The Psychological Dimension Of The Transition To Retirement

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GmanJeff
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The Psychological Dimension Of The Transition To Retirement

Post by GmanJeff » Sat Oct 06, 2018 9:07 am

For those of you who are retired, how did you become comfortable with moving from a lifetime of accumulating assets to a de-accumulation mindset? I will retire in another week, a few months before my 62nd birthday, and I am finding the prospect of the transition to be somewhat daunting.

Projections from various calculators and assurances from my PAS Advisor uniformly indicate I should be financially secure even if I ramp up my spending a little from time to time to reflect the periodic purchase of new cars, increased recreation and travel, etc., but I find myself apprehensive nonetheless at the prospect of no longer having a paycheck deposited into my account every two weeks.

What, if anything, did you read or do to increase your level of confidence that the transition to retirement would not result in insecurity?

Shallowpockets
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Shallowpockets » Sat Oct 06, 2018 9:17 am

There are only two things for you, do it or not. Your advisor gave you the info and you are OK with that so go with it. It is an apprehensive time for most of us. Letting go that paycheck. Will you take SS?
Look at it as time. Time is what we spend but can never save. I have friends who still work and it is not money that prohibits them from retiring. It is fear. Fear of not knowing, fear that they may have to face themselves. Some people are wholly defined by their work. Without it they have little else. What to do?
Seems like you alread made the decision. Now you have to face it. Your feelings are the same as most of us who retired. It is a leap. And sometimes you just have to jump.

wrongfunds
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Re: The Psychological Dimension Of The Transition To Retirement

Post by wrongfunds » Sat Oct 06, 2018 9:33 am

Could you set it up so that your could get bi-weekly periodic distribution from your assets directly in to your checking account? Wouldn't it be similar to getting regular paychecks? Come to think of it, you could have lost your paycheck anytime during the last 40 years that you were working. You might actually been through layoff/job loss once or twice already? Against that backdrop, the regular periodic distribution would have more stability than the paycheck which was at the whim of somebody else instead of you.

Of course, this all assumes that the numbers are working for you. The only real difficult part is willingly walking away from the paycheck but if you think in terms of having *more* control and *more* guarantee of the regular income coming in to your checking account, you should be able to get over that mental hurdle.

The insecurity that one feel is irrational when one looks at the cold facts. That is at least the theory and I am trying to condition myself to believe in it. :-)

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goingup
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Re: The Psychological Dimension Of The Transition To Retirement

Post by goingup » Sat Oct 06, 2018 9:41 am

We're not in retirement yet, but the household earner is on the cusp. I think we have "enough", but like you anticipate difficulty shifting to decumulation mode.

My thought is to set up automatic deposits from our brokerage account into checking, making a self-styled paycheck. Automation was the key to successful saving, so I figure it will work for decumulation, too. I'm not sure how exactly to do that yet, but it may involve Jane Bryant Quinn's bucketing ideas.

MnD
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Re: The Psychological Dimension Of The Transition To Retirement

Post by MnD » Sat Oct 06, 2018 9:47 am

If your social life, your feeling of social status and worth in society is tied to your position and you're happiest at work with your "team" then you'll probably have big problems. The money part is easy-peasy assuming you have enough. Cut yourself a paycheck every month with auto-deposit to checking or whatever at least for starters. If you have enough, the moves in the market will continue to determine where your portfolio heads versus a few percent withdrawals per year.

Dottie57
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Dottie57 » Sat Oct 06, 2018 9:48 am

I am facing the same feelings as OP. No one knows if a portfolio will work until death. But the probabilities are high. So I choose to believe. Common sense says I am better off than friends who don’t have my portfolio. I will spend judiciously. I’ll have a good life.

I am currently creating a CD ladder to SS. When SS starts my need for portfolio dollars decreases.

