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How to Beat the SECURE Act

December 20, 2022 by Lazy Man 2 Comments

A few weeks ago, I caught a local financial advisor giving a short talk about how he helped a recent client. The client was in their mid-70s. She had reached a point in her life when she had all the money she needed and wanted to plan how best to give it to the kids.

She was at the point where she had to take RMDs from her retirement plans. However, her income outside of that was low without a standard job. That was fine; she didn’t have a lot of expenses. She had paid off her mortgage. She lived frugally. She had a lower income, which meant that she was taxed very little.

The financial advisor noted that her kids were in their prime earning years. He didn’t go into specifics, but I’m guessing they were already in the 24% rate. Due to the recent SECURE Act, if she died, the kids would have to withdraw the money over ten years and pay their tax rate on it. Before the SECURE Act, the heirs could take the money out over a long time. This was known as a Stretch IRA. It would be easier to stay in a lower tax bracket and take a little money each year. With the SECURE Act’s 10-year rule, some heirs could be taxed on much of the money in the 32% tax bracket.

What’s the point of saving for retirement and all the rules that come with it if you don’t get to use the money and your heirs are still going to pay 32% in taxes?

The financial advisor then said something that I won’t soon forget. In 21 years of advising people, no one has ever come in saying that they’d love to give money to the IRS. This fits in the category of having a “good problem .” I usually say that I don’t mind paying taxes because it means that I made a lot of money. Nonetheless, one way to make our money work smarter is to pay few taxes when it’s legal.

You’re probably familiar with many personal finance blogs if you’re reading this. It’s also likely you’ve made most of the “right” money moves, such as saving a lot for retirement. There’s a chance you’ll find yourself in a similar situation as this client. Decades of compound interest add up.

I’m 46 now, but I could see this situation happening to us in 30 years. Using a quick rule of 72, our savings could quadruple. We’ll probably live off my wife’s pension, side hustles, and rental property income. I know a lot can (and likely will) change with laws, but I find it’s best to plan for the current laws and adjust later. That means planning to beat the SECURE Act’s 10-Year Inherited IRA Rule.

What is the SECURE Act?

The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) is a law that was enacted in the United States in December 2019. (I had hoped to write about it then, but something happened in March of 2020 that distracted me. I can’t quite remember what it was, but I think it rhymes with SOVID.) The SECuRE Act aims to improve retirement security for Americans by making it easier for them to save for retirement and by providing new options for how they can use those savings.

Some of the key points of the SECURE Act include the following:

  • Increasing the required minimum distribution (RMD) age from 70 1/2 to 72 for retirement account holders.
  • Allowing individuals to continue contributing to their traditional Individual Retirement Accounts (IRAs) after they reach the age of 70 1/2.
  • Providing a new option for annuity contracts within 401(k) plans, allowing workers to receive guaranteed income in retirement.
  • Making it easier for employers to offer student loan repayment assistance as a workplace benefit.
  • Requiring beneficiaries of inherited IRAs to be distributed over ten years. (The “10-Year Rule”)
  • Allowing long-term, part-time workers to participate in 401(k) plans.
  • Encouraging small businesses to offer retirement plans to their employees by providing them with tax credits and other incentives.
  • Providing a new tax credit for small businesses that offer automatic enrollment in their retirement plans.

How to Beat the SECURE Act

Let’s get back to the financial advisor and his client. Here are some ways to beat the SECURE Act’s 10-Year Rule:

1. Give the Money to Heirs Early

I thought the financial advisor was going to suggest that she take significant money out of her IRA and gift her potential heirs up to $16,000 annually. (It will be $17,000 in 2023.) This way, she’d only pay tax on what she takes out. Since she’s not earning an income anymore, we assume this would be at a much lower tax rate. Perhaps she can use her standard deduction, and the effective tax rate could be close to 18%. The heirs wouldn’t need to pay any further taxes on the money.

The downside to this approach is that his client wouldn’t control the money anymore. That may be okay for some people, but it could be concerning to others. Also, giving away $16,000 a year could take some time, depending on how much money you have and how many heirs you have.

2. Invest the money in a Regular Brokerage Account

She could take some money from the IRA each year and invest it in a regular brokerage account. When she dies, this money will go to the heirs on a stepped-up cost basis. That means heirs wouldn’t need to pay tax on all it has gained over time.

