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As Jonathan and others have pointed out, I apparently think differently about retirement, investing, money and yes, budgets and spreadsheets. Based on some past articles on HD, I also think differently about children’s college, and spending priorities, even travel, but at this age it is what it is.
Rick Connor’s analogy between satellites and retirement planning amazed me. I doubt I could compare with the Wright brothers, perhaps not even a hot air balloon – remind me to tell the story about us riding in a balloon and crashing in the Arizona dessert.
These days we have a multi-level financial plan although not developed with the precision of an engineer. The design (a generous term) has a backup to a backup.
Warning: Don’t try this on your own. Stop using it if you find you are allergic to any of the ingredients and call your financial advisor immediately. (Imagine this is minuscule size print at the bottom of your screen)
While we live on my pension and our Social Security, I crafted our investments as I would without a pension-although I would have had to save considerably more while working to generate a comparable income.
Basic level income – Our combined Social Security
Level 1 – my pension (no COLA), Connie’s $300 monthly vested pension earned up to 1970. If there were no actual pension, I would have purchased an immediate annuity. It’s all about automatic income stream for me
Level 2 – RMDs from rollover IRAs – required, not desired – donated via QCDs and reinvested
Level 3 – interest and dividends from brokerage account-reinvested
Level 4 – two (very) small annuities 40 years old – not used yet
Level 5 – gradual liquidation from brokerage account investments
Level 6- gradual liquidation of investments in addition to RMD from IRA
Our goal is not to get beyond level 3 during retirement, that is, not need to use additional funds.
Our version of budgeting our day to day money is several bank accounts- one bank- we have accounts labeled:
Connie’s checking – small bills and donations, gifts, beauty and nail salons and no idea what else
House checking – daily spending, food, groceries, paying credit cards (in full monthly), cash from ATM
Fixed bills – utilities, property taxes, HOA fees, internet, Medigap and other big stuff – the balance is always more than a months expenses
Travel savings – as it says
Connie’s savings – a mystery
Dick’s savings – sort of non-emergency, emergency fund
While they appear isolated, in practice there is also flexibility among the funds.
Right now someone is thinking, he’s nuts, that is way too complicated, but really it’s not. I don’t do anything most of the time, money just flows around to where it’s needed. When I do need to pay a bill I send a bank check online or Zelle it.
Think of each account as a column on a spreadsheet without the sheet. I may not track every penny or have a budget, but I can tell you within $1.37 how much is in each account – sort of. In other words I sneak a peak at the accounts on a regular basis.
We have cash – probably a year of basic expenses- in a money market fund within the brokerage account.
The growth in value in our investment accounts is there through the magic of the stock market and interest compounding. The 401k began in 1982. The brokerage account includes stocks acquired over sixty years ago. Patience is productive.
Except for building cash toward the next RMD, all earnings and interest are reinvested.
In the aggregate, investments are 60% domestic stock (mutual funds), 4% foreign stocks, 27% bonds, 9% money market.
The bonds include Muni funds. In 2025 I plan to turn off the dividend reinvestment on my former employer stock and invest elsewhere, probably bonds or simply add to cash.
Nothing much has changed during the 15 years I have been retired. We plug along each month taking expenses from where intended. Inflation has yet to catch up to our lifestyle, but I notice the monthly excess in checking accounts is shrinking. On the other hand, the travel budget is growing as age has limited its use. Some repurposing may be in order.
No matter what, we won’t give up funding 529 plans or helping family on occasion. Beyond assuring we don’t become a burden to our children, the point is to share.
What I struggle with is how much now and how much through our estate. I remain financially secure obsessed for Connie and me.
Thanks for this, Dick. Last year and this year we are setting up how we are going to do our retirement finances. I can see some similarities to what you are doing, but we haven’t turned everything on yet, and Spouse still works a bit. We were gone to see our parents, and haven’t done a year end accounting yet of this first year of retirement. Hoping to get to that this weekend. I am thinking we did ok. Our investments grew, I know. We set up a money market account for our sinking funds and part of our emergency fund. We had never had one until this year. It is a process and we are learning. We hope to be able to give our children modest gifts of cash as we get older. I know they can use it now, but we are mid 60s and feel the best thing we can do is not be a financial burden to them. Plus we haven’t been retired as long as you. Chris
Hey Chris,
I don’t know if you have a separate emergency fund, but we always have about 2 years of cash set aside, and if an unexpected expense occurs we utilize those funds. A year ago we spent several thousand to replace a leaky kitchen sink, and the last year 7K finally installing central air when my 103 yo mother in law moved in. I restore the funds when I calculate our net worth quarterly by selling appreciated assets to get back to our target allocation and restore our full cash position.