CRTR
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Re: The Psychological Dimension Of The Transition To Retirement

Post by CRTR » Sat Oct 06, 2018 9:54 am

I was right there with you recently. I've posted a couple times on here looking for advice. Stressful and confusing time for me until I sorted things out. The problem is that there is no best/right answer. It's similar to choosing the right fund mix/asset allocation during my accumulation years. In the end, what I did after way too much research and consulting was to choose a plan and stick with it. Here is what I ended up with:

1. Live off my brokerage account and tIRA as needed to delay Social Security until 70
2. At 70, use my Social Security and tIRA RMD as my salary/annuity. Luckily, this should easily cover baseline living expenses. It will also increase over time due to SS COL, tIRA returns and how RMDs work. Inflation will not be a worry for me. I like that this part will be on autopilot, deposited directly to my checking account and will mimic getting a "paycheck".
3. I'll use my ROTH IRA and any remaining brokerage assets (amounts above my emergency funds in a CD ladder) as a vacation fund, unusual purchase fund, good time fund etc. What I get to blow on fun stuff will depend on the returns of these accounts.
4. Based on the above timeline and strategy, I chose separate, SIMPLE, static asset allocations/investments for the brokerage, tIRA and ROTH accounts. I call it a "bucket strategy" even though it doesn't fit the classic mold of one.

What I also found VERY useful was putting the plan in writing. I wrote an updated Investment Policy Statement (IPS). I'm good at following rules if they are in writing. To be honest, seeing it on paper, in front of me, is VERY comforting . . . which surprised me because I never even thought about my old IPS during my accumulation years . . .

The only remaining issue for me is what the hell I"m going to do with myself as I get older . . . which is no small issue . . .

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ruralavalon
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Re: The Psychological Dimension Of The Transition To Retirement

Post by ruralavalon » Sat Oct 06, 2018 10:01 am

GmanJeff wrote:
Sat Oct 06, 2018 9:07 am
For those of you who are retired, how did you become comfortable with moving from a lifetime of accumulating assets to a de-accumulation mindset? I will retire in another week, a few months before my 62nd birthday, and I am finding the prospect of the transition to be somewhat daunting.

Projections from various calculators and assurances from my PAS Advisor uniformly indicate I should be financially secure even if I ramp up my spending a little from time to time to reflect the periodic purchase of new cars, increased recreation and travel, etc., but I find myself apprehensive nonetheless at the prospect of no longer having a paycheck deposited into my account every two weeks.

What, if anything, did you read or do to increase your level of confidence that the transition to retirement would not result in insecurity?
I am 73, I retired almost 8 years ago. I recall the feeling, the anxiety just before retirement wondering if we had enough.

I was surprised at how easy the transition was from doing something to doing "nothing". It was not hard at all.

Take a nice vacation trip. When you get back relax, go to the coffee shop, read a book, go to the gym, enjoy yourself.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

bradinsky
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Re: The Psychological Dimension Of The Transition To Retirement

Post by bradinsky » Sat Oct 06, 2018 10:07 am

+1 - work was somewhat social, and I never had any thoughts as to what I’d do after I retired. Saved enough to most likely fund retirement. Now what? Kind of scary(and sad)!

Murgatroyd
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Murgatroyd » Sat Oct 06, 2018 10:35 am

Shallowpockets wrote:
Sat Oct 06, 2018 9:17 am
There are only two things for you, do it or not. Your advisor gave you the info and you are OK with that so go with it. It is an apprehensive time for most of us. Letting go that paycheck. Will you take SS?
Look at it as time. Time is what we spend but can never save. I have friends who still work and it is not money that prohibits them from retiring. It is fear. Fear of not knowing, fear that they may have to face themselves. Some people are wholly defined by their work. Without it they have little else. What to do?
Seems like you alread made the decision. Now you have to face it. Your feelings are the same as most of us who retired. It is a leap. And sometimes you just have to jump.
This is very well said. Additionally, having absolute comfort in your spending is critical. If you’re spending fluctuates widely or you take expensive vacations might give pause. For those who have defined lifestyles it’s easier to envision financial sustainability.

Try to identify the source of your trepidation.

Mcgrass
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Mcgrass » Sat Oct 06, 2018 11:39 am

I'm having trouble shifting gears from saving for retirement to actually spending it. I know I have enough, but I've been working part time to avoid touching my IRA. I'm thinking about having automatic deposits made form my IRA to my checking account monthly like a paycheck. I'm 66 almost 67 and was planning on using my IRA until I draw social security at 70. Any one else having trouble actually using their IRA?

