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SteveDH December 2012 Net Worth

This article was written by in Naked With Cash. 7 comments.


Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.

SteveDH is retired, and he and his wife have two grown kids. By the time he retired in 2008, he had reached his retirement asset goal of $500,000. His goal now is to ensure his savings last as long as he does. Read his bio to learn more about SteveDH. SteveDH is on Team Roger, with Certified Financial Planner Roger Wohlner.

Keep reading to see his net worth report, which includes progress over the past year, with detail from the past several months, as of December 2012. Following the analysis from SteveDH, Roger Wohlner will offer his own thoughts and guidance from his planning perspective. Jacob Wade, a budgeting expert who publishes from iHeartBudgets, will also provide commentary.

Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.

Comments and analysis from SteveDH

We went over budget in 2012, spending $970 more than we had budgeted. Although we were under budget in four of our six budget categories two large expenditures pushed our overall budget performance into the red.

  • A $3,500 out-of-pocket medical expense for hearing aids.
  • $4,500 in additional income taxes, both federal and state, based on our Traditional to Roth IRA conversions ($10,000 in 2012 and $12,500 carryover from 2010).

Cash flow

  • Fixed income cash flow: We spent 88% of our fixed income. (Our budget was to spend 85% of fixed income).
  • Total income cash flow: We spent 71% of our total income.

Our cash flow for 2012 was a positive $23,842 excluding unrealized gains.

Net worth

Our investments produced almost $12,000 of our total income. Their yearly performance was approximately 5.8% so overall our net worth increased by $36,667 in 2012.

Assessment

2012 was an ideal year in that we spent less than our fixed income while doing the things we enjoy doing. Generally, my financial assessment follows these three rules:

  • IDEAL: Spending less than our fixed Income.
  • ACCEPTABLE: Spending more than fixed income but less than total income.
  • TROUBLED: Spending more than our total income.

Comments from Roger Wohlner

First of congratulations on the planning you’ve done so far. Your ability to maintain a relatively frugal lifestyle is perhaps your biggest retirement asset. This is followed by your pension income.

While I might receive some negative feedback for this comment, I’d rethink the Roth conversion strategy at your age. I say this for several reasons. First I’m not sure that paying the tax is a good use of your cash. At your age (which I don’t know exactly) and your conservative investment allocation it will take you a long time to make up the cash spent on taxes. Further, you are doing this to derive some unknown tax savings benefit which I’m gathering will occur a number of years in the future. If you are working with a CFP you should at least ask him or her to run a discounted cash flow analysis to help you determine what would have to occur (i.e. how much would taxes have to increase vs. the return you could earn by investing this cash) for this to be a positive financial move.

I would tend to look at your pension income as fixed income (including Social Security?). Therefore I’m wondering if this in combination of 80% of your assets in bonds and cash isn’t a bit too conservative. I’m not advocating a huge shift to equities but you might consider ramping this up a bit to ensure that you stay ahead of inflation. I tend to like a bucket approach where retirees have a certain amount in cash (say to fund 2-5 years of retirement cash needs), another bucket that is a bit more risky (bonds, balanced funds, etc.) and then an equity or risk bucket for growth. Check out some of the articles that Christine Benz of Morningstar has written on this topic.

As far as your bond holdings go, if they are in bond funds I would suggest that you look to shorten up on the duration of these holdings.

Lastly I would suggest that you check into long-term care insurance. From what I can see a long-term care situation for either of you is one of your biggest financial risks. (I am assuming that your military service does not provide for long-term care.) You might decide not to purchase this coverage but I generally suggest that all of my clients in your age group at least check into it. It is definitely pricey.

Feedback from Jacob

Hey Steve, I like your style. Glad to follow along and help where I can. It sounds like you have a neat system going on, using a few programs to track your dollars, keeping out of debt, and living it up! I have no advice for now, but would just recommend that you continue to know where every dollar goes. I know that sometimes budgeting can be too much info, and since you value life simplicity, that sometimes lead to overlooking the details that can get you in trouble. But, as you’ve said, all you gotta do is “Manage your big S,” and you’re golden! :)

Published or updated January 28, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 7 comments… read them below or add one }

avatar Nunzio Bruno

I really appreciated you sharing and breaking down your efforts. The three ways you assess financial health is pretty awesome too! Growing over 6% for the year is not a bad thing at all especially since you said you were able to maintain your lifestyle and still cover those emergency costs. Way to go!

