How to psychologically switch from a "saving mode" to a "withdrawing mode".

[GregLee]

Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful.

Not that I've ever found myself in such a position, but I'll suggest that you can take a pretty relaxed approach to this 50 year retirement plan. By all means plan it out to 50 years, or more, but if something funny happens and you need more money than anticipated, you have resources -- you can just start charging for some of that work you'd prefer to donate. Your expertise and experience is much better than money in the bank.

 

[Rich_by_the_Bay]

My concerns include questions about whether I am ready personally, financially and emotionally. First, I will be 47 when FIRE, and planning for 45-50 years of retirement can be tricky. Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful. Third, I have no idea what is going to happen to SS, Medicare in 15 + years. Fourth, I volunteer often in the US and abroad and spend tens of thousands of dollars on mission projects, which is another variable I need to account for. Knowing all this, does it make sense to FIRE when one turns 47 ? Maybe I am having the "One more year syndrome" - not sure. Your thoughts please ?

Something is driving you to retire earlier. When you identify what that is you will be able to plan around it.

Have you considered semi-retirement? Best of both worlds for you at your young age? Bob Clyatt's book may be helpful.

 

[Meadbh]

Mmmmm.....you should see the buds...errr...blooms.



Mmm, wait...what were we talking about?

I need a cookie.

I think you need a brownie

 

[Meadbh]

Hello Rich - you are correct. My concerns include questions about whether I am ready personally, financially and emotionally. First, I will be 47 when FIRE, and planning for 45-50 years of retirement can be tricky. Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful. Third, I have no idea what is going to happen to SS, Medicare in 15 + years. Fourth, I volunteer often in the US and abroad and spend tens of thousands of dollars on mission projects, which is another variable I need to account for. Knowing all this, does it make sense to FIRE when one turns 47 ? Maybe I am having the "One more year syndrome" - not sure. Your thoughts please ?

I think Rich is right. You've had a 20+ year career in medicine, which is relatively short. Are you going TO something in ER or FROM something in your work? It could be exhaustion from all those deliveries at night, stress from patient expectations, difficult colleagues, peer pressure, risk of legal action (a constant for OBs), or all of the above. I've just read a study that shows that 22% of academic physicians are burnt out. Is there any work activity that you really enjoy while working? Could you change your practice to eliminate most of what you are running away from? If you could find the right mix, perhaps part time, your working years might have a new lease of life. I'm not trying to dissuade you from RE. I just have concerns whether you are truly ready to take the leap.

 

[haha]

Hello Rich - you are correct. My concerns include questions about whether I am ready personally, financially and emotionally. First, I will be 47 when FIRE, and planning for 45-50 years of retirement can be tricky. Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful. Third, I have no idea what is going to happen to SS, Medicare in 15 + years. Fourth, I volunteer often in the US and abroad and spend tens of thousands of dollars on mission projects, which is another variable I need to account for. Knowing all this, does it make sense to FIRE when one turns 47 ? Maybe I am having the "One more year syndrome" - not sure. Your thoughts please ?

You are no gambler. You love your job, you love it so much that you do it for free on vacations. Clearly the valuable medical services that you provide are very important to those who get them, and to you as the active and generous giver. Also it is a very prestigious career, men look up to you and women want to sleep with you.

Are you sure you want to give this up? I used to be a ... is not anywhere near as powerful as I am a ....

Ha

 

[veremchuka]

One of my biggest challenges when I FIRE in 2012 will be to switch from saving mode to withdrawing mode. Please let me know how easy (or difficult) it has been for you to overcome this challenge. Thank you.

Yes it is a challenge, for me it is to stop saving! Being a saver/LBYM by nature I still manage to save something from my pension each month which was the amount of the mortgage payment. Until I paid off the mortgage I was having to spend from cash savings each month. Since I retired 4 years ago I have not taken any distributions other than a small one to help pay off the mortgage.

 

[Packman]

I might be in a similar situation to obgyn. Though I retired a bit later at 54, I just walked away from a mid six figure job (one I admittedly didn't care for any longer). I have no pension and no health benefits from past employers. As my target date drew nearer, I was scared that I was making a stupid mistake. What helped me was the fact that every way I sliced and diced my financial plans and formula's, I had "enough" money. So it became a question of "if not now, when"? And emotionally, I really thought I was ready to do this. So I did. So far, I'm living on dividends that cover my essential expenses. When it comes time for some larger discretionary spending (say a new car), I put away a bit of cash for that. And if I need to, I'll sell something that has appreciated.

