Underspending Paradox

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Topic Author
HausaPain
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Joined: Mon Jan 29, 2024 3:37 pm

Underspending Paradox

Post by HausaPain »

I came across an Apple News article that discussed a paper titled, “Understanding underspending in retirement: The Decumulation Paradox reexamined.” I searched for the paper and found it here, https://www.nylannuities.com/connecteda ... aradox.pdf

I also found an article that discussed the paper here:
https://insurancenewsnet.com/innarticle ... underspend

I see myself as a person this paper is talking about. I would like opinions on moving forward.

My wife (60) and I (turning 62) are both retired with FERs government pensions. We live in a state with no state income tax. Our home is paid off, our autos are paid off, we have no CC debt, and our yearly expenses (including two major vacations per year) are currently covered by our pensions and dividend income from our taxable account. We have no children so we aren't concerned with leaving an inheritance. Our $4M portfolio has an overall allocation of 30/60/10 because I see no need to take any greater risk. We are planning to take my wife's SS at 62 or maybe 65 and mine at 70. We aren't currently withdrawing anything from our TSP accounts, tIRAs, or Roths because we don't need the money for expenses or vacations. I was planning to wait until I turn 62 to start drawing down my taxable account. I am doing Roth conversions to the top of the 24% bracket but I suspect I will still have a tax and IRMAA headache coming.

I created a VPW Retirement spreadsheet and it suggests we should be withdrawing over $15,800 per month. After reading the Decumulation Paradox paper and articles I'm wondering, Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
r.walker
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Re: Underspending Paradox

Post by r.walker »

I suffer from this paradox. 69, retired at 68, I'm spending down a short cash bridge to SS at 70. My equity portfolio is vastly more than I'll ever need, and I've never sold and always reinvested dividends. I'm looking forward to the steady SS income stream to feel comfortable with freely spending. Hope to get that figured out soon.
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rocket354
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Re: Underspending Paradox

Post by rocket354 »

HausaPain wrote: Wed Mar 27, 2024 2:10 pm I came across an Apple News article that discussed a paper titled, “Understanding underspending in retirement: The Decumulation Paradox reexamined.” I searched for the paper and found it here, https://www.nylannuities.com/connecteda ... aradox.pdf

I also found an article that discussed the paper here:
https://insurancenewsnet.com/innarticle ... underspend

I see myself as a person this paper is talking about. I would like opinions on moving forward.

My wife (60) and I (turning 62) are both retired with FERs government pensions. We live in a state with no state income tax. Our home is paid off, our autos are paid off, we have no CC debt, and our yearly expenses (including two major vacations per year) are currently covered by our pensions and dividend income from our taxable account. We have no children so we aren't concerned with leaving an inheritance. Our $4M portfolio has an overall allocation of 30/60/10 because I see no need to take any greater risk. We are planning to take my wife's SS at 62 or maybe 65 and mine at 70. We aren't currently withdrawing anything from our TSP accounts, tIRAs, or Roths because we don't need the money for expenses or vacations. I was planning to wait until I turn 62 to start drawing down my taxable account. I am doing Roth conversions to the top of the 24% bracket but I suspect I will still have a tax and IRMAA headache coming.

I created a VPW Retirement spreadsheet and it suggests we should be withdrawing over $15,800 per month. After reading the Decumulation Paradox paper and articles I'm wondering, Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
This is a risk-reward determination. You say your current spending is covered by your pensions and dividends. But if you spend down your portfolio, your dividends will drop. What is your expected SS relative to your current dividends? If you eventually need long-term care, would that be covered by pensions+SS?

Ultimately, if I were you, I would structure my life so that I was perfectly happy living under the "guaranteed" income streams like pension and SS. I would then use my portfolio for fun stuff like better vacations better meals, etc, with the understanding that an extended rough market might mean those items go away, at least to some degree. But if you have it, and you aren't concerned with leaving it for anyone, and you don't spend it, then what good is it?
Topic Author
HausaPain
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Re: Underspending Paradox

Post by HausaPain »

Thank you for responding.

If I were to take SS at 62, my SS alone will be more than I'm currently drawing in dividends. Also, part of our pensions (called the SS Supplement) go away when we reach age 62. If we both start SS at 62, we would cover the lost pension and dividend income.

We both also have Long Term Care insurance that we started at age 50 that has inflation protection built into it.
delamer
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Re: Underspending Paradox

Post by delamer »

Yes, you should. Just don’t overdo the beer. :happy

Seriously, we are very much the same position except we do have adult children and one grandchild.

We bought a new luxury EV and have taken a few expensive vacations, including flying business class overseas. And we are gifting to our kids. Do what you enjoy, and pay for comfort and convenience.

If not now, when?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
MathWizard
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Re: Underspending Paradox

Post by MathWizard »

I don't think that it is a paradox.

