Psychologically adverse to start drawing down in retirement

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ruralavalon
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Re: Psychologically adverse to start drawing down in retirement

Post by ruralavalon » Mon Oct 07, 2019 10:57 am

robindbee wrote:
Sun Oct 06, 2019 4:23 pm
sport wrote: ↑Sun Oct 06, 2019 3:45 pm
If you have a taxable account, you should discontinue any reinvestments of distributions. Having such distributions sent to your checking account (or MM fund) will provide some "painless" withdrawals for living expenses."
+1

When I retired, I changed the dividends and capital gains distributions of the taxable accounts to cash, rather than reinvesting."

Having this cash flow, plus pension and (soon) SS, means that little principal is being drawn down from taxable accounts. And nothing from IRAs yet.
Thanks for responses: That is one thing I was thinking. I have a fair amount of dividend funds reinvesting and with my SS starting next month it should help. By 'other' money, I meant I sold some taxable money that hadn't been doing great (plan to harvest losses) and my adult daughter is living with me for time being so expenses are split and low. I really haven't had to dip into savings too much yet, and what I have drawn out has been profit. My expenses are pretty low. Another fear I have is that when I start paying myself, instead of using money (and travel is factored in, something I want to do more of) I will just begin penny pinching and trying to save again, which i know is crazy, but I am so used to saving and watching funds grow! It's a real shift from accumulating, to drawing down, isn't it?
You are correct, there is a change in attitude which is disconcerting but is necessary.

Think of it this way. You saved all those years, so that you could enjoy a retirement free of money worries. You are supposed to spend now on travel and other things that you enjoy.
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longinvest
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Re: Psychologically averse to start drawing down in retirement

Post by longinvest » Mon Oct 07, 2019 11:05 am

AverageInvestor1982 wrote:
Mon Oct 07, 2019 10:44 am
Great topic, thanks for starting.

As a 37 year old net-saver, I've already started thinking about this. The idea that one day the balance of my portfolio/net worth go down is a terrible thought to me. I intellectually understand the idea that the point of saving up money now is so that I have independence and enjoyment later, but emotionally, "going backwards" in net worth is very hard to stomach. I love the idea of retiring and buying cars I've always wanted and/or taking more(expensive) vacations, giving more money away, whatever - but I doubt my ability to actually choose those things over a positive net worth when presented with the decision.

I realize under a well budgeted plan that covers contingencies it's "just a number" but I think for a lot of people, we choose the emotional satisfaction of an increasing net worth over a more lavish (comfortable?) life style.

I saw a post somewhere in here (might have been in a sub thread) that talked about a person with similar apprehension who spent a year planning and budgeting that helped them get more comfortable with spending some of their retirement savings. I like that idea, plus the idea of regular transfers out of my portfolio and into savings/checking accounts. I think that will help avoid the "I'll just save as much as I can this year, and maybe next year I will spend a little more when my portfolio is a little bigger" that I bet is a pretty common thought process.

At the end of the day, I think it's just a personality type. Tuesday night: Bob: "You want to go out to dinner at that nice restaurant we both like?" Alice: "Nah, seems like waste. We always drop $200 when we go there and we have those leftovers we both like in the fridge. We're going out with the Miller's for dinner on Friday anyway." Bob: "Good point. Plus we can watch the new Poldark on Prime!" - Meanwhile they have $4.0m in retirement funds and are both drawing SS and pensions.

Expecting those people to spend down their portfolio it took them 40 years to build in retirement? Leopards don't change their spots...
Interesting perspective. But, it doesn't have to be this way.

The transition from accumulation to retirement can be smooth and natural when one plans accordingly. That's why the VPW Accumulation And Retirement Worksheet includes both an Accumulation sheet and a Retirement sheet. This allows accumulating investors to use an accumulation plan which is coherent with their future retirement plan, helping with the transition from accumulation to retirement.
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Re: Psychologically adverse to start drawing down in retirement

Post by Spirit Rider » Mon Oct 07, 2019 11:40 am

I have only recently gone through this after I was "involuntarily" retired five years ago. Well, maybe not so involuntarily. I was laid off four (4) years before planned retirement. After several interviews with snot-nosed kids, more impressed with themselves than finding out what I could bring to the table. I made it voluntary.

With a three (3) month severance, six (6) month unemployment insurance, followed by some independent contractor work, 529s for college and portfolio income and growth. My portfolio continued to grow.

However, the last year has been rather painful watching my portfolio decline. It has been a combination of reduced portfolio growth, my youngest girl's tutiton and expenses*, unexpected large expenses and delaying SS into a perfect storm.

