How to Create a Budget Spreadsheet

I down load my expenses from Mint in a CSV file and at the end of every month I cut and paste the months transactions into a spreadsheet from the CSV file. To down load the CSV look for this link at the bottom of the transaction page after everything has updated.

The CSV file looks something like this

This is a partial readout from May. Had a lot of Amazon activity this May because of supplies following my surgery

My spread sheet looks like this

It is simply month after month of the year out to Dec using the same format as the CVS file so I cant cut and paste each month’s data into its place in the spread sheet

I set it up so each year next to a month is linked to the $c$1 value which is the year. So “Spending Feb” has as it’s year as $c$1 Spending Mar has $c$1 etc. In other words wherever I want the year to show up I type =$C$1 in the cell (the = is important. The entire spreadsheet changes to whatever value I put in cell C1. By doing this I can create a new year simply by cutting and pasting

Here is spending year 2021. All I have to do is cut and paste and put the right number in C1 and the whole year changes. I have out to year 2022 created and each year has its own sheet

to populate a given month with data I cut and paste that data Here is a partial of the month from May

I just cut and paste from “date” on down to the bottom of the month. I have to do a slight data massage. Notice how most everything is a debit but there is one credit. On credits I change the sign of the value

Next I merely Autosum the column

and voila the partial sum of May 2019 spending. I can update the month as often as I like till the next month starts. It’s just cut paste change credits to a negative autosum, takes only a couple minutes to have an accurate readout of the month’s spending. I some times transfer money between accounts using command account which is my checkbook. Those transactions I simply set the transfer “value” to 0 in the data column and write the transfer amount out to the side under “notes” to track that transaction. I keep track of tax payments like this also since I consider taxes a transfer and not a monthly expense and it makes it easy to track. taxes paid for the year. My credit card gets paid off on the first of every month and results in a debit and credit of equal value being generated so I simply set credit to negative and that along with debit results in a 0 transaction but any given month I can easily spot my credit card bill and when it was paid.

A bit complicated to set up but EASY to use. I also can track yearly expenses and ask “what if” questions of the data. Since each month is accurate each year is accurate and a “whole year” is merely the sum of each month. Once I have a year’s data it’s trivial to understand how expenses are varying year to year and you can create your own personal inflation index if you like.

Here is a shot of multiple years I have created but not yet populated. I retired is 2017 so the first “year” is actually 17 mos long

I keep my spreadsheet auto-saved in the cloud so if my computer blows up my data doesn’t and I can access my data across computers on my network. Just before completing this post, my power glitched but I was auto-saved so I lost nothing. My wife pays her credit cards using command so I get a readout of her credit card expenses but I DO NOT track her specific spending. If you want to track multiple credit cards just set that up in Mint

Funny thing I thought May 2019 would stand out as an expensive month and it did, but I checked May 2018 and it was nearly as expensive since my kid graduated college in May 2018 which required a lot of plane trips and motel expense and celebration. Looking over May 2018 was a nice walk down memory lane

When and How To Take The Money OUT

Of course we all know market timing is a fools game. It’s the reason we own index mutual funds. We get diversity of a type and efficiency. You don’t make a killing and neither get killed. But your life is also plan-able and you can predict expenses quite a ways into the future. I seem to be in a never ending cycle of Roth conversion optimization. My initial plan was to convert over 4 years which I am 1.5 years into. To do that I made a 600K pile of cash to live on which was designed to cover living expenses and conversion taxes. I sold in 2017 near the top of the market. after a nice run up on my time table. But the congress has decided to alter my conversion schedule with the SECURE act and extending my conversion window by an extra 2 years.

