Awkward phase of accumulation

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NoMansLand
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Awkward phase of accumulation

Post by NoMansLand »

Background: myself 41, wife 40, daughter 7

Total assets: $1.9m
Total debt: $500k
Total liquid investments: $1m

We've always had a focus on savings rate. We don't live super frugal, but we do "pay ourselves first." So we have been living below our means for a long time.

What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences? There is some weird guilt in thinking about doing that. I feel like I'm in no mans land - I have enough to maybe put savings rate on hold forever, but not enough to live off of my assets entirely.

How have others approached this emotionally and mentally? I can't be the first one who is deeply uncomfortable in no mans land.

dbr
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Re: Awkward phase of accumulation

Post by dbr »

It is probably time to look at a planning model for your savings and investing relative to your objectives.

Here is a page from the Wiki on models: https://www.bogleheads.org/wiki/Retirem ... d_spending

You can explore the effect of how much you save, what your asset allocation is, what your timing is, how SS, pensions, and annuities will play a roll in your retirement, and so on. All the models take account of the variability in future investment returns and inflation.

It is a possible outcome that you predict you have saved enough to retire the way you want, though for most people to stop saving at age 40 might be a stretch. You can affect that hugely by deciding what standard of living in retirement is enough for you.

RadAudit
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Re: Awkward phase of accumulation

Post by RadAudit »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences?

It depends. As long as you can stick to your investment plan with the asset allocation you have and meet your goals in a timely manner, I'd say stay the course.

One possible reason the market swings seem to overwhelm saving contributions maybe that you are relatively early in your accumulation phase. Check your math again and stay the course.

FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.

bloom2708
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Re: Awkward phase of accumulation

Post by bloom2708 »

$1 million is not what it used to be.

You still have $500k in debt. Do you envision having a mortgage during retirement?

What is your annual spend and what do you project your annual spend to be when you retire?

Growth doesn't come in a straight line.

I would at least do $19,500 to each pre-tax 401k and $6k to reach Roth IRA. HSA if you have that option. Don't give up your tax advantaged space.

Can you save a bit less in taxable? Probably.

I think you are at mile 13.1 in a full marathon. Doing good, on pace, but you must keep your head down and pump your arms. The race has 13.1 left and still a ways to go.

Last edited by bloom2708 on Mon Oct 25, 2021 9:40 am, edited 1 time in total.

"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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hand
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Re: Awkward phase of accumulation

Post by hand »

Welcome!

This is a great question - $1.9M today can reasonably be expected to more than double (and possibly quadruple) by the time retirement comes around in your 60's and end up being $4M+ even after discounting for frothy current valuations and inflation. It is worth some math to determine whether this will support your desired lifestyle, but obviously more than enough for a secure retirement for most.

At some level, I'm sure the math says you're fine to stop contributing, but that feels like a pretty big leap this early in the game.

Personally, I've mentally moved the goalposts to keep the motivation to continue saving:
1) Not lose out on easy tax breaks - max 401(k) and backdoor Roth
2) 529 contributions until fully funded
3) Make it to the place where I can walk away from work at any time
4) Make it to the place where I don't have to worry about market disruption, job loss etc.

While I do have an appetite for additional consumption, I focus on funding it out of additional earnings rather than by reducing savings.

I suppose fundamentally, I believe underspending to be a personal virtue which yields its own rewards beyond financial accumulation - more than the money itself, the discipline of foregoing wants today is what guarantees a successful retirement in the future irrespective of my asset level.

humblecoder
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Re: Awkward phase of accumulation

Post by humblecoder »

I get what you are saying.

Every month, you put $1625 into your 401k (assuming you max it out). However, with a balance of $1M, you could easily lose or gain that amount in one day. So what's the point of making a contribution if it is going to make so little difference?

I think another poster had it right when it compared saving for retirement with running a marathon. Each individual step might not appear to get you that much closer to the finish line. What gets you to the finish line is the accumulation of all of those individual steps.

You don't provide much details, but let's say that you have 20 years to retirement. Assuming you save $30K per year on average, that's an additional $600K added to your pot of gold. And that doesn't count the inevitable earnings on that $600K. So let's call it an additional $1M. Note that I used $30K per year to try and account for annual contribution limit increases and such, but you can feel free to "salt to taste".

Maybe you'd still reach your financial goals without that additional $1M. Maybe you wouldn't. But to get over that mental hurdle that you talk about, think of the big picture and how much those little contributions will add up over time.

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mhc
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Re: Awkward phase of accumulation

Post by mhc »

Welcom to the forum!

Here are a few things to consider:
1. One of you could live another 50-60 years. It is really hard to predict that far out.
2. You may lose the ability to work sooner than you want.
3. If you allow life style creep, then you will have to save more for retirement to maintain that life style.

I would recommend that you keep saving.

dbr
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Re: Awkward phase of accumulation

Post by dbr »

The fact that variability in gain from year to year is larger than the contribution from saving does not imply that the savings contribution has no effect on the long term outcome. To estimate if it will or not you have to do some calculating using a statistical model. The question can't be made more simple than it is.

