FREE NEWSLETTER
I SHIFTED TO WORKING part-time more than a year ago. It was a way to ease into retirement and give me time to explore new activities. My reduced work hours were also a way to experience life without the singular job focus that had defined my working years and, indeed, my identity.
My new part-time status was, of course, accompanied by a markedly shrunken paycheck. That allowed my wife and me to see what it was like to be without the guaranteed and steady income we’d relied upon for nearly three decades.
After more than a year of working part-time, I fully retired two months ago. Without a paycheck, our bank account balance soon fell to a level where we needed to transfer funds from savings to pay the monthly bills. The amount I transferred was equal to just over half of my fulltime monthly paycheck.
The mental anguish was palpable.
I knew the day would come when we’d begin spending down our financial accounts. But I was mentally unprepared for the angst and anxiety that raged inside my head. This reaction was completely emotional—and totally unexpected.
Before retiring, we’d done our math, considered dozens of scenarios, and had full confidence that our savings strategy over our careers was more than sufficient to provide for our retirement needs. We knew that our savings were, in the end, meant to be spent.
Still, when the time came to withdraw funds from our investment portfolio, I was unable to sleep at night and had a devastating migraine lasting several days. It took two weeks for me to gather the courage to push the transfer button and reclaim some dollars from our savings. I was in a full “deer in the headlights” panic, caught up in an emotional state that couldn’t be overcome by logic.
Over the past year, while I was working part-time, my wife and I discussed supplementing our reduced pay with extra savings. We had set aside close to three years’ expenses in high-yield savings accounts and short-term certificates of deposit. But until I fully retired two months ago, we never dipped into those funds.
Rather, we simply found a way to survive—and thrive—on our reduced income. Perhaps by serendipity, there always seemed to be a bit of extra cash coming into the household, either from unexpected consulting gigs, gifts or dividends.
Psychologists say that, at every stage of our life, personal growth is important for our emotional health. As we age, it’s critical to challenge our thought patterns so our brains stay healthy, both physically and emotionally. Still, before now, I’d never considered evaluating my financial journey in terms of personal growth and never considered that such an evaluation was important for my mental health.
Researchers contend that paying attention to our own well-being helps put us on the path to lifelong learning. We should continually challenge our established ways of thinking, because this is the key to successfully adapting as our life’s circumstances change.
There are numerous books and articles on ways to challenge our current thinking about how to achieve financial success. Many recommend trying to balance logic with consideration of what feels right emotionally. In our financial journey, one of the greatest emotional challenges is the transition from accumulating money to drawing down those funds during retirement.
Other HumbleDollar writers have written about strategies to enhance guilt-free spending during retirement. Some recommend delaying Social Security and buying an income annuity to guarantee a minimum level of monthly income. Others suggest investing in stocks with a history of consistently paying dividends. Yet others advocate building a ladder of individual bonds or certificates of deposit to meet future spending needs.
Until now, I never felt the need to use such strategies. I didn’t realize how powerful these concepts could be in securing emotional tranquility during retirement. I realize now I should have given more consideration to these ideas before leaving the workforce.
Perhaps it’s time to reevaluate my investment strategies and embrace new methods that satisfy both my logical and emotional sides. After all, a personal investment strategy is meant to be, well, personal. It should change as my life’s path changes. I hope I’m up to the challenge.
Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
Hi Jeff, I had also this terrible angst with my retirement with my blood pressure rising and just feeling like in ‘fight’ mode for about 2 years. Not because of any money concerns but transitioning to a non working lifestyle was so difficult. My S.S. work earnings statement has 53 years which means that had been my life.
There’s an old saying:
“The more you know, the better for YOU”
I learned to set my mind in a different mode and accept the freedom to just live with no work schedule.
It’s a mental change.
There comes a time when we go into the distribution phase of our investments, it’s also a mental change we work on.
You’ll do well my friend!
Thanks for the feedback. It certainly is a process, moving successfully from the theoretical to the practical aspects of retirement.
Jeff – I can relate to your angst, too. It all looks good in theory and spreadsheets; and then the tap is turned off for real, the bucket starts draining, and you have this “holy moly” moment.
Having “mailbox money” is a big plus. Whether it’s an annuity (have you looked at SPIAs?) or a bond/CD ladder or strategic dividend investments or social security, having that certain amount of money coming in every month definitely eases the angst, I’ve found.
Also, re SSA, have you run the https://opensocialsecurity.com/ calculator? I had already done my own detailed spreadsheet analysis for my wife and I. She’s 8 years younger and so it makes for a less than straightforward set of scenarios.
