Throttling back on saving and investing when the paychecks go away

[VagabondMD]

Transitioning to a future without a regular (fat) paycheck is an interesting mental exercise, and I am getting a taste for what it is really like on a number of levels. For background, if you read my earlier thread "I Quit", I have resigned from my professional group to an uncertain future, one which will probably involve some part time work, some consulting position(s), and perhaps developing a new career or business direction. Fun stuff, and I am truly excited about all of these opportunities, but nothing is yet set in stone. The only thing thing that is set in stone is that the regular paychecks are going away, yet the expenses remain largely the same.

I am already seeing the need to adjust (read: cut) my saving and investing. I have been so accustomed to automatic withdrawals from my checking account to Fidelity, Vanguard, four 529 plans (two for each child), and, more recently, Betterment. It is causing me some pain that I will have to reduce, gasp, maybe eliminate, these contributions. We will still contribute the max to our respective tax-deferred retirement plans and still might fund the wife's deferred compensation plan a little. My wife will continue in her position, at least for a few more years.

Of course, we can and will make some lifestyle adjustments, too, but I am trying to make this as easy as possible on my family. I am having a tough time adjusting to the non-saver mindset! I expect that this is not so uncommon.

[Hatton]

As I quit Ob 2 years ago and went to 3 days/week I fully understand. I still fund an Ira with catch up but that is it. I too spent many years enjoying fully funding my retirement accounts and saving lots of extra money in a taxable account. I now realize that my accounts appreciate with the market much more than contributions. The mindset switch from saver to compounder only is a tough one.  I find that I am much more frugal even though I know I don't really need to be.  I think the psychology of spending a paycheck is different from spending savings.

[Lithium]

Out of curiosity, what percent of your gross income are you still saving to these retirement plans, despite being semi-retired?

[PhysicianOnFIRE]

If your accounts are "full-grown" as in big enough to call yourselves financially independent (which I know they are from reading your forum posts), there is no need to keep feeding them. I can understand the want, but there is no need.

It will be really weird to stop making that big monthly contribution to the taxable account in retirement, but I won't stop working until I'm comfortable the accounts are quite plump and no longer need the extra nourishment.

Best,

-PoF

 

[Hatton]

When saving for retirement has been your number one expense for many years it is hard to stop doing it even when you know you have enough.

[VagabondMD]

Lithium wrote:

Out of curiosity, what percent of your gross income are you still saving to these retirement plans, despite being semi-retired?

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I have not yet done the math. I still have two months on my contract, and my future gig(s) is/are undefined at the moment.

I expect that for my wife, she will still max out her 401k contribution with catch up. Depending on bonus and such that should be in the 6-10% of her gross income range.

I plan to maximize my contribution to whatever plan is offered (if I am employed) or a SEP-IRA (or whatever vehicle is best), up to 25%. We should be able to live off current income and even still save a little in taxable accounts...hopefully! It is still useful to reduce the income taxed at the higher brackets. If we draw from taxable accounts while we contribute to tax-deferred, we would be shifting the balance of our assets in an unfavorable direction.

[VagabondMD]

PhysicianOnFIRE wrote:

If your accounts are “full-grown” as in big enough to call yourselves financially independent (which I know they are from reading your forum posts), there is no need to keep feeding them. I can understand the want, but there is no need.

It will be really weird to stop making that big monthly contribution to the taxable account in retirement, but I won’t stop working until I’m comfortable the accounts are quite plump and no longer need the extra nourishment.

Best,

-PoF

 

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It comes down to the question of: "When is enough, enough?" and how confident one can be in that number.

I took the baby step of reducing the 529 contributions for the coming months. Even that feels strange.