Sic Vis Pacem
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Re: Awkward phase of accumulation

Post by Sic Vis Pacem »

We're in a roughly similar place with respect to assets, debt, and "paying ourselves first" without being terribly frugal. I address the "emotional and mental" portion by thinking of it in buckets. Instead of thinking about market swings and growth for my whole portfolio, its more like: How much of my son's college is funded? How much is my daughters? Have we adequately grown our HSA to handle anticipated medical expenses? How much more do we need to handle unanticipated medical expenses? So while the contribution over a year may get lost in the portfolio swings, I can look back and say things like: I've funded another semester of college. We've prepared for braces x2, etc.

When I do look at the macro level, I try to model out how much closer new contributions and savings plans bring me to my "number." New contributions get me there faster than relying on growth alone. But you need to have a good sense of modeling to know whether that deferred consumption is worth it to you, if you are really substituting it for desired consumption now.

For the last couple years, we've decided to fill our tax protected space, as well as a small recurring contribution to taxable, just to keep the muscle memory. This is a modest reduction in our savings while we have young kids at home. That said, I'm in line for a reasonably sizable increase in compensation in the next few years that we plan on using to turbo-charge savings, so it all depends on your circumstances and how you plan to meet your unique goals.

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Ben Mathew
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Re: Awkward phase of accumulation

Post by Ben Mathew »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences?

Have you explicitly calculated the impact of saving vs not saving for the rest of your career? My guess is that it would, under reasonable assumptions, still have a substantial impact on your retirement income.

EnjoyIt
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Re: Awkward phase of accumulation

Post by EnjoyIt »

Awkward? No way!
This is the best part of everything you have worked for. Growth can actually outpace your contributions on a yearly basis which is where the real magic of compound interest takes affect.

There was a poster above who recommended to start evaluating your goals. What do you spend every year? Do you plan on retiring early or do you plan on working deep into your 60s? Do you plan on maybe going part time or cutting back at some point between now and retirement?

All I can do is share our experience. When we got to a point where growth alone can get us to the finish line in the next couple of years, instead of spending more we work less. We cut back on work and have been part time ever since. We take that extra time to exercise more, eat healthier, and spend more time with friends and family. Plus, we still fill up our tax advantaged accounts, and we paid off our mortgage. We eventually hit our retirement number, and as our wealth grew, we started spending more on experiences and some luxury with the intention of staying at around 25x expenses or a 4% withdrawal rate. (NoMansLand, if that last sentence confuses you, it may be worthwhile doing some education on withdrawal rates in retirement. But a quick example: If our wealth grows by an additional $100k, that means we can spend 4% more a year or spend an extra $4k a year on vacations or other items.) Today, we can retire at any moment, but still enjoy our work, and hope that continues for years to come. If this type of living and financial planning interests you, it would make sense to keep saving until you are close to your retirement goals and then re-evaluate your situation.

Good luck.

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willthrill81
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Re: Awkward phase of accumulation

Post by willthrill81 »

humblecoder wrote: ↑Mon Oct 25, 2021 9:35 am I get what you are saying.

Every month, you put $1625 into your 401k (assuming you max it out). However, with a balance of $1M, you could easily lose or gain that amount in one day. So what's the point of making a contribution if it is going to make so little difference?

I think another poster had it right when it compared saving for retirement with running a marathon. Each individual step might not appear to get you that much closer to the finish line. What gets you to the finish line is the accumulation of all of those individual steps.

You don't provide much details, but let's say that you have 20 years to retirement. Assuming you save $30K per year on average, that's an additional $600K added to your pot of gold. And that doesn't count the inevitable earnings on that $600K. So let's call it an additional $1M. Note that I used $30K per year to try and account for annual contribution limit increases and such, but you can feel free to "salt to taste".

Maybe you'd still reach your financial goals without that additional $1M. Maybe you wouldn't. But to get over that mental hurdle that you talk about, think of the big picture and how much those little contributions will add up over time.

Well said.

The other, potentially more important, reason to continue with the existing contributions is to avoid allowing one's spending to increase, which increases the level of assets needed to reach financial independence.

"Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men." J.R.R. Tolkien, The Lord of the Rings

jebmke
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Re: Awkward phase of accumulation

Post by jebmke »

willthrill81 wrote: ↑Mon Oct 25, 2021 10:43 am The other, potentially more important, reason to continue with the existing contributions is to avoid allowing one's spending to increase, which increases the level of assets needed to reach financial independence.

Right; it really is mostly a mental discipline thing. It was easier when I was accumulating. Having "a number" wasn't a thing so you really had no concept of the relationship between what you had at any point in time and a numerical end goal. Also, for a significant period, there wasn't real-time info on where you stood anyway.

When you discover that you are riding a dead horse, the best strategy is to dismount.

sureshoe
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Re: Awkward phase of accumulation

Post by sureshoe »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am Background: myself 41, wife 40, daughter 7

Total assets: $1.9m
Total debt: $500k
Total liquid investments: $1m

We've always had a focus on savings rate. We don't live super frugal, but we do "pay ourselves first." So we have been living below our means for a long time.