I have most of my assets at Fidelity. Fidelity allows for a nice thing, they will transfer assets from a TIRA to a Roth without first turning them into cash. Quite convenient. All I generate is a tax bill. I went through the sequence of conversion and found it best to transfer the highest risk assets first, getting the volatility out of the TIRA and into the Roth. It proved to be a wise choice since the market has done so well. I merely transferred my “so well” part out of a tax deferred vehicle into a tax free vehicle and let the growth happen tax free. I also had also paid post tax money into my IRA since I always made too much money to qualify for the pretax write down. My IRA’s therefore have a component of pretax and a post tax basis. I kept track of the 8606 (actually my tax software kept track since I always used the same tax software) and my basis is 94 cents on the dollar so for every dollar I pull out I pay taxes on only 94 cents. My wife also had post tax money in her IRA’s at a much bigger %. She had to pay tax on something like 83 cents of every dollar converted. So first thing I did was Roth convert ALL of her IRA which allowed me to convert a bigger amount that the limit I set for myself and still Remain in the same tax bracket I set for my conversion. My 6 cent tax break will continue for as long as I own the TIRA. So in a year and a half I’ve managed to get about half of my Roth conversion done

The SECURE act has changed my timing since I have longer to convert I can convert smaller amounts and pay proportionally less tax. A nice windfall. In order to fund the extra 2 years I realized I needed another 2 years of living money. When to raise that money? I decided now is the time. The market has continued to run up and the rule is buy low sell high so I sold and locked in my profit. I took some money out based on my predicted need. My cash is stored in a high yield savings account paying 2.45% so it keeps up with inflation so far.

Just some examples of when to take the money out

Retirement and AA

PoF ran a recent article on asset location and tax efficiency in early retirement. Interesting article. As such he proposed the following AA in retirement:

I decided to model this portfolio on the Efficient Frontier plane

The efficient frontier plane looks at both risk and return for any given asset. You can look at this plane and see where your asset choices place you. For example owning Emerging Markets buys you a lot of risk for mediocre return compared to owning US Stocks. These are averages since 1995 so any one year EM could outperform but on the average it under performs decade after decade.

The stats

The correlations

Rank ordered Bonds provide most diversity about half as good are REITS. From a risk perspective Bonds are least risky and US stocks are next. In this portfolio you pay for your “diversity” with excessive risk, and you own way more risk than you need to own

For every 9 cents of return you pay with 12 cents of risk

The more efficient AA

Same return but under a dime of risk. The first portfolio is an AA of 80/20 the second an AA of 67/33. I find this important. owning 33% bonds is more stable than 20% and in retirement stability is more important to me than emerging markets. It means when the recession comes you drop less and recover sooner both very desirable. A portfolio isn’t open to SORR till you start withdrawing money. In time of accumulation you don’t really care because you live on a W2 income. If recession comes just work another year. In the above portfolio if the US market dropped in half (50%) you could expect the above portfolio to drop 40% If you owned the efficient portfolio a 50% drop in US would yield only a 33% drop in portfolio value. To get even in the 50% case you need to make 100%, in the 40% case you need to make 80% and in the efficient case only 66%. I can assure you 66% comes faster in recovery than 80 or 100. It means your recession is milder than the economy’s recession.

So I think AA makes a big difference. I think not owning risk makes a big difference once the portfolio is open to SORR. Like the article says optimize optimize optimize. I don’t really care what you own but you should understand the cost of owning it. A given portfolio may have made you wealthy and brought you to the retirement party but because of SOR it may not be the one to carry you into the future once you leave the retirement party. Do I hear 50/50?

Here is a 50/50 portfolio made of the top 3 diversifies from the previous example

It provides 8.5 cents of return at only 7.5% risk. At some point you may ask yourself how much return is enough a different question that how much is enough. The 80/20 paid 9.4 cents at 12 cents risk. This one pays 8.5 cents at 32% less net risk. Maybe 8.5 cents is good enough to sustain your retirement.

Financial Intermittent Fasting

I wrote a response to a blog post over on Crispy Docs site regarding disability insurance. Going out on disability is the equivalent of retiring. If you’re disabled your addition of human capital to your situation ceases. What you have is what you got.

In my working life I never budgeted. I had a vague idea of my expenses but my money mostly went into investing. I wasn’t frugal in the least but I was always parsimonious in my dealings. If I wanted a new car I bought a new car and I figured out the best deal at the time from available options.

