Vent your Spleen

The question arose what about disinterested spouses and the DIY portfolio. Here is a quick 15 years of projected retirement starting at age 70, married and single

The assumptions are a WR inflation adjusted to 120K/yr. A TIRA of 600K with a return of 4%. A married net SS income of 44K/yr or a single SS income of 35K/yr. Residence in FL. The taxes are for married filing jointly or single. I did not include cap gains on the portfolio since that is not easily predictable but absolutely needs to be considered. This portfolio is for WR only. It is the portion of a greater net worth that provides yearly income. It consists of SS income as described both non taxed gross inflation adjusted and inflation adjusted taxable, it includes the projected TIRA annuity payout, It includes the amount needed to be taken from a portfolio like a post tax portfolio which makes up the difference between need and the annuities of TIRA and SS. I only did the taxes for the first 5 years so a trend can be established, You can use the chart to compare circumstances. For example, you can easily see how a single gets hosed in taxes. You can easily see how a single needs to stress the portfolio more since the SS is less and the taxes are more. For example at age 75 for the same total 132490 WR, a married has 48580 of SS money available and need only tap the portfolio for 57600. A married pays only 4539 in taxes. A 75 yo single would make only 38643 in SS and need to tap the portfolio for 67537 and the single’s tax bill would be 5962. So you have to pull another 12K out of savings to live the same 132K lifestyle as a single as your married counterpart. If your non TIRA nest egg is 1,500,000, the single is pulling out 4.9% from the nest egg when you count taxes, while the married is pulling out only 4.1%.

This is the kind of granularity you need to survive in retirement and it’s only a part of the story. You also have to worry about health care inflation. It works a bit opposite for health care. If there are 2 of you twice as much medicare payment will be extracted monthly from your SS and twice as much supplemental insurance cost. With this kind of personalized chart you can ask and answer questions like what happens to the old lady’s income when the old man dies at 75? What happens when RMD forces us into a new tax bracket? How does going from married to single affect the tax bracket? What happens if we get a cap gains bill after the tax loss harvest runs out? If there are 2 of you different income cliffs exist where if you make too much money they charge you double or triple for Medicare. There are all kinds of progressive soak the rich fees built into retirement by the government which are hidden from simple minded formulaic predictions. It gets even more complicated tax wise if you happen to have made a post tax contribution to a IRA or SEP and you better have the supporting docs so you can make the calculation. I get about a 6% tax break each year because I saved the paper work. 6% compounded over a couple decades ain’t chicken feed. I’m doing a dance with how we take SS. My wife is younger and as of this year I am filing her as retired. She will take SS at her age 62 for 80% of her FRA income. I will take spousal. So for example if her FRA is 1000/mo her SS will be 800 at 62 and I get 50% of that or 400 for a net 1200/mo payment. My SS will continue to grow till 70 @ 8%/yr. At age 70 she will continue and I will take about 43K/yr for a net 52,600 in SS between us of which only 44710 is taxable. If I RMD 25K/yr at age 70 my portfolio need is only 42,400. I will get a 6% tax break on my 25K RMD and a 15% tax break on our SS plus I will pocket several years of 1200/mo from my wife taking early plus my spousal. At my death she will claim survivor which will pay her about 3500/mo or more depending on inflation. In the end this scheme will generate 150K extra money if I live a normal life span because of the SS growth and it’s subsequent easing on my portfolio need. 150K free money pays for an extra year of retirement by the time you work through the doe see doe. More SS = less from the portfolio = safer WR and better immunity from SOR. This should result in a larger portfolio at the time of my death which translates into safer WR and better SOR immunity for my wife as well.

If you listen to the shuckers who claim “easy math” or reading those same damn 10 bullet points month after month you get what you pay for. I don’t seem how you do this kind of analysis using 4th grade fractions. Also you can now see the utility of doing a low risk high risk portfolio in the WR aspect of your money. In my portfolio I have WR money and disaster money and I consider them separately in my NW. WR money comes from an open portfolio made from SS, TIRA and post tax brokerage and disaster money is closed in a Roth. The open portfolio is liable to SOR the closed is not since nothing is being extracted from it. It is in this kind of SOR sensitive open portfolio that 2 tiers of risk should shine. More to follow.

6 Replies to “Vent your Spleen”

  1. Dang it. Sometimes I wished we lived in the same country so I could use your numbers and strategies more!!!

    I have designed for much of this already but I will get more detailed once my husband and I reach our 60’s.

    Yes. Accumulation is a different animal than the distribution period of our lives.