What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences? There is some weird guilt in thinking about doing that. I feel like I'm in no mans land - I have enough to maybe put savings rate on hold forever, but not enough to live off of my assets entirely.

How have others approached this emotionally and mentally? I can't be the first one who is deeply uncomfortable in no mans land.

I'm in a very similar situation, just more children, and I find myself having the same quandry. I like maxing out any tax shelters, it just provides too many benefits in my opinion. If you're maxing out 401k, HSA, and Roth, I believe building more in your taxable is optional.

In my case, I don't feel deprived. We do vacations, buy nice things, etc. I do an extra $1000-ish a month in extra savings. I've considered cutting that back, but I like having it, and there's not much I WANT that can't have.

So in your case, I'd reflect on whether you feel deprived? Are there things you WANT to do that you aren't doing? Or, are you driving a 6 year old car and think "a brand new Mercedes would be nice?" Are you taking a couple vacations a year to nice places, but thinking, "gee multiple international trips would be swell"? Or is it more like, "I'm driving a complete piece of crap car" and "I wish we could do 1 more small vacations a year"

My only point is - if you don't feel deprived, I wouldn't spend just to spend. But, if you feel there are things you're NOT doing because you're saving for retirement (assuming you don't hate work), I would spend more and accept the fact you might need to work a few extra years. In my case, I don't want all my kids grown up, and I'm 60 years old with $5-$6M in the bank that I feel the need to splurge.

Wanderingwheelz
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Re: Awkward phase of accumulation

Post by Wanderingwheelz »

We reached a point where our quarterly account value occasionally fluctuated by an amount that exceeded our smallest annual earned income (and on a couple of occasional, monthly), so that's when we began to think about maybe going to a one income household so we would have more freedom and flexibility to live on our own terms/time schedule.

I don't think it was a feeling of no mans land as much as it was having won the game and seeing no reason to add more money when we could enjoy more free time. If your money can buy some more time that'll give you some great family memories that you feel you're missing out on, then I can't see why you wouldn't want to make a trade for some of that. Your kid will go from 7 to 17 in a blink of an eye. We were older when we made the time for money trade (45/49) and our kid was out of college.

It's true that you only live once, and you're well on track to having a great retirement.

mr_brightside
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Re: Awkward phase of accumulation

Post by mr_brightside »

you guys are doing very well.

as you have noticed the '% savings rate' touted by financial people really applies to early savers who are getting on the right track -- especially as it applied to household budget, expenses, etc

but when you're successful over time you do -- as you have experienced -- get to the point where the 'new money' saved / invested quite honestly is trivial in terms of the overall financial picture

i lowered my contributions once i realized my overall portfolio could swing $50K in a month vs. the ~$600 / month i was investing through work.

i didn't stop -- but definitely dialed back. just don't let 'lifestyle creep' ensue -- but experiences with your family are very much worth the $$$ now that you have achieved a nice portfolio at your age.

because in the end -- the point is not just to 'have a lot of money' but to enjoy the opportunity / options the $$ makes possible

-------------------------------------

stoptothink
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Re: Awkward phase of accumulation

Post by stoptothink »

EnjoyIt wrote: ↑Mon Oct 25, 2021 10:42 am Awkward? No way!
This is the best part of everything you have worked for. Growth can actually outpace your contributions on a yearly basis which is where the real magic of compound interest takes affect.

Exactly. We're in a similar position, could likely never save another penny and be fine, but we're not slowing down because we haven't hit "our number" yet. If you feel deprived and there is something you really went to spend on, that's one thing, but if you otherwise are happy with your quality of life, why wouldn't you continue saving and expedite the path towards financial independence?

joverby
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Re: Awkward phase of accumulation

Post by joverby »

I'm in a similar situation, age, family, assets. I try to look at the specifics of the goals that I'm trying to reach, and then balance the goals against each other.

For example, I too had a vague feeling that I didn't want to deprive my family of enjoyment now. However, when I looked at what that actually meant for spending, it turns out it was modest and that my annual raise this year covered what I wanted to spend (mostly travel). On the flip side my retirement projections have us easily hitting our goal of retirement at age 62. So we decided to direct my raise this year to spending, instead of increasing our savings rate as we have in previous years. We will probably continue to do so for the next fear years. Another example, we had a tentative plan to upgrade our home in the next few years. However, we are in a VHCOL area and that would have a significant impact on saving and quality of life spending. We decided that saving and quality of life spending were more important.

Saving, and spending are not a dichotomous choice. There are many shades of gray in the middle. Personally, we max out 401k (x2) but don't do HSA or backdoor Roths. That is ~19k of tax advantaged savings we are missing out on. However, we are on track for a very comfortable retirement, with enough left over to leave to our kids, and that's the goal.