But the best part of all - I'm happier now - and that is what it's all about.

 

[Nords]

Fourth, I volunteer often in the US and abroad and spend tens of thousands of dollars on mission projects, which is another variable I need to account for. Knowing all this, does it make sense to FIRE when one turns 47 ? Maybe I am having the "One more year syndrome" - not sure. Your thoughts please ?

Financial projections aside for a moment, why do you want to retire?

Serious question-- you're doing something you enjoy, it's fulfilling, it's complex. The only thing lacking may be autonomy, and you could certainly gain more of that through going part-time.

Otherwise you're going to have to put yourself on a strict philanthropic budget, which means that someone isn't going to get something that you can see (because they're standing right in front of you) they desperately need. At that point I'd find it difficult to say "I'm sorry, I've already spent my 4.36% SWR, but I'll be back in eight months with next year's funds."

Maybe you need to somehow become part of a non-profit that pays you a stipend (or at least matches your philanthropy) and lets you spend all your time volunteering on missions. Or maybe whoever's paying your salary now could instead put you in charge of their new philanthropic department at no cost to them. You could work 20 hours/week or six months/year for them, bill them for your time, and instead of paying you a salary they put the money into their charity fund. Then you could spend the other half of the year representing them (and spending their charity fund, not yours) on the missions you'd be doing anyway.

You can't be the first doctor to encounter this situation. Some other doctor must have already solved the problem, or at least their CPA did.

How to psychologically switch from a "saving mode" to a "withdrawing mode".

But getting back to your original question, you'd pay yourself a "salary". Figure out how much needs to be in your checking account each month and put that in auto-transfer from your portfolio. Check your portfolio occasionally for rebalancing, and set aside the cash for another year's spending. Then have that show up as "paychecks" in your checking account for you to spend until you reach your budgeted amounts.

We were a little tight on the purse strings when we first retired in 2002, but we were also in the middle of a recession. We were also trying out a number of new activities (like surfing) and we weren't sure we wanted to spend hundreds of dollars on the activity while we were still trying it out. As the months went by, though, we got comfortable and loosened up. The same gradual transition will probably occur with you.

 

[ItDontMeanAThing]

Switching from saving to spending has been a transition. Part of the reason the Philippines and Thailand were the first two countries on my journey to find a country to settle in was their low cost of living. The low costs made it emotionally easier to watch my account balances shrink.

I'm funding the first 5.5 years of my ER from my taxable accounts. I retired after the market crash in 08 because my projected spending was still well under my projected assets. Still, I LBYM because that's what I'd done since leaving college.

What changed me into a spender was quality of life issues. I saw ways to increase my comfort, enjoyment, pleasure, health, etc. and spent accordingly. Spending is still under what I could be spending but that doesn't bother me because when I find something I want and that want is more than a passing fancy, I'll buy it.

I don't worry about running out of money. I've structured my investments the best I know how in the hopes of being able to afford a lifestyle that I want, while believing that it would take a financial meltdown of biblical proportions to leave me with a combo of assets and SS that wouldn't pay for a reasonably comfortable life in one of the world's lower cost of living countries. Since I believe I'll have enough and can't take it with me, the only option is to spend it.

 

[obgyn65]

Thank you everyone for your comments. They are very helpful. You have given me a lot to think about and reconsider.

 

[bizlady]

We retired in April, and had been living on the "retirement Budget" for 3 years prior. I too was worried about the transition and thougnt I would stress watching the savings go down. To my surprise, it has been easy and painless. Though DH worries a bit having just left work in April and having never had an interest in the finances til now.

We have a yearly budgeted amount to live on (all expenses including medical, discretionary and taxes). I transferrd this into a savings account and we started to draw this in May. DH has a non-cola pension which covers just under 20% of expenses. So the amount transferred into savings was less the pension.

We are just 55, so our withdrawl is higher now than the 4%, but will be less down the road. We will not draw SS until full retirement age or age 70. I am comfortable in that we saw a financial planner, and ran the numbers in FireCalc, Quicken, Otar and several other planners. We ran our plan with SS budgeted for drawing at 62 with a 25% reduction from what is scheduled, inflation at 3.5%, and life expectancies of 97 and 94. So we do hae some room. All planners say we are fine, so at this point, I go with that.

We set up an auto transfer weekly, as we were use to lving on a weekly paycheck. Works for us!

