Getting Myself Ready

Bruce Roberts

BEFORE I RETIRED TWO years ago, my first thought—as a software engineer—was to come up with a detailed project plan. But that proved too difficult. Instead, I decided to settle on some tenets to guide my retirement.

To aid in my thinking, I listened to podcasts and bought books. The usual list of prerequisites for a successful retirement were clear: financial means, good health and a robust social network.

I worried most about the last item. Could I feel happy and fulfilled without the work structure that had sustained me for the past 35 years? As for the financial aspect, what decumulation strategy should I use? Here’s what I landed on as my top four retirement strategies:

  • Before retiring, try activities I might enjoy, so that I could ramp them up once I quit the workforce.
  • Have something that gets me out of the house each day.
  • Keep two years of living expenses in cash as a cushion against a bad sequence of stock market returns.
  • Use a three-bucket approach for decumulation. The first bucket would hold cash, the second bucket would hold short-term financial instruments like certificates of deposit and bond funds, and the third bucket would consist of stocks. Rebalance every year.

Now that I’ve been retired for two years, and am older and wiser, I can look back and ask how well these tenets have served me. Here’s my assessment, from the least to the most surprising:

Getting out of the house. This hasn’t been a problem. It happens organically from the activities I’ve picked up over the past two years.

Two years of cash. I underestimated how much cash I should have on hand. I thought of myself as a “rational person.” I could just sell investments when my cash cushion got close to zero, right? Wrong. It turns out I needed a larger cash buffer to sleep well at night. In my defense, it’s hard to predict this number without living through a year or two of retirement spending, and watching your dollars dwindle. The lesson: Err on the conservative side.

Another factor in favor of more cash: Our spending rate was higher than I had predicted in my many spreadsheets, for two main reasons. First, we finally got around to some major remodeling projects, including redoing our deck and fixing a crack in our kitchen counter that turned into a full replacement. The second area of unexpectedly high spending was travel. Unlike others, we didn’t take big trips with the pandemic winding down. Rather, we’ve been seeing more of family, which has entailed flights, long car trips and so on.

Three-bucket strategy. As simple as it sounds in principle, it doesn’t work for us. Each bucket, and the funds assigned to it, are spread across multiple accounts and account types. That makes it complicated to track changes in each bucket’s contents and to decide what to sell when rebalancing. Taxes further complicate this calculation.

Instead, we simplified the accounting by breaking our funds into two categories: cash and cash equivalents on the one hand, and everything else—meaning stocks—on the other. You could describe this as a two-bucket strategy or a barbell approach. These two numbers are relatively easy to calculate. We discovered our stock exposure was higher than we wanted. By selling some of our stock holdings, we killed two birds with one stone: reducing our stock market risk and increasing our cash pile.

Test-drive retirement activities. Of the four strategies, this played out in the most surprising way. How so? Starting new activities before retirement never happened. While working, limited leisure time made trying new endeavors feel onerous. I worried that, with these new activities, I’d end up wasting time with people I didn’t like—time that was in short supply while I was still working.

But something wonderful occurred when I retired. I now have the time to try new activities, and it doesn’t feel like a big risk if I pick badly. This, I’m finding, is retirement’s surprise gift. The worry is there to a smaller degree, but failure doesn’t feel as bad. I can easily cut my losses by dropping an activity and moving on to something else.

This happened with my tutoring efforts. I started working with first graders, but it wasn’t my cup of tea. I quickly stopped, and instead I now tutor high school and college-level subjects, and I love it.

I’m exploring my alma mater’s various alumni groups. I picked up playing bridge again and enjoy it. I’m playing more tennis than before. And, as you can see, I started writing essays on topics of interest to me that I think could also interest others. And why not? I’ve got nothing to lose, except a little bit of time.

Bruce Roberts retired from IBM after a 35-year career as a software engineer. Degrees in math and computer science served him well during his career and when investing. In retirement, Bruce enjoys tennis, playing bridge and tutoring math. His previous article was A Pretty Penny.

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