Ultimately I’m leaning toward claiming early – before I’m even 65 – because according to opensocial that will yield around 95% of the lifetime present value that waiting until I’m 70 would yield. This assumes that she waits until she’s 70 to claim, which is fine with me. Just turning on that one tap for me will go a long way toward reducing the “financial range anxiety” (I just made that up 🙂 that comes with decumulation against a 30-40 year or more retirement plan.
Thanks for mentioning the open social security site. I was alerted to it a few years back, and run the numbers every few months. My SS will wait till age 70. However, there is little meaningful difference for when we take my wife’s SS; it even suggests we take it now. We will likely start next year. Knowing it is available helps ease some of the angst.
I think your reaction to retirement is something that most of us can identify with. After all, we spend 40+ years being savers and then suddenly switch to being spenders? I had the same anxiety when I retired nearly 10 years ago, but am pleased to report that we’ve been able to manage our spending and still have more than what we started with. If you are lucky, you will have the same experience, along with greater peace of mind that you will likely be able to live out your life on what you have.
I worried about that moment that I would draw down savings. To give me a little peace of mind, I decided to split our expenses into buckets with a distribution source for each type of expense. So I have one year of expense in the emergency fund earning 5%. Fixed expenses, including health insurance, are covered by a pension and social security. Discretionary expenses are covered by dividends (aristocrats/kings). We traveled extensively in our younger years, so we stay home more now and enjoy dinner with friends, cards, hiking and biking (electric bike!), so our discretionary expenses are low. Also have a Roth dividend fund to partially cover one time expenses/car. Healthcare/LTC is a tough one because of unknowns and rising costs. The 401K account (ETFs) covers estimated healthcare expenses (Fidelity 2023 estimate $315,000 for a couple) with inflation (the Fidelity 2023 estimate is double their estimate back in 2002). RMDs will draw down the 401K account, but we’ll do some Roth conversions between now and age 73.
Cheryl, It sounds like you have adapted your mental buckets into a successful distribution plan! My first idea was to empty buckets in a manner that maintained my overall asset allocation. I will have to keep your buckets in mind as I kove forward!
Studies have shown that when one has guaranteed low risk income, folks feel more freedom to spend. This can be created by combinations/options of SS, pensions, bond ladders and annuities, amongst others. In our case we have delayed SS and pensions and 10 year rolling TIPs bond ladder to manage the gaps between spending and income. I definitely had angst when putting a good chunk toward the bond ladder but over time have to appreciate having the regular income and reduced worry about real time withdrawals. They also seem to have the added benefit of managing spending.
I’m sorry, and I feel guilty about it, but I’m laughing about your extreme reaction. On the threshold of the same milestone I feel your pain though.
I was fortunate to keep working and collecting a paycheck until the threshold of taking Social Security. Those monthly checks will comfortably cover normal expenses, so the retirement account distributions will be just for fun or emergencies. That all makes the prospect a lot less terrifying.
For a year I’ve been living on the cash accumulated for the purpose in a high yield savings account, which in the absence of earned income has allowed this to be a year to maximize Roth conversions at a lower rate. Next year I’ll be in the same boat as you, “culling the herd,” but hopefully with less anxiety. It won’t be without some though. 😉
Jack, Thanks for the comment. I’m working hard on learning to laugh at my extreme reactions. I’m confident I will be able to, in time.
I’m sorry, and I feel guilty about it, but
Several on this board have mentioned elsewhere the book Die With Zero, or some version of spending down with an end goal of leaving little on the table. This would mean giving money to charities and family or friends along the way, and also spending on yourself what might have seemed unreasonable in one’s saving years. In addition to automating withdrawals, you might find equally helpful (to your emotional core) automating savings. It might seem ridiculous. But anyone can buy 10K of I-bonds each year in a Treasury Direct account. I have found that helpful to me in developing a decumulation mindset. The first couple of years I bought 1K each month (mimic to my savings years pattern) and now buy 10K each January. Savings was a highly valued trait of mine for decades. How can I now eschew that without rattling some sense of self? Gentle on myself, now, and respectful of my impulses. Also trying to spend more on me, and working to spend down a bit each year ahead of RMDs. I’m doing this so I don’t overreact when forced to take money I don’t yet need, just so the government can harvest taxes…
Catherine, Great idea. I have not yet cut back on my automated savings, including my expectations to also purchase I-bonds for 2024. Perhaps a bit of accumulation to counter-balance decumulation is just what the doctor should order for ARAS (acute retirement anxiety syndrome)!
PS. I have no idea if “ARAS” is a real acronym for a recognized disprder…. Just thought it sounded like it should be!
