What to do with portfolio when pension covers expenses.

[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]

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]

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]

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.

 

[NW-Bound]

... 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!

My ouch would come from the 20% loss of the portfolio, or rather the equity portion of it. The loss on the $10K would be just a round off error.

The above said, I am holding 31% cash (I-bond, stable value fund, etc...) so the hypothetical unspent $10K just stays where it is, and is not subject to loss.

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

Yes, it was tempting to drink more, but I do not drink that much anymore. I observed that on that ship the passengers were mostly geezers, and nobody drank much. One night, out of curiosity, I took a walk up to the top floor night club. It was dead at 10PM, and the DJ had 2 dancing couples to entertain.

 

[nash031]

I know this fellow who won't phone his siblings because it's long distance, even when I offer him my cell phone to use for free. It's too wasteful.

He won't go visit his siblings in another State, yet when one died, he went for the funeral. I've told him it would be better to visit them when they are alive vs dead. I guess if you go for the funeral it's just 1 trip.

He waits to send Christmas cards, so he won't "waste" sending one to somebody who doesn't send him one or has died.

He has the money, as I do his tax returns I know. It's really a bit sad.

Sounds like OCD manifesting with respect to having money. Being in an OCD-prone family, it can manifest in any number of ways. I "medicate" by running and riding. When I start thinking irrationally, I go run. Those decisions are irrational (to me at least) so I'd wonder about OCD.

 

[Danmar]

Yes, it was tempting to drink more, but I do not drink that much anymore. I observed that on that ship the passengers were mostly geezers, and nobody drank much. One night, out of curiosity, I took a walk up to the top floor night club. It was dead at 10PM, and the DJ had 2 dancing couples to entertain.

Hear you. That's why we have stopped taking cruises. Haven't done one in about 5 years. There will be lots of time when we become old geezers. In the mean time it's burn baby burn ( calories that is)

 

[NW-Bound]

We found ways to burn calories. At the Cozumel International Port that day, there were 5 cruise ships. Yet, we were among the dozen (that we saw) who walked to the downtown area and back. We walked more than 5 miles that day, which would be easy if it were not for the warm and humid weather. By the way, at the pier downtown, we saw 2 more ships!

Sorry for off-topic talk...

 

[Danmar]

We found ways to burn calories. At the Cozumel International Port that day, there were 5 cruise ships. Yet, we were among the dozen (that we saw) who walked to the downtown area and back. We walked more than 5 miles that day, which would be easy if it were not for the warm and humid weather. By the way, at the pier downtown, we saw 2 more ships!

Sorry for off-topic talk...

That's one way to do it but the ships always have well equiped fitness facilities. These are really busy the first day or two then not so much. We almost always use these "gyms" every day even if it means staying on the ship when in a lousy port (most of the Carribean in my view). One of the best cruises we took was from Florida to Mediterranean. Eight strait days at sea. Was great.

I am also sorry for the thread hijacking.

 

[audreyh1]

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.

My opinion is simply the opposite of yours. Whether to put the money towards a long term goal such as leaving it to heirs/charity or increasing spending later in life, or to maximize spending earlier while healthy and alive and try to avoid a very large terminal portfolio, is a personal preference.

 

[audreyh1]

My ouch would come from the 20% loss of the portfolio, or rather the equity portion of it. The loss on the $10K would be just a round off error.

I don't see it that way. I expect such variability in my long term investments. I would regret not keeping that $10K out as with a 20% portfolio drop it could have helped pad my reduced income the next year.

 

[kcowan]

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.

My friend was on a relocation cruise from Europe to Houston. He had a similar package. He loves Johnny Walker Red. They kept asking him to take Black or Blue and he said No I prefer RED!

 

[kcowan]

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.

Our friends live oceanfront on Galiano Island. He rows out to check his crab traps. We have had many a feast on Dungeness right on his dock. Heavenly and cheap.

Sometimes it is not the money but the opportunity it creates.

 

[nun]

My opinion is simply the opposite of yours. Whether to put the money towards a long term goal such as leaving it to heirs/charity or increasing spending later in life, or to maximize spending earlier while healthy and alive and try to avoid a very large terminal portfolio, is a personal preference.