 

[Midpack]

Reinforcing what others have said about the mental aspect, 'it's not enough to retire to escape something, you have to have something to retire to,' not sure who I am stealing the quote from. What is it you want to do instead? Some people can figure it out on the fly, but the odds are against it. With no plans, at least loose options, you risk being bored in retirement. It does happen, even if many here find it hard to believe.

I'm not qualified yet to comment on the mental shift from saving to spending, but there is no certain answer as MichaelB pointed out. I would think how much or little defined benefits you will have could be a very significant factor at the extreme (full COLA'd pension and retiree health care at one end and nothing the other limit).

 

[easysurfer]

I create a "simulated paycheck" at the start of each year, and put that money into a money market fund and do an auto withdrawal from the MM and deposit that into my checking account.

The amount is determined by a perentage of the total of my investments. Since I have a small annuity, I also factor that as an income stream each month.

I create a draft "next year's budget" during the last quarter of each year so I have an idea of what I'll be spending. But then refine the budget at the start of the year after I've determined what my "monthly paycheck" amount is.

Switching psychology does take some getting used to. For me, having a system in place makes it easier as it allows me to focus on the system and just getting the numbers correct rather than reminding myself no more paycheck from w*rk.

In a way, now if the market goes up and my investments do well, I get a raise next year. If not, then I need to buckle up a bit more.

 

[Mulligan]

Being a living dinosaur, one who lives fully off of a pension, my transition has been seamless as both my paycheck and pension are direct deposit, so I just continue month to month. I personally would be a nervous wreck having to manage my money that most posters here have to do. You certainly have my respect! I would think it would be very hard for an ER person to turn on the money spigot after years of successful investing and saving. Of course it should be your reward for years off planning and sacrifice, but ingrained habits of many years would seem to be hard to change.

 

[Rich_by_the_Bay]

I personally would be a nervous wreck having to manage my money that most posters here have to do.

You are very fortunate to have a fully supported retirement via your pension.

But I am always surprised at how easy it is to set up a "payment" system for those of us with portfolio-based retirements. You pick your system (4% with inflation adjustment, or percent of total assets, or interest and dividends only, or annuitize -- whatever). You just do about 15 minutes setting up autotransfers among your accounts, tweak them once a year, and get on with your life. The money comes in monthly just like a paycheck.

I can see where many might need some help in the accumulation decades, but once your are at the finish line, it's often a piece of cake. If not, perhaps that finish line is a bit farther than you thought.

 

[Mulligan]

You are very fortunate to have a fully supported retirement via your pension.

But I am always surprised at how easy it is to set up a "payment" system for those of us with portfolio-based retirements. You pick your system (4% with inflation adjustment, or percent of total assets, or interest and dividends only, or annuitize -- whatever). You just do about 15 minutes setting up autotransfers among your accounts, tweak them once a year, and get on with your life. The money comes in monthly just like a paycheck.

I can see where many might need some help in the accumulation decades, but once your are at the finish line, it's often a piece of cake. If not, perhaps that finish line is a bit farther than you thought.

I see what your saying Rich, but I still worry about the people who maybe had a million, and was planning to get 5-6% interest CD's and live off that. Now that isn't possible, so you reach out for more yield or return, then get whacked with a market downturn. Then you got the stress of that to work through. I guess the simple answer is you didn't have enough to retire on to begin with, but it was only a few years ago you could get a decent CD rate. I have one that is almost 6% that is expiring next month. It was only a 3 year CD, but the rate seems like a lifetime ago!

 

[Midpack]

I can see where many might need some help in the accumulation decades, but once your are at the finish line, it's often a piece of cake. If not, perhaps that finish line is a bit farther than you thought.

I haven't had to make my first transfer yet, and won't for some time. It's not as clear to me, and distribution looks more daunting than accum ever did, so I hope my experience is similar to yours. We're completely on our own, with SS/Medicare about 9 years off..."exciting times."

 

[rescueme]

You pick your system (4% with inflation adjustment, or percent of total assets, or interest and dividends only, or annuitize -- whatever).

Or all of the above (as we did) ...

You will have those decisions in the beginning of your retirement (just as you had early in your accumulation years of what to save and what to spend).

Seriously, once you layout and execute your plan, it isn't that hard to maintain. And the longer you are doing it (just like in your accumulation years), you won't give it a second thought, over time.

