No Good Deed Goes Unpunished

The die is cast: I will soon join my wife in pretirement. I gave my two weeks notice. Good timing, too, as downsizing abounds at my poorly run employer, confusion reigns, budgets are cut while goals increase. Our VP is a nice person but an habitual “yes person” who never misses an opportunity to pile new work on our team regardless of the old work when it suits her to look agreeable in a meeting to accept any new funding request someone dreams up. We are all ground down because she can’t prioritize. On top of it all, because I voluntarily made myself available for any restructuring plan that was emerging, my manager and the automatons in Human Resources decided I had verbally resigned, therefore disqualifying myself from the severance that 42 other people received. Oh well, I’ll be done soon with my last “At-Will Employer”. Most importantly for me, I have a plan.

What is my reaction to this turn of events? Some understandable episodes of anger, yes, followed by relief, soothed by gratitude for my past self who saved and invested. The author JL Collins advocates the power of FU money. Boy, am I glad I have some.

So, now it’s a glacial wait until I’m done. I plan a cat and mouse game for the next ten business days. They are only pretending to pay me, so I will pretend to work. My motivations now are to leave gracefully, wrap things up reasonably well for the poor colleague who is about to receive all of my work since my position will be eliminated, and ensure that I will have a very strong reference from my boss or others should I fail at Pretirement and find myself around a big rectangular table selling my talents to strangers once more. Brrrrr…..I shudder at the thought.

So, I’m stepping off the cliff at age 54. We have an appointment with our financial advisor next week and the primary question will be, “Hey, Michael, Just how little do we have to earn now?”

Confidence to Pretire: Know Your Levers

“Will I run out of money?” is the most prominent question people start their pretirement planning with. After pondering it for several years myself, and as a member of a married couple, I think it is a flawed question. A much better and more liberating one is, “What are the many ways we can adapt our lives so that we always have more than enough?”

What is different about your life from ten years ago, major changes that you didn’t expect to happen?  Are you living in a new city?  Did you have more kids or no kids unexpectedly?  Are you divorced?  Married to someone you didn’t know ten years ago?  Managing an illness you didn’t expect?  In a new career?  Back in graduate school?  The point is, life is not fully predictable, which makes financial plans and retirement calculators of limited utility.

One adapts to change. “Embracing Change” is one of those workplace cliches but it is a mandatory mind and skill set. I’ve known people who hunker down and ignore change as a coping strategy but they often end up worse off. Rather than hunkering down and ignoring change, it is usually more successful to keep one’s antennae in the air, making small adjustments as change is warranted rather than waiting to be forced to make really big changes that have been ignored.

After years of reading enjoyable financial blogs and books, listening to podcasts and playing with partially-helpful calculators, I’ve mentally broken through to viewing pretirement as an adventure, not a calculation. Adaptation is its key rather than a huge portfolio. I am no longer as concerned about running out of money as I was when I started this journey of self-education and preparation.  Rather than the simplistic and limiting “Will I run out of money?” output, the question has evolved for me to “What levers can I pull and when that will give me the income I need to foster maximum self-determination and happiness in my life?”

Levers To Pull in Pretirement

What are some of the tools at our disposal to ensure that we don’t just sit in our chairs until suddenly, in total surprise, the portfolio fails and all the money runs out?  Here is a very partial list:

  1. Part-time work of some kind, either self-employed or working enjoyably for someone else, or maybe both at the same time.
  2. Run our house as a vacation rental.

  1. Rent out our house long-term and live somewhere else.  That would be a break-even proposition right now, given our mortgage, so there’s little value in doing it.  Someday, the economics might make more sense.
  1. Downsize our house.  Lots of people live in smaller and less-expensive condos and apartments than the house we live in.  This 103 year-old house has two sets of stairs and a big yard that we might tire of working on someday.  If we sell and downsize, buying or renting a less-expensive place to maintain, clean and operate, several points are added to the confidence level.

