How to Safely Spend Savings in Retirement

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It can be complicated to determine what is a safe level of spending in retirement. There are many thoughts on this problem which can be useful but also make it complicated to figure out what is sensible.

Partially determining the safe amount to spend is a complicated problem so when we try to find simple solutions there are problems. For those in the USA the past results provide fairly reassuring starting points. Historical investment returns in the USA have been substantially better than elsewhere; this results in historically safe spending plans in the USA not necessarily safe elsewhere. It also does point out the risk that if the USA doesn’t maintain historically excellent investing returns that may make seemingly safe plans turn out to be less safe. Those are some of the complications that make retirement planning annoying.

recliners and palm trees on the beach

Photo by John Hunter in Langkawi, Malaysia. Prepare so you can retire to a relaxing life on the beach.

There are easy rules, like spending 4% of savings. That has worked pretty well but has potential issues with risk so people worry about using it. Also it is so simple that it isn’t surprising it has issues.

There are no super simple answers in my opinion. But ideas like 4% (or 3.5% or …) do get you at least in the right ballpark for what has worked historically in the USA with specific portfolios… The idea of adjusting spending based on results seems like a very sensible idea to me though many don’t like the complexity this ads to the plan. To me a plan to adjust spending just is a sensible way to deal with the complications that a long retirement (whether that is 20, 30, 40 or more years) brings.

No one blog post is going to provide an answer to the question of How to Safely Spend Savings in Retirement. There are some very good posts, articles and studies on the topic, here are a few:

USA Treasury Inflation Protected Securities (TIPS) do not always offer this return but today you can purchase a 30 years portfolio of TIPS that allow for a 4.6% inflation adjusted “withdrawal rate” (so above the 4% idea) – this link (from the Tips Ladder website) provides what the rater would be when you are reading this. You are limited to 30 years so if you need a longer plan this can’t be your entire portfolio but it certainly provides a good potential investment for some of your portfolio. I have been buying TIPS for the last year, as they have been providing such a favorable safe investing option.

Retirement spending calculators

Related: Using Annuities as Part of a Retirement Plan – Save Some of Each Raise

Most Valuable Companies in the USA Compared to the Total Market Capitalization

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I was curious to know how much of the total market capitalization the largest companies represented. An easy way to do this (even if it might be a tiny bit off) was to use the Vanguard Total Market fund ($VTI), so this is what I did (I also decided to look at the % in the S&P 500 also, $VOO).

Apple 6.2% of total market and 7.1% of S&P 500.

Microsoft 6.2% and 7.1%

Alphabet 3.3% and 3.9%

Amazon 3% and 3.4%

Nvidia 2.3% and 2.9%

Meta 1.6% and 1.9%

Berkshire Hathaway 1.5% and 1.8%

Tesla 1.3% and 1.6%

UnitedHealth Group 1.2% and 1.4%

In general investing in low cost index funds (like Vanguard’s index funds) is a very sensible strategy. I personally invest mostly in individual stocks. I see stocks such as Microsoft and Costco that are attractive businesses to invest in but the stocks are so costly I hesitate to invest. In addition, I already am over-invested in mega-cap companies (my largest holdings are Apple, Alphabet and Amazon, about 36% of portfolio). So avoiding other mega-caps makes some sense to me. Of course, I have missed out on large gains by Microsoft over the years by not investing in it.

One reason I decided to look at this was to get a baseline of a total market portfolio. One of the things I am considering is say buying a bit of Microsoft but still underweight that investment. Say I was 2% invested in Microsoft that would still leave me “under-invested” in Microsoft. I have been still some of Apple and Alphabet over the last few years (in pretty small amounts). I have invested those proceeds mainly in smaller, fast growing companies or good businesses that have stocks trading at good values. As I sell more of Apple and Alphabet I may consider buying some other megacaps. The one I have bought a little bit of is Berkshire Hathaway.

10 year chart of stock prices for Apple, Alphabet, Amazon and Microsoft (2013 to 2023)

10 year returns Apple (up 1.068%), Alphabet (up 424%), Amazon (up 693%) and Microsoft (up 1,090%)

FYI, the total USA market index fund (VTI) was up 187% for the same 10 year period and the S&P 500 index fund (VTI) was up 204%.

