Switching to spending down savings

[Anonymous]

What's it like to switch from saving to spending when you retire or other situations?

How much of your savings / investments goes to taxes on withdrawal?

Is tax accounting for decades old holdings, that have transfers between accounts, a disaster? (Overpayment, underpayment, IRS hassles/audits?)

How much did your long term savings really grow from cost basis, after adjusting for inflation?

How is it psychologically?

How long to figure out how many years of savings you actually have? Was it how much you predicted?

[Anonymous]

This is such a great question and I hope people reply. I'm only in my 40s but the thought of moving from the accumulation phase to the distribution phase in 20 years really scares me. I imagine it must feel like such a huge shift.

[Anonymous]

I'm not going to answer all your questions, but DH retired before me and we calculated all the numbers and for one of his retirement accounts we should be pulling out rather than adding in order to smooth our lifetime income rate. Just that alone freaks us out because we are so used to adding all that we can. So, we're still primarily living on my income, we're still adding to my retirement account to get the match, but he's starting to draw down one of his. The amount he's drawing down is still less than the amount I'm contributing + employer match, so we're still technically investing.
But this is a good trial run to get used to the process psychologically--and it's hard! Because we're savers not spenders. It was also hard because when we first started doing it the bond rates were so whacked that we couldn't just go with buying bonds for the fixed income we needed. Now, we just set up a Tbill ladder for the next 2 year's withdrawals, and if the stock market is up when we withdraw, we'll withdraw stocks and reinvest the T bill ladder--if it's down, we'll just withdraw the T-bills and reinvest at a more opportune time. That seems to be the big issue--managing potential sequence of returns risks in the first few years of withdrawing. Fortunately we have this practice time where I'm still working.

[Anonymous]

Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

[Anonymous]

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

This is so sad.

I was actually thinking about this same question this morning. We are so focused on saving now, but once college comes around in 5 years, it’s going to be so odd to write checks for $100,000 or whatever it costs then.

[Anonymous]

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

Maybe they don't want any more? Want to leave it to future generations and/or charity? Or are they fearful?

[Anonymous]

We make the switch in one month! To date we have worked hard to get a real estimate of our expenses. Credit cards and all. So assuming we estimated everything right, we have a plan to use up regular savings first then move on the pre-tax savings.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

Maybe they don't want any more? Want to leave it to future generations and/or charity? Or are they fearful?

I agree this doesn't tell us anything. It certainly is sad if they are forgoing enjoyment out of misplaced fear of overspending, but a retired couple with a paid-off house can live quite comfortably on $80,000 a year or so.

[Anonymous]

I'm not at that stage yet but am pretty steeped in the FIRE movement and can tell you even people that have $4-6 million experience lots of fear and have trouble making the switch from saver to spender. Many end up living on far less than a 3-4% safe withdrawal rate -- and not because they have charitable impulses; it's just fear.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

This is so sad.

I was actually thinking about this same question this morning. We are so focused on saving now, but once college comes around in 5 years, it’s going to be so odd to write checks for $100,000 or whatever it costs then.

The 529 is like Monopoly money. Not really real dough. Writing those checks is not too hard, just don’t think too much about the amount.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

This is so sad.

I was actually thinking about this same question this morning. We are so focused on saving now, but once college comes around in 5 years, it’s going to be so odd to write checks for $100,000 or whatever it costs then.

The 529 is like Monopoly money. Not really real dough. Writing those checks is not too hard, just don’t think too much about the amount.

+1 I think because it's explicitly designated as college money, I never thought of it as part of my net worth and it wasn't that hard to spend. It feels fantastic, too, when that bill is behind you.

[Anonymous]

Anonymous wrote:We make the switch in one month! To date we have worked hard to get a real estimate of our expenses. Credit cards and all. So assuming we estimated everything right, we have a plan to use up regular savings first then move on the pre-tax savings.

You can take out $29,200 tax free in 2024. That’s the standard deduction.

I’d take a mix of savings and pre-tax to smooth the taxes you’ll pay over your retirement time frame. For example, you can take out up to $94,300 and still be in the 12% tax bracket.

My parents did not do this and now they are shocked their RMDs are going to be so high.

[Anonymous]

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

how old are they? My parents were Depression babies and acted similarly although nowhere near the wealth. They also were very proud to leave something to my sister and I.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

Maybe they don't want any more? Want to leave it to future generations and/or charity? Or are they fearful?

I agree this doesn't tell us anything. It certainly is sad if they are forgoing enjoyment out of misplaced fear of overspending, but a retired couple with a paid-off house can live quite comfortably on $80,000 a year or so.

I’m the PP with the in-laws. It’s some of both. They aren’t extravagant people but there are definitely things they both want that they don’t allow themselves and it’s silly. FIL would love a new car and MIL really wants to throw a large milestone anniversary party for them and each is telling the other one no. Us kids are telling them do both and don’t give it another thought! They go on and on about wanting to host an extended family vacation (like a cruise or something) but then balk at what it will cost. Their own parents contributed more than half of college expenses for my DH and his two siblings and his parents won’t put anything in our kids 529s. They are in danger of running up against estate tax issues, especially if laws change, and even they hate that idea, but they are too afraid to start transferring even minor amounts of money to their kids or grandkids, even though their portfolio grows significantly every year because they spend so little of the income it throws off. Not saying they need to dramatically change their lifestyle but there is definitely a lot of unfounded anxiety at play and it’s very sad.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Just don’t be like my in-laws. They never figured out how to do it. They are worth almost $20M from the sale of a business and live on their social security checks plus about $40k/year.

how old are they? My parents were Depression babies and acted similarly although nowhere near the wealth. They also were very proud to leave something to my sister and I.

Born in the early 50’s. Both grew up UMC.