When I retired I had no real clue about how to budget. At the point of retirement you move from accumulation to spend down. Numbers plucked from thin air are plucked from thin air and may or may not have a basis in the reality of your need. In my case I had 2 kids in college and a trip to Europe planned and I knew I would need a new air conditioner within a year. I also wanted to start retirement with a new car, so before I pulled the trigger I made sure all of those expenses were accounted for. All of that came off like clock work. I still have 1 kid in college but its completely funded and doesn’t affect my monthly expense. I also am Roth converting and needed to cover that seperately.

What I needed was a number to plan around that had some basis in reality. I could easily afford 10K/mo. If you believe FireCalc I could afford more like 14K/mo. I don’t put much stock in FireCalc but it gave me a place to start. So I chose 10K/mo and pulled the trigger. It’s like prunes is 6 enough? Is 12 too many? 10K turned out to be a good bet for a budget ceiling. To track my expenses I created a Mint account. My Mint account tracks my main credit card and my bank account. Bills get paid out of the bank some direct deposit and the credit card gets paid off each month out of the bank account. Mint allows a data export of a CVS file which I download and import to a spread sheet. The data therefore is down to “purchase specific” data. I effectively can track every cent. My wife pays her credit cards in the same way but I don’t track her purchases just her payments. I don’t care what she buys I just need some idea of how much over the course of a year.

The CVS file shows debits and credits so I take the list and anything that’s a debit is a positive. Everything that is a credit I set negative by hand. There are always some credits but debits overwhelm. I then Autosum the list and that’s how much I spend in a month. I can track partial months, and I can track averages. I can see what months are expensive months, typically when insurance or taxes come due. Once the system was devised it was all I needed. Over the course of 2 years my monthly settled down to 8500/mo on the average, with some months peaking as high as 12K no big deal. Some months are 6500 so I use the excess saved in the 6500 months to pay for the 12K months. I now know where my money goes 100% I track things like quarterly tax payments separately. My taxes are a function of my Roth conversions and can be quite variable but it’s always handy to know what’s been paid when it comes to calculating what will need to be paid.

In the first instance people retire on their number and have some notion they will tighten their belts if it hits the fan but unless you actually tighten your belt you don’t know how that feels. This system allows you to easily test what tighten your belt feels like. You simply cut back till it starts to hurt and live like that for a while. I ran that experiment with my wife’s permission. After a while we had a clear idea of subsistence spending as well. Subsistence for my lifestyle is about 7000/mo. That pays my obligations. I am thus far always below the 10K ceiling I imposed on myself so we have room to grow as necessary. Knowledge is power and this is real knowledge. It is from this real knowledge I’ve been able to project the future and build in the proper safety come rain or come shine.

Parsing Cash Flow Part 4

My analysis revealed some interesting things. In order to create the tables I needed specific RMD data

The graphs look like this

20 years of actual side by side yearly data for the 2 conditions looks like this

The side by side of the taxes was 338K vs 94K, so I paid myself about 225K across 20 years to optimize.

Here is a kicker

This is the above RMD schedule for the 2 versions according to WR. Notice how the WR increases every year forcing more to be extracted and greater taxes to be paid. You essentially loose control of the WR. The smaller account does the same thing but it’s a smaller % of the total monthly WR allowing you to actually control the WR for longer. If you planned around a 4% WR by year 5 you’re already at 4.1%. That’s how the extra taxes are generated. If you planned a 3% WR you already start at 3.5%.

You can see even to year 20 the 6% chart just starts to loose steam. You still have more money than when you started and you lived a good life off the proceeds. In the lower yield smaller IRA case you consumed 37% of the asset but still have 2/3 left. Volatility for the small TIRA is lower. All of this analysis therefore may be moot for you. If you have 1.5M to start you may just decide to let it RMD and pay the taxes. You die well off with more money than when you started at the mercy of the government RMD and progressive tax structure. What comes out will pay for you and partially for someone else, a kind of forced charitable giving. You will experience greater volatility in case #1 than case #2, but either way there is money to pass along. In case 2 the excess 1M stays in your control to be spent when and where and in an amount you like.

