Jump to content
Why Me

Question for retirees

Recommended Posts

I'm thinking about retiring (not yet; maybe in two years).  I've done some reading on "decumulation," this area is far less straightforward than accumulation of assets. There is no clear consensus on the best way to manage income flow from a portfolio, the way there is about, say, holding low-cost index funds.  (In my case, higher income is desirable: in other words, I could withdraw just 2% per year and the portfolio would be fine, but that would produce less income than I'd like to have for a comfortable retirement.)  I expect a pension, which will replace roughly 45% of my salary: that should comfortably cover my ongoing housing-related expenses (mortgage, property tax, insurance, utilities, etc.).  I'll be relying on my investments for pretty much everything else.

Those of you who have been retired for a while, how do you manage your cash flow?  Do you have a mechanical system or do you more-or-less take what you want and make adjustments as the balances change?  Do you withdraw money once a year, or monthly, or on some other schedule? Are you happy with an income that varies a bit in response to the market or do you think it best to keep the income steady from year to year?  Did you build in a way to to splurge (on travel or home remodeling, for example) in the early years of retirement?  Did you make mistakes that you'd warn others against?  Any wisdom from your experience will be very welcome.

Share this post


Link to post
Share on other sites

Whyme

As you may or may not  know , my wife and me are/were both teachers and we accumulated over two million although  we will be paying some of that in taxes through RMD eventually so perhaps it's not as much as it sounds. I dread that day when I have to start paying the taxes on some of that money although I also own taxable accounts and Roth accounts thank goodness.We accumulated it  by saving judiciously over the years despite having made all the errors with investing we could possibly make: using insurance products, using insurance advisors, accumulating too many funds, investing in managed high fee funds , investing too aggressively, timing the market etc etc.. All along I knew the there was a better way but our school system didn't offer very many  good options.  The one thing I did right even though my choices were wrong was to always save as much as I could every year. I learned by making mistakes and  I also  learned too from contributors here at 403b wise. Steve's post where the most helpful  early on as was Dan's book-Teach and Retire Rich. Their impact they had on setting me on the right path  early on was substantial. 

Now in my fourth year of retirement, we have zero expenses. No mortgage or car payments. I have yet to touch a penny of the saved money. We 're not collecting SS although I  ( not wife who is eight years younger)qualify for the full amount  as of this year. If I wait until 70, I will collect even more.

Our school pensions are all we are living on and really, it's more than adequate to live on. We spend the monthly amount every month but we are never short of money that  would require us to start tapping into my IRA accounts or even our cash reserves. Now with Covid, we are not traveling much which was the plan originally but we do take  vacations here and there. Now, I am glad just to have a nice house  which I paint and renovate myself and an amazing yard  (1.5 acres) and garden which we keep up and keeps us moving and busy. 

 I realize California living is probably more expensive than living here in Virginia , and I am not sure if you get Social Security benefits as an educator in CA . However, my suggestion is to not worry too much if you have a pension and some savings,  That should be more than adequate. In some ways I feel the financial industry has scared us  too much into saving so that they can profit from that fear. But, better to have more than less because life can offer some surprises.

Medicare is great. Pretty much everything is covered and my monthly payment for full coverage (Medicare, Prescriptions and Supplemental)is less than what I was paying while employed but your situation might be different. We are in good health luckily. If your employer pays  or supplements your medical care  even in retirement than you are in a very good place.

 it's important to save in a retirement vehicle and have that as a cushion if needed but you probably could live well just off your pension.  Of course we are living off two  full pensions so maybe it's not as secure living on just one. Much  depends on your personal/ family needs and  situation and how much you like to spend, as an example our cars are older but well maintained. Frankly, we have more money than we know what to do with . As you get older you realize money is not everything. John Bogle used to say he had "Enough" and didn't understand why for some folks it's never enough. I feel the same. I have enough and no-one gave me a penny of it except  for a very small inheritance,  which  I had to split between three of us when my parents passed.. As you get older ,health  should be a priority.. We eat healthy and go to the gym  (with masks and lots of sanitizer)all we can to keep our strength and health  up.

Hope this helps?

