Bylaw 1.7(a)(4-3) of this blog’s charter states:
“A topical post relevant to retirement must be published at least three times a year.”
No matter how much I try to avoid that requirement, the home office always fires off nasty missiles on how late I am with yet another update on my retirement journey. One of these days I’m going to find the ombudsperson there and give them a piece of my mind.
Nevertheless, there have been developments over the last several months, this time related to our savings. So I do ask for your indulgence here as I fulfill this compulsory blog housekeeping task.
To keep your interest, I’ll offer a few meandering sidebar breaks along the way (with apologies to blogger Ellen at Notes from the U.K. because I’m shamelessly imitating her wonderful “irrelevant photo” maneuver. We trust she won’t sue for infringement).
Additionally, for those of you who stay all the way to the end, we offer some freshly-baked bundt cake as a reward. Rumor has it that there’s bourbon whiskey infusion involved, though Gorgeous ain’t owning up to that. Don’t ask, don’t tell.
The big change with our financial situation is that we’ve begun working with a financial advisor.
This is a move that evolved ever so slowly since my taking early retirement in 2014. I started out on this adventure a bit cocky; strong in the belief that I had enough confidence to preserve the nest egg all by my lonesome.
My 401(k) was safe in its protected cocoon of low fees, along with an array of maintenance options via a custodial web interface. Ditto for our IRAs, which we could easily monitor from their respective mobile and tablet apps. In a cheeky move shortly after relocating to Florida, Gorgeous once made a contribution to her Roth account on her iPhone while we were out on a day trip somewhere. Fearless, I tell ya!
Slowly, though, doubts begun to creep into my confidence during the last couple of years. Some of the concerns were in reaction to the rollercoaster stock market of late, itself stemming in part by that mercurial leader who has a belief that tariff wars are “easy to win.”
A more underlying source of insecurity, however, came courtesy of that handsome fella who stares back from the mirror each morning. He’s just not so cocky about all this stuff any longer. The more I rebalanced at the end of each year, and the more I stared at my supposedly appropriate 60/40 stock-to-bond allocation, the less confident I felt about my financial certitude. The swagger was gone; it was time to call in the cavalry.
Starting last January I began looking at the websites of certified financial planners. I didn’t want someone to micromanage us and our money; I did want someone who could offer advice on the best way forward, now and and in the future.
I also needed a professional that understood the particulars of my specific pension and 401(k).
I was an employee of the federal government for 30+ years, and among the many “beltway bandits” in the DC region are financial planners who advise both active and retired civil servants. It took about a month of searching and reading up on each person. I eventually settled on someone with whom I had been familiar from articles he had written on retirement savings.
A certified CPA and financial planner, this gentleman’s focus is on what I consider to be my main achilles heel when it comes to personal finances: taxes. All those accumulating worries that had been growing over the last couple of years ultimately went to a concern about whether I was prepared for the distributions I would be taking from my 401(k) at age 62 ( two years from now). With Gorgeous still working full time, I worried about making sure any withdrawals I take will still keep us safely within our current tax bracket.
One of the most common mistakes retirees make is to underestimate (or simply ignore) the role taxes play on distributions from a tax-deferred account such as an IRA or 401(k). Take too much out and there are cascading repercussions. Since Gorgeous is now our primary wage earner, I didn’t want to jeopardize our tax position by making this same mistake. Each quarter like clockwork she faithfully pays estimated federal taxes on her income. So I am therefore determined not to muck-up her perfectly crafted system two years from now. Our new advisor’s job then, as I saw it, is to get us in financial harmony.
Sidebar: And speaking of harmony, PBS and Ken Burns inspired us to see Marty Stuart last week! I’m not a huge country fan, but Marty is a consummate performer. It was a terrific show.
After an initial “get to know you” video meeting, we followed-up by sending the advisor our vitals: social security estimate statements, my 401(k) statement, both of our separate IRA statements, my pension information, mortgage statement, life insurance policies, long term care policies, and the past two years of federal income taxes. He also asked for a detailed list of our current monthly expenses
I held back the wine expenditures. Some things are too private to share.
All of the above information was entered by his staff into two exhaustive spreadsheets. Their number-crunching display forecasts for both inflation and the estimated growth of our savings into the future. This information became the primary discussion point in our first full meeting, and going forward the advisor devised a personal strategy for us based on it.
We had about six video meetings in all over a period of seven months.
The process and ultimate outcome exceeded all of my expectations. As I initially expected, each of his suggestions are made with taxes being the primary focus. It is followed closely by our current savings accrual, and finally a future diversification plan for part of my 401(k).
For Gorgeous, the advisor suggests that she put her current savings accrual into warp speed. Up to now she’s been socking away into a Roth IRA. However, the maximum she can invest into that is only $7,000. He instead suggested that since she’s self-employed, she open an Individual 401(k) plan (also called a Solo 401(k)). The Individual 401(k) offers up to $25,000 of savings in a combination of both Roth and traditional IRA-type savings components.
For years now, Gorgeous has felt like the proverbial poor relation because I have a 401(k) and she doesn’t. Now, she not only has her own, but she’s listed as both “owner” and “administrator.” Show off.
For me, it’ll all be about diversification over the next several years.
Since I’m not touching my 401(k) for two more years yet, the advisor suggested two minor changes to my current allocation: We’ve increased my exposure of bonds up to 45%, and also added an international stock fund at 15%.
We will also contemplate some small distributions in a few years for the purpose of making some conversions into a Roth IRA. We have until 2026 to do this, before the tax rates change again. [A political rant about the 2017 tax cut law has been deleted here by the Home Office]. However, any Roth conversion will be dependent on Gorgeous’ income during those years (so that we aren’t in any danger of creeping into the next tax bracket).
Finally, we will further discuss and contemplate the purchase of a life annuity sometime after I start social security at my full retirement age (FRA). My 401(k) conveniently offers such a purchase with a third party.
I’m relieved I did this. The cocky me of five years ago was certain that I could pull all those distribution levers for my 401(k), Gorgeous’ IRA savings, and then somehow manage all of the other moving parts of social security, medicare, etc. Ultimately I probably would have been victim of not only my own hubris, but also Uncle Sam’s tax bite to boot. Our advisor has given us a plan now, one that I feel is workable.
For those interested, this helpful article from Kiplinger’s Magazine offers up some warnings about 401(k) distributions in retirement.
Now then… we promised cake for all good boys and girls who made it this far, didn’t we? Enjoy, and many thanks for reading.
Until next time…