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While working, there is something we call payday, it may happen once a month, more likely two or four times a month. Generally that means money is deposited into our bank account – a steady income stream we count on to pay a new set of bills.
Then we retire and everything changes, no more payday. To me recreating that is the key to a less stressful retirement. I can say that because I am fortunate to be able to do so and know the feeling of a retirement payday.
On the first of the month my pension arrives as does Connie’s tiny ($400) vested pension from fifty years ago. On the 2nd and 4th Wednesdays Social Security is added.
Something else happens too. On the first of the month interest from our bond funds and money market accounts is credited to our investment accounts. Dividends are quarterly. It all stays there for now, but can add to our income stream in the future.
I know from years on HD that retirees have different approaches to creating income in retirement, some take a percentage withdrawal, others cash amounts based on a budget, many seem to reject an annuity purchase to create an income stream.
Some retirees have pensions. Virtually everyone has SS, but many delay that income for years after retiring.
One thing is clear, all retired people need steady income, but creating it is often a challenge, sometimes requiring careful planning and decision making, sometimes rather complicated-at least from my perspective.
I favor simple, steady, all on automatic pilot, a retirement payday little different from working years, but that’s easier said than done.
What have you done or plan to do to create your payday allowing you to sleep soundly at night (or during the afternoon nap if you’re already retired😁)?
Somewhat by dumb happenstance, we get paid seven times per month. Two IRA distributions during the first week, two SS deposits on the Saturday before the 4th Wednesday, two puny pension deposits during the final week, and interest deposits on the last day of the month.
You’re right, Dick, if I ever lose sleep, it’s not due to financial worry.
Good morning, Dick,
I like the way you frame this as a “retirement payday.” That really is the goal for me — to make retirement income feel as close to a regular paycheck as possible. Our plan has been to build a steady income floor first with our military pensions, my FERS retirement when I completely retire in 2029, Cathy’s current Social Security, and eventually my own Social Security. That gives us a dependable monthly base to cover the essentials without feeling like every market swing could threaten next month’s grocery money.
Then the TSP becomes more of a backup, tax-planning tool, and flexibility fund instead of something I have to depend on every month just to live. I’m also open to using part of it for an annuity if it helps create more predictable income. Everyone handles retirement income differently, but for me, the emotional side matters as much as the math. I want simple, steady, and mostly automatic — the kind of payday that lets you sleep at night and only interrupts the afternoon nap when another deposit hits the account. Just 2½ more years, and then that complete retirement payday starts.
All of the above! Wife’s Pension on the last day of each month. My Pension on the first day of each month. Social Security on the 2nd and 4th Wednesday of the month. MYGA annuity payment on the 6th of the month, We are very fortunate to have these income streams in retirement and rarely need to tap into our other retirement accounts for spending other than certain large anticipated purchases or funding i.e.grandkids camp payments.
Sounds very familiar
We are still employed fulltime, fortunately or maybe not so fortunately. We have been pondering this as we do plan on early retirement starting somewhere around age 57-58 which is two years from now. We have zero pensions, and only our investments. Currently the plan is a cash bucket coupled with PT work to bridge us to around age 64, (Roth Conversion window) then we plan on claiming Social Security and couple that with dividends should cover our basic expenses for the year. Then we plan on withdrawing a quarterly amount to refill the cash bucket for any spending over what Social Security and dividends will cover. We likely should have more in the cash bucket than we will spend so if there is a market downturn that is concerning we can stop withdrawals. No annuities, no fancy insurance products, just keeping things simple.
On a separate note, I have just enrolled for a Masters In Financial Planning program which will allow me to sit for the CFP exams in a couple of years. I look forward to being more active as I dig into the content. I promise, i am not a snob and will not be looking down my nose wondering tsk tsk :-).
Now that is a plan that would definitely keep me from a goods night sleep. No doubt you have thought of all the possibilities, but keeping things that simple seems too simple for me, especially starting at 57.
How will you hand health insurance before age 65?
With the level of investments you seem to have, wouldn’t an immediate annuity just to cover basic fixed costs smoothing things out?
Hey Dick, I think the simplicity of this plan is exactly what makes it so easy to pull off.
