The psychology of withdrawing from your portfolio

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
sixtyforty
Posts: 487
Joined: Tue Nov 25, 2014 12:22 pm
Location: USA

The psychology of withdrawing from your portfolio

Post by sixtyforty »

We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
"Simplicity is the ultimate sophistication" - Leonardo Da Vinci
User avatar
Abe
Posts: 2160
Joined: Fri Sep 18, 2009 5:24 pm
Location: Earth in the Milky Way Galaxy

Re: The psychology of withdrawing from your portfolio

Post by Abe »

Yes, it is very difficult for me to withdraw from my portfolio. I live on rental income and social security. I have never withdrawn any money from my stock, bond and cash investments. I just let them grow just like I did before I retired. I know this is a form of mental accounting; money is fungible and all that, but it works for me.
Slow and steady wins the race.
Jordan4FI
Posts: 190
Joined: Mon May 28, 2018 11:00 am
Location: Honduras

Re: The psychology of withdrawing from your portfolio

Post by Jordan4FI »

I wonder if it might help to take out a larger sum (say 2 years budget) once every 2 years instead of as needed or quarterly/semi-annual... That way you get the chuck of $ and can forget about your investments a while again. I may actually do this.
dpc
Posts: 422
Joined: Sat Aug 27, 2011 1:41 pm

Re: The psychology of withdrawing from your portfolio

Post by dpc »

Yes, I think this is difficult mental hurdle for many people, including me. I retired 3 years ago, but have been working part-time so I have not really to take much out of my retirement savings, but this year, it's getting close and I find myself trying to avoid taking out any money. The rational part of my brain knows that it's OK to withdraw, but there's an emotional barrier.
"Worrying is like paying interest on a debt that you might never owe" -- Will Rogers
RadAudit
Posts: 3915
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: The psychology of withdrawing from your portfolio

Post by RadAudit »

I figured out how many years of SWRs I had in bonds and then I kept trying to convince myself I was OK. It's sort of working, so far.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
Dandy
Posts: 6357
Joined: Sun Apr 25, 2010 7:42 pm

Re: The psychology of withdrawing from your portfolio

Post by Dandy »

Oh yes it is a major mental challenge to go from saving/investing/company matches to withdrawing. I retired in 2008 at age 60- not a great time. I watched my portfolio drop from more than enough to probably not enough. I was lucky to have a modest pension, employer health insurance and no debt. But, really sweated out the first couple of years. I did have a rather large allocation to fixed income which provided some comfort and ability to sleep as well as having only a moderate allocation to equities. Luckily, the equity market recovered quickly so the period of peak concern was short.

You spend decades living below your means and watching your portfolio grow it isn't easy to get used to spending and reducing your assets. You also tend to understate your pending mortality and forget you may have only a decade or 2 to finance not 3 or more. I always tried to have a decent life balance and had the goal to gradually increase our standard of living. Thanks to a long bull market and waiting until 70 to collect SS our income and taxable distributions cover our current lifestyle almost completely. I think the feeling was mitigated by our portfolio growing while we withdrew -- I think it could have been much more of a mental issue if we experienced a more normal market performance during those 10 years.

You think what you have is close to today's portfolio balance. What you actually have is that minus about 50% of your equity assets and an additional amount equal to 2 or 3 years of withdrawals. That is a hard reality to absorb and get comfortable with especially in retirement with no human capital.
staustin
Posts: 276
Joined: Mon Mar 14, 2011 9:36 am

Re: The psychology of withdrawing from your portfolio

Post by staustin »

Perhaps consider allocating a portion to an annuity? An income stream is mentally different than account depletion.
Broken Man 1999
Posts: 5061
Joined: Wed Apr 08, 2015 11:31 am
Location: West coast of Florida, inland on high ground!

Re: The psychology of withdrawing from your portfolio

Post by Broken Man 1999 »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ?
Yes. But, for the first few years portfolio gains were larger than the withdrawals. Not sure about this year.
How did you overcome it ?
We had to eat and keep the lights on. Seriously, find a withdrawal rate/system that works (as best can be determined) and enjoy your life.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
User avatar
ruralavalon
Posts: 19472
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The psychology of withdrawing from your portfolio

Post by ruralavalon »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
I retired in January 2011. I have no pension or annuity.