Being prudent, especially in early years of retirement, will likely have one gaining money in nominal terms for most of retirement.

Would you want a retirement where you have a 50/50 chance of running out of money?

We don't know how long each of us will live, and future downturns in the economy, inflation, and taxes are all unknowns.
Guarding against these is difficult.
Annuities help, but few are inflation adjusted.

I'm doing my best using Roth conversions as a hedge against taxes, and waiting until age 70 to claim SS, since it is inflation adjusted.

We are spending more on expensive travel early in , since we'll be unlikely to do it much longer, but otherwise will enjoy our retirement.
rule of law guy
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Re: Underspending Paradox

Post by rule of law guy »

it is not a paradox to have more than enough. though if you had kids and grandkids, you would not have this problem
Never wrong, unless my wife tells me that I am.
rossington
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Re: Underspending Paradox

Post by rossington »

HausaPain wrote: Wed Mar 27, 2024 3:17 pm Thank you for responding.

If I were to take SS at 62, my SS alone will be more than I'm currently drawing in dividends. Also, part of our pensions (called the SS Supplement) go away when we reach age 62. If we both start SS at 62, we would cover the lost pension and dividend income.

We both also have Long Term Care insurance that we started at age 50 that has inflation protection built into it.
Hello OP,
What are your plans for what is left over some day?
Or:
Are you comfortable spending down to zero?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
JayB
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Re: Underspending Paradox

Post by JayB »

It's not a paradox to want to be extra sure one has enough money for long and very expensive long-term care if ever needed. And it's not a paradox to want to leave a substantial legacy. And it's not a paradox to want to continue living a relatively inexpensive lifestyle that one has become accustomed to and is comfortable with. And it's not a paradox to enjoy saving or accumulating money. And it's not a paradox to want to leave a small carbon footprint or tread lightly on the earth despite having the ability to spend more money and use more resources. "Underspending" is a very value laden word that implies one should spend more just because they have more. I'm glad most Bogleheads don't fall for that.
4nursebee
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Re: Underspending Paradox

Post by 4nursebee »

We are glad to have annuities!
Pale Blue Dot
Barsoom
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Re: Underspending Paradox

Post by Barsoom »

Thank you for posting this.

I am practically a mirror image of you. I'm 65, wife is 62, portfolio is $4.5 million, minimal mortgage that I could pay off if my interest rate weren't so low, no CC debt, cars paid off, no kids. Wife just started taking SS and I'm waiting until I turn 70.

From the top graph in the second article, I fit the #1 and #2 bars ("assure comfortable standard of living" and "protect current level of wealth"). Regarding #2, I don't do that by spending less; I do it by taking less risk (like you). I'm mostly in the money market and bond ETFs. I'll get back into equities when I think the world is settling back down.

Regarding #1, one simple thing we started doing is flying first class when we travel, and booking suites when we cruise. We even started going to some Major League Baseball games. Still, even with that I'm spending entirely within my income generation.

One thing that's holding me back from traveling more is that I have an old dog who's 15 years old and has been with us since we rescued him 13 years ago. We don't want to board him anymore so we're holding off on vacation plans until he passes. At that point, I can see us ramping up the luxury spending that will finally dip into the portfolio assets.

Being just the two of us, it's hard to spend a lot of money. Perhaps we'll go to $200 restaurants and cruise every other month (or more), but that takes effort!

-B
dcabler
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Re: Underspending Paradox

Post by dcabler »

HausaPain wrote: Wed Mar 27, 2024 2:10 pm I came across an Apple News article that discussed a paper titled, “Understanding underspending in retirement: The Decumulation Paradox reexamined.” I searched for the paper and found it here, https://www.nylannuities.com/connecteda ... aradox.pdf

I also found an article that discussed the paper here:
https://insurancenewsnet.com/innarticle ... underspend

I see myself as a person this paper is talking about. I would like opinions on moving forward.

My wife (60) and I (turning 62) are both retired with FERs government pensions. We live in a state with no state income tax. Our home is paid off, our autos are paid off, we have no CC debt, and our yearly expenses (including two major vacations per year) are currently covered by our pensions and dividend income from our taxable account. We have no children so we aren't concerned with leaving an inheritance. Our $4M portfolio has an overall allocation of 30/60/10 because I see no need to take any greater risk. We are planning to take my wife's SS at 62 or maybe 65 and mine at 70. We aren't currently withdrawing anything from our TSP accounts, tIRAs, or Roths because we don't need the money for expenses or vacations. I was planning to wait until I turn 62 to start drawing down my taxable account. I am doing Roth conversions to the top of the 24% bracket but I suspect I will still have a tax and IRMAA headache coming.