Yes, it is irrational. I only have two more semesters of college expenses and then carrying living expenses until 70. Then SS alone will exceed my living expenses. All this will only result in a small dent in my portfolio.

I have always been a saver, even as a teenager. Taking a certain amount of satisfaction watching it grow. Now it is agonizing when I sell some securities in taxable or take IRA distributions. It hasn't seen to get any easier the more times I do it.

I know it is not rational. This is what it was all for and I have more than enough. Yet, it still is difficult to switch from the accumulation stage of your entire life to a decumulation stage in retirement. Even if it as is my case a temporary situation.

staustin
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Re: Psychologically adverse to start drawing down in retirement

Post by staustin » Mon Oct 07, 2019 11:45 am

Broken Man 1999 wrote:
Sun Oct 06, 2019 3:33 pm
Sadly, based on some posts here, draw downs seem to be nearly impossible for some.

Some of those having good amounts are living very sparse retirements. I suppose their beneficiaries will take up the slack for them.

We are not spending recklessly, but we want a nice lifestyle. We did our sacrificing already, now it is time to enjoy our good fortune.

Broken Man 1999
very well said... we're now a year away from early retirement. Honestly struggling with the concept of drawing down as well. this perspective was very helpful.

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Re: Psychologically adverse to start drawing down in retirement

Post by MikeG62 » Mon Oct 07, 2019 12:45 pm

AverageInvestor1982 wrote:
Mon Oct 07, 2019 10:44 am

As a 37 year old net-saver, I've already started thinking about this. The idea that one day the balance of my portfolio/net worth go down is a terrible thought to me.
I said this above, but it bears repeating.

If you are drawing a conservative let's call it 3.5% from your portfolio, more than 1/2 of the annual spend will be funded from dividends on your equities and interest of your fixed income. It does not take a lot of market appreciation to more than cover off the rest. Yes some years you will get large gains (like 2017) and other years losses (like last year), but historically speaking on balance the gains way more than offset the losses.

For folks planning a conservative WD rate, the odds are very good that on average their portfolio will increase over time, despite taking withdrawals. People need to stop worrying so much.

Now if some want to pull 6%-7%+ per year, that is a different story. But you don't see many people around here advocating for that.
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longinvest
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Re: Psychologically adverse to start drawing down in retirement

Post by longinvest » Mon Oct 07, 2019 1:26 pm

MikeG62 wrote:
Mon Oct 07, 2019 12:45 pm
For folks planning a conservative WD rate, the odds are very good that on average their portfolio will increase over time, despite taking withdrawals. People need to stop worrying so much.

Now if some want to pull 6%-7%+ per year, that is a different story. But you don't see many people around here advocating for that.
I think that thinking in terms of withdrawal rates, implying constant inflation-adjusted withdrawals from a fluctuating portfolio (SWR*), is often the main problem.

* SWR = so-called "safe" withdrawal rate method.

When I look at the ongoing numbers of the VPW forward test, I see that the retiree is currently pulling approximately $64,000 (annualized) at age 65 from an approximate $1,000,000 portfolio while deferring Social Security to age 70. Combined with a $12,000 work pension, this results into an approximate (and fluctuating) $76,000 annual income. While this could naively look like a 6.4% "withdrawal rate", it would be a mistake to think in such terms. The underlying percentage in the VPW Table at age 65 for a 60/40 stocks/bonds allocation is actually 5.0%, as explained in details in this post which also quantifies the required flexibility to easily handle a severe market downturn (a -50% stocks loss). Note that the VPW percentage increases yearly with age and it's applied to the current portfolio balance at the time of withdrawal.
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Re: Psychologically adverse to start drawing down in retirement

Post by sport » Mon Oct 07, 2019 3:24 pm

Tamarind wrote:
Sun Oct 06, 2019 10:22 pm
I'm not a big fan of the "turn off auto-reinvest" solution because it still invites you to fiddle with it.
In a taxable account, the distributions are taxable (unless your bracket is low enough) whether or not you reinvest them. If you reinvest them, and then withdraw other money instead. You will have additional tax to pay if you are selling gains. Having distributions sent to your checking account does not require or invite any "fiddling". It just minimizes taxes.

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Re: Psychologically adverse to start drawing down in retirement

Post by Tamarind » Mon Oct 07, 2019 4:33 pm

sport wrote:
Mon Oct 07, 2019 3:24 pm
Tamarind wrote:
Sun Oct 06, 2019 10:22 pm
I'm not a big fan of the "turn off auto-reinvest" solution because it still invites you to fiddle with it.
In a taxable account, the distributions are taxable (unless your bracket is low enough) whether or not you reinvest them. If you reinvest them, and then withdraw other money instead. You will have additional tax to pay if you are selling gains. Having distributions sent to your checking account does not require or invite any "fiddling". It just minimizes taxes.
Turning off auto-reinvest does minimize taxes, but it the OP is having trouble selling assets to spend they may be tempted to just "live on the distributions" since they'd have to make manual sales of the amount needed in excess of distributions.