First, regarding health insurance: since my 50-week severance package includes health coverage, we are set for a full year at our current rates. After that, I plan on taking the six additional months of COBRA. That gets us to 18 months total and takes us almost to age 59. From there, I will jump on an ACA plan. I know I can’t really game the system to get a lower premium because I want to prioritize Roth conversions. I can’t have my cake, eat it, and expect to lose weight too!
Since Roth conversions trump ACA premium savings in the long run, we will just buy an ACA plan that covers nothing beyond catastrophic incidents. That means we might be on the hook for up to roughly $14,000 per year in max out-of-pocket expenses. That adds up to about $100,000 over six years, which I already have set aside in the cash bucket. My employer kicks in about $400 per month toward a health plan in retirement, so I figure I can get coverage for about $1,200 per month after that credit. My wife is an RN, and if we work part-time, we can easily earn enough to cover most of that.
As for the annuity question, it is just not for me. When I compare the rates of return to the guaranteed income, the math never works in my favor. I am comfortable with market risk because of how we are set up. Having a zero mortgage and a decent cash bucket is my primary way of mitigating risk. When Social Security kicks in at age 65, that will be our “annuity.”
The biggest risk I see is health coverage. If things get really tight, one of us can always go back to work, though we hope it won’t come to that. We have about eight years of expenses socked away entirely separate from retirement funds. It feels like I made my own annuity and kept my money too. I guess I can eat cake and not gain weight after all!
Before you take COBRA, compare the full premium with what you can get on ACA. COBRA has an added percentage to the actual price plus the full cost of an employer plan can be quite high. Just worth checking
I just signed up for a one day workshop entitled, The Changing World of Retirement. Has anyone heard of, or attended this presentation? They advertise no cost, including the workbooks, and no pressure sales. Even if there is pressure I walked out of the only other presentation I have attended in the past without signing up.
I am confident in the plan I have instituted over the past seven years when we retired without claiming Social Security, and our plans going forward. Maybe they come up with something out of the blue that I have not read about, but I doubt it, but it’s worth one day of my time to attend to find out. If something comes up that sounds interesting you can bet your bottom dollar that I will independently research the hell out of it then post for comments here on HD.
Looking forward to that post.
Great post, Richard! We certainly enjoy our “paydays”: 3rd Wednesdays for her SS benefit, and last business day of the month for our state pensions. When my SS benefit begins, we’ll add another payday on the 4th Wednesday of the month! RMD’s will likely be taken as QCD’s to do good for our church and avoid taxable income. 1 traditional IRA and 3 Roth IRA’s will likely not ever be touched by us, but legacies to our daughter, son, and their families. Feeling fortunate!
Great title!
Dick, I know our financial system would give you ulcers, but here it is.
At 68 I have a small (<1K) pension with 100% survivorship (the difference between that an no survivorship was not a deal breaker). That is our only retirement “paycheck” at this point. We have a fair amount in retirement accounts and when the credit card is due (which covers 90+% of our monthly expenses) I simply withdraw enough to cover that, any significant costs projected for unusual expenses up coming (like a water treatment system for the house this month, next month is driveway sealing and annual maintenance for home systems) with 2K left in the bank. We do not have a budget but we are not extravagant spenders. We have used this system since 2020 and our portfolio (45/45/10) balance has always stayed within 10% of our all time high, so I have never bothered to calculate what percentage of our portfolio we are expending each year. I do have a minimal balance that would trigger claiming Social Security before 70, but with eighteen months until that time it is unlikely we will claim early. When we do claim SS that income will pay the majority, if not all of our annual expenses. Being frugal, saving and investing wisely has lead to no financial stress in retirement.
Different ways to skin a cat.
We are blessed!
Our approach is similar. We keep several months of cash in one account from which most bills are paid automatically. When that gets on the low side, we shift funds from a taxable brokerage account to top it up.
Our cash horde of about 1 1/2 years of expenses is in our Vanguard federal money market account and is topped off quarterly when I manually update our portfolio to determine it’s current balance as well as our net worth. It is topped off by rebalancing to our allocation by selling a small portion of our winners. Once we claim Social Security then this will most likely occur at most semi annually, or annually, but in the meantime while living off of our retirement accounts I want to keep a close eye on portfolio.
Yes indeed, if it works, it works. My social security deposit would not cover property taxes and HOA fees.