I created a VPW Retirement spreadsheet and it suggests we should be withdrawing over $15,800 per month. After reading the Decumulation Paradox paper and articles I'm wondering, Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
Good problem to have, isn't it? When looking at VPW, don't forget that the withdrawals include everything, including taxes. So only some of that withdrawal it calculates is for non-tax spending. You're left to calculate taxes for yourself outside of VPW.

After I retired, I took the last few years monthly expenses and adjusted them for
- the kiddo now being out of college and off the books
- Different cost for medical insurance premiums
- Any other "lumpy" expenses were removed in order to get to our baseline spend.

I have this month by month because we have some known spends in certain months that are higher (LTCi insurance comes in during May, homeowners in Feb, etc). Anyway, so far, after-tax projections show us underspending even what our baseline spending was and not by just a little bit. I've either missed something, in a good way, or we're being way too boring right now - probably the latter. And we're trying to make it up this month with a least a couple of lumpy expenses, such as a new mattress. No, the mattress itself isn't lumpy, at least so far, just expensive. :D

DW will start SS at age 66 and I will at age 70. We're using our own form of ABW to calculate our withdrawals. Like VPW, it also uses amortization under the hood. Anyway, as I noted, this is still early days but I'm already throttling back on what I actually withdraw vs. what my spreadsheet says I can withdraw. In other words, I consider the calculated withdrawals to be a "max" and I can use whatever discretion I want to withdraw less than that. When Q4 rolls around I should have enough line-of-sight to decide whether we'll do a Roth conversion and, if so, how much.

Cheers.
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daleddm
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Re: Underspending Paradox

Post by daleddm »

While acknowledging the first article as largely a "let the insurance industry help" (sales) article, the good points raised in subsequent article (and others) does provoke some reflection on spending. I am trying ... still working, but just took a spring break trip overseas to see the D-day landing sites and found a ~reasonable business class fare, which was worth it.

On the other hand, the world seems a shaky place and just assuming the markets will hold ... well I dunno, and neither does anybody else, so prudence (underspending) seems wise. Stating the obvious I guess, but people able but unwilling to spend carelessly got there through just those behaviors, AND probably aren't looking to turn things over to an insurance company. Good reading, thanks for posting.
Last edited by daleddm on Thu Mar 28, 2024 7:43 am, edited 1 time in total.
Ckprocker
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Re: Underspending Paradox

Post by Ckprocker »

We are is a similar situation. We have much more available than what we spend on a yearly basis. Been tracking our yearly spending on a spreadsheet for 10 years.
No heirs and everything is paid off.
We feel in our go-go years we should spend more. Data suggests spending goes down as most of us get older. Seems to make a lot of sense.
We have been conservative spenders. Hard habit to break, but we are going to try our best to spend more on fun stuff early in retirement.
Adjusted VPW as a guide seems to be our best answer.
Adjusted by which we will use my age instead of my DW’s age. She is 3 years younger.
Key word, guide, not a definitive withdrawal rate…Sometimes more and sometimes less, esp when we get older and slow down.
Last edited by Ckprocker on Sat Mar 30, 2024 9:31 pm, edited 1 time in total.
Parkinglotracer
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Re: Underspending Paradox

Post by Parkinglotracer »

Congrats on your retirement planning success! What will bring you joy? Maybe helping a neighborhood child start a college savings fund? Helping a local animal shelter with their financial needs? One time at work my boss said to me you are doing great work the only suggestion I have is to think more outside the box and to use your imagination more of all the possibilities that could be. It was the best advice I could have .. after about 2 years of getting brave enough I asked to go part time at a mega defense contractor and worked a 2/3 rds schedule for a year then retired for 3 years at age 50 then went back to work for 6 years.

Maybe you guys can buy a second home or rent one at a place you dream of like Aruba or Italy?
Dream outside the box!!
Topic Author
HausaPain
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Re: Underspending Paradox

Post by HausaPain »

rossington wrote: Thu Mar 28, 2024 12:47 am Hello OP,
What are your plans for what is left over some day?
Or:
Are you comfortable spending down to zero?
You hit upon the real problem, we don't know. Most of us are so focused on accumulating wealth, creating the optimal asset allocation, and allocating it correctly to avoid taxes that we forget to plan for what we will do with it once we have "won the game." I found a thread from February that discussed spending to zero and bouncing the check to the undertaker. I'm not sure it's in my nature to ever put myself in the situation where I didn't have emergency funds just in case. I also don't believe that it's possible for us to ever get to zero, as the pension is guaranteed as long as the US Government can pay it's bills (ok, perhaps I need to rethink that). There's also cash from the sale of the house that will provide extra funding, perhaps for any long term care expenses beyond the 3 year limit of the LTC policy.