  1. Refinance the house.  This doesn’t make sense now but we might like to leverage our equity in the future.  I don’t love the idea of reverse mortgages but it’s another viable way for older people to finance retirement.
  2. Sell the house and buy a duplex, living in half.  Such a move could help neutralize one’s mortgage.
  3. Co-housing is a mostly-European concept but is also practiced in America.  It’s a way to share expenses and create a community of human relationships, both of which are important for a comfortable and happy life.  I plan to explore this topic more in future posts, just because it sounds interesting.
  4. Move to the country or a smaller town.  We find lots of ways to spend money enjoying our city.  If we had to, we could move to a cheaper area.  Lots of people do, which changes their economic picture.
  5. Move to a different country.  We have friends who live much of the year in Latin America and I had an uncle who hit hard times and moved to Costa Rica, where he could afford to get on with his life.  There are lots of expats living adventurous lives in less expensive countries.
  6. Simply reach age 70 before we take Social Security.  Taking Social Security at age 62, as most people do because they choose to or have to, provides a subsistence level benefit.  Waiting until 70 allows the payment to increase by 8% for each year one holds off.  This additional 8 years of compounding makes waiting until 70 a whole other proposition and can allow an above-average income in retirement all by itself.  For someone who has not saved, simply figuring out ways to literally buy time until age 70 could be the way to go for their retirement.
  7. Buy adequate insurance.  We have lots of it:  car insurance, home insurance, long term care insurance, term life insurance, liability insurance, even smart phone insurance.  Nothing can solve all financial problems and protect us from losing all of our assets in any eventuality but we can dramatically reduce the odds of and damage from such an event.
  8. Avoid debt.  Eliminating all debt beyond a low interest mortgage in pretirement gives a person flexibility to pull many other levers elsewhere.
  9. Allow for financial upsides.  So much of financial planning is anticipating and managing risks that are downsides.  What if good stuff happens, too?  The financial markets might perform better than expected.  None of the experts ever predicted the creation of Facebook, Amazon, Apple, Netflix or Google or, for that matter, any other company in the S&P 500. Other transformational companies will surely appear. Also, is your city growing?  If so, your house might go way up in value.  You might get an inheritance you didn’t expect.  Who knows?  I once worked with a woman who kept some stock in a small company she helped found decades before.  One day, she announced her retirement, completely unplanned, because her former partners had sold the business for big bucks.  We wanted to throw her a retirement party but she said, “Thanks but nah, I’m good. Bye-bye.”  The point is, optimism is no more expensive than pessimism.
  • The “Will I Run Out of Money?” retirement planning mindset is too fear-based and suffocating.  However, once you inventory all of the levers you have to pull that could prevent you from ever running out of money, you might very well find that spending your last dollar actually becomes much less likely to occur than making some of the many moves at your disposal to keep going. Maybe you’ll have less money after full-time work, as will we, perhaps, but having lots of money isn’t what makes us happy. Freedom and more time for greater fulfillment are better rewards.
  • What are some of your own levers?

    Literally no one is going to sit in their chair in pretirement, look at their financial plan and say to themselves, “This says I will run completely out of money in five years.  Gee, I guess I’m doomed to having the lights go off.”  No, you’ll get up out of your chair when you start to feel concerned and will pull some of your levers to adapt.

    The inevitable changes in life and our adaptations to them imply adventure to me.  I see my inventory of levers as forms of power to manage my life.  I also like the thought of employing them to benefit our own lives a lot more than the usual American work-full-time-until-you-can’t model that serves many others’ economic interests.  I figure, perhaps the best thing I can do for others whom I love is to first try to be happy and engaged with maximizing my own one life.









    The Pretirement Swim Through the Asset Isles

    A lot of planning in life seems like figuring out how to reach the next island.  You aim for the right college, then the right job, then a series of jobs, marriage, buying a house, kids 1, 2, 3 if you have any, moving to a new city, pretirement – all are major island destinations in Life’s Archipelago.  At each stop, one climbs onto a new shore of experience and maturity, surveys the landscape and settles in for a spell.  Pretty soon, all prior change is digested and another island of achievement and growth beckons on the horizon.


    A lot of planning in life seems like figuring out how to reach the next island.  You aim for the right college, then the right job, then a series of jobs, marriage, buying a house, kids 1, 2, 3 if you have any, moving to a new city, pretirement – all are major island destinations in Life’s Archipelago.  At each stop, one climbs onto a new shore of experience and maturity, surveys the landscape and settles in for a spell.  Pretty soon, all prior change is digested and another island of achievement and growth beckons on the horizon.

    During the career phase of life the journey is sustained largely by a salary or two in the household.  It is rare for a person to enter pretirement and be able to instantly command an equivalent income to the salary that got them there.  Instead, they usually have to assess the islands of assets shimmering out in their future, which they’ve created during their career, and begin swimming to the shore of one, consuming what they need there, then swimming to the next one.