There was a mental hurdle, switching from saving to spending. But it was not hard, we needed more than Social Security to pay expenses. But our withdrawal rate has always been 4% or less, and the portfolio has always grown by more than the amount of the withdrawals.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
goingup
Posts: 3909
Joined: Tue Jan 26, 2010 1:02 pm

Re: The psychology of withdrawing from your portfolio

Post by goingup »

We're on the cusp of retirement with a long gap to SS FRA. I think we've saved sufficiently and will have rent, royalties, interest and dividends to provide passive income. The rest will be manually withdrawn from a taxable portfolio. I think that's going to take a little time to get used to. :shock:

I don't know any tricks yet to make withdrawals psychologically easier, but I expect I'll settle on automating the process somehow.
quantAndHold
Posts: 5030
Joined: Thu Sep 17, 2015 10:39 pm

Re: The psychology of withdrawing from your portfolio

Post by quantAndHold »

The first year was hard. After the first year, I did the math and realized we were spending somewhere around half of what pretty much every “safe withdrawal“ system says we can safely withdraw. So I’m learning to relax.
Yes, I’m really that pedantic.
User avatar
David Jay
Posts: 9409
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: The psychology of withdrawing from your portfolio

Post by David Jay »

goingup wrote: Mon Nov 19, 2018 1:08 pm We're on the cusp of retirement with a long gap to SS FRA. I think we've saved sufficiently and will have rent, royalties, interest and dividends to provide passive income. The rest will be manually withdrawn from a taxable portfolio. I think that's going to take a little time to get used to. :shock:

I don't know any tricks yet to make withdrawals psychologically easier, but I expect I'll settle on automating the process somehow.
I put enough in Bonds to cover expenses from age 62 to age 70. No expense money in equities, so if equities go up or go down, my living expenses are not at risk.

Retiring in 57 days (but who's counting...)
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
evilityb
Posts: 227
Joined: Wed Jul 02, 2014 10:16 am
Location: The District of Columbia

Re: The psychology of withdrawing from your portfolio

Post by evilityb »

I'm several years (decades?) from retirement, but I am genuinely curious about the psychological experience of drawing down on one's portfolio. I'm quite fascinated by psychology and how the human brain works, so I'd just like to understand this. Could some of you elaborate on exactly what emotions and thoughts you're experiencing? And of course, keeping with OP's original question -- how do you handle/overcome them?
Last edited by evilityb on Mon Nov 19, 2018 2:19 pm, edited 1 time in total.
She/her/hers | Make sure the fortune that you seek is the fortune that you need - Ben Harper
User avatar
Sheepdog
Posts: 5629
Joined: Tue Feb 27, 2007 3:05 pm
Location: Midwest, retired 1998 at age 65

Re: The psychology of withdrawing from your portfolio

Post by Sheepdog »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
For me, it was not difficult. That was why we saved...to have money to live on. I was nervous, though, because it had to last our lifetimes. It took a plan, that's all, to guarantee it would not run out. However, it was not a guarantee that it would be enough. (It has been though.)
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
User avatar
Sandtrap
Posts: 11763
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: The psychology of withdrawing from your portfolio

Post by Sandtrap »

Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
Wiki Bogleheads Wiki: Everything You Need to Know
delamer
Posts: 10541
Joined: Tue Feb 08, 2011 6:13 pm

Re: The psychology of withdrawing from your portfolio

Post by delamer »

Jordan4FI wrote: Mon Nov 19, 2018 11:46 am I wonder if it might help to take out a larger sum (say 2 years budget) once every 2 years instead of as needed or quarterly/semi-annual... That way you get the chuck of $ and can forget about your investments a while again. I may actually do this.
Be very careful; there could be significant tax implications with your plan.
Retired2013
Posts: 243
Joined: Sat Dec 12, 2015 2:53 pm

Re: The psychology of withdrawing from your portfolio

Post by Retired2013 »

No pension (rolled into my 401(k), no SS yet, no annuity.

Keep tax income between 138% & 150% FPL (about $24k) to maximize ACA benefit until age 65. Has nothing to do with what we spend.

Then tax income at $170k, the top to avoid the Medicare Penalty, between age 65 - 80. Again, has nothing to do with what we spend.

Withdrawal is $3,000 per month to cover monthly expenses (includes the annual $8k property taxes).
Budget extra $14k annual to cover large purchase (car, new roof, A/C, furnace, repairs, travel, season theater tickets). Some years none used, some years several years used, like new car.