So, what to do with the estate? I really have no idea. DW and I discussed giving money to our 6 nieces and nephews now while they could use it as they are the logical heirs. However, we aren't sure this is a good idea because it could create expectations of more and a dependency. My wife is a charitable person but I have never been. I expect she will push to donate in the future, possibly after I'm gone. I could probably just buy a boat and that would solve all our problems. A hole in the water we could just throw money into.
Da5id
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Re: Underspending Paradox

Post by Da5id »

HausaPain wrote: Wed Mar 27, 2024 2:10 pm I created a VPW Retirement spreadsheet and it suggests we should be withdrawing over $15,800 per month. After reading the Decumulation Paradox paper and articles I'm wondering, Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
I'm also in this boat (though I have kids, they'll be fine without an inheritance so it isn't a big consideration). But I don't generally believe reaching for ways to spend money is fun. I do work a bit on being more willing to spend on things I believe will make me happier, but spending just to spend doesn't have any appeal. Spending on experiences (nice trips) does strike me as a good choice, but each to their own.
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HausaPain
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Re: Underspending Paradox

Post by HausaPain »

Ckprocker wrote: Thu Mar 28, 2024 7:05 am We have been conservative spenders. Hard habit to break, but we are going to try our best to blow a lot of money on fun stuff early in retirement.
I think this is one of the major reasons for the underspending. The habit is indeed hard to break. We had the same thought on early spending and have been vacationing, but 5 years in and we have more than we started with.
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HausaPain
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Re: Underspending Paradox

Post by HausaPain »

dcabler wrote: Thu Mar 28, 2024 6:12 am When looking at VPW, don't forget that the withdrawals include everything, including taxes. So only some of that withdrawal it calculates is for non-tax spending. You're left to calculate taxes for yourself outside of VPW.
Wow! Here's an important nugget that I missed in the VPW. Thank you!
chemocean
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Re: Underspending Paradox

Post by chemocean »

HausaPain wrote: Thu Mar 28, 2024 7:48 am
Ckprocker wrote: Thu Mar 28, 2024 7:05 am We have been conservative spenders. Hard habit to break, but we are going to try our best to blow a lot of money on fun stuff early in retirement.
I think this is one of the major reasons for the underspending. The habit is indeed hard to break. We had the same thought on early spending and have been vacationing, but 5 years in and we have more than we started with.
Conservative spending to me means evaluating the value of what we are paying and not engaging in conspicuous consumption. This is a personal value, not a financial strategy. If we are doing everything we WANT to do the way we WANT to do it and still our income exceeds our expenses, is that underspending?

Every time I see a commercial for a luxury cruise, I have to head to the bathroom so as not to mess up the carpets. Our travel plans have shifted to active tours like Rick Steves and eco tours rather than completely planning for independently travel.

Like many BHs, I am a DIYer in many aspects of my life. As many financial planners have suggested (Wade Phau and The Retirement and IRA show), you need to allocate funds for aging independent of long-term care. I have hired more workers for car and house maintenance (like getting on the roof or on a 20-ft ladder to wash windows) in my 70s. But I mow my own lawn and rake my own leaves manually as a form of physical activity (use it or lose it). You don't want to become a couch potato in the quest not to underspend. We give to charities and are balancing giving gifts to our adult children and building a cash reserve for self-funded long-term care.

On the financial planning task, Does breaking the habit of underspending mean turning your assets over to Raymond James? Although in a recent thread on incorporating cognitive decline into your financial plan, AUM management is suggested as a choice.
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firebirdparts
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Re: Underspending Paradox

Post by firebirdparts »

Definitely a good problem to have.
This time is the same
delamer
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Re: Underspending Paradox

Post by delamer »

Da5id wrote: Thu Mar 28, 2024 7:43 am
HausaPain wrote: Wed Mar 27, 2024 2:10 pm I created a VPW Retirement spreadsheet and it suggests we should be withdrawing over $15,800 per month. After reading the Decumulation Paradox paper and articles I'm wondering, Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
I'm also in this boat (though I have kids, they'll be fine without an inheritance so it isn't a big consideration). But I don't generally believe reaching for ways to spend money is fun. I do work a bit on being more willing to spend on things I believe will make me happier, but spending just to spend doesn't have any appeal. Spending on experiences (nice trips) does strike me as a good choice, but each to their own.
Right. No one should “blow their money” or spend it in ways that they see as frivolous.

But if there are things you want to buy or experiences that you want to have that you’ve held back on because of their cost, now is the time.

I find it helpful to think of a new expense as 1) percent of net worth or 2) percent of annual income or 3) when I’m feeling morbid “how many months of nursing care would this buy?” (depressingly few is always the answer).
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
connor
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Re: Underspending Paradox

Post by connor »

It warms my heart to know that there are so many "helpers" out there who are committed to helping well-off retirees with decumulation.
H-Town
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Re: Underspending Paradox

Post by H-Town »

HausaPain wrote: Wed Mar 27, 2024 2:10 pm Should we start the monthly withdrawals now (say $12,000) and just have fun (more vacations, gifting, charities, beer, ...) with it?
As long as it makes you happy. Remember, you are financially independent. So you don't have to be bothered by money, either by lack of money or by having too much money. Just break free. Go on your day and do whatever you want.
Time is the ultimate currency.
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AnnetteLouisan
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Re: Underspending Paradox

Post by AnnetteLouisan »

There is a fantastic middle road between suffocating, strangling frugality (been there) and mindless luxury spending to prove… something (been there too).

