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I CONSIDER MYSELF semi-retired. I no longer have a full-time job, though as of mid-2024 I’m working harder than ever, thanks largely to this website. My goal is to ease up through late 2024 and into 2025, as I deal with cancer. Still, I’d like to remain part of the ongoing financial conversation. Partly, that’s to give a sense of purpose to my days. But partly, it keeps a little cash coming in, which I find comforting.
My terminal cancer diagnosis means I won’t have much of a retirement. But before I got the bad news, what was my plan for the decades ahead? To give myself greater financial flexibility, I’d been endeavoring to keep my fixed monthly costs low. In 2020, I moved from just outside New York City to Philadelphia, sharply reducing my property taxes and monthly home maintenance costs. Meanwhile, I don’t have any debt and few other fixed monthly financial obligations. That makes for less stress and leaves me with spare cash for things I enjoy, like travel and eating out.
Because I still earn enough to cover most of my costs, I haven’t drawn much from savings, except to make gifts to my kids and grandkids. But my ideas for how to generate retirement income in the years ahead were taking shape. I had intended to delay Social Security until age 70, so I would get the largest possible monthly benefit.
As I scaled back work and needed more from savings, I’d also planned to draw on my financial accounts with the goal of generating enough income each year to hit the top of the 24% federal tax bracket. If I wasn’t quite at the top of the bracket, I’d seize the chance to convert more of my traditional IRA to a Roth.
In addition, I’d planned to buy a series of immediate fixed annuities that pay lifetime income, but I was debating how much to commit. I thought of plunking down perhaps $300,000 or $400,000, which—depending on when I bought—might have given me $18,000 to $24,000 a year to supplement the regular income I’d receive from Social Security. With my cancer diagnosis, these plans obviously went out the window.
Currently, I have roughly 90% in stocks and 10% in conservative investments. This excludes the private mortgage I wrote for my daughter, which I consider part of my bond holdings and which would push down my overall stock percentage to some 80%.
How much did I plan to draw from savings each year? I wasn’t going to use the classic 4% strategy, where you withdraw 4% of your portfolio’s value in the first year of retirement and thereafter robotically increase withdrawals along with inflation. Instead, I thought I might simply keep my withdrawals each year at or below 5% of my portfolio’s beginning-of-year value. That way, if we got a bad spell in the markets, I’d be forced to curtail my spending.
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I have some free advice for anyone considering annuities. Interest rates play a big part in the pricing of annuities, and should therefore not be purchased during a period of historically low rates, as we saw for a long time before the fed began their current battle against inflation. I’d say the floor should be when prevailing rates are around the historical average of 3-3.5% +1% before I’d make a purchase. On the other hand, if rates surge to above the historical return on equities, I’d start buying bonds and annuities with both hands. Either way, it may make sense to stagger purchases to spread your interest rate/inflation risk.