Tony

Share this post


Link to post
Share on other sites

Thanks, Tony.  I very much appreciate this feedback about how well it's going for you and your wife.  Living in Los Angeles is indeed a high-cost choice, but I'm not inclined to relocate.  This is partly because of the people I know here, but I also due to the cultural offerings -- museums, theater, opera, concerts --  in retirement, post-covid, I want to be able to patronize those without worrying about money.  And I want to be able to travel so long as I'm physically able (I don't need to stay at the Ritz-Carlton, but my goal is to afford travel and decent lodging in retirement without worry).  I have a mortgage that will be with me for decades (at this point, I think it makes better financial sense to keep it rather than to pay it off and reduce my portfolio substantially: the interest rate is low and I'm still getting a benefit from itemizing my taxes); I have no other debt.

I'm pretty sure the pension alone won't be enough in my case, taxes and housing expenses will account for most of that.  (I'll have less than twenty years in the pension system.) Teachers don't pay into Social Security in California: I'm waiting until 70 to claim the small windfall-elimination benefit that I am due as a result of earlier years of work before my current job.  I'll be happy to have it, but that will just add a few hundred per month.  Your post does give me hope that I'll need less in retirement than I'm planning for, but I expect I'll be drawing on my portfolio (which is not as sizeable as yours) right from the start.  (Like you, I have money divided between taxable, Roth and tax-deferred accounts.)  I will probably have other sources of occasional income in retirement, but I don't want to depend on those.  I'm trying to plan so that once I've retired, I'll have enough even if all such sources fall through. 

The medical side of retiring is another area of uncertainty for me. So long as I'm working, I'm very lucky to have a "cadillac" health plan of the kind rarely seen anymore: I pay nothing out of pocket, annual deductibles are ridiculously low (something like $100), my dental is 100% covered up to an annual limit.  So navigating Medicare, Medigap, Part D, dental insurance, etc., is all new to me.  I have the option of continuing the district health insurance but I'd have to pay for it, and it's far more expensive than the Medicare supplemental policies that I've seen: it'll take some doing for me to figure out the best path on that front.  But whatever the scenario, ongoing medical insurance expenses will be new to me. (Plus, since I want to travel, I'll need to make sure that I have some kind of coverage that will work internationally.) Your words about making health a priority are wise: this is an area where I have great room for improvement (even with cushy insurance, I haven't seen a doctor in years).

Share this post


Link to post
Share on other sites

Whyme

Its time for you to take advantage of your health care and start seeing a doctor on a regular basis. After all, money is not much good if you aren't alive or well enough to spend it. Please start seeing your doctor every six months for a general evaluation and blood work. This is important!!

Also, it might be advantageous to pay off your mortgage. I did that years ago and that move paid off. Financial advisor at the time didn't  want me to do it, obviously because he'd rather I invest it with him. I got rid of him. I think eliminating a monthly mortgage payment is a big deal in retirement but every situation is different. I  get the logic that you get a higher return in the market but having no mortgage frees up a lot of money in retirement.

Personally. I'm worried what a Biden presidency  might bring because higher taxes seems more and more like a sure thing. With a progressive agenda taxes can only go up. In retirement higher taxes can hurt. I'm not making a political statement here just commenting on a possible reality. Even in Virginia taxes have been going up in all categories. They can easily eat into a fixed income. Taxes is one reason I am trying to maximize my Social Security by waiting until 70.

Share this post


Link to post
Share on other sites

Whyme,   I retired at age 56 in 1992 and my teacher’s pension didn’t cover our expenses so I took a monthly distribution from my VALIC 403b. I had only 16 years in the pension plan, but for 1 year, the state lowered the required time to 15 years from 20 and lowered the required age to 55 from 60 (as a budget saving measure by replacing expensive employees). My wife postponed taking her small state pension for about 8 years in order to maximize it. We started social security at 62 and stopped the 403b distributions. Perhaps that was a mistake and maybe we should have postponed taking ss and continued with the 403b distributions? We do not have regrets though. In 1993 we moved aboard our small sailboat (28’) and took off, forced but willing to live frugally. We slowly crossed the Pacific, spending time in Mexico (2 yrs), French Polynesia (1 season), short visits to various Pacific Island countries, NZ (2 yrs) and Australia (10 yrs). We flew back every other year to help parents, usually for several months. While we were abroad, our small pensions plus small ss payments were enough to live on and the IRAs continued to grow.