The sensible middle has you spending 30-60 percent of net, having reasonably nice and reliable things and living and sleeping in such a way that you aren’t pointlessly shortening your life or health span but also doing nice things for yourself and your loved ones without being over the top.
Last edited by AnnetteLouisan on Thu Mar 28, 2024 11:59 am, edited 1 time in total.
Dregob
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Re: Underspending Paradox

Post by Dregob »

HausaPain wrote: Wed Mar 27, 2024 3:17 pm Thank you for responding.

If I were to take SS at 62, my SS alone will be more than I'm currently drawing in dividends. Also, part of our pensions (called the SS Supplement) go away when we reach age 62. If we both start SS at 62, we would cover the lost pension and dividend income.

We both also have Long Term Care insurance that we started at age 50 that has inflation protection built into it.
What is the cap on your LTC benefits? We plan to self insure.
sailaway
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Re: Underspending Paradox

Post by sailaway »

AnnetteLouisan wrote: Thu Mar 28, 2024 11:41 am There is a fantastic middle road between suffocating, strangling frugality (been there) and mindless luxury spending to prove… something (been there too).

The sensible middle has you spending 30-60 percent of net, having reasonably nice and reliable things and living and sleeping in such a way that you aren’t pointlessly shortening your life or health span but also doing nice things for yourself and your loved ones without being over the top.
I don't think I know many folks who would consider saving 40-70% of net as a sensible middle. And I say that as someone who saves more without suffocating, strangling frugality. We just never developed many upper middle class habits that so many of our peers consider typical middle class.
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Random Musings
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Re: Underspending Paradox

Post by Random Musings »

Sounds like the OP needs a written investment plan for deaccumulation. With no lineal heirs, good cash flow from pensions and SS, and a mindset that isn't probably going to change too drastically from the accumulation phase, you may want to consider charitable gifting from tax-deferred plans which are tax free and reduce RMD's (if applicable). May also want to consider gifting to nieces/nephews at a reasonable level (or fund 529s if they are thinking about secondary education).

Big picture, you have to decide what you WANT to do, you have the means and if your health is good, waiting not only just builds up your net worth that you won't touch but your "window" in the go-go years just gets shorter.

Not that you most likely will move to the "spend to zero" philosophy , but the question you have to ask is what was the purpose of saving all of this money for retirement?

Get a game plan going and start enjoying some of it before you cannot.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
garlandwhizzer
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Re: Underspending Paradox

Post by garlandwhizzer »

I believe HousePain's question is one of philosophy/psychology rather than economics. With a 4 mil portfolio, a pension, no debt, modest spending needs and wants, and SS soon all added, there is no way that money will be a limiting issue in your retirement as long as you don't do crazy things with your portfolio. HP is well beyond the point of critical financial mass which is the point at which over the long term your portfolio generates returns in excess of your ongoing expenditures so that the portfolio principal value does not decline over time. In short you have nothing to worry about in terms of longevity risk and the only possible problem is that you will become demented and foolishly squander your assets of fall prey to financial sharks posing as expert financial advisors.

You have chosen a very low risk asset allocation--only 30% equity and the rest in supposedly safe fixed income. If you primary aim was to maximize portfolio returns you would have chosen more equity. You have the ability financially to take volatility risk and have chosen not to. This suggests that you are not a risk taker by nature and do not tolerate volatility easily. Be sure to have some TIPS in your bond allocation as well as a short/intermediate average term bond duration to safeguard against long term substantial inflation which is the main risk to a bond dominated portfolio. Otherwise you have nothing to worry about and perhaps it's time to consider focusing on spending and enjoying your considerable assets rather than preserving them untouched unless of course that excess security gives you pleasure.

Garland Whizzer
rossington
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Re: Underspending Paradox

Post by rossington »

HausaPain wrote: Thu Mar 28, 2024 7:40 am
rossington wrote: Thu Mar 28, 2024 12:47 am Hello OP,
What are your plans for what is left over some day?
Or:
Are you comfortable spending down to zero?
You hit upon the real problem, we don't know. Most of us are so focused on accumulating wealth, creating the optimal asset allocation, and allocating it correctly to avoid taxes that we forget to plan for what we will do with it once we have "won the game." I found a thread from February that discussed spending to zero and bouncing the check to the undertaker. I'm not sure it's in my nature to ever put myself in the situation where I didn't have emergency funds just in case. I also don't believe that it's possible for us to ever get to zero, as the pension is guaranteed as long as the US Government can pay it's bills (ok, perhaps I need to rethink that). There's also cash from the sale of the house that will provide extra funding, perhaps for any long term care expenses beyond the 3 year limit of the LTC policy.

