How I became comfortable with managing retirement

[Clover5]

As I approached my December 31 retirement (59yo) I was concerned with how to manage spending, fund insurance and was I going to be comfortable with life without a paycheck. So nine months out from retirement day I decided to re-arrange my accounts to essentially behave as if I was not receiving my normal paycheck.

My biggest initial concern by far was how to pay for medical insurance. I most probably am not going to get a subsidy due to rental income. So, I figured out how much I needed to fund 5.5 years of medical insurance including 18 months of Cobra and the remaining months on ACÁ. I changed my work direct deposit to go to a new account at Fidelity, which I call my medical insurance account. By the time my last paycheck arrives I will have fully funded 5.5 years of medical insurance. The side effect is that because all my paycheck is going to funding insurance I have no paycheck funding my day to day life.

Then I wanted to pay myself similar to a paycheck so I setup a automatic withdrawal that moves 5k a month, on the first of the month, from an account I call my savings account into my day to day account. Essentially paying myself on the first of each month. I also change my taxable accounts to send interest and dividend to my savings account.

In the past few months after starting this I finally have the confidence that I will be able to manage our money without a paycheck. That I can pay for insurance no matter what happens. And that we are going to be fine with our spending going forward. I am sure there are many ways to accomplish the above, probably simpler ways too, but it was useful for us.

 

[MBAustin]

Thanks for sharing, Clover, as many folks here wonder just how they will manage details like this and it's always useful to know what's working for others.

 

[O2Bfree]

Thanks for sharing that Clover, sounds like you've covered the bases regarding your healthcare situation and income. I cut the cord a year ago and it took 6 months or so before I started getting more comfortable with getting a paycheck from my investments rather than from an employer, even though the numbers looked good during the planning stages. Then the market crashed and it was suddenly time to test how comfortable I was with my AA. That was a little scary, but I stuck to plan, fired a little dry powder, and things are looking good again. Controlling emotions seems to be an important part of financial security!

 

[DenverGuy42]

...
By the time my last paycheck arrives I will have fully funded 5.5 years of medical insurance. The side effect is that because all my paycheck is going to funding insurance I have no paycheck funding my day to day life.

Then I wanted to pay myself similar to a paycheck so I setup a automatic withdrawal that moves 5k a month, on the first of the month, from an account I call my savings account into my day to day account. Essentially paying myself on the first of each month. I also change my taxable accounts to send interest and dividend to my savings account.

similar to the way my wife and I do it. I retired five years ago and my wife retired 1 year, 8 months ago. For a year before she retired we sent up a spreadsheet to track down to the penny everything we spent (and we still do this). This allowed us to see how much we needed each month. I already sort of knew what the number was, but my wife needed to SEE it before she would retire and give up the income/healthcare.

We have many bank accounts:

* a savings account that we feed from investments to have money on hand
* a joint checking account that we pay all monthly bills from, fed from savings each month
* an 'earmark' savings account to hold yearly budget items and to be a place to 'save up' for vacations and whishlist items
* an 'overflow' account with mad money for entertainment - concerts, shows, dinners out, etc. This is fed with surplus money left over at the end of the month (if there is any )

So, we have a monthly budget - that includes healthcare premiums. We put the monthly premium into our monthly budget and put our deductible plus a generous cushion (not quite up to our max out of pocket) into our yearly expenses (along with things like tax prep costs, property taxes, car registration, etc).

At the beginning of the year we fund an account we call "earmark" with the yearly stuff. Each month, we transfer from savings/investment accounts our paycheck to ourselves for monthly expenses - this goes into a joint checking. We pay all of our monthly stuff from here. At the end of the month - whatever is leftover either goes into earmark (we set aside a certain amount each month for an emergency appliance/car fund, also if we want a vacation or something we budget it out and figure out how much a month we'd need to save from our paycheck to fund it over time) or into another account we call "overflow".

Alas, overflow is overflowing recently due to covid. We've not been spending nearly as much on entertainment (grocery bill is doubled, but that's a drop in the bucket).

