General Discussion > Post-FIRE
Spending Capital
PhilB:
A query for those of you who retired with a gap between stopping work and other income streams like pensions kicking in. The logical thing to do here is to burn through some capital bridging the gap. I was just wandering if other people found that as hard to do psychologically as I am finding it?
I retired with an eleven year gap and have managed to bridge the first three years with a bit of very part time work, but am now in a position where I have the bridging fund for the remaining 8 years sitting in cash, which somehow makes it more real. It's enough money to buy a small house! It feels almost immoral to be contemplating spending it on living expenses. Intellectually I'm convinced it's the right thing to do to smooth my income, but it just feels so wrong. Is it just me being weird, or have others struggled with this too?
2sk22:
I'm a bit confused - there are innumerable threads here and other forums on the mechanics of spending your stash in retirement. Are you saying that you want a 0% withdrawal rate?
former player:
--- Quote from: 2sk22 on June 04, 2021, 06:16:56 AM ---I'm a bit confused - there are innumerable threads here and other forums on the mechanics of spending your stash in retirement. Are you saying that you want a 0% withdrawal rate?
--- End quote ---
Effectively, I think yes. There is a powerful impulse to the accumulation of capital, especially when it has been focused on for a number of years. and a long social history of "you don't spend capital, you only spend income".
I've never had much trouble spending capital on assets (houses, renovations, even cars). Spending capital on revenue expenses on the other hand feels Micawberishly wrong: one's expenses should not exceed one's income.
Phil, how much income does your accumulated capital throw off? What happens if instead of automatically re-investing you set it so that the dividends pay out into your bank account on a monthly basis? You could then invest the cash you have (turning it into capital) to increase those dividends. You do lose the "certainty" of having 8 years of expenses saved in cash but on the other hand just think of what you are losing to inflation over those 8 years by holding cash.
PhilB:
Sorry, let me clarify the situation a bit. I have a separate drawdown pot. The income from this using a 3.5% drawdown rate will provide around half of our income throughout retirement. In 8 years time we have pensions coming on line which will provide the other half of our income. I also now have a pot of cash to provide that missing half of the income for the next 8 years. Intellectually I think that all makes perfect sense, matches my risk tolerance, etc, etc. I'm happy to accept the inflation risk on that half of our income.
My problem is that this cash pot of around 4 years worth of total spending is sitting looking at me going 'you're not really going to spend me on revenue items are you?'
--- Quote from: former player on June 04, 2021, 06:32:46 AM ---I've never had much trouble spending capital on assets (houses, renovations, even cars). Spending capital on revenue expenses on the other hand feels Micawberishly wrong: one's expenses should not exceed one's income.
--- End quote ---
Yep, this is the problem in a nutshell. It just feels so wrong! (break out the world's tiniest violin) All my instincts tell me I should be just living on a sustainable drawdown from the total amount of capital, but that is crazy as it would leave us tight now and with way more than needed in the future.
jim555:
It is hard to break the mindset, but I look at it like that is why you saved it so it can be spent. You don't want to die the richest person in the graveyard. In less than 10 years my pension and Social Security will easily cover expenses, so spending down some capital is not going to send me back to work.
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