The advantage of this approach is that she keeps control of the money.

Let me take you through an example of how I think this could work.

We’re going to have to make some assumptions for the example. First, we’ve assumed that she’s single (widowed, I think) and not filing jointly. Let’s also assume she needs around $40,000 to live on. She’s paid off the house but still has property taxes, and inflation is high.

Scenario A: She can take out about $85,000 in her IRA and stay at the 22% bracket. She’ll spend the first $40,000 and put $40,000 in a brokerage account – she’ll use the remaining $5,000 to help pay the 22% taxes. (I know the $5,000 isn’t a lot to pay the taxes, but she has standard deduction and other credits, so it mostly works.)

The $40,000 in the brokerage account continues to grow. She contributes this $40,000 every year, and in ten years, she’s put $400,000 in there, but with compound interest, it is around $600,000. Let’s say she dies in her mid-80s. (I’m not trying to bring you down, but this shouldn’t come as a surprise. It wasn’t going to end with her discovering the Fountain of Eternal Youth.) The heirs get the $600,000 on a stepped-up basis. It’s regular inherited stock, so there is no SECURE Act IRA 10-Year Rule.

2b. Backdoor Roth IRA

She could take the money from her IRA and put it in a Roth IRA, paying taxes. This is very similar to the above plan, so I labeled this as 2b. I need to explore more about backdoor Roths before I can write knowledgeably on the topic. Fortunately, there are a lot of resources out there.

3. Buy Life Insurance

The advisor mentioned that the client could also buy life insurance. Of course not all people in their mid-70s will be eligible. However, she could use that money to buy a lot of life insurance that would then pass to the heirs tax-free. I’m not great with life insurance, so I have no idea if this works in practice, but it is an intriguing concept I never thought of. At her age, it may make sense. That’s why she has a financial advisor. At my age, I don’t want to buy life insurance to beat the SECURE Act. I’m always worried that there are significant expenses from the insurance agent.

5. Other Alternatives

The client can also donate money to charity, but that doesn’t pass the money onto her heirs. I would say that’s a supplemental tax strategy.

The client can also purchase a qualified longevity annuity contract (QLAC). This is another area where a financial advisor is probably a great idea. You can avoid paying some RMDs and put the money towards an annuity that kicks in later in life (usually around 85). This could give the client some security, knowing that she won’t outlive her money if she lives to 100 or more. Again, this is a supplemental tax strategy and not a way to beat the SECURE Act, as it doesn’t pass the money to heirs.

Another option is to use a charitable remainder trust (CRT). With a CRT, you can transfer assets from a retirement account to the trust, and the trust will make annual payments to a charitable organization. When the trust is terminated, the remaining assets will be distributed to your beneficiaries. This can help reduce the tax burden on your heirs and provide a charitable deduction for you.

What About SECURE Act 2.0?

A few hours before publishing this, the SECURE Act 2.0 was included in the year-end spending legislation. It’s an update to the original SECURE Act of 2019. I think it’s very likely that the President will sign this into law.

There’s a lot in the SECURE Act 2.0, but it seems that much of it applies to particular situations. The big change that would apply to everyone is pushing back the RMD age to 75. I’m not sure if that’s a big win for us. On one hand, we can let our money grow more. On the other hand, we’ll presumably have this larger amount to take out at age 75. Taking out a larger amount at regular income tax rates could be much higher than qualified dividends or long-term capital gains.

Another possibility is to use a trust to hold the assets from the retirement account. By transferring the assets to a trust, you can specify the terms under which the assets will be distributed to your beneficiaries. This can allow you to control the timing and amount of distributions, potentially reducing the tax burden on your beneficiaries.

Final Thoughts on Beating the SECURE Act

As you may have gathered from this article, these are complicated topics. You might need a financial advisor, tax specialist, and/or estate planning attorney to do them right.

As much as I love making my own money choices, this is one area where I’m happy to pay for the expertise of professionals.

Filed Under: Retirement Tagged With: SECURE Act

Ask the Readers: Retirement Fund Or College Fund?

October 13, 2022 by Lazy Man 5 Comments

free collegeToday I’m looking for your opinions on one question. Please leave a comment with your thoughts.