When age 70 and DW & I are both collecting SS, SS will cover 100% of monthly expenses plus the $14k extra budget. :D

Just need to keep tax income and book income separately managed.
User avatar
ruralavalon
Posts: 19472
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The psychology of withdrawing from your portfolio

Post by ruralavalon »

Congratulations on your imminent retirement :D .

David Jay wrote: Mon Nov 19, 2018 2:00 pm
goingup wrote: Mon Nov 19, 2018 1:08 pm We're on the cusp of retirement with a long gap to SS FRA. I think we've saved sufficiently and will have rent, royalties, interest and dividends to provide passive income. The rest will be manually withdrawn from a taxable portfolio. I think that's going to take a little time to get used to. :shock:

I don't know any tricks yet to make withdrawals psychologically easier, but I expect I'll settle on automating the process somehow.
I put enough in Bonds to cover expenses from age 62 to age 70. No expense money in equities, so if equities go up or go down, my living expenses are not at risk.

Retiring in 57 days (but who's counting...)
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Jordan4FI
Posts: 190
Joined: Mon May 28, 2018 11:00 am
Location: Honduras

Re: The psychology of withdrawing from your portfolio

Post by Jordan4FI »

delamer wrote: Mon Nov 19, 2018 3:21 pm
Jordan4FI wrote: Mon Nov 19, 2018 11:46 am I wonder if it might help to take out a larger sum (say 2 years budget) once every 2 years instead of as needed or quarterly/semi-annual... That way you get the chuck of $ and can forget about your investments a while again. I may actually do this.
Be very careful; there could be significant tax implications with your plan.
Very true if your budget is to be quite large, my current estimates have my annual budget at about 21K per year. But who knows what the standard deduction will be in the future, but at 12K right now it is a pretty sweet deal. PS, I will not be living in the US, so there is no State Tax required.
Dottie57
Posts: 9201
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: The psychology of withdrawing from your portfolio

Post by Dottie57 »

RadAudit wrote: Mon Nov 19, 2018 11:54 am I figured out how many years of SWRs I had in bonds and then I kept trying to convince myself I was OK. It's sort of working, so far.
I’ve been doing the same thing. It is so hard to think about. ButI have cds ready for the next 6 years. I will do the next 2 years before Jan 1.
AlohaJoe
Posts: 5535
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: The psychology of withdrawing from your portfolio

Post by AlohaJoe »

Yes, it is difficult for many people. In some ways it is the essence of retirement, that switch from accumulation to decumulation.

It is one reason why I'm a member of the Retirement Police of early retirees. If you're not withdrawing from your portfolio despite being "retired" at age 35, then I think it is fair to question in what meaningful sense you are retired.

I am retired with no pension or future Social Security. There is certainly some anxiety, at least in the first year or two. I think it is one of the reasons for the popularity of buckets and LMP plans. Pulling money from a savings account or matured bond that has been swept into a cash account feels less like "withdrawing from my portfolio" than logging into your broker and clicking sell on things.

The emotions are really just the typical & understandable fear, uncertainty, and doubt. That is exacerbated by dealing with big numbers. Other than a 401k rollover, many people never deal with a brokerage transaction of more than a few thousand dollars. The first time you do a brokerage transaction of $50,000 you're going to spend at least a few minutes being a little bit worried that you're clicking all the right buttons, that you're not accidentally sending all that money to someone else or selling REFs way below market price or whatever.

Like most things in life, you get used to it. Especially when the market is going up. You should come back and ask the same question in a bear market when people are withdrawing and portfolios have been going down for a few years. :sharebeer
User avatar
dwickenh
Posts: 2009
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: The psychology of withdrawing from your portfolio

Post by dwickenh »

Sandtrap wrote: Mon Nov 19, 2018 2:23 pm Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
Not many bear markets have lasted more than 13-19 years!! I'd say you have it covered!!
:sharebeer
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
CRTR
Posts: 341
Joined: Sat Apr 11, 2015 1:15 pm

Re: The psychology of withdrawing from your portfolio

Post by CRTR »