It's a bit like the way TDFs are slightly more expensive and slightly less tax efficient, but we recommend them all the time to posters who are having trouble refraining from changing their AA. In this case, I think the OP may need help to refrain from changing their withdrawal amount.

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Re: Psychologically adverse to start drawing down in retirement

Post by arcticpineapplecorp. » Mon Oct 07, 2019 5:18 pm

aristotelian wrote:
Sun Oct 06, 2019 3:18 pm
Just remember, with 4% SWR, your portfolio will continue growing with average returns.
Like the statistician who was drowned in a lake of average depth six inches.
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arcticpineapplecorp.
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Re: Psychologically adverse to start drawing down in retirement

Post by arcticpineapplecorp. » Mon Oct 07, 2019 5:24 pm

page 13:
https://am.jpmorgan.com/us/en/asset-man ... ets/viewer

since there are "average" intrayear declines of 14% per year (half of all years intrayear declines are less than 14% and the other half see higher declines than 14%) then if you have a portfolio of 30%-50% stocks, you're likely to see intrayear declines of anywhere from 4%-7% in any given year.

That doesn't mean you won't recover, but I'd get used to seeing fluctuations in the value of your portfolio.

Since markets are in drawdown (defined as any time the market is lower than the previous high) more than reaching new highs, your current value of the account will fall at some point, especially due to withdrawals.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Psychologically adverse to start drawing down in retirement

Post by Smoke » Mon Oct 07, 2019 5:25 pm

robindbee wrote:
Sun Oct 06, 2019 1:28 pm
Does anyone have this issue?
I like to refer to it as, Learning to be frugal is hard, but once learned is even harder to stop.
I enjoy being frugal, I see it as a challenge and to do otherwise is wasteful and would make me unhappy.
I like being happy, it floats my boat.
And no I don't have a boat.
Arguing for the sake of arguing is something I am not going to engage in.

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Re: Psychologically adverse to start drawing down in retirement

Post by willthrill81 » Mon Oct 07, 2019 7:00 pm

Smoke wrote:
Mon Oct 07, 2019 5:25 pm
robindbee wrote:
Sun Oct 06, 2019 1:28 pm
Does anyone have this issue?
I like to refer to it as, Learning to be frugal is hard, but once learned is even harder to stop.
I enjoy being frugal, I see it as a challenge and to do otherwise is wasteful and would make me unhappy.
I like being happy, it floats my boat.
And no I don't have a boat.
I draw a big distinction between being cheap and frugal.

A frugal person tries to maximize how much value they get out of the money they spend.

A cheap person does not want to spend money even if doing so would provide them with something they value significantly; they are primarily motivated by fear.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Psychologically adverse to start drawing down in retirement

Post by bradinsky » Mon Oct 07, 2019 7:27 pm

Spirit Rider wrote:
Mon Oct 07, 2019 11:40 am
I have only recently gone through this after I was "involuntarily" retired five years ago. Well, maybe not so involuntarily. I was laid off four (4) years before planned retirement. After several interviews with snot-nosed kids, more impressed with themselves than finding out what I could bring to the table. I made it voluntary.

With a three (3) month severance, six (6) month unemployment insurance, followed by some independent contractor work, 529s for college and portfolio income and growth. My portfolio continued to grow.

However, the last year has been rather painful watching my portfolio decline. It has been a combination of reduced portfolio growth, my youngest girl's tutiton and expenses*, unexpected large expenses and delaying SS into a perfect storm.

Yes, it is irrational. I only have two more semesters of college expenses and then carrying living expenses until 70. Then SS alone will exceed my living expenses. All this will only result in a small dent in my portfolio.

I have always been a saver, even as a teenager. Taking a certain amount of satisfaction watching it grow. Now it is agonizing when I sell some securities in taxable or take IRA distributions. It hasn't seen to get any easier the more times I do it.

I know it is not rational. This is what it was all for and I have more than enough. Yet, it still is difficult to switch from the accumulation stage of your entire life to a decumulation stage in retirement. Even if it as is my case a temporary situation.
+1

bhsince87
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Re: Psychologically adverse to start drawing down in retirement

Post by bhsince87 » Mon Oct 07, 2019 9:38 pm

Ugh, I'm struggling with this!