We have a taxable account with bond fund dividends that now supplement our income as do RMDs from our tax deferred accounts. We now probably pull out about 2%/year from the investments, as needed, and the balance continues to increase. Our retirement asset allocation was about 45/45/10 stock/bond/cash while we were overseas. Since then it’s been 40/60, +/- 5%.

On retirement we chose the same state health plan I had while working, which covered us when we were out of the state or overseas. The COLA for my pension comes and goes (mostly goes?) as per the legislature. After age 65, with Medicare, the state's Medigap plan dropped our health insurance costs a lot.

I should mention that we are renters and have never owned real estate. We returned to Seattle in 2008. We’re now land-based and renters again and have spent summers cruising on our boat in SE Canada since then (except for this last summer). We will probably age-out of the boat in a year or 2?

Share this post


Link to post
Share on other sites

Krow,

Thanks for that.  Great to hear how you made it work at 56, notwithstanding the limitations you came up against.  Your multi-year Pacific experience sounds fantastic!  

Share this post


Link to post
Share on other sites
3 hours ago, tony said:

Personally. I'm worried what a Biden presidency  might bring because higher taxes seems more and more like a sure thing. With a progressive agenda taxes can only go up. In retirement higher taxes can hurt. I'm not making a political statement here just commenting on a possible reality. Even in Virginia taxes have been going up in all categories. They can easily eat into a fixed income. Taxes is one reason I am trying to maximize my Social Security by waiting until 70.

https://taxfoundation.org/joe-biden-tax-plan-2020/

So if you are worried, you must be earning $400k+/yr in taxable income? That 2.6% increase in the top tax bracket... radical progressives sending our top tax rate back to those awful pre-2017 times. Sad. All to fund education, social programs, and government.... communist agenda confirmed 😉 

Each state taxes pensions, social security and and other stuff differently:
https://www.retirementliving.com/taxes-by-state
http://www.tax-rates.org/taxtables/property-tax-by-state
http://www.tax-rates.org/taxtables/income-tax-by-state


You could live in Wyoming and pay nothing, but then you'd be living in Wyoming, which is a choice few people make:
https://www.worldatlas.com/articles/least-densely-populated-u-s-states.html
https://en.wikipedia.org/wiki/List_of_states_and_territories_of_the_United_States_by_population

Share this post


Link to post
Share on other sites

ScottO

This is not the place for politics as I have found out in the past. I will not comment further past this. My point is this: If you for a minute believe that taxing only those making over 400,00 a year is enough to fund a massive progressive program than you don't know math. Not enough rich Americans to do that. You will see the middle class taxes go up. You are young I'm older. I've heard this line before from politicians and taxes always go up. I do think that Jeff Bezos  of Amazon should pay more taxes. I think he pays none. But again how many billionaires , millionaires and $400,000 dollar salaries are there out there?   By national measures, those making $400,000 belong to a rarified group. They represent the top 1.8% of taxpayers, earning about 25% of the nation’s income.

 

That's it. Won't say a word more about politics or expand on my comments. I was not trying to show a presidential preference.

 

Share this post


Link to post
Share on other sites
13 minutes ago, tony said:

My point is this: If you for a minute believe that taxing only those making over 400,00 a year is enough to fund a massive progressive program than you don't know math.

Luckily for those of us who don't know math, there's a handy table that breaks down the data: https://taxfoundation.org/joe-biden-tax-plan-2020/#Revenue
Raising the top 37% tax rate to 39.6% would net $25.1 billion in 2021 alone.

https://www.brookings.edu/policy2020/votervital/did-the-2017-tax-cut-the-tax-cuts-and-jobs-act-pay-for-itself/
The TCJA hasn't paid for itself, so increases(it's really just the undoing of mismanagement) are to be expected.

https://budgetmodel.wharton.upenn.edu/issues/2020/9/14/biden-2020-analysis
"Over fiscal years 2021 – 2030, the Biden platform would raise $3.375 trillion in new tax revenue while increasing spending by $5.37 trillion."

Spending is a separate conversation from revenue.

 

In terms of taxes for my household, I have no fear:

fedtaxhist.thumb.jpg.f063d3f4d61078a9340d82fe2d6ea163.jpg

I see significant upside for the country as a result of a change in leadership. If it costs me a few unnoticeable bucks, it's well worth it.