David Spigarelli, The 529 Guy sent me a copy of his book: The 529 Handbook (affiliate link). Unfortunately, I’ve been so busy that I’m just a few pages in. I’m not new to 529 Plans having written choosing a 529 plan and 29 thoughts on 529 plans. I didn’t expect to learn too much, but I was wrong. I forgot that books often give you a deep analysis.

When looking at planning to pay for college, I concluded, college planning is impossible, but suggested that you do it anyway. You’ll never know what the costs are going to be. My 8-year-old is tracking to be an architect someday, and Rhode Island School of Design’s official estimated cost per year is $78,941. People rarely pay the sticker price, but it would be $320,000 for four years. Maybe he gets a free scholarship. Perhaps he goes somewhere else and gets a partial scholarship. There are endless options that make the cost appear somewhere between $0 and $320,000 a year.

Spigarelli’s book has some great advice on tackling this seemingly impossible puzzle. The idea is to break it down into pieces. So at 8-year-old, we’ve got about ten years to save. I will assume that our invested money grows 3% more than inflation. It may not seem like a great assumption with inflation right now, but we can’t use 2022’s 8% inflation and 25% drop in the market as the norm for every year. Instead, we’ll go with investments growing by 6% and inflation at 3%.

With that 3% growth, I can put “1.03 y-to-the-x-power 10” in my calculator. I now know that my money will grow by 34% or about one-third. To pay for $79,000 costs, we’ll need $59,000 invested for each year. That’s $236,000 in total. To come up with a monthly payment, I need to divide that by ten years and then by 12 months. The result is a mortgage-like $2,000/mo. Ouch! Since we have two kids, that’s $4,000/mo.

That exercise was a rough estimate. The money invested at the end of the ten years won’t have time to grow by 34%. We won’t choose to go to RISD if it’s the sticker price. We’ve got a number of other ways to plan our specific case of college expenses which include my wife’s GI bill. We also expect years of private school to give us more scholarship options. The GI bill alone should cut our total college bill in half. (It gets complicated, and it will do less if they both go to private schools, but this is the estimate we’ll go with.)

Let’s assume that we should instead save $2,000/mo. for college expenses. Awesome! We can get started on that, right?

Nope. We’ve got a problem.

Personal finance experts rarely universally agree on anything, but they seem to agree on one thing: You should always fund your retirement before a college fund. The reasoning is simple: You can’t take loans for your retirement. It makes sense, and I can’t disagree with it.

However, with that logic, very few people would ever fund a college fund. Retirement planning is a lot like planning for college costs. You can make some guesses, but life changes a lot. It’s possible to come up with a number and to even be on target with that number, but the percentage of people who do it is likely very low. I would guess it to be under 25%. To complicate matters further, college funds are typically used before retirement funds. I’m 46, and many people I went to high school with have kids in college. I can’t imagine many of them have fully funded their retirements.

Let’s take it even one step further. Those parents had their kids around age 28. (That’s a perfectly reasonable age to have kids, we were later, obviously.) It’s nearly impossible for a 28-year-old to reasonably save for retirement and college.

Finally, my question for the readers is, “If you are supposed to save for your retirement first, how do you ever get to saving for kids’ college?” I’m sure the easy answer is that you have to do both at the same time. However, if that’s the case, how do you divide the money between the two? Do you put 75% in retirement and 25% in college? Do you put 60% in college and 40% in retirement?

Filed Under: College, Retirement

Do We Need a New Retirement System?

September 19, 2022 by Lazy Man 9 Comments

A CNBC article yesterday caught my eye, The U.S. retirement system gets a ‘C+’ grade, experts say — even though it’s worth $39 trillion. Here’s why.

I usually try to guess an article’s conclusion before I read it. My brain just works that way. Obviously, $39 trillion is a lot of money, but my thought was, “How much is it per person?” Using the $39 trillion number and a U.S. population of 329 million, it’s about $118,361 per person. That’s not a great amount to retire on, but it might be able to last a few years. It could last longer depending on whether Social Security is included in that number. It’s much lower than the $2 million that many consider necessary for financial independence*.

The “C+” grade from Mercer CFA Institute Global Pension Index wasn’t for the reason I expected, though. The article points out that the United States has a “patchwork retirement design.” It’s unclear to me whether the system counted Social Security or not. To read the report, you have to give away a ton of personal information, and I’m not that interested in their opinion that much. It makes me more skeptical that they wouldn’t release it freely.

