Do you ever get used to watching cash accounts decline with spending?

[jabbahop]

Been retired a couple of months and I am surprised that I get a bit sad watching us spend down our cash reserves after years of watching them grow.

I anticipated the FACT but not the EMOTION associated with the reverse flow. Is this temporary?




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[Meadbh]

Loss aversion? It's been studied.....

Loss aversion - Wikipedia, the free encyclopedia

 

[REWahoo]

I anticipated the FACT but not the EMOTION associated with the reverse flow. Is this temporary?

Yes it is temporary.

Most adjust to it within a few months; those who don't end up going back to work. Either way, problem solved.

 

[RunningBum]

It's never bothered me. I pay more attention to my net worth spreadsheet, and it's been mostly increasing since I've retired. I include my bank accounts in that spreadsheet, so moving from an investment account to a bank account doesn't change the bottom line. I watch the bank account only to keep track of when I need to transfer in, and also make sure I know what all the transactions are.

I know there will be a prolonged downturn or flat period where my net worth number will drop, so I don't know for sure how I feel, but I suspect I'll be more concerned about how the markets are doing than how my spending is depleting it.

 

[jkern]

I would say that there will be an adjustment period until you get use to being retired. Maybe look at your total portfolio (might be growing) instead of just your cash account.


I retired 6 years ago at 51 with about $600k in cash. I spent $100k remodeling/upgrading home and $300k on investment properties (using rental income to make my own pension). I have been withdrawing from my cash each year to supplement my rental income. I am currently down to around $150k cash. However, my total portfolio has grown significantly.

 

[samclem]

If I withdraw approx 3-4% per year, my spending will be pretty much lost in the noise of the normal ups and downs of the market. Given all the uncertainties about market returns and longevity, I doubt most people here plan to start deliberately steering their portfolios toward zero until they are 80 or 90 years old.

If we're just talking about the annual drawing down of the cash "spending account"-- I don't think that will be a problem. As RunningBum mentioned, my long-term concern is how my overall portfolio is doing, in inflation-adjusted terms.

 

[sengsational]

I'm in the same boat. For me, I only have a year or two worth of after tax funds, so I've been scraping together this and that since the best plan is to spend after tax money first. Also, I had a close handle on my pre retirement spending, but after 18 months of retirement, I see I'm spending more (travel and toys). This was expected, and in fact I've actually been underspending my budget, but still, having to scrape stuff together is somewhat jarring to the psyche when used to having the paycheck fill up the spending accounts automatically.

 

[Telly]

Been retired a couple of months and I am surprised that I get a bit sad watching us spend down our cash reserves after years of watching them grow.

I anticipated the FACT but not the EMOTION associated with the reverse flow. Is this temporary?

It WAS pretty sad. Felt like we were eating our seed corn. In the beginning, our biggest stash was cash, CDs etc. which took many years to build up, and then to watch it drain down.
But it's all better now - kids long out of college and on their own (big decrease in expenses!), mutual fund investments took off over time (big increase in assets).

Decreasing expenses + Increasing Assets = Financial Happiness

 

[NW-Bound]

My earned income stopped 3 years ago. Quicken told us we have spent a boatload of money since then. Indeed my after-tax accounts have been shrinking at an alarming rate. But at the same time, Quicken said my total networth has increased despite the withdrawal due to the market rise (I have more in the before-tax accounts than in the after-tax ones).

So, I guess I have not experienced the genuine pain that happens when one spends down a portfolio that is also shrinking when the market god gets angry.

On the other hand, I could easily be pushing daisy with the life-threatening disease I suffered (and overcame). I need to keep reminding the miser in me what is more important: life or money.

 

[Katsmeow]

Unlike those whose net worth has increased, ours has decreased since DH retired 5 years ago and I went very part-time, working from home. Note that this was expected. We had kids in high school and/or college during this time so our expenses are much higher through next year than they will be in the long term. I fully anticipated our net worth going down. It hasn't gone down every year. During 2013, it went up. During 2014, it went down less than I had projected. For this year to date, it has also gone down less than I projected.

Firecalc still says 100%. In fact, the future spending we can do (post-2016) and still be at 100% has gone up during the past 5 years. But, still, I feel a pang when I see that net worth number go down. But, I remind myself that it (1) hasn't gone down as much as I had projected and (2) this was all planned and everything is still according to plan.

 

[marko]

When you say "cash reserves" I trust you're talking about just cash on hand, not the total portfolio.

As others have noted, the total portfolio is what you should be looking at, and, if you loosely apply the 4% SWR and are properly allocated/invested, you should see some growth over time.

There are up and down market periods and lumpy expenses too. One-off costs as well, especially during that early transition phase.

It does get a little scary in the first few months but over time (there! I've said 'over time' twice now) things settle in.

 

[tmm99]

I can totally relate. I quit my j*b recently and no money is coming in and my checking account balance was coming down and it just gave me this really bad feeling. I started an automatic withdrawal into my checking account once a month so I don't get the OMG feeling whenever I look at my checking account. Hopefully my NW will stay the same or get better as some of you have experienced.

 

[tmm99]

the best plan is to spend after tax money first.

Can someone explain to me why this is? I noticed the same thing in i-orp also, but I feel like I want to keep some of my cash reserves and take some tax deferred out at the same time.

 

[marko]

I started an automatic withdrawal into my checking account once a month so I don't get the OMG feeling whenever I look at my checking account.

A great strategy is to have a monthly/weekly "paycheck" in the form of an automatic deposit into your checking account.

For many of us here, myself included, we place our dividends into a holding account and then from that account have a monthly deposit/paycheck into checking. With luck, the deposits and the checks written balance out.

