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MY WIFE AND I HAVE divided household duties over our 36 years of marriage. I’m responsible for the upkeep of anything mechanical. Lori has the last word on almost everything else. In essence, my wife presides over functions that make the household a “home,” while I take credit and blame for keeping the nuts and bolts operational.
I also hold primary responsibility for trafficking the family’s money. I pay bills, ensure accounts are reconciled, assemble and submit tax information, and monitor financial accounts. Whereas Lori gets to spend current dollars, I’m responsible for tracking past, present and future expenditures.
This isn’t as draconian a split as you might think. We’re on the same wavelength when it comes to saving and spending. Our overall money philosophy is surprisingly similar, which likely contributes to our marriage’s longevity. We share major financial decisions and I readily bounce ideas off her prior to key investment moves.
We discuss things like rebalancing, IRA contributions, and bond and certificate of deposit (CD) purchases and sales. We also discuss strategies to meet our goals, including the best time to claim Social Security. Granted, these are short discussions, yet they keep us moving together toward our financial targets.
A medical emergency last year demanded that Lori take over financial activities during my extended recovery period. We had a few weeks’ notice to prepare, allowing us to review our accounts and cash flow. During this time, we went over monthly and semi-annual bill payments. I made sure Lori was able to access files containing passwords and electronic links. We also examined various financial spreadsheets I’d created.
Together, she relearned how to move money between accounts to keep the household running. I admit it was slow and painful to watch, mostly because it had become second nature for me. Having her perform these tasks was reassuring for both of us. We felt confident she could cope until I was back on my feet.
But there was one major hurdle that my wife had trouble overcoming. It wasn’t obvious to her which funds she should tap for monthly transfers to the bank account we use for paying bills.
I thought I’d simplified our cash flow system as we got closer to retirement. Indeed, I consolidated most of our retirement accounts at a single financial firm, automated payments for major utilities and health care expenses, and ensured that expenditures flowed through a single bank account.
I also created a multi-year cash buffer to minimize sequence-of-return risk once our retirement withdrawals began. This allows me to sleep easier at night, no matter how my Vanguard Total Stock Market Index Fund (symbol: VTSAX) and Vanguard U.S. Growth Fund (VWUAX) are faring.
But the monthly transfers to our bill-paying account were one thing that wasn’t automated. Rather, I simply pulled from different accounts as we needed cash. The sum transferred each month was dictated by a complex mental juggling act depending on which asset class had done well over the prior few weeks.
In addition, I introduced further complexity by adding some new cash buckets: a high-yield savings account and laddered CDs at Ally Bank, Series I savings bonds at TreasuryDirect, and Vanguard Federal Money Market Fund (VMFXX) in a regular taxable account. I also added the Vanguard money market fund to my IRA, so it could receive the income distributions from my Vanguard Total Bond Market Index Fund (VBTLX).
It finally dawned on me that these changes might have reduced risk, but they hadn’t reduced complexity. In fact, figuring out how much to withdraw and from which account is no simple task.
I clearly need to create a detailed step-by-step description of the mechanics involved. This feels like a Herculean task. I’ve decided the first step is to be humble, and ask for help. What would readers recommend as a good, simple strategy for pulling money from long-term investments to pay for upcoming expenses?
Jeffrey K. Actor, PhD, was a professor at a major medical school in Houston for more than 25 years, serving as an academic researcher with interests in how immune responses function to fight pathogenic diseases. Jeff’s retirement goals are to write short science fiction stories, volunteer in the community and spend time in his garden. Check out his earlier articles.
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We pretty much operate the same way. However, I use automatic transfers and automatic deposits (annuity income & SS) to two checking accounts from our income streams. My SS/pension goes to the one that is a virtual HSA and all medical bills (Premiums and copays) are paid from there. Husband’s SS/parttime salary goes to another checking account. Automatic transfers from that checking is sent to saving for house tax/insurance and all current household needs are spent from the checking. If we run out of money in a month, we “eat from the freezer,” as they say. Still we are contemplating where caregiving/assisted living will come from as most of our income is already allocated for current needs. It might be a few years, but we are trying to look ahead so there is no financial crisis in the midst of life.
I am not faced with drawing from funds for expenses, so what do I know, but this seems very complicated.
Wouldn’t the goal be to have capital gains, interest and dividends generate cash flow to cover expenses along with SS, hopefully minimizing selling of assets?
Yes. Have dividends and capital gains go to the VG MM settlement fund rather then reinvest them.
Good suggestions, and it keeps the flow of funds steady and simple.
