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RETIREMENT IS LIFE’S most expensive purchase. During our working years, we deprive our present selves of immediate pleasure by refusing to spend money for nicer cars, a bigger house or a vacation to boast about. Instead, we squirrel away those saved dollars with an eye toward keeping the future us fed, clothed and living indoors.
At age 64, after decades of choosing to save and invest a large chunk of each paycheck, rather than spend it, I’ve bought a choice: Fully retire to fully embrace life after work, or carry on in a career that still adds purpose to my life. I’ve chosen to stay, but I’ve whittled down my work hours too far to handle all of my family’s spending needs. Thus, I’m faced with reaching into savings for the first time. More about that later. But first, where is our money, and why?
Taking advantage. The bulk of our retirement savings is invested in tax-advantaged accounts. Until we reached our mid-30s, neither my wife nor I had invested a dime in the stock market. Since that time, however, we’ve stuffed dollars from every paycheck into our workplace savings accounts. Initially, these contributions went into traditional accounts, but we switched to the Roth option when it became available. We also topped-off Roth IRAs every year, and stashed a smaller amount in a taxable brokerage account.
A little less than half of our total investments reside in future-tax-free Roth accounts. Most of the balance is tax-deferred, traditional money, which is subject to ordinary income tax rates the year it’s withdrawn. The distinction between how these two types of accounts are taxed influences where we position assets between those accounts.
Accordingly, we’ve looked at two scenarios that may raise our future tax rates: One begins in a little more than a decade, when required minimum distributions (RMDs) from my traditional retirement accounts begin at age 75, followed by my wife’s RMDs a few years later, plus my Social Security, begun at age 70. The other is triggered when the first of us dies and the surviving spouse moves into the single filer tax bracket.
Because we still owe ordinary income tax on the savings in our traditional accounts, we’re making Roth conversions and taking the tax hit now, at a known rate. We’re also seeking to curb the growth of our traditional accounts by keeping all our bonds there. By contrast, our Roth accounts, on which we should never owe future tax, are invested 100% in the stocks we expect to grow over time.
Picking winners. In the beginning, my wife and I entertained thoughts of alternatives to stocks, such as real estate. Soon, however, we decided that maximizing market participation was our wisest wealth-building tactic. As our knowledge of finance grew, we further refined our focus by choosing broad-based, low-cost index funds over other options, for good reason: They out-perform actively-managed funds.
I don’t doubt the intelligence of active fund managers. On the contrary, I suspect they carry bigger brains than me, and know they command more resources to sniff-out future winning stocks. But they swim in a tank with fish just as big, and it’s tough to get a fin up on the competition. The result: Each year, index funds finish strokes ahead of their active cousins.
For the same reason, we’ve shied away from individual stocks. Have we lost out? I’d argue we profited.
Simple diversity. Moving into retirement, my ideal portfolio is heavily influenced by decades of working closely with older patients in my physical therapy practice. I’ve followed a number of folks as they age from their vibrant, active 60s through the years of physical deterioration. Along the way, I’ve observed the cognitive decline that affects most of us as we age. I don’t count on escaping a similar fate.
Hence, rather than covering every corner of the stock market with a complicated collection of index funds, my wife and I have been shifting toward a two- or three-fund portfolio, to achieve the same result. We aim to hold shares in virtually every public company across the globe, housed in two funds, plus one bond fund. Our choice for U.S. stocks is Vanguard Total Stock Market Index Fund (symbol: VTSAX). For foreign stocks, we like Vanguard Total International Stock Index Fund (VTIAX).
Tending to just two stock funds cuts complexity, especially decisions like when to rebalance and how to go about it. Aside from the biases that affect most of us, there’s that issue of our aging brains, again. Why fret about realigning our investments when just keeping track of medical appointments has become a challenge? To further simplify our lives, at a bit more expense, we could let Vanguard Group, Inc. do all the work with their Vanguard Total World Stock Index Fund (VTWAX)..
