Switching to a decumulation mindset

[dingdong]

Having tried early retirement and realised that I find it mind numbingly dull and boring..... i'm now an enthusiastic supporter of the coasting FIRE approach (and also like the barista FIRE approach). My current strategy is to do maternity cover roles in the charity sector. Easy work - nobody wants you to outshine the person you've covering for - and it doesn't look bad when you leave after a year. I then have at least three months off and rinse and repeat.

However one thing I'm struggling with is how to actually start spending my savings. As soon as I'm in a period where I don't have any salary/pocket money coming in I instantly start looking at any opportunity to save some money even though I really don't need to.

Having spent so long building up my portfolio its quite a mental shift to actually start spending a sensible proportion of it each year without worrying about the impact on my portfolio!

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

[kempiejon]

Having tried early retirement and realised that I find it mind numbingly dull and boring....

Well, I think that's a bit of a shame but rather then debate it I have a suggestion on managing your new income and investments. What I did was try living off my investments and invest my earnt income. You could set yourself an annual income approximately that of your investment income. Open a new account have your investment income paid into that. Start with a float in that account from your savings and pay yourself that amount monthly from a feeder account. there. Meanwhile pay all your new income in SIPP/ISA, premium bonds etc. That way you won't have that worry about not having an income if you're not working and you'll be topping up your pot at the same time.

[Urbandreamer]

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

Partially.

It certainly is not easy. What I find helps me is a spreadsheet that seems to indicate that I could spend in a more profligate manner, given state pension etc in my future.
However it's only a partial aid. The real problem is the "don't spend capital" mindset.
The same spreadsheet shows that there could be a IHT issue, that helps too. I want to spend some of it.

On the subject of "mind numbingly boring", sorry I can't agree. You DO have to put some effort in though. My Uncle learned to swim when he retired. You could learn new things. Possibly new languages. My brother (who is still officially self employed) has become a film extra.

You also need to plan and consider alternatives for when you can't enjoy the things that you currently do. I won't always be able to Ski, as I've done the last three days. You obviously enjoy working in the charity sector, but can I recommend looking into things that you could do, if you physically were not able to turn up to work.

[SebsCat]

Having spent so long building up my portfolio its quite a mental shift to actually start spending a sensible proportion of it each year without worrying about the impact on my portfolio!

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

I was on the verge of posting something very similar! Since my wife retired in 2022 (I stopped working some years ago & started taking my DB pension in 2021), we haven't exactly been scrimping and saving, but my mindset has still been very much about building the portfolio. Dividend income wasn't really there to be spent, but to be used to top-up holdings to increase the future income stream.

A week or so ago, I had a bit of an epiphany. It's not some wisdom that might apply to you (sorry!) but it was simply that if we carried on as we were then once my wife reaches state pension age, her SP and dividends from her SIPP would be such that she would have to pay higher rate tax on some of it if she was ever to actually take all the SIPP income (*). So I've immediately doubled her monthly take from the SIPP and will increase it further later this year. Next March I'll sell & withdraw as much of it as possible whilst keeping her total income / gains below the higher rate limit and I'll keep doing that until she gets to SP age.

* - we've no children so IHT isn't a concern for us. Our various nephews & nieces will each get a decent enough windfall when the time comes even after the tax man takes his chunk.

It's pretty certain that some of the SIPP income will end up being recycled into other savings but that will be because we haven't found things to spend it on. In the meantime, I sold most of our shares that weren't sheltered and my wife has a new (well, 1yr old) electric car

There's still the issue about our ISA income. It's rather less than that from my wife's SIPP and obviously can be taken tax free at any time. Just not quite yet....

[DrFfybes]

ts quite a mental shift to actually start spending a sensible proportion of it each year without worrying about the impact on my portfolio!

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

With difficulty. And it takes time.

And reading above, it seems we are not on our own. We actually paid an IFA to look at our reasoning, who convinced us there was plenty, but even so it is hard when you go into a shop to not say "when did blueberry muffins go up to 180p/pack".

In fact MrsF is still working part time some 8 years after she originally planned to retire, although I haven't had paid employment since I was 53.

We have a few DB schemes (Local Govt and Uni) which cover our day to day expenditure, and yet there is still the "what if the markets plummet 50% overnight?" concern.