The solution we used for my Dad years ago was a 5 year CD ladder. Each CD held enough for a one year's anticipated expenses. When the CD would mature, we put it into his Vanguard Money Mkt and scheduled monthly deposits into his checking account. Worked perfectly! Same could be accomplished with a term-certain immediate annuity. This technique might make sense now too given the nice CD rates out there.
User avatar
tennisplyr
Posts: 2691
Joined: Tue Jan 28, 2014 1:53 pm
Location: Sarasota, FL

Re: The psychology of withdrawing from your portfolio

Post by tennisplyr »

Fortunate enough to have retired in early 2011. Basically we've been taking what we need within reason. A couple of years ago we downsized to a LCOL which helps. My secret: don't do anything stupid, had a bit of market luck, stayed positive (see my signature).
Those who move forward with a happy spirit will find that things always work out.
jarhead1
Posts: 29
Joined: Tue Aug 02, 2016 1:04 pm

Re: The psychology of withdrawing from your portfolio

Post by jarhead1 »

Sandtrap wrote: Mon Nov 19, 2018 2:23 pm Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
what I can't seem to get is now that you have these nice positions, what are the mechanics of harvesting from it? Dividends from your non-equity positions to a checking account?
Thanks
occasionally lost in the woods : )
2015
Posts: 2906
Joined: Mon Feb 10, 2014 2:32 pm

Re: The psychology of withdrawing from your portfolio

Post by 2015 »

Broken Man 1999 wrote: Mon Nov 19, 2018 12:08 pm
sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ?
Yes. But, for the first few years portfolio gains were larger than the withdrawals. Not sure about this year.
How did you overcome it ?
We had to eat and keep the lights on. Seriously, find a withdrawal rate/system that works (as best can be determined) and enjoy your life.

Broken Man 1999
Same here. Zero difficulty withdrawing but--and here once again is where luck is such a factor in life--the market gains left my PF larger than when I retired, though not by a whole lot. This year as a result of having enacted liability matching through end of my life and having planned on worst case scenarios, I'm not really phased by the market.
Gnirk
Posts: 1320
Joined: Sun Sep 09, 2012 3:11 am
Location: Western Washington

Re: The psychology of withdrawing from your portfolio

Post by Gnirk »

Oh, yes. Psychologically very difficult. I have a small IRA ( less than 10% of my investments) and I don’t mind taking the RMDs. However, I have a very difficult time withdrawing from my taxable account. I only take from taxable if I need to replace a dishwasher, for example, or if I want to do some traveling.

We retired January 1, 2007. Then came the big bear market. We held on, but it was still tough watching our hard earned investments tank.
User avatar
Sandtrap
Posts: 11763
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: The psychology of withdrawing from your portfolio

Post by Sandtrap »

jarhead1 wrote: Mon Nov 19, 2018 9:22 pm
Sandtrap wrote: Mon Nov 19, 2018 2:23 pm Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
what I can't seem to get is now that you have these nice positions, what are the mechanics of harvesting from it? Dividends from your non-equity positions to a checking account?
Thanks
occasionally lost in the woods : )
Fruit is first harvested from liquid accounts, maturing cd's, etc. via ACH transfers to working accounts.
Rental income from various r/e. etc, is also "harvested', portion reinvested.
Overflow from funds, fixed or equity, goes to CD ladders, short term treasuries, etc.
Everything is comprehensive vs focused on dividends and interest.

Like tending an orchard. Harvest fruit. Plant new trees. Etc.
j
Wiki Bogleheads Wiki: Everything You Need to Know
User avatar
22twain
Posts: 2560
Joined: Thu May 10, 2012 5:42 pm

Re: The psychology of withdrawing from your portfolio

Post by 22twain »

In my case, it helped that from a financial point of view my retirement is happening in phases, not all at once. Because of cutbacks at my institution, I was forced out of my long-time position, but allowed to move into a much lower-paying position for a few years, before entering our normal "early retirement" program, in order to keep my health insurance until Medicare age.

Before the axe fell, I was maxing my 403B contributions, including the catch-up amount, and my take-home pay was enough to cover expenses. I also have a taxable account, most of which originated in an inheritance.

My reduced salary would have been enough to cover expenses if I had stopped my 403B contributions. Instead, I continued maxing my 403B, leaving a bit of take-home pay. I started withdrawing from my taxable accounts to supplement it so as to cover expenses. This felt OK psychologically because I could tell myself that I was effectively moving that money from taxable to 403B.

