How did you adjust to making regular withdrawals and watching your balance decline?

[JustCurious]

During your working years, you make regular contributions to your investment accounts, and you watch as the balance continues to grow over time. Eventually, you reach the point where you retire, and you start to make regular withdrawals from the nice nest egg that you spent your whole working life to build up. At that point, instead of building up your nest egg and watching it grow, you start the exact opposite process as you slowly watch your nest egg get smaller and smaller.

My logical brain tells me that this is normal, and I know with the proper planning, there will be enough to last into old age, but isn't it psychologically hard to watch as the balance of your hard earned nest egg slow dwindles and gets smaller and smaller? Has this been an issue with some of you? Have you had to adjust? Have you come to grips with it and simply accepted it?

Did you find yourself spending less so that your portfolio balance would fall at a lower rate?

 

[REWahoo]

Have you come to grips with it and simply accepted it?

Yep. But when I consider the alternative (working), it ain't too bad...

Actually, the first two years of retirement my nest egg grew even though I was drawing on it for 100% of our living expenses. That changed of course when the market tanked - but that's another adjustment story...

 

[CuppaJoe]

During your working years, you make regular contributions to your investment accounts, and you watch as the balance continues to grow over time. Eventually, you reach the point where you retire, and you start to make regular withdrawals....

I've just finished the accumulation phase and what you describe was not my experience; I made irregular contributions and it was not simply watch it grow; it was watch it stall during the '70s, grow for a while, fluctuate a lot, sometimes down 30%. I'm very interested, too, in hearing about others' experiences with the withdrawal phase.

 

[Independent]

During your working years, you make regular contributions to your investment accounts, and you watch as the balance continues to grow over time. Eventually, you reach the point where you retire, and you start to make regular withdrawals from the nice nest egg that you spent your whole working life to build up. At that point, instead of building up your nest egg and watching it grow, you start the exact opposite process as you slowly watch your nest egg get smaller and smaller.

My logical brain tells me that this is normal, and I know with the proper planning, there will be enough to last into old age, but isn't it psychologically hard to watch as the balance of your hard earned nest egg slow dwindles and gets smaller and smaller? Has this been an issue with some of you? Have you had to adjust? Have you come to grips with it and simply accepted it?

Excellent question, I've been wondering the same thing. As a recent retiree, we've had better-than-expected investment performance and lower-than-expected expenses, so we haven't had to deal with this.

I think my Mom did it by having all of her money in fixed income assets. She spent all the interest, so she had a declining real wealth. But, since the dollar amount never went down, she was okay psychologically. I expect a lot of people in her generation did that. Sounds corny, but remember that we're talking feelings not logic here.

Of course, people on this board who are planning to take 4% are planning to spend less than their "most likely" investment returns. So the only time their assets go down is when they get poor market performance, and then they view the drop as a market event, not a long term glide to zero.

But then there are people who retire early, with neither SS or pension at first. They must be running into this right away. I'm interested in what they have to say.

 

[SteveR]

I am almost one year into ER and I can tell you it hurts. Between spending a ton on getting the house updated, DW health issues and the market going South it does hurt to see the balances drop. But, we also realize that the bleeding will stop and the balances will stabilize at some point. Some years they will even go up. It is all part of what happens in retirement.

Some seem to adjust to it more easily than others. I have always been a bit of a miser so a balance that goes down is painful but is also the reason you save like crazy during your w*rking years and investing for the future.

 

[JustCurious]

Yep. But when I consider the alternative (working), it ain't too bad...

There is a third alternative...spend less than your portfolio earns, so that the balance continues to grow even without working. But I would hate to deprive myself so that my heirs can live it up when I'm gone.

 

[dex]

I'm ER'd and have been avergering into the market for more than 1 year. I look at it this way - I'm buying low. Also, you need to manage your cash flow and think for the long term. So if you have a couple of year of expenses in low risk investments you are doing the right thing.

PS - don't look at your investments too often

 

[73ss454]

I'm retired and living off my savings for 1 1/2 years now. In the beginning I was a wreck thinking about spending down the money it took me most of my life to put together. Now I just watch expenses, trust firecalc and take my money out as needed.

The market was doing well when I first retired but the last 8 months or so have been tough. Let the markets go up and down, at this point I don't worry so much and just go with the flow.

 

[REWahoo]

I'm retired and living off my savings for 1 1/2 years now. In the beginning I was a wreck...

He sure was...

 

[73ss454]

He sure was...

Thanks again for the Xanax REW.

 

[Bikerdude]

I have been retired for 8 years and my net worth has increased each year. This year, however, may end in a decrease. At this point, I have more in assets than I need so I'm not too concerned about it.

 

[ejman]

During your working years, you make regular contributions to your investment accounts, and you watch as the balance continues to grow over time. Eventually, you reach the point where you retire, and you start to make regular withdrawals from the nice nest egg that you spent your whole working life to build up. At that point, instead of building up your nest egg and watching it grow, you start the exact opposite process as you slowly watch your nest egg get smaller and smaller.

Well, it ain't necessarily so... I ER'd in December of 2002, withdraw 3.5% of my nest egg annually and have watched the pot grow 44% since then. The point is that a diversified portfolio, a sensible withdrawal rate and a bit of luck may result in the nest egg growing, not shrinking.

Now, 2000-2002 while I was still working - Then it shrunk!

 

[FIREd]

My plan is to setup my portfolio so that it yields about 3.5-4% a year and to live on those dividends without touching the principal. Ideally I would want the principal to keep increasing at the rate of inflation so I won't be using only bonds to achieve that result, but rather a mixture of dividend paying stocks, bonds and REITs. If I were to retire right now my portfolio would be centered around a mixture of (pssst) Wellesley and Wellington with some REITs thrown in. Of course this strategy would not protect me from market gyrations and short term declines in portfolio value... But over the long term my account balance should, hopefully, continue to increase long after I retire.

