What I Spend

Where are you and where are you going?
classical_Liberal
Posts: 2149
Joined: Sun Mar 20, 2016 6:05 am

Re: What I Spend

Post by classical_Liberal »

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Last edited by classical_Liberal on Fri Feb 05, 2021 2:04 am, edited 1 time in total.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Thanks for the link to Tyler's response.

My bias is against planning on a side hustle, so ERN's article around them resonated with me. I'm not sure much constructive will come of debating it :)


Notice of my departure went out company wide today. Lots of people reaching out. I never really considered the closure aspect, but it is definitely there. Makes me feel glad to have opted for a clean break, opposed to negotiating a severance or earning unemployment.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

I finished the ERN withdrawal series and ordered McLung's book.

After updating my current asset allocation, I decided to pause the automatic investing:

Cash - 20%
Int Bond - 6%
US Bond - 19%
Int Stock - 15%
US Stock - 41%

Q1 last year, I started moving cash into a 40/60 life strategy fund, thinking of it as a 5-10 year bucket. My current holdings are a collection of these life strategy buckets, with various time horizons based on account type. There are some real problems I need to address:

1. Allocation is too conservative for the long term
2. I'm losing 10 basis points in expense ratios for the life strategy benefit, but wasting it with so many different holdings
3. Executing even basic rebalancing is difficult, because I have to transact multiple asset classes at once
4. I don't control realization of gains, effectively blocking tax loss harvesting
5. I am not reflecting non paper assets in my investment strategy - home, social security
6. I don't have a firm draw down plan and associated tax strategy
7. I don't have a firm understanding of my social security benefits
8. I am unclear what leaving my employer means for the expense ratios on my 401k
9. I don't understand the real world accounting mechanics of executing roth conversions
10. The 2020 year tax picture is especially confusing. I wouldn't be surprised to owe in the low 5 figures.

Rather than cut twice, my plan is to read McLung's book, play with spreadsheets/calculators and account for these factors in my strategy. I'll use that to inform my SWR. It is possible I favor simplicity and intentionally leave money on the table. A big market crash could rush my time table, but I'm currently not feeling eager towards any asset class.

2Birds1Stone
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Joined: Thu Nov 19, 2015 11:20 am
Location: Earth

Re: What I Spend

Post by 2Birds1Stone »

Between paying no federal taxes on LTCG and qualified dividends, I would keep total stock market index funds in taxable account, and most of your bonds in tax deferred space, though depending on your absolute budget/Roth strategy, it's very easy to pay little/no federal income tax on your investment income. State taxes are obviously going to differ wildly from state to state. Ultimately, the minutia isn't going to matter that much being in the lower marginal tax brackets. Set up your portfolio so it's simple. What you're attempting to do should not be too complicated once the plan is in place. I'll keep an eye out for good resources on the actual mechanics of the Roth conversion pipeline and living expenses. McClungs book is awesome, I owe it a reread.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Taxes are one of the biggest misses in my early estimates. I feel pretty confident I'll be under 10% now, probably much lower. I think even with today's valuations, a 3.25% SWR looks pretty conservative. Just moving from my prior estimate of 3%/15% to 3.25%/10% increases my spend by about 15%.

I think there's sound argument for 3.5%/7.5% assumptions, which would put me at 27% higher spend than 3%/15%. This is where the measuring twice comes in. I might not have to manage my budget at all.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

I spent some time with the ERN SWR toolbox. It pretty clearly projects a 3.5% SWR for me, after accounting for my current social security estimate. The current CAPE rule of 1.75/0.5 is giving 3.22%, so adding my rough estimate of 25 basis points for SS also gets to about 3.5%.


I tried to find an optimal roth conversion strategy. This is not a simple thing to do. Complicators:

1. The tax structure for SS - It can be 0, 0.5 or 0.85 of benefit subject to taxation, depending on other earnings
2. ACA subsidies as a negative tax. More complex because the % increase with income is not marginal, and the cost sharing is also stepped,
3. Required minimum distributions at age 72. Complicated by risk of moving from the joint to single tax brackets. Also run away portfolios.

Push the bubble down in one area, it expands in another. Conversions up to 2x poverty seem like a no-brainer. I am leaning towards going up to 2.5x poverty, at least in years where I don't need significant medical care. I may want to try some sort of barbell conversion strategy, where I pick up most of it during a market drop, then fill up the remainder of my bucket at end of year.

One thing my analysis really highlights, is how terrible life strategy funds are, when you want to make strategic tax decisions. The ability to predict income and shield it in tax advantaged accounts is essential. I was previously put off by the higher expense ratios, so this is an important problem. I need to resolve it in 2021. Maybe we'll get another crash sometime this year, so I can unwind things without eating it on the capital gains.