So, what to do with the estate? I really have no idea. DW and I discussed giving money to our 6 nieces and nephews now while they could use it as they are the logical heirs. However, we aren't sure this is a good idea because it could create expectations of more and a dependency. My wife is a charitable person but I have never been. I expect she will push to donate in the future, possibly after I'm gone. I could probably just buy a boat and that would solve all our problems. A hole in the water we could just throw money into.
OP,
I know people in the same situation.
For me, I honesty would struggle with this issue.
After everything you’ve done to get where you are…
I don’t even have any decent advice to offer.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
CraigTester
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Re: Underspending Paradox

Post by CraigTester »

Remember, money is just a tool.

And tools don't necessarily have to be used every day to still have a lot of value for their owner....

And if you keep it safe before eventually passing it on to say a church or a school when you're done with it, it can continue to provide value for a very long time...

P.S. After living a modest lifestyle for most of their lives, my new neighbor's wife recently inherited a bunch of money, built a supersized McMansion with all the toys and are always off to one place or another seemingly on a mission to use it or lose it before they die...

We all get exhausted just watching them, and certainly don't wish that on anyone.... But to each their own....
YeahBuddy
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Re: Underspending Paradox

Post by YeahBuddy »

This is a good problem to have. Yes, I would start having more fun, giving more $$ to family, friends, neighbors, charity, or doing more of whatever with the money. I personally would probably attend sports events, concerts, buy home audio equipment, more vacations, nicer cars, home upgrades, and help others. After all, what good is having all that money if you aren't spending any of it?
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CraigTester
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Re: Underspending Paradox

Post by CraigTester »

YeahBuddy wrote: Thu Mar 28, 2024 1:53 pm This is a good problem to have. Yes, I would start having more fun, giving more $$ to family, friends, neighbors, charity, or doing more of whatever with the money. I personally would probably attend sports events, concerts, buy home audio equipment, more vacations, nicer cars, home upgrades, and help others. After all, what good is having all that money if you aren't spending any of it?

Looks like you just posted at the same moment I did (see my post just above yours)..., and between us we have perhaps laid out the full spectrum from which the OP can choose.... :sharebeer
snic
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Re: Underspending Paradox

Post by snic »

Barsoom wrote: Thu Mar 28, 2024 5:44 am Perhaps we'll go to $200 restaurants
$200 for dinner for two is getting pretty common in some parts of the country.

(About 30 years ago, I remember telling an old friend of my parents that my wife and I had gone out to eat at a fancy restaurant for a special occasion, and that we'd spent $200. He said, "I would consider it a sin to spend $200 on dinner!" That was a huge splurge for us, but nowadays it seems to happen a few times per year. Of course $200 in 1994 is worth $418 today... and at least it's still rare to get close to that!)
Giver
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Re: Underspending Paradox

Post by Giver »

You have earned a wonderful retirement through savings and prudence. There is no problem with your plan unless the world economy implodes....which could happen, I guess. My advice to you is that you recognize your blessings, and make strong plans to be charitable to causes that interest you. You do not need all the assets you have, but you now have the opportunity to impact others. Do it. Have fun.
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Re: Underspending Paradox

Post by Barsoom »

snic wrote: Thu Mar 28, 2024 3:02 pm
Barsoom wrote: Thu Mar 28, 2024 5:44 am Perhaps we'll go to $200 restaurants
$200 for dinner for two is getting pretty common in some parts of the country.

(About 30 years ago, I remember telling an old friend of my parents that my wife and I had gone out to eat at a fancy restaurant for a special occasion, and that we'd spent $200. He said, "I would consider it a sin to spend $200 on dinner!" That was a huge splurge for us, but nowadays it seems to happen a few times per year. Of course $200 in 1994 is worth $418 today... and at least it's still rare to get close to that!)
I know. I thought about that when I threw that line in there.

I don't mind going to a restaurant that serves a $55 filet mignon, but I don't do it that often. I will spend $65 for the full experience at a Brazilian steakhouse, plus Caipirinha and a glass of a good Cabernet Sauvignon.

I don't think I have the metabolism for fancier gourmet 4-course meals with wine pairings.