Only been retired 10 months, age 54. I gave myself a $15k "allowance" from my severance package that was supposed to be for the first quarter of 2019.

I finally spent it down a few weeks ago, and just took my first withdrawal from my retirement funds last week. I'm hoping this gets easier over time.

I've actually toyed with buying an annuity, which makes no financial sense, but could be good psychologically.

Also considering seeing a psychologist, but I half expect them to laugh me out of their office.

I brought up the topic with a relative who's a psychologist, and she looked at me like I was crazy! So I as like, "Am I right then?" :)

She said she councils people all the time who have problems spending too much, but has never encountered the other problem.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

couchpotatoadopter
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Re: Psychologically adverse to start drawing down in retirement

Post by couchpotatoadopter » Tue Oct 08, 2019 11:48 am

Thank you for this post. Money anxiety affects a lot of us so you are far from alone in trying to deal with such fears. I wonder if a reread of the book Silas Marner would be helpful in terms of thinking about the role of money vs relationships etc? In any case, thanks again.

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Re: Psychologically adverse to start drawing down in retirement

Post by frcabot » Tue Oct 08, 2019 12:15 pm

Did you mean averse?

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Re: Psychologically adverse to start drawing down in retirement

Post by smectym » Tue Oct 08, 2019 12:41 pm

littlebird wrote:
Sun Oct 06, 2019 5:14 pm
After 27 years of living on s.s. and pension, not needing to invade our assets except for a major expenditure, my spouse started to need $4000/month care. There was no way I could cash flow that. I knew I would be constantly calculating and recalculating the advantages and disadvantages of taking the needed monthly sum from the various accounts we had, and I didn’t want to spend my pre-sleep time doing that. I decided to annuitize a Vanguard Variable Annuity, which I had built up over several years to eventually serve as a pension for me. It did the job of filling the gap left by our RMDs, dividends and interest, and left my mind free to concentrate on my spouse’s care.

Now that he’s gone -after three years of care - my income is a little higher than I need,but I’ve never regretted having an annuity check deposited into my account each month. And as I grow older, it offers even more of what I strive for now: not more income, but more simplification, automation and independence.
Agree, we’ve done more than one partial annuitization from a Vanguard Variable Annuity. It’s a more tax-efficient method if withdrawal and the “check-a-month” modality provides stability and makes financial planning easier.

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Re: Psychologically adverse to start drawing down in retirement

Post by cashboy » Tue Oct 08, 2019 4:29 pm

robindbee wrote:
Sun Oct 06, 2019 1:28 pm
Does anyone have this issue? My retirement portfolio is at a certain "number" which is very pleasing and reassuring to me.

I don't want my "number" to change!

yes, but it fades over time (if you let it).

enjoy the great accomplishment of reaching that "number" which is very pleasing and reassuring to you; not everyone does.

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Broken Man 1999
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Re: Psychologically adverse to start drawing down in retirement

Post by Broken Man 1999 » Tue Oct 08, 2019 4:41 pm

Seeing the portfolio grow is much better to see, but at some point it will dec!ine. Might be more this year of what we saw in the fourth quarter of 2018.

Still, having started withdrawing in 2015, overall it has be a beautiful experience.

It will come to an end, sometime, but who knows when? I do not. :confused

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Psychologically adverse to start drawing down in retirement

Post by blahblahsunshine » Tue Oct 08, 2019 5:48 pm

We haven't hung up our spurs yet employment wise (will be doing so soon), but have been struggling with the mental issues of spending down. We are in our 50's so even more pronounced is the drumbeat of concern about time before SS being long and risk elevated etc. etc. We have landed on the idea we will take down no less than 4% per year of our nut. 4% is quite a bit more than we use today...but still have visions of eating cat food to keep costs down. :wink:

More seriously we are also considering taking part of our (would be withdrawls and "reinvesting" them) so we would still be "growing" things, which is to say leaving them inplace. An interesting phenomena to be sure.