When the "bridge" position ended, my salary ended too, and I could no longer contribute to the 403B. I started to receive a few years of "early retirement payments" which happened to be about equal to the small take-home pay that I had just stopped receiving. So I kept on withdrawing from taxable at about the same rate. It still feels OK psychologically because I'd been doing it for a while already, so I'm used to it.

Right now about 1/3 of my expenses are covered by the early-retirement payments, about 1/3 by dividends from the taxable account, and 1/3 from sales of shares.

After about another year, the early-retirement payments will end, and I'll simply increase the number of shares that I sell. I don't anticipate any psychological problem doing that. At this point my withdrawals (sales+dividends) will be 2.0%-2.5% of my portfolio.

After another four years, having drawn down at most about 1/3 of my taxable account, I'll finally start collecting Social Security at age 70. That will cover all my normal expenses, including taxes on the RMDs from my 403B. I should be able to reinvest the RMDs and stop selling stuff from the taxable account. Or maybe I'll develop an "expensive" hobby, or a taste for more luxurious travel than I do now, or some major medical condition...
Last edited by 22twain on Tue Nov 20, 2018 12:54 pm, edited 3 times in total.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
User avatar
catdude
Posts: 1833
Joined: Mon Jul 16, 2007 8:11 pm
Location: Central Oregon

Re: The psychology of withdrawing from your portfolio

Post by catdude »

This is something I struggle with too. I have a pension of about $37K/year, and I keep thinking that I SHOULD be able to get by on that, since I don't have a mortgage or expensive hobbies. And my health insurance (thru my ex-employer) is only about $200 a month. It seems like something always comes up... a big vet bill for one of the cats, some dental work, property taxes, etc. etc. I know I've got enough in savings and investments and retirement accounts that I never have to worry, but I still get a little depressed when I have to tap my portfolio. I know I should relax about the whole thing and not worry about it, but I have a hard time doing that.
catdude | | "I yield to the gentleman for a few feeble remarks." (Congressman Thaddeus Stevens)
MikeG62
Posts: 3119
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: The psychology of withdrawing from your portfolio

Post by MikeG62 »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
I read extensively on retirement planning and living off one’s portfolio in the decade or more prior to retiring. This provided the necessary understanding of SWR’s and how to live off one’s assets. From there I have trusted the process.

FWIW, our withdrawal rate is around 3.0% (with a very sizable % for discretionary spend) and we are in our mid-50’s. Asset allocation is roughly 50/50. High level of confidence that our annual WR will support a 40-year retirement period. Also am not assuming any SS income in my modeling. So if US financial markets going forward are worse than any historical 40-year period, we have SS as a buffer (to fill in some of the shortfall), we can cut discretionary expenses and also move to a LCOL location or home (in fact we will likely move from our large home to something more appropriate for two people at some point in the future regardless of market conditions). We are following a modified version of Guyton and Klingers withdrawal rules too which have built-in guardrails to automatically dial back spending if things get bad.
Last edited by MikeG62 on Fri Nov 23, 2018 7:13 am, edited 1 time in total.
Real Knowledge Comes Only From Experience
RadAudit
Posts: 3915
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: The psychology of withdrawing from your portfolio

Post by RadAudit »

evilityb wrote: Mon Nov 19, 2018 2:10 pm I'm several years (decades?) from retirement, but I am genuinely curious about the psychological experience of drawing down on one's portfolio. I'm quite fascinated by psychology and how the human brain works, so I'd just like to understand this. Could some of you elaborate on exactly what emotions and thoughts you're experiencing? And of course, keeping with OP's original question -- how do you handle/overcome them?
Sorry. I'm not that self aware. It's a vague - or not so vague - sense of potential / impending loss. I retired when I thought I had enough (with a sensible withdrawal rate). Then you get to watch that enough get less and less. The dreams of travel, etc. start to fade. Other real / imagined problems start to materialize. Will you have enough to not end up under a bridge somewhere? Will your spouse? What about the grandkids' educations - because heavens knows the kids aren't doing that well and they don't seemed too concerned about it, either. Etc.

You begin to realize there's not enough time or money to solve all of these concerns - mostly time.