I can certainly see an argument for simply adding the $10k to a cash emergency fund, but I see no reason to spend it if expenses are covered by a pension. Being a spendthrift to maximize spending presumably based on a mathematical algorithm isn't something that I would ever do.

 

[audreyh1]

I can certainly see an argument for simply adding the $10k to a cash emergency fund, but I see no reason to spend it if expenses are covered by a pension. Being a spendthrift to maximize spending presumably based on a mathematical algorithm isn't something that I would ever do.

Right, it's a personal preference.

It's perfectly valid for someone to consider the money put to better use today or in the very near future.

And calling it spendthrift because someone uses the money, is a matter of opinion. You don't know what someone spent the money on. Spending can include gifting to heirs or charity.

 

[rmark]

I expect my wife's fixed pension plus both our SS to initially meet our cash flow needs in retirement, thus our portfolio will provide the COLA for the fixed pension plus a reserve for emergencies and large purchases. Eventually RMD's will force money out of deferred accounts and into taxable accounts.

 

[Corporateburnout]

We don't have pensions so we rely exclusively on our portfolio and future SS for retirement income.

Our spending in 2015 was under our budgeted WR by 0.5% so we plan to increase spending in 2016 by that amount. There is no need to delay spending because our goal is to enjoy retirement now.

As some folks have already eluded to it's a personal preference. For us we would never consider staying in a hostel when we travel but rather in 3 or 4 star hotels.

 

[pb4uski]

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.

You could be my BIL. "But mom, we're going to have to replace those before we sell the place after you are gone... wouldn't it be better to do it now and you can enjoy it?..... I don't care."

 

[sengsational]

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.

That's the mode I use too...make an attempt to spend a good fraction of what the models tell me I can spend. My target is actually 100% since the models are quite conservative. And if we have some big financial melt-down, it should be easy to cut-back.

I kind of forgot how to have fun while slaving away at work and kids for so many years. But lately I have reduced second guessing myself whether something will be fun enough to be "worth it". So far, the adventures I've planned and done in the last year seem well "worth it", so I'm gaining confidence. None the less, I'm still not very good at just spending without thinking too hard about it. For instance, I might go through a phase where I'd buy drinks one by one on a cruise ship without thinking about it, and other times I'd say, "nah, I don't want it that bad", but if I had it, I'd enjoy it. The expensive drink plan I saw on a recent cruise would have made my trip less enjoyable as I nursed headaches due to trying to exceeding the break-even point, hehe!

 

[Nords]

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?

I still haven't figured out the answer to that question.

We're living off my pension along with our rental property's cash flow and our dividends. My spouse will start her Reserve pension in 2022 and then there's our Social Security in 2030ish. We're doing everything we want to do (or can do, at least) but we're still not spending it fast enough.

So we leave our investments >90% in equities. It's the best risk-adjusted diversified long-term return, and we're finally getting truly comfortable at ignoring volatility.

I was a pretty active investor 10-15 years ago, but now every year I trade less. (We've held our Berkshire shares for over a decade.) I've learned enough about angel investing to know that I don't care to invest further in that asset class, and now it's mainly an exercise in appreciating the thrill of a new startup without actually having to own part of it.

People talk about working for the rest of their lives, yet we know that it's not a good backup plan because not everyone is physically capable of doing so. However I'm noticing a rise in the popularity of "geezer blogging", and holy cow is the AdSense money good. Blogging about leading a fulfilling life after 50, with all the right keywords and persistent promotion, can easily throw off $15K/year. Direct advertising with an insurer or a financial services company would put the blog into $25K-$40K territory, but then of course it starts to become a job.

I think we're just confirming what FIRECalc has been saying for over a decade. If you reach financial independence with a 95% success rate, then 19 times out of 20 you'll have more than you need. And in a few of those outcomes you'll have way way more than you need.

 

[nun]

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?

This sounds like an argument for a "liability matching portfolio". If you have enough in pensions why risk anything else in the market. Just hold cash, CDs, TIPS or very short bonds. Alternately if you have expenses covered why not take on more risk? You're in a position to forget about the survivability of the portfolio and emphasize its potential final size. I reinvest dividends and will put my SS into equities as over 30 years I think they give me the best chance of maximizing the amounts I can leave to charity and my heirs. With pensions and rent coving expenses I've actually taken on more risk in retirement than when I was working and gone from a 50/50 allocation to 70/30.