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Re: Psychologically adverse to start drawing down in retirement

Post by Call_Me_Op » Tue Oct 08, 2019 5:51 pm

bhsince87 wrote:
Mon Oct 07, 2019 9:38 pm
She said she councils [sic] people all the time who have problems spending too much, but has never encountered the other problem.
She apparently does not visit this forum. :)
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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robindbee
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Re: Psychologically adverse to start drawing down in retirement

Post by robindbee » Wed Oct 09, 2019 5:27 pm

Thanks again for all responses, it is very reassuring to see other people struggle with this....Yes, yes, it is AVERSE !!
I don't worry about eating cat food but I do worry about the amount of time I spend sort of obsessing/ruminating over my finances in retirement. I tend to be neurotic and over think things. I think I need to consult a CPA who is savvy with retirement/conversions/payouts, etc. and work out a 4 year plan until age 70.5 when my RMD will be exactly the amount to fill the gap between SS and my needs. I also acknowledge the conflict in thinking about taking SS at FRA or 70, but for me, age 66 (FRA for me) bday is this month actually, is what I feel comfortable with bc, again, psychologically, it feels better receiving this check monthly now and withdrawing less from portfolio. Also, knock on wood, I'm afraid i'll drop dead before I can spend some of my SS !!!
I also have mixed feelings the wisdom of conversion, for me. Approx 1/3 my portfolio in Tiaa Trad (which I consider my 'bond' fund); about 1/3 in Regular, taxable IRA, and 1/3 in Roth. As I said earlier, the amount of money I need annually until RMD begins is approx same amount of money my RMD will be, so unless I'm missing something, (which is very possible lol) I don't see why I would convert and have to pay extra taxes.
So much to think about. I do have to pull the trigger at some point soon, and you all have been helpful, so thanks!
Robin

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robindbee
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Re: Psychologically adverse to start drawing down in retirement

Post by robindbee » Wed Oct 09, 2019 5:31 pm

And I'm going to sit down and spend time with this: VPW Accumulation And Retirement Worksheet, it appears it will very helpful. ALL of the thread, links, etc., you guys post are again, very helpful!!

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Re: Psychologically adverse to start drawing down in retirement

Post by rossington » Wed Oct 09, 2019 5:44 pm

Don't forget if you convert when your income is lower...the taxes are lower too...factor in the standard deduction also. Once it's done, it's done no more RMD's and no more taxes on RMD's. At the very least in the Roth your assests will grow continuously if you don't touch them.
RMD amounts increase as you grow older....possibly more taxes. Just look at the big picture.
And you should continue to read the forum. :beer
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Re: Psychologically adverse to start drawing down in retirement

Post by LadyGeek » Wed Oct 09, 2019 8:15 pm

This thread is now in the Personal Finance (Not Investing) forum (retirement withdrawal, behavioral finance).
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Re: Psychologically adverse to start drawing down in retirement

Post by tibbitts » Wed Oct 09, 2019 8:35 pm

robindbee wrote:
Sun Oct 06, 2019 1:28 pm
Does anyone have this issue? My retirement portfolio is at a certain "number" which is very pleasing and reassuring to me. I'm good to draw down from my portfolio at 3.5-4% for next 30 years. I retired a year ago and have been using other money to live until my SS kicks in next month. I'm FRA 66 years old.
I have to start 'paying myself' next month. I don't want my "number" to change! I know this is ridiculous, And that I have to psychologically think about this "number" a different way. I need a system to "pay myself" monthly. If left to my own devices I would nickel and dime withdrawals as I need it but this doesn't work with forecasting, budget planning, etc. What 'systems' do people use? I'm not hiring anyone but I'm curious how other people 'pay' themselves on a monthly basis (or quarterly, etc)
Even though I know I'm ok financially I have such a block beginning draw down and diminishing my "number" that took me so long to save !! Help??
You don't have any "other money" - when you retire there is no "retirement portfolio" and "other", there is only a retirement portfolio. And you have been spending it down.

Reamus294
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Re: Psychologically adverse to start drawing down in retirement

Post by Reamus294 » Thu Oct 10, 2019 4:49 pm

Unfortunately, I am far away from drawing down in retirement, but I saw my father struggle with this. My plan is use an expected withdraw spreadsheet so I can see the balance declining in the future and mentally prepare for it. I'll throw in some expected negative returns into the mix too. If I am conservative, my actual ending balance should be a little higher than the expected, and I will count that as a win. I'm thinking it will also help me identify spending trends (3-5 years) that would take me off track.

This is exactly what I'm doing with my mom's retirement balance. It has helped with my confidence that I'm doing the right thing and has brought some peace.

Good luck!

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Re: Psychologically adverse to start drawing down in retirement

Post by marcopolo » Thu Oct 10, 2019 5:18 pm

Has not been a problem yet. But, I wonder if some of that has to due with relatively stable markets.

Retired early 2018.
Spending on what we want, end of 2018 drop felt like a blip, maybe things will be different in a prolonged down turn, but so far we are happily enjoying spending what we have accumulated.

Currently spending what feels like an obscene amount of money (to us), on building a custom home. This is causing a significant drawdown of our liquid assets. But, it was planned ahead of time, so not psychologically affecting other spending.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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