How to Safely Spend Savings in Retirement

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 PlanSave Some of Each Raise

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

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 2010Stock Market Capitalization by Country from 2000 to 2016The 20 Most Valuable Companies in the World (October 2014)

USA Retirement Savings Contributions Tax Credit

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 RetirementFinancial Independence Retire Early (FIRE) and Location Independent WorkingSave What You Can, Increase Savings as You Can Do SoUsing Annuities as Part of a Retirement Plan401(k) Options, Seek Low Expenses

Cheap Internet Data Options for Travelers and Nomads in the USA

The video from the excellent CheapRVliving YouTube channel provides excellent information on getting internet coverage while you travel the USA. USA internet coverage is often very expensive, but this provides some good sources for those looking to have coverage but avoid paying the highest prices.

[The video was removed from YouTube]

Some of the suggestions from the video:

  • Verizon unlimited 3g mobile hotspot – (sure it is a slower but he streams Netflix, YouTube, Amazon Prime etc. without problems even using a Amazon Fire stick for his TV). Link is to device on ebay using his recommended seller glselectronics). Cost for the Flashed Novatel MIFI 4510L is $60 and the data is $5/month.
  • T-mobile via 4gantennashop. In the video he says he pays $18 a month (I don’t see that offer on the website but…). He says it is 5Gb plan but with BingeOn and Music Freedom (so Netflix, YouTube, etc. are not counted against your data use). He mentions that the network is congested sometimes.
  • Sprint via 4gcommunity. I have read plenty of great reviews on this and also hassles about getting signed up. You must buy a device from them (so it costs a total of $250 for the first year) and then pay annually for membership ($168 a year).
  • Another Sprint Network option using the same bandwidth (it is part of a deal struck with the government when Sprint bought Clearwire) is Calyx ($500 which gets you a hotspot also, and $400 in future years). Both Sprint options provide 4G coverage where available (in general Sprint’s network is good in very populated areas but not good elsewhere). Both are effectively unlimited as they have no cap and no speed reduction (though pushing it too far may result in issues from Sprint and if too many did so may result in issues for the entire program – essentially Sprint using abuses to get the government to rescind the agreement that provides us this affordable option).
  • AT&T via FreedomPop (he suggests buying via slickdeals). This can be as cheap as $1 for a sim card and then you can take various measures to get 1Gb free every month for each sim card. So you can buy multiple sim cards to have more coverage. This is the cheapest option but there are plenty of people that complain about having to deal with Freedom Pop. It can be a decent free option but realize you may have to spend time dealing with hassles of using this service. However using it as a backup to have a AT&T signal could be useful (I don’t think I would bother with multiple sim cards – you have to track your usage switch sims…). You can’t use your phone as a hotspot for free (you can pay to add that option).

He pays about $35 for his combination of plans using the networks of T-mobile, Verizon, AT&T, Sprint.

Related: Making Money as a Nomad in the USAVanlife in the USAWiring a Thermometer to Your Van to Turn on AC as Needed as You Sleep

Personal Finance Considerations for Going into Debt for Education

I think taking on debt for education is a sensible financial decision. But the level of the debt that is sensible must be considered.

When I went to college (too long ago) it was expensive, but not nearly as expensive as it is now (in the USA at least – I am not as familiar with the costs outside the USA other than knowing in many places that university education costs are very reasonable).

I don’t have any hard cutoff where I think taking on debt no longer makes sense. But I do think I would include cost as a major factor when deciding what college to attend if I were facing that decision today. From a personal finance perspective I would only consider my debt or the spending of my savings.

If my parents or the school or someone else want to pay for a large portion of the the costs that is wonderful. I do believe the expensive and highly rated schools provide a great education and great benefit. If I were a parent that was well off I would have no problem paying the very high costs if I could afford it (which would mean I was far ahead on reaching financial independence).

photo of building at Davidson College

Davidson College

The costs of college in the USA are so huge now that it may well be wiser to find a less expensive school in order to create the best personal financial base as a young adult.

