Drawdown Plan – Apr 2021 Update

Well, the last time I reviewed my drawdown plan was back in Oct 2018 (well before the Covid virus or our closing in on our FI number). I had previously written in 2017 at the start of my journey, and then updated in Mar 2018 (prior to our meeting with a financial advisor). Based on feedback from the advisor and some of the changes over the last year, we’ve had to update some of our assumptions. With that in mind, I thought we’d go back through the plan and lay out how we’ve hit our FI number and could (but probably won’t) retire now.

Assumptions:

  • Live expectancy for Mrs. 39 Months is 99, and I am 97 (passing away in 2061)
  • For the remainder of 2021, with Mrs. 39 Months working and my getting severance, vacation and unemployment, we can survive the remainder of 2021 without touching our investments
  • No investment gains/loses for the remainder of 2021 (so our investments on Jan 1, 2022 are where they are on Apr 1, 2021)
  • No changes in current tax code between now and beginning of 2022 (I know, that’s a huge “if”)
  • Don’t touch home equity in retirement, i.e. no reverse mortgage, geographic  arbitrage, etc. (safety bucket of money, just in case)
  • Expenses of $78,000 per year, indexed for inflation, starting in 2022
  • Will use Cobra insurance for first year out (2022) and then keep taxable income low to get the most healthcare subsidies possible till we can qualify for Medicare. Pay for Medicare Advantage after that.
  • Inflation at 3%
  • Social Security increase at 2% per year
  • Stock returns 7.8% before inflation, 4.8% after inflation (Financial Advisor convinced me to drop these below historical expectations)
  • Bond returns 3.1% before inflation, 0.1% after inflation (Financial Advisor convinced me to drop these below historical expectations)
  • 70/30 investment split returns: 6.4%, 3.4% after inflation
  • Both taking Social Security at 67 (full retirement age)

Assets

  • Savings: $175K (2+ years)
  • Roth IRA (no Tax): $501K
  • IRAs/401Ks (pre-Tax): $707K
  • Post-Tax Investments: $270K (investments which only have to pay capital gains)

My standard asset allocation with all the investments is:

  • 20% S&P500 Index
  • 20% Small Cap Index
  • 20% Foreign Stock Index
  • 20% REIT index
  • 20% Bond Index

With this, another way to look at my investments is:

  • Savings: 2+ years
  • Bonds: 4 Years
  • Stocks: 15 Years

If we had a sudden drop in the market, the plan would be to survive on the savings for the 2+ years it typically takes to get back, with 4 years of bonds/fixed assets to assist.

So year-by-year, how does this work out?

  1. Year 1 (2022)
    • Expenses: $80,340 (25,235 out of Pre-Tax and 55,105 out of Post-Tax)
    • Taxable Income: $0 (First $25,235 is offset by standard deduction, $55,105 is post-tax and if we keep our taxable income under $78K, we don’t have to pay taxes on dividends or capital gains)
    • Money remaining: $1,476K (530K Roth, 713K IRA, 232K Post Tax)
  2. Year 2 (2023)
    • Expenses: $82,750 ($25992 out of Pre-Tax and $56,758 out of investments)
    • Taxable Income: $0 (First $25,992 is offset by standard deduction. $56,758 is post-tax)
    • Money remaining: $1,480,037 (562K Roth, 729 IRA, 189 Post Tax)
  3. Year 3 (2024)
    • Expenses: $85,233 ($26,772 out of Pre-Tax,$58,461 out of investments)
    • Taxable Income: $0
    • Money remaining $1,482K(595K Roth, 744K IRA, 142K investments)
  4. Year 4 (2025)
    • Expenses: $87,790 ($27,575 out of Pre-Tax and $60,215 is post-tax)
    • Taxable income: $0
    • Money remaining $1,481K (631K Roth, 760K IRA, 91K investments)
  5. Year 5 (2026)
    • Expenses: $90,423 (28,402 out of Pre-tax, 62,021 out of investments)
    • Taxable income: $0
    • Money remaining: $1,477K (668K Roth,775K IRA, 34Kinvestments)
  6. Year 6 (2027) – Investments exhausted, have to start taking money out of Roth. Mrs. 39 Months eligible for Medicare
    • Expenses: $93,126 ($29,254 out of Pre-Tax, $35,981 investments, $27,901 out of Roth)
    • Taxable Income: $0
    • Money Remaining: $1,471K (680K Roth, 791K IRA)
  7. Year 7 (2028)
    • Expenses: $95,930 ($30,132 out of Pre-Tax, $65,798 Roth)
    • Taxable Income: $0
    • Money Remaining: $1,461K (654K Roth, 807K IRA)
  8. Year 8 (2029) – Mrs. 39 Months begins taking Social Security at 67. Mr. 39 Months eligible for Medicare
    • Expenses: $98,808 ($31,036 out of Pre-Tax, $14,249 Soc. Security, $53,524 Roth)
    • Taxable Income: $0. Income under Soc. Security limit for taxable benefits
    • Money Remaining: $1,462K (639K Roth, 823K IRA)
  9. Year 9 (2030) – Begin having to pay taxes, pretty much on Social Security $
    • Expenses: $103,493 ($31,967 out of Pre-Tax, $17,209 Soc. Security, $54,317 Roth)
    • Taxable Income: $17,209 – tax of 10% so 1,721
    • Money Remaining: $1,461K (623K Roth, 839K IRA)
  10. Year 10 (2031) – Kevin Begins taking Social Security at 67, further increasing taxable income. Won’t affect our medical as we’ve both been eligible for Medicare.
    • Expenses: $108,874 ($32,926 out of Pre-Tax, $40,485 Soc. Security, $35,463 Roth)
    • Taxable Income: $40,485 – tax of 10% so 1,721
    • Money Remaining: $1,478K (620K Roth, 855K IRA)