For many the hassle may outweigh the benefit. For me I’m getting paid to enjoy the hassle, paid by tax savings and freedom to control my income. I guess you could call this my side “frugality” gig. By setting up and following through the side gig pays me back year over year with no added work. By parsing out the future you gain a lot of insight into how to get there. You gain insight into the security you really possess because the plan is tailored to your resources. You can let go of the past and the W2 income and move into the future of passive income with confidence.

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4

Parsing Cash Flow Part 3

So far we’ve seen a tail of 2 retirements . One with a small IRA and one with a big IRA. My feeling is the government will shave as much as they think they can get away with from your retirement. My feeling is also they will tend to leave the little guy who can barely fend for himself alone. There’s a bunch of those LG’s who have saved for retirement have something that will kick out an extra 20K/yr beside SS. The 12% bracket and cap gains law pretty well defines where the govt draws the line between middle and wealthy. Stay in the 12% your OK, 22% suddenly things start adding up. so my contention is to make myself look middle and stay in the 12% for a long time. The 22%’ers will fund those with less that average retirements through wealth transfer AKA soak the rich.

Spread-sheeting your projections year by year adds information. My 20 year projected retirement is slated to cost 2,672,711 dollars. In the small IRA scenario 1,129,845 will come from brokerage money apart from IRA. My total small IRA projected tax burden is projected to be 94,000. In the large 1.5M scenario I spend the same 2,672,711, all of it is covered by higher risk, I take nothing extra from the brokerage but nearly all the extra risk goes to pay extra taxes. My 1.5M tax bill is 338,016. So I need more risk to break even. The low risk portfolio winds up with a big ROTH on the side so part of the extra brokerage money goes to pay for the creation of a big IRA which grows unmolested. and can be used tax free as needed. It’s a legit way to move money from the brokerage as well as from the TIRA into the Roth at cheap tax consequence. (92k v 338K). I still have to pay some taxes on the Roth conversion but that tax bill is also reduced because the ordinary income comes out of the TIRA in smaller less costly but more frequent hunks. In addition since small IRA is lower risk market gyration has less effect and I can sell high when I need to sell by my choice not on a government mandated schedule.

This analysis represents what is called life cycle investing, where the details of the portfolio are quantitatively chosen for best outcome according to some criteria. The risk gets parsed along with the cash flow which to me is very desirable, and the slop in the system gets identified as well and is not lost opportunity.

Part of the driving force behind SECURE seems to be to force heirs to spend down the inheritance in something like 10 years so that’s when the government will pick the apple from your heirs but it won’t matter to you or your spouse since you both will be dead.

There is a rule of thumb that says the portfolio risk (SD) should equal the amount of money you can afford to loose in income any given year. If you’re pulling 100K and you are risked at 15% SD you need to be comfortable at 85K. 15% is an all stock AA . 10% SD means you have to be comfortable living on 90K in the bad times. If you own an efficient frontier portfolio you can simply pull the SD off the frontier line and get the AA associated with that risk.

Here is a 63/37 portfolio with roughly 10% SD, so to be comfortable to the 90% income level this is a measure of my risk tolerance. It ties risk tolerance to reality and not just some testosterone driven number plucked from air.

In my scheme 40% of my income comes from SS. My next asset is the 500K TIRA which provides a steady income of 17% for a total of 57%. I want that 17% to be as reliable as SS. The most reliable AA in terms of efficiency is the tangent portfolio. By definition it provides the most return at the least risk. So I want my TIRA in the tangent portfolio.

Being in the tangent means I can stand 4% variation in income and it’s as good as you can do. This means my 2 assets provide 57% income at very small and in fact optimized risk and low taxes. It means I have to come up with 43% of my income from another source, in my case my Brokerage account. In my case first year that would amount 47,000 which can come out at 0% cap gains tax because of the tax structure I manufactured. Each succeeding year I have to extract a little more to cover inflation and keep my income constant, but I have a long period essentially 2 decades to take brokerage money out tax free. If you had a 2M Brokerage to start 47K would be a 2.35% WR. If my AA is 50/50 my inflation adjusted withdrawal Monte Carlo’s to this

9999/10000 success and small SORR.