-B
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HausaPain
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Re: Underspending Paradox

Post by HausaPain »

Dregob wrote: Thu Mar 28, 2024 11:56 am What is the cap on your LTC benefits? We plan to self insure.
Our policy covers $421 per day for 5 years (I was incorrect previously) with a 90 day elimination period before coverage begins. It's also inflation protected.
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HausaPain
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Re: Underspending Paradox

Post by HausaPain »

garlandwhizzer wrote: Thu Mar 28, 2024 1:31 pm I believe HousePain's question is one of philosophy/psychology rather than economics. With a 4 mil portfolio, a pension, no debt, modest spending needs and wants, and SS soon all added, there is no way that money will be a limiting issue in your retirement as long as you don't do crazy things with your portfolio. HP is well beyond the point of critical financial mass which is the point at which over the long term your portfolio generates returns in excess of your ongoing expenditures so that the portfolio principal value does not decline over time. In short you have nothing to worry about in terms of longevity risk and the only possible problem is that you will become demented and foolishly squander your assets of fall prey to financial sharks posing as expert financial advisors.

You have chosen a very low risk asset allocation--only 30% equity and the rest in supposedly safe fixed income. If you primary aim was to maximize portfolio returns you would have chosen more equity. You have the ability financially to take volatility risk and have chosen not to. This suggests that you are not a risk taker by nature and do not tolerate volatility easily. Be sure to have some TIPS in your bond allocation as well as a short/intermediate average term bond duration to safeguard against long term substantial inflation which is the main risk to a bond dominated portfolio. Otherwise you have nothing to worry about and perhaps it's time to consider focusing on spending and enjoying your considerable assets rather than preserving them untouched unless of course that excess security gives you pleasure.

Garland Whizzer
Thank you for the perspective on being well beyond critical mass. I have used this forum for years without posting for good advice on managing our portfolio. Steering clear of financial sharks won't be a problem. I'm confident in managing our money and I'm too frugal to pay someone 1% to do something that I can do myself with index funds.

As for our bonds, 51% of our portfolio is in the TSP G-Fund. 1% of portfolio is in VTIP and is in our Roth. All of our bonds are short to intermediate term. We have no long term bonds or bond funds at all.
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zaboomafoozarg
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Re: Underspending Paradox

Post by zaboomafoozarg »

My ideal scenario is that I make enough from pension and Social Security to cover 100% of my spending, and be able to leave the rest to family.

Maybe I'll occasionally splurge on something nice for myself. But I've lived cheap for so long that anything more than the essentials feels like a waste.

I told myself for years that when I hit a particular goal I would replace my old tiny car. That goal has been reached but I can't bring myself to buy a nice new car when the old one still runs.
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Re: Underspending Paradox

Post by H-Town »

YeahBuddy wrote: Thu Mar 28, 2024 1:53 pm This is a good problem to have. Yes, I would start having more fun, giving more $$ to family, friends, neighbors, charity, or doing more of whatever with the money. I personally would probably attend sports events, concerts, buy home audio equipment, more vacations, nicer cars, home upgrades, and help others. After all, what good is having all that money if you aren't spending any of it?
Having money means I don't have to worry about money. Period. I do whatever I want, whenever I want, without a care about money. That also includes eating out at Taco Bell.
Time is the ultimate currency.
YeahBuddy
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Re: Underspending Paradox

Post by YeahBuddy »

H-Town wrote: Thu Mar 28, 2024 11:07 pm
YeahBuddy wrote: Thu Mar 28, 2024 1:53 pm This is a good problem to have. Yes, I would start having more fun, giving more $$ to family, friends, neighbors, charity, or doing more of whatever with the money. I personally would probably attend sports events, concerts, buy home audio equipment, more vacations, nicer cars, home upgrades, and help others. After all, what good is having all that money if you aren't spending any of it?
Having money means I don't have to worry about money. Period. I do whatever I want, whenever I want, without a care about money. That also includes eating out at Taco Bell.
But here is OP, worrying about money :D
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nisiprius
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Re: Underspending Paradox

Post by nisiprius »

The "paradox" is why investment writers and advisors don't respect the legitimacy of low risk preference.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Parkinglotracer
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Re: Underspending Paradox

Post by Parkinglotracer »

A saying comes to mind … “being rich is having money, using it to improve your life is prosperity”

Indeed what prosperity is varies with each person’s imagination, interests, and values.

I find it interesting reading stories of a modestly living couples leaving millions to their school or community after their death.

Not that I have the same problem per say, but sometimes I find things so expensive that I don’t think they are worth buying even though I have the money to buy them.

I have to fight being a boring, stingy, penny pinching retiree like my grandma was. The challenge is real.
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Re: Underspending Paradox

Post by meadowrue »

Parkinglotracer wrote: Fri Mar 29, 2024 7:32 am A saying comes to mind … “being rich is having money, using it to improve your life is prosperity”

Indeed what prosperity is varies with each person’s imagination, interests, and values.

I find it interesting reading stories of a modestly living couples leaving millions to their school or community after their death.

Not that I have the same problem per say, but sometimes I find things so expensive that I don’t think they are worth buying even though I have the money to buy them.