One thing I did was to convert a chunk of assets into an 'income'. I'm still 10 years from SP age, but a while ago put an unsheltered sum into a Global Fund which automatically sells off a fixed amount each month equivalent to the value of the SP, and the money goes into my bank. The idea was to run it down so as I reached SP age and the SP would replace it. Apart from the 'running down the value' part, it works well

It spends some of our assets leaving the sheltered stuff to grow, but also gives a regular income that I know will always be there (as SP will 'replace' it, and as it is very 'hands off' it doesn't feel like I'm actively spending our investments. Any surplus (and there is usually a fair bit) goes into our savings account which we would traditionally have used for house works/cars/holidays. I also take income from unsheltered investments into the bank.

If MrsF ever stops work then we can increase the takedown, or set up another similar system for her.

* - we've no children so IHT isn't a concern for us. Our various nephews & nieces will each get a decent enough windfall when the time comes even after the tax man takes his chunk.

Same postion here. I had them set up JISAs for their children with Hargreaves Lansdown and automatically put a few quid in each month as our niece/nephews are only between 11 and 18 years younger than us and we can be generous at Xmas/birthdays. This is all from surplus income.

Paul

[Gerry557]

"I find it mind numbingly dull and boring."

Most people would love to be in your position. It sounds like you need more activities to do.

Holidays are an obvious one but you can do things uk wide. Skiing was mentioned, learn to fly, parachute, hanglide. What about a bike ride. Build up slowly and then you can do multi day jaunts. Devon coast to coast or Way of the Roses etc.

Learn to sail, paddleboard join a gym. 5 a side or chess club. Make a list of movies to see.

There are probably loads of things that could be suggested. I knew someone who had a Yoda toy and every time someone suggested something he would ask the toy and if it said yes he would do it. He said he made lots of new friends in the month that he tried it so kept it going for a year. It had some strange outcomes as well. Things he did included growing a mustache, going to work in a dress, applying for the Mars spacestation. Giving a homeless person £50, doing an ultra marathon. He ended up with crutches after that one.

So go buy a Yoda toy

[tjh290633]

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

I didn't find it very difficult. My pensions covered normal living expenses, so it was a case of either reinvesting other income or spending it. Cruises are a good way, or long haul holidays if you prefer. More recently repairing our roof and having a kitchen refit have absorbed a lot. The garden has also been remodelled to make it's upkeep easier as I proceed through my 10th decade.

Trust funds for grandchildren are a good way of dispersing some. If you make regular monthly payments it comes out of income and so avoids any questions of IHT. After 18 years or so they can have a nice little sum available, should the need arise.

TJH

[kempiejon]

Gemini says (account needed)

Transitioning from wealth accumulation to wealth distribution can be a psychological hurdle. Here's how others have navigated this shift:

1. Setting Sustainable Spending Rules:

Fixed Withdrawal Rate: Decide on a safe percentage of your portfolio to withdraw each year (e.g., 3-4%). This ensures your nest egg continues to grow while providing a predictable income stream.
Review and Adjust: Don't set your spending plan in stone. Revisit it periodically to account for inflation, market fluctuations, and lifestyle changes.
2. Focus on Experiences:
Shift your spending from things to experiences. Travel, hobbies, or learning a new skill can bring lasting joy compared to material possessions.
3. Give Back:
Consider philanthropy. Donating to causes you care about can be a fulfilling way to use your wealth while making a positive impact.
4. Seek Professional Guidance:
A financial advisor can help you craft a personalized spending plan that aligns with your risk tolerance and long-term goals. They can also provide peace of mind by ensuring your spending won't deplete your wealth prematurely.
Remember, enjoying your wealth is part of the reward for all those years of hard work. By planning strategically and focusing on what brings you true value, you can make this transition smoothly and continue living a fulfilling life.

[Urbandreamer]

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

I didn't find it very difficult. My pensions covered normal living expenses, so it was a case of either reinvesting other income or spending it.
TJH

The problem is a new one since pension freedom. Many do not have an income dictated, but must choose the "income" that they desire. The income is often obtained by accessing capital.

I'm not actually claiming a pension at the moment, but the income from my ISA does not cover living expenses. Hence I too must de-accumulate.

[SalvorHardin]

On retiring I signed up for a Law degree with The Open University and went on several Inter-Railing holidays around Europe in the next three years (I was still young enough to be comfortable on night trains).

Two more degrees followed. The rail holidays slowed down then stopped as I approached 55.

