Living on savings
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bostonerimus wrote: »Simply putting the lump sum in the bank and spending it down to zero is a very unsophisticated approach.....it does have the advantage of being low risk as long as you have your spending well controlled and inflation doesn't take off. So a detailed budget is the starting point. Personally, I'd want to do a bit more with the lump sum.
It would be very unsophisticated if the lump sum was your only asset but my understanding is that the OP has allocated this sum for that very purpose and has other assets together with guaranteed sources of income in the future.0 -
My challenge to OP would be this - you have saved this money, specifically to do this task. It is now nearly time to spend this money for its intended purpose which is great. The question is, can you handle the psychological adjustment from being a saver to being a spender and to stand by and watch as you burn through all that lovely capital? I know I'm expecting to find that very hard indeed!
Yes it requires a major change in behaviour.
When you've spent decades saving and investing for the present, it is all too easy to keep saving and investing for the future, even if you know you have more than enough already.
It is quite difficult to actually spend it, if you aren't used to doing so and there are certainly mental hurdles to jump over.0 -
My challenge to OP would be this - you have saved this money, specifically to do this task. It is now nearly time to spend this money for its intended purpose which is great. The question is, can you handle the psychological adjustment from being a saver to being a spender and to stand by and watch as you burn through all that lovely capital? I know I'm expecting to find that very hard indeed!
I would. I've now started living off savings & investments (7 yrs or so from pensions) and I do struggle with the change from save up to spend down. Because of the market returns over the past year of course I am not actually spending down, but when that changes I know I will find it hard. Surprised more apparently don't. Part of my coping strategy is to have 2 to 3 years in cash and excluded from my core "portfolio" which will replenish the cash reserve annually but hopefully last 40+ years.0 -
I've been going for nearly 21 years, with another 7 to go until pension time.can you handle the psychological adjustment from being a saver to being a spender
It's a good point, my savings grew by 30% in the 10 years up to the credit crunch, and another 4.5% since. My forecast says that I could significantly increase my spending, but who knows what catastrophic effect Brexit will have though.things like motor insurance may get slightly more expensive
I remember having a Kafkaesque conversation with an insurance company:
"I'm living off my savings, does that make me unemployed or retired?"
"I don't know"
"Well if you don't I don't"
"So what do you want me to put down?"
"What's cheaper?"
"I can't tell you that"
"They're your categories, if you don't know which I fit in, how am I supposed to know?"
It went on like that for about 20 minutes, until I put the phone down.
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It would be very unsophisticated if the lump sum was your only asset but my understanding is that the OP has allocated this sum for that very purpose and has other assets together with guaranteed sources of income in the future.
My understanding was that the OP has a number of defined benefit pensions and the OP says the pot can be spent down to zero. If the OP has other liquid capital that might be ok, but there's no mention of that and they would have far greater flexibility and security in retirement if they started to tap the DB pensions with some of the lump sum still available for large emergency expenses.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
I retired at age 52, three years before my DB pension started. I did a detailed budget and put one year's spending in the bank. In the end I didn't have to spend down the money in the bank as rental income and dividends covered my expenses. Now that the DB pension has started I reinvest dividends and still keep at least one year's worth of spending in the bank. Monthly income from DB pension and rent is $3k and average monthly expenses $2.5k.....a nicely Micawberish arrangement.
I would encourage the OP to plan to keep a sizable amount of the lump sum to complement the DB income stream.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
bostonerimus wrote: »I would encourage the OP to plan to keep a sizable amount of the lump sum to complement the DB income stream.
Don't you believe the OP when they say:To Clarify; the pot can be spend down to zero, as at that point we will switch to living on my wife's superannuation, and my pensions. These combined will give us an embarrassingly good income, well above what we would need.0 -
I believe the OP, but think they would be making an error spending the lump sum down to zero and just relying on the DB pensions. Their plan might work, but as stated it is not optimal.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Certainly do an income and expenditure budget, but don't forget the citical impact of capital expenditure, in particular unexpected un-budgetted expenditure.
What happens if you suddenly need a new car?
Or major house repairs?
Unexpected family misfortune?
Is this pot clearly defined as outside your normal savings/reserves provision?0
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