## Minimizing my money worries in retirement

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Guy42
Posts: 3
Joined: Fri Jun 22, 2018 8:20 am

### Minimizing my money worries in retirement

I have been a money worrier most of my life (a long story). Once I retired 8 years ago, I needed a way to minimize these worries & give me some peace of mind. I detail my method below. If there are others who also worry about money in retirement, perhaps this post can help them?

My goal: Show that my income + portfolio will (probably) be sufficient throughout retirement to keep my current lifestyle & meet unanticipated expenses & contingencies (health issues, recession, etc.).

Method:
(1) At end of each year, produce a detailed list of all expenses for the year placing each expense in one of about 40 categories.

(2) Insert the year's expenses, taxes & income (SS, etc) into a multi-year spreadsheet.

(3) For each expense & income category, project that expense & income several years into the future (e.g.: for 2017 project to 2022) using best guess - based on past experience & what I think may happen in the future - as to how that expense & income might increase/decrease in that time span. Try to use worst case values to be on the safe side.

(4) For current year & projected year calculate shortfall that must come out of the portfolio as:
Shortfall = expenses + taxes - income

(5) For current & future years calculate withdrawal rate using current portfolio & shortfall for those years. I want this withdrawal rate to be less than my desired maximum withdrawal rate of 2.5% (yes, very conservative). Calculate this as:
Withdrawal rate = shortfall / (portfolio - 700K contingency)

For current & future years, calculated withdrawal rate = 1%.

So at 1% withdrawal rate, I feel comfortable that we can maintain lifestyle & meet contingencies, & this minimizes my worries.

Yeah I know, this seems somewhat complicated. But this is what I needed to ease my mind. So why do all this work? Well, you need to be a money worrier to appreciate why I do this.

ColoRetiredGirl
Posts: 131
Joined: Mon Nov 13, 2017 11:40 pm

### Re: Minimizing my money worries in retirement

Your time horizon is too long for me. I do a detailed projection for the current year and the upcoming year. Then I forecast in general terms what my expenses will look like. I have a variable WR floor and ceiling based on the volatility of the market and/or my portfolio balance. I am in my first year of retirement and working through all the moving parts.

marcopolo
Posts: 1270
Joined: Sat Dec 03, 2016 10:22 am

### Re: Minimizing my money worries in retirement

Guy42 wrote:
Fri Jun 22, 2018 8:25 am
If there are others who also worry about money in retirement, perhaps this post can help them?
If anything this will just make things worse for most people.

1% withdrawal rate after subtracting out a \$700k cushion, so really a sub 1% withdrawal rate? Unless one has a sizable pension (less prevalent these days), most people will never come anywhere close to that. So, reading something like this is likely to cause more anxiety for people who are prone to be anxious anyway, and are no where near this level of security.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Dottie57
Posts: 4773
Joined: Thu May 19, 2016 5:43 pm

### Re: Minimizing my money worries in retirement

marcopolo wrote:
Fri Jun 22, 2018 11:33 am
Guy42 wrote:
Fri Jun 22, 2018 8:25 am
If there are others who also worry about money in retirement, perhaps this post can help them?
If anything this will just make things worse for most people.

1% withdrawal rate after subtracting out a \$700k cushion, so really a sub 1% withdrawal rate? Unless one has a sizable pension (less prevalent these days), most people will never come anywhere close to that. So, reading something like this is likely to cause more anxiety for people who are prone to be anxious anyway, and are no where near this level of security.
I have to agree. I worry about money too. But < 3% withdrawl would drive me crazy. OP must have a large pile of money to do 1% withdrawls. Or extraordinarily small expenses.

Sandtrap
Posts: 5452
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

### Re: Minimizing my money worries in retirement

It would be beneficial to others to see a "portfolio review" per forum format to see your approach in context.
j

WhiteMaxima
Posts: 1487
Joined: Thu May 19, 2016 5:04 pm

### Re: Minimizing my money worries in retirement

Anunity. You would have fixed income for life. No worries.

capjak
Posts: 45
Joined: Fri Sep 22, 2017 8:58 am

### Re: Minimizing my money worries in retirement

WhiteMaxima wrote:
Fri Jun 22, 2018 12:15 pm
Anunity. You would have fixed income for life. No worries.
Inflation adjusted annuity from AM Best A++ insurance company (A or A+ probably ok) very little worries.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

### Re: Minimizing my money worries in retirement

People that are already spending very safe amounts from assets don't need and aren't much benefited from buying annuities except to feel better. If that helps then it is an option.

