snak123

Comments:

• We didn’t have a pension so we partially annuitized our IRA such that with my SS benefit at FRA, that combined income would cover our essential expenses. I was able to wait to age 70 to claim SS. That lifetime income (my SS benefit plus joint-survivor immediate annuity) covers all expenses except for major travel. We treat my wife’s SS income as a future inflationary hedge for essential expenses or to supplement our discretionary spending. Since 2018 (when TCJA became effective), we have converted 40% of our portfolio to Roth as well. For a surviving spouse, the remaining SS benefit plus the annuity income still cover all essential expenses. The RMD (which is 40% less due to the prior conversions) is sufficient to cover any additional income needs. If needed, we can also further reduce the RMD by applying the annuity income toward “satisfying” some of the RMD based on the non-annuitized end of year balance (a new Secure Act 2.0 feature). If needed, the surviving spouse can then use the Roth account to cover any additional needs without tax implications. This combination minimizes the widower’s tax penalty.

  Post: How have you financially protected a surviving spouse or dependent?

  Link to comment from August 10, 2024

• I’m curious as to what people think what “simplification” means from an investing viewpoint. For us, I’ve been trying to create an income stream (nowadays, to address our RMDs) that we can collect monthly with the appropriate tax withholding while reducing, if not eliminating, the what, when, and how much to buy or sell. In essence, my goal is to do away with the need to rebalance, especially as we enter our 80s and may have to deal with cognitive decline at some point. Presently, while my investment strategy is based on diversified low-cost index funds (simple in itself), I have a somewhat complicate tax planning and dynamic asset allocation approach along with a multi-year structured Roth conversion plan. Fortunately, our conversion plan is coming to an end and simplification is now becoming a priority for us. To explore this approach while I have the mental acuity to assess the outcome, I have set aside a $100K account with a 60/40 asset allocation to test out a concept. This account has 30% in S&P 500 for growth (fully reinvested), 30% in US Div 100 (dividend-paying equities) for growth and income, and 40% in 20-year Treasury bonds for income. Currently, this trial account has experienced (at an annualized rate) a 10% capital growth with a 3.6% dividend/interest “income” stream. The historical growth for this mix has been closer to 7% while the dividend/interest has been close to 3%. Since our RMD withdrawal needs is about 3% (due to 40% of our portfolio in Roth), this income stream seems like a good candidate mix for simplification (short of using an advisor). The actual mechanism is that the monthly withdrawals come from the cash reserve, which is the repository of all non-reinvested dividends and interest). Due to uneven deposits, the cash reserve can be seeded with sufficient assets to satisfy monthly withdrawals. Furthermore, if the cash reserve should be depleted, a backup account (S&P500 index fund, for example) can be used to address any shortfalls (automatically). One thing I'm looking closely at is the consistency of the "income stream" compared to the monthly market volatility (NAV vs dividends). Since you are not selling anything, all growth can be viewed as long-term. This assume that the dividend income is somewhat reliable on an annual basis. I know a “total return” strategy would result in a bit more gain but this seems like it could be a good trade-off if the “income” (over a year) satisfies the RMD withdrawals.

  Post: Why wait?

  Link to comment from July 6, 2024

• When I retired, I was also a bit frugal when it came to traveling. When my wife got cancer (rare, aggressive form), we were given a poor prognosis. After surgery and two rounds of chemo, she was “declared” cancer free. Before this "declaration" though, she was in the ICU and the doctor told us on one occasion that she would not make it through the night. So we had a lot of ups and downs. After the "good" news, we discovered that the cancer came back within nine months. Her oncologist told her that she had the “best” two treatments (Dana Farber Cancer Center) and didn’t feel that any further treatment would be fruitful (although they had some phase two trials that didn’t look particularly interesting). I couldn’t accept that and started interviewing other medical centers across the country that had clinical trials for this type of cancer and found two that looked promising. This was one time we were glad that we opted for regular Medicare with supplement (Plan F). After a few interviews, I managed to get her enrolled in a trial.  One year later, she was cancer free and has been for the past nine years. It was soon after, that my “frugal” travel trends disappeared. Where previously, I would balk at spending three or four times more for business or first class (compared to economy), these days I don’t even look at what economy class cost (unless it is short flight). While we liked traveling, we hated the waiting in line, struggling for overhead space, sitting in cramped seats, dealing with center seat arm “wrestling,” and dealing with that five-year old behind you that likes to kick the seat back. Now traveling is much more comfortable and I don’t think about the cost. My criteria is that we spend a certain amount each year for travel (now that amount is our RMD). As long as we don’t exceed that amount too much, I don’t bother thinking about it. I typically use a travel agent and tell her to book business or first class and only look at the total cost. These days, we consider every trip we take might be our “last” trip. I know you have to worry about having sufficient funds for your heirs (so do I) but once you have that “under control,” why not splurge more.