Related: The 20 Most Valuable Companies in the World (May 2017) – Stock Market Capitalization by Country from 1990 to 2010 – Stock Market Capitalization by Country from 2000 to 2016 – The 20 Most Valuable Companies in the World (October 2014)

Growing Use of Apprenticeships in the USA

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The high cost of university education continues to increase the strain of paying for the traditional university degree. Even so, the right college education for the right person pays off. But there are many people where that isn’t a great financial life decision.

Apprenticeships are a great option for many people. For one thing you don’t have to take on a huge debt burden (previous post: Personal Finance Considerations for Going into Debt for Education). Also for many careers and apprenticeship is what is needed, not a college degree.

In 2021, more than 241,000 new apprentices were entered in the USA national apprenticeship system (data from US Department of Labor, as is the rest of the data in this post). The United States Department of Defense United Services Military Apprenticeship Program is the largest Registered Apprenticeship program with over 100,000 active-duty service members.

In 2021 there were 593,600 people actively engaged in apprenticeships (Covid19 caused a decline from 2000 when there were 636,515 active apprenticeships); another 214,551 either completed or cancelled their apprenticeship.

Apprenticeships in the USA are largely held by men, they make up 86% of the total. The top occupations represented: electrician (71,812 active apprentices), carpenter (29,800), plumber (21,971), sprinkler fitter (17,595), construction craft laborer (15,009)… certified nurse assistant (4,619)…

Apprenticeship.gov is the one-stop source to connect career seekers, employers, and education partners with apprenticeship resources.

Related: In the USA More Education is Highly Correlated with More Wealth – Looking at the Value of Different College Degrees – The Time to Payback the Investment in a College Education in the USA Today is Nearly as Low as Ever – Surprisingly (2014) – Highest Paying Fields at Mid Career in USA: Engineering, Science and Math

Google Finance – Tracking a Portfolio with Mutual Funds

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Google Finance offers a simple way to track a portfolio. You can use a Google spreadsheet and have all of the features of a spreadsheet (to track % of portfolio, % gains, etc.) and also insert a bit of code to get current values of securities.

There are simple tutorials for doing this for stocks.

You need to first put the exchange (NYSE, NASDAQ, etc.) and then the symbol. So NASDAQ:AAPL for example. The complete code to use to retrieve the prices is

=GoogleFinance("nasdaq:aapl")

If you don’t know the exchange it trades on just put it in Google Finance and it will show you the code to use. Directly below the security name it will list the [exchange]: [symbol].

view of apple quote screen

You can also use this to find the code to use for mutual funds. So for example searching for Vanguard Health Care Fund Investor Shares will return

Vanguard Health Care Fund Investor Shares - image of syntax for Google Finance

So you would use

=GoogleFinance("MUTF:VGHCX")

And for the Fidelity MSCI Health Care Index

=GoogleFinance("NYSEARCA:FHLC")

The spreadsheet is an easy way to collect items held at several brokers and to do real time calculations based on current stock prices. One reason I have several brokers is that provides some security from technical failures on their part (their webs sites, applications… being down). Also different brokers can do certain things a bit better than others (pre market trading etc.).

I hope this is helpful to some people. Good luck with your investing.

Related: Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible – Retirement Portfolio Allocation for 2020 – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation – Retirement Planning: Looking at Assets

US Savings Bonds – Actually a Good Investment Option

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I will admit I have only recently looked at US Savings Bonds as an investment option. It seems to me series I savings bonds are the better option. Series I bonds are based on the inflation rate and given how strongly the Fed has been surpassing interest rates (which is likely to increase for the next few months) this offers an option to get a higher rate of interest.

Rates for EE bonds depend on the issue date and are either a fixed rate of return or a variable rate based on 90% of 6-month averages of 5-year Treasury Securities yields.
The annual interest rate for EE Bonds issued from November 1, 2019 through April 30, 2020, is 0.10%. At that rate these certainly don’t seem worth bothering with to me.