Years 11 – 20 (2032 – 2041) Our 70s

  • Expenses: Grow from $112,100 to $145,812. Still pull some out of IRA, some from Social Security, and some from Roth to keep taxes low.
  • Money Remaining in 2041: $1,544 ($539K Roth, $1,005K in IRAs)

Years 21-30 (2042 – 2051): Slowing down. While our expenses will probably go down, I didn’t assume that.

  • Expenses: Grow to $195,342 with inflation. Still pull some out of IRA, some from Social Security, and some from Roth to keep taxes low, but Roth almost exhausted.
  • Money Remaining in 2051: $1,224K ($127K Roth, $1,097K in IRAs)

Years 31+ (2052 – 2062): Going into our 90s. Keeping expenses in line as we wind down.

  • Expenses: Grow to $262,072 with inflation. Complete drain of Roth IRA, start sourcing entirely from Pre-Tax money from now on
  • Money Remaining in 2062: $357K in IRAs + savings + home equity

Obviously, its hard to plan out 40 years into the future, without an idea of how the world is going to look. Still, its good to know we are looking good at this point, and don’t “need” to continue to work.

More Withdrawal Strategies

Here are more retirement strategies from the PF blogger community. Some of these are much more detailed than mine. Check them out!

Anchor: Physician On Fire: Our Drawdown Plan in Early Retirement
Link 1: The Retirement Manifesto: Our Retirement Investment Drawdown Strategy
Link 2: OthalaFehu: Retirement Master Plan
Link 3: Plan.Invest.Escape: Drawdown vs. Wealth Preservation in Early Retirement
Link 4: Freedom Is Groovy: The Groovy Drawdown Strategy
Link 5: The Green Swan: The Nastiest, Hardest Problem In Finance: Decumulation
Link 6: My Curiosity Lab: Show Me The Money: My Retirement Drawdown Plan
Link 7: Cracking Retirement: Our Drawdown Strategy
Link 8: The Financial Journeyman: Early Retirement Portfolio & Plan

Link 9: Retire by 40: Our Unusual Early Retirement Withdrawal Strategy (http://retireby40.org/unusual-early-retirement-withdrawal-strategy/)

Mr. 39 months

Saturday Linkage:

4/17/2021

  1. Countdown to Retirement, Part 1 (ESI Money); Links to a thread where someone is counting down his days to retirement, and what he’s doing on each day. Good tracking and good ideas.
  2. Six Lessons From a Year Without a Job (Clipping Chains); Interesting notes on the changes in the first 12 months.
  3. Award Travel Series: Getting to Hawaii for Free with Ultimate Rewards (Go Curry Cracker)
  4. Early Retirement Budgeting (the Dragons on Fire); Good notes on budgeting process for early retirement
  5. Reinventing The Wheel (the Retirement Manifesto); Author believes we should be “reinventing the wheel” in our lives constantly, even after retirement.
  6. Time to Sell? (JL Collins); the age old advice still holds – determine your asset allocation and stick to it. Don’t try to time the market, either up or down.
  7. Vacations on a budget (budget life list); Some good ideas to cut some of the costs while spending on the things you want on your vacation
  8. The Power of Writing by Hand (the Art of Manliness); I do an awful lot of writing by hand.
  9. The Most Important Rule in Investing (Compound Advisors); Know what you own, and why you own it what
  10. How people get rich now (Paul Graham); In 1982, it was still primarily by inheritance. Forty years later, its primarily by starting a tech company
  11. Financial Independence Requires Hustle, Then You Can Coast (stop ironing shirts); I think this is true of so many facets of life.

Quarterly Update – Apr 2021

Well, it’s mid-April, and the year has started out fairly well, all things considered. While the Chinese Flu continues to cause concern and create issues throughout the country, for the most part it appears the economy has continued to move forward, markets have stabilized, and the world moves on. There are still a lot of issues out there, but hopefully we are turning the corner.

My Goals for 2021 (some financial, some not):

Finance:

  • Save $29K in tax-advantaged accounts – 401K, and Roth IRA.  Grade A. Saved $4.1K in our 401Ks for the 1st qtr. Plan to put my $14K bonus into the Roth in 4th Qtr once I know my tax status.
  • Save $41K in regular accounts.  Grade A. Good start.
  • Increase dividend income from all accounts to $27K/year (compared to 29K in 2019). Grade C. Dividends are down for the year in the major accounts/mutual funds. Was only able to put $5.8K in for 3rd qtr, which leaves me at $17.6K for the year. Unless 4th qtr is a “gang buster” dividend time, I won’t hit it.
  • Passive income covers 38% of base living expenses in retirement, estimated at $78K per year. Grade C, covered 23% of 1st qtr. However, my 401K and Deferred don’t report dividends separately, and usually 1st qtr isn’t a heavy dividend quarter. We will see.
  • Beat net worth growth rate of 7%. Grade A, because we’re up almost 3% / $70K for the year already.  

Business:

  • Attend twelve SJREIA meetings. Grade A; I’ve attended six already, just in the first quarter. My local market is pretty heated (like so many others). Still, its good to get the information.
  • Double the number of blog visitors in 2020. Grade F. Still not a large number of folks reading – maybe a little bump from last year.  
  • Sell $1,000 on TKD Woodworking (my side-hustle name). Grade: Incomplete. Website is up and running, I’ve tested the e-Com, and it appears to be fully functional. I’ve got two reservations at a local craft fair/farmer’s market. We’ll see how it goes.
  • Setup funding for TKD homes. Plan to get into real estate means setting up funding. While I’ve got a significant amount of money set aside to start this, I also need to explore additional funding methods.
  • Write/publish a book on finance.  Grade F: Haven’t done anything on this for a whole year. Not sure how to reboot this – need to try.

Personal:

  • Regular Workouts with Gymanstic Bodies internet system: Grade A: I’ve gone through all the starter programs. Almost ready to start on their phase I program.
  • Average 2 hours of cardio per week, which is about what I’m doing now. Grade A. Walking daily, so hitting this.
  • Backpack over 100 miles on AT (did around 50 miles in 2020). Grade: Incomplete. Actually just got back from 4-days, 29.8 miles in Virginia, so I’m off to a great start.
  • Continue volunteering at Pennsbury Manor at their joiner’s shop (woodworking). Really enjoyed this. Incomplete. Site is still closed down
  • Reduce weight by 15 lbs. from Jan 2020 Again, I want to get in better shape as I get closer to financial independence. Grade B. I’m down 3 lbs in first quarter, but still have a long way to go, and the virus is keeping me from eating as healthy as I’d like.
  • Read at least one book a month. I surpassed this goal in 2018, and re-learned the joy of reading. Grade A. Six books in first quarter alone and I really enjoy it.