  Post: Looking Different

  Link to comment from July 6, 2024

• I consider it speculation. It is unstable and extremely volatile. On the other hand, you can’t deny the long-term growth since its creation in 2009. For that reason, I “invested” about 3% of my portfolio a few years ago in my Roth via a limited partnership (LP) managed by Fidelity (the only organization that I would trust at that time).  Originally, my goal was to leave it to my beneficiaries and had disregarded that fund (as being part of my portfolio from a retirement asset viewpoint). When Fidelity’s spot bitcoin ETF (FBTC) became available, I swapped out of the LP (which was charging a 1% expense ratio) and purchased the equivalent amount of FBTC (at 0.25% ER). At first, the Fidelity website denied the trade due to the account categorization being "growth and income." I fixed that by recategorizing it to “most aggressive,” made the purchase, and went back to “growth and income” again. I guess they want to make sure that you are aware that the purchase of such funds is speculative in nature since all kinds of warnings pop up when you change to “most aggressive.” Since the original purchase, the growth of bitcoin has increased that percentage from the original 3% of my portfolio to almost 9%, making it difficult to ignore. It didn’t have quite that much gain in that I did buy an extra bitcoin during one of the downturns. More recently, I attributed that FBTC fund to be part of my equity allocation, maintaining my 70/30 ratio with that inclusion. While my plan is still to leave it to my beneficiaries (who know that I’ve got this speculative holding), I also told them that if bitcoin hits $500K, I’m cashing out and spending it.

  Post: Is bitcoin an investment or a speculation—and why?

  Link to comment from June 8, 2024

• I didn’t plan it but my retirement went through an eight-year phased process. After my wife retired, I scaled back my work by getting rid of my management role. This eliminated the primary source of work-related stress for me but left my research and development work, which I enjoyed. I then transitioned to working four-day weeks, although I was often working 10-hour days.  This, at least, gave me consistent three-day weekends. The year prior to retiring, I cut my hours by 20%, coming close to what I envisioned our retirement income might look like. While not planned, I was offered a consulting job at a different company, working one day per week from home, reporting directly to the CEO. I was getting a five-figure monthly retainer so as not to worry about billable hours. While this was for a six-month “task,” this arrangement lasted three years. I then requested a further reduction during the last two years, working one day per month before finally retiring in earnest. After that, I volunteered for our local Care Givers organization where I give rides to people who are homebound to their doctor’s appointment. There’s no pay but once a month, we get free pastries/bread from Panera.

  Post: Buying Freedom

  Link to comment from June 1, 2024

• I had a similar experience while working (being somewhat frugal). After the death of my mother (in her 40s) and my father (in his 60s) both from illness, it impacted my thought process. I swung the pendulum the other way and max’ed out our $25K credit card back in the 80s. It took about five years to dig myself out of that mess and reverted back to being somewhat frugal again, though not as bad.   One “leftover” from lessons learned about my parents was that they planned all these trips for after retirement. Since my mother fell ill during my father’s retirement ceremony (and passed away three days later), none of those plans came to pass. That had a big impact on me and made it easier to decide to “enjoy life while you can.” Prior to retiring we did some traveling and visited about 20 countries while still working. After retiring (11 years now), we have visited 30 new countries. It was only since 2019 that I decided that we can afford to go first class. At the time, the thought of spending that kind of money was bit “weird” but now, I view it as “just money” (so long as you have enough) and the amount (that we spend) has little impact to our long term finances. We also have a built-in spending “guardrail” of sorts now. Since we are now withdrawing our RMDs, I don’t really think much about our spending while our full RMDs have not been taken. So far, I’ve been able to reduce our taxable RMDs via QCDs and take the final portion in early Dec to pay via withholdings any federal taxes due (for Roth conversions or prior RMD withdrawals).   Three years prior to retiring, I also did not know how much we were spending. I only got concerned if the bank account balance dropped below a certain threshold. When my wife retired (three years before me), I finally started to get some sense of our spending. It was difficult to know how to translate our current spending to what we might spend in retirement. I made my best attempt and did something similar to you by breaking out our essential versus discretionary expenses. When I retired, I also transitioned almost all our spending to credit cards since I preferred the documentation options (spreadsheet) for our transactions. The cash back didn't hurt either. I was able to process these monthly statements, put every item into one of 35 categories (semi-automatically), and sum up each expense category in a spreadsheet. I also added a mutually exclusive flag for each item being either essential or discretionary. I would then use this data to update the NewRetirement PlannerPlus “budgeter” worksheet and the Fidelity Retirement Analysis Tool budget worksheet. This update is our actual expense ledger for that year and accounts for over 99% of our income and withdrawals. Since I keep an annual copy of these reports, I also have a running expense history that provides some insight to our personal inflation rate for these expense categories and can analyze our spending trends.

