Simply put, I had a retirement spending problem. I planned and saved for years so I could retire to the life I fantasized about. There were years of researching everything I could find about early retirement and personal finance, yet I still fought a retirement spending demon. It didn’t happen on day-one of retirement. Everything went exactly as planned. I ditched the rat race and celebrated sensibly for a few weeks while I settled in. But then my retirement spending troubles began. I had a big problem all right, I was psychologically attached to my retirement funds and it messed with my head.
We spend a huge chunk of our life saving for retirement and then, BAMO! We get hit with the reality that we have no idea how to mentally handle spending our hard-earned savings. I believe it was the hardest part of my retirement transition.
Coming to Grips With Retirement Spending
The numbers were all there. I knew exactly what my lifestyle budget was and how much I would need to fund it. The portfolio was set up to make those funds available and yet I was miserable with concern, anxiety, and a lot of other emotions. All of which wasn’t in my very detailed early retirement plans.
What was in my retirement plan was using what was considered an acceptable safe withdrawal rate. That is always part of our retirement funding calculations. The fear of overspending in retirement and exhausting the portfolio before you leave the planet is well deserved. That’s why we de-risk our portfolios with diversified investments and make contingency plans for rotten economic scenarios.
As for my planned early retirement lifestyle, I had tossed aside any desires for extravagant spending decades earlier and embraced frugal living to get me to where I was. I had already created the perfect lifestyle. But even with everything planned for, I couldn’t shake the retirement spending nag. Going from retirement saver to retired spender was a mind warp!
I Reacted and Succumbed to the Spending Nag
I started to restrict everything I had planned on doing in my retirement that had a cost to it. My mind rationalized it as financially necessary and I didn’t think much more about it except for one problem, I still had memory of what I wanted in my retirement. It didn’t take long before I started to hate how this spending nag turned my retirement into a cheapskate lifestyle. I was always smart frugal, not cheap like this. What I was doing wasn’t anywhere close to the early retirement dream I worked so hard for.
I started to think about elderly relatives who lived through the great depression and how decades later they lived a miserly life even though they had a good amount of money stashed away. All of a sudden it all made sense to me. What I was experiencing was a different flavor of the same psychology. Only then was I able to self-assess my irrational retirement spending problem and turn it around.
Shifting The Way I Visualized My Retirement Spending
Let Go
Letting go of our title and work identity is a common subject talked about for retirement preparation. When I retired in late 2009 I don’t recall ever seeing anything about letting go of being a money saver. If I did I must have ignored it as a non-issue. Believe me, we do have to let go of being a saver. Even in months when my gains, dividends, and interest outpaced my withdrawals, I still could feel the spending nag of knowing those gains didn’t get reinvested like in the past.
Instead of letting this nag continue to rule me I decided to treat it the same way I did shedding my work identity. I recognized it as normal and part of my transition from worker bee to retired freedom seeker. I made a goal to stop letting this mental attachment to saving and growing my portfolio dictate my actions. Instead of letting it control me I now would control it. I made the mental decision to turn my unholy attachment to my saver mentality into something I needed to work through and let go of it.
Retirement Money’s Purpose
One of the things I had to remind myself about is that my portfolio was specifically created for one single purpose. It’s only purpose was to fund my retirement so let it. It wasn’t created to sit locked up and unused or worshipped like I was Gollum and his precious ring.
Drop Emotion, Stick-To And Believe The Facts
The numbers were sound and there was no logical need to restrict my planned retirement. They were double and triple checked using all kinds of scenarios to leave no logical doubt. There was no reason to have the retirement spending problem that I had. I simply recognized I needed to control my emotions and stick to the plan. Do that and everything would be fine.
Giving Time To Adjust
It took many years of smart frugal living and saving a big chunk of my income to get to where I was. It stands to reason that it would take time to adjust my mindset. I had years of conditioning my brain to successfully create a lifestyle I loved and pull off early retirement. No matter how much I planned what I wanted to do in my retirement and how I would fund it, it will take time to adjust my brain to this new way of living.
It Worked!!
It took a few months to fully relax into my retirement spending plan and I was cognizant of the nag for over a year as it occasionally surfaced. I look back now and I’m grateful that I took positive steps to recognize and counter the saver mentality that was over-controlling me. I know people who never escape it and live an unnecessarily restricted retirement.
Breaking free starts with having a smart budget that includes what we want to do in our retirement. A budget that then matches up to a sound withdrawal strategy. Then believing in the numbers, letting go of our saver’s mentality, and letting our retirement portfolio serve its purpose. Most of all, give ourselves time to settle into the new way of living and allow the numbers and planning to prove once and for all to our brain that everything is working exactly as it should.
