Month: January 2021

Today is a bad day.  Not because the stock market is down or because something bad has happened to me but because in the space of just two hours I received word that two long time friends had died.  One from injuries sustained in a ski accident out west and one who collapsed on his morning exercise walk from a heart attack.  In two hours, two guys I had known for well over thirty years and with whom I had some indelible memories were gone, just like that.

We live each day scarcely facing our mortality and while you might think older folk like me surely think about death more often, we don’t.  Why would we, its not a fun subject.  It is dark and cold and full of grief.  And sudden death, unexpected death, violent death is always a shock.  Even as senior adults we expect death to be the logical conclusion of a series of events.  Cancer, then chemo and radiation, then remission, then reoccurrence, then a slow downhill slide to the end.  Or Parkinson’s or a series of heart stints and bypasses followed by  gradual congestive heart failure.  Or dementia where the personality dies then the body eventually follows. 

But that’s not what happened.  My ski buddy was robust, not quite 60, wealthy and happily married with everything to live for.  He was a great skier and he skied a lot.  He had a house on the gulf coast and another in ski resort country.  He had done well, so well they named the engineering college we graduated from after him.  And yet in the blink of an eye he went from flying down a snow covered hill to literally a dead stop.  A tiny mistake in planting the downhill ski, or a moment of looking across the hill instead of looking out in front of his line, I’ll never know.  But he’s gone.

My other friend worked with me, for me actually, for a very long time.  He was hilarious, always kidding and usually happy.  He was a small guy with a big personality.  And a big heart, until this morning when it stopped, and he was gone too.  He was maybe 70, so you can’t say it’s a big anomaly when someone that age passes.  But he was slim, and he walked several miles every morning.  My and my running buddies would pass him often since we ran a similar route in the mornings.  Like me he was retired but unlike me he was always subject to more stress and drama from various sources.  But still, the times I had seen him recently he was the same old guy, funny, happy, friendly.  And now he’s gone, too. 

This is where your writer should say something profound, something that pulls meaning from the meaningless. And I can’t.  I’m empty.  I can only think of two hurting families who were blind sided by life today.  Those who never saw it coming and can never say those things they wish they could say to their father, husband or friend.  Because they are gone.

I’ve been officially “retired” for five years and five days.  That was when I walked away from my 9 to 5 corporate job.  But my retirement probably would not pass muster with the retirement police because for the last five years I’ve also earned roughly $100,000 a year doing some light consulting.  That may not sound like light work, but believe me, my rates are high and my overhead is zero so it only amounts to about eight hours a week of work. 

But I am tired of it.  I do not need the income and I’m just not getting enough of a kick out of the work to keep doing it.  One of the things nobody tells you about financial independence is that it makes it very hard to lie to yourself about how much you like your job.  When your pay no longer impacts your net worth or your lifestyle you get a much clearer picture of how much value the job brings to your life.  For a lot of reasons nobody but me would care about, this job has run its course in my life.

I might do some more consulting in areas I am more engaged in than the niche regulatory work I’ve been doing, or not, it isn’t a priority either way.  Finding something to fill up those eight hours is an ongoing project, but that isn’t the topic for this post. 

This is about how to fund our life when the income stops rolling in from a 9 to 5 or a 1099 contractor job.  I had thought about having to do that someday but that day is now on the horizon. I’ve read a number of posts about it and there are some general concepts that seem to be common.  One is not to touch ROTH’s if you plan on leaving inheritances, which I do.  Another is to pull down the tax deferred IRA’s prior to reaching RMD age but not hard enough to get into higher tax brackets.  A third is to fill in the remaining gap with taxable brokerage account withdrawals. A fourth has to do with backdoor Roth’s but I don’t think they offer me much at this point in life.

My initial plan is to take about half of what we spend ($100K per year, pretax) from the IRA I rolled my 401K into.  That’s a Vanguard account that is in index funds, both stock and bond funds.  Then the other half would come from Personal Capital who manages a 70-30 stock/cash-REIT’s-bond-commodity-alternatives portfolio for us.  Most of that is not taxable except for capital gains and dividends.  I think that would be fairly tax efficient. 

That would be the plan for the next five years until my wife and I would start taking Social Security based on my income record.  She will actually start taking her’s based on her income record later this year, but it isn’t a lot because she elected to be a stay at home mom early in our marriage. She doesn’t have a lot of work years that she paid into the system but she also gets a nominal teacher retirement pension. When I start taking Social Security in 2026 and she switches taking half of my full retirement benefit we will be getting a total of over $70,000 in today’s dollars.  At that point we’ll have to ratchet back our automatic withdrawals from Vanguard and Personal Capital significantly because that would push us way over $100K in inflation adjusted dollars.  At age 72 our IRA’s required minimum distributions will come into play and I’ll stop withdrawing anything at all from Personal Capital’s taxable account.  At that point Social Security and the RMD will be providing more income than we will need. 

At least that is my initial game plan, I will talk that over with my investment advisors at Personal Capital and Vanguard.  If I find that monthly automated withdrawals don’t work then I may switch to a cash bucket I fund once a year from the same sources that does offer automated payments. I know my Personal Capital Cash account offers that. 