Pinotage
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Re: Awkward phase of accumulation

Post by Pinotage »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am Background: myself 41, wife 40, daughter 7

Total assets: $1.9m
Total debt: $500k
Total liquid investments: $1m

We've always had a focus on savings rate. We don't live super frugal, but we do "pay ourselves first." So we have been living below our means for a long time.

What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences? There is some weird guilt in thinking about doing that. I feel like I'm in no mans land - I have enough to maybe put savings rate on hold forever, but not enough to live off of my assets entirely.

How have others approached this emotionally and mentally? I can't be the first one who is deeply uncomfortable in no mans land.

OP - I hear you. It is awkward to be in this phase. By most measures very successful, but all that success buys is "Congrats! Keep doing more of the same!"

Other posters have made great points, and I particularly appreciate the comparison to being at mile 13.1 of a full marathon. Huge accomplishment behind you, but still a fair way to go.
Rather than be frustrated, consider : This is a sign your plan is working. :sharebeer

Congratulations! (Now keep doing what you've been doing :wink:)

Also something to keep in mind: if contributions are small compared to portfolio swings, that cuts both ways. When things really tank, short term or not, it can feel a little less bad when you see your contributions roll in. They may not staunch the bleeding but at least it is something.

EnjoyIt
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Re: Awkward phase of accumulation

Post by EnjoyIt »

joverby wrote: ↑Mon Oct 25, 2021 11:36 am I'm in a similar situation, age, family, assets. I try to look at the specifics of the goals that I'm trying to reach, and then balance the goals against each other.

For example, I too had a vague feeling that I didn't want to deprive my family of enjoyment now. However, when I looked at what that actually meant for spending, it turns out it was modest and that my annual raise this year covered what I wanted to spend (mostly travel). On the flip side my retirement projections have us easily hitting our goal of retirement at age 62. So we decided to direct my raise this year to spending, instead of increasing our savings rate as we have in previous years. We will probably continue to do so for the next fear years. Another example, we had a tentative plan to upgrade our home in the next few years. However, we are in a VHCOL area and that would have a significant impact on saving and quality of life spending. We decided that saving and quality of life spending were more important.

Saving, and spending are not a dichotomous choice. There are many shades of gray in the middle. Personally, we max out 401k (x2) but don't do HSA or backdoor Roths. That is ~19k of tax advantaged savings we are missing out on. However, we are on track for a very comfortable retirement, with enough left over to leave to our kids, and that's the goal.

May I offer advice. I personally would rather put $7200 in an HSA as opposed to a 401k. Allow me to explain.
With a 401k you get to save on taxes today, but will have to pay taxes when you withdraw. Considering you are in a VHCOL area I would suspect that your spending will be high enough that you will be withdrawing from your 401k and paying some taxes on it. On the other hand with an HSA you get the tax savings today and you can withdraw the cash without paying taxes in the future if they are spent on health related expenses. Believe me, you will definitely have health related expenses. You can even save receipts for some big ticket health related items no and withdraw from the HSA tax free in the future. You can use HSA money tax free to spend on Medicare fees. Worst case scenario, you can withdraw from the HSA in retirement and pay taxes like you would from a 401k but without the forced mandatory distributions a 401k has. Also, if the contribution is made through your employer, then you wont have to pay medicare or social security tax on those contributions.

An HSA is far superior to a pretax 401k and I would max that out before any other tax advantaged accounts.

One Caveat. If you are living in California or New Jersey, you will have to pay state tax on those contributions where in a 401k you would not. But again, if that contribution comes from your employer you do get the benefit of saving on SS and medicare taxes.

sailaway
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Re: Awkward phase of accumulation

Post by sailaway »

As others have said, this isn't an on/off. Set a savings rate that allows you to meet your future goals and enjoy the present. We will be frugal for years on end, then do some big boat project and go on a fancier than usual vacation in the same year, as long as we can maintain our basic, tax deferred savings.

sandan
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Re: Awkward phase of accumulation

Post by sandan »

I fall for this as well, but easily reminded by entrepreneurial relatives and friends.

If I cannot save and have personal debt when the market is hot, I will be going out of business when the market is cold.

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burritoLover
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Re: Awkward phase of accumulation

Post by burritoLover »

the stock market isn't going to return 15-20% forever. At some point, your annual contributions might not even make up the losses on the equity side.

"Your money is like a bar of soap. The more you handle it, the less you'll have." - Gene Fama

KlangFool
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Re: Awkward phase of accumulation

Post by KlangFool »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am Background: myself 41, wife 40, daughter 7

Total assets: $1.9m
Total debt: $500k
Total liquid investments: $1m

NoMansLand,

1) What is your current portfolio size? This is not your total asset.

2) What is your current annual expense?

3) What is your current annual saving and investment?

4) Do you plan to pay for your daughter's college education?

Until we know (1) to (4), we do not know whether you are close to your Financial Independence number. Hence, whether your feeling is reasonable.

KlangFool

40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry

KlangFool
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Re: Awkward phase of accumulation

Post by KlangFool »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am
What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences?

NoMansLand,

I had been unemployed for more than 1 year a few times. I am focusing on my FI number. So, this question never enter my mind.