I suppose one possible bit of mental accounting is to decouple income needs objectives from objectives to grow the assets for heirs.

This sort of decision should be affected by how much of the income need is already met by pensions, existing annuities, and SS.

Dandy
Posts: 5462
Joined: Sun Apr 25, 2010 7:42 pm

### Re: Minimizing my money worries in retirement

I like Dr. Bernstein's approach (if you have "enough") which I generally follow:

1. Determine the dollar amount you need to withdraw from your nest egg (after taxes) each year.
2. He suggests multiply that by 20 to 25 (years) and put that amount in "safe" products (e.g. individual TIPS/short term Treasuries, etc.)
3. Invest the rest of your nest egg anyway you wish

I use a variety of FDIC products and short term bond funds for my "safe" portfolio. The rest, aka my "risk" portfolio, is allocated 67/33. Overall 43/57.
I chose to use the number of years to age 90 to multiply my yearly draw down dollars.
I withdraw each year usually from a combination of my "safe" and "risk" portfolios. If equities have a really bad year
I will probably withdraw all or most from my "safe" portfolio.
Periodically, I make sure my "safe" portfolio is based on my current yearly dollar draw down.

Lessens market worry and aids sleep.

zengolf2011
Posts: 114
Joined: Tue Jul 21, 2015 1:27 pm

### Re: Minimizing my money worries in retirement

We are in our 12th year of retirement. A few years before starting, we watched expenses closely -- not nearly at your level, just broad categories like food, utilities, etc. We did this for a few years into retirement. It didn't change anything, but we gained insight into our consumption needs and wants. Now, all money enters and leaves a single bank account. I keep a rolling 12-month log of income and expenses based on a single bank statement-- that's it. This yields cash flow and withdrawal rate. Takes only a few minutes, but gives me all the info I need. I spend time saved on more enjoyable pursuits -- golf,exercise, research, improving investing understanding with the help of this website. Micromanagement and complexity aren't better than managing the big picture. Just food for thought.

dknightd
Posts: 1027
Joined: Wed Mar 07, 2018 11:57 am

### Re: Minimizing my money worries in retirement

Guy42 wrote:
Fri Jun 22, 2018 8:25 am
I have been a money worrier most of my life (a long story). Once I retired 8 years ago, I needed a way to minimize these worries & give me some peace of mind. I detail my method below. If there are others who also worry about money in retirement, perhaps this post can help them?

My goal: Show that my income + portfolio will (probably) be sufficient throughout retirement to keep my current lifestyle & meet unanticipated expenses & contingencies (health issues, recession, etc.).

Method:
(1) At end of each year, produce a detailed list of all expenses for the year placing each expense in one of about 40 categories.

(2) Insert the year's expenses, taxes & income (SS, etc) into a multi-year spreadsheet.

(3) For each expense & income category, project that expense & income several years into the future (e.g.: for 2017 project to 2022) using best guess - based on past experience & what I think may happen in the future - as to how that expense & income might increase/decrease in that time span. Try to use worst case values to be on the safe side.

(4) For current year & projected year calculate shortfall that must come out of the portfolio as:
Shortfall = expenses + taxes - income

(5) For current & future years calculate withdrawal rate using current portfolio & shortfall for those years. I want this withdrawal rate to be less than my desired maximum withdrawal rate of 2.5% (yes, very conservative). Calculate this as:
Withdrawal rate = shortfall / (portfolio - 700K contingency)

For current & future years, calculated withdrawal rate = 1%.

So at 1% withdrawal rate, I feel comfortable that we can maintain lifestyle & meet contingencies, & this minimizes my worries.

Yeah I know, this seems somewhat complicated. But this is what I needed to ease my mind. So why do all this work? Well, you need to be a money worrier to appreciate why I do this.
I share your concern about being comfortable. But if you only need 1% withdrawal rate you are going through a lot of work for nothing. You could likely double your spending and not even worry. Maybe your message is to have way more money than you need? You seem to have this.

averagedude
Posts: 345
Joined: Sun May 13, 2018 3:41 pm

### Re: Minimizing my money worries in retirement

I like your system of the way you track your expenses. I think the only worry you should have is how your heirs will spend the money that you have saved for them.