Travel:

  • Visit one national parks (that is the plan, right now). Grade: Incomplete
  • Visit family in Tennessee, Vermont and New York. Family is very important to me. One of the things I am looking forward to with financial independence is the opportunity to visit family more often. Need to get up to see my brother in Vermont. Grade: Incomplete
  • A week with Mrs. 39 Months for our 35th anniversary. Grade: Incomplete
  • Visit Ellis Island. Still want to do this – its so close. As 50% Czech from immigrant great grandparents from the turn of the century, I believe they went through there, and I want to see it. Grade F. Cancelled.

How did your first quarter go this year?

Mr. 39 Months.

Saturday Linkage:

4/10/2021

  1. Envy Is the Cancer of the Soul (More to that); I truly believe that, and I battle it constantly! Its one of the seven deadly sins.
  2. The Problem with Always Wanting More (becoming minimalist); Sensing a theme here?
  3. After Being Poor, Your Financial Anxiety Remains (We Want Guac); I see this with Mrs. 39 Months – it stays with you for a lifetime.
  4. Four Pillars of Retirement: Money, Purpose, People, and Health (My Money Blog); Most people say that they hate work, but working takes care of more than just the money pillar.
  5. How to Build Wealth in your 50s (banker on Fire): It’s possible, even for those who come lateto the FI game.
  6. The Omnipresence of Work (more to that); With the advent of technology, it seems you just can’t escape work, even at 2am on a Saturday
  7. People Love the idea of a 20-minute neighborhood. Why isn’t it top of the agenda (The conversation); Maybe because previous attempts at government urban planning have failed miserably over the decades?
  8. What is Financial Independence? A Hybrid Model (The physician philosopher) Discussion of the various calculations, pluses and minuses of calculating FI
  9. How To Convince People You Are Middle Class When You’re Actually Rich (Financial Samurai); I don’t think this is an issue with most FI people – we are naturally frugal.
  10. Returning to the Office is My Nightmare (time in the market): This is true for so many people I know
  11. It’s Hard To Kill The Stock Market (tony Isola); Folks have been trying to do it for 150+ years, but its pretty resilient.

Are Stocks in a Bubble?

Recently, Kiplinger’s published an article (both in print and on the internet) which raised the question of whether stocks were in a bubble. It raised some interesting items, many of which have been covered in the FI “sphere” already.

  • Year-long boom since the 2nd qtr 2020 Covid Crash
  • Major market indexes pulling back and tech-heavy Nasdaq down
  • Irrational speculation in specific stocks (Tesla, Gamestop, etc.)
  • Incredibly high P/E ratios
  • Eventual stopping of the Fed’s “pumping money” policies

The article then covers some moves you could make, some of which I agree with, and some I don’t:

  1. Park some of your gains in a low-risk money market account (don’t agree, not paying anything)
  2. Purchase some 10-year Treasury notes (not sure, currently paying 1.03%, so not a great deal)
  3. Focus on stocks with defensive traits (agree, value stocks, high dividend stocks, etc.)
  4. Consider sector investing for specific cyclical stocks (agree, certain sectors do better in market downturns)
  5. Consider emerging markets (somewhat agree, I have a portion of our assets in this)
  6. Stay the course (definitely agree. Have a plan, stick to it, continue to invest)

Overall, interesting read

Read more

Mr. 39 Months

Saturday Linkage:

4/3/2021

  1. Is it time to ditch bonds (millennial revolution); I’ve asked myself that question before.
  2. Work Life Balance or Success (Steveark): Having a good work-life balance pretty much precludes you from being a CEO, Top Coach or top Politician
  3. The Cost of a Comfortable Retirement, by country (Frugal Wheels); This is pretty subjective, but interesting!
  4. What can investors do in the face of low returns? (Monevator); A lot of folks are predicting lower than normal returns for the next 10+ years, especially after the latest run up.
  5. The Generational Wealth Gap (The irrelevant Investor); Boomers have historically held a higher percentage of household wealth over the years (no surprise); The later generations have definitely been hit by the financial crises in the past 20 years.
  6. US Active Managers Flopped again in 2020 – Morningstar (the Evidence Investor). Big Surprise! Not really…
  7. Finally Bought My Beachfront Dream House! (Financial Samurai); A lot of folks have this dream.
  8. Money Lessons Not Taught in School (the frugal expat); Some very basic financial information isn’t taught, and it would help a lot of people if it was
  9. How to separate your self worth from your Professional life (Tis but a Moment); This is the curse of my Baby Boomer Generation – we tie up our identity with our jobs
  10. 5 Behaviors I Thought Meant I Loved My Job, But Were Actually Unhealthy (the Financial Diet); Do you really love your job? /
  11. How To Prevent A Layoff From Destroying Your FIRE Plan (Costa Rica Fire): For those still working towards FI, words of wisdom to prepare.