When my portfolio reached 1 million and before I can really celebrate, I was laid off and unemployed for more than 1 year.

KlangFool

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Late2Brake
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Re: Awkward phase of accumulation

Post by Late2Brake »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences?

Our kids are in their 20s ... don't save so much that you miss those family experiences like I did. Take your daughter to see Mickey Mouse.

Normchad
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Re: Awkward phase of accumulation

Post by Normchad »

Don't be frustrated.

When your portfolio swings by more than you contribute, that's awesome. Most people will never get there, but for me, it's always been a goal.

That means your money is working harder for you, than you are working for money.

You are working toward the point where your portfolio will grow enough each year to cover all your expenses. This is just a milestone in that process.

Having 1.4 at your age is tremendous. Very impressive. You can absolutely scale back on the new contributions and use them to enjoy life.

Honestly,you could stop saving all together, forever, and still be 100% fine. That would be COASTFire. I could do that too, but I haven't, because I just don't spend that much money. So I'm still saving; but it's savings I will never live long enough to spend. But I'm not denying myself any material pleasures anymore either.

Last edited by Normchad on Mon Oct 25, 2021 1:17 pm, edited 2 times in total.

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PVW
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Re: Awkward phase of accumulation

Post by PVW »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am How have others approached this emotionally and mentally?

Mentally, I remind myself that daily swings don't matter, long term returns do.

Saving $20K per year is the equivalent of earning 2% on a $1MM portfolio. Some people would sell their soul for a guaranteed extra 2% on their investments returns.

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NoMansLand
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Re: Awkward phase of accumulation

Post by NoMansLand »

Wow! A LOT of replies. And it seems a lot of folks struggling with this.

Let's first cut off the extremes. I'm not suggesting stopping the 401k contributions. I am suggesting spending excess income on experiences that enhance our family and time on this planet. For example we just booked a Rhine river cruize. $20k. I've never spent more than $6k on a vacation. But for that money we get to share a top notch European experience. Something we remember together forever.

Some other facts:
- we plan on massively downsizing once my daughter goes to college
- I expect a ~$400k inheritance at some point hopefully in the distant future
- we can live in retirement on $80k-$120k per year. The gap is all discretionary
- I plan to work about 13-18 more years
- I'll be at max SS when we decide to take it
- to Klangs questions: $1m in investments, I can easily find another job in weeks if laid off

an_asker
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Re: Awkward phase of accumulation

Post by an_asker »

NoMansLand wrote: ↑Mon Oct 25, 2021 1:46 pm Wow! A LOT of replies. And it seems a lot of folks struggling with this.

Let's first cut off the extremes. I'm not suggesting stopping the 401k contributions. I am suggesting spending excess income on experiences that enhance our family and time on this planet. For example we just booked a Rhine river cruize. $20k. I've never spent more than $6k on a vacation. But for that money we get to share a top notch European experience. Something we remember together forever.

Some other facts:
- we plan on massively downsizing once my daughter goes to college
- I expect a ~$400k inheritance at some point hopefully in the distant future
- we can live in retirement on $80k-$120k per year. The gap is all discretionary
- I plan to work about 13-18 more years
- I'll be at max SS when we decide to take it
- to Klangs questions: $1m in investments, I can easily find another job in weeks if laid off

I am confused what you are trying to get at. You appear to already be doing what you need to. So, do you have a different question? :confused

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NoMansLand
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Re: Awkward phase of accumulation

Post by NoMansLand »

an_asker wrote: ↑Mon Oct 25, 2021 1:55 pm I am confused what you are trying to get at. You appear to already be doing what you need to. So, do you have a different question? :confused

Mine isn't a math problem seeking to be solved. It's an emotion problem, or not, where I was looking for how others think and feel about being in this position. What I've learned here is:

1: this is perfectly normal emotions
2: don't go extreme
3: anything not extreme is probably fine
4: find personal happiness somewhere in the non-extremes

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Callisto
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Re: Awkward phase of accumulation

Post by Callisto »

I check my profit/loss every day, and I find myself asking a similar question. I use leverage so the daily swings are often times even bigger than my gross earnings per paycheck. Almost every day is a bigger swing than my actual contribution from each paycheck, and I invest a very large portion of my paycheck.

An interesting thing with leverage, and something that applies the more aggressive you are in your investments, is that consistent contributions have historically resulted in much better resiliency and recovery following a period of sideways or down markets. And the effect is a lot more significant than you would think, despite how small and insignificant the contributions are. Running the numbers was very eye opening for me.

Judging by your age, you may have started investing around 20 years ago. Coincidentally, if you play around with something like PortfolioVisualizer, you may find that time period to have been particularly beneficial to those who invested consistently.

Afty
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Re: Awkward phase of accumulation

Post by Afty »

This seems like a good problem to have. Maybe you don't actually need to save as much anymore. We talk a lot about lifestyle inflation, but I don't think it's a problem if you actually can afford to spend more. I would be wary of changes that incur increased ongoing costs, like a bigger house. But one-off splurges like a nice vacation seem fine.