The huge costs also mean I think it is much more important to take into account the likely financial picture after one graduates. It is much different to go into debt for a engineering or math degree than one with much lower expected salaries (Engineering Graduates Earned a Return on Their Investment In Education of 21%).

As I wrote on my other blog: In the USA More Education is Highly Correlated with More Wealth.

As I have said before the reason to chose a career is because that is the work you love, but in choosing between several possible careers it may be sensible to consider the likely economic results. And in choosing how much to spend on your education considering your future earnings is wise.

Continue reading

The Continued Failure of the USA Health Care System and Our Politicians

Providing a health care is extremely costly everywhere. Rich countries nearly universally provide a health care system that allows all citizens to get needed health care. Nowhere is it perfect and nowhere is it cheap. And nowhere is it more of a mess than in the USA.

Sadly those we elect in the USA have continued for the last few decades to keep the USA healthcare system the mess we have now. The Affordable Care Act took a relatively small step in addressing several of the most flawed aspects of the USA system. It left unaddressed many of the major flaws. Instead of taking where we are now and making improvements to address the problems left from decades of Democrat and Republican created and maintained USA health care policy all we have had are demands to “repeal Obamacare.”

This is exactly the type on avoiding improvements to maintain the existing (for the last few decades) broken healthcare system those in the USA must live with. Cutting hundreds of billions from the budget to provide health care to the elderly is not improving the health care system.

Making next to no attempts to actually improve healthcare outcomes in the USA shows how flawed the current process is. It continues the behavior of the Republicans and Democrats for the last few decades. It is sad we continue to elect people behaving so contrary to the interests of the country.

The exceedingly costly health care system in the USA is in need of a great deal of work to improve the government policy that results in the mess we have now. Some of the huge issues we face.

photo of the Capital building in Washington DC

photo of the Capital in Washington DC by John Hunter.

  • Pre-existing conditions – this has long been a huge problem with the USA healthcare system and one of 2 major things ACA dealt with well. ACA greatly improved the USA healthcare system in this area, something that Democrats and Republicans had failed to do for decades. Current attempts by the Republicans are to gut these improvements. This is a completely unacceptable area for all but the most extreme people to even be looking at. That the Republican house members approved this radical removal of health insurance coverage from tens of millions of people and the vast majority of Republican senators has not expressed outrage and such attempts to punish those who have been sick in the past is pitiful. The USA even with the ACA does a much worse job on this measure than any other rich country in the world.
  • Medical bankruptcy – due to the decades of poor leadership by the Republicans and Democrats the USA is the only rich country with this as a macro-economic factor. The ACA made small moves to improve this but much more is needed. Instead of improving the USA healthcare system to deal with this long term problem the current Republican efforts will great increase the number of medical bankruptcies in the USA if they succeed in their efforts.
  • Massive cost-tax on all economic activity due to the costs of the USA healthcare system. The USA healthcare system costs twice as much per person as other rich countries (there are few countries with costs that have costs which the USA “only” 50% or 75%… but overall it is twice as costly) with no better outcomes than other rich countries. ACA did nothing to improve this (certain aspects of the ACA did but other aspects balanced those out), the new plans are not going to do anything to improve this (in a minor way it is possible reducing medical care for the elderly could reduce costs by having people die much sooner but given the mess of the USA healthcare system for many reasons the huge reductions in Medicare and Medicaid are unlikely to actually result in cost savings that are material).
  • Tying health care to the employer – The USA is one of the few rich countries to do this. Combined with refusing or providing only inadequate coverage for those with pre-existing conditions this is a great barrier to small businesses and entrepreneurship. ACA didn’t address this directly by eliminating the pre-existing condition failure it did greatly reduce the harm this causes the USA economy and individuals in the USA. The current proposals don’t address the problem and exacerbate the issue by returning the huge problems the USA system has in dealing with pre-existing conditions (it would be slightly better than before the ACA but much worse than what we currently have with the ACA).
  • A huge burden on individuals of dealing with insurance company paperwork, fighting with the medical system and insurance companies… Neither ACA nor the current plans made any improvements in this area.
  • The USA pays much more for drugs than any other country. This is directly the result of decades of failure by Democrats and Republicans to create sensible healthcare system policies for the USA. Neither ACA or the current plans made any significant improvements in this area.
  • Of interest to the readers of this blog the current USA healthcare system doesn’t deal at all well with the reality that tens of millions of USA citizens travel and live overseas. This is a complicated issue but it has been unaddressed for decades. It is pitiful that ACA didn’t address it and the current plans don’t address it. Even things that would be able to save tens billions of dollars by allowing healthcare to be preformed overseas (at much lower costs) for say Medicare are not addressed. There are complexities in how to craft policy to save tens and hundreds of billions of dollars this way. So it isn’t something you can expect to be addressed in a year or two. But they have had well over a decade since the obvious huge savings potential has been apparent and nothing. When you are going to cut health care benefits of the elderly to save money and don’t bother using wise policy to save money without reducing the care people receive you are failing as policy makers. And we are failing by continuing to elect these people that decade after decade fail to make wise policy decisions and instead force us to suffer with a poor healthcare system.
  • Continue reading