[Kamban]

Vagabond MD wrote:

 

I am already seeing the need to adjust (read: cut) my saving and investing. I have been so accustomed to automatic withdrawals from my checking account to Fidelity, Vanguard, four 529 plans (two for each child), and, more recently, Betterment. It is causing me some pain that I will have to reduce, gasp, maybe eliminate, these contributions. We will still contribute the max to our respective tax-deferred retirement plans and still might fund the wife’s deferred compensation plan a little. My wife will continue in her position, at least for a few more years.

Of course, we can and will make some lifestyle adjustments, too, but I am trying to make this as easy as possible on my family. I am having a tough time adjusting to the non-saver mindset! I expect that this is not so uncommon.

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You have quit from a high stress job but along with it goes your $500K annual income. Realistically you will be doing part time job where your income will be $200K. Maybe $100K in other ventures, though it may or not be what you imagine it to be. So you will have to plan for a shortfall of $200K at the minimum and how to cope with it.

 

I would try and not shortchange the children's education to make up this decrease. The chances of them getting free scholarships as children of high earners is close to zero unless they are pure merit based ones. So the 529 will help. And the longer the money is in the system the more they are likely to grow. I would look strongly of ways to cut discretionary spending. Maybe less eating out. Not much entertaining as before. Maybe a cheaper fuel efficient car. And so on. Once you start doing it, it becomes second nature and even when your income rebounds back you will have the saver mentality and practice it.

Good luck

[Hatton]

I think from Vagabonds previous posts that his kids are funded.  His wife is a lawyer making good money and he has a sizable nest egg.  I think the vagabond can still eat out.

[Kamban]

hatton1 wrote:

I think from Vagabonds previous posts that his kids are funded.  His wife is a lawyer making good money and he has a sizable nest egg.  I think the vagabond can still eat out.

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His kids are being funded but not to the extent previously envisioned, due to loss of income from quitting. So he is now on one income + lifestyle. He can still eat out and take vacations but not as liberally as before.

Something has to give, to make up the $200K+ deficiency. A slight adjustment in the discretionary spending might not be a bad idea. If I were to do such a thing I would start leading a more moderate consumption lifestyle.

 

 

[Jenn]

If he felt a need to save as much as he did on $500K salary towards retirement and college, he should reduce his lifestyle at least as much as he reduces his savings; to get used to the reduced funds available for his lifestyle should he need as much as originally budgeted for college, or should his retirement investments only return the minimum he expected when he arranged a higher contribution toward it. If his income goes back up again or investments are doing much better (or kids' educations turn out cheaper) he can loosen up again.

[VagabondMD]

Kamban wrote:

hatton1 wrote:

I think from Vagabonds previous posts that his kids are funded.  His wife is a lawyer making good money and he has a sizable nest egg.  I think the vagabond can still eat out.

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His kids are being funded but not to the extent previously envisioned, due to loss of income from quitting. So he is now on one income + lifestyle. He can still eat out and take vacations but not as liberally as before.

Something has to give, to make up the $200K+ deficiency. A slight adjustment in the discretionary spending might not be a bad idea. If I were to do such a thing I would start leading a more moderate consumption lifestyle.

 

 

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Yes, there will be some lifestyle changes for both me and my wife. We are going to try to minimize the impact on my children. That said, my children have had a pretty ************************ good start, better than most (including their parents), with top flight education, extra-curriculars, camps, and especially travel. They could stand to "suffer" a little.

The $200,000 shortfall will be easy to erase. Almost $100,000 will be in the form of taxes that we will no longer have to pay. At the margin, we are paying close to 50%.

The rest will come from reduced contribution to taxable savings and investment accounts, my wife's deferred comp plan and 529s.

When my daughter, my youngest, finishes high school in four years, I have every intention of selling the house and moving into something with lower overhead. Heck, for the price of property tax and homeowners insurance alone, I could probably live in a very nice apartment!

I could get a cheaper car, trading in my 2011 Prius for a 2006, but I am not sure that it will be more fuel efficient or that it is worth the bother.

I am concerned about the downsizing of our budget but am confident that we can manage it.