It has worked very well for a long time now. We've never overspent - we only spend on frivolous things like dinner out/movies/entertainment when sufficient funds existed. We still "save up" for things in our earmark account.

In short, we are living not too much differently than when we got paychecks to fund the monthly/yearly budget items. We keep about six months to a year of cash on hand, keep the rest in the market/bonds.

 

[Dtail]

Well thought out and detailed, which I like.
Sounds like you will do just fine.

 

[Souschef]

Right now between SS and our small pensions, it approximates my former take home salary. All are direct deposited into our individual checking accounts.
Everyone is different about checking accounts. some have joint, some have individual. For us, individual ones work better. We were both widowed, and had lives before we married.
We are blessed in that there is enough to cover all our expenses without touching our investments.
We have no mortgage or car payments on relatively new cars, and pay off our credit card bills every month.
YMMV

 

[MRG]

You guys are better planners than me but I needed at least a high level plan of where the money was coming from. Seven years in an it's pretty comfortable. I'm planning on SS in 6.5 more years at 70, but maybe before..... I have a high level idea of my benefit and it's going to cover ~60% of our expenses.

 

[rkser]

OP,
Thanks for sharing your retirement funding plan.

 

[samcat]

What a great thread for those of us who are starting to think about retirement! Thanks for sharing everyone.

 

[rodi]

Great thread.

Been retired for 6 years now and run things similarly, except the healthcare part. I just pay that out of the same account I pay all other bills. But I fund that checking account similarly - a monthly transfer from investments. I also have a few other income sources (rent, hubster's SS, my micro pensions) - those go into the same checking account. But I need more than these small income sources provide - so I have the monthly transfer.

On a side note - I put everything I can - including our ACA health insurance - on a credit card which gets paid in full each month. This credit card gives a cash back benefit so it's "free money" that can be used for splurges.

 

[jazz4cash]

Good job, OP. You make it seem so simple. I’m 5 yrs in and still uncomfortable with one paycheck/mo instead of two. I have funds going back and forth between too many accumulation accounts and need to simplify.

 

[pb4uski]

Sounds like a bit of economic sleight of hand to me... especially the building up of the 5.5 years of health insurance payments in a separate account... money is fungible.

I just have a fixed monthly transfer from an online savings account that we consider part of our retirement savings to the checking account that we use to pay our bills.... then we replenish the online savings account periodically when we rebalance.

 

[RunningBum]

I thought about setting up a regular "paycheck"-like deposit to my checking account every month, but my sources for available cash move around as rates change. For awhile it was VG, but even at VG I have a sweep account that grows with dividends, and I had another MM account for cash. But I moved that to Penfed, and I'll move it again if savings rates are considerably higher elsewhere.

I don't want to be changing around where I set up automatic transfers from, and I don't want to forget and not have a transfer covered, so I'm just going to keep transferring on demand. My spending history shows that my monthly spending varies quite a bit, so I'd still have to do some transfers on demand anyway.

I can see why people like the feel of cash moving into their spending accounts regularly, just like when they were working, but I don't see it working for me.

 

[pb4uski]

We're sort of the opposite... our spending is pretty stable excluding a few lumpy items like property taxes and home/car insurance in November or certain home improvement projects... but I monitor things and end up doing a couple special transfers each year for those lumpy expenses

 

[augam]

.

 

[Markola]

Like asset allocations and SWRs, it sounds like everyone has to find a way to spend that let them sleep at night. Our Vanguard advisor treats our portfolio as a whole but has a few larger, specific line items identified in our financial plan that are uniquely important. Everything else is managed around those bedrocks. Like the OP, healthcare is one, mortgage is another and we added travel. Everything else is in a bucket called “Dynamic Spending” and that’s the variable category that, according to market conditions each year, Vanguard advises we should increase some % up to 5%m hold steady or trim by no more than 2.5% year by year. It’s a little different but it makes sense to me and I like having help with the math.