Making It Last

Dennis Friedman

MY WIFE AND I USUALLY finish dinner by 6:30 pm. She then heads upstairs, while I stay downstairs until 7:30. You can find me walking around in circles in the living room and dining room during that time. I like to think I’m walking off my meal or regenerating new brain cells. You see, I’ve been reading a book by Sanjay Gupta, Keep Sharp, where he points out that moving is good for the brain.

But this is also the time when I think about what’s going on in our lives. What’s been on my mind lately? Some of it has to do with the person upstairs, my wife. She’s waiting patiently for her turn to get her first COVID-19 vaccine shot, while I’ve already received my first shot.

I’m also thinking about how we can get our retirement back on track, now that millions of other Americans are getting vaccinated. Some people say getting vaccinated was a relief or makes them feel safe. For me, I have a feeling of hope for our future, something I haven’t truly felt since the start of the pandemic.

I want to schedule trips to London and New York this year. Spending Christmas in London is something my wife and I have always talked about. Why not do it if it’s safe? This pandemic taught us an important lesson about seizing the moment. I’m not about to let an opportunity pass me by.

Many other Americans are also anxious to get away. I tried to book a room at our favorite hotel for August to celebrate our wedding anniversary. That day was already fully booked. What did I expect, especially after so many Americans stayed close to home last year?

My wife is on board with my newfound exuberance for exploring the world. But I know in the back of her mind she’s thinking, “Can we afford all this?” We spent a ton of money last year on the house, bought a new car and purchased countless other items. She’s probably thinking about what’s going to happen to our savings when life returns to normal and there are no constraints on our spending.

I’m confident, however, we aren’t going to outlive our wealth—for five reasons:

1. We’re debt-free. We buy everything with cash or credit cards, and those credit cards are paid off every month.

2. We have low overhead costs, which our retirement income easily covers. That leaves us with plenty of money for discretionary spending.

3. We plan to limit our withdrawals from our IRAs and 401(k) plans to the sum dictated by required minimum distributions (RMDs). When you reach age 72, you’re compelled to withdraw a minimum sum from your retirement accounts each year. Although RMDs are designed so the federal government can recoup the taxes owed on tax-deferred retirement accounts, they also offer retirees a sensible strategy for drawing down a nest egg.

How so? Each year’s RMD is determined by dividing your taxed-deferred retirement account balance as of Dec. 31 by a life expectancy factor. That means that, as you grow older and your life expectancy shortens, you withdraw a larger percentage of your retirement funds each year. Using this strategy can lead to lower spending in the early years of retirement, while increasing spending in your later years when health care costs may be higher. Another safeguard: Your withdrawals change with market movements, because the sum is based on your retirement portfolio’s latest year-end value.

4. We receive a healthy sum from Social Security each month. Our combined benefits, with my benefit claimed at age 70 and my wife’s benefit at her full retirement age, are large enough to support us during periods of market turmoil, which means we can give our portfolio time to rebound from any market hit.

5. Our wealth is protected from lawsuits. We have an umbrella liability insurance policy, which offers additional liability coverage on top of the coverage included in our home and auto policies. Our umbrella policy can also protect us from other civil lawsuits, such as for libel, slander and invasion of privacy.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. Check out his earlier articles and follow him on Twitter @DMFrie.

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