I have to fight being a boring, stingy, penny pinching retiree like my grandma was. The challenge is real.
I think the demise of the pension (for most, not all) has been a net negative because when people know they have monthly regular income that they don’t directly manage, it takes the fear of running out of money and/or mismanaging the money you’ve saved out of the equation. No matter what, that monthly check will come in. Now that the majority of retirement savings have to be self-managed (or given over to a financial advisor, annuity, etc.) the fear of getting it wrong and losing that monthly “check” leads some, I believe, to hold tighter to the purse strings than they would if they had a pension. I believe I read somewhere that retirees with pensions are the happiest retirees.
“We must free ourselves of the hope that the sea will ever rest. We must learn to sail in high winds.”—Aristotle Onassis
CraigTester
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Re: Underspending Paradox

Post by CraigTester »

nisiprius wrote: Fri Mar 29, 2024 7:10 am The "paradox" is why investment writers and advisors don't respect the legitimacy of low risk preference.
Dates back thousands of years…,

Like in the parable of 3 servants

https://www.biblegateway.com/passage/?s ... ersion=NLT
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22twain
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Re: Underspending Paradox

Post by 22twain »

Parkinglotracer wrote: Fri Mar 29, 2024 7:32 am I have to fight being a boring, stingy, penny pinching retiree like my grandma was. The challenge is real.
Boring to whom? Did she feel bored with her life?
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Target2019
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Re: Underspending Paradox

Post by Target2019 »

Addressing the OP in a general sense, keep in mind that the study becomes the perfet way to introduce the idea of finding an advisor to help you.

When we consider the impact of legacy, inflation, LTC and other matters, we do not have an underspending problem at all.

That is not to say we don't fully enjoy our lives. We're going to Spain next month. Later this year probably another overseas vacation. But that is not for everyone.

If an article or book (Die With Zero, e.g.) puts you into an appropriate level of enjoyment, so be it.
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Re: Underspending Paradox

Post by Wanderingwheelz »

connor wrote: Thu Mar 28, 2024 11:29 am It warms my heart to know that there are so many "helpers" out there who are committed to helping well-off retirees with decumulation.
Thousands of people pay someone 1.5% or more of their assets each year for the same sort of help the generous people here are offering for no cost. A top-notch financial planner doesn’t know the future any better than each of us. In fact, when I was a financial planner I only had one retired client that was perfectly comfortable spending large sums of money, on travel in case you’re wondering. If she’s still living I hope she’s okay.

I don’t know your age or your preparedness for retirement at this point, but it’s perfectly normal to not want to spend a lot of money post retirement. In fact, for most people it’s prudent.
Being wrong compounds forever.
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Re: Underspending Paradox

Post by delamer »

H-Town wrote: Thu Mar 28, 2024 11:07 pm
YeahBuddy wrote: Thu Mar 28, 2024 1:53 pm This is a good problem to have. Yes, I would start having more fun, giving more $$ to family, friends, neighbors, charity, or doing more of whatever with the money. I personally would probably attend sports events, concerts, buy home audio equipment, more vacations, nicer cars, home upgrades, and help others. After all, what good is having all that money if you aren't spending any of it?
Having money means I don't have to worry about money. Period. I do whatever I want, whenever I want, without a care about money. That also includes eating out at Taco Bell.
And to me having money means not having to eat at Taco Bell (among other things). :D
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Parkinglotracer
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Re: Underspending Paradox

Post by Parkinglotracer »

meadowrue wrote: Fri Mar 29, 2024 8:12 am
Parkinglotracer wrote: Fri Mar 29, 2024 7:32 am A saying comes to mind … “being rich is having money, using it to improve your life is prosperity”

Indeed what prosperity is varies with each person’s imagination, interests, and values.

I find it interesting reading stories of a modestly living couples leaving millions to their school or community after their death.

Not that I have the same problem per say, but sometimes I find things so expensive that I don’t think they are worth buying even though I have the money to buy them.

I have to fight being a boring, stingy, penny pinching retiree like my grandma was. The challenge is real.
I think the demise of the pension (for most, not all) has been a net negative because when people know they have monthly regular income that they don’t directly manage, it takes the fear of running out of money and/or mismanaging the money you’ve saved out of the equation. No matter what, that monthly check will come in. Now that the majority of retirement savings have to be self-managed (or given over to a financial advisor, annuity, etc.) the fear of getting it wrong and losing that monthly “check” leads some, I believe, to hold tighter to the purse strings than they would if they had a pension. I believe I read somewhere that retirees with pensions are the happiest retirees.
I agree. My sister took a high 6 figure lump sum in early retirement at age 50 from Verizon and immediately got another job worried she would run out of money. A lot of uncertainty with no pension. Sadly she passed away at 65 with about 1M in investments but never felt confident enough to retire earlier.
Last edited by Parkinglotracer on Fri Mar 29, 2024 2:49 pm, edited 1 time in total.
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