Picking our peril. Our nest egg is weighted a little heavily toward stocks, which means its sum will rise and fall with the market. That can be unnerving, but it’s the price we’ll pay for the extra risk that gives us a shot at outpacing inflation. Without the long-term growth provided by stocks, our buying power might not keep pace with our expected long lives.
That strategy is fine when the market is riding high, but where do we go for spending money when stocks are in a slump? Selling depressed stocks in a pinch to raise cash is hazardous to our wealth. For that reason, the balance of our savings is in mostly short-term government bonds and cash, enough of a cushion to cover several years of expenses until the market regains its footing. To be sure, that money is mostly idle, but it’s ready when needed.
When I finally clock my last-day-forever in the clinic, we might buy an income annuity to replace earned income with insured money to add to my wife’s modest Social Security check, which she expects to start collecting in a little over a year. This combination of regular monthly paychecks would provide a floor of income to keep the household going, and bolster our courage to boot, when the market hits the skids.
Drawing it down. Meanwhile, we’ve yet to settle on a plan to siphon off savings to pay the bills not covered by my part-time income. At the moment, there’s little pressure to find the perfect formula. For starters, we’re not calculating the highest withdrawal rate our investments will bear to bankroll a spending spree. Also, part of our retirement preparation included holding steady to a frugal lifestyle and eliminating debt. Our low expenses give us breathing space to decide how to replenish our cash account.
Why the dithering? It turns out nailing down a withdrawal plan is my toughest financial decision to date. But it’s not the math that has me stymied. Rather, it’s the emotion. Yes, I believe the research, and I’ve run analyses that assure me our money will probably outlive us.
Still, thinking of pushing start makes me queasy, so we’re sliding into the task. Instead of a rate, we’ve chosen the dollar amount that sustains our current lifestyle over the coming year. It falls short of the figure we expect to reach once we’ve limbered up our spending legs, but one allows us to work up to a rate that doesn’t outpace my level of comfort.
Ed is a semi-retired physical therapist who lives and works in a small community near Atlanta. When he’s not spending time with his church, family or friends, you may find him tending his garden and wondering if he will ever fully retire. Check out Ed’s earlier articles.
Bottom line in ret. How much equity loss can you tolerate and not lose sleep if it happens to the extent we saw in 2000 and 2008
i am in a nearly identical situation but now retired for 6 years…i had decisions, rationales to deal with.
i use my RMD’s to supplement my SS and to replicate cash flow from my earning years. i pay taxes on my RMD, i don’t monkey with goofy tax evasive moves. the system the allowed the acquisition needs be rewarded by deferred commitments. no biggy… then i budget working back from those numbers. i have a good chunk of change outside of the IRA’s but only draw for emergencies or vanities like travel or fancy dining, etc.
no debt, paid for house and the expectation of leaving a couple of bucks –TAX FREE, on my and my wife’s passing using the estate exemption. also the out of ira money funds a gift to my son each year and helps fund his roth.
again, nothing goofy…i pay my taxes to advantage our nation, my bigger community. taxes are the tithe to the community, like the entrance fee to disneyland…expensive but only because admittance to this great nation/park is well worth it! cheerfully writing the tax check is well below the sacrifices of many for our nation ,,, many gave an ultimate sacrifice.
Ed, I’ve been thinking about the time in my life when I may not be able to handle the rebalancing of my few good funds. Further, Chrissy will have no interest in the job if I kick-the-bucket first. Those are the reasons I have been looking at the Vanguard Lifestyle Funds, or similar offerings from iShares.
We haven’t gone the income annuity route yet. At ages 73 and 70, we are still only spending about 1% from the IRAs. If that increases to 3 or 4%, the peace of mind from having a guaranteed monthly paycheck could cause me to buy the annuity.
Thanks, Ed, for this thought provoking article.
A couple of weeks ago, Elaine commented that Jonathan advised her to use Vanguard advisor services, when the time comes. I think that’s great advice, and I appreciate her sharing it.
Eight or nine years ago, I gave a close friend the same advice. He was forced into retirement at age 65. Soon after, he followed the advice of a “financial professional” who had him roll his 401(k) to an IRA and into active funds. With the advisor fee plus the fund fees, he was paying over 3%.