If I gin up 3 years of bad SOR first my predicted survival

9995/10000 success with a 50/50 AA and bad SOR.

In addition If I put a 1M Roth in 50/50 AA, and take out an additional/optional 25K/yr that Monte Carlo’s to

That multiplies my starting income from 110K/yr to 135K/yr with no tax consequence at only a 50/50 AA in a standard format 2 fund portfolio and plenty of leeway for years of self protection/expansion without upsetting the tax structure. It’s a very different approach to the usual bogglehead fare of 80/20AA max out your pretax. The government is ready for you to fill their coffers with your success.

The above plan allows me to live a pretty tax free self sustaining life. My real tax load comes from SS and my TIRA. I’m at about a 50/50 overall asset level which means the SD on the portfolio is 7.6%. I can pull out brokerage money tax free for a long time and I have a Roth to supplement my yearly income tax free. My overall WR is about 2.5% relieving a good deal of SOR stress.

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4

Parsing Cash Flow Part 2

Since I have this spiffy spreadsheet I decided to create a retirement where the TIRA was left intact, allowed to grow and RMD, same SS structure, same COLA adjustments. Instead of low growth 3% I went with moderate growth 6%

Here is a recap of the 3% 500K model

Here is the 6% 1.5M TIRA model

Moderate growth means higher volatility to cash flow. A bigger TIRA means you run out of 0% cap gains protection MUCH sooner, by year 4. It means you leave the 12% bracket and quickly start filling the 22% tax bracket. At age 92 in this model you are still in the 22% bracket, barely. Virtually all of your extra growth goes to paying extra taxes. At 92 the IRA is just starting to erode it’s value so you still have plenty of money.

What did the 1M Roth conversion buy you?

This is what you would have in the Roth account if left untapped. 3M buys you a lot of protection, plus you can dole some out along the way to pay for “fun” with no tax consequence, or die leaving your kids filthy rich even in the light of bad SOR. Since the Roth aspect of the portfolio is closed some bad years don’t matter. It only starts to matter when the Roth is open. That’s actually quite a bit of protection.

I looked at the difference between low and moderate portfolio risk. I misjudged the risk in my initial 3% TIRA it was probably risked too low. If you chose the tangent portfolio asset mix as your low risk mix you would see

It means a 20/80 asset mix with least volatility.

A 60/40 mix has a lot more volatility and makes the ride bumpier more than twice as bumpy. During accumulation you can’t wait to make that return and build up that war chest. You build that war chest by buying risk. When you have more than you need is it smart to continue owning a pile of risk?

So those are the advantages of my approach. You leave some “return” on the table for a care free life. It won’t work in the case where your success is heavily levered. In that case you need the return. Living in the levered case however is optional I think with some planning. It also calls to question some of the maxims of accumulation like “risk tolerance” Some “number” you pluck out of thin air to satisfy your greed need. What’s a “good” risk tolerance under W2 accumulation may be a horrible choice in the face of spend down.

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4

Parsing Cash Flow in Retirement

I’ve written a lot on efficient Roth conversion and getting to the magic RMD age presently age 70 but hopefully soon to be 72 with the SECURE act. Bogglehead technique is to make 25x or 33x your need, leave it in a fairly high risked investment vehicle typically a IRA and dole out 3% or 4% /yr to provide income. It’s a method that will likely work, but the ride may be harrowing because of sequence risk, market timing etc. The problem with “MAX OUT YOUR PRETAX” is those accounts are tax deferred not tax free and the tax code is progressive. You eventually have to pay and how much you pay is income dependent. The Bogglehead bet is growth eventually outperform (if growth is 5% and you’re sucking 3% to live on you still have 2% in the kitty). On the average it should work.