I want to spend some time with the MMM case study spreadsheet. That's probably next.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

The MMM case study spreadsheet is very helpful. I've got a solid income target now, along with a method for calculating / recalculating it as circumstances change. From what I can tell, my optimal plan is to:

1. Generate AGI to consume the standard deduction, using an HSA to shelter what I can
2. Let MAGI be what it is, for ACA purposes. Eat the subsidy losses, considering them an ~15% marginal income tax
3. In the event I know a sick year is coming, drop MAGI to below 2x poverty, to gain cost sharing
4. Take a bronze plan for healthy years, pay the silver premium for sick years

It doesn't seem like the cost sharing trues up at year end. So this leaves me exposed to a full ACA max out of pocket, in the event of an unexpected health problem. However, I think the tax benefits, coupled with the potential premium savings, offsets this risk. Most likely, I can get enough money moved into the Roth to avoid a 72t during my 50's.


I ruled out a more "clever" plan:

1. Estimate income below 2x poverty level, to gain cost sharing
2. Lock into the higher premiums of a silver plan
3. Generate income up to the standard deduction at year end, if not sick
4. In that case, take the subsidy claw back hit.

That seems like it preserves the cost sharing option, at the cost of committing to a silver premium. The benefit doesn't seem worth the price. It also seems a little too clever, like it might be fraud.


All of this makes the assumption marginal income taxes around 15% are a good deal, as cheap as I can expect later in life. Once things start pushing into a 25% marginal rate (ie 15% aca subsidy loss + 10% federal bracket), producing greater income doesn't seem worthwhile. The odds I pay that % or more on marginal income, past Medicare age, seems low. Especially provided I convert enough money to keep my IRA RMD's reasonable.


The more time I spend working with the ACA subsidies and cost sharing, the better I understand objections. I find it interesting that only 2.5% of my state's population is on an exchange plan. 7.5% are uninsured. 33% are on Medicaid. About 16% are on Medicare.

For me, the premium difference between a health share and a subsidized exchange policy doesn't seem dramatic. Maybe $1000 a year? That doesn't seem worth giving up the regulated protections of the exchange. For someone closer to the 4x poverty limit, or who goes over the 4x cliff, I totally get it. Especially as you age, ACA premiums are crushing.


The low percentage of people on exchange plans definitely has me second guessing, wondering what I am missing. I think my analysis is correct. I do have good reasons I could be in the minority. But when you are not part of the in group, you always have to wonder what you are missing.

I have learned that many hospitals offer financial assistance programs to the moderate income uninsured, without significant assets. The asset test rules that option out for us. Relying on private programs also seems too unreliable.

classical_Liberal
Posts: 2149
Joined: Sun Mar 20, 2016 6:05 am

Re: What I Spend

Post by classical_Liberal »

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Last edited by classical_Liberal on Fri Feb 05, 2021 2:02 am, edited 1 time in total.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Your criticisms are on point. The ACA plan I'll end up with carries many limitations. The system is very broken. I started to rant about all the ways, but decided it's not worth rehashing again. I'll be watching legislation over the next two years closely. It is likely to impact my plan.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

8 days of work left. I am checked out on life, waiting for everything to change. Attempts at productivity feel pointless. Insurance decisions are time driven, so it's too soon for them. I cannot find the focus to read or think about financial planning. With all my patterns getting reset, motivation to exercise, clean or eat well is at zero.

To some extent, I am sure this reflects the impending job loss and annoyance over my soon to be former employer's trajectory. Each day, when I log on, work refreshes my frustration. Once the reminders stop, I expect it to fade quickly.


I have been listening to Irrational Exuberance. Since I am planning a withdrawal strategy that anchors on CAPE, I figured it is worth understanding where the metric comes from. As an audio book, at 2x speed, it is barely tolerable. The painstaking detail he uses to comb through each bubble is rough. I am waiting for an answer to - "how can I navigate on obvious bubble?". So far though, nine hours in, no luck.


Since I have great benefits for another month, I have been looking for ways to use them. I casually explored the idea of therapy, targeted at my probable autism. Not that I am unhappy with it, but hey, free leveling. Resources in this area appear surprisingly limited, with a lot of negative outcomes. I decided to let the idea go. My time frame is too short for a hard search problem. I don't see myself paying out of pocket.

Were I unhappy with who I am, or struggling to find coping strategies for my social situations, perhaps I'd feel differently. I also couldn't find any benefits to getting an official diagnosis. From what I've read, my perspective isn't too unusual within the autistic community. Perhaps I'll take a deeper dive on applicable therapy strategies, once I have more time.

Frita
Posts: 629
Joined: Thu Mar 15, 2018 8:43 pm

Re: What I Spend

Post by Frita »

Being in limbo is a slog regardless of when it hits. Hang in there, you’ll be done soon! (This May be practice for some upcoming limbo. ;) )

If I were to consider therapy for suspected Autism, I’d seek out a skilled occupational therapist. Much more holistic than any counselor with a more functional approach...

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

January 2021 Total (Couple) - $1516
Groceries - $822.76
Home Maintenance - $260.00
Utilities - $186.54
Healthcare/Medical - $151.00
Clothing/Shoes - $57
Automotive - $25.65
Insurance - $8.87
Entertainment - $4.18

January spend was lower than last month's estimate of $2k. I am pre-occupied with finishing work and didn't have attention for shopping. I also signed up for premium benefits during open enrollment, so medical costs are lower than normal. That will continue through February, followed by a big spike when employer insurance ends in March.

