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The budget-less, automated financial life of two old retirees living paycheck to paycheck- sort of, okay, not really. By Quinn

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AUTHOR: R Quinn on 10/12/2024

According to the Federal Reserve, 64% of current retirees age 65 and older have a defined benefit pension. That includes me and today (last work day of the month) is payday as Connie calls it. Our “house” checking account as it’s labeled, is replenished. The pension deposit has not changed in fifteen years and will not change in the future.

The second and fourth Wednesdays are also paydays when our Social Security arrives at our bank. Those payments are to a separate account once used for travel, but now I’m not sure, except when we are on “vacation” – the retiree jokingly said – we use that money. 

As I do each month I just paid the balances on our two credit cards. 

Our bank has transferred a pre-determined amount to an account we label “fixed expenses.” From that account is drawn, mostly automatically, the bills for utilities, all forms of insurance, property taxes, HOA fees, internet, etc. That amount has changed slightly over the last few years as expenses have risen. The key is that at the start of the month all living expenses are covered and the money isolated.

A pre-set amount is also transferred into what we call “Connies checking.” How that account is used is up to her. However, most of the checks written are to charities. Other than that it is her personal care treatments and supplies – cosmetics – and birthday and holiday gifts to family. 

A $1,000 is transferred into a savings account for emergencies. 

What remains in the house checking account receiving our “pay” is used for all other (generally discretionary) spending including cash from the ATM. 

After all that is accomplished – automatically remember – we know what we spent for the month, how much was left at the end of the month and exactly how much we have to begin the next month. The bank does the work for us. 

Should I have the urge to know more about our spending – a rare occurrence – our bank and Amx websites give me all I need to know. They can’t show how we spent ATM withdrawals, but given that is money available to spend, it doesn’t matter.

In a strange way given each of the checking accounts are close to empty at month end, you could say we live paycheck to paycheck. Of course, that is not true as we also fund 529s and add to emergency savings each month. And, I am not counting monthly investment income reinvested. 

I find the process simple and stress free. I keep a watchful eye on the credit card balances during the month making sure payment in full can be made and I make incremental payments during the month too just because I don’t like seeing high balances. 

I don’t feel I need to know any more about our spending or the need for other than this de facto budget based on net income (after taxes) each month. This has worked for over fourteen years. 

What keeps us from spending too much from the ATM, overcharging on cards we can’t pay in full, not saving for emergencies?

Well, we are too (very) old people with lots of experience and common sense, a good measure of personal financial responsibility and we made sure at retirement there was no debt and a surplus of income – and weirdly, retired at age 67. A tradeoff we feel was well worth it, but obviously many people feel differently. 

Note: substitute any retirement income stream for pension and this still can work. 

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Scott Dichter
26 days ago

I enjoyed this, you’ve successfully evaluated your psychology, implemented a kind of bucket strategy that gives you guard rails and the freedom to live to your maximum happiness. Well Done.

baldscreen
26 days ago

Thanks, everyone, for mentioning how you do your budgets/“non-budgets”. Since we are in the first year of retirement, we are still setting up things, slowly turning income streams on, etc. After reading all the comments, I am reassured we are on the right track with our thinking. Spouse was never involved in the finances, it all fell to me. They are helping now. Chris

L H
24 days ago
Reply to  baldscreen

We are near the same stage of life. Would you mind sharing what your “streams of income” are and what you mean by turning them on?
I’m always interested in the many income streams possibilities

David Lancaster
26 days ago

We have never had a budget as we have a natural tendency towards frugality. Since we are delaying claiming Social Security our only income is a monthly pension check of <1K/month. Our system is fairly basic. When the credit card statement is ready we figure out how much we need to withdraw from our retirement accounts after adding in any additional expected expenses and make sure there is another 2K left over. We have approximately two years of withdrawals in our Vanguard money market account and basically use our credit union accounts as pass throughs and holding for the extra 2K as the interest is so poor.

I don’t think it is necessary to have a separate emergency account (that is basically the two years of cash in the MM) as I can always transfer money from the MM to my checking account within a day or so.

We also have 8 years worth of money in bonds (mostly short term/TIPS).

I also make sure that my allocations in my retirement accounts are within 5% every quarter when I calculate our net worth transferring between equities, bonds, and cash.

Last edited 26 days ago by David Lancaster
stelea99
26 days ago

One topic not mentioned in this post is how you pay your income tax. I assume this is done by withholding from your monthly pension. For those without a pension like myself, things are a little more complex.