I think for someone of, eh, mature age like me this is a simpler puzzle to solve than for a true early retiree.  Since I was already past age 59.5 when I retired I had full access to all my accounts.  I also only had to pay for the crazily high priced private medical insurance for five years before Medicare took over.  The only real issue for me is optimizing the amount of taxes we pay over the rest of my and my wife’s lives, and that isn’t something that can truly be assured because nobody knows what future tax policy will look like. For someone in their thirties or forties there are a myriad of issues to resolve including children’s care and education, health insurance, aging parents, longevity risk and divorce risk.

I mostly blog about career and retirement tips, I never have claimed to have the personal finance acumen of many of the bloggers in this space.  I mostly relied on higher pay than I deserved and lower spending that we could afford to gain financial independence.  I don’t even manage our own portfolios, I’m willing to pay others to do that as long as they are low fee advisors. So I’m asking for advice here from you, please let me know what you think in the comments.

How would you automate withdrawals from various retirement accounts to simulate a monthly paycheck? 

Would you set up withdrawals from accounts in a different order?  Considering we’ve got IRA’s, ROTH IRA’s, inherited IRA’s, CD’s, savings accounts and taxable brokerage accounts.

Do you intend to have an automatic monthly “paycheck” show up in your bank account each month after you retire or to just pull what you need when you need it?

Should I get an independent fee based advisor to look over my “plan”?

As usual if you don’t see a comment box just click on the title at the top of this post!

It has been a week of observations.  Five months of my billing to one of my main clients came in the mail. It was around $20,000 after tax, money I do not need but still enjoy earning for some perverse reason.  And that led to my first observation.  I received the check on Monday, January 3rd and deposited it on Tuesday, January 4th, the same day my wife and I got a $1,200 direct deposit from the IRS as part of the phase two stimulus package.  So that’s good, right?  A one day increase of over $20K in our net worth, outstanding!   

Except when I checked our net worth the very next day it had actually dropped by $15,000.  Because my portfolio fell more in one day than I made working for that client for six months!  That’s sobering, to say the least.  And it just points out what all long time investors know, making income in retirement doesn’t impact your net worth very much compared to the normal swings in the stock market. Then, when I checked the market value of my investments today, my net worth is back up $25,000 higher than it was earlier in the week without my depositing any more money. It actually makes earning money at my stage of life seem like a waste of time.  

The second observation has to do with the $1,200 stimulus money.  I never disclose my exact net worth but I have gone on the record as having already been a self made multimillionaire  prior to inheriting another million a few years ago. I don’t say self made to discount the number of random advantages I had in a capitalist marketplace, I had a boat load of help and advantages that got me where I am. I just mean I didn’t inherit most of my money, just a slice of it.  

I didn’t FIRE because I enjoyed my work and consequently I stored up too much money, or at least more than I’ll ever spend. So the idea that the government should be sending me and my wife money to help us survive these tough times seems, well, I don’t have the right word for it.  Maybe ludicrous, absurd or misguided?  And that’s on top of the $2,400 we got with the first round. The reason we did qualify is that our adjusted gross income (AGI) on our 2019 income tax filing was less than $150,000.  Not much less, but still we qualified for the full amount of stimulus relief.  And that is because passive income, like growth in our investments, for the most part, isn’t counted as income unless you withdraw the money from a IRA/401K or are paid dividends in a taxable account. 

So my millions can make tens of thousands  more and it won’t show up as a penny of income. But the fact is its there, its ours and we can spend it any time we want to.   It is as real as any other form of money even if the IRS doesn’t “see” it.  Its very similar to the way some FIRE millionaires get subsidized health care under the Affordable Care Act. The test to qualify is based on AGI and ignores most of their assets and all of their tax deferred growth.  Do I like the system?  Sure I do.  Is it fair?  I think so, because I paid hundreds of thousands of dollars in taxes in the higher tax brackets already and I’ll also eventually pay taxes on my tax sheltered investments when I draw out required minimum distributions (RMD’s).  Should the way the stimulus money is qualified for be revised? Maybe.  

The third observation this week was that Covid is getting real.  So far I had known only a handful of people who had tested positive.   And while a couple of my friends did have to seek medical care nobody had any lasting known impacts from the virus.  But that changed this week when one of our friends’ grown kids died of Covid. He was not a senior citizen, he was someone relatively young and healthy.  Someone much younger and lower risk than me.  I think we all relate to the risk based on what we have seen in our own circle of friends and acquaintances.  It has changed my perception of the risk of the virus.

Do the swings in the market sometimes make your paycheck look anemic in comparison, or is that just me?

What about the stimulus money, is it obscene to give it to multimillionaires who qualify based on the way people are screened only on adjusted gross income?  Are ACA healthcare subsidies any different?

Do you view the risk of the Covid virus based on your personal experiences and those of your friends and family or do you judge risk based on the science that is available? 

As always, if you can’t see the comment box just click on the title at the top of this post.