 

[Ronstar]

Can someone explain to me why this is? I noticed the same thing in i-orp also, but I feel like I want to keep some of my cash reserves and take some tax deferred out at the same time.

I'm starting to feel the same way. Not only to keep some of my cash reserves, but to even out the tax bite on the tax deferred withdrawals.

 

[pb4uski]

Doesn't bother me a bit.

First, I don't really focus on our cash balance... that would be totally silly.... I focus on the total balance of our retirement savings.... which have grown 20% since I retired.

Second, I know the declining cash balance will be replenished when I rebalance as it has each of the years since I retired.

 

[RunningBum]

Originally Posted by tmm99
Can someone explain to me why this is? I noticed the same thing in i-orp also, but I feel like I want to keep some of my cash reserves and take some tax deferred out at the same time.

I'm starting to feel the same way. Not only to keep some of my cash reserves, but to even out the tax bite on the tax deferred withdrawals.

Evening out the tax bite is usually the best strategy, and the best way to do that is usually to spend from after tax accounts, and do partial tIRA->Roth conversions. I say "usually" because someone is going to come up with a reason it's not best in their case, such as qualifying for ACA subsidies.

In your tIRA you are deferring any tax on gains but will eventually pay at ordinary income rates when you withdraw. In a taxable account you will pay capital gains tax on gains. In a Roth your gains are tax free. So I like to even out the tax bite while trying to move as much as I can into my Roth, so I convert out of my tIRA rather than spend out of it.

 

[scrabbler1]

I don't have my portfolio set up that way so I can't say I relate. I don't have a cash account I use to fund my local checking account so I can pay my expenses. Instead, I have a large bond fund whose monthly dividend gets transferred to my local checking account. The local bank's checking account has a small cushion, or surplus, in case I have some small, unforeseen expenses in a given month. I have a second-tier "emergency fund" I use to cover larger, unforeseen expenses but I tap into that pretty rarely. It is another bond fund which is part of my overall portfolio. That fund's balance has dropped over the years (I don't replenish it) but I consider it more of a backhanded rebalancing procedure than anything else.

 

[Car-Guy]

I'm 3+ years into retirement and while I do track my "cash account buckets", it never bother me to see them drop since it was expected. All my cost/expenses come out of those buckets.

What matters to me is my total cash and investable net worth buckets. As long as they stay the same or grow (inflation adjusted), then I just don't worry about it. It won't be to many more years, and I don't think I'll even care if my total net worth starts to drop. (slowly )

 

[rodi]

I'll admit to having that same feeling. Despite the fact that I allocated funds for our big vacation, and for our big master bath remodel - both of which are drawing down our cash balance... it gives me twinges to see the cash get lower.

Even with our higher than typical spending (because of the vacation) I'm still not down that much from a total portfolio POV.

Intellectually, I know I'm fine. Emotionally... It makes me sad to see my "cash" deplete....even though I planned for it.

 

[imoldernu]

Interesting conversation.
Can understand the emotional feeling of loss, but our planning defined this in the very beginning, so it's not something that affects us.
The plan was to be lowest risk possible for ROI, and to recognize a spend-down of assets. The loss of capital and cash was expected. So far, we're far enough ahead of our plan to be able to accept unexpected expenses with equanimity.

It's kind of like eating a cone of ice cream, before it melts.

 

[Ed_The_Gypsy]

My cash account is fine, growing from dividends. My equities took a big hit with the collapse of oil last year, though, and that gives me anxiety. The holdings are solid and will continue to earn and ought to recover eventually, but I feel squeezed.

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[daylatedollarshort]

Been retired a couple of months and I am surprised that I get a bit sad watching us spend down our cash reserves after years of watching them grow.

I anticipated the FACT but not the EMOTION associated with the reverse flow. Is this temporary?

Like Katsmeow, we had a higher SWR early on because we still had kids in high school and college when we decided to semi-ER. The closer the kids get to being off the payroll, the closer we get to SS eligibility age, and the longer we see that we are tracking well to our initial plan, I've relaxed.

We also have more of a capital preservation type portfolio, with pretty low volatility, so that helps. I don't have the temperament to have a portfolio that could lose 30 - 50% of my life savings in a given year at my age.

 

[mpeirce]

Like Katsmeow, we had a higher SWR early on because we still had kids in high school and college when we decided to semi-ER.

I guess I compartmentalize more than you. My son is still in college, so there are expenses for that. But they are segregated from our other funds. When I write a check to pay for tuition (or whatever) it comes out of the college money. Its literally a different account and I don't even think of it coming out of the money we have for living on - i.e. not part of our SWR (or actually VWR).

I know money is fungible, but since I would never spend the money earmarked for DS's college education on something like a new car, I don't really see it as my money any more.

 

[daylatedollarshort]

I guess I compartmentalize more than you. My son is still in college, so there are expenses for that. But they are segregated from our other funds. When I write a check to pay for tuition (or whatever) it comes out of the college money. Its literally a different account and I don't even think of it coming out of the money we have for living on - i.e. not part of our SWR (or actually VWR).

I know money is fungible, but since I would never spend the money earmarked for DS's college education on something like a new car, I don't really see it as my money any more.

It is not mainly college. Our kids qualify for financial aid so college has not been expensive for us. We do pay for their car insurance, dental bills, medical insurance and bills, cars, cell phones, food, travel, our umbrella insurance is higher with younger drivers and a bunch of other expenses. I don't have separate checking accounts by person for all the people in our household.

With the kids off the payroll our annual expenses will drop significantly.