Taxable dividends, RMDs, and SS are our sources of income. They like our expenses are lumpy. So we find it easier to keep a substantial balance in our checking account and just refill it as needed, 3 or 4 times a year. We have taxes withheld from the single RMD withdrawal. We keep four full years of expenses in cash/near cash. If you are not working, getting a pension, or taking RMDs, you cannot have taxes withheld and must pay quarterly estimates.

We try to autopay most everything. You can’t count on the USPS anymore. We even autopay the two credit cards, although it seems wrong to actually have a balance even though you pay no interest.

We don’t have a budget per se. I monitor expenses via Quicken but since they are usually less than our income there is no need for a budget.

stelea99
26 days ago
Reply to  R Quinn

By having a large refund, you are making an interest free loan to the government. At the current MM rates, you are giving $250 away. I try to be within $1000 of our liability plus or minus, and usually get a couple of hundred back.

Dan Smith
26 days ago
Reply to  R Quinn

I have mentioned this cautionary warning before regarding over withholding. A client had about $8k withheld from a $10k distribution. Her situation changed one year and she was due an $8k tax refund. The IRS believed the withholding on the 1099R to be an error, and held up the processing of her tax return. Even after multiple conversations with the IRS, it still took them nearly 3 years to refund the money. Fortunately the taxpayer didn’t need the money, and the IRS paid her interest totaling about $1k for the delay. The moral of my story is that it’s better to owe the IRS a couple bucks than to risk having them delaying your refund. 

Dan Smith
26 days ago
Reply to  R Quinn

28% is not extreme.
Another point to keep in mind is that the IRS will randomly pull tax returns for manual processing for no obvious reason at all. Out of approximately 600 tax returns per year that I prepared, usually about 20 returns were affected.
I am just not a fan of big refunds.

Jonathan Clements
Admin
26 days ago
Reply to  Dan Smith

Another reason to owe: You’re less likely to be out of pocket if someone files a fraudulent tax return using your Social Security number. The late Julian Block wrote about that in an article for HumbleDollar.

Last edited 26 days ago by Jonathan Clements
bbbobbins
27 days ago

Why not automate the credit card payments too? You claim it’s easy but then you’re spending unnecessary time each month monitoring cc balance.

For those without pension or annuity income they probably do have more decisions on where to draw from assuming SS is not enough. In that case, topping up the current account to a fixed amount each month seems sensible.

It is of course easy if you have a relatively large slug of income coming in each month but don’t forget you’re in a gilded situation compared to peers and certainly most of those coming 10 to 20 years after you. Your simple model will be as relevant as pumping gas and driving a stick shift in 20 years for most.

bbbobbins
26 days ago
Reply to  R Quinn

Your model may work for those that have a defined income but it has been explained to you many times that that won’t be the majority of retirees in the future. And your “simple” solution to that of “just” buying annuities is unlikely to be the optimal advice for many.

I don’t really know what your agenda is with the continuing repetition of these points. Is it a form of humble bragging? Or a self-justification of why everyone should work to the age that you did even if they have totally different circumstances?

Managing a few spreadsheets and a withdrawal strategy sounds easier to me than full time work for another 7+ years in today’s corporate environment.

You do you seems to be the best advice. And accept that not everyone who doesn’t do you is irresponsible or wrong.

bbbobbins
26 days ago
Reply to  R Quinn

So how did you help employees who were retiring with only the 401k element?

What reading did you suggest they did? How did you advise them on the opportunity and risk of staying invested and what withdrawal strategies they should research?

And I agree with Jonathan’s point below. A more interesting article would be on what you are advising your kids and how their financial situation in retirement will differ from your own. Or if that’s too personal, a hypothetical Gen Xer hitting their late 40s/50s who has only ever had 401ks?

Last edited 26 days ago by bbbobbins
Jonathan Clements
Admin
26 days ago
Reply to  bbbobbins

What might be interesting is to read Dick’s retirement advice for his four kids. Would he suggest they all work until their late 60s? Would he advise that they all claim Social Security at full retirement age, rather than waiting until 70 to get a larger stream of inflation-adjusted income? Would he advise that they all buy immediate-fixed annuities, which might be less necessary if they delay Social Security?