Tiny Homes – A Great Alternative

Homes don’t have to be huge as they are now. The ever expanding USA single family home: average square footage of single-family homes in the USA: 1950 – 983; 1970 – 1,500; 1990 – 2,080; 2004 – 2,349.

Tiny houses are looking at going back even earlier than 1950, and that is a good idea. I would also like to see experiments with small houses along the lines of 1950s (or even a bit smaller). By reducing the high cost of housing we can drastically change personal finances for the non-rich in the USA (and elsewhere).

The innovative thinking by Cass Community Social Services discussed in the video in is the type of thinking we need to see more of. The Detroit non-profit is building tiny houses and making them available for rent to low income residents. The effort includes monthly personal finance and home care classes to make those tenants ready to transition to home owners (which they can do, buying the houses they start out renting).

The plan is to use the rent-to-own model. Rent is capped at 1/3 of income (and should be something around $250/month I think). The houses cost about $40,000 build and funding from the Ford Foundation has jump started this effort. The initial effort plans to build 25 tiny houses.

I think housing innovation is one of the areas with great potential to make people’s lives better by reducing the burden on people’s finances. Tiny houses are one method. Multi-generational housing communities is another. Dorm-like housing is another (I would have found this appealing after college). These apartment buildings seek to increase the social space in the building and encourage social interaction and also often have smaller units (bringing down the cost while providing benefits people desire – social options).

Related: Making the Most of 450 Square FeetAmazingly Flexible 344 Square Foot Room Can Transform Into 24 Different Rooms

Continue reading

USA Expat Tax Advice and Services

Taxes for USA expats can be complex. The USA is one of less than a handful of countries that tax citizens on worldwide earnings no matter where they live.

If you are employed by a foreign company and stationed overseas for the full year (in qualifying countries) you will pay tax on your earnings where they are earned and have the first $100,800 (in 2015) of earnings excluded from USA income tax. However earning above that level will be taxed where you earn them and by the USA. Learn about the Foreign Earned Income Exclusion on the IRS web site.

The IWantOut and USExpatTaxes SubReddit are forums to search for more information and learn from others. Taxes for Expats is one service many USA expats use and have been happy with.

image of the front of the current USA dollar

Like banking, taxes (at for USA citizens) are one of the more difficult issues of an overseas (including nomadic) lifestyle.

Related: Health Insurance Considerations for Digital NomadsFinding an International Business Bank as a Digital NomadTransfer Money Between Currencies Using New Providers Not Banks And Save

USA Proposes Rule to Welcome International Entrepreneurs

The U.S. Citizenship and Immigration Services (USCIS) is proposing a new rule, which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) so that they may start or scale their businesses in the United States.