The gap between our income and expenses are “pre-paid” by a 10-year rolling ladder of bonds (primarily TIPs, but also T-Bills and CDs in the shorter terms)-this goes into a brokerage settlement fund and we pull from there as needed. The ladder gets refilled by selling stock or bond ETFs/funds and the ladder rungs get purchased when prudent, but well ahead of when needed. The removes the complexity and risk of selling of individual funds when needed.
I like this idea. I am struggling with creating a ladder with everything in annuities and a fully paid house.
Jeff,
I have a simple procedure. Quarterly I calculate my net worth. I look at my asset allocations and if significantly off sell a portion of the appreciated asset. If our money market fund is below the minimum I have set (about 18 months of usual expenses) then the appropriate amount of the sale’s proceeds are moved there and the balance is then used to buy some of the depreciated assets.
When it comes to paying bills, once a month, near when the credit card is due, I calculate what we need to pay that and any upcoming bills and transfer that amount from our Vanguard account to our Credit Union checking keeping a few thousand in savings for cash needs.
Also monthly I am selling assets from my many different funds and consolidating down to just four Vanguard ETFs, US and international stock, total and short term TIPs bonds (split evenly). This makes rebalancing a snap!
David, Thanks. Similar to B Carr’s suggestion, a rolling hub such as you use with your money makret account, quarterly adjusted, might work well for my circumstances. Perhaps even two hubs; one for post tax funds to be used, and one for retirement accounts.
That sounds awfully complicated. Aren’t you effectively rebalancing every month? Ever since I took early retirement in 2000 I have used my Vanguard Money Market fund as a cash buffer. If income exceeded expenses I added to it, if expenses exceeded income I drew from it. I started retirement with a healthy balance, and aside from the year I renovated the house it stayed in pretty good shape, ending up last year about 50% down over 23 years in inflation-adjusted terms.
Since I moved to a CCRC last year I expect my expenses to consistently exceed income. I took advantage of higher interest rates (and a hefty tax refund for 2023) to set up a five year CD ladder. I don’t expect to need to spend that money for a few more years, but when I do I will decide once a year how to reorganize my portfolio to buy a new one and just leave the proceeds in the money market fund. As a fan of the KISS principle I don’t see a good reason to expend a lot of effort chasing a fraction of a point of extra return.
Yes, and no, about the rebalancing. I like to think of my rebalancing needs as meeting certain bands (+/- 3 or 4 % of my asset allocation) to stay on track. Thus, I can “microbalance” each month to ensure I stay on course!
And …. KISS is always a good principle to follow!
If I lived in TX then the VMFXX settlement fund in the taxable account would act as the hub for incoming and outgoing transactions. All dividends and capital gains paid out by funds in the taxable account would go into VMFXX. I’d set up a monthly, automated withdrawal from VMFXX to my bank account, making sure that the amount is less than what is going into VMFXX each month. As VMFXX grows, I’d periodically do a manual withdrawal to the bank account.
Where I live, I do this with VUSXX since there are state-tax advantages.
Great suggestion! Especially for Texas.
Having a simple approach to your finances and chasing yield are not compatible. When I took over running my father-in-law’s affairs in 2004, he had perhaps relationships with 30 financial institutions all because he was trying to make a few more bucks off of his cash. Vanguard’s MMF is currently paying over 5%. Why do you need all those other accounts? I have a Vanguard account. When I sell some Vanguard MMF shares, the proceeds can go directly into the bank account I use to pay bills. It is true that at times with this approach I will not make the absolute top dollar on my cash. This is the price for having a setup that lets anyone step into your shoes. We can never know how many angels can dance on the head of a pin.
I mostly agree. I’ve lokely start to use up my lowest interest bearing HYSA first, and keep all else in a Vanguard MM account. It may (or may not) yeild the highest % interest, but it will keep funds accessible under one main umbrella.
Hi Jeff. At its core, our cash flow system uses checking as one pool for 2-3 months of living expenses. It uses VMFXX in our taxable Vanguard brokerage account as another bigger pool for the rest of future living expenses, future taxes, and savings for travel, house needs, etc.
I set up a monthly automated transfer to checking from VMFXX for recurring fixed and discretionary spending. Regular but variable cost items like property taxes are a manual transfer from VMFXX to checking.
Annuities (including SS when it starts) will go straight to checking and I’ll reduce the monthly VMFXX transfer amount.
VMFXX refills now with Social Security bridge savings which mature quarterly or annually. It also gets interest and dividends from most taxable portfolio investments.
IRA RMDs at age 75, or any pre-RMD withdrawals, will go to VMFXX in our taxable account.