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Earl Lemongrab
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Earl Lemongrab » Sat Oct 06, 2018 3:07 pm

I'll have to get back to you. With my pension, I'm still in accumulation mode, just much reduced. I haven't made any changes to the portfolio and don't have any immediate plans on that score.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

pkcrafter
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Re: The Psychological Dimension Of The Transition To Retirement

Post by pkcrafter » Sat Oct 06, 2018 4:05 pm

GmanJeff wrote:
Sat Oct 06, 2018 9:07 am
For those of you who are retired, how did you become comfortable with moving from a lifetime of accumulating assets to a de-accumulation mindset? I will retire in another week, a few months before my 62nd birthday, and I am finding the prospect of the transition to be somewhat daunting.

No problem, I just thought it was like finding myself on a tightrope with no net below. :shock: That's probably a normal reaction for some, but it didn't last long.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Dandy
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Dandy » Sat Oct 06, 2018 6:35 pm

I was forced to retire in 2008 at age 60- not great timing. I went from having more than enough to maybe not. I was lucky to have a modest pension, retiree health insurance and no mortgage. But it was scary and different to watch the assets decline and still have to withdraw some on top of that.

After the rather quick market recovery I felt much better but didn't have a good feel for what my retiree asset allocation should be. I was impressed with Dr. Wm Bernstein's idea of having 20-25 years worth of drawdown in "safe" products and invest the rest anyway you want. I decided on having enough "safe" products to fund retirement at current expense levels to age 90 (20 years now). It suits me well. My "safe" portfolio of short term bond funds and FDIC/money market products let's me sleep well and not worry about a non investment savvy wife. The rest of my investments is 67/33 for an overall 43/57.

I take my withdrawals from a combination of "safe" and "risk" assets when the equity market does well. I will take from the "safe" assets when the equities don't do well. The nice equity markets for that past 8 years have sheltered me from watching my assets decline. Those days seem to be numbered. But, I now have confidence that my retirement is pretty secure under most future conditions.

I think retirement awakens you to the fact that human capital is gone and there are no more salaries, bonuses, contributions, company matches, etc. and there may be 30 years of this condition. Basically, the pot is all you've got. That made me much more geared to asset preservation.

2015
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Re: The Psychological Dimension Of The Transition To Retirement

Post by 2015 » Sat Oct 06, 2018 6:43 pm

Dottie57 wrote:
Sat Oct 06, 2018 9:48 am
I am facing the same feelings as OP. No one knows if a portfolio will work until death. But the probabilities are high. So I choose to believe. Common sense says I am better off than friends who don’t have my portfolio. I will spend judiciously. I’ll have a good life.

I am currently creating a CD ladder to SS. When SS starts my need for portfolio dollars decreases.
+1
What I've done. Liability matching combined with "padding" did a lot to increase my comfort in transitioning to retirement. I once read that some individuals, once the decision is made, will find a way to make retirement work no matter what. For me retirement is the best way of living I've ever experienced.

BigJohn
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Re: The Psychological Dimension Of The Transition To Retirement

Post by BigJohn » Sat Oct 06, 2018 8:11 pm

Two different aspects of retirement transition mentioned in comments above, financial and social.

On the financial side I've focused on greater simplicity and using a liability matching approach to setting my early retirement stock/bond allocation. There are obviously no guarantees but I feel this gives me some protection from sequence of return risk. Then throw in the fact that I can choose to dial back discretionary expenses if things get bad for a few years and I don't lose any sleep worrying about this right now.

On the social transition, I think it's really important to start off retirement with a clear plan for both a new daily routine as well as how to recreate yourself without work (new friends, activities, travels, interests as appropriate). Several people I know decided to "float" for a while and just stayed around the house. It's amazing how fast doing nothing but watching TV can become a habit. There are several good forum discussion with book recommendations on this topic for anyone struggling in this transition.