You’re right though I’m feel a little burn(ng in my stomach. 😎
RDQ, I sleep soundly at night knowing that I could create an income stream with my 403b at TIAA. Had I annuitized that account at retirement four years ago, the annual income would have exceeded my then salary. For tax reasons, I opted not to annuitize and instead I support my spending mostly with withdrawals from a taxable account. That is still simple enough to manage for now. Time will simplify that further, what with income streams in two years from SS and in five years with RMDs from TIAA.
Most of my retirement funds are also in TIAA. I do plan to eventually take about 50% of it and turn it into a single-life annuity. I may start by doing an ‘interest only’ withdrawal for a few years as we don’t really ‘need’ the money now and that would allow the principal to remain until we decided we need/want to begin drawing on it. I’m three years away from drawing my own SS.
My wife and I have ten-year fixed-term annuities covering all our essential spending, paired with a ten-year collapsing bond ladder for discretionary spending. Both will be further supported by a defined benefit (DB) pension — with COLA and a 50% survivor benefit — starting when my wife turns sixty this November. By year ten, our UK state pensions and the DB pension will cover our essential spending and a portion of our discretionary needs, meaning the portfolio will only ever need to fund the extras. Rather than trying to forecast the next thirty years, we prefer to plan the first ten in concrete detail, with a much looser and more adaptive approach for the longer horizon.
Sounds like you have it covered and steady.
In a few months, we should have several diverse streams:
1) Pension
2) My SS (approved)
3) Wife’s SS spousal benefit (still in limbo)
4) Part time earned income (less than $24,480 a year)
5) Modest 401(k) withdrawal (around 1.5% of balance)
6) Interest/income in taxable accounts (no stocks)
Time for my nap.
You can enjoy your nap.
Very helpful and practical. Quick question – where are you storing this money? I assume SSI and pensions are paid to a bank account, and the interest/dividends are in brokerage accts. Do you combine them into one account for the full “feel” of a paycheck? And then pay bills from that account?
My paycheck issues are sort of the opposite. I recently left public service and launched a private mediation practice. Pension starts in five years, SSI in 7-10 years. So, when I get paid from the new business, I have to break that check into: estimated taxes; replenish cash reserve and pay bills; contribute to SEP IRA; and invest any remainder. Same monthly discipline as RDQ, but still on the earnings track.
Yes, pensions and SS go into bank accounts. Pensions in one and SS in another. A set amount from pension funds then automatically goes to another account from which all ongoing fixed expenses are withdrawn. SS stays where it is deposited until needed, we used to use it for travel, but no more. All taxes are already withheld.
Interest and dividends are left in IRA or brokerage acct either reinvested into the investment fund or transferred into money market fund.
When we take our RMDs we withhold taxes to cover all investment related taxes, then we do QCDs, gift our children and put what’s left into brokerage money market fund
Really not as complicated as it may sound.
I don’t understand the need for all the accounts. Both of our pensions and SS go to our checking account. As the balance in the checking account gets larger, I simply transfer the excess to our savings account.
I think this was a good post, Dick. I was working on similar before we retired. I knew we would both have SS. We also had a 401k to draw from. The last 10 years before retirement we worked on Roth accounts b/c we were in the income bracket to be able to contribute to them. We started maxing them out after we paid off our house. The 401k was pretax, so we wanted to diversify. We also maxed/invested our HSA and paid our medical bills so we would have another pot to use in retirement.
The final piece was what to do with the (small) pensions. We had the 100% joint and survivor benefit available to us. The combined amount was enough to pay our property taxes, which is one of our biggest expenses, so we decided to take them instead of rolling them over into an IRA.
So in the end we have 5 regular sources of income: 2x SS, 2 small pensions, and a quarterly distribution from a tIRA. We also have the HSA for medical expenses and the Roths are also available if we need them. The SS and pensions cover our regular expenses. The quarterly distribution for tIRA is for fun and any large expenses. Right now I am saving for a car. Chris
PS. I hope this will help someone who is where I was, it was so much work to figure out.
I have a two part pension, most is qualified, but the rest is not and legally deferred compensation but still an annuity. We selected a 50% survivor annuity on the regular pension and 75% J&S on the other.
I saw too many cases in my job where a new widow was shocked to learn she no longer had any pension income.
That happened to my grandma, but my mom gets 50% of Dad’s. Both were what were available to them at the time. C