A year and a half ago, my wife and I crossed a massive financial threshold. She officially retired, and because my part-time income only covers about a third of our living expenses, we finally entered the “decumulation” phase.
For the first time in our lives, we started actively drawing down our assets to pay for our daily lives. Fortunately, thanks to the compounding power of our portfolio, our net worth could still continue to grow, but the psychological shift of selling off equities is very real.
I recently recorded a solo episode of the Earn and Invest podcast to reflect on this exact transition. Here are the ten biggest things I have learned after eighteen months of spending down our retirement money.
1. The fear wears off. Transitioning from a lifetime of strictly accumulating wealth to actually liquidating it can produce an incredible amount of anxiety. I was definitely nervous at first. However, I found that once I started executing our quarterly liquidations to cover expenses, the fear vanished. The process simply became our new normal.
2. Decumulation is lumpy. Real world spending is naturally uneven. You will have unexpected emergencies (like a sudden $4,000 car air conditioner repair) or spontaneous purchasing decisions. Trying to strictly white-knuckle a rigid monthly budget will only cause unnecessary anxiety. It is far better to accept that some months will be expensive and others will be quiet. It all evens out over the year.
3. You have to get used to the unknown. Life is full of unpredictable costs and opportunities. Recently, we made a sudden decision to purchase first-class flights abroad for an international conference. If you fear the unknown, you run the risk of becoming miserly and saying no to unique experiences that won’t actually bankrupt you.
4. Anxiety is just a YouTube video away. Having ample free time in retirement can tempt you to obsessively over-optimize your finances. It is easy to fall down internet rabbit holes researching endless Roth conversions, tax hacks, and asset protection. Deciding to accept a plan that is “good enough” rather than perfect is a conscious, healthy decision to protect your peace of mind.
5. We are spending less than we thought. Despite being high spenders who do not restrict ourselves on luxuries like new cars or premium travel, we are naturally spending less than our conservative retirement models predicted. We spend to optimize our happiness rather than spending just to hit an arbitrary target.
6. Spending more hasn’t made us happier. Consistent with the decreasing marginal utility of wealth, spending beyond a certain baseline does not provide an incremental boost to our overall happiness. Our most joyful quarters have proven to be entirely unrelated to how much money we actually spent.
7. You think less about money. In the accumulation phase, a lot of emotional energy is spent obsessing over spreadsheets and net worth tracking. Once you retire and put a solid plan on autopilot, the fear of “not getting there” completely disappears. This frees up your mind to focus on the things that actually matter.
8. The dips are not scary. Despite recent market volatility, I have found myself far less anxious about market dips than I anticipated. To maintain my peace of mind, my strategy during market downturns is to simply avoid checking our net worth and focus on living life instead.
9. Optimization loses its appeal. The thrill of optimizing every tax loophole and finding extra yield fades once you have already won the financial game. When you have enough wealth to last the rest of your life, squeezing out an extra dollar loses its utility. It simply is not worth the effort anymore.
10. Taxes are still a massive pain. The one major downside of this phase is the ongoing burden of complex tax planning. Without an employer to seamlessly withhold taxes, managing quarterly estimated payments, capital gains on liquidations, and complicated tax filings remains a persistent headache.
If you are approaching retirement or are already in the thick of it, I highly recommend checking out the full podcast episode where I dive much deeper into all of these insights.
Community Update: A Special Coaching Offer
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Let me know in the comments: what is your biggest fear about the decumulation phase?
"Anxiety is just a YouTube video away" -- this is so wise. I deleted FB and Instagram off my phone earlier this week because I realized they were both giving me a lot of anxiety/FOMO, and had I never looked at them, I wouldn't be feeling so awful. The algorithms feed off our insecurities and grief.