    These “Asset Islands” have a lot of variety and include retirement accounts at work, IRAs and Roth IRAs, taxable brokerage accounts, home equity, rental property, work in pretirement, a new business, annuities, pensions and Social Security.

    I’ve explained how my wife and I hacked our retirement accounts at work earlier than most people do to start our pretirement by using the little-known Rule of 55 .  She is presently dialing work down and enjoying a kind of self-determined sabbatical while she explores when and how to dial paid work back up again.  Vanguard Personal Advisor Services built our financial plan specifically with such periodic sabbaticals in mind on the way toward reaching the final island in the chain, a place we might call No-Work-Atoll (sorry if that’s a groaner).

    When she finds her next job she will probably earn less money than in her last role as a busy manager.  That’s possible for us to absorb, because anticipating much lower salaries in the future is also built into our plan, as is the number of years we think we’ll work at them.  The plan’s DNA is, obviously, what we perceive will be greater happiness due to having more time for travel and individual pursuits. Money is one of the means.

    We know how we want the next 3 years or so to go.  Beyond that, it’s progressively hazy.  We also know that Stuff Happens.  If a few years from now we want to dial work and compensation up or down, based on what we think will make us most happy at that time, we can adjust the plan to project what the consequences to our stash will be.  If we decide we’ll obtain maximum happiness from working until we drop, which would be a surprise, we can rebuild our plan that way instead.

    Though I’m working full-time, as I have for decades, she has swum to the first island, which is her Thrift Savings Account (TSP), and is shaking herself dry in the shade of a coconut tree, rejuvenating for an undetermined period with a nice fresh mango.  I have not decided when I’ll swim to my 403b Island, (the 401k for the non-profit sector) so my first goal is to reach the calendar year in which I turn 55.  At that point, I’ll have the option to leave and start consuming 403b Island if I want to.  After that, our Vanguard plan calls for generally spending down our taxable assets first, the rest of our 403bs and TSP, then our large IRAs and lastly our Roths.

    A major destination on our swims is to reach age 70, we hope, at which time we’ll step onto Maximum Social Security Isle, the Big Island we’ll never leave.  That’s a major, annuitized land mass in our future budget, projected to pay about 2/3 of our needs per year.  Rather than taking Social Security at 62 as most people choose or need to do, our plan will have allowed us to wait for as long as possible, which is to age 70, giving our Social Security “annuities” time to grow as bountiful as can be.

    It would take the savings equivalent of a couple of million dollars to generate two thirds of our income needs per year sustainably like maximum Social Security will.  Yes, I know the news media, looking for doom and gloom to stimulate and scare us, tries to make us believe Social Security will disappear.  Many FIRE enthusiast assume zero Social Security. However, there are several ways to save this system that millions of voters depend on, and even the worse case, informed scenarios envision only 25% cuts to payments, which our plan can accommodate.

    If you haven’t done it, it is comforting and worthwhile to go to the Social Security website and compare how much more you will receive each year if you do not take the payments at 62 but wait until you are 70.  It’s the equivalent of an investment that grows at 8% per year for those 8 years. Multiply that largest-possible annual amount by 25 and consider that annuity value in the millions of dollars an additional component of your future portfolio.  It’s pretty compelling to think this way!

    Even after reaching Maximum Social Security Isle and setting up a permanent camp, we can enjoy the benefits of day trips to other places of non-work, most prominently our Roth IRAs, which are sizeable now, are invested aggressively in 100% stock index funds, and still have 15 and 17 years, respectively to percolate and compound for my wife and me before our plan calls for starting to bring them online if we want or need to.  The nice thing about Roths versus Traditional IRAs is that we don’t ever have to pay any taxes when we tap them, nor are we forced to start spending them at age 70.5 to begin paying back deferred taxes through Required Minimum Distributions.  As noted before, our plan’s idea is to have paid down the Traditional IRAs and 403bs so that Required Minimum Distributions aren’t much of a hit.

    We might still have our low-interest mortgage until I’m age 79.  Or, we might sell before then and move to, well, an island somewhere.  Either way, this residence contains home equity that is building up every year, which is another asset island we can draw from, sooner or later.  Even if we stay in this house until we swim no more, we have the option of a reverse mortgage to keep the party going.  Or hire a property manager to rent it out.  Again, that’s so far out into the future that we don’t think about it much.