Retirement in my universe is retirement as in age 65 collect SS, have Medicare as an insurance basis and living off the proceeds of my nest egg. Your choice of blog income or books or courses and marketing your clever expertise doesn’t interest me. My focus therefore is how to live the best passive investment life I can with good control of risk. My retirement income therefore comes from cash flow provided by several passive streams from several accounts that have different tax treatments. Rather than conflate FIRE with FI retired age 65, I’m going to discuss FI age 65.

One account is cash. I keep my cash in a high yield no frills savings account. My cash is what let’s me Roth convert efficiently. I have plenty of “money” to live on while generating my income exclusively from Roth conversion. My cash pile was generated by selling post tax brokerage stock near the market high in 2016 and mixing that with tax loss harvest obtained over the decades . My cash pile therefore was generated pretty much tax free. The entire efficiency of the Roth conversion exercise relies on having a cash pile.

A second account is my post tax brokerage. At age 50 or so I realized “MAXING OUT MY PRETAX” meant I was ceding control of my tax burden to the government. At age 70 your burden becomes fixed and it’s payment is on the government’s terms. I never qualified for the TIRA middle class funding gimmicks anyway since I made way to much money. IRA money comes out as ordinary income and is subject to the progressivity of income tax. RMD forces the issue. You will take a predefined amount of income every year and you will pay the appropriate tax on that. I started therefore aggressive saving in post tax brokerage instead which has a different tax treatment upon disbursement. It’s taxed as LTCG not ordinary income and there is no RMD forcing sale. Mixed with some tax loss harvest the money comes out tax free not unlike a Roth.

A third account is the Roth. I fund the Roth through Roth conversion of TIRA money. The Roth has specific tax treatment in that the money comes out tax free including cap gains upon disbursement. The tricky part is determining how much Roth you are going to fund and over what period. All in one conversion is most expensive from a tax perspective with smaller conversions much more efficient, so you have variables of conversion amount that sets your cost of conversion as well as number of conversions. If you have a big honkin MAX OUT YOUR PRETAX kind of TIRA you’re going to have a big honkin tax bill to pay. By fooling with payments a most efficient conversion can be obtained where the effect of progressivity of the tax code is minimized. The downside of a big number of conversions is you need cash to live on while doing the conversion and you may not like having a million bucks sitting in cash even if there is good rational to be in cash. Being in cash also limits market fears since once sold you don’t have to worry about selling into bad market conditions. Your portfolio is exposed to growth but not SORR since during that period the portfolio is closed and cash is providing income. It turns out there are bumps in conversion as there are various things in the tax code where you move from being middle class to being wealthy from a tax treatment perspective. Dodging the bumps allows you to convert more money more cheaply. An example is the medicare 3.8% surtax. If you convert to the top of the 24% bracket (341K/yr) you pay it if you stay under a 250K/yr conversion you don’t

The last of course is the TIRA itself. It turns out the government really does soak the rich. The government does not soak the middle class despite all the talking points. It’s better for the government to engineer around a standard kind of retirement where people can more or less take care of themselves with some SS and some TIRA income. The top of the 12% bracket (104K including standard deduction MFJ) ordinary income is the breaking point. Below that income and cap gains are treated with pretty low taxes plus 0% cap gains, Above 104K you go to 22% marginal and 15% cap gain.

The question then becomes what is a “middle class” retirement since that retirement is fairly advantaged. I did some research and found a TIRA of 500K – 600K is a typical retirement amount over SS. By analyzing various RMD schedules some insight developed.

This is 500K TIRA @ 6% return from the Schwab calculator. Notice how the curve grows and notice the RMD amount grows as well. There is the concept of top of the bracket where your income will kick you into the next bracket sooner. If growth is slower your position in the bracket changes only slowly since ordinary income is the combination of SS + RMD. SS is COLA adjusted and tends to grow and as you can see 6% RMD also tends to grow and the combined growth will kick you out of the bracket sooner.

