I CONSIDER MYSELF semi-retired. I no longer have a fulltime job, though I’m working harder than ever, thanks to a fistful of projects—including this website. All this is by design: I might drop some of these activities as I grow older, but I’d like to keep one or two of them going. 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. The monthly payment for my apartment’s maintenance and property taxes is higher than I would like—a common complaint among those who live in or near New York City. But 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 drawing much from savings, so I don’t have a firm plan for generating retirement income. But my ideas are taking shape. At this juncture, I intend to delay Social Security until age 70, so that I get the largest possible monthly benefit.
As I scale back work and need more from savings, I plan to draw on both taxable and retirement accounts, with the goal of generating enough income each year to hit the top of the 22% tax bracket. If I am not quite at the top of the bracket, I’ll probably seize the chance to convert more of my traditional IRA to a Roth.
I will likely buy an immediate fixed annuity that pays lifetime income, but I’m still debating how much to commit. I suspect I’ll plunk down $200,000, which—depending on when I buy—might give me $12,000 a year or so to supplement the regular income I receive from Social Security. The money I put into the income annuity will come from the bond side of my portfolio.
Currently, I have roughly 60% in stocks and 40% in conservative investments. I don’t intend to lower my stock allocation any further.
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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