If you have more income coming in each month than your expenses going out, you can continue to build your savings over time. Then, when you need to replace a car, or go on a vacation or pay for a wedding you can take care of these larger expenses out of your savings instead of your portfolio; and you will know exactly how these savings will be replaced.
I once met with a new client with a $2.5 million portfolio that mentioned that he was taking his family on vacation to Italy. My wife and I honeymooned in Italy so I started telling him all of our favorite cities to visit. I realized that I was more excited about his trip than he was so I asked him why. He told me “Bill, I just took $20,000 out of my portfolio for this trip and with the way the market is acting I don’t know when or even if that money is ever going to be replaced. So in my mind, as crazy as this seems, I feel like I’m $20,000 closer to running out of money.”
He didn’t have an asset problem, he had $2.5 million. He had an income problem. If he had more income coming in than what he needed and he took the $20,000 out of savings he would know exactly how his money would be replaced and he would have enjoyed his vacation with his family much more.
This is a great example of how having plenty of income coming in can allow you to enjoy your retirement more fully. It’s far easier to give yourself permission to spend savings that are being replenished than it is to spend principal.