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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