I’ve been knocked out this week with a pretty nasty cold. I should have known it was coming. I was driving Alex home from school the other day and he just kept sneezing… and sneezing… and sneezing. I finally said, "Alex, you’re going to get me sick, stop it!" I even rolled down the windows in the car like that was somehow going to save me, but deep down, I already knew it was too late. Sure enough, about three days later, I was flat on my back. Schools are basically incubators for disease, and apparently, this one decided to hitch a ride home with us.
I also went to a big orchid sale with Yaya, my mother-in-law. We always have a great time together. I have to admit, it’s probably not something you see every day, an older Thai grandmother walking around with her son-in-law buying orchids.
It’s peak orchid season right now. When the temperatures drop a bit, it triggers a wave of blooming, and suddenly everything seems to come alive at once. At the moment, orchids are blooming everywhere in the garden. I’ve got many of them hanging right outside our window, so when I’m sitting on the couch I can just look out and see all the flowers. Some days it honestly feels a little like living in the Garden of Eden.
When I take on new clients, there are a few basic rules I ask them to follow.
One of the most important ones is this: as soon as you retire, start taking a monthly income check from your retirement and investment accounts. In the good ol' days, you'd start getting your pension. This is the same thing.
Let me show you what I mean.
Imagine Mr. and Mrs. Smith retire with $500,000 in savings. After reviewing their situation, we determine that a diversified portfolio of stocks and bonds (with at least half in stocks) would reasonably allow them to withdraw about $25,000 per year from their investments (5%). Looking at more than 200 years of market history, that’s a sustainable withdrawal rate.
Now, how should they take the money?
Should they just dip into the account whenever they "need" money, as long as they don’t exceed $25,000 for the year?
No.
Should they take the entire $25,000 all at once at the beginning of the year?
Also no.
Over the years, working with retirees day in and day out, I’ve learned that neither approach works particularly well. And the reason has less to do with math and more to do with human psychology.
If you only withdraw money when you "need it," most people find it emotionally uncomfortable. Many of you were raised by parents who lived through the Great Depression. Pulling money out of retirement savings can feel wrong, even when it’s perfectly appropriate.
People start thinking things like:
"I hope this isn’t a mistake."
"I hope I don’t run out of money.
"This money is supposed to be for retirement."
"What if I end up living in a box in the Walmart parking lot?"
Every time you request a withdrawal, it can feel like a small knot forms in your stomach. Even if you’re following a perfectly good plan, the act of taking money out can feel irresponsible.
Taking the entire $25,000 once a year is a little better, but that has its own problems. Most people live their financial lives on a monthly rhythm. Your bills come monthly. Your income came monthly or bi-weekly for decades. Trying to stretch a lump sum across an entire year can be surprisingly difficult.
So, after years of working with retirees, I’ve found that the best approach, by far, is simple: pay yourself monthly.
In our example, instead of taking $25,000 at once or randomly during the year, Mr. and Mrs. Smith simply receive $2,083 per month.
It works beautifully.
You always know exactly how much money is available to spend each month. And just as important, it removes the emotional friction of "pulling money out of savings."
There’s also an interesting psychological shift that happens. If your retirement account grows from $500,000 to $525,000 during the year, you might say:
"Well, that’s nice. At least the money is growing." And then you move on with your day.
But if that same $25,000 shows up gradually in your checking account throughout the year, the experience feels very different. Suddenly, it feels like your money is paying you.
You might think:
"Wow. Instead of me working, my money is working for me.""It’s like I’m getting a paycheck for doing nothing."
Same financial outcome. Completely different emotional experience.
And that difference matters.
My goal is for you to live a retirement that feels confident, relaxed, and enjoyable, not one where you’re constantly second-guessing whether you should spend your own money.
One final thought: you don’t have to be my client to do this.
In fact, if you’re retired and managing your own investments, I would strongly encourage you to consider setting up a simple monthly withdrawal from your retirement accounts into your checking account.
When you have a well-thought-out plan that determines the right amount to withdraw, not too much and not too little, you’ve already done the hard work.
After that, the goal is simple.
Trust the plan.
Let the income arrive each month. And enjoy the freedom you spent your whole life building.
Be Blessed,
Dave