I explained the damage those fees would do over time, along with the mediocre performance of the funds. He decided to switch to a discount broker, and chose Vanguard. I knew he needed help, so I nudged him toward the advisor service.
That’s a step beyond the move you’re considering, but it’s one we may share one day.
I put some money in guaranteed life annuities to have the extra cash on a daily basis. It has worked well for us.
Hey Ed, first off, huge congrats to you both on everything you’ve achieved! It’s an awesome milestone, and I’m sure the best is still ahead.
I did have a quick question about your strategy of “curbing growth” in your traditional accounts by parking your bonds there, while going 100% stocks in the Roths. I totally get that it’s a tax-mitigation move, but I’m curious, have you ever actually crunched the numbers on the cost of those higher taxes and potential IRMAA surcharges versus the raw growth you’re potentially leaving on the table?
Lately, I’ve been leaning toward the “RMDs be damned” philosophy. My thinking is: let me chase the gains now and I’ll deal with the tax bill later. It’s not about being reckless or taking undue risk; it’s just that, from what I’ve seen, the math often suggests that having more total money even if a bigger chunk goes to the IRS still leaves you with a larger net pile in the end.
It sometimes feels like the logic is, “I’d rather be paid less just to stay in a lower tax bracket,” which feels a bit counterintuitive, right? I’m just trying to figure out the best “sleep at night” optimization.
What are your thoughts? I’m definitely not saying your plan is wrong just some food for thought as I navigate this. One thing I am learning is that : managing retirement is almost as much work as the career that got us here!
Mike, thanks for the question. I think my phrase choice misdirected attention from my purpose. Think of it this way: Since I’m holding my safe money in a bond fund, that bond fund needs to live somewhere. Should it be in a taxable, tax-deferred (traditional) or tax-free (Roth) account? Not the taxable account, or I’d pay tax on the interest. Not the Roth, because it would take up space that could hold faster-growing stocks. So, that leaves the traditional account.
You are right, I do want the traditional account to grow, but I want the Roth to grow more. Please forgive my choice of words! And please check out Bogdan’s excellent article, with a full explanation;
https://humbledollar.com/2025/11/asset-location-decisions/
It’s all about your comfort level when deciding investments. I enjoy reading what others have decided. It gives me ideas on what I might do in the future.
Hi Richard, yes, I get that, but to purposefully lower returns to minimize taxes is interesting as a strategy, I am not questioning is it right or wrong but the rationalization that this is the decision to go with. If it was purely hey, I want to reduce risk, then yes, that totally fits. It was just so unique and to be honest my brain thinks the same way so I was trying to see if there was more to it, than meets the eye.
I’ll let Ed answer for himself, but we’re not holding bonds to lower our returns and avoid taxes. Rather, we’re being strategic about where growth and income occurs. We’re holding bonds to have some stability in part of the portfolio offset times of volatility on the stock side.
Once having decided we will own bonds, then we hold them in tax deferred accounts so that (1) the tax inefficient income they throw off is in a tax protected wrapper, and (2) if any account is going to grow at a slower rate, it can be one which will eventually be taxed as ordinary income, rather than an account that will be taxed more favorably (or not at all). The result is that all our bonds are in Traditional IRA and 401(k) accounts, and our Roths hold more volatile stock funds.
Allocation decision first, location decision second.
Michael, I missed your comment before I posted above. I should have referred Mike to you!
Turned out better the way you answered it. Really good article btw.
As I prepare to begin withdrawals to meet my RMD requirements in about three years, I have turned off the “reinvest dividends and capital gains” and now have those flowing into my Fidelity core cash account. In about a year I will have those available for QCD’s, if I choose, or continue to allow that cash account to accumulate from which I will take my RMDs (for expenses or QCDs). For me, it provides psychological comfort knowing I will not need to decide what assets to sell to meet my annual RMDs.
Love the article. Makes me think of the quote that gave me the boost I needed to retire at 59. That is simply, “Time becomes your true currency”.