This is a 500K RMD @ 3% growth. Notice the reduction in volatility and the steady slow growth. A 3% TIRA allows you to get TIRA money in a quite predictable way with low volatility and very predictable taxes and keeps you in the bracket for a long time. It also protects against SORR and even at age 99 there is money available in case you need a few thousand extra. The 3% TIRA therefore acts like a bond and provides bond like stability and bond like predictable tax consequence to your retirement income.

You have the ability therefore to clean out the TIRA into a Roth all except 500K which you leave as portfolio non correlated balance, non correlated since bonds are the likely asset choice for this asset.

Here a retirement income schedule I concocted using a SS of 44,800 inflation adjusted a 2%, plus the actual RMD of 500K @ 3% growth. Expense is the yearly expense I want inflation adjusted. WR is the amount I will need to withdraw from brokerage to make up the difference between “expense” and SS + RMD with litle consequence on the tax bill and you can see a nice gently increasing tax as well. The WR comes from my brokerage account. In addition the Roth stands alone. It’s value starts with whatever I cleaned out of the TIRA before RMD and is allowed to grow pretty much unmolested. I my case my goal is about 1M in Roth at the end of conversion in 10 years it will have about 1.8M and is available to self insure our lives in case of disaster. The spend down will go: spend down the TIRA as outlined, spend down the brokerage as outlined, don’t spend the Roth unless needed.

The risks are dispersed by tax treatment as well. The TIRA has low risk. The brokerage has what ever risk/asset mix you like and the Roth also can have its own risk and asset mix. You can work backward to understand the cost. Initial cost to me was 600K of stock converted to cash, about 200K of tax paid on the 1M conversion and the taxes displayed ongoing. If you had a 2M brokerage left after generating the cash pile and a 1.5M TIRA at 72 you would have 1M in Roth 500K in TIRA, 2M brokerage and a WR around 2.5%. Presumably at that low of a WR brokerage will continue to grow as well. Each aspect needs strategic consideration. If I just “maxed out my preretirement” my tax bill would be huge and what is left smaller. Point being what you do in accumulation matters and having enough time implement the pan matters. Spend down is very different than accumulation. Quitting too early matters, quitting too late matters. Limiting the scope of what is “retirement” and what is financial independence matters A far cry from 4×25

Parsing Income Part 1

Parsing income Part 2

Parsing income Part 3

Parsing Income Part 4

Me Cardiac Surgery and Amazon Prime

This is not so much one of my technical articles but how amazing logistics has become. My home has its baths/showers and bedrooms upstairs. My downstairs bath is a sink and a toilet. I’m still hobbling around using a walker primarily for balance and safety.

It’s not too hard to convert a usual bedroom into something workable for convalescence but it’s another matter when all the infrastructure is 14 steps toward heaven. I’m probably 2 weeks out from reclaiming that aspect of my life. My wife who is an OT did a masterful job converting our school room which is built to educate our kids into a convalescent bedroom. I have queen size bed complete with remote control raising and lowering of the back and feet. I’ve always been a side sleeper which is a no no under sternal precautions but because of the degrees of body adjustment available in this bed frame I can safely simulate 80% of the comfort side lying affords. That translates fitful sleep into sound sleep. One day before discharge this room did not exist. Her design skills pulled convalescent reality into my time and space just in the nick of time.

I’m under considerable metabolic stress. I can tell by how my brain and muscles are working. Nothing I do is effortless but being in my home allows me to optimize my efforts. For example I gained 35 lbs of edema in the hospital. I got on the table at 205 and came off at 242. 242 is like falling into a gravity well. Getting up to go pee is like having a 35 lb pack or 5 gallons of milk added to the effort. I’m on some diuretics which of course involves a lot of peeing roughly Q 2 hour day and night. It’s the cost of doing business. My warm comfortable bed allows my stress and norepinephrine levels to go down and my body therefore to release edema further relieving stress and improving my mobility. Yesterday I weighed 212. Reduction in stress = rest. it’s also a measurable component of progress. I track noreipnephrine indirectly by trending BP and HR, and 35 years of anesthesia experience. I managed to become dis-coordinated in my back because of the chair I had at the hospital, but at home I am able do what exercise I need to do to re-coordinate. When you walk in a hospital room and see someone slumped over this is what has happened to them.