The main reason for the C+ grade seems to be that the United States retirement system is full of “haves” and “have-nots.” Here is an eye-opening passage from the article:

Consider this statistic: Just three of the 38 countries in the Organization for Economic Co-operation and Development rank worse than the U.S. in old-age income inequality, according to the bloc of developed countries.

Indeed, poverty rates are “very high” for Americans 75 years and older: 28% in the U.S. versus 11%, on average, in the OECD.

Being #36 of 38 the countries in the OECD is terrible. I’m surprised we (the United States) even got a C+.

It seems like the patchwork system works for some people but not everyone. My guess is that there’s one group of workers who have 401ks and have been saving and investing. Investing in U.S. stocks over the last decade has done well. They could have had their money quadruple. For employees who don’t have a 401k or who aren’t investing, they’ve just got whatever they’ve been able to save. Even if they save $3,000 a year – over 20 years (without compound interest), it is $60,000.

So what’s the answer? The first thing I would do is fix Social Security. If the contribution limit has to go from $147,000 to $500,000 or more, I don’t see a problem with that. We all agree that Social Security running out of money is a problem. The fix isn’t going to come from workers making $50,000 a year contributing more.

Next, I might look to provide a Universal Basic Income (UBI) for people 65+ at poverty rates. We saw how much the child tax credit helped end child poverty. I did some searching around, and it seems that about 5 million people aged 65+ are in poverty. It wouldn’t be too expensive to provide a little more of a safety net. I would hope that would get bipartisan support from lawmakers; if they are against helping old, poor people, they shouldn’t be elected.

As for the overall United States retirement system, I’m not sure it’s so bad. I grew up knowing that pensions wouldn’t be around and that I had to save in retirement vehicles. However, I’m 46, so people in my generation haven’t gotten to retirement age yet. It looks like 401k were getting popular in the late 1980s and Roth IRAs in the late 1990s. The people retiring today entered the workforce in the late 1970s, so they likely missed the first 10, 15, or 20 years of early compound interest.

I hope that the bad grade for the U.S. retirement system reflects a transition from pensions to a system based more on personal responsibility. Of course, that system of personal responsibility is… not great. Some more quick internet searching shows that only about 40% of people have access to a 401k plan. I don’t know if that counts 403b and TSP plans, which are similar for specific professions. At least everyone earning under $129,000 has access to a Roth IRA. Those are the people who need it.

I’m not sure if we should scrap the current retirement system. I think if we ensure that we eliminate elderly poverty and help educate people that retirement is something they need to plan for, we should shoot up the charts.

* That $2 million generally comes from people wanting around $80,000 to spend per year and reverse engineering the 4% withdrawal rate rule of thumb. (The math is 80,000 divided by 0.04 for those with a calculator handy. Feel free to play around with numbers that may be more accurate for you.)

Filed Under: Retirement

What Does an Annual $300,000 in Retirement Income Look Like?

June 9, 2022 by Lazy Man 6 Comments

Can My Wife Retire?

Eight years ago, I wrote What Does an Annual $200,000 in Retirement Income Look Like which projected out retirement income. The following year, I updated it with What Does an Annual $200,000 in Retirement Income Look Like (2015 Version).

The idea was to update it every year. Then I got busy fighting lawsuits from pyramid scams and raising a one-year-old and a two-year-old. Fortunately, they can take care of themselves much better now. I can finally update what our retirement income looks like.

As we get closer to retirement, we get closer to understanding what our retirement income will be. I compare it to playing a game of golf. It’s very, very hard to hit a hole-in-one, but with several (or more) strokes, a good golfer can put the ball in the hole. If we were looking at a future $200,000 in annual income back then, what does it look like now – 7 years later?

Let’s get started.

What Does an Annual $250,000 in Retirement Income Look Like?

I find it is extremely important to take some time and review what your income is going to look like in future years. Many people simply try to build a big nest egg and then draw it down in retirement relying on the 4% rule. An overly short version of the 4% rule roughly says that you can withdraw 4% a year and live on that for 30 years or more. So if you had a million dollars, you can withdraw $40,000 a year.

From the very beginning of this website, it’s been about finding and creating alternative income streams. When I knew my wife was “the one”, I realized that she’s be able to retire with 20 years of military service… and I didn’t want to work another 20+ years after that until age 65. Nowadays, the media loves to talk about FIRE (Financial Independence, Retire Early), but there were very few bloggers motivated to write about it in 2006.