msk
Posts: 941
Joined: Mon Aug 15, 2016 10:40 am

### Re: Minimizing my money worries in retirement

Too complex and unnecessary. My way: simple spreadsheet listing my NW updated monthly (nothing better to do but quite unnecessary anyway; annual frequency is enough). At each end year check total current NW against NW a year ago. That gives a sort of WR. Retired for past 18 years and NW has been growing throughout. WR effectively negative. Time to increase spending. Planning to give substantial monthly stipends to all my heirs starting from my next birthday to a WR of between 3 and 5%. Max WR will be limited to 5% following any major market fall (am 100% stocks, worldwide). Basically, simulations and history show that a WR of 5% of current 100% stocks portfolio will leave the balance portfolio increase to keep pace with inflation. Less than 5% of current portfolio will actually lead to a portfolio that grows faster than inflation. Hence a 1% WR of the OP is basically growing the portfolio at around 4% above inflation. Great for his heirs!

bikechuck
Posts: 380
Joined: Sun Aug 16, 2015 9:22 pm

### Re: Minimizing my money worries in retirement

We are in the first year of retirement, we do not track expenses by category and never have.

We are allowing ourselves \$5,000 per month to live on for regular monthly expenses. Out of that we each get \$400 to spend any way we want without checking in with each other. That's \$60K per year and we allow ourselves another \$30K to \$40K for property taxes, income taxes, large non recurring repairs, vacations etc.

We will be comfortably under a 4% withdrawal rate with this approach once we begin taking SS in the next year or three. We will begin more detailed budgeting if our approach fails and if we begin exceeding our annual spending goals but that is unlikely to happen.

I much prefer enjoying the forest to getting lost in the trees.

bikechuck
Posts: 380
Joined: Sun Aug 16, 2015 9:22 pm

### Re: Minimizing my money worries in retirement

bikechuck wrote:
Sat Jun 23, 2018 2:21 pm
We are in the first year of retirement, we do not track expenses by category and never have.

We are allowing ourselves \$5,000 per month to live on for regular monthly expenses. Out of that we each get \$400 to spend any way we want without checking in with each other. That's \$60K per year and we allow ourselves another \$30K to \$40K for property taxes, income taxes, large non recurring repairs, vacations etc.

We will be comfortably under a 4% withdrawal rate with this approach once we begin taking SS in the next year or three. We will begin more detailed budgeting if our approach fails and if we begin exceeding our annual spending goals but that is unlikely to happen.

I much prefer enjoying the forest to getting lost in the trees.
Adding that I almost never spend my allotted \$400 per month and it is building up in a high interest Ally savings account. That is kind of nice because it gives me a war chest for gifts for family members, charitable donations and other extravagances.

Posts: 1181
Joined: Wed Feb 14, 2018 9:10 am

### Re: Minimizing my money worries in retirement

OP's process includes a bunch of unnecessary work if OP simply used Quicken, which allows categorizing of every expenditure, reporting of spending, exporting to Excel if Quicken's forecasting tools are inadequate, etc.

Sandtrap
Posts: 5452
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

### Re: Minimizing my money worries in retirement

Dandy wrote:
Sat Jun 23, 2018 10:33 am
I like Dr. Bernstein's approach (if you have "enough") which I generally follow:

1. Determine the dollar amount you need to withdraw from your nest egg (after taxes) each year.
2. He suggests multiply that by 20 to 25 (years) and put that amount in "safe" products (e.g. individual TIPS/short term Treasuries, etc.)
3. Invest the rest of your nest egg anyway you wish

I use a variety of FDIC products and short term bond funds for my "safe" portfolio. The rest, aka my "risk" portfolio, is allocated 67/33. Overall 43/57.
I chose to use the number of years to age 90 to multiply my yearly draw down dollars.
I withdraw each year usually from a combination of my "safe" and "risk" portfolios. If equities have a really bad year
I will probably withdraw all or most from my "safe" portfolio.
Periodically, I make sure my "safe" portfolio is based on my current yearly dollar draw down.

Lessens market worry and aids sleep.
+1
Outstanding!!!
Also do a variation of the above. DW and I sleep very very well.
aloha
j

mouses
Posts: 3831
Joined: Sat Oct 24, 2015 12:24 am

### Re: Minimizing my money worries in retirement

msk wrote:
Sat Jun 23, 2018 10:59 am
Too complex and unnecessary. My way: simple spreadsheet listing my NW updated monthly (nothing better to do but quite unnecessary anyway; annual frequency is enough). At each end year check total current NW against NW a year ago.
This is what I do. However, my net worth is decreasing annually, so I project outwards how long I can live I do try to keep the NW decrease constant or less.

On the other hand, after seeing a longevity calculator in another thread, I stumbled across another one, and they came out 94 and 102. Holy Moly. Cross fingers, I can financially make it to 94, but that's about it.

I think checking monthly is a good idea, since it also is a check that nothing has happened to my accounts.