Yesterday an involuntary chuckle escaped my mouth. I hadn’t entirely lost the plot and descended into madness—I happened to be thinking about my financial arrangements for the first few years of my recent retirement and in retrospect, I found them amusing.
On Humble Dollar we all, I assume, like to think of ourselves as rational and reasonably “on the ball” when it comes to our retirement portfolio and finances. One of my choices makes me question my right to claim the same ability.
Constructing our retirement “paycheck”, particularly for those of us without a pension, is a crucial priority before pulling the plug and waving goodbye to the comfort of a regular wage. It’s complicated with many moving parts to consider.
In my case, I decided to cover my essential recurring expenses for the first ten years with a type of annuity called a term annuity that gives me great peace of mind. Beyond that, for my discretionary expenditure, I walked around the problem many times thinking about the best approach to the conundrum.
In the end, I essentially gave up thinking about the problem and abdicated from making a decision, kicking the can down the road. I took a portion of the cash I received from selling my business and dumped two years of my expected discretionary spending into a money market fund and mentally ring-fenced it from the rest of my portfolio. I’ve exchanged some yield for the pleasure of simplicity.
In the meantime I haven’t sat on my laurels—I’ve constructed a bond ladder to take up the discretionary spending slack in two years time. It’s all worked out fine, but I would be stretching the truth if I suggested my choices are the result of purely rational behaviour rather than a bit of convoluted mental accounting.
So yes, I’ve committed the cardinal sin of sub-optimal asset allocation and engaged in some questionable mental accounting. My inner finance nerd occasionally winces at the opportunity cost. But you know what? I sleep well at night, I haven’t once worried about my spending money, and I’ve had the breathing room to think clearly about the next phase without panic or regret.
Sometimes the best financial plan isn’t the one that looks prettiest on a spreadsheet—it’s the one you’ll actually stick with when real life gets messy. Even if it does make you chuckle at yourself eight months down the line.
With my little confession in mind, I’m wondering if anyone else has come to a paycheck compromise that seems to be working, or am I a sad subset of one beating the mental gymnast drum of “good enough” until I come up with something better?
Once our investing net worth hit a mental threshold, I admit to doing something I never thought I would. I parked several years of floor spending in a money market account. Then two more years in T-bills, and 5 more years in TIPS. Yup, that’s a total of 10 years just sitting there drawing hopefully enough to match inflation. I absolutly know that I’m ignoring opportunity costs. Still, I don’t care. We still have over 50% of our assets in the stock market. Having a set floor spending reserved for a decade lets us sleep very well at night.
I agree with you completely. I’ve actually taken this approach myself. My retirement portfolio has been rigorously stress tested and Monte Carlo simulated to confirm it can successfully fund my retirement—and that’s without even factoring in the proceeds from selling my business. Most of those funds haven’t entered the equity market at all. I’ve kept them in bank CDs, high-yield savings accounts, and government inflation-linked securities.
My reasoning is straightforward: the portfolio alone is sufficient for retirement, so the business sale proceeds are simply icing on the cake. There’s absolutely no need for me to take risks with that money. Could I achieve higher returns? Sure. But I simply don’t need them. Even a ten-year market downturn wouldn’t concern me. At this point, I’m prioritizing capital preservation over chasing outsized gains, and I’m completely comfortable with that approach.
I just simply told both of my two main low fee advisors how much to withdraw each month and let them handle how to do it. Money direct deposits into checking account. All is good. No worries. But I’ve got more in investments than I could ever spend, so that’s the real stress reliever.
Steve, i would love to know your advisors. We also have the luxury of more resources than ever needed and are in the process of wealth transfer to our children. I have discussed our situation with several advisors and to-date the only firm that “listens” to our concerns instead of “telling me how they will do so much better” is Cornerstone Wealth Advisors Inc in Minnesota. Their fees are between .2%-.5% depending on service provided. (1/4 to 1/2% Best value by far from my research.