In Naked With Cash, seven anonymous Consumerism Commentary readers publicly track and analyze their finances on a monthly basis. For almost a decade, I tracked my own finances on Consumerism Commentary; now I’m sharing the benefits of public accountability with the participants. 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, updated for December 2013. This is SteveDH’s last report. You can read last month’s analysis here. Following the analysis from SteveDH, Roger Wohlner will offer his own thoughts and guidance.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
Analysis and comments from SteveDH
December: We spent more than our fixed income in December, mainly due to Property Taxes, which had already been built into our budget. Fourth Quarter dividends kept us out of the red on cash flow.
We did have a wonderful Christmas with the family so the year ended well.
I had previously stated that I was going to do away with the pre-paid expense account after it had served its purpose but we wound up booking, paying for, and insuring another cruise. It will be in February so once again I show a balance (asset) for the money that will actually be spent in 2014.
You may notice that the Income and Expense balances dropped significantly this month but that’s not bad. I did a year-end sweep of what I thought was excess cash and invested it. A total of $7,900 simply moved from Income & Expense account to our Foundation accounts. Making those dollars a little harder to get to (Investment accounts don’t have checkbooks) is an age-old tightwad’s trick.
2013 Summary: This year turned out well for us overall. We feel we did the things we wanted to do. We went on two cruises, three road trips, several weekend trips to visit family, and completed a landscaping project that will benefit us in the future. (Most of the first cruise was paid for with 2012 dollars.)
We managed to push out the dreaded decumulation phase another year and that’s a good thing. Not only would the start of decumulation be a little depressing, but it would also generate a lot of work with all those drawdown scenarios I haven’t really gotten into yet.
I just read another one from The Center for Retirement Studies at Boston College. Modified RMD: It suggest that spending Interest, dividends and the IRS required RMD for those under 70½, is the best scenario. I think we’ll stick with what we’re doing for now!
Our fixed income for the year was $67,130 of which we spent 85%. The excess fixed income, coupled with interest, dividends, investment gains, minus depreciation, and depletion resulted in a $24,390 increase in net worth. Not bad for a couple of old folks supposedly spending away at their kids’ inheritance.
TurboTax says we’ll get a $700 dollar refund, and even though I’ve had to enter placeholders for the brokerage account’s results, I’m confident I won’t be looking over my shoulder for IRS agents anytime soon. My effective tax rate of less than 8% stems from the fact that only 53% of our Social Security income is subject to tax and the majority of the interest and dividends earned were earned in tax deferred or tax-free accounts.
That effective tax rate will change in five years when Required Minimum Distributions (RMDs) kick in. Not only will we pay taxes on the RMD but the percentage of Social Security we pay taxes on will increase (most likely to the 85% max) as a result of the increased income. I worry about further “means testing” in future years as Social Security continues to pay all us boomers. So it’s the politicians that I should be looking over my shoulder for!
Feedback from Roger Wohlner, CFP
The two of you are role models in managing your cash flow during retirement. I also happen to agree with you regarding the importance of cash flow over net worth in your situation. Keep up the good work and I hope that you have many enjoyable years of retirement ahead.
Feedback from Luke Landes
I’m quite envious of your 8% effective tax rate. You have a tax efficient portfolio, and that’s working out well for you at the moment. And even in retirement, your net worth has increased these past two years. In your introduction, you made it clear you were well equipped to handle the management of your money, particularly with your four major financial rules:
- Live below your means.
- Manage your big S. (Spending.)
- Simplify your life and your finances.
- The income statement rules!
Despite the lack of drama and excitement, your progress throughout Naked With Cash was a great example for readers. You showed us that:
- Given a smart approach to your money, you can retire. Millennials can ignore the hyperbole about the impossibility of retirement if they get on solid footing.
- Households don’t need millions of dollars to retire comfortably. You’re doing what you want with your time — cruises and road trips for example — and you can do these because you’re smart about your spending.
Best of luck, and please check in once in a while so we know how you are doing.
Published or updated January 28, 2014.