The earnings rate for series I combines two separate rates:

  • A fixed rate of return, which remains the same throughout the life of the I bond.
  • A variable semiannual inflation rate based on changes in the Consumer Price Index for all Urban Consumers (CPI-U). The Bureau of the Fiscal Service announces the rates each May and November. The semiannual inflation rate announced in May is the change between the CPI-U figures from the preceding September and March; the inflation rate announced in November is the change between the CPI-U figures from the preceding March and September.

image of series ii USA savings bond with Chief Joseph

The composite rate for I bonds issued from November 1, 2019 through April 30, 2020, is 2.22% (pretty good rate, you can see why I say they are a good option). This rate applies for the first six months you own the bond. The rate will then be recalculated using the CPI-U rate.

Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

2.22% = [0.0020 + (2 x 0.0101) + (0.0020 x 0.0101)]

This is calculated based on a fixed rate of .2% (showing how depressed interest rates are) and 1.01% inflation rate for a 6 month period (which also is low but compared to interest rates pretty high).

You may buy series I US savings bonds online via TreasuryDirect. In a calendar year, you can acquire up to $10,000 in electronic I bonds. Somewhat bizarrely the USA government decides you can purchase an additional $5,000 in the paper I bonds each year (but you cannot purchase $15,000 of the electronic I bonds).

You can redeem series I bonds after 12 months. However, if you redeem the bond before it is five years old, you lose the last three months of interest.

US savings bond interest is also exempt from state and local income taxes. This likely isn’t a big deal for most people but for a few states with high tax rates on high income tax holders this may be a nice additional benefit.

Given the very limited options to earn interest income today series I bonds are a reasonable alternative for the income portion of a person’s portfolio.

You may also use the Treasury Direct website to buy US Treasury bills, US Treasury notes and US Treasury bonds.

Related: Using Annuities as Part of a Retirement Plan – ACA Healthcare Subsidy, Why Earning $100 More Could Cost You $5,000 or More – Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible – Municipal Bonds, After Tax Return (2008) – Retirement Portfolio Allocation for 2020

IRA Distributions Impact on Modified Adjusted Gross Income (MAGI)

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Roth IRA distributions (after 59 1/2 for Roth IRAs in existence for 5 years) are tax free.

Before 59 1/2 Roth distributions of your contributions are income tax free, but if you have taken out all your contributions then you have to count them as income for tax purposes.

With the Affordable Care Act (ACA) your Modified Adjusted Gross Income (MAGI) is very important. And while Roth IRA distributions may be tax free, does that necessarily mean they are not counted toward your MAGI? It does. And so are withdrawals of your contributions.

For ACA if IRA distributions are taxable they increase your MAGI if they are not taxable they do not. This is very important for those retiring before they reach medicare age as the costs of ACA in one’s early 60s are high if you do not qualify for a subsidy. The subsidy goes away if your MAGI is over 4 times the poverty rate.

From the healthcare.gov website (Oct 2019)

“Include both taxable and non-taxable Social Security income.”

“Don’t include qualified distributions from a designated Roth account as income.”

Related: ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or More – Using Annuities as Part of a Retirement Plan – Health Insurance Considerations for Digital Nomads

Diversification for Real Estate Investors

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This is an edited version of my response to a question on the Bigger Pockets forum (a real estate investor site):

Diversification is a valuable strategy for investors. Investors focused on real estate can add safety to their portfolio by diversifying with real estate and financial assets.

Financial Assets

Diversify with stocks and bonds (though at these interest rates I prefer money market funds and a small amount of short term bond funds). Within stocks (for USA investors) some global stocks can be a sensible strategy (though there are reasonable arguments to be made for USA S&P 500 having lots of international exposure). For those outside the USA I definitely believe global diversification is important.

Other thoughts on diversification: Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation

Real Estate
It is also sensible to diversify within real estate. I am looking at buying real estate in a 2nd location, in a different sate (I am uncomfortable with how much of my assets are in real estate in 1 geographic location).

There are many good reasons to buy real estate locally – expertise in the market, ease of management…  But from a perspective of diversification buying in a 2nd location can make sense (and then a 3rd…). You can also look at things like vacation rental (v. SFH rental, apartments, cheap v. expensive rentals…), business real estate (retail, office space…).  You can use Real Estate Investment Trusts REITs (useful, for example, for those not interested or able to do business real estate directly).  There are many risks to being geographically and type concentrated.