EnjoyIt
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Re: Awkward phase of accumulation

Post by EnjoyIt »

NoMansLand wrote: ↑Mon Oct 25, 2021 1:46 pm Wow! A LOT of replies. And it seems a lot of folks struggling with this.

Let's first cut off the extremes. I'm not suggesting stopping the 401k contributions. I am suggesting spending excess income on experiences that enhance our family and time on this planet. For example we just booked a Rhine river cruize. $20k. I've never spent more than $6k on a vacation. But for that money we get to share a top notch European experience. Something we remember together forever.

Some other facts:
- we plan on massively downsizing once my daughter goes to college
- I expect a ~$400k inheritance at some point hopefully in the distant future
- we can live in retirement on $80k-$120k per year. The gap is all discretionary
- I plan to work about 13-18 more years
- I'll be at max SS when we decide to take it
- to Klangs questions: $1m in investments, I can easily find another job in weeks if laid off

Here is what I gather. You want to spend $120k/yr with the ability to cut back some when you are around 55-60 years old.
That puts you to be a great candidate for a 4% withdrawal guideline as a reasonable wealth goal. Basically you will need $3 million in todays dollars by the time you are 55-60. You can likely do less since you will get SS about 10-15 years after you retire. Despite that I would still go with the $3 million since 15 years till SS is a long time.

I would not rely on any inheritance because that money can easily disappear to pay for end of life care for that family member. They may decide to splurge on themselves. They may get taken advantage of by some scam. Or, anything else I did not think of. Just assume that cash isn't there for you, and if you do get something you can evaluate your situation then.

I would not assume that you will easily be able to find a job for ever. Plenty of confident people have found themselves unemployed or underemployed in their careers. I am a physician and thought my job is secure, and then COVID hit causing my income to plummet and it has still not recovered. Some of the other docs in my group have really struggled with this. Plus, a few years from now you may realize that your job has changed and you are not interested working till 55-60. Do you really want to be forced to do so because you overspent now.

Although $1 million is a great achievement worth celebrating, you are far from reaching your end goal. Plus, if you get used to spending more, the $120k/yr you think you need will increase because of what you have become accustomed to. Spend $20k a year on a fancy trip for the next few years and before you know it, you and your family will be expecting the same every year.

Nothing wrong to splurge here and there when you can afford it, but be mindful about that spending. Be humble about your job security and keep saving. If I am correct and $3 million is your goal, I would not start loosing up too much until I was around $2.5 million in todays dollars.

Marseille07
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Re: Awkward phase of accumulation

Post by Marseille07 »

The trick is to define a budget for discretionary spending in such a way that splashing it won't derail your retirement plans.

Mine's tied to my NW and I have over 100K in this bucket. While I don't plan to splash & deplete, I won't feel guilty even if I decide to do so.

runningshoes
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Re: Awkward phase of accumulation

Post by runningshoes »

NoMansLand wrote: ↑Mon Oct 25, 2021 1:46 pm Wow! A LOT of replies. And it seems a lot of folks struggling with this.

Let's first cut off the extremes. I'm not suggesting stopping the 401k contributions. I am suggesting spending excess income on experiences that enhance our family and time on this planet. For example we just booked a Rhine river cruize. $20k. I've never spent more than $6k on a vacation. But for that money we get to share a top notch European experience. Something we remember together forever.

Some other facts:

- we can live in retirement on $80k-$120k per year. The gap is all discretionary

I just want to address the single point left above - $80k - $120k is a big spread and the biggest part of saving while working is to have the funds to do what you want in retirement when you have a LOT of time on your hands. It looks like this part of the equation may need to be dialed in a bit more as part of your overall question. In addition, my personal view is that a majority of the inflation we're seeing will be more than transitional and the impact will increase everyone's COL w/o any compensatory impacts to the investment portfolios (of course others may differing opinions on this). And then you have medical expenses.... every planner I've talked too emphasizes this point, and quite a few of my friends who have retired have all said they underestimated medical costs in retirement.

Normchad
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Re: Awkward phase of accumulation

Post by Normchad »

NoMansLand wrote: ↑Mon Oct 25, 2021 2:07 pm

an_asker wrote: ↑Mon Oct 25, 2021 1:55 pm I am confused what you are trying to get at. You appear to already be doing what you need to. So, do you have a different question? :confused

Mine isn't a math problem seeking to be solved. It's an emotion problem, or not, where I was looking for how others think and feel about being in this position. What I've learned here is:

1: this is perfectly normal emotions
2: don't go extreme
3: anything not extreme is probably fine
4: find personal happiness somewhere in the non-extremes

I think you've nailed it. Especially true is #3. All the best to you. The Rhine cruise sounds pretty awesome…..

EnjoyIt
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Re: Awkward phase of accumulation

Post by EnjoyIt »

runningshoes wrote: ↑Mon Oct 25, 2021 3:26 pm

NoMansLand wrote: ↑Mon Oct 25, 2021 1:46 pm Wow! A LOT of replies. And it seems a lot of folks struggling with this.