L H
25 days ago
Reply to  R Quinn

And I as always will be looking forward to that article

parkslope
25 days ago
Reply to  R Quinn

Your articles, forum threads and comments are replete wth what most of us consider advice.

bbbobbins
25 days ago
Reply to  R Quinn

Double posted

Last edited 24 days ago by bbbobbins
bbbobbins
25 days ago
Reply to  R Quinn

It’s not a personal thing. I find value in what you post even if it’s to work out why your approach doesn’t work for me. Obviously I read too much into the tone of what you post, for which I apologise.

Many do not have the option of the ” simple” approach, the “system” is fiendishly complicated and it is a lifeskill in itself to learn how to navigate it. Plus of course defining one’s own financial personality and how it changes as we age is not a once and done thing.

Jonathan Clements
Admin
25 days ago
Reply to  R Quinn

Dick, I think that when you repeatedly recount what you’ve done with your own finances, and don’t suggest there was anything wrong with your approach, readers will take that as advice. Perhaps you need to state explicitly that you could be wrong — a little humility is always appreciated — or that your approach likely doesn’t make sense for most folks.

Randy Dobkin
24 days ago
Reply to  R Quinn

One should not interpret as advice postings of how the Quinns manage money. He’s admitted to irrationally continuing to reinvest dividends in his outsized position in company stock.

Last edited 24 days ago by Randy Dobkin
Michael1
26 days ago

That would be an interesting article, perhaps with their thoughts in the advice in the footnotes. I’ll watch for it.

mytimetotravel
27 days ago
Reply to  bbbobbins

I haven’t automated my credit card payments because I want to check the charges. I download them to Quicken and then check them against the receipts. I only find errors occasionally, but I have found some.

OldITGuy
24 days ago
Reply to  mytimetotravel

That’s a good system you have. But just to be precise, you still have a legal right to dispute a credit card charge whether or not you’ve actually already paid it, as long as it falls within the time period protected by law. I might be wrong, but I believe some credit cards extend that period for some conditions such as poor quality of goods and services.

Michael1
24 days ago
Reply to  mytimetotravel

You know the two aren’t mutually exclusive. All ours are on autopay, and we still get a notification that are statement is ready, long before the payment is taken.

DrLefty
26 days ago
Reply to  mytimetotravel

I automate all my credit card payments in the sense that I’ve set it up where minimum payments can be taken out on the due dates. But that actually never happens. Like Mr. Quinn, I pay the balances a couple of times a month because I don’t like having them, and I never carry a balance forward. I check my card accounts online a couple times a week just to make sure nothing suspicious has happened.

But pre-setting those payments means that if some emergency happens (like I’m unconscious in the hospital or something), I’ll never have any late payments. It just gives me peace of mind in case something goes wrong.

OldITGuy
26 days ago
Reply to  DrLefty

That’s pretty much exactly what I do. Also, I have text alerts on my credit cards so I get a text immediately when a charge hits my credit cards. For me, that’s easier than looking at the monthly statement and trying to remember what I charged. The text happens in minutes so the charge is fresh in my mind. Although I must admit I still glance through the charges when I get online to pay the account a few times during the month.

Dan Smith
27 days ago

Simple is good! We operate in a similar fashion. We do have 2 banks, one locally that has crappy saving rates, and one online with high interest savings. One of these days I will consolidate to a different local bank that can satisfy both needs. It’s just such a PIA to switch everything over.

OldITGuy
27 days ago

My wife and I have a similar system, with the only real difference being we got married later in life (eg. age 60 & 55) and we weren’t interested in combining our financial lives. So we created a joint account we use for all our joint expenses (which is most things) and we each auto-fund it every month from our individual accounts. I’ve used this approach to help keep our estates separate so my wife will have very little to do financially when (statistically speaking) I probably predecease her. In our case, since she has a survivor benefit on 2 of my pensions I also have those deposits going directly into the joint account, in keeping with the idea to minimize the impact on her financials when I pass. I also tend to pay down our cards during the month as I hate to have a balance even though everything possible is on autopay (including the cards). Right now the only periodic payments we have to explicitly pay each year are the annual property taxes (no autopay option yet), the car registrations, and our pest exterminator. Similarly, we have a joint investment account where our joint surplus funds are invested. This approach (as does your approach) makes it real simple to assess our joint account finances as we plan ad hoc expenditures (such as travel) during the year.

Mark Eckman
27 days ago

We are birds of a feather. My Social Security and pension both go into my only checking account, and I have automated all my bills that I can. To the extent possible, I use my Visa card for anything else and carry very little cash. When I need more money, I transfer funds via ACH from my IRAs to my checking account.