Then you wake up one day and figure out maybe you should of thought about this stuff before you jumped off the cliff of retirement. (I'm a slow learner) Or maybe you're just worried about dying. Then it clicks. You are going to die. Well, now you have a sort of kind of upward bound on a timeline you need to be concerned with because you really can't control that much after you're gone. [That rarely works out well.] It'll be what it'll be. Maybe you go so far as trying to get the DW and kids interested / personally involved in planning for their futures as opposed to you having to concern yourself solely with it. (Fat chance.)

But then, I just figured out many years of SWRs I had in bonds. The rest is in stocks. [Darn, only enough for one around the world cruise per year. :wink: ] (Old joke around the house - I think I have enough for me; but, I'm a little concerned about you.) Then you cycle back thru the concerns again and again until it fades away.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.
peagreenboat
Posts: 29
Joined: Tue Oct 23, 2018 1:48 pm

Re: The psychology of withdrawing from your portfolio

Post by peagreenboat »

I retired 3 years ago and found the switch from accumulating to spending down to be very difficult emotionally. What it forced me to do was to educate myself about finances, the market, etc. It’s kind of funny that in 2016 and 2017, when the market kept going up, I was in my panic period — and in 2018, now while the market is undergoing its up-and-down gyrations, I am calm. Getting educated, learning about liability matching, and formalizing a personal financial plan by writing it all down have made all the difference.
Whatyear?
Posts: 178
Joined: Wed Aug 26, 2009 1:05 pm
Location: Massachusetts

Re: The psychology of withdrawing from your portfolio

Post by Whatyear? »

David Jay wrote: Mon Nov 19, 2018 2:00 pm I put enough in Bonds to cover expenses from age 62 to age 70. No expense money in equities, so if equities go up or go down, my living expenses are not at risk.
I will probably do this, too. I've looked at CD laddering but for what you could potentially earn it doesn't seem worth the extra effort to me . . .
User avatar
David Jay
Posts: 9409
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: The psychology of withdrawing from your portfolio

Post by David Jay »

Whatyear? wrote: Tue Nov 20, 2018 12:47 pm
David Jay wrote: Mon Nov 19, 2018 2:00 pm I put enough in Bonds to cover expenses from age 62 to age 70. No expense money in equities, so if equities go up or go down, my living expenses are not at risk.
I will probably do this, too. I've looked at CD laddering but for what you could potentially earn it doesn't seem worth the extra effort to me . . .
Short Term Bond (VBIRX) SEC yield is now up to 3.10%. I keep 2 years in Short Term and the remainder in Intermediate Term.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
User avatar
munemaker
Posts: 4174
Joined: Sat Jan 18, 2014 6:14 pm

Re: The psychology of withdrawing from your portfolio

Post by munemaker »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
I retired last year. Living expenses are covered strictly from my portfolio until I eventually draw from social security and a very small pension. I had no mental hesitation or difficulty in withdrawing from my portfolio. The fact that the market has been in such an upswing (until the recent correction) might have been a factor. I estimated expenses on the high side and am very pleased that our burn rate is only half of my estimate (and we are not holding back on spending out of fear). Happy with how things are going. No regrets.
User avatar
aj76er
Posts: 823
Joined: Tue Dec 01, 2015 11:34 pm
Location: Austin, TX

Re: The psychology of withdrawing from your portfolio

Post by aj76er »

I'm still working and in accumulation phase, but in order to mentally prepare for eventual retirement, I have 100% of my (post-tax) paycheck deposited directly into my taxable brokerage account. About once per month, I log-in to my brokerage account and manually move enough money into a checking account for 1 or 2 months of expenses; I invest the rest.

I realize that clicking the 'buy' button is a lot different than clicking the 'sell' button, but I'm hoping that by getting accustomed to the mechanics of living off my brokerage account will help ease the transition into retirement.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
RetiredCSProf
Posts: 508
Joined: Tue Feb 28, 2017 4:59 pm

Re: The psychology of withdrawing from your portfolio

Post by RetiredCSProf »

I retired six years ago and still find it difficult to adjust from accumulation phase to de-accumulation phase. In the accumulation phase, I invested aggressively. I was at 100% equities when I first started investing (in high school), but still at 80% equities in my 50's.

When I retired (I was caught in a mass layoff), my first concern was "Did I save enough for retirement?" If the market goes way up, my RMDs will drive me into a higher tax bracket. If the market goes way down, I won't be able to replace the losses. Wish I had converted more to Roth soon after I retired.