Good post. I’m always curious when people refer to a frugal lifestyle. However you define that, do you have any feeling of depriving yourselves because of that lifestyle?
As a descriptor, I suppose “frugal” can have a number of facets. It might bring to mind deprivation, but on HD it’s often worn as a badge of honor. I think for many, it means not giving in to the pressure of immediate wants at the sacrifice of long-term goals. Or, resisting making a purchase just to impress others.
For me, frugality is just part of what makes me happy. I get buyer’s remorse at the drop of a hat. I’d rather have the money than most of the stuff. But I do like simple quality–useful things that work well and last long.
There was a time–when we were working at eliminating debt while continuing to invest for retirement–that Sharon and I lived a sub-frugal lifestyle. We bought nothing extra. I was focused on being free of money obligations. But Sharon told me recently that she got depressed or mad when she saw other people enjoying things that she knew she could afford but didn’t purchase.
Even when we “deprived” ourselves, we were still blessed with a great marriage, good health, family, friends and economic opportunity. That’s true earthly wealth.
Thanks for the excellent article Edmund.
Earlier in the accumulation phase of my career I had previously somewhat followed Jonathan’s advice you link to after reading and thinking about his wisdom of the reasons for owning the entire world market and moved approximately one half of my equity investments to the Vanguard Global VTWAX mutual index fund.
For many years the other half of my equity investments was mostly in the Vanguard 500 S&P VFIAX fund for the reasons it was the best low expense option on offer in my employer 401(k) plan when I started investing, I had done well with that fund and I hesitated to change what I was emotionally comfortable owning. In early 2025 my life changed and my wife started needing my ongoing help dealing with physical health issues that you as a physical therapist would be very familiar with.
I subsequently in 2025 changed all of my equity investments to VTWAX and in early 2026 to the ETF class of the Vanguard Global index fund – VT. My reasons – VT has a smaller expense ratio than VTWAX, both VT and VTWAX automatically re-balance based on the current capital weighted value of the total available to trade world public stocks (Both US and international) so my equities are well diversified and after I am gone the EFT version of the fund could be transferred in-kind to another broker if necessary. Vanguard has a one step option to change the mutual class to the ETF class which worked seamlessly for me.
On the fixed income side of our investments we are building out a rolling TIPS ladder in traditional and Roth IRAs using income tax driven Roth conversion criteria so that eventually a 10 year Roth ladder will be available in our Roth IRAs when the first first spouse dies (a certainty) when the surviving spouse falls into the smaller single filer tax bracket ranges the year after the first to die spouse occurs or in the event that our social security benefit is reduced (a possibility) after the Social Security Trust Fund is fully depleted somewhere around 2032 under current projections. My hope is the TIPS investments will provide the inflation protection they are designed to provide.
Keeping a sufficient cash reserve and the never ending income tax changes gives me plenty to think about and plan for and hopefully I will be around long enough so that my spouse will not have to worry about future financial needs and wants.
Bill, as always, I appreciate your great advice, and I hope you are around a long time to continue to offer it.
Edmund, it was scary when I retired too and found it hard to switch from working “saving mode” to retirement “spending mode”. Once I did retire I couldn’t image going back. The sense of freedom is so wonderful. Since you’re going to be somewhat retired consider spending money for something nice, like first class plane tickets.
First class tickets are really nice. I started buying those a few years before I retired, once I was totally out of debt, including my house mortgage
Having most of you money in stocks is the way to go. In this current environment stocks are historically the only investment that keeps up with inflation.
There’s a theme in this thread from folks urging me to spend money…
Edmund, great article — I enjoyed it over a cup of black coffee this morning. The difficulty of drawing from your portfolio really resonates, and that word queasy is about right. I’m just over a year into retirement and, technically, I still haven’t done it — nor do I have any plans to in the foreseeable future. In fact, I’ve got a light-hearted little post on exactly that coming out next week.
Ed, your financial organization and plan for the future strike me as excellent. I’d say you’re way ahead of about 99% of the population!
I think about that 99%, Andrew. We live in a time and place of abundance. Yet, so many of us who are furnished with the ability to tap into it fail to follow the well-worn path. Thank you for your kind comment.