    1. You only get to keep what the government says you can keep, that’s why legal context and the load it imposes on the portfolio is so important. The government plans to fleece you over time. Colleges plan to fleece you over time. The best business model is a need based subscription because it’s pay me now and pay me later not pay me now OR pay me later. I’m not sure why this perspective is not better addressed by the FIRE community. If you don’t understand where you are going how can you plan to get there? You don’t get to Chicago from Orlando by just going North there is far more granularity involved If you don’t understand the hostility of the environment once you get there how can you expect to survive? Running out of gas in death valley is not wise. Some things are unknowns but others are predictable and others still known unknowns. Physicians above all can easily look into the lives of a wide swath of people and wonder how they make their ends meet, not to judge them but to understand them and their situation and how it might relate to your situation. I’m sure in your analysis you have included the peculiar-es of Canada quite effectively.

  2. Small quibble:

    A $120k/yr lifestyle would be different for a married vs single. Not sure how to do the analysis but presumably to compare equivalent lifestyles the single would be spending less.

    Otherwise, love your detailed blog posts using math to shine the light.

    1. I can’t believe I got a reply from reduced Nicotinamide Adenine Dinucleotide! A premier molecule in the field of metabolism, which is one of my favorite academic interests! You are likely correct about a single being able to live a cheaper existence, but when you take into consideration the various tax cliffs and breaks a married couple gets plus the added income from 2 SS annuities and likely 2 IRA’s etc the imbalance between single and married is something to be aware of. The cost of living single is not 50% of married but greater and the SS income is considerably less and at a minimum the tax code is much more progressive and you loose 1 deduction. In addition if you are sporting 2 IRA’s, one of your own and one inherited from your husband, the RMD taxes on a single can easily kick you up 2 brackets. The math IS NOT linear but exponential. The issue in the post is to point out the divergence in income and taxes once a spouse dies. People tend to not plan for death especially married people just like they don’t plan for retirement. All of the books and blogs tend to be about the glory of accumulation and not about the mine field of deflation.

      One prime example. Sandra Day O’Conner retired from the supreme court early to take care of her husband who had Alzheimer’s. She spent the next decade plus caring for him and the expense associated. At age 65 her risk of Alzheimer’s was 1/10 and her husbands was 1/1. At age 85 she was just diagnosed with Alzheimer’s her age 85 risk was 1/3, so now she is liable to the expense associated after withstanding the expense of her husband. This is sequence of return risk projected into bare knuckle reality. If her husbands disease decimated her finances she’s screwed. An 65 yo woman has a 33% chance of living to 90 and a 1.5% chance of living to 100, so at 85 if otherwise healthy she has a good chance of living another decade. The natural history of the disease is relentless decline to death on the average in 12 years from diagnosis. So on the average she’s going to need some expensive care especially since there is no “husband” to ride herd on her care like she was able to do on her husband’s care. That is the reality of retirement I saw in my practice. It’s virtually nothing about traveling the world or gambling in Monaco or Macau. So when the big whammy hits that extra tax drag from being single is not trivial. This is an example of a “known unknown” and therefore is amenable to some degree of planning and preparation. Without knowing Sandra Day O’Conner, just by understanding the “knowns” I have some power of prediction on what likely will happen and that informs me on how to plan my future. TNX for stopping by and sopping up some hydrogen!

  3. “The hostility of the environment.” That’s profound.

    Thank you for the humdinger of a response. I’m more motivated than ever to find a way to get money moved into the Roth space. Problem is the constraints of family ties, geography and community conspire to make this environment more financially hostile than many alternatives. Math makes sense but doesn’t always sway hearts.

    1. One does as good as one can. No more is possible. The real key therefore is parsimony, to do as much as you can with as little cost as you can given the constraints while still accomplishing the goal. If you can’t move next year, maybe in 10 or 15. If the State collapses in a sea of dysentery, typhus, hantevirus, plague, pox, ebola, measles and drug abuse, the point is mute and the decision to move is made for you. I held the Anesthesia contract at my hospital for 18 years, then one day that contract was forfeit. The decision was made for me. My parents had moved here and being first born, it fell to me to be their champion so moving would have been a drag, so instead I went into competition with the hospital at a surgery center and took away 1/3 of their business, the paying 1/3 and worked another 7 years on my own terms. My Dad died but my Mama is still kicking at age 89 in her own crib, and I see her a couple times a week. Made me some damn lemonade out of the lemons on hand I did. You never know what tomorrow holds. Cali to me is a very scary place from a public health perspective and I don’t see any political will to bring things into control. There is an old story about two old farts sitting on a porch rocking and a hound dog. Every once in a while the hound dog lets out a howl. One guys looks at the other and says “why is that dog howling?”, the other replies, “he’s laying on a nail!” #1 says: “Well why don’t he move” #2 replies: “it don’t hurt enough yet!”

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