Luckily, I have a guaranteed pension and social security benefits; so I don't depend on my portfolio to cover basic needs. Not having to go to work in the morning compensates for being in the de-accumulation phase. OTOH, I am still thinking about starting a second career ...
stlrick
Posts: 486
Joined: Mon Apr 14, 2008 4:37 pm

Re: The psychology of withdrawing from your portfolio

Post by stlrick »

I recognized sometime in my 40's that the difference between a SWR and a pension + social security + SPIA was much more than a retirement income decision. It is a lifestyle decision for me. For my entire adult life, I have had a reliable, predictable, monthly income. I organize my spending and savings decisions around that pattern. Each month has a regular flow of spending. Do I want to start thinking differently in retirement? Adding unpredictability at that point? Checking the stock market and worrying about it? If she is alone, do I want my wife to make decisions she has no interest in making? No way. I've known for decades that I will put about 1/3 of my retirement accumulation into an SPIA, probably laddered, and continue with a predictable monthly income.
longinvest
Posts: 4433
Joined: Sat Aug 11, 2012 8:44 am

Re: The psychology of withdrawing from your portfolio

Post by longinvest »

During accumulation, my annual spending budget mildly fluctuates with market returns because I use a Variable Savings Rate (VSR) with a balanced portfolio. Similarly, in retirement, my annual spending budget will mildly fluctuate because I'll combine stable non-portfolio income with variable withdrawals from a balanced portfolio. There won't be a big switch; my accumulation and retirement approaches are similar.
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW
jimkinny
Posts: 1436
Joined: Sun Mar 14, 2010 1:51 pm

Re: The psychology of withdrawing from your portfolio

Post by jimkinny »

I retired 6 years ago and only when RMDs kicked in, did I withdraw from my savings.

I am trying to change that. Old habits are hard to break as is coming to terms with my mortality.

I think having a plan to spend down my savings will help in changing my mental attitude re saving for the future and spending for the here and now.

I likely will use an SPIA and a flexible percentage withdrawal each year to get to a 4% drawdown, recognizing the 4% is somewhat flexible also. Maybe in the next 3-4 years I will get another SPIA, if I decide that the SPIA works for me.

For us savers, I think the starting point is to think about how much we would like to spend vs a legacy, then think about how to do that, then start acting on that plan. I can always change the plan along the way.

The is no best way for everyone or maybe for anyone.
User avatar
Sandtrap
Posts: 11763
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: The psychology of withdrawing from your portfolio

Post by Sandtrap »

dwickenh wrote: Mon Nov 19, 2018 5:56 pm
Sandtrap wrote: Mon Nov 19, 2018 2:23 pm Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
Not many bear markets have lasted more than 13-19 years!! I'd say you have it covered!!
:sharebeer
Yes. Huge "sleep factor".
Short and intermediate term "fixed" outside of the portfolio allows me to withdraw without "looking" at the fluctuating portfolio balance. Overall allocation is 50/50. Seems to work, so far.
j
Wiki Bogleheads Wiki: Everything You Need to Know
skime
Posts: 158
Joined: Fri Nov 10, 2017 6:24 pm

Re: The psychology of withdrawing from your portfolio

Post by skime »

I made sure that my withdrawal rate was going to be so low that it was virtually impossible for my retirement not to work.
User avatar
dwickenh
Posts: 2009
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: The psychology of withdrawing from your portfolio

Post by dwickenh »

skime wrote: Fri Nov 23, 2018 9:04 am I made sure that my withdrawal rate was going to be so low that it was virtually impossible for my retirement not to work.
+1 for being sure, but knowing you can wing it if you have to!!
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
dknightd
Posts: 2331
Joined: Wed Mar 07, 2018 11:57 am

Re: The psychology of withdrawing from your portfolio

Post by dknightd »

