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!
I’m so tired too. But I’ve decided to focus on making more money online until there is her immunity. Might as well make the most of the lockdowns, and you might as well too for consulting.
Sam
I think the tiredness is more about quarantine fatigue. The lack of personal contact outside of our spouses and family unit is soul sucking. Or is it just me?
For me, the mission to finish killing off this Sars-Cov-2 virus is going to take the full 2021. Like you, I might as well keep making the COVID vaccine supply money until the new normal is achieved.
Its very cool having you comment Sam. I’m going to contribute, just might not earn doing it. Living in this rural swamp its impossible to spend much here. But we love it, especially the rugged wilderness in the north part of our state. We bushwhacked incredibly extreme terrain earlier this week finding 8 new waterfalls. At 65 for both my wife and me it was life threatening but so exciting and so cool.
Hi Steve, my previous recommendation stands. I suggest mentoring and donating your time to a cause you deem worthy. Remember when I called you from Afghanistan during my deployment? We spoke about nonprofit and I think you would do a great service in helping in this space.
You no longer need treasure so your time and talent in assisting your fellow man would probably give you tremendous satisfaction.
As for managing your wealth, based on what you have stated in this blog: I think your plan is solid – good luck!
Semper FI,
Luis
Luis, my friend, I value your opinion. I do think more volunteer work is in my future. Of course I remember.
Hi from the UK. Could I ask what line of work pays 100k for 8 hrs a week? Sounds phenomenal!
I’m a chemical engineer who was also a high level corporate executive. My consulting rates are generally $250 per hour plus expenses and travel time. 8 hours a week times $250 an hour is $2,000 a week. Fifty weeks times $2,000 is $100k. That’s pretty much what I was making when I retired on an hourly basis, but I was working full time hours. The work is representing large companies in regulatory work on the state and federal level. I hire lawyers and consultants to help me do that, they charge similar rates. I agree it is a ridiculously high fee but it’s pretty much average or slightly low for the market. I saved my clients over $5 Million this year in exchange for less than $250K paid to me and my contract help, so that’s a pretty good deal for my clients.
Hi SteveArk! Just was wondering – do you do your consulting through an LLC or is it just via a 1099 to you? I’m thinking about retiring in a few years, and (like you) I have a very strong reputation internally and externally that may lead to potential consulting opportunities in the future. Just looking to understand how best to set myself up for opportunities like that when they happen.
I just do 1099 but it would have been smarter to go LLC, less taxes. I just never thought it would last more than a year or two or I would have. I’d encourage you to try consulting, it was a gentle off ramp from a high stress job. I’m over needing that now, but I think it would have been an abrupt change otherwise.
We created a paycheck process for ourselves. Each year we put our excess dividends and any capital gains into an online savings account and then every two weeks automatically send it to our checking account. We set up equal payments, but we will occasionally increase it for a paycheck when we have larger bills due. It does take a little bit of managing, such as knowing our upcoming cash flow, but I enjoy the process of doing all of that math.
Hey thanks Dragons, I’ve begun the process since posting that. I particularly like the idea of adjusting on the fly when needed. I’m a fan of you guys!
I personally like the idea of a monthly “paycheck,” however it is that you do it. Speaking for myself, although I’m incredibly frugal, I also don’t trust myself to not have something that feels like a constant limit on my spending. I’m afraid that my hobbies and ideas for good times would inflate quickly. That may or may not actually be the case, but my retirement plan includes a set amount in monthly paychecks (set at a generous amount that ought to be more than I need). After a lifetime of living on a budget, it’ll keep things familiar. But everyone is different.
Mrs. FCB I can’t imagine you’d ever overspend, but I think the paycheck feel of a regular income stream is familiar. During my last five years, although I’ve made a good income, it has arrived irregularly so I often had to shuttle funds around to keep the checkbook balance high enough. Since my wife pays the bills and does most of the shopping it put unnecessary strain on her to see the balance shrinking. She has already told me this will be a lot better for her.