Thank you, David, I appreciate your thoughts. We do have an emergency fund at our brokerage and I will have to look if it is 2 years of expenses. I think it is, plus I saved extra for a new (used) car since we are down to 1 car now. I also keep a “life happens” fund in the money market for some of the smaller expenses like what you mentioned. I learned about this from Michelle Singletary, who is the personal finance columnist for the Washington Post. It is a smaller fund so you can cash flow the small things so you don’t have to always tap your main emergency fund. I used it last year when we had a car repair and replenished it. The way Michelle described it made sense to me rather than keeping all the little special accounts. Chris
We didn’t actually modestly start gifting our children until a few years ago, well into our 70s. I share your primary concern not becoming a burden.
We have been funding 529 plans since each grandchild was born – only $100 a month each and now they are starting off to college – one just started and then pretty much every year or so, our children appreciate that money. We will continue to contribute while they are in college.
Thanks for your thoughts on gifting, Dick, that was helpful. Chris
Hey Dick, if it works for you, you have nothing to worry about.
Our finances are not strictly structured (another way of saying they are loosely structured), we have never budgeted, and thru God’s grace our income has always been sufficient.
I too have a non COLA pension from the NC state pension system. When I retired, we lived comfortably off of my pension and our SS. We have a sizable investment account, and recognizing inflation would eventually erode my pension, I resolved (hoped) not to touch our investments for living expenses for at least 10 years. 14 years later, and we still do not have to use our investments for living expenses. In fact, we actually save some of our income. I attribute this to the fact that we have reached the “slow go” stage of retirement and spend less money.
We have bought 2 cars and one pickup truck (for our son’s business) out of our savings since retirement. We replaced our HVAC, did a major kitchen remodel, numerous other expensive maintenance items and contributed to college expenses for 2 granddaughters.
Our focus now is to provide an inheritance for our 2 children and 3 grandchildren. We gave each of our children $15k this year and intend to provide additional gifts to them as well as their eventual inheritance.
Our savings have more than doubled despite our conservative AA and using it for capital expenses and major repairs. We have been truly blessed with our finances.
We are pretty much on the same page. Main difference is 4 children and 11 grandchildren. So far three renovations and one new car have not required using investments.
Hi Dick,
I have questions about two of your levels:
Level 2 – RMDs from rollover IRAs – required, not desired – donated via QCDs and reinvested.
What is the allocation of these funds? I am still six years away from RMDs, and right now focused on performing Roth conversions on my wife’s retirement savings so I’ll only have to take RMDs from my accounts. The next step is figuring out asset allocation for my portfolio for RMDs so I am not forced to tap equities in a down market.
My wife’s current Roth balance is 100% equities in Vanguard’s Total World stock fund (VT) for simplicity and diversification. These funds are the last if ever to be tapped so if my wife lives to 100 (her mother just reached her 103rd birthday on Christmas Day), then when my children inherit and if they wait 10 years to remove will have 45 years to compound. If this occurs as planned they should inherit a minimum of a million dollars just from my wife’s Roth account.
1) Level 4 – two (very) small annuities 40 years old – not used yet
Please elaborate I assume these are deferred annuities. If so I think you are in your 70s, so these were bought in your thirties. When do they start, and how are they structured?
David,
The allocation in the IRA is growth. Domestic stock 68.4% foreign stock 9.1%% bonds 19.8% cash 2.7%
The annuities are deferred. I was talked into them when in my 40s I’m now 81. I had no idea what I was doing and frankly I don’t know much about them now.
The face value of each is around $130,000. Once the initial penalty period to contribute was over, I stopped adding funds. They have just been sitting there earning tax deferred.