Nowadays I watch a lot of sport on TV (Punjab v Bangalore IPL cricket as I type this plus the Tour of Italy cycling). Still lots of reading (but only ten magazine subscriptions nowadays) and day trips (Britain has a lot of interesting places within easy driving distance).

It helps that I'm a big cricket fan and I live only a few miles from a county cricket ground (I have a membership for all three formats). I also go to horse racing meetings (around twenty days a year).

As to decumulation, I haven't bothered. I live off my dividends and they're more than sufficient (I only need about 35% of my income to cover living costs and a reasonable amount of travel and socialising). Investing is a hobby anyway, so it's quite entertaining to find ways to invest my surplus income.

[BullDog]

I commend an income drawdown based on natural portfolio yield. I know there's debates rage that forever on this. Setting that to one side, it suits me just fine to accrue dividends for the year in the ISA/SIPP and draw down what is there every March. I find it very easy to draw down the accumulated cash whilst leaving the capital untouched. Rinse and repeat. Hope that helps.

[scotview]

Having tried early retirement and realised that I find it mind numbingly dull and boring.....

Keeping in good health is very important and doing stuff when you are young.

[xxd09]

Retired 21 years ago at 57
Had been monitoring our living expenses on Quicken for some years before retirement so knew our the outgoings that were needed to sustain our current desired lifestyle
Expenditure managed to remain the same after retirement even though now travelling rather than working
Our investment portfolio plus Pensions and ISAs managed to cope with portfolio actually increasing substantially
Now 78 as is wife -expenditure continues at the same level as we slow down because need more quality in holiday arrangements due to age-less able to rough it!
xxd09

[vand]

Having tried early retirement and realised that I find it mind numbingly dull and boring..... i'm now an enthusiastic supporter of the coasting FIRE approach (and also like the barista FIRE approach). My current strategy is to do maternity cover roles in the charity sector. Easy work - nobody wants you to outshine the person you've covering for - and it doesn't look bad when you leave after a year. I then have at least three months off and rinse and repeat.

However one thing I'm struggling with is how to actually start spending my savings. As soon as I'm in a period where I don't have any salary/pocket money coming in I instantly start looking at any opportunity to save some money even though I really don't need to.

Having spent so long building up my portfolio its quite a mental shift to actually start spending a sensible proportion of it each year without worrying about the impact on my portfolio!

How have others managed this shift from decades of trying to build up wealth and then suddenly being in the world where you should now be enjoying the rewards?

From what I read the mindset shift from accumulation to decumulation and allowing yourself to enjoy your money guiltfree instead of seeing it as another pound that could potentially go towards growing your future pot is the hardest thing about managing your own money in retirement... and I think it is something that I will also struggle with.

I think this is where the delineation of from returns from income total vs total return can really help some people - income is money that has been earnt and now paid out, whereas capital appreciate always feels like tomorrow's earnings. For sure, you don't have to spend all your dividends if you run an outright HYP strategy as it would be far above the generally accept 4% SWR rate, but in my own mind I'd find it much easier to spend 75-80% of the dividends from a portfolio yielding 8% than taking spending the 1.5% dividend and selling 4.5% of the capital from a global stock portfolio. Maybe the backtests don't show any advantage to the HYP, but the comfort blanket of cash returned from dividend income cannot be mentally ignored.

Property investors don't have this problem, do they? They're always happy enough to spend down the income from their rentals because the delineation is so much clearer than with equities.

[xxd09]

Further thoughts
You have to deaccumulate to live in retirement by definition-well most of us do !
So a rubicon is mentally crossed as you go from accumulation mode to deaccumulation mode-a big decision of principle -you have retired!
This doesn’t mean that your savings pot decreases necessarily-if you have saved enough,watch expenses and live frugally-for most of us the savings pot will increase as it must do to keep up with inflation etc -satisfying those remaining accumulating urges?
Using dividends,natural income only etc is really fooling yourself
Psychologically of course taking dividend income only is a default mindset for all sorts of understandable reasons -fight this urge!
A portfolios growth is made of many things -dividends are just one growth factor
Prioritising one particular income factor over others is really active investing and in the worst case can lead to the investor skewing his investment assets to “income” producing assets only with adverse long term outcomes-remember retirement is a long time -often30 years+
A total return policy is a more financially successful technique where the investor takes the whole growth of his assets as income as and when needed by for instance selling the required number of fund units to provide that years income
Done this for 21 years of retirement so far -seems to work
xxd09

[vand]

Using dividends,natural income only etc is really fooling yourself

I would actually slightly argue against this - the optimum backtested decumulation portfolio is different to the optimum accumulation portfolio, because they are designed for different things, and one of the ways they are different is the decumulation portfolio is diversified with more income producing assets - traditionally fixed income, but given the last 15 years of ZIRP until recently people have been forced to find other diversifers.