Steve, congrats on the change, sounds like you’re ready! In our case, we keep ~1-2 years of cash in a CapitalOne account and have it automatically transfered to our checking account every month. Works well for us. Keeping it in cash avoids sequence of return risk (selling when stocks are down), something you may want to consider as an alternative to selling stocks throughout the year. You could still do your IRA withdrawals, but move a year’s worth of spening into cash in your IRA account when the market is strong. Good luck with the adjustment. Enjoying your writing.
Fritz, I think that probably is a good idea, I’m still setting mine up so maybe I need to rethink that. Right now it is coming out of the bond fund for the Vanguard portion and will get rebalanced on their regular schedule. I’m not sure how Personal Capital will do it. I have a couple of years in a cash bucket at Vanguard also already. One thing I was striving for was a system that could operate in perpetuity so that if I keel over before my wife, a near certainty considering her amazing fitness at 65, that she would not have to make any changes but she’s a smart person and I am sure doing a once a year transfer, or two of them, wouldn’t be a problem. Thanks for commenting, I’m a big fan and it is very cool when a famous blogger stops by!
+1 on this.
Interesting that you have an advisor at Personal Capital, Steve. Don’t they also have a drawdown software feature available for those who pay a monthly maintenance fee of about 1%? I was drooling over drawdown software — but I couldn’t choke the fee down, am still only at $600K in 401Ks, 60K in cash, with State Pension worth about $800K-$1M I suppose since it spins off $44K per year and I’m not planning on dying until 100. (ha!!!) And the Vanguard personal advisor was almost robotic, a little disappointing. Wondering about your analysis of those two advisory services..
Hey Lisa, PC manages my account at a rate of .79% because it’s over a million, they charge .89% for accounts smaller than that. They are providing me the monthly drawdown for no additional cost. They are high priced at .79% but their investment philosophy is unique and data based and I feel it offers some diversity from my Vanguard index funds.
Lisa, my Vanguard is also over a million so I get a personal advisor there also. She’s pretty good in my opinion, as is the PC advisor. Vanguard is, of course, much cheaper. I have Betterment also, no advisor but the least cost of all.
That’s interesting, thank you for the information Steve
Your blog provides a new lookout towards planning retirement while not running out of finances. An insurance is also a pretty good option to secure your retirement. I am also planning to secure my shop as I am nearing retirement and cannot afford to bear the expenses in case of uncertain situations.
Thanks for commenting, I still have some term life, only a small while life given to me as a gift from my dad.
My first instinct was that you’re probably a great candidate for some kind of volunteer or mentoring work. If you’re no longer finding your consulting work rewarding and you really want a new way to fill those 8 hours per week, maybe service would be ideal for you. Given the right opportunity, you’ll receive much more than you give, even if there’s no monetary exchange. At least that’s been my experience.
Anyway, I’m no financial expert and am wondering how I’ll eventually create my own income in the future, but I’m not too concerned about just yet. I’m only 41 and will continue working for quite some time, especially to cover health care costs, but I should begin to create a plan for how to live once I finally pull the plug. You’re in a great position, so at least you have that! It’ll be interesting to see what you finally choose.
Thanks Camel Rider, I do a good bit of volunteer work now at a community college and a charity foundation and I think I’m going to try to add some mentoring to that.
if you ask me steve you’ve built enough of a buffer for withdrawals that you ought to be fine managing it yourself. i do get what you were saying to fritz about what happens in case you keel over. i’ve been meaning to write up some loose instructions for mrs. smidlap around that same subject. i’ll put it on the blog because with all those stocks we own it could be a little intimidating for her. she doesn’t much currently participate and i just report how we’re doing.
did i read correctly that PC takes 0.79% per year? if so that’s a lot of money!
I could and maybe should. I never enjoyed managing my own money even though at work I helped manage a couple of fifty million dollar accounts for employee retirement and at the foundation I volunteer with I help manage an even larger one. Its like blood, I’m totally calm with getting other people’s blood all over me in an emergency but the sight of my own blood wigs me out.
Though you have retired early, I credit your future financial planning. I think it is not tiredness, but just quarantine fatigue is caused due to combination of exhaustion and boredom. However, money is not above mental health. Take care of yourself, and all the best for future endeavors.
I’ve got multiple reasons to quit the consulting gig. Now I have to find something I enjoy more that doesn’t have to make money at all. Thanks for commenting.