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My husband and I both had good paying careers and were able to save a lot for retirement. We are not big spenders. We have no debt. I retired a few years ago at 52. He wants to retire next year at age 59. Our financial advisor ran some numbers for us and said we are fine, and even if we live to 90 we will still have a substantial amount to leave to our only child.
My question is this.... After working and saving our entire lives up to now, how do we transition emotionally to living off our savings? It seems like it will be discouraging to see our savings going down instead of up.
, how do we transition emotionally to living off our savings?
This is a great question. Anyone can do math but the huge change in mindset is a challenge.
I would create a mathematical financial model and treat this as a "project" with a cost performance index type approach - are you "ahead" or "behind" the curve? Keep it objective and minimally emotional. I have D dollars and assume I'll live Y years so I can only spend D/Y dollars per year - factoring in any income streams too.
There will have to be assumptions (like how long you will live, long term care, etc). Kind of like, you have to get to a destination, how much fuel will you need?
Just saw you live in Black Forest...I used to live in Kings Deer driving through Black Forest on the way home from Schriever AFB.
I remind myself that our money is for us to spend. What’s left they can have it. Just today I made my first withdrawal from our 401k account, instead of transferring to our existing brokerage accounts, we decided to take the tax hit and close them out. I’m transition to the stage that we might be too old to do all these paperwork stuff. Making life easier for us going forward. When my husband turns 70, we will have cleaners. When I turn 80, we will have occasional gardeners to take care of our roses. Managing transition to different stages of our life is in the works.
I remind myself that our money is for us to spend. What’s left they can have it. Just today I made my first withdrawal from our 401k account, instead of transferring to our existing brokerage accounts, we decided to take the tax hit and close them out. I’m transition to the stage that we might be too old to do all these paperwork stuff. Making life easier for us going forward. When my husband turns 70, we will have cleaners. When I turn 80, we will have occasional gardeners to take care of our roses. Managing transition to different stages of our life is in the works.
Wait, you cashed out all of your 401k savings and closed it out?
Wait, you cashed out all of your 401k savings and closed it out?
Small amount only, I’ve already transferred the bulk of it to my brokerage accounts. But this time if I want to do that I need to have the papers notarized and such, more pain and less gain.
This is the first time I will get to spend my retirement account.
The emotional part definitely is challenge. We consulted several financial planners, and I evaluated the math of their methods fairly closely. All of their models showed we had far more than enough. Intellectually, we believed the models and their projections. In our stomachs, it just didn't feel right.
I think it is a bit like doing a bungee jump off a tall tower or bridge. Intellectually, you know you'll be safe, but there is a sense of visceral terror as you're getting ready to take the jump.
At the end of the day, you close your eyes and jump - and after about 10 seconds you'll be having the time of your life.
I retired at age 63, but for two years before retirement, I was not spending anything that I was earning. All of my earnings went into investment accounts, and I was living off the earnings of my investment accounts (not drawing down principal). To top that off, I was living in Orange County, CA, one of the most expensive areas in the US to live.
That gave me the confidence to go ahead with retirement at age 63. In addition to my investment earnings, I started to receive a private pension. I moved from Orange County to Tucson, AZ and my cost of living dropped by 50 percent due to lower apartment rental cost. So my financial situation has actually improved a lot since retirement, and I have not touched the principal of any investment account (IRA or non-IRA after tax account).
I will wait until at least FRA, or maybe a few years after, to start receiving my social security checks. I paid in near the max level for over 35 years, so I should get close to the max SS payout.
You have visited a financial planner and determined you have sufficient resources to last your lifetime ... with a substantial amount left for your heir/s. Thus, you have already determined how much you can withdraw for living expenses to supplement your SS, etc..
It appears the remaining matter is an emotional or psychological response to moving from the 'accumulation stage' of your life to the 'draw-down stage.' Given a reasonable withdrawal rate (4-5-percent), retirees with healthy savings, generally find they can maintain if not increase their underlying principle, even with taxes and inflation. -- So the real issue may be adjusting to a 'slower rate of accumulation' than you have experienced while working.
Many retirees would love to have the 'problem' of worrying about your 'problems.'
Whenever we've found ourselves 'worrying' about non-existent financial issues, we've discovered our 'problems' are often with "giving," rather than "getting." IOW, we've gotten too self-absorbed and started thinking of ourselves as the 'entitled center of the universe' -- rather than here for a purpose/reason. Instead of focusing entirely on 'hanging on to everything you have,' allow yourselves to wonder, "Who else could we think about and help" with our abundance. Better to ask that question now, while you can.
You have an estimate of how much your living expense will be and how much you can take out of your investments.
Direct all the income from your investments to a separate checking account. Sell the investments you plan for the year and put that money into the checking account.
Now you pay your bills out of the checking account.
I would also have an emergency fund that could help cash flow with annual bills and an entertainment fund for what ever you want to do that you did not budget.
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I hope you have some "Investments", because if you are living off of "Savings".... it might be kinda lean.
Consider that you CAN run to zero (If required), and Jr will likely survive without an inheritance.
Do the math annually and adjust as needed.
If you were modest spenders with double income to age 50, I cannot imagine you have a thing to worry about.
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