I have two tools that I use to evaluate our future retirement. One is a spreadsheet. I’ve always been a spreadsheet guy. The other is New Retirement, which has a tremendous retirement tool. New Retirement is great at visually showing me when income comes into play. Not to get too far ahead of myself, but mortgages get paid off and Social Security kicks in at different times. It also helps me model my wife’s future retirement and pension income. The year-by-year analysis is something that I haven’t seen from many other retirement planners.

How Our 250,000 Income is Built?

Wife’s Military Pension

With 23 years of service, she qualifies for a pension of 52.5% of her O-5 base pay. When I did this report in 2015, I was almost certain she’d get to O-6. We recently got the news that she missed out on O-6 once again in 2022. They’ve moved the goal posts on promotions for years. We’ve moved twice with promises of promotion-worthy career paths, just to have the rug pulled out from under us. This last year she got the promotion-worthy position and it stayed there… but it happened in February, missing the annual cut-off. We’ll have to wait another 12 months to see if it will help.

In any event, we’ll use the numbers we have. Using this year’s pay charts, 52.5% of her O-5 pension is $5,451 a month or $65,420 a year. We’ll likely pay some pension insurance (so that I get income if she dies) which means the take-home income will likely be less. I don’t want to get into expenses too much in this income report, but we’ll pay for TriCare for Life for health insurance out of this. It is very cheap, but has very good coverage and solves one of the biggest problems with retiring early.

Her pension is indexed for inflation. So I like to think of it as nearly $65,000 of buying power for life. For this report let’s estimate it as $55,000 due to the pension insurance and health care costs.

If the promotion to O-6 happens, the pension could be $80,000. While that would be nice, I’ll have to take the conservative number:

Military Pension: $55,000
Total: $55,000

Rental Income

Our real estate “empire” is doing well. That link will catch you up on our three rental properties.

This is in transition because we’re trying to sell one property. I need to emphasize “trying” because our tenant has overstayed her lease and refuses to leave. We had already sold it, but it seems like the deal may collapse because the courts won’t likely evict her before the buyers move on.

For this report now, I’ll use the assumptions before we decided to sell it. Rent has gone up a lot, but we still don’t charge our tenants much. I think we’ll get close to $4,000 a month in rent or %48,000 a year. However we have condo fees and condo maintenance, so let’s estimate this as $35,000. If we only have two condos we’ll have less coming in from rent and instead, we’ll have more from investing the money we make from the sale. It might not turn out to be a wash, but it will be fun to see how it works out.

This rental property income doesn’t kick in until 2027 when the mortgages are paid off.

Military Pension: $55,000
Rental Properties: $35,000
——————————————–
Total: $90,000

Websites, Dog Sitting, Freelance Customer Support

When I did my first retirement report like this in 2014, I wrote the following:

With all that said, I’m going to estimate retirement income from websites to $25,000. It’s a complete crap shoot, as Lazy Man and Money may not exist in 20 years. Or maybe it is a huge income earner. Even without Lazy Man and Money, I could apply my software engineering skills and create websites for small businesses and/or consult on the side. There are a lot of options in retirement, but I’m counting on the fact that I’m going to be doing something that earns an income and I think it will be a decent one. I like to think this is a conservative number, again it is a crap shoot.

Nowadays, it’s very popular in the FIRE community to talk about having a second act in retirement. It seems that many people keep doing some kind of work that will make money.

I write this website and run a booming dog sitting business. Together they average about $35K a year. I’ve put more of my time into freelancing and the traditional household chores that come with raising two growing boys. (My wife’s work/rat race for promotion consumes a lot of her time.) That freelancing is projected to earn around $24,000 a year, but it can’t be counted on forever.

I don’t know if I’ll be able to count on $50K a year from all these in the future. It’s hard to dog sit if we are traveling. Also, the income from the website is going down a little each year, especially as I devote time to freelance gigs.

With all these moving pieces, I’ll go with a long-term average of $40,000. I might make twice that this year, but I have to be conservative. I have to presume that I’ll want to do less in the future. I’m hoping this keeps pace with inflation. I’ve been able to charge a lot more for dog sitting this year.