Let's first cut off the extremes. I'm not suggesting stopping the 401k contributions. I am suggesting spending excess income on experiences that enhance our family and time on this planet. For example we just booked a Rhine river cruize. $20k. I've never spent more than $6k on a vacation. But for that money we get to share a top notch European experience. Something we remember together forever.

Some other facts:

- we can live in retirement on $80k-$120k per year. The gap is all discretionary

I just want to address the single point left above - $80k - $120k is a big spread and the biggest part of saving while working is to have the funds to do what you want in retirement when you have a LOT of time on your hands. It looks like this part of the equation may need to be dialed in a bit more as part of your overall question. In addition, my personal view is that a majority of the inflation we're seeing will be more than transitional and the impact will increase everyone's COL w/o any compensatory impacts to the investment portfolios (of course others may differing opinions on this). And then you have medical expenses.... every planner I've talked too emphasizes this point, and quite a few of my friends who have retired have all said they underestimated medical costs in retirement.

You have a lot of good comments/advice above. Medical cost are such a huge unknown in any retirement plan it is very hard to come up with a number. We generally assume $2k/month for medical costs with the assumption that if medical cost are high in one year, that also means other discretionary expenses will likely go down as the medical care will take up our time and ability to spend elsewhere. This assumption has proven true so far twice in our lifetime. Also, having a large discretionary budget such as the $40k above is a good thing. For example, 50% of our spending is discretionary. We can cut back if needed for a few years and maybe even permanently if we really must (though I suspect the odds of that being necessary is extremely low, it is nice that the ability to significantly flex down is available.)

Topic Author

NoMansLand
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Re: Awkward phase of accumulation

Post by NoMansLand »

Lots of math answers to a question on emotions. Can you scenario plan with math? Sure. Do you need more than just a base case? Absolutely. I've done all the FIRE Monte Carlo simulation. I've asked the questions around really bad performance and the life adjustments that are needed. I'm perfectly comfortable with my probabilities and contingencies.

What I struggle with is the emotion, which cannot be answered by math. And I think a math answer, particularly when dealing with future probabilities, is a terribly dangerous thing to base emotions upon. Just my 2 cents reading these replies. I do appreciate the engagement and thought process. So thank you!

cbs2002
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Re: Awkward phase of accumulation

Post by cbs2002 »

We are ahead of you a bit and I think about this all the time. Great to see your question. Took a few years off savings when the kids were young to make some other lifestyle choices possible. Back into it now while income is around. I've calculated the results over the next 10-20 years including what we could realistically save during that time, and our new savings are not likely to have a big impact on our SWR. Some but not huge.

Not sure I agree with the "marathon half over" analogy. I see it more as 80-90% over. we are just trying to make a fortunate situation a little bit better a decade or two from now, with a big part of the race already run. Some people are able to sock away 6 figures a year through their 50s but that's not going to be us. What helps me sleep is that I have a realistic plan for what I could do if things hit the fan: move to a cheaper area with great schools, get jobs that pay less than what we make now but provide plenty of cash flow for reduced regular expenses, not save, and let the portfolio sit and grow. We'd still be better off than 90-95% of people in the country.

In short, save some, enjoy time with your family, and keep your fixed costs modest. Now about that vacation I need to plan...

KlangFool
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Re: Awkward phase of accumulation

Post by KlangFool »

NoMansLand wrote: ↑Mon Oct 25, 2021 4:35 pm Lots of math answers to a question on emotions. Can you scenario plan with math? Sure. Do you need more than just a base case? Absolutely. I've done all the FIRE Monte Carlo simulation. I've asked the questions around really bad performance and the life adjustments that are needed. I'm perfectly comfortable with my probabilities and contingencies.

What I struggle with is the emotion, which cannot be answered by math. And I think a math answer, particularly when dealing with future probabilities, is a terribly dangerous thing to base emotions upon. Just my 2 cents reading these replies. I do appreciate the engagement and thought process. So thank you!

NoMansLand,

Then, why are you frustrated?

This is just my own personal opinion and experience. When I am frustrated, it is usually my intuition and subconscious mind trying to tell me something. It may not be exactly the thing that I am frustrating with. But, it is not nothing. It is time to take a break and listen to myself.

KlangFool

40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry

Topic Author

NoMansLand
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Re: Awkward phase of accumulation

Post by NoMansLand »

KlangFool wrote: ↑Mon Oct 25, 2021 4:57 pm

NoMansLand wrote: ↑Mon Oct 25, 2021 4:35 pm Lots of math answers to a question on emotions. Can you scenario plan with math? Sure. Do you need more than just a base case? Absolutely. I've done all the FIRE Monte Carlo simulation. I've asked the questions around really bad performance and the life adjustments that are needed. I'm perfectly comfortable with my probabilities and contingencies.

What I struggle with is the emotion, which cannot be answered by math. And I think a math answer, particularly when dealing with future probabilities, is a terribly dangerous thing to base emotions upon. Just my 2 cents reading these replies. I do appreciate the engagement and thought process. So thank you!