I have no sell criteria because I have no plans to sell anything unless there’s some unmitigated disaster.
If I did, I’d likely use a fixed percentage of each asset by value. I might slightly tweak up or down each fund’s sell amount a bit to minimize the need to do bigger annual or biannual rebalancing.
Email if you have questions: my first name at fivepowells.com.
By the way, if you do want to reach for a little yield, while you’re still running the show, it’s easy to buy nominal or inflation-indexed Treasurys in your Vanguard taxable account. When interest payments or principal + interest arrives at maturity, it lands in VMFXX (or whatever settlement fund you picked). Right now, VMFXX yield is so good there’s not much to gain from doing this, but within the next 6-12 months that may change.
Jeff, thanks for a great article. I have similar issues. one thing I learned in engineering, if you optimize for performance you most likely add complexity, cost, and, often reduce reliability. I think our finances behave similarly. I had us in a pretty simple situation a year ago. The we decided to buy a 2nd home, use a HELOC to help the transition, get a new mortgage at a new bank, convert our previous home to a part time rental, and basically double the number of monthly bills we have. I try to maximize our return on assets, while limiting our tax bill. I have automated withdrawals from Vanguard go to our online high interest checking account. That pays the mortgages and bills, some of which are automated. I’m still working out the details, and have a detailed Word document to explain it. The act of writing the document helped clarify some of the issues.
I definately agree – writing it down is a great idea to crystallize everything.
Quotable:
if you optimize for performance you most likely add complexity, cost, and, often reduce reliability.
In my engineering career, it was possible to optimize on low cost. But the best solution was to optimize for robustness, so that changes to input variables did not have a huge impact on that cost or other optimized parameters. Yes – I’m down in the weeds here.
Jeff,
Lets go further down the weeds – your experience and mine shows the need for goos upfront systems engineering. If you don’t know what it is you’re designing or what the thing is supposed to do and all the associated requirements.
I prefer to have two checking accounts and two credit cards, just in case one is compromised. For example, several years ago a teller in a town some distance from ours handed a person posing as my husband $6,000 cash from our account. Though the bank reimbursed us, it took several days for us to regain access to our money, in a new account. I also seem to fall prey to theft of my credit card number every few years. Again, always good to have a backup while waiting for the new card.
Best as we age to simplify portfolio with a single brokerage account and one checking and credit card account. As well have a book with all important financial information like account numbers, passwords, auto pay, etc, etc
Nice article. Glad you’re better. I have what sounds like a similar approach that would be difficult to explain to someone else.
While maybe not optimal, the simplest approach might be to say it doesn’t matter that much where to pull from as long as overall allocation is unchanged.
Michael, Thanks. Bill Ehart posted a nice article last week that mentioed the complication of whether assets were in taxable or pre-taxed locations. It does add a twist/complication to any simplified approach. https://humbledollar.com/2024/06/seeking-shelter/
Yes that was a great article. I agree with his logic and keep most of our cash and bonds in tax-protected accounts.
Like you, Jeff, I have been trying to simplify our finances. I used to have our money spread among different TreasuryDirect accounts, banks and financial companies but have now consolidated everything into one checking account and Vanguard accounts. We are both retired, receiving SS and a very small pension. At the beginning of each year I put enough money to cover our estimated expenses for the year into our Vanguard Treasury Money Market Fund VUSXX. I move money from there to our checking account as needed. I hold the rest of our retirement funds in three buckets: (a) 3 years of estimated expenses in Vanguard’s Short-Term Treasury Index bond fund VSBSX, (very low risk – 99% US government bonds with average duration of 1.9 years), (b) 7 years of estimated expenses in the Vanguard Total Bond Market Index Fund VBTLX, (relatively low risk with average duration of 6 years) and (c) the rest in Vanguard stock funds – mostly Vanguard Total World Stock Index Fund VTWAX. The most complicated thing is rebalancing each year. Have to decide whether to sell some of the stock fund and move to bond funds (which I would not do in a stock downturn). By consolidating everything into three funds I’m hoping this rebalancing isn’t to complicated for my wife or adult kids (who don’t have the same interest or get the same enjoyment in financial matters as I do).
I would transfer out of your funds and put the money into the ETF that corresponds to each mutual fund. This increases your returns slightly due to ETFs decreased expenses. ETFs can be sold at any time and you know more closely at what value by making a market sale, or you can utilize a sell order limit to specify a minimum value.
Neil, Consolidating into three main funds is a good plan, and it appears to be working for you! Thanks for sharing your strategy.