Hello Edmund,
I know delayed gratification works. One of the good things I did is not take SS until 70 and I have their notification letter about not gaining any more from waiting longer framed on the wall.
For me, a great decision as I chose to not worry about breaking even in that regard, but to max my retirement income for a more care free one. I’ve done the same for all my incomes and now have time, and the money to enjoy!
One strategy that I used when I retired (age 71) was to hold off getting Social Security until 70 and buy an employer sponsored annuity that lasts for 15 years. My wife still works some and with her social security and earnings we cover expenses. We have no debt, so I can invest more aggressively which over the last eight years since my retirement has been very good. Being trapped in a bond fund over that period of time has not be very helpful, but I have bought some muni bonds and funds to provide some ballast.
Ed, terrific article – well thought out and well written. It sounds like you and your wife have built a strong margin of safety into your plan, which gives you the power to choose your options. Well done.
Thanks, Rick! The margin of safety is important, mathematically as well as emotionally. We’re optimistic about the future, but we also know we’re bound to take some hits that might take us out financially if we don’t have that margin.
Ed, thank you for this thoughtful review of your strategy. I’m gradually heading in the same direction, although I’ve chosen VT and VYMI over your picks of VTSAX and VTIAX. A two-fund strategy just feels right at this stage of life, and I will likely get there in one of my SEP-IRAs before the end of the year.
My wife and I are about halfway through a five-year plan to shift to the new allocation. I’m looking forward to getting there–sometimes I think I’ll just cut to the chase and be done with it in a day.
Ed, a very well thought out article. I have been there and done that, as I am 80 years old this year. Now looking backwards, the most important thing you have is a PLAN, my plan is working out just fine, and I used to be conservative that I would live to be 100 years old. That alone should make you comfortable. I made some calculations, and the difference between the S&P500 vs the VTSAX, VTIAX is about 1%, however investing $1000 one time for 55 years, amounted to $100,000 with the winner the S&P500. No one can predict the future, but those who plan for the future will come out on top.
Thanks, William. I think any reasonable plan will work. We just need to find one that fits us well.
Hello Ed – sounds like you and your wife have done the hard work of building a nest egg that gives you peace of mind and the confidence to make that big step into retirement – invest, spend, enjoy.
A fellow frugalista myself, I understand well where you’re coming from regarding your hesitance to “let the brakes off” and start spending more freely.
One of the disadvantages of retiring healthy and planning on a 30-year or longer retirement is the lack of a sense of urgency around getting on with it. I retired at 58 and my 8 years younger wife quit when I was 63.
Since then I found a group of retired guys that meets for lunch monthly; and some of them go on a weekly bicycle ride. I’m one of the younger ones – most them are in their 70s and we have a few in their 80s.
The one thing I hear repeatedly when I tell them about a trip we’re planning, or relating tales from one we just finished is how wise it is of us to do as much of this as we can now, while we’re still interested and have the energy to do it. They all pretty much say the same thing – it goes fast and the day comes when you’re not able or no longer up for those adventures.
We only have so much time – that’s why you decided to take a step toward freedom from others telling you how to spend your time. I hope you’re able to lean into the spending and exercise that muscle.
Denying yourselves now that big trip, nice car, expensive bike, giving with warm hands, etc etc is potentially a recipe for future regret. (For more on that, read about the King Tut Problem – you don’t want to be buried with your gold!).
I know you’re right. But that spending muscle is weak–it needs to grow a little!
It’s hard turning off the “reinvest dividends” button 😊
That day is on my mind.
I have plenty of excess dollars so don’t care about ‘investments’ anymore. Much less stress now. . .
After 18 years of retirement, I am still trying to figure out what the optimum withdrawal rate from my retirement savings is. I don’t think there is an answer that that’s going to work for the next 34 years. So I have to be flexible about these things.
Both of your retirement accounts, Roth and traditional, look like very long-term investments to me. You aren’t going to start taking money out for about 10 years and then you’re only going to be taking out initially a very small percentage. That would argue both of them should be almost exclusively invested in the equity markets. Shorter term needs you may wish to have in your non-tax advantage accounts.
