I CONSIDER MYSELF semi-retired. I no longer have a fulltime job, though I’m working harder than ever, thanks largely to this website. My goal is to ease up as I grow older, but 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’s to keep a little cash coming in, which can ease some of the financial strain of retirement.
To give me greater financial flexibility, I’m also 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’m not currently drawing much from savings. But my ideas for how to generate retirement income are taking shape. At this juncture, I intend to delay Social Security until age 70, so I get the largest possible monthly benefit.
As I scale back work and need more from savings, I plan 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 am not quite at the top of the bracket, I’ll seize the chance to convert more of my traditional IRA to a Roth.
I will likely buy a series of immediate fixed annuities that pay lifetime income, but I’m still debating how much to commit. I suspect I’ll plunk down $300,000 or $400,000, which—depending on when I buy—might give me $18,000 to $24,000 a year to supplement the regular income I receive from Social Security.
Currently, I have roughly 80% in stocks and 20% 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 70%.
How much will I draw from savings each year? I’m not 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 might simply keep my withdrawals each year at or below 5% of my portfolio’s beginning-of-year value. That way, if we get a bad spell in the markets, I’ll be forced to curtail my spending.
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