  Post: Where It Goes

  Link to comment from April 14, 2024

• What you are proposing (for retirement income generation) is basically what we’ve done since retiring 10 years ago (at age 63). When I retired, I estimated my SS benefit at my full retirement age (FRA) of 66. After determining what our essential expenses were, we purchased sufficient SPIA income such that the combination covered those expenses. However, we limited the SPIA purchases to less than 1/3rd our portfolio in order to maintain financial flexibility. I set up a CD ladder to get to FRA, where each rung covered the shortfall of not taking SS (at the FRA rate) and our estimated discretionary spending. Each year from age 66 to 70, I reassessed the “need” to start my SS benefit but was able to hold off until age 70. I kept extending the ladder to guarantee that any anticipated shortfall in income (for essential spending) was met with fixed-income assets. In the meantime, we maintained a 70/30 asset allocation for the past 10 years (with our asset mix being close to what you indicated except less international but with an REIT fund). As a result of waiting to age 70 to claim SS benefits, our lifetime income covers all our expenses (essential and discretionary) except for major international travel. Alternatively, we could also consider this “excess” lifetime income (discretionary portion) available to compensate for the lack of COLA for the SPIA income. At 3% inflation, I estimate that this lifetime income will continue to cover essential expenses minimally through 2028. Another interesting outcome is that my SS benefit (as the higher income earner) plus our (joint-survivor) SPIA income plus (our current) RMD is more than the cost of a skilled nursing facility in our area. This was not planned but I thought it was an interesting coincidence.   Since all IRA withdrawals are for discretionary spending (except for planned major expenses such as a new car), it has provided peace-of-mind, allowed a variable savings withdrawal rate, and mitigates sequence of return risk. With the heavier weighting in equities, we have being able to achieve an annualized rate of return of 8% since retiring. As a result, our portfolio continues to grow each year and we will (despite our spending) most likely die at our highest net worth. Our 20-30% bond allocation also allows us (if necessary) to draw on non-equity assets for 10-15 years, allowing the equity funds to stay invested for the long term. While we initially averaged close to 6% withdrawal per year, a good portion of that withdrawal rate was for travel (visited 27 new countries since retiring) and six years of paying large Roth conversion taxes. Those conversions reduced our T-IRA balance by almost 40%, making a big dent in our RMDs, which also got us below the Medicare IRMAA thresholds. For the past two years, we have not had to withdraw more than our RMD (which only applies to 60% of our portfolio). I estimate that our children will inherit our assets with 66% of such assets tax-free.   In our mid-70s now, I am working on further simplifying our portfolio, not unlike what you have proposed. One strategy I recently explored with our CFP is transitioning toward generating more dividends to create an income stream to satisfy our RMD. While I have always been more of a total return person, this strategy (at this stage of our retirement) would pretty much eliminate the need to decide what to sell or buy, rebalance, or replenish buckets. I can even have our RMDs computed and distributed monthly with no intervention on our part. In parallel, I have also set up an automated cash flow and autobill payment on the expense side. But that is another story.

  Post: Happily Ever After

  Link to comment from December 16, 2023

• I enjoyed reading this article since it seemed to go along the line of what we’ve done. I am 10 years into retirement (age 73) and many of the issues you mention hit home with me.   In the past, I used Monte Carlo simulations with two outcomes to gauge the future: significantly below market average (10th percentile) and average market conditions (50th percentile). I plan using the 10th percentile outcome but estimate my future RMDs using the 50th percentile. Even using the 10th percentile outcome, we don’t appear to have a longevity risk in that our portfolio continues to grow (even at significantly below average market conditions). Over the past 10 years, I entered our actual spending in the budget worksheet rather than an estimated withdrawal amount. As such, I also have a history of expenses/spending and can establish our personal rate of inflation. While we don’t know our end date, I can, at least, plan for a given end date in our mid-90s. In order to reduce risk, I waited to age 70 to start my SS benefit while my wife claimed her benefit at 63. We decided early on that we wanted to create our own self-funded “pension” since we did not have that option from work. When I retired, we purchased a series of single premium immediate annuities (SPIAs) to create this lifetime retirement paycheck (using one-third of our portfolio to fund this “pension”). The combination of the SPIA income and my SS benefits would cover our essential expenses for many years. We could then invest the remaining two-thirds of our portfolio fairly aggressively.   I also worked part-time as a cybersecurity consultant soon after retiring. While it was supposed to be a six-month task to address a single topic, I wound up working for five years (one day per week from home for the first four years and one day per month during the last year). I was also very lucky in this part-time work since I could do it from anywhere and had no project responsibilities.   Creating this lifetime income has given us peace of mind. Since retiring, we have traveled to 28 more countries and have only six more states to visit (to complete vacationing at all 50 states). While we started out withdrawing 6% for the first few years, much of those early year expenses have disappeared such as mortgage and new house expenses. Our Roth conversion taxes also constituted a large chunk of those withdrawals. Those Roth conversions have diminished significantly, reducing our withdrawals as well.   Today, our savings withdrawal rate is very close to 3%. Our portfolio is larger today than when we retired (after the SPIA purchases) due to maintaining a 70/30 average asset allocation. To simplify matters further, I am seriously considering making some adjustments to our portfolio such that we can create an income stream strictly from dividends/interest. Our current portfolio generates close to 2% dividends/interest (according to Fidelity). While we have always reinvested such assets, I am hoping that with the above adjustments I can create a steady income stream (from dividends, interest, and distributed gains) that can satisfy our planned discretionary expenses of roughly 3.5%. This should simplify our income generation process in that I may be able to stop rebalancing, not worry about replenishment, or decide what to sell or buy. This would definitely make matters less mentally taxing especially as cognitive decline should come into play.