Excellent! Thank you for sharing. You very eloquently described precisely where my head went 3 years ago just after my wife and I exited the workforce. I still have a pang every now and then but for the most part, my spending anxiety has subsided, which has been good for my head and my marriage :). Great article.
Brian, It is good to know that there is clearer thinking waiting ahead. Thanks!
As a retiree relying on your own savings for living expenses, you will look at market declines differently than when working. They are more unsettling and may cause you to be more conservative. At lease I did.
I thought ahead about that. We placed approximately 3 years projected expenses in HYSAs, CDs, and I-bonds as a way to cover costs if the market did not behave in our favor. It is a mental bucket.
We also have not yet taken SS. I would consider taking one of our SS amounts (the lower of the two), and feel comfortable about doing so, while leaving the higher SS until 70 as a longevity insurance (see Jo’s comment).
I am in the financial situation as you Jeff when it comes to being retired and living off of retirement savings while waiting for my wife and I to claim SS. Although I don’t have the anxiety you have regarding withdrawing money from my accounts (I rationalize that is why I deferred gratification) I am frustrated in being unable to find literature on this phase of my financial life. I have utilized Mike Piper’s Open Social Security website on claiming strategies to maximize potential lifetime SS payments. I also have read ad nauseam about the four percent “rule”. But I believe the four percent rule is not valid if you are spending retirement assets to essentially buy into an enhanced inflation adjusted “annuity” by delaying claiming SS. But I have not been able to find any literature about combining the two. Does anybody have suggestions?
The 4% rule doesn’t work neatly if you’re expecting a big dollop of regular income later, such as when you claim Social Security. For analytical purposes, how about mentally dividing your portfolio in two? One part provides a financial bridge to when you claim Social Security in, say, five years. The other part is your long-term investment portfolio, where you utilize the 4% rule. Would that work?
Thanks for the advice Jonathan. Not sure if that would work. To date I have created a semi-bucket portfolio with 50/50 split of assets with plenty of the bonds being both short term and short term TIPS. Figure if I start to get nervous about the portfolio balance would just have my wife (the lower earner) claim first.
Thank you, Jeff, for your openness about the emotional angst of withdrawing funds after a lifetime of saving.
I’ve been retired for over a year without a pension or (until age 70) Social Security. Envisioning account withdrawals as getting to enjoy the fruits of my labors removes any residual doubts about clicking the transfer button. Though I am blessed by sufficient savings that, barring catastrophe, should outlast me, the unknowns of health and long term care issues keep those withdrawals in check.
Without a pension and now drawing from assets, why wait beyond FRA to start SS? I realize the benefits of higher payments later, but wouldn’t collecting and lowering withdrawals allow your investments to grow a bit more?
This is the conundrum. See my comments above
Between 67 and 70, one gets an even higher benefit of the delay than 62-67. That’s one pretty good reason.
I like to think of SS as part of my fixed income portfolio and also as a form of longevity insurance. By delaying SS, I “earn” 8% plus annual cost of living increases on a safe investment. Where else can I find that in the fixed income world (or even the stock market) without taking on more risk? Of course, I risk dying early and not collecting, which seems similar to buying a deferred annuity. As charities will receive most of my estate, this poses no issues for me.
Jo Bo, I almost replied to Dick’s question myself but figured you’d get the first bite at the apple. Now that you have, I’ll just agree with you. The first thing that leapt to my mind was the longevity insurance aspect.
I experienced a less severe version of those emotions.
I have several “buckets” of retirement funds to draw down. I have automatic distributions from them, one bucket at a time. It feels something like a paycheck although I know its not. I take some comfort in knowing that I’m currently running down one bucket only. The other accounts are still growing with dividends.
That’s close to what I originally had in mind with my mental buckets as well. Yes, I realize that the entire pool of monies are simply one big account. But the mental bucketing seems to let me sleep a little bit better at night.
Excellent article Jeff. I experienced any of the same emotions when we started to draw down some of our savings after my wife and I stopped working. Also, the last few years have been some of our highest spending due to moving, home renovations, and new furnishings. They weren’t planned in advance, but have been good for us. I have a traditional pension and that helps. I also put aside several years of spending in cash. I think I would have been OK with “normal, planned” spending and drawdowns. It’s the large purchases/outgoes that have kept me up. I think we are almost past that phase and I’m looking forward to a 2024 that more closely meets my spending expectations. But who knows what else will happen!
I’m curious Rick, when you refer to “several years of spending” in cash, what type of spending do you include?