The notion that you want to restrict the growth in your traditional, Ira seems very odd to me. Unless you expect the tax rate to be over 100%, no matter how much tax you pay, maximizing growth will maximize your return.
I do like your idea of simplifying to only two index funds, which is in fact what I did last month in my two IRA accounts. I have chosen two other funds that are more heavily focused on the US, but that’s my personal decision. My broker keeps telling me how good international funds are since they have been under performing for the last 10 years.
Enjoy your retirement. It’s the best decision I ever made.
Your point concerning growth in the traditional IRA is well-taken. Actually, I’d like to see it grow by leaps and bounds! I do hold bonds, however, so the traditional account is the best home for them. I don’t want them holding back the tax-free growth in my Roth account.
Check out Bogdan Sheremeta’s article for a better explanation:
https://humbledollar.com/2025/11/asset-location-decisions/
Thank you for your comment!
Ed, great article. Thank you. Don’t forget to stop and smell the roses when you can. Interestingly, I heard Michael Green of Simplify Asset Management, say on a podcast this week that many boomers are hoarding their stock portfolios afraid to draw down at 4%. Because they are living longer they are now, in many cases, only withdrawing 2 or 3%. Sounds like you have a great plan and will be fine. But just to warn you, by owning the Vanguard Total Stock Market Index Fund you’ll also own a little of Adam Grossman’s Gamestop. 😅. Have a great weekend.
If Gamestop’s vision materializes, maybe I’ll be happy to own it!
Thank you, Ed, for outlining your investment strategies. A very thoughtful piece.
I retired four years ago, spent a full week then spreadsheet-testing various withdrawal strategies, and constructed a withdrawal plan that I follow and with which I am comfortable. Unlike you, Roth conversions hold no incentive for me. About two thirds of my savings are in taxable accounts, mostly stocks. The remaining third is largely tax deferred, in fixed income. The fixed income ought to help minimize future RMDs and, in my case, is more tax efficient. In two years, at age 70, I plan to collect Social Security and, at age 70.5, to begin qualified charitable distributions. I am taking pre-RMD distributions from my 403(b) to the extent they are not taxed in my state. I am extraordinarily grateful for my financial situation but also know that it reflects a lot of careful planning.
Thank you, It sounds like you have a good plan that works for you.
Edmund,
Thanks for a well crafted article.
Your journey is a familiar one in many ways from my perspective.
Your approach is akin to the “Bucket Strategy” which I have found to be a helpful structure in the approach to, transition into and continuation of retirement…..without ever trying to determine a rate of withdrawal or “burn down” of assets.
We determined how much of a “salary” we would pay ourselves from our retirement “Buckets” over 10 years before retirement and then inflation adjusted that figure 3% annually thereafter while also projecting what this inflation adjusted “salary” would be all the way to age 95 (my optimism has limits). This gave us a clear view of our glide slope all the way into retirement to the degree I could see clearly the year I could have retired had I wanted to. I sounds like you are in a similar situation.
Now in retirement; once a year I update the “Bucket” spreadsheet and make sure our “salary” is secure out to at least age 95 and beyond. If appropriate, based on the year’s market performance; I realign bucket #1 and 2 based on their time horizon times the annual “salary”. I have not yet had to “refill” from equity heavy bucket #3 as the small equity component of bucket #2 has done the refilling thus far. Like you, I do commit myself each year to further simplify the overall portfolio into small number of index based funds/ETFs.
In summary, our goal after years of choosing frugal living and saving was to define and sustain our own desired standard of living in retirement and to sleep well at night. The Bucket Strategy has accomplished this for us without having to worry about “salary cuts” induced by a withdrawal rate % calculation, worrying about what does or does not happen with Social Security or considering buying annuities to make up any gaps between now and when we “kick the bucket”.
Thanks for the thoughtful comment. Yes, we’re starting off with a “bucket” approach to income. My wife has leaned in that direction for a few years. I’m not sure where we’ll wind up.