My downstairs is well designed for exercise, and exercise is what is needed. Life is nothing if not about forward progress. Exercise is measurable and the response to exercise (tiredness) as measurable. I have a nice gym replete with treadmill a weight machine, free weights, weight vests, step benches. Like my bed my tread mill is stress relief central. I can get on it and walk for 15 mins twice a day and that’s beneficial. It’s not pretend exercise but real exercise, nothing like I did last month before all this went down but I’ll take what I can get. My recovery regimen includes OT PT home Nursing and the approval of my surgeon so I’m not flying blind.

The last thing is I reclaimed my diet. My diet is ketogenic and carnivore I eat no sources of glucose or fructose. My liver makes what I need for a normal blood glucose from glycerol from fat metabolism and serine and glycine. My A1C is 5.3 so clearly this way of eating is enough. The hospital carbohydrate based food changed my gut biome back to something of the standard american diet and I had a ton of diarrhea etc so reclaiming my diet has allowed my gut to revert to a kinder gentler existence.

So what’s Amazon got to do with it? You have a need and Amazon provides overnight. Some gloves Amazon, some chux Amazon. My wife wanted my room to have a hospital table Amazon. Some extra sheets, Amazon. Everything fell into my house from the Amazon sky at not inflated prices delivery assured.

The other thing you need is money. If you want what you need to properly propel your recovery and not what the government allows you’re going to have to pay for it. The night before my operation I transferred 20K out of deep storage into ready availability. I had planned for this. This will probably cost every bit of that 20K in convalescent money maybe more. Money is my advantage and along with my sweet wife running the show allows me to precisely tailor this situation. That is the real crux and something to be understood. You can have all the schemes etc you want to fund your retirement. But when it hits the fan and it will hit the fan money is real power and schemes are pipe dreams.

I promise I won’t convert this blog to my convalescent diary but useful stuff to know and think about.

Roth Conversion 2019 Style

I’ve been dutifully converting according to my pre-disclosed schedule and have just shy of 500K converted. My goal was to convert 1M by age 70 (3 years from now) and an unchanged schedule would result in 600K of Roth by the end of 2019. I already have the taxes paid on my present conversion from last year carryover and some additional money sent to the treasury.

It turns out a bill is wending its way through congress raising the RMD age to 72 from 70. This gives me the option to convert at the same schedule for 2 more years at a higher net conversion (probably around 1.2M net). OR I can convert to the same 1M by age 72, paying less taxes along the way. The tax savings on the slower conversion is not trivial about 97K over 5 years or 20K/yr not huge but not chump change either. The 5 years will be covered under the current tax law, so there will be no danger of reversion to 2018 law before it’s all said and done.

None of my arguments regarding how much to convert changes. At 72 I still want 1M in Roth and abut 600K in Pretax which I will RMD at 72. The Pretax will contain my bonds offering slow growth and steady returns, keeping me in a lower tax bracket longer. We will still do the SS doe see doe, where my wife will claim SS at 62 and I will claim spousal until I become 70 when I will claim my maxed out SS, she will continue with her SS. Upon my death she will acquire my survivor benefit maximizing our SS payout over our life times. All of it works the same except by extending the period of conversion I manipulate myself into a lower tax bracket for the next 5 years of conversion, which is how the extra 100K is generated. That’s money I will no longer pay in conversion taxes and will stay in the bank. This tweaking around the edges, but tweaking none the less should result in a free extra year of retirement thanks to this change in the tax code. I will still use small aliquots of post tax money to round out my yearly spending with a net cap gain of zero.

Thought I’d let everybody know what’s coming down the pike. Full (no side gig) retirement with the ability control these situations is the best thing that ever happened to me. It didn’t happen out of the blue or according to a MMM formula. The plan took a couple years create, understand and optimize all the moving parts, and to bring to fruition. If I was still “making money” as in some kind of W2 like income none of this would work.