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GerryL
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Re: The Psychological Dimension Of The Transition To Retirement

Post by GerryL » Sat Oct 06, 2018 8:30 pm

Regarding de-accumulation: I had a good enough understanding of my spending (tracked over 2 decades in Quicken) and my spending habits (frugal) to be comfortable with my expenses in retirement. A financial plan from Vanguard made it clear that I could/should ramp up my spending (significantly) if I did not want to die with more money than I started retirement with. That really has freed me up to enjoy new experiences. Continuing to keep track of spending ensures that my plan will not go off the rails.

Regarding the readiness to be retired: In the 2-3 years leading up to retirement I made lists of things I wanted to do or even might want to do. I also interviewed retired friends whose circumstances were similar to mine about how they tackled retirement and what they might have done differently. I do tend to be a bit of a hermit, so I still need to make a conscious effort to maintain a social network.

heyyou
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Re: The Psychological Dimension Of The Transition To Retirement

Post by heyyou » Sat Oct 06, 2018 9:14 pm

OP,
Just by being here at Bogleheads, you will do well in retirement.
By retiring early, you already have about three decades of practice at living below your means in order to save for retirement.
You will not blindly spend 4% plus inflation of your retirement day assets without ever comparing those annual withdrawals (WD) to your remaining portfolio balance, in order to see your spending rate.
You will know to spend only from your bond fund assets if your stock funds' prices are all depressed.
You may find that your retirement spending is less since you will not pay for convenience as often as during your work years, i.e. you will have time to fix a favorite (healthier) meal at home instead of eating out (less healthily) as often.
You have survived the 2000 Crash and the 2008 Crash, so expect to survive the next crash too.
Scott Burns has written that a $1000 a month part time job is worth $300K of assets (4% annually of $300K is $12K).
Retirement is not a rare event, we boomers are all doing it, successfully so far, here at Bogleheads.

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Nicolas
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Nicolas » Sat Oct 06, 2018 9:55 pm

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AlohaJoe
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Re: The Psychological Dimension Of The Transition To Retirement

Post by AlohaJoe » Sat Oct 06, 2018 9:57 pm

GmanJeff wrote:
Sat Oct 06, 2018 9:07 am
but I find myself apprehensive nonetheless at the prospect of no longer having a paycheck deposited into my account every two weeks.

What, if anything, did you read or do to increase your level of confidence that the transition to retirement would not result in insecurity?
Here are some of the things I did:
  • Take care of big expenses in the last year or two of paid work. Whether that's dental work or house renovations or replacing a car. That means fewer surprise big expenses in the first year or two of retirement and those big expenses (not the little daily ones) are where most of the stress comes from.
  • Double check numbers on your non-monthly spending. Do you have any annual or bi-annual payments? How about irregular expenses for things like vacations (easy to remember), gifts (birthdays, anniversaries, etc). This also includes things like "replacing my phone every 3-4 years" and "upgrading my power tools every 5-6 years" and things like that. Similar to above, it means reducing the surprise expenses which tend to be bigger and more anxiety inducing.
  • Have your first 6-12 months of spending set aside in a checking account already. That way you aren't immediately "withdrawing from your portfolio"...or at least, it doesn't quite feel that way. It gives you time to ease into selling parts of your portfolio.
  • Run the numbers on your cashflow. Dividends come in quarterly (or less, for some international funds). And a bit unevenly (Q4 is usually biggest). Gain confidence about the cashflows. I had never paid much attention to dividends during accumulation, so I spend an hour or so going through the history to see how much money I was actually getting from them each quarter and comparing it against my expected expenses, so I had a better idea of how much "sell my portfolio" I needed to actually engage in.

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Nestegg_User
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Nestegg_User » Sat Oct 06, 2018 10:53 pm

OP, with a username GmanJeff you are (very) likely a federal employee... but if you are in FERS...(highly likely since you’re under 62 and the transition occurred back in 87), then why not wait the additional months until 62 and get the 1.1 multiplier rather than the 1.0 (plus the few months of supplement) ?? Those extra months are equivalent to three years! ( for a regular 30-year retirement) ... 3.3(+ nominal for extra months) vs 3.0 times your “high three”

Ron Scott
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Re: The Psychological Dimension Of The Transition To Retirement

Post by Ron Scott » Sat Oct 06, 2018 11:03 pm

I decided to completely ignore the advice of my assigned advisor at VG and any output from Monte Carlo simulations or online calculators like Firecalc, with regard to spending levels. They’re all basically the same, largely based on analyses of historic US data that seem ill-fitted to the job, and had the bad smell of me-too practices. (“What could possibly go wrong if we all jump together??”)