Our spending discipline that gets us to early retirement won’t just disappear. If the worst should happen then we will logically do what’s financially necessary. In the meantime, purposely spend on the things that matter in retirement just as planned for.
I have a friend who created a special account for his expensive vacations. If all of your needs are met with other accounts you can permit yourself to spend from that “play” account. An essential versus discretionary mentality. I appreciate the difficulty of spending down your portfolio. Thankfully we have had a decade-long bull market.
Thanks for the comment James. A separate special account is a good way to manage spending both financially and mentally. I have a monthly amount deposited into my savings account from my portfolio. My living exp, travel, hobbies, etc. are all part of my yearly budget. I just manage my retirement spending from the savings account. As you say, thankfully there has been a good market run.
Tommy
I get that. I’ve been retired 3 years but since my side gigs that I setup mostly for entertainment are making a good bit of money I have stayed at a zero or negative withdrawal rates so far. I think if that wasn’t the case I’d have to make the same adjustment. Even now it bothers me a little I’m not still saving!
Thanks for the comment Steveark. It’s a weird retirement transition. Even when we break even the lack of adding to savings takes getting mentally used to. During my paid retirement adventures I was still taking portfolio withdrawals due to my use of the SEPP 72t but I added all income back into the portfolio which was 100% more than withdrawals. It easily fed my savings addiction. Once my gigs ended I was ready for the retirement spending nag and expected it. It was a much easier than my initial introduction to the spending mind-warp to deal with.
Tommy
Thanks for sharing your experience! I am still three years away (hopefully!) from my definition of early retirement, but I had never really thought about the issues you raise. Given my saver’s mindset, I can definitely see myself falling into some of the traps that you did. I hope your post will serve as a warning to future me to fully embrace my eventual financial independence if my numbers work out the way I have planned!
Thanks for the comment Retiring-OMT. It was a shock to me and hopefully you are spared this little mental nag when you retire. It is just another aspect we need to deal with and being aware of it is the first step.
Tommy
Thanks for sharing Tommy. I early retired about 5 months ago and am struggling with it myself. Everything double and triple checked for any potential pitfalls for the next 40years but the mental switch from saving to spending is more difficult than I imagined. For some reason it still seems like I’m going backwards by withdrawing or spending anything from the funds built up.
Thanks for the comment Mad. It does take a conscious effort to overcome it but the great thing is that it can be. Even though I was able to counter it after a few months, I was aware of it in the background for a good year before finally kicking it. Good luck with your retirement and overcoming what I believe is a common retirement spending nag. The trick is to not let it overly control our retirement. Our life’s Time account is being spent and is the one thing that can’t be added to.
Tommy
Great points you bring up and something that can often be overlooked. I’ll keep this in mind when i’m fully relying on my portfolio down the road. It will be hard not having fresh money coming in to invest, “max out” retirement accounts, etc and instead just spend it for expenses and enjoyment. I think being conservative and frugal minded can overall be a good thing so as not to go crazy with your spending and over-doit. But you can also take it too far. Its dangerous to even say this for most people, but as the saying goes, you can’t take the money with you either. Maybe you get that Harley motorcycle you always wanted or build a nice workshop for yourself for $10k even though you don’t totally need it. On some level, your money is there to be enjoyed also and not just there to pay bills with a minimal existence. Have discipline and some restraint, but like you said, spend purposefully to enjoy yourself along the way.
Thanks for the great comment Arrgo. I’m always fascinated with my personal retirement spending dynamics. I found that I easily without question leaned towards restricted spending instead of the often cautioned retirement over spending. I wonder if this is due to how retirement is attained. One of working, budgeting, saving, and planning for it vs. just casually retiring at a given time because of age, unplanned dismissal, surprise early retirement offer, or just pension/Social Security eligibility. You make the perfect point that sums up the issue,use discipline and restraint but also enjoy yourself along the way.
Tommy
Retired life is the time when you want to enjoy your life with freedom and do the things of your choice. But with no income source, your dream can remain untrue. Controlling your spending habits and planning before you actually get retire can help you avoid a lot of difficulties later.
Thanks for the comment Paul. I agree with you and believe me, I had everything covered financially to enjoy my early retirement. What happens though is even when people do everything right financially, it takes some work to readjust our brains to accept the new retirement income dynamic and allow ourselves to enjoy our retirement. Financial means, spending discipline, transitioning from saver to spender, and letting go of our portfolio attachment all has to occur to actually get to the enjoying part of our retirement.
Tommy
Awesome! No words. You always go one step beyond.
There is so much great, useful information here. Thank you! Thank you! Thank you!
Thanks again 🙂