  Post: Retirement Roulette

  Link to comment from November 25, 2023

• My wife had a similar situation with cancer. She retired slightly early while I retired three years later. Soon after I retired, she got cancer and went through surgery and months of chemo. The ordeal sent her to the ICU more than once. I was even told that she would not make it through the night but she did and recovered. Then after being told she was clear of cancer, it returned less than one year later. The second time, rather than using our local medical resources, I researched further and sought out the best cancer centers regardless of their location. She underwent surgery and two different rounds of chemo (both clinical trials) and has been cancer free for the past seven years now. We were thankful that regular Medicare gave us options to look elsewhere for help. This was also the trigger that “converted” me from being frugal to spending more generously, placing time and comfort over cost (assuming we could afford it).   We’ve been retired over 10 years now. One of our retirement goals was to see more of the world. Even before retiring, we visited over 20 countries. Since retiring, we gone to 27 additional countries, completing our travel bucket list. My parents both passed away relatively young. I recall they always planned to do this or that “after” retiring. My mother passed away at age 47 during my father’s military retirement celebration. That pretty much put a severe damper on my father’s plans. He didn’t remarry and passed away in his 60’s. That was a life lesson that taught me not to put off everything “until” retirement.

  Post: My Best-Laid Plans

  Link to comment from November 11, 2023

• Your timetable seems very much like what we have experienced (as we are 73/76). We retired at age 63, with my wife retiring three years before me. However, since my mother passed away at 47 and my father at 69, I knew not to wait for “retirement” to enjoy life. Even as I was working those three “extra” years after my wife retired, I got permission to scale back my work (getting rid of my management role, working part-time, working from home two days per week, and being able to take three-week vacations). Even before I retired, we had visited 20 countries that were on our travel bucket list. Unfortunately, my wife had two bouts of cancer with their attending chemo aftermath (involving ICU stays and other complications). However, that situation only slowed her down for two years and she bounced back with the same vigor as before. That was seven years ago (still cancer free). Since retiring 13 years earlier, we have written off another 27 more countries completing our original travel bucket list and creating a new one. This year alone, we spent a month in Hawaii, a week at a ski resort, a three-week cruise from NYC then nine stops around Iceland, a three-week trip around the British Isles ending up in Bergen,Norway, and a three week trip doing our annual fall foliage drive through New England.   On the British Isles cruise, we both caught Covid (for the first time) and had to quarantine for five days before being allowed to continue our excursions. Luckily for us (fully vaccinated), Covid felt like a mild cold even at our age. Previously, catching Covid on a cruise was a bit frightening (would we have to disembark and get stranded, for example). We were in a cabin suite that was double the size of a balcony unit (more like a one bedroom with a living room) so we had a bit more room than most. Our room stewards took real good care of us and let us know that we could order off of any menu (including all the speciality restaurants at no additional cost) and not just the room service menu. This was a big change from a couple of years earlier. Once the quarantine was over, we took it easy but still managed to do the remaining planned excursions that often averaged over 10K steps (according to our fitness watches).   I don’t know how many more go-go years we might have. We plan each year as if it is the last. Hence, I don’t have any issues going first-class or getting the suite on the cruise ship. Next year, we have already booked a house for a month in Hawaii (Kailua beach) and have pre-paid for a river cruisetour, starting in Paris, then to Koblenz, then cruising down the Rhine to Basel, then by bus to Zurick, Zermatt, and Geneva. With the pre- and post-excursions, this is roughly a four week trip. One advantage of treating each year as the “last” go-go year is that there is less fear in spending.

  Post: Bracing for Evening

  Link to comment from November 4, 2023