Military Pension: $55,000
Rental Properties: $35,000
Websites and Dog Sitting: $40,000
——————————————–
Total: $130,000

Retirement Investments

Up until now, I’ve covered income streams that most people don’t have. I suppose there’s a good chance that some of you are real estate investors, but few of you have military pensions or websites. The typical path to early retirement is about having a big nest egg and spending it down at a rate of around 4% a year.

I don’t follow that typical path. I’d rather have businesses and income streams. However, there’s no reason why we can’t do both, so we’ve built a big nest egg too.

Thanks to the bull market of the last decade (and continuing contributions) our investments have done exceptionally well. We have Roth IRAs, SEP-IRAs, and TSPs (a government 401K) accounts. If we started to take 4% now, we could withdraw $50,000 a year. That may theoretically only last for 30 years until we’re age 75.

It’s hard to say what this nest egg is worth in retirement because we have no specific age where we say, “We are retired!” Even when my wife retires from the military, she is considering entering the private sector after a year off. There are many ways to slice and dice this kind of income. I’ll give you all my thoughts and you can decide for yourself what seems most accurate. (I’d love it if you’d let me know your thoughts in the comments.)

The age that everyone attaches to retirement is 65, so let’s run the numbers with that in mind. That gives us 20 years to grow this retirement nest egg before we start to withdraw from it. I presume a 4% growth over inflation. I’m using inflation to keep the numbers in today’s dollars. That might be difficult because inflation is so high right now.

The net result of another 20 years of growth yields $105,000 in annual income. This is why financial experts suggest that you invest in your retirement accounts early. Years of compounding do make the numbers look crazy. That number has been as high as $120,000, but the markets have slumped a bit this year.

So this number could be considered somewhere between $50,000 and $105,000 depending on when we start to withdraw from it. Since it is a retirement account, we can’t withdraw from it now.

Note: It is important to mention that there’s a huge difference in taxes in Roth IRAs and 401Ks. One-third of our retirement money is tax-free (Roth IRAs) and two-thirds are tax-deferred (401Ks and equivalent). When the time comes for my wife to retire, maybe we’ll move some money to the Roth IRAs. We’ll be in a lower tax bracket then which will make it easier.

Military Pension: $55,000
Rental Properties: $35,000
Websites and Dog Sitting: $40,000
Retirement Investments: $55,000 or $120,000
—————————————————-
Total: $185,000 (now) or $250,000 (age 65)

Non-Retirement Investments

For years we’ve been focused on maxing out our retirement options. After paying for expenses (including primary residence and the rental properties at 15-year mortgages) and those retirement accounts, there wasn’t a lot of money to save in regular after-tax brokerage accounts.

I have a small Vanguard brokerage account and my wife has a bank account where she’s been saving up cash. We’ve been keeping them separate since they were earned from our businesses, but I think it makes sense to merge them and use them as a bridge until the rental property mortgages are paid off or we can draw down from retirement accounts and Social Security.

Combined it’s about $100,000. I’m hopeful we can invest it conservatively at 6% for an extra $5,000 a year. Here’s one plan to do that.

We also have partial ownership of a small business that pays a monthly profit sharing check of $1,000. That $12,000 a year, plus the $5,000 a year we can make from merging our accounts is $17,000 in passive income.

When we sell the rental property that I discussed above, we’ll add around $250,000 to this. That would be a total of $350,000, giving us about $17,500 a year that we could add to the profit-sharing for a $30,000 total. However, we’re not there yet and I don’t want to double count this with the rental income from the same property. We’ll stick with $17,000 until next year.

Military Pension: $55,000
Rental Properties: $35,000
Websites and Dog Sitting: $40,000
Retirement Investments: $55,000 or $120,000
Non-Retirement Investments: $17,000
————————————————————–
Total: $202,000 (now) or $267,000 (age 65)

Social Security

Social Security benefits vary greatly by when you choose to take them. I change my mind all the time on when is the best time to take them.

The standard advice is to defer it as long as possible. That’s probably great advice for most people, but not for everyone. In the past, I tackled the question: Take Social Security Early or Late? What I learned was that if you take your Social Security benefits early and invest them (assuming an 8% return), you’ll do the same as you would if you delayed taking them. The benefit of taking the money as soon as possible is that if you die at age 68, your estate has at least been getting 6 years of payments. If you wait and die at age 68, our estate would only get one year of payments.