 

[FreeAtLast]

Hello Rich - you are correct. My concerns include questions about whether I am ready personally, financially and emotionally. First, I will be 47 when FIRE, and planning for 45-50 years of retirement can be tricky. Second, I am good at what I do (sorry if this sounds presumptuous) and quite successful.

Perhaps it has something to do with the fact that you are approaching the big
"5 0" in a couple of years, more than it has to do with retirement.

 

[obgyn65]

Hello Midpack - the good news is that I will not be bored in retirement, will all the volunteering and mission work I do. Would like to travel also purely for leisure....

Reinforcing what others have said about the mental aspect, 'it's not enough to retire to escape something, you have to have something to retire to,' not sure who I am stealing the quote from. What is it you want to do instead? Some people can figure it out on the fly, but the odds are against it. With no plans, at least loose options, you risk being bored in retirement. It does happen, even if many here find it hard to believe.

 

[Chuckanut]

This is a good discussion and I appreciate that we are having it. Though I am about a year away (Class of 2012, I hope!) I have thought about this myself. I have worked for over 40 years, scrimping and saving to get to this point. I suspect it will be like my unwanted divorce - I just let being single happen to me and did not try to fight it or figure it out. Everything went well.

For me, I will probably have to withdraw at 4% for the first five years. I have that in cash equivalents now. My pension is modest, but it does have a partial COLA of up to 3% a year. Then SS kicks in at 66 which should reduce the withdrawal rate down to 2% (assuming we don't get into economic disaster.) So, it should work out.

 

[Finance Dave]

My brother at age 45 found himself unemployed a couple years ago. His house was paid off, and he was making an excellent income as a VP. He told me the hardest part was taking money out rather than putting it in...he got a new j*b after 17 months. Financially he's fine...he got 13 months severance, had no house payment, wife works a minimum wage j*b so they had some income, and he got to spend time with my dad in his older years.

 

[SteveR]

Not to beat a dead horse but I too agree you need to know why you want to retire. If you are enjoying what you do and want to continue to do so you won't have to worry about withdrawing money since you will still be making it. If you go part time you will still be making some money and your investments can fund the rest to meet your lifestyle needs.

I retired for several reasons including I was burned out and my DW needed a lot of personal care due to health reasons. My j*b did not lend itself to part time work so mine was all or nothing.

Switching from contributions to withdraws was a brain cramping experience for me...still is even after over 3 years in ER. We moved; started a "business" and did a lot of RV travel for a while. Most of our retirement comes from investments so the down market has been painful for us as has self-funding a new business that is still in the early stages of success (still not breaking even yet). This was not a planned expense so it has required a lot of juggling of budgets.

Our withdraw plan is quite complex and is composed of a number of stages for different accounts and sources. Luckily we managed to move a good bit of equities to less volatile funds to help dampen the waves on Wall Street. We plan on spending our kids inheritance if need be so the plan is to take care of us first...if anything is left then it will be a gift to them when we go. That makes planning a bit easier with limited funds.

Seeing the balances go down on some of the accounts due to withdraws is painful but necessary. We know that it is part of the plan....after-tax first...then per-tax last. A lot of our plan also takes into account taxation rates and income rates over time. Our needs today are very different from our needs in 10 years 20 years and 30 years. The plan takes all this into account and unless the Market collapses for and extended period we will survive. If it does, we will survive but in a different way.

To repeat some previous posts...retirement is not and end...it is a beginning. It is not a destination...it is a journey. You go from w*rk to retirement for a reason...not just because you are sick of our j*b (unless you are uber-FI) I am in my second ER and if you count the business I am no longer retired now but I see it more as a hobby since it is not providing any income...if it ever does it will be great but we are only looking to break even so the business stays fun rather than a j*b. When we get tired of it we sell it and walk away. Then move on to the next adventure and the next dream. ....we do have a lot of them yet to live before we logoff the final time.

 

[teejayevans]

In order to help with the transition, I would make any big purchases before you retire (cars, boats, etc).
TJ

 

[SteveR]

In order to help with the transition, I would make any big purchases before you retire (cars, boats, etc).
TJ

Assuming you pay cash for them so you don't carry the debt into retirement unless you can well afford it. Same goes for RVs, second homes, aircraft, ATV, snowmobiles, etc. Toys are nice to have especially now that you don't have to waste your time w*rking.

Keep in mind that during retirement things will break, cars will need to be replaced, roofs leak, AC units stop, etc. Have a realistic Repair/Replace fund unless you can fund from from your investments or savings.