I have a spreadsheet that projects yearly expenses – all the usual stuff like utilities, food, gas, …. I also have a big line item for travel. Since I’m a geek it calculates federal and state taxes. I have a tab for income and can play with scenarios like withdrawing form after-tax, IRAs, Roth, HSAs, consulting income, SS and pension. Since different forms of income are taxed differently, it helps minimize taxes. There are always variables that change, but it provides a guideline. I don’t have items like a new kitchen, bathrooms, or furnishing a new home. That comes from our savings. This may seem excessive, but I like playing with numbers and trying to optimize. I consider it a “video” game for math/financial nerds.
Rick — do you (or anyone following this thread) have any opinion about the net worth tracking apps/websites such as Empower (which in turns Yodlee authentication)? My main concern has been security breaches, but apparently logging on all the time direct to banks/brokerages can constitute more risk than the read-only functions of these apps.
Like you, I have my spreadsheet detailing all, but I’ve gotten tired of manually updating all since there are so many accounts (each with 2 factor authentication). So time consuming.
Scares me to connect all of my accounts. I also don’t think it would be healthy for me to see our net worth that easily. I think I would look every day and dwell on minor declines. Without that tracking, it takes sitting down with a finance-only laptop and logging in to each account.. so it only happens every quarter or so. Has usually grown a nice sum each time I look!
Love it! Throughout our first year of “early retirement”, wallowing in the numbers with Excel helped me work out a simple system for income until SS starts, and test out my thinking for “full retirement” income plans. Like Mr. Quinn I really value a simple system, but the engineer in me needed to think about it every which way to sleep well (you’re not alone, Jeff).
We also had some large house-related work skid into my first year of retirement (due to a RIF), so the spreadsheet made it easier to keep our cashflow clear until all that settled down.
Rick, I too have a spreadsheet. It’s not so much a budget, but a predictor of what I expect to spend each year. I also have a second spreadsheet that tracks actual expenses. It includes a % for big ticket items. The two “loosely” match, and that holds true for this past year. This year, there were no big ticket items, so that amount could be used if needed at a later date. Mental buckets!
Spoken like a true engineer😎
I have my pension- net of taxes – deposited into the bank. SS also net of taxes into another account designated travel, misc. I have extra withholding taken from RMDs to cover taxes on interest and dividends so I know what I receive is what I can spend. Always receive a refund.
Rick, excessive? Not at all. Sounds like a great “video” game. I maintain a relatively simple spreadsheet that keeps track of my annual spending in 11 key categories. I call it my Core Expenses performance indicator. The PI showed a significant drop in expenses in 2019 when our last child graduated from college, and surprisingly, expenses have been relatively level since then, despite inflation.
I see you declined the annuity pension when you were hired. Are you still, comfortable withdrawing 4%?
What you describe is exactly what I imagined it would be like without an income stream. I’m not sure I could handle it, but I’ve thought a lot about it.
Automating the transfers in some way may ease the stress a little. Have you evaluated the income generated from dividends and interest, perhaps capital gains so your basic investments don’t decline, or at least as much.
Or, possibly take some investments and buy an immediate annuity just to help cover the routine expenses.
‘’Are you saying your current living expenses are 1/2 of those while working? That’s quite a change.
I see you are forcing me towards more introspection (…said with a smile). To address your thoughts, we are indeed still financially comfortable with a 4% withdrawal, albeit slightly modified because that level is a much higher than we need right now.
I am seriously contemplating automating transfers, because you are correct that it will bring us comfort. However, most of the first few years are covered with “safe” money (HYSA, bonds, CDs), so I let dividends ride for growth. I’m sure I will have to deal with rebalancing, but I will face that semi-annually and see how it works out.
And, no. Our expenses are not 1/2 now. Because of various circumstances, we only needed to withdraw fewer dollars during the past year to support our lifestyle. Indeed, our expenses are pretty muh equal to those while working, but I’ve been saving 30% equivalent salary for a long time. So our expenses are still equal to that 70% remainder amount.
Dick, One more point. I’m not wedded to the 4% rule, although we are certainly comfortable with that number. I simply use this as a barometer to begin my retirement adventure. I’m actually leaning towards a modified VPW, so we can give more to children and charities while alive. Perhaps I will have to write an essay about my internal discussions on that one day!
Thanks Jeff. My understanding is that research has shown that retirees with pensions or other significant sources of guaranteed income tend to be happier financially than equally wealthy folks who must draw on their savings. Your experience seems to provide a data point in support of that contention.
Ken, Perhaps. I’ll let you know as time passes if the feeling holds true for a longer time period. I will either have to change my thinking, or change my sources of income.