I will guess $2000 for February expenses. We are entering the short month with high food inventory. I expect transition costs, but my reaction to quitting might dampen them.

Our income taxes for 2020 will be unusual. I'll probably start next month, but wait as long as possible to file. I think there is significant chance of impactful legislation.


Five work days left. The extra month of benefits for February is helpful, but I am so ready to be done. I've been absolutely buried in media. I just finished a 100 hour play through on Dragon Quest XI. I've been gripped to the GME saga. I burned through a couple audio books. I have been constantly refreshing the internet, etc.

When it finally came time to do some absolutely mind numbing work yesterday, I ended up using a little whiskey as a crutch. Lots of maladaptive eating as well. The time to be done is here.

I am trying to unwind these behaviors now. I let our Disney plus sub lapse. I am not starting a new game. The most recent grocery order was largely real foods. Etc. I am hopeful to be back at my FMLA levels of tranquility by end of February.


Rolling 12 Month Spend (Couple) - $37,476
Groceries is over $10k...

McTrex
Posts: 167
Joined: Fri Jul 23, 2010 9:35 am
Location: NL

Re: What I Spend

Post by McTrex »

Good luck! I recognize a lot of your frustrations and concerns, so I'm very interested to see how you will feel after being retired for some time.

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Thanks for the well wishes.


Work changed a policy today that introduced two use it or lose days off. So, I'm using one of this week. I couldn't fit the other one in without screwing people, but I was tempted. This feels like a small victory to me. 20% less working time remaining, at no cost!

I find myself alternating between two thought patterns now:


1. Noticing things I lose, because I will no longer be part of the upper middle class. Not that I generally enjoyed these things, but I liked the option.

- My wife and I were talking about the various expensive work financed trips. Resorts, meals, travel, etc.
- Casual attention to a Tesla article now ends with "I'll never afford that" instead of "maybe one day?"
- Reading Whiskey Advocate, an interesting $100 bottle of Scotch seems like a big commitment. In the past I'd pick up a couple a year, without much thought. In the back of my head, the expensive bottles ($500+) were "I could afford this if I wanted", now they seem out of reach.
- My status at work is already waning. Now I'm just a middle aged guy in his basement, who needs a haircut and some pants.


2. Being really excited for things I'll have time for that currently feel out of reach

- I like dry hard cider. I think I could make some.
- I want to try micro dosing cannabis. Now I'll have time to mess with it.
- There is so much I want to learn about managing my money.
- It was nice having a clean house on FMLA, I want that back
- My wife and I were talking about upgrading her plants area. There's time for it soon.
- Taking 90+ minutes to cook and eat real food for lunch


Obviously the things I am excited for are way better than the things I am losing. I know from experience the status stuff isn't better, just different. A fancy car doesn't get you there faster, and I don't even have anywhere to go. The experiences that require time - they develop skills, they give me new perspectives, they break my comfort zone in new ways. Repeating old patterns is bad for the brain, doing these novel things is a clear win.


Still - I don't enjoy feeling the sense of loss. I'm hopeful that part fades quickly once work stops.

classical_Liberal
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Joined: Sun Mar 20, 2016 6:05 am

Re: What I Spend

Post by classical_Liberal »

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Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Done!

I slept terribly the night before my exit interview and was pretty honest during. It was surprisingly therapeutic. I'm not much for goodbyes, so with everyone virtual, today has been anti-climatic.

It will be interesting to see how long decompression takes.

mooretrees
Posts: 430
Joined: Sun Jan 27, 2019 1:21 pm

Re: What I Spend

Post by mooretrees »

Congrats!!! I've been following along silently, but excited to see what's ahead for you.

Western Red Cedar
Posts: 217
Joined: Tue Sep 01, 2020 2:15 pm

Re: What I Spend

Post by Western Red Cedar »

@Scott 2 - Congratulations!!! I've been following along for the last few months. I really appreciate all of your recent thoughts and posts on accessing accounts and managing the health care issue. Figuring out health care/insurance is daunting and the biggest unknown variable when I decide to leave the traditional working world.

2Birds1Stone
Posts: 1254
Joined: Thu Nov 19, 2015 11:20 am
Location: Earth

Re: What I Spend

Post by 2Birds1Stone »

Congratulations!

Scott 2
Posts: 1754
Joined: Sun Feb 12, 2012 10:34 pm

Re: What I Spend

Post by Scott 2 »

Thanks everyone.

@Western Red Cedar - I agree, healthcare is one of the scariest aspects.


One interesting part of my departure, is that coworkers knew I was heading into a retirement. My manager asked to include it in the company notification, since it's an easy reason. Many were congratulatory, several threw the term FIRE around and have their own plans. Statements like:

- "it's good to see someone I know do it"
- "my wife and I are revisiting our plan because of you"
- "5 more years for us" followed by discussion of their strategy

Ages range from mid-30's to mid-40's. Not ERE, but the FIRE idea has decent traction among tech workers.

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