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avatar SteveDH

Thanks Roger, we are looking forward to seeing lots of comments and suggestions. For clarity sake my fixed income includes my pensions (Boeing & USAF) plus both social security pensions. After a careful year-end analysis, we did indeed change our allocations by moving 10% of the cash into an equities fund. This resets our allocations to 50% Bonds 30% Equities and 20% Cash. My report for January will go into a little more detail. To explain the ROTH conversion better I will say that I’m 65 and have been doing conversions for three years. The purpose is simply to delay my entry into the next marginal tax bracket by 4 to 5 years when RMD rolls around in 2018. I drive my income up near the ceiling of the 15% tax bracket and pay the taxes. Since I had too much cash earning the current windfall-level bank interest (sarcasm intended) I could have only earned more by investing elsewhere. Lastly, my wife and I have agonized over long-term health care insurance annually for at least ten years. Right or wrong we do understand the risk associated with our decision.
Thanks Jacob. I’ve been budgeting since 1969 when the AF paid me $710 a month and my German landlord charged me $300 in rent. After reading the “Family CFO” both of us know exactly where each dollar goes.

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avatar SteveDH

Just a couple more notes for Roger so I don’t confuse him. My allocation numbers are for my IRA accounts only, my other investments are a part of the bucket I might feel more comfortable spending. The ROTH conversion was not original thought – I ain’t that smart – Its genesis was an article by William Reichenstein, a professor at Baylor, published in Kiplinger several years ago challenging the rule-of-thumb about which money to spend first in retirement.

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avatar Anne and Matt

This is so interesting to see! I’d be curious to hear more about how you got to this point — how you prepared for retirement, how you decided how much to invest etc. Also, can you share more about your income now? How much comes from your investments, and how much comes from pensions and Social Security and the sort?

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avatar SteveDH

We weren’t very successful saving for anything while in the AF, but did manage a decent down payment on our first house. The AF has great benefits including a pension that starts immediately after 20 years and a retiree health care plan but the pay – not so hot (at least prior to 1985). That AF pension paid for the house while my income from our employment paid everything else. Our savings within my IRA began immediately after my new employment in 1985 and my wife’s employer had a small profit sharing program as well. For the 22 years before I retired, the second time, we saved enough at first to get the matching and as time went by, and kids went away, our rate increased. My employer provided a lot of investment information and I also hooked up with a broker at A.G. Edwards & Sons, a somewhat local but well established house. They later became part of Wells Fargo Advisors but my broker hasn’t changed. As far as our income, there are four pensions (includes Social Security) which I always refer to as fixed income. Interest, Dividends, capital gains, and everything else falls into “Investment & Other Income”. For 2012 fixed income was 81% of total income.

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avatar Tony

Can you tell us what is the amount of your monthly pension from the military and other pensions? To me it seems you only have $430K in investable assets. Applying the 4% safe withdrawal rate you should only withdraw $17,200/year from these accounts. I assume the pensions will cover the rest of your expenses at least until social security kicks in (if you are eligible).

I’m 46 and single and my networth is slightly higher than yours, however I feel I need to reach at least 1.5M in investable assets to retire confortably. I guess a good pension would make me rethink this number.

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avatar SteveDH

Tony, so far my pensions have covered all of my expenses over the first five years of retirement. We have four pensions: 1 Military, 1 Corporate, and 2 from Social Security. I refer to this as our fixed income even though it might change from year to year because of Cost-of-Living (COLA) adjustments, it doesn’t change within the year. My Military pension receives the same COLA adjustment as Social Security but the corporate pensions is truly “fixed” Our total fixed income is $5,594/month for 2013. My retirement plan doesn’t show me taking money from savings until my nineties even though I will have to deplete my IRA accounts as required by law I may not have to spend it.
Sorry for taking this long to answer but we’ve been travelling since early February.

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