Share this post


Link to post
Share on other sites
1 hour ago, ScottO said:

I see significant upside for the country as a result of a change in leadership. If it costs me a few unnoticeable bucks, it's well worth it.

I feel the same way! 

Share this post


Link to post
Share on other sites

I guess it's no surprise that a thread slips into political discussion on this week before such an emotionally charged election.  I'll add my 2¢ while trying to keep partisan politics to a minimum.

1. Tony has a point: it seems reasonable to prepare for taxes going up in the future.  We are in a time of historically low tax rates. Whatever any president's tax platform, that isn't likely to be the final story: the president doesn't write the tax laws, congress does (under the influence of large donors and lobbyists, which is a serious problem in my view).  There are also current issues that I'll tiptoe past here (including underfunded government obligations, failing infrastructure, historically high concentration of wealth, the list goes on) that seem to me likely to mandate higher tax rates in the future, though I don't know exactly how that will look. 

2. I don't think that higher taxes will necessarily have a bad effect on typical retirees.  Taxes can bring benefits.  For example, if income tax bumps up but Social Security benefits are sharply increased, that'd be an improvement for many retirees.  

3. There's a chance that capital gain tax rates will return to earlier levels, or be raised to the same tax treatment as earned income.  This would be an added cost for retirees with substantial assets in taxable accounts, but many (most?) retiree investment assets are in tax-advantaged accounts where capital gains tax is not a factor.  Just guessing, but I'll bet it's a fairly small percentage of retirees for whom taxable capital gains and dividends make up a large part of their income, and the large majority of those are well-heeled enough that they are unlikely to struggle financially if the cap gain rate rises. (Please let me know if I'm wrong about that.)

4. Scott and Krow, I think I share your opinions.  But I welcome other perspectives, too.  And I'm still hoping for more descriptions of how retirement works!

Share this post


Link to post
Share on other sites
9 minutes ago, whyme said:

4. Scott and Krow, I think I share your opinions.  But I welcome other perspectives, too.  And I'm still hoping for more descriptions of how retirement works!

I'm trying to be less opinion-based by providing evidence from organizations. Misinformed speculation doesn't serve anyone. Being unaware of the actual bottom line impact(personal) and broader impact(society) of taxation also should be addressed. What's currently established is subject to change, so that does complicate long term planning.

(lower taxes = smaller government = poorer pandemic response = the world we live in)
How's that working out for you? How's that working out for everyone? 

For an individual, knowing how each of your retirement "buckets" are going to be treated by the IRS is important. 
https://www.forbes.com/sites/steveparrish/2019/09/10/the-secret-to-retirement-income-drawdowns/
In California, with CalPERS we have the option to meet with a rep to take a look at what our retirement income will look like (there are multiple options, survivor benefits, etc. which make it a complex thing to do solo.)
Knowing what age to begin collecting from Social Security and your pension could be something to play with. Financial planners can run different monte carlo simulations to estimate what's best and incorporate investment accounts.

This topic could be a great future 403bwise event.

Share this post


Link to post
Share on other sites

One thing I have learned is how different the West coast thinks compared to the East coast. Here on the East coast we see California as way over taxed without adequate  return for taxpayers. Probably why we have red states and blue states and heading to a civil war LOL. My concern is not so much higher taxes but how the government doesn't always spend that money wisely then asks for more. In Virginia, the state actually had to borrow money against the state teacher fund years ago to make it through the great recession and then we get a letter saying our benefits might be reduced. It never happened luckily for me but new teachers now pay a portion of their salary into the system which lowered their income. I payed nothing for mine. I expect fiscal responsibility if you are going to make me pay  more taxes. . Sorry statistics ,charts, and graphs  and the partisan media never tell the whole story.

As usual I said I would never comment further and I did. 

Share this post


Link to post
Share on other sites

Interesting to hear the perspectives from the retirees here.  I'm in about the same position as Whyme (1-2 years away from retirement).  I have considered going earlier but would take a big pension hit, so I think I'll wait it out until 2022. I'm glad I ramped up my savings in my 40's-early 50's, but wish I would have done more saving in my 30's.

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...