Saturday Linkage:

3/27/2021

  1. The 2021 Early Retirement Update (Living a FI); A long story, filled with ups & downs after achieving FI. A must read.
  2. Couples First year in early retirement (the dragons on fire); Interesting reading for those of us approaching the big day  
  3. Travel Hacking: How We Escape the RV and Vacation for (Almost) Free (Heath and Alyssa); Cute stories about travel hacking
  4. 10 Wise Investments and Other Uses for Your Stimulus Check (retire before dad); Better than spending it on a big screen TV
  5. Get Rich Quick vs. Get Rich Slowly (the FI journey); Good advice on going wither route.
  6. The Easiest $486 I’ve Ever Made: How To Use Cash Back Credit Cards To Your Advantage (Frugal Woods). Excellent use of cash rewards to make some spare cash
  7. Invest in Index Funds and Gamble a Little (Even Steven Money); Maybe 10% of your portfolio is “play money”
  8. How no student loan payments changed my life (Richful Thinker); Some people used the loan moratorium to greatly improve their financial situation
  9. Health Incentive Programs: A Lost Benefit Raider (Budget Life List); Another frugal way to earn cash & prizes!
  10. The Five Hour Workday (Four pillar finance); Only spend time of tasks that “move the needle” instead of meetings, socializing, etc.
  11. My life philosophy: 52 lessons from 52 years (Get Rich Slowly)

FI is great when life throws you a curve ball!

Well, last night was fun! Yesterday, my town tore up some of the streets around us and shut off the water to our local houses. Not sure the reason, probably just repairing something, now that the weather is getting nicer. By late afternoon it was back on. When they turned the town water back on, our toilets and sinks burped and popped a bit as the air was let out of the system. Just around dinner time, we found that the area around our water heater had a small puddle around it. We cleaned it up, put a pan underneath it and watched it. We figured that the disturbance from the water coming back on may have loosened a valve or something.

No such luck. Our water heater is 15 years old, and after 10 years, they start wearing out. That was this one’s problem. It turned out that our tank had a small crack in it that wasn’t fixable, and was only going to get worse. We were having to clean up every hour or two – not the sort of thing you can live with.

Luckily, we were able to get a plumber out to remove/replace the water heater (with my work schedule the next couple of days, I didn’t think I’d be able to do it). While the cost was pretty expensive ($2,300 with permits!) we knew it was an expense we were going to have to pay pretty soon – and we’d been saving up for it.

So we plopped the money down, had an expert do the work, and got it all fixed by dinner time. That is one of the hidden joys of FI – it leads to a much less stressful life, because you can be prepared for this minor emergencies.

Stay Healthy!

Read more

Mr. 39 Months

Saturday Linkage:

3/20/2021

  1. It’s Good to Be a Little Obsessed with Early Retirement (Retire by 40); “A little obsession is a good thing…”
  2. How to Prepare for Prosperity (his and  her money); Good advice on steps to take to gain prosperity
  3. We Have a Lot of Cash in Hand Now… Too Much! (Route to Retire); what to do when your cash equivalents get too large.
  4. The impact of covid on budgeting (Full Time Finance); Just about everyone’s budget have been thrown for a loop due to Covid
  5. Fixed and Variable Rate Loans: Which is better? (The simple dollar); as usual, it all depends on the situation.  
  6. Get Rich versus Stay Rich (The Belle Curve): How do you go about keeping what you’ve saved
  7. The Power of Low Expectations (Get Rich Slowly); The First Rule of a Happy Life is low expectations.
  8. The Illusion of Control (Financial Superstar); Never be afraid to ask for help
  9. How Dollywood gave me a glimpse of retirement (X Ray VSN); Cute story!
  10. Changing Financial Goals (just baggage enough); As Covid continues and life changes, your financial goals change as well
  11. Four Life lessons from the Pandemic (Life outside the Maze); Simple, easy to remember lessons.