On the other hand, it may make sense to wait until 70 anyway. It doesn’t look like we’ll need the money. I like the idea of “betting on myself” that I’ll be healthier and medicine will be a good deal better then. Also, statistically, wealthy people live longer.

Our projected retirement age is 67. The Social Security website has some great calculators and it looks like my benefit will be $24,408 and my wife’s will be $36,252.

Combined that’s about $60,000. Social Security does adjust for inflation, so this is a real $60,000 in dollars at the start of the year (it might be 7% higher now).

Social Security is looking like it will run out of money when we turn 58, so we’ll probably get some amount less than this. We might be still increasing our benefit, so I’ll guess that they’ll balance each other out. It’s far enough in the future that we can just stick with the $60,000 number for now.

The final results look like:

SourceIncomeTotal
Military Pension$55,000$55,000
Rental Properties$35,000$90,000
Brian's Work$40,000$130,000
Retirement Investments$55K/$120K$185K/$250K
Non-Retirement Investments$17,000$202K/267K
Social Security$60,000$262/$327K

Conclusion

To justify the title of $300,000 I used the average of the money we have now and at age “65-ish.” (I’m calling it age “65-ish” because I did the calculations on our retirement accounts for age 65, but Social Security is age 67 for us. The difference isn’t enough to matter.)

I realize that the $300,000 number is intimidating. I hope you don’t compare your situation. A significant chunk comes from the military pension and that was never part of my master plan. The rental properties look good now, but they looked really poor in the crash of 2009. I included money from dog boarding that I may limit in the future. While we never know what the future brings, this isn’t that far off of where we thought we’d be in 2015.

I hope you’ll take the time to run the numbers for yourself. The exercise is to plan and think about where the future is going financially. Please look at different ways to create income and how they can all play a part in ensuring a solid retirement plan. Then leave me a comment about what you learned.

Filed Under: Retirement

“The Water Feels Fine!” – This Frog

June 7, 2022 by Lazy Man 2 Comments

Happy Summer!

I know it isn’t officially summer, but with Memorial Day behind us, it feels like it. My kids only have 1 and a half days left of school. Actually, one kid is done with school because he tested positive for COVID this past weekend. He’s fine – enjoying the freedom. This school year went by quickly.

I was recently reading Joe from Retire by 40’s ten years of early retirement. It’s a great read. Check it out if you haven’t already, I’ll wait.

Did you read it? Well, I bet most of you didn’t. That’s okay.

In a lot of ways, I consider Joe my west coast twin. We both had engineering jobs, got burnt out, and transitioned to stay-at-home-dad status. He’s a couple of years older than me, so I like to check in with him now and then to see what I can expect coming down the pike for me.

There is one big difference between Joe and me though. His family reached a certain amount of wealth and decided he could retire from his engineering job. He did just that and started a blog that makes a little income. His wife still works a government job (as mine does), but she doesn’t need to. They live a frugal life and they have enough money from saving and investing over the years.

In contrast, I was let go from my engineering job in 2007 but just continued to earn some money with my blog. I was doing well enough back then – enough to make half of my engineering salary. I occasionally took on some other jobs such as advanced tech support because they paid well. In some ways, I reached my definition of retirement. However, the longer I continued to run the blog, take tech support gigs, and add a dog boarding side hustle, I realized that I was really self-employed.

Some people say that if you put a frog into boiling water, it will immediately jump out. The same people say that if you put a frog into a pot filled with room temperature water and heat it to boiling it will stay in the pot and boil to death. I feel like Joe jumped out of the boiling pot to freedom. He could probably tell you the day he retired (or at least look it up). On the other hand, I’m boiling in the water of self-employment.

Fortunately, the water still feels fine… I think. During times of high inflation and down markets, it helps to have income coming in. It does make me think though, “Should I ever get out of the water? When would be a good time to get out of the water?” The money from this self-employment is very useful, especially since we spend about $100,000 a year between housing, other necessities, education, and a few wants. Perhaps when the mortgages are paid off and the kids are no longer it school it becomes easier to “retire.” Perhaps I’ll never retire and just keep doing the same kind of work as long as it provides value to others.

That’s today’s insight. Retirement can be boolean, either on or off, for some people. For others it can be like a volume knob with infinite gradients. There’s no right or wrong definition, is there? Let me know your thoughts in the comments.

Filed Under: Retirement

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