I have not retired yet, but plan to within a year.
I share your concern. It will be difficult for me to transition from a saver to a spender. I suspect this is common with people who have been saving their entire working life.
I'm mitigating this by doing 2 things. First, several years ago I started selling assets in my tax deferred account and moving into short term bonds and money market. I now have about 4 years of expenses in these low yielding investments. I hate holding these things in my tax deferred retirement account, so, will almost be happy to take them out and spend them ;) Second I plan to purchase an SPIA, that together with projected SS, will cover a comfortable retirement forever. I basically pretend this money is not in my retirement account. I know that the day I retire I will use these funds to buy an SPIA, so I already have planned to "spend" that money to buy a "pension".
So in essence, in my mind, I've already spent a significant part of my retirement savings. Hopefully this will make it easier when I actually have to do it.
Some people save up so they can buy a car, or house, or whatever. Then they have to spend that money on whatever they were saving it for. I'll try to look at it as though I have been saving up for a big expense (retirement) and now will be simply spending the money on what I have been saving for for so many years. The problem for me might still be I don't know how big that total expense will be . . . But using the saving for a car metaphor again, I might have been saving hoping I could buy a Porsche, but a VW will work just fine. I plan to revisit my spending plan at least once a year. I'm pretty sure I've got the VW covered. But it would be fun to have a Porsche.

Edit: Maybe a better metaphor might be saving for a vacation. You save up for a vacation, then you take it, and spend what you have saved up. Just consider retirement as a long vacation ;)
Last edited by dknightd on Fri Nov 23, 2018 10:02 am, edited 1 time in total.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: The psychology of withdrawing from your portfolio

Post by PFInterest »

sixtyforty wrote: Mon Nov 19, 2018 11:20 am We spend years saving and investing. This is counter to the thought of withdrawing a % from your portfolio when one retires. For those that have been retired, was it difficult mentally to start withdrawing from your portfolio ? How did you overcome it ?
of course its difficult, especially for the great savers.
my parents had no choice, they needed money!
DorothyB
Posts: 113
Joined: Wed Oct 17, 2012 6:17 pm

Re: The psychology of withdrawing from your portfolio

Post by DorothyB »

For me, I knew that I would NEED to withdraw in order to be retired since I retired shortly before turning 57.

I haven't had any issues withdrawing from my portfolio. Part of that is because I am a total nerd about my finances and have a spreadsheet showing that I shouldn't "run out of money" so withdrawing is "safe".

The biggest challenge for me was (and still is a bit) moving from "this is my income, how will I spend / save / give it?" to "how much should my income be?" or "how much can I spend this year?" I started with saying I would increase my income by x.xx% per year, but am doing an additional lump sum increase in 2019.

I withdraw quarterly either from my "mostly equity" mutual funds OR if the market is down, from my "buffer funds" which are invested in money market and other "safe" places.
User avatar
LadyGeek
Site Admin
Posts: 66453
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: The psychology of withdrawing from your portfolio

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (behavioral finance).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
ruralavalon
Posts: 19472
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: The psychology of withdrawing from your portfolio

Post by ruralavalon »

Sandtrap wrote: Fri Nov 23, 2018 8:59 am
dwickenh wrote: Mon Nov 19, 2018 5:56 pm
Sandtrap wrote: Mon Nov 19, 2018 2:23 pm Retired.
No pension. No annuities.
Therefore:
3-5 yrs expenses in cash/bank/high yield accounts/short term CD's.
5-7 yrs expenses in CD ladder, Treasuries, etc.
5-7 yrs expenses in Bond Funds.
Rest in equities, etc.
Stick to a reasonable and conservative withdrawal rate.
Works so far.
Not many bear markets have lasted more than 13-19 years!! I'd say you have it covered!!
:sharebeer
Yes. Huge "sleep factor".
Short and intermediate term "fixed" outside of the portfolio allows me to withdraw without "looking" at the fluctuating portfolio balance. Overall allocation is 50/50. Seems to work, so far.
j
Retired, age 73.
No pension or annuities, just Social Security.
No cash/savings account/money market fund.
No CDs/Treasury bonds.
14+ years of living expenses (net of Social Security) in an intermediate-term bond index fund.
The rest in stock index funds.

50/50 asset allocation.

Has worked well so far, we sleep well at night.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
SQRT
Posts: 1417
Joined: Sat Feb 05, 2011 9:44 am

Re: The psychology of withdrawing from your portfolio

Post by SQRT »

I’m 68 been retired for about 12 years. For the first 10 years,we basically just spent dividends from our portfolio. In the last two years it became apparent that our portfolio was doing very well and if we continued on this path would be a huge legacy for our sole heir. Accordingly, we have started to liquidate small amounts of stock and increased spending. Was a little difficult at first, but we have adapted nicely.
Post Reply