I have automated transfers to college funds for the grandkids, and a savings account for property taxes. I pay all of my insurance plans on my Visa card. This makes life simple, for me. This way, the only bills I regularly pay manually are the balance on the Visa card, (never carry a balance,) and various doctor bills.

You are correct, simple and very adaptable.

Winston Smith
26 days ago
Reply to  Mark Eckman

Mark,

Same for us expense wise … with almost everything on auto-pay.

We do like to tip in actual Ca$h so most of it goes to the wait staff – hopefully – tax free.

Robert Wright
25 days ago
Reply to  Winston Smith

Tip income legally has to be declared and taxes paid.

Winston Smith
24 days ago
Reply to  Robert Wright

And we all know — wink wink — that no true American would ever even consider doing something that might keep money in our own pockets … instead of happily forking it over to the government.

Have you ever paid a contractor — plumber, electrician, carpenter, seamstress or handyman — in cash instead of writing them a check?

mytimetotravel
27 days ago

That seems rather complicated. My pension and Social Security both go into my one checking account. The bills for my retirement community, insurance, and mobile phone are paid automatically from that account. Other payments come automatically from one of my credit card accounts. At the beginning of the month, when my pension is deposited, I pay my credit card bills in full. Then I figure out whether I will have enough, after my SS is deposited, to cover the retirement community bill, and if not I move money from my Vanguard money market account. All of my transactions are recorded in Quicken.

I recently set up a CD ladder, but at this point I expect to simply roll the money over to a new CD when one expires. At my current rate of expenditure I don’t expect to exhaust the money market account for a while, even if I take a couple of trips.

Mark Eckman
27 days ago
Reply to  mytimetotravel

When comparing two processes, I rely on one of the three military maxims – “If it works, don’t fix it.”

Nuke Ken
27 days ago

I’m surprised at the high percentage of retirees with defined benefit pensions. Obviously, that percentage will decrease sharply as time goes on. A quick internet query indicates that the median annual private pension is $10,606 and the median government pension is in the $25,000 to $26,000 range. Given your unique situation of 50 years of service with one company and executive-level pay at the end of your career, your pension is undoubtedly an order of magnitude above the typical payout. Coupled with reasonable spending, that should give you a margin that is not normal for most retirees, even affluent ones. You’ve earned the luxury of being able to automate things as you have.

L H
27 days ago
Reply to  Nuke Ken

Unique situation… I only worked for the same company for thirty years.

Executive level pay… I never earned more than 60k per year and retired at the age of 51 only working part-time after that.

Magnitude above the typical payout… My pension is 50% of what I earned when I retired with no cola.

We obviously don’t have a large IRA sum (300k). But between my wife and my SS and pensions our expenses are all covered.

Every bill we get is auto payed except our MasterCard.

Life isn’t simply about what we earn but about investing early, consistently, and living below our income

Last edited 27 days ago by L H
OldITGuy
27 days ago
Reply to  R Quinn

My wife and I had run the numbers and also chose to continue working, in our case until I was 65 and she was 60. As with you, the last 5 years made a big difference. We could have skimped by and retired earlier or worked longer and saved even more. For us the sweet spot was finding a point where we had more than enough, with a healthy margin of safety, but yet still retire while we had our health. In my case, late in my career in order to continue working I had to work out of town for 15 months commuting home on weekends. Plus I had to accept an assignment for my last 5 years that was not something I would not have chosen to do. But the effort was worth it; we retired comfortably on our own terms. Of course, to even be able to make that decision one has to have both a very realistic idea of what they’re going to need to retire comfortably and how much income they can depend on in retirement. Also, I should mention that some folks don’t really get to work as long as they want, either due to job loss, health issues or some other happenstance out of their control. My wife and I were lucky that nothing like that happened to us.

Nuke Ken
27 days ago
Reply to  R Quinn

You make good points. Simpler is better as we move on in age. A pension is the ultimate “simplifier”, IMHO. I’m moving in that direction: I’m no longer interested in accounting for every dollar on a spreadsheet, depleted my Treasury Direct account to avoid hassles for my heirs, and am slowly cashing out my paper I bonds.

Mark Eckman
27 days ago
Reply to  Nuke Ken

The big wave of pension plan freezes began about 1992. So if you think about when plans will run out of new retirees, there are people out there that were 20 when the plan was frozen in 1992 and will turn 65 in 2037. They might not have a large pension, but they were vested at the freeze and will have something.

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