So yep, pure total global stock market approach with it's 1.5% yield or whatever (reinvested) will beat most portfolios in the long accumulation phase in any given starting year, but in decumulation it's a suboptimal strategy, as it's inherent volatility means you can't be confident that won't need to pull out money during a huge drawdown, crocking its ability to recover and sustain ongoing withdrawals.

[kempiejon]

I was chatting with 2 mates this weekend, both have their own businesses, one is winding down the other still slogging away. I was telling of my plan to pay myself annually as that allows me to finagle my tax affairs. I want to take say 4% from the pot of SIPPs ISAs, fill a header tank account and take a monthly salary from that. That'll hopefully smooth the wrench of losing the monthly pay check. The one winding down has always lived off a lumpy income he said with feast and famine. The other often had rolling contracts so way able to budget a bit better out a few months at a time but they both were of the opinion that if my investments are sufficient to support me taking a set monthly amount was a bit pointless and they'd never had any difficulty with unequal payments.

As investment returns have a for several years exceeded planned post work expenses I can see a point in the future where running down the portfolio value with regular expenses would be impossible so I expect I'll be accumulating even when spending not investing.

[Dicky99]

FWIW I have a small DB pension which starts paying at the end of this month which is about 50% of what I'll be happy to live on going forward. For the remaining 50% I will maintain 2 years worth of expenditure in what Kempiejon refers to as a header tank, which I choose to place in premium bonds.

I will withdraw 1/24th after each month's draw to live on and the plan is to use any periods while the markets are doing well to time the sale of units to top back up 24 months worth. Hopefully that will protect against the pain of having to sell units at depressed values.

On the matter of potentially being bored stiff after stopping working, I packed up 3 years ago. The first 3 months were pure novelty value. The next year or more I was conflicted sometimes feeling it was I dulgent not working and I ought to be doing something meaningful every day. As a result I was embarrassed to tell people I'm retired.

Now I feel I'm much happier and more relaxed about the slow pace of life I earned the right to. I no longer have any compunction to do meaningful stuff.
I love breakfast which has become a leisurely introduction to every day instead of a rushed piece of toast; I cook every day and so my diet has benefitted; spend a lot of time outdoors mostly walking or exercising; I play midweek golf with a pal on half empty golf courses and can book short trips away at short notice. In terms of the latter on Monday last week the weatherman promised hot sunny weather in the days ahead and so within an hour I'd booked 2 nights away to walk a bit of the stunning Pembrokeshire Coast. The weather was amazing as promised, it was low season cheap and there was an almost total absence of annoying kids and harassed parents each place I arrived at. Perfect in fact

[kempiejon]

I will maintain 2 years worth of expenditure in what Kempiejon refers to as a header tank, which I choose to place in premium bonds.
I will withdraw 1/24th after each month's draw to live on and the plan is to use any periods while the markets are doing well to time the sale of units to top back up 24 months worth. Hopefully that will protect against the pain of having to sell units at depressed values.

Now, this I like, thank you for sharing. That's just the sort of safety first planning I can embrace. My planning involves having 3 years worth of expenses to protect from forced selling in a down turn using premium bonds and cash. I've recently learnt about gilts on the boards and can see a place for some short term fixing 2 or 3 years out using them too.

On the matter of potentially being bored stiff after stopping working, I packed up 3 years ago. The first 3 months were pure novelty value. The next year or more I was conflicted sometimes feeling it was I dulgent not working and I ought to be doing something meaningful every day. As a result I was embarrassed to tell people I'm retired.

I've had a few times of months, up to about a year out of employment and never had any problems filling my time and relish in the economic unproductivity but just how easing into decades of that affects me, lets see. I do have a list. When I have been unemployed having something to do everyday is a worthwhile aim, something though can just be getting the shopping in or doing the laundry. There's a banjo needs more attention and the garden is never done, I've got mates to visit in Dublin and the sherry in Jerez won't drink itself now will it.

[Dicky99]

...and the sherry in Jerez won't drink itself now will it.

If you do there's a good train service to Cadiz which is well worth combining with Jerez.