An easy way to see the risk to consider an investor with all vacation/airbnb rentals in 1 city. That city then passed laws that restrict or kill that business?  The legal risk – local and state and federal tax law changes are real (and not just airbnb restriction law changes, that airbnb example is easy one for most people to see).  Also the economy of that location or state could be harmed and you would be harmed (even if you did really well in a downward spiraling market the market forces may overwhelm you advantages).



Diversification is a wise move to increase safety.  But how you do that is debatable and not as easy as just wishing to be wisely diversified.  Most people not on these boards would benefit from diversification by adding real estate to their investments (while many on these board probably could benefit by diversification with non-real-estate investments).

Warren Buffett on Diversification


Other comments on the board mentioned Warren Buffett’s comments on the benefits of concentration (the opposite of diversification). Warren Buffett’s argument against too much diversification basically boils down to him wanting to spend a lot of time becoming an expert on 10 companies he owns vs. buying some of 200 companies (as he doesn’t think anyone can really be an expert on 200 in addition to the problem of finding nearly that many great bargains).  His statements on diversification in this manner was essentially a response to questions about comparing him to stock pickers from managed mutual funds (where they owned 100 or 200 or more stocks and he often owned huge amounts of under 10 – he also bought out companies completely so really he has over 10 but…).

Warren Buffett also believes just buying very diversified stock market funds (unmanaged with low costs) is a very good strategy for nearly everyone (excepting himself and a few others).  Basically Warren Buffett says diversification is a good way to get average returns (if you can smartly beat the market over the long term diversification will dilute your ability to beat the market moving you to average).  But for the vast majority of investors over the long term the reduced risk that comes with diversification is wise and pays off for them.

As with most things, diversification has advantages and disadvantages but most often a well diversified investment portfolio provides the best protection against the many risks individual investments face.

Related: Using Annuities as Part of a Retirement Plan – Should I Sell or Keep My House When I Become a Nomad? – Looking at Real Estate in This Challenging Investing Climate (2015) – Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible

Free Credit Freeze

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Thanks to a new federal law in the USA, you can now get free credit freezes and year-long fraud alerts.

After delaying for many years finally the government has allowed consumers to freeze their credit via the large credit agencies. Millions of people a year have been victimized by the failure to regulate credit in the USA sensibly. The new rules are a long overdue improvement though they don’t go nearly far enough in protecting people’s private information from being collected and abused.

The new law has a long name – Economic Growth, Regulatory Relief, and Consumer Protection Act. Equifax, Experian and TransUnion have each been required to set up a webpage for requesting fraud alerts and credit freezes. The FTC frequently asked questions about credit freezes, with links to allow you to make your credit data more secure by initiating a credit freeze.

photo of the Capital building in Washington DC

photo of the US Capital in Washington DC by John Hunter.

Free credit freezes

A credit freeze restricts access to your credit file, making it harder for identity thieves to open new accounts in your name. Usually you get a PIN to use each time you want to freeze and unfreeze your account to apply for new credit.

What’s new? Currently, credit freezes may involve fees, based on state law. Now it will be free to freeze and unfreeze your credit file throughout the country.

Don’t forget to freeze credit files on your kids as the credit agencies have been collecting this information which has then been used by criminals to commit fraud.

Related: Protecting Your Privacy and Financial Security – Protect Yourself from Credit Card Fraud – Improvements to Credit Collection Requirements Have Had a Positive Impact – Truly Free Credit Report – The Continued Failure of the USA Health Care System and Our Politicians – Making Credit Cards More Secure and Useful (2014)

USA Retirement Savings Contributions Tax Credit

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The USA offers a retirement savings contributions credit for those earning $63,000 or less in 2018 (in 2017 the maximum earning were $62,000). The retirement savings tax credit is not as widely know as it should be.

The income level is based on Adjusted Gross Income (AGI). So some deductions from your gross income are allowed; earnings would reduced for contributions to a Healthcare Savings Account or traditional IRA to calculate the AGI). It is also reduced by the deductible for the self employment (social security tax) and for investment losses (up to a maximum of $3,000). The AGI is the value on the bottom of the first page of the 1040.