Read the advance version of the notice of proposed rulemaking: International Entrepreneur Rule. To submit comments, follow the instructions in the notice.

“America’s economy has long benefitted from the contributions of immigrant entrepreneurs, from Main Street to Silicon Valley,” said Director León Rodríguez. “This proposed rule, when finalized, will help our economy grow by expanding immigration options for foreign entrepreneurs who meet certain criteria for creating jobs, attracting investment and generating revenue in the U.S.”

The proposed rule would allow the Department of Homeland Security (DHS) to use its existing discretionary statutory parole authority for entrepreneurs of startup entities whose stay in the United States would provide a significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation. Under this proposed rule, DHS may parole, on a case-by-case basis, eligible entrepreneurs of startup enterprises:

  • Who have a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operations;
  • Whose startup was formed in the United States within the past three years; and
  • Whose startup has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by:
    • Receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;
    • Receiving significant awards or grants (at least $100,000) from certain federal, state or local government entities; or
    • Partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity’s substantial potential for rapid growth and job creation.

Under the proposed rule, entrepreneurs may be granted an initial stay of up to two years to oversee and grow their startup entity in the United States. A subsequent request for re-parole (for up to three additional years) would be considered only if the entrepreneur and the startup entity continue to provide a significant public benefit as evidenced by substantial increases in capital investment, revenue or job creation.

As is always the case when rich countries seek to attract entrepreneurs they are seeking those that are already fairly well off and successful. And despite the difficult hurdles for entrepreneurs and business people to get working visas to the USA there are still many seeking to do so. This would be a good step, even if it leaves many people without an opportunity.

Related: The Future is Engineering (2006)Statistics on EntrepreneurshipEconomic Strength Through Technology LeadershipStart-Up Chile – An Innovative Program for Global EntrepreneursScience and Engineering in Global EconomicsFunding Entrepreneurs in Nicaragua, Ghana, Viet Nam, Togo and TanzaniaIskandar, Malaysia: Present and Future

Vanlife in the USA

I have been reading about the possibilities of living in a van (customized to be a small RV) for several months. I am getting more interested in this idea. The cost of living in the USA is so high, especially if you want to travel – which I do.

The combination of where I want to travel (National Parks, National Forest and nature largely) and the cost effectiveness for van living works out very well. You can often park for free in US National Forest and BLM land. Also the cost of campgrounds is much less than any form of lodges, motels or hotels; so even in the instances you pay for lodging the costs are greatly reduced.

Another option for free parking are many Wal-Marts across the country actually don’t mind RVs and vans parking overnight. Many other businesses are hostile to just using their parking lot overnight when it isn’t being used. I must say this is something that greatly increases my opinion of Wal-Mart. I am not a huge fan in general but this is a very real positive action they are taking. It definitely encourages me to shop there.

Stealth parking on city streets or parking lots is another option with van living. Often cities seek to stop such living which is why the stealth part is important. Some cities and residents are more apposed to the practice than others. Obviously if there are negative externalities from you parking your van for a long time that will encourage people to seek to stop that. But if you don’t make anyone’s life worse there is much less likely to be an issue.

Even if you don’t it can make residents, police or security guards nervous (which I understand is possible in some instances) and that is something that again makes it more likely you will be bothered and maybe not allowed to park. I am still in the early phase of learning about all this but it does seem a tactic of driving to a sleeping spot at night and leaving early in the morning is a good idea. And moving around so you don’t park in the same spot (that people will notice anyway) for long periods of time.

[removed embedding video that no longer exists]

One of the words I learned recently is boondocking, which is free camping and at least when I have read about it means also off the grid (no electrical connections, water…) for your RV (or a van that is able to plug in to services). I knew that this was somewhat available on USA Federal Government lands (BLM and forests) but I think it is much more available than I thought (I am still learning so…).

Continue reading