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 October 2013. You can read last month’s analysis here. Following the analysis from SteveDH, Roger Wohlner will offer his own thoughts and guidance from his planning perspective and Jacob Wade from I Heart Budgets will offer his insight.
Roger Wohlner, CFP appears courtesy of The Chicago Financial Planner.
SteveDH analysis and comments
October turned out really well as spending remained down and nothing untoward popped up. That made the balance sheet move in a positive direction and allowed us to move unspent budget forward into November and December to cover holiday expenses and the dreaded tax man. Although almost $7,700 was accountable as unrealized gains (value change), cash flow (real money) added to the positive results. Just as in September, our “general” spending seemed to be muted even though we really can’t pin that on anything we’re doing.
In order to understand cash flow (my absolute favorite accounting measure) I probably should explain our budgeting. It’s really simple because we are, after all, old retired folks. We track all of our income and accumulate it into three categories: Fixed Income, Investment Income and All Other Income. The first two are standard and the last is just an accumulation of rebates, cash-back, realized gains, and offset income.
It may seem odd that realized gains are not included in investment income but this is a matter of choice as realized gains are derived from an act of selling which is irregular and impossible to estimate into budgets/planning. Offset income is that amount provided to us by my mother to offset the cost of her living with us.
On the expenses side we only use six categories, and just lump all of spending into them. These categories are:
- (11%) Food (groceries — most out-of-house dining is not in this)
- (12%) Utilities and services
- (4%) Insurances
- (3%) Out-of-pocket medical expenses
- (13%) Taxes
- (42%) General Spending (everything else)
This gives us a 15% reserve to work with throughout the year. This year we used a third of our reserve to do the landscaping job, but that’s what it’s for: unanticipated spending decisions that fall outside what we budgeted for when we started the year.
We have managed to stay within our budget with little effort and without what either of us feel could truthfully be called “sacrifice.” We are comfortable in our efforts to manage the resources we have. All of the budgeting, planning, and decision making is aimed at making the most of our retirement while delaying the inevitable decumulation phase, which is one of the toughest analyses to make.
In October our general spending was only $1,700, well below the $2,500 budgeted. All of the other categories were within 10% of budget. Food and general spending are the two categories where day-to-day decisions have the most impact. Last month my wife steered me away from the Costco meat department which has a small section of “USDA approved prime” to choose from. She said the weather was getting too cold for outside grilling. Darn.
We sat down not long ago and discussed an article I had read about the opposite of longevity risk. The article addressed the risk of spending too meagerly and not reaping the benefits that we have saved for. That got us thinking about spending needs versus wants with a little different twist. Although the article may have been intended to get the juices flowing among annuity salesman, as years go by, all of us may have to strike a balance between these risks.
November: We’ve planned trip to Kansas City for Thanksgiving and are looking forward to some extended family time. That being said, the only other November issue could be the beginning of the gift buying season. We may very well boycott Macy’s this year for opening on Thanksgiving. Shame on them!
Last month we learned of the passing of Kathleen’s mom at 58 and we were saddened. Even though my mother requires a lot of care due to blindness and infirmary, we make every effort to include her in as many of our activities as we can. She may well add a lot of chores to our daily lives but she is never a burden and we enjoy the time we have together. We extend our condolences to Kathleen and hope that her grief is balanced by her remembrances.
Feedback from Roger Wohlner, CFP
Another boring report which is outstanding. Your grasp of your spending and the ability to control it are to be commended. As we move into 2014 I would see the potential risks coming from the possibility of increased heath care costs and the prospect of rising interest rates. The latter would result in losses on any bonds or bond funds you might hold.
I agree with your comment that the aspect of retirement that can be the toughest is planning for decumulation. You might read some of the articles by Morningstar’s Christine Benz on the bucketing approach to retirement withdrawals. This may have some applications for your situation.
Feedback from Jacob Wade
I applaud you on your budget management, it has served you well over the years. As someone who has only been budgeting for 6 years, I know I have much to learn. Not much to add except to continue enjoying the fruits of your labor — and the occasional filet.
Feedback from Luke Landes
Your thoughtful approach to your finances has certainly positioned you well. I like that you’re spending some time discussing the idea of spending some money. You seem to have accumulated what you need, at least at present, but there’s no point in maintaining a net worth that goes unused. Longevity risk is present, but so is the risk of regretting not having the experiences you’d like to have while you’re still in great condition.
Published or updated November 23, 2013.