for me to pay for my Angel Flights.
BUT, both my wife and I get SS and small pensions which guarantee a steady income stream.

 

[Luck_Club]

Came across an interesting article that talks about spending retirement income. "... People have trouble spending their assets, not spending their income. “Once we start viewing money as wealth, as a stock of money and not necessarily as a flow, then we seem to get less happiness out of spending it than we do from money that’s automatically turned into a flow..." "...When retirees spend their assets and see their retirement savings decrease, they become negatively affected. Alternatively, spending income, not assets, has no negative effect on the mental or emotional state of retirees..." The article then talks about some strategies for turning assets into Guaranteed Income. Psychology of Retirement Income Satisfaction

"oh we never touch the principle"

 

[Out of Steam]

That study was from Wade Pfau's place, so (as expected) it's biased toward annuities.

Locking in today's historically low interest rates with annuities when we may be heading towards higher inflation and interest rates seems really unwise.

A bond ladder seems reasonable, as long as one is not putting much money into maturities beyond intermediate term (5-10 years) right now.

 

[HadEnuff]

that's me all over. But, I'm only 63, DW is 59, and I've only been retired 12 months. DW has been retired 12 days.
I'm anticipating that I'll get more comfortable with spending down the nut as we "mature".
I know my Dear Old Dad did, God bless him.

 

[hesperus]

We spend about 2% of our portfolio, which is still in six figures, so we have no need to draw down assets. But I agree, would not want to see our assets decrease. But really, if you look at your portfolio from a total return perspective, spending income is STILL spending assets

 

[audreyh1]

The problem with not wanting to see your assets decrease is that the market can come along and give your assets a big haircut at any time - 20%, 30% - POOF!

If you're trying to preserve principal, on principle, I don't see how you reconcile that. I guess you assume it will eventually "bounce back". In the meantime your principal was whacked.

 

[pb4uski]

A couple thoughts.

I must be different but I don't even bother to differentiate between income and spending. I saved that money for our retirement and that is what I am spending it on. As long as we continue to 'have enough' I'm fine.

On the article, consider the source. 'Nuff said.

 

[txtig]

I can relate to the premise of the article. I'm a retirement newbie, just seven months into my retirement. Up until today, I hadn't spent a penny of the nest egg. I had a decent stash in my checking account which has been funding normal living expenses since the paychecks stopped. But, today, I spent close to 4% of the nest egg purchasing a new motorhome (we pick it up tomorrow). I spent a bit more than planned (ok . . . a lot more than originally planned), but I did plan on spending this money. It's a one time deal, and the plan going forward is to spent about 4% per year until social security and DW's pension kick in (2 to 4 years) and then drop to about 2.5%. In my mind, I know I'm ok, but it's still a very uncomfortable feeling seeing my nest egg take such a big drop. The discomfort is partially offset by the fact that even with the big drop, it's still about the same amount I had just a few months ago. Thank goodness for the recent run up!!

 

[Scuba]

A couple thoughts.

I must be different but I don't even bother to differentiate between income and spending. I saved that money for our retirement and that is what I am spending it on. As long as we continue to 'have enough' I'm fine.

On the article, consider the source. 'Nuff said.

+1. We don't have heirs so I cannot relate to never dipping into principal. Retirement is why we saved and invested all these years. Would rather enjoy it ourselves than leave it all to charities and Uncle Sam.

 

[davismills]

+1. We don't have heirs so I cannot relate to never dipping into principal. Retirement is why we saved and invested all these years. Would rather enjoy it ourselves than leave it all to charities and Uncle Sam.

Same boat, no heirs. Just can't bring myself to tap the "nut." I guess it will be easier in the future...sure hope so.

 

[marko]

This may be why so many people, myself included, prefer to set aside dividends rather than reinvest.
Yes, thanks to this forum (especially mathjak) we've learned that it doesn't matter, there's a certain comfort in viewing dividends as a 'paycheck'; something we can relate to after 40 years of getting one.

 

[misanman]

We spent down principle in our rIRA until I started drawing full SS benefits at 70. I agree it was tough for me psychologically.

Now, since we live comfortably on dividends + SS (and two very small pensions), I'm much more comfortable. As it turned out, I wish we had drawn down (or Roth converted) the tIRA even more as we are taking a tax hit from the RMDs.

 

[donheff]

I just don't have a problem withdrawing 3.5% from my portfolio each year, even if I have to sell some assets to do it. I usually don't have to sell assets m as I take my distributions in cash, but even I know that capital gains distributions result from assets being sold on my behalf. So it already happened, and it's not really income, although it looks like income, it's principal.

I've never tracked principal. It's all about total return to me.

I do occasionally check net worth growth versus inflation compared to when I retired. If my net worth is ahead of inflation (as it is now), I am quite pleased. If it falls behind (as it did 2008/2009), I just hope that it catches back up some day.

+1 I feel about the same. I am currently pulling solely from taxable although far more of our portfolio is in tax differed. I spend taxable distributions and pull anything more that I need from the taxable equity pot so I dig into principal. Tax differed distributions are reinvested so I don't pay much attention to them. Spending has been under 3% so I am not worrying.

 

[Cobra9777]

I can also relate to the premise in the article. From an emotional perspective, selling shares seems very "final." I can't help but think about the smaller nestegg and the potential increased sequence risk that results. Dividends have a sense of continuity like a paycheck, which will repeat indefinitely.

Technically of course, I realize that dividends are not substantively different than capital gains. Even my pension was "purchased" just like a SPIA when I "sold" the lump sum (principal) in exchange for an annuity stream. But I think for many pre-SS early retirees, knowing that the market will inevitably drop 30-40% is far less concerning when your non-discretionary spending is covered.

Don't get me wrong... I'm not one who's hung up about "never touching principal." I have and I will. But the psychology mentioned in the article seems to be accurate, even if the source is somewhat biased.

 

[scrabbler1]

My ER plan always included being able to live off the dividend income generated by the taxable part of my overall portfolio. The monthly dividends act as a substitute paycheck, so the value of the principal in the taxable part has never meant much.

Back in 2009 and 2010, the main bond fund which was generating most of my monthly dividend income was generating more than it is today (and with fewer shares) but was worth less than it is today. So, which scenario do I prefer? Hard to say.

I have been using a stock fund's quarterly dividends to supplement by bond fund's monthly dividends to cover my slightly growing expenses. I had always anticipated doing this when I was developing my ER plan, so I am not at all dismayed that I have had to do this. But it does mean I am no longer reinvesting those stock fund dividends although cap gain distributions always got reinvested. Then again, even without those reinvested dividends, the stock fund's value has grown a lot since I ERed, so I still came out ahead.