They are invested in FJBAC
Fidelity VIP Balanced where they ended up when I moved to Fidelity
Glad to hear you’re turning off dividend reinvestment for your former employer stock!
Why is that, just diversification? It’s a utility that’s been around since 1908 and paid a dividend for over 100 years. I accumulated the stock since I was 18. No logical reason, but hard to let go.
Yes, you’ll no longer be adding to your concentrated position. I did this a long time ago with my former employer megacorp stock but can’t bring myself to sell due to capital gains.
Same here. The stock has nearly tripled. I’m planning on leaving it to children, but first for Connie to use as income if necessary.
Dick, thanks for referencing my article. I look forward to the Arizona balloon story.
Like Dan, I thought of Xmas and vacation clubs. The GE credit union pushed them and we participated for many years. My division also pushed savings bond purchases – as a Defense company they wanted to be seen as supporting our main customer.
Having led or participated in 5 estate reconciliations, I have embraced a more simplified approach to our accounts. My primary motivation is my experience with my wife’s widowed and childless aunt. She was a very financially sharp person, with ample investments from her many years with Bell Telephone. She also had numerous savings and checking accounts. She did her own taxes, and had everything neatly organized. This worked fine until a rapid cognitive decline occurred, and much of the paperwork and actual shares disappeared. She gave my wife POA. We went on a 2 year journey finding, organizing, and simplifying her financial affairs. We found lost savings accounts, brokerage accounts, and stock certificates. I want to make sure I don’t leave a mess like that for my kids.
Rick, I’m curious, were you finally able to find ‘everything’ for your wife’s aunt after your 2-year journey? I ask because I have two relatives and have been suggesting (gently) about simplification for similar tasks. ‘Lost accounts’ can be everywhere. I have a friend whose late mom still has modest funds in a PA state ‘lost claims’ site – I noticed online when checking for my late mom; I sent the info to my friend who still hasn’t gotten around to claiming.
Eileen, It’s hard to claim we found everything, since we can’t know for sure, but I think we found anything substantial. We checked the PA lost claims sites for her every year for at least a decade. We found several accounts totaling close to 6 figures. One of the challenges was her Bell Tel stock – with the breakup her shares went to multiple new companies. We found about $17K in Avaya stock she had lost track of. Over time I checked lost claims for my parents and in-laws. We found a few hundred here and there. The most interesting thing I found was a paid off insurance policy that my father-in-law’s parents had bought when he was born in 1927. It had a cash value of about $500. It took some doing to track down the company and provide the needed documentation, but eventually they sent a check. It was a big surprise to my wife and her siblings.
The NC lost claims site (escheat) has $55 the belong to my late mother and father. I settled their estates in 2010, then that lost claim showed up some time later. The cost of travel, spending time, obtaining death certificates and letters of testamentary is not worth $55. I’ve let it go. I’ve discussed this with my sister (the other heir) and she agrees.
Rick, thanks. I also stumbled upon an insurance policy from my father-in-law who had died 10 years earlier. Took a while to find the bank that held it after multiple acquisitions but I was determined. $5000 went to my sister-in-law (my husband had passed away and she needed it more than my family). Can’t imagine how many policies are still out there.
None of that for us. The bank accounts are in one place. All investments are in one place, no paper shares of stock and the bank and investments are linked so when I go to Fidelity to view investments I also see the balances on each account I described. We even moved those two small annuities to Fidelity. There are only two places to look.
sounds well planned. Ours is similar, maybe a few less accounts within the bank.
It brings to mind Christmas Clubs, when banks would push the concept of having a separate savings account in order to have funds available for presents. You have just expanded the concept to fit your needs. And I think it’s healthy that Connie has autonomy via separate accounts; you obviously don’t hover over her shoulder analyzing every cent she spends.
Will Connie and the kids understand your method should you expire first?
Yes, I remember using a Christmas Club that may be the root of all this.
I have a detailed last letter explaining it all. I sent a Copy to each child for comment and questions and so far I have not received any comments which is disappointing, but I will try again.
Great post Dick! Please keep writing them!!
The last few lines … “Beyond assuring we don’t become a burden to our children, the point is to share” … express our position exactly.