    As I said, our plan has us working some or a lot, as we choose, for many years to come.  If we really, really wanted to stop working right now, we probably could, but it would require some fairly major adjustments that we aren’t feeling motivated to make.  We could move to a lower cost of living area or even a different country as many, many American expatriates do quite comfortably, never to see a staff meeting again.

    Maybe my wife and I will continue to find new islands of full-time work that will inspire us to swim to them.  On the other hand, maybe we won’t, in which case we’re prepared with a plan to be able to thrive on some of the asset islands we’ve built up.  Either way, the swim will be an adventure we intend to be ready for.

    Pretirement Money Management: Why We Use Vanguard Personal Advisor Services

    Vanguard owns a planning subsidiary, called Vanguard Advisors, Inc.  It exists solely  to help Vanguard clients, like my wife and me.  Vanguard’s Personal Advisor Services (PAS) program runs the gamut from simply consulting with clients to create investment plans that clients implement themselves to completely managing a person’s portfolio with an assigned Vanguard Personal Advisor.  This is the route we have taken in pretirement, and we are happy we did.  Here are some key reasons why:

    The pretirement or FIRE community seems to be mostly a do-it-yourself culture, regarding personal finance.  I enjoy sharing notes and learning from the avid posters on and the Bogleheads Forum.  Many of those folks are highly knowledgeable and skilled investors who know what they are doing.  These smart people know that, despite the Hollywood trope of the successful stock trader as a hyperactive workaholic, usually the best way to make money in the markets is to do…absolutely nothing.  Multiple studies show that investors do better when they create long-term plans, set an intelligent highly diversified asset allocation, then leave it all alone to compound.

    If you are a person who knows a lot about investing in stocks and bonds in all of their flavors and yet can set your asset allocation and then not touch it for one or two decades, then hats off to you.  That is not me, however.  The more I learn about the markets, the more I am tempted to fiddle with my asset allocation in an attempt to optimize my portfolio based on the latest book I’ve read or piece of knowledge I think I’ve learned, which is exactly how mistakes are made and sub-par investing results earned.

    I don’t want to make mistakes, which is one of the main reasons we’ve chosen to use a financial advisor to manage our assets.  However, we haven’t chosen just any advisor on the street, because the investing world is full of bad advice.  I’ll probably write multiple posts about my strong belief in The Vanguard Group, which is a coop  owned by its mutual fund shareholders, rather than owned by some rich family or a financial conglomerate that is primarily responsible to Wall Street.  No, Vanguard is responsible to my wife and me.  That makes it unique.  Thanks to its shareholder-focused model, it has also become the largest mutual fund company in the world.  I am in no way paid to say any of these favorable comments about Vanguard but, they are different. If you don’t already know about Vanguard, do yourself a favor and study them.

    Vanguard owns a planning subsidiary, called Vanguard Advisors, Inc.  It exists solely  to help Vanguard clients, like my wife and me.  Vanguard’s Personal Advisor Services (PAS) program runs the gamut from simply consulting with clients to create investment plans that clients implement themselves to completely managing a person’s portfolio with an assigned Vanguard Personal Advisor.  This is the route we have taken in pretirement and we are happy we did.  Here are some key reasons why:

    1. My investor psychology is simply different during this new Spending Phase.  When my wife and I were just working and saving, investing was pretty easy.  We each contributed automatically at our work places in funds that had really high allocations to stocks and then we basically did nothing but watch the balances grow.  My wife and I are now tiptoeing into the Spending Phase and it feels completely different to actually need to consume some of the milk our herd of mutual fund cows produces.  Earlier in this phase, I found myself checking balances constantly instead of annually, worrying more about daily swings in the market and, worst of all, making some modest changes in our portfolio due to my emotional reactions to global events, like elections or my perception of where the economy lies in the business cycle.  That’s certifiably dumb.  Even though I made no huge mistakes, I know I shouldn’t fiddle. I found that I was becoming an active investor, convincing myself that I was smart enough to time the markets here and there.  Turning over our assets to an objective manager, who is in regular consultation with us, made the fiddling stop, which is to say my potential for making mistakes was removed.  Our portfolio is a globally diversified, low cost stew of about 55% stock index funds and 45% bond index funds.
    2. Vanguard is smarter than me.  Vanguard spends millions and millions of dollars to provide its clients the optimal investing experience with regard to asset allocation, tax-efficiency, fees, projecting how much we can spend sustainably from our portfolio, and a myriad of other factors.  I could spend all of my free time becoming expert in those and many other disciplines, as many people on the above-mentioned forums seem to enjoy doing, yet I still wouldn’t be nearly as smart about any aspect of investing as Vanguard’s people and software.  I’m at least smart and humble enough to know that.
    3. Rebalancing is assured.  Rebalancing is not difficult to do.  I could, and did, rebalance our asset allocation before we hired our Vanguard advisor to do it for us.  We have all recently been living through one of the longest bull markets in history, when investing mistakes have actually been difficult to make.  But here’s the thing I have significant self-doubt about:  When our stock funds inevitably tank again when the business cycle changes, and when the economic news is terrible, with people losing their jobs, businesses imploding and our portfolio shrinking, will I be able to do the annual rebalance?  Meanwhile, as stocks are in retreat, our bond funds will likely remain content as a patch of flowers finally enjoying their day in the sun, maybe falling a little at first as panicked investors sell everything and move to cash, but then perhaps growing as the Fed cuts interest rates to stimulate lending to spur the ailing economy.  In that emotional environment, will I have the guts to do what I need to do, which is sell my bonds to buy more stocks?  Maybe.  I’ve invested right through sharp bear markets before and didn’t flinch that much.  However, we now have a lot invested and, as I said, we’re depending on it more.  I know myself well enough to question whether I would do what needs to be done when the tide next turns.  My Vanguard advisor, however, won’t hesitate to aim right for the jugular of those big fat happy bonds and trade them for scary, depressed stocks, right on schedule.  That certainty is worth paying him for.
    4. My wife is more included than ever before.  “I trust you to manage our money” was the blessing and curse of my days taking the lead financially while we built our nest egg.  She has saved up about a third of what we have, so it never felt quite right to me to make our financial decisions all on my own.  Now we have a friendly, patient and neutral third party in our discussions, whom she and I both respond well to, married couple that we are in all of the usual complications. It feels really good to be on the same page with her, finally.
    5. Help if something bad happens.  I also really like knowing that, if I am somehow incapacitated, Vanguard PAS will be calling her at least quarterly, as usual, to make sure the money she depends on is there for her.  Vice versa, too.
    6. We will know, with high confidence, exactly how much we can spend safely.  Vanguard Advisors has spent a lot of money to create its Dynamic Spending Model.  It is very powerful and very cool.  Using Monte Carlo analysis of all of the known investing history of every asset class that we own, our advisor will be able to tell us with some 95% confidence how much we can spend, sustainably, through age 100.  If things happen, as they do in life, we will adjust the plan, aiming to stay above the 85% confidence threshold. Our plan includes every input we want to add, such as how long we think we want to work full and part-time, how much we think we’ll earn, when we think we’ll buy cars next, some home renovations we want to do, when our mortgage gets paid off and when we think we’ll start taking Social Security.  Annually, our advisor will tell us how much we can safely spend for the coming year.  That amount will be indexed to inflation but won’t go up more than 5% or down more than 2.5% in any single year, which is totally manageable.  Doing what Vanguard’s Dynamic Spending Model tells us to do beats the heck out of arguing on the online DIY forums over whether the vaunted  “4% Rule” or some other % is sustainable or not, as seems to be the constant discussion online.  I don’t worry about that stuff anymore, which feels great.  Bonus News:  We get to spend significantly more than 4% with 95% confidence.  We will be able to live well in pretirement while sleeping well at night .
    7. The costs are pretty reasonable.  We pay .30% of the assets Vanguard manages for us, plus the normal super-low expense ratio of the underlying Vanguard mutual funds we own, for a total of approximately .4%.  Those numbers sound tiny but they have real impact over many years.  On the bright side, such management and advice service at most any other firm is going to cost 1 to 2% per year.  If planning wisdom says that an investor should aim to spend no more than 4 or 5% of their portfolio each year to sustain it, 1 – 2% is a huge, stupid bite out of one’s pretirement lifestyle to fork over to an advisor.  Vanguard’s PAS fees aren’t nothing but, in an investing world that is designed to separate you from your money through fees you don’t understand, Vanguard is on the side of the angels.  I’m happy to pay Vanguard’s relatively small fees for all of the service we get.
    8. I have stopped all fretting and fiddling with my portfolio, providing a lot of new time and mental space for other pursuits, like blogging!