 

[free4now]

I've been living off my portfolio exclusively for about 2 years now. I'm a youngster (under 40) planning to live off it for the rest of my life. So it is annoying to see it down about 8% from the high water mark. But I did so many thought experiments about being in this situation before ER that I just feel like I'm executing the plan now. Having 4+ years in bonds and about 1 year in money market does feel comforting.

 

[chinaco]

As far a fluctuations... Bonds should do the trick.

But spending down the portfolio is a different matter.

I look at it this way:

• I have not desire to leave assets around when I (and DW) pass on. That gives me some flexibility. Plus, we intend to spend it.
• I think I have a fairly good handle on the range of years when death is likely to occur.
• We have SS and a Small pension to provide some income and I will likely purchase a SPIA to form a base income that will support us in most reasonable scenarios. (SPIA will cost about 15% of the portfolio).
• Manage the rest by allocating it into 4 decades of money. Manage each decade as separate portfolios at different stages of accumulation (riskiness of the investment probably using target funds). The money allocated to the current decade is in bonds/cash and in decumulation.
• Manage the budget to the current decades allocation of money.
• The house and a reverse mortgage is a final pool of money. (last resort mitigation approach at a very old age).

What has caused me to rethink my approach a bit is the emergence of vehicles like the Managed Payout funds.


I think part of the issue is how you look at the risk fundamentally. The concern is not spending the money and a declining portfolio, instead it is running out of money. Good planning, budgeting, discipline will help. But to feel safe... you must have some confidence. Confidence comes with planning, knowledge, and risk mitigation strategies.

 

[sweetana3]

It is going to be incredibly difficult for me and I know it. I have a "never spend the savings" mentality and after 40 years it will be hard to change. However, hubby takes the better view of diversification and use. He plots our course and keeps me informed and trys to overcome some of this "never use it" attitude I have. Amazing that I found someone who compliments my personality so well. (and has good investment sense).

 

[REWahoo]

One factor that has been of great assistance in my transition from growing to spending our nest egg is the death of friends and siblings. Nothing like the ultimate reminder of the fleeting and temporary nature of life to make you ask yourself "What am I saving it for?".

 

[W2R]

I am not retired yet, so I suppose I can look forward to this sinking feeling when my portfolio declines during withdrawal phase.

What I am PLANNING on doing (theoretically), is withdrawing somewhere between 0%-2% when the market is tanking and only from a cash buffer. SS+pension will total $21K before taxes, so that will give me subsistence and I plan to have no mortgage. Then, when the market improves I can replenish the cash buffer and increase my withdrawals as appropriate, to a maximum of 4%-5%.

I plan to rebalance at least yearly or more often if I vary too far from my desired asset allocation, which is pretty conservative (45:55 equities:fixed). When I start worrying during down years, I will read this message board and the bogleheads board and others, since misery loves company. Chinaco said,

Confidence comes with planning, knowledge, and risk mitigation strategies.

and I think that is very perceptive. I plan to continually read more about investing, learn more, review my planning frequently, and think about risk and its mitigation (which I believe I already have in place to a considerable extent).

I am the world's biggest worrier, so we'll see how this does for me. Tune in in 2010 for the rest of this story!

 

[kcowan]

Been ER'd for nearly 6 years. Each month I download the bank account statement and project the full year cash requirement and compare that to the portfolio size needed. I adjust for once a year large items (like income tax) in the projection.

As long as there is still a buffer, I relax. If the buffer goes away, I look to defer expenses until it returns. (We are expecting that living in Mexico for 6 months a year should increase the buffer and compensate for the current bear markets.)

 

[Moemg]

I'm a year and a half into retirement and at first it was strange taking the money out but now it has gotten routine . I have a pension and SS widow's benefit that provides $30,000 of income and while lots of people on the board could live on that amount I'm not one of them . I write down what 4% of my portfolio will be a year and track withdrawals from it . I really only use about 2 1/2 to 3 % and that's with travel , paying for my Mom's care and spoiling my new grandson . I have really haven't had a down year just a no gain one . I'm a reformed worrier . The deaths of people I love cured me of that . Money is just money but people are irreplaceable .

 

[Dawg52]

The withdrawals hasn't hurt much as my w/d factor is much less than 4%. But the stock market heading south the last few months has hurt. Retired just a little over a year, an instant decline is not very comforting. But the rebound the last few weeks has eased the pain.

 

[WilliamG]

I retired at 55 in 2000. We put the lion's share of our already taxed assets in a five year Treasury ladder to live off of til 59 1/2 access to my rollover IRA. Having a multi-year high level plan for expenses and where income will come from takes a lot of the scariness out of near term (even multi-year) bad markets. Looking back it still sorta surprises me how mellow I was while market was so downward during 2001 and 2002!

Currently we still have the 5 year planning process with 1-2 year detailed plans. We take the interest and dividends from our IRA portfolio into a money market within the IRA so portfolio growth is not so completely tied to NAV changes. This near term insulation of future income does a lot to shelter emotions from a downward drift in market values.

 

[youbet]

There is a third alternative...spend less than your portfolio earns, so that the balance continues to grow even without working. But I would hate to deprive myself so that my heirs can live it up when I'm gone.

In years when your portfolio has negative returns, you're going to find it difficult to spend negative amounts....... without going back to w*rk!

 

[REWahoo]

In years when your portfolio has negative returns, you're going to find it difficult to spend negative amounts....... without going back to w*rk!

I was thinking the same thing. Then I realized I could always use my PenFed Visa Card to spend my negative return - and get cash back! How about that for a lose/win strategy...

 

[Martha]

So far, the market ups and downs are far more visible than any withdrawals.