NoMansLand,

Then, why are you frustrated?

This is just my own personal opinion and experience. When I am frustrated, it is usually my intuition and subconscious mind trying to tell me something. It may not be exactly the thing that I am frustrating with. But, it is not nothing. It is time to take a break and listen to myself.

KlangFool

I'm not frustrated. I said it feels awkward. Foreign. Strange. Like arriving to a new place for the first time. Typically when I travel to new places I ask questions of people who have been there. This is a new mental place to me. I'm asking questions of the people who blazed this trail before me. Tons of great content in this thread.

malligator
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Re: Awkward phase of accumulation

Post by malligator »

I applaud your younger self for heeding the wise advise we were all told--start saving now and let time be your friend.

I joined the military after HS and didn't save. I went to college afterwards and didn't save. I started my career at 29 and saved a little. I think it was 10 or 15%--whatever my 401(k) pamphlet advised.

I allowed my lifestyle (and debt) to grow in my 30s and 40s to the point that increasing my savings rate seemed impossible. I'm now 50 with $450k in retirement investments. To have any hope of retiring "early" (60-62) I'll have to save more each year than my entire annual base salary from my 30's. A lot of it will have to be in taxable since I squandered so my years of tax-deferred space.

No, my friend, you're not in an awkward position. You're winning. Keep it up. :sharebeer

northfork
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Re: Awkward phase of accumulation

Post by northfork »

I feel this too.

I make a decent income, but after maxing 401k (including catch-up as I just crossed 50), mega-backdoor Roth, family HSA and ESPP to IRS maxes, I'm living a lifestyle that is much more modest than I could and it can be stressful.

That said, the thought of leaving "free money" on the table is even more anxiety provoking so I keep it up, though it hasn't been too long.

I've only been a mega-saver for a year (recovering from a divorce, raising kids and lots of past financial mistakes) so that influences my priorities *a lot* - but I definitely feel what you're saying. I would love to let up, even a little (if I'm being honest, if the pols cancelled the MBD Roth option I'd probably feel some relief), but the "deals" are too good to pass on and I'm not sure how many years I have left to do this.

I guess one option for you could be to "increase" your savings (I can still move the needle ~7%/yr (currently) on my contributions to all these accounts and there're two of you so you could really do some damage) - but that's probably going in the wrong direction for you and maybe you're already saving at a very high rate (or don't have these kinds of options - just assuming because you've accumulated a lot at a youngish age so must have good jobs).

You are still relatively young and have plenty of time for more moderate contributions (though opinions differ on moderate). Max the 401ks and normal roths if possible would be my advice. Those are the really good deals. Anything else I'd spend :) You are in *great* shape.

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Wiggums
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Re: Awkward phase of accumulation

Post by Wiggums »

NoMansLand wrote: ↑Mon Oct 25, 2021 7:39 am Background: myself 41, wife 40, daughter 7

Total assets: $1.9m
Total debt: $500k
Total liquid investments: $1m

We've always had a focus on savings rate. We don't live super frugal, but we do "pay ourselves first." So we have been living below our means for a long time.

What is frustrating to me is that contributions are pretty small compared to portfolio swings and anticipated growth. It's leading me to wonder why I should continue saving instead of taking my savings rate and spending it on family experiences? There is some weird guilt in thinking about doing that. I feel like I'm in no mans land - I have enough to maybe put savings rate on hold forever, but not enough to live off of my assets entirely.

How have others approached this emotionally and mentally? I can't be the first one who is deeply uncomfortable in no mans land.

Life is a balancing act between living today and saving for tomorrow. It would be a simple math problem if we had the correct answer for each variable. Unfortunately, the future is unknown. Personally, spend money carefully as I'm sure many people do. I retired at 56 and never looked back. We are spending more in retirement and that's OK because our portfolio supports it. I'd rather save too much than fall short. Just have a long term plan and be flexible.

Last edited by Wiggums on Mon Oct 25, 2021 6:13 pm, edited 3 times in total.

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tooluser
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Re: Awkward phase of accumulation

Post by tooluser »

I was walking down the street at sunrise one morning In London, England
And there was a very large Rolls Royce Limousine
Pulling slowly along the street
And in that Rolls Royce was the Queen of England
Looking tired
Just got back from a party, and the Queen leaned out and
She said: Aren't you B.B. King?
She said: Oh B.B., sometimes it's so hard to pull things together
Could you tell me what you think I ought to do?

And I said:
Better not look down
If you want to keep on flying
Put the hammer down
Keep it full speed ahead
Better not look back
Or you might just wind up crying
You can keep it moving
If you don't look down

==========

On an emotional level: Keep going, and strongly. It provides the most growth and security for your family now, and for the final total for when you and your spouse want to retire. But along the way it will be offset by actual needs. And you do want to have some R&R, fun, and enjoyment now and then.

If you think you are obsessing over future needs, then back off a bit and see how it feels. It's not an either/or decision.