The Credit can be taken for contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.

The amount of the credit is 50%, 20% or 10% of your retirement contributions up to $2,000 ($4,000 if married filing jointly). Learn more on the IRS website.

Chart of Retirement Savings Contributions Credit (2018)

From the IRS website.

Related: IRAs and 401(k)s are a Great Way to Save for Retirement – Financial Independence Retire Early (FIRE) and Location Independent Working – Save What You Can, Increase Savings as You Can Do So – Using Annuities as Part of a Retirement Plan – 401(k) Options, Seek Low Expenses

ACA Healthcare Subsidy – Why Earning $100 More Could Cost You $5,000 or More

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The USA healthcare system is a mess. This mess has been created by those we have elected for decades. It isn’t a short term problem, simple problem or small problem. Healthcare costs are a huge burden on the USA economy and the financial costs and extreme burdens (worry, fighting with insurance companies, forgoing needed healthcare…) are huge burdens on all those stuck with the system that is in place.

Update 2021: in 2021 the Biden administration updated the law so that this extreme drop-off no longer occurs. Now it is a much more sensible gradual reduction in the subsidy as you earn more money. The previous subsidy rules, discussed in this post, may return in 2023 (the current changes to the more sensible subsidy amounts only cover 2021 and 2022).

One of the benefits of the Affordable Healthcare Act (ACA) is that health insurance costs are subsidized for those earning less than 400% of poverty level income. The way that this has been designed you could get $5,000 (or more, or less) in subsidies if you earn just below the 400% level and $0 if you earn just above. Most such income limits are phased in so that there is nothing like the huge faced by those earning just a few more dollars.

If you are close to the 400% poverty level income and are paying for an ACA healthcare plan (self employed, retired, entrepreneur…) then it is wise to pay close attention to what your reported income will be.

Here are several examples, using the Kasier Family Foundations’s subsidy tool:

  • 60 year old in Virginia earning $48,200 would receive $7,073 in subsidies (60% of the cost*). Earning $48,300 would mean receiving $0 in subsidies (for this and also examples, the examples shown are for a single individual, you can use the tool to try different scenarios).
  • 60 year old in Virginia earning $38,000 would receive $8,029 in subsidies (69% of the cost).
  • 34 year old in Virginia earning $48,200 would receive $608 in subsidies (12% of the cost).
  • 50 year old in California earning $48,200 would receive $4,255 in subsidies (48% of the cost).
  • 34 year old in North Carolina earning $48,200 would receive $1,636 in subsidies (26% of the cost).
  • 64 year old in Virginia earning $48,200 would receive $8,283 in subsidies (64% of the cost*).
  • Family of 4 (ages 46, 42, 12 and 10) earning $40,000 in Colorado would receive $13,799 in subsidies. I do not believe the subsidy calculator (in the link) is properly calculating the income limits for families. It is showing the same limits for single people when I try it now. I believe for a family of 4 the income level that no longer qualifies for subsidy would be $98,400 (400% of poverty level – the poverty level would be $24,600 according to that link). But I may be wrong about this?

* The subsidy is calculated using the average silver plan costs (this results in a $ subsidy amount for you – based on your income and the silver plan costs in your area). But you can select whatever plan you want. So if you selected a bronze plan it could be your subsidy percentage is higher, or you could select a gold plan and your subsidy percentage would be lower. The subsidy values will differ in the state depending on what health plans are available specifically in your location.

As you can see the subsidy is based on the hardship the health care premiums would place on the individual. If you have a fairly low cost plan and earn $48,200 your subsidy will be low. Since the costs are largely based on age (smokers also face an increased cost) this means that the subsidy increases a great deal as the costs skyrocket for those aged 50 to 64 (at 65 you can qualify for medicare and escape the huge costs of health insurance at that age.

I think many people would be surprised at how high your income can be and yet you still qualify for a subsidy, especially if you are a family.

The subsidy levels for those with very high health insurance costs (especially those over 50 years old, or with a family) are very large. If you are close to the subsidy cutoff level the costs of going over can be huge, costing you $5,000 or even over $10,000 just by making an extra $100.

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