I too retired at your age and simply multiplied my desired spending level by 30 years, assuming that my investments would average to keep pace with inflation. The result is less money than I have so I feel it’s a good conservative approach to spending. I also have a 40-60 asset allocation (kind of like a 2-fund) and do not intend to sell equities ever so I am not afraid of having to sell in a market downturn.

My spending plan is my own stew and it feels good not following the crowd.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. Preparing for financial challenges is more fruitful than trying to predict them.

PaulF
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Re: The Psychological Dimension Of The Transition To Retirement

Post by PaulF » Sun Oct 07, 2018 11:06 am

I'm a couple of years behind you, but I am already scared! :) However, here is what helps me cope with the daunting prospect you articulated: I think of my sister and all of my other friends and acquaintances who passed away or got debilitated in their 50's or early 60's. It helps to remind me that time is more important than a paycheck.

2015
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Re: The Psychological Dimension Of The Transition To Retirement

Post by 2015 » Sun Oct 07, 2018 11:40 am

heyyou wrote:
Sat Oct 06, 2018 9:14 pm
OP,
Just by being here at Bogleheads, you will do well in retirement.
By retiring early, you already have about three decades of practice at living below your means in order to save for retirement.
You will not blindly spend 4% plus inflation of your retirement day assets without ever comparing those annual withdrawals (WD) to your remaining portfolio balance, in order to see your spending rate.
You will know to spend only from your bond fund assets if your stock funds' prices are all depressed.
You may find that your retirement spending is less since you will not pay for convenience as often as during your work years, i.e. you will have time to fix a favorite (healthier) meal at home instead of eating out (less healthily) as often.
You have survived the 2000 Crash and the 2008 Crash, so expect to survive the next crash too.
Scott Burns has written that a $1000 a month part time job is worth $300K of assets (4% annually of $300K is $12K).
Retirement is not a rare event, we boomers are all doing it, successfully so far, here at Bogleheads.
Very well said.

GmanJeff
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Re: The Psychological Dimension Of The Transition To Retirement

Post by GmanJeff » Wed Oct 10, 2018 2:19 pm

Many thanks to all who responded to this thread. I found your observations, thoughts, and individual approaches to retirement very helpful, and was also reassured that my concerns are common and frequently turn out to be unfounded. This community is not only often well-informed, but also gratifyingly supportive - thanks again.

hesson11
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Re: The Psychological Dimension Of The Transition To Retirement

Post by hesson11 » Wed Oct 10, 2018 8:22 pm

heyyou wrote:
Sat Oct 06, 2018 9:14 pm
OP,
Just by being here at Bogleheads, you will do well in retirement.
By retiring early, you already have about three decades of practice at living below your means in order to save for retirement.
You will not blindly spend 4% plus inflation of your retirement day assets without ever comparing those annual withdrawals (WD) to your remaining portfolio balance, in order to see your spending rate.
You will know to spend only from your bond fund assets if your stock funds' prices are all depressed.
You may find that your retirement spending is less since you will not pay for convenience as often as during your work years, i.e. you will have time to fix a favorite (healthier) meal at home instead of eating out (less healthily) as often.
You have survived the 2000 Crash and the 2008 Crash, so expect to survive the next crash too.
Scott Burns has written that a $1000 a month part time job is worth $300K of assets (4% annually of $300K is $12K).
Retirement is not a rare event, we boomers are all doing it, successfully so far, here at Bogleheads.
So much great advice in this thread. But I'd like to officially nominate heyyou's post as the unofficial Boglehead Retirees' Post-retirement Manifesto. I'm about to step off soon, so everyone's thoughts are much appreciated, and thanks to GmanJeff for bringing it up.

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