I randomly do Instagram AMAs in my Stories when that specific urge hits me. In a deviation from my norm where I embrace the “Anything” part of “Ask Me Anything,” the last one I did had a theme: Nomad Life. However, despite me setting parameters, people kept asking about my money and how I manage it.
I haven’t dedicated a post to this previously because I thought my money management was pretty boring and didn’t need to be explained, but based on the number of questions I received, y’all have made me change my mind 🙂 . So let’s get into how I handle money in retirement!
Before quitting my job I had a whole long list of things I aimed to do to put myself in the best position for retirement. If you want to see everything on that list, check out my entire Countdown To Retirement Series. Financially though, I had few specific items to check off my list:
- Save a 2 year cash cushion ($40,000) because I retired into a pandemic and possible recession
- Put a majority of that cash cushion into a High-Yield Savings Account with Ally
- Open a Charles Schwab Investor Checking Account that reimburses all ATM fees globally
- Open a Secondary Checking Account for any Self-Employment Income I might accidentally make
- Roll over my 401(k) to a Vanguard Traditional IRA
- Change my Vanguard Taxable Dividends from being reinvested to being deposited into my checking account every quarter
- Roll my HSA over to Lively
Everyday Spending
All of my everyday spending goes onto my beloved Chase Sapphire Preferred Credit Card, the only credit card I’ve ever paid the annual fee for and my longest owned card. I love the travel insurance they have built into it (which always seems to cover the annual fee and then some) as well as their points flexibility (Chase Points can be used on 10 different airlines and 3 hotels).
Budgeting
Despite being in full Fuck It Money Mode, I still like to have an idea of how much I’m spending. To do that I’ve used YNAB for over 6 years. Their principles helped me understand that successful budgeting is not about deprivation, but about choices. I can have anything, but not everything and there is no such thing as a budget fail.
For more info on them, I wrote a short review of YNAB after joining, which is here if you’re interested. Also, heads up that if you register with this link you’ll get a free month of the YNAB budget subscription after your 34 day free trial.
Year 1 Cash
The cash for my first year of retirement is housed in my ordinary credit union Checking Account. This account is linked to my Chase credit card and is set to auto-pay that bill in full every month.
I debated keeping a month or two’s cash in my checking account instead, but since High-Yield Saving Account interest rates keep being cut, the hassle of me doing that and monitoring how much I have compared to my incoming credit card bill, was not worth the small amount of additional cash it would bring in.
Year 2 Cash
The cash for my second year of retirement is chilling in an Ally High-Yield Savings Account and currently making 0.5% per year, which is still way more than a regular savings account, but obviously lower than the 2% they offered when I joined the program. Last year my account provided $127.99 in interest. I do love free money 🙂 !
Taxable Dividends
As I mentioned above, after I retired, I changed my taxable dividends from being reinvested to be deposited into my regular checking account. Now that’s a fun surprise to see every 3 months:
I keep the dividends from my tax-advantaged accounts reinvested since I technically can’t touch those accounts until later in life (though I’ll go into how I’m planning to anyway below 😉 ).
Investments
As a result of my decision to save a two year cash cushion, I have not had to sell any investments yet. In fact, once I factor in the remaining cash I have, the money I’m accidentally making and my taxable dividends, it doesn’t look like I’ll have to sell any investments until 2025 – 4 years into my retirement. WILD!
As for my allocation, I detailed in my post Why I Own 100% US Stocks the reasons why I only own VTSAX: Vanguard Total Stock Market Index Fund. That is the case in all of my accounts: my Taxable Account, Traditional IRA, Roth IRA and HSA. One of the benefits of this very aggressive 100% stocks approach is that I don’t have to do anything to manage my investments.
I'm close to $100K investment gains in 2021. @TreadLightly_RE I thought I told you to take your foot off the gas📈! pic.twitter.com/9bw8BoPbnz
— A Purple Life (@APurpleLifeBlog) August 12, 2021
Investors with a mix of stocks and bonds need to reallocate those once a year to keep their desired asset allocation. Instead, I get to take my preferred lazy approach and do…nothing 🙂 . In that same vein, I am not touching my Lively HSA to pay for current healthcare, but instead using it as an investment vehicle to grow tax-free.
Seeing The Big Financial Picture
To get a full snapshot of my financial picture: investments, spending and income, I use the free site Personal Capital to see everything in one place. That’s what I use to show y’all my net worth high screenshots on Twitter and every single time I post one, someone asks me what website I’m using – so here you go 🙂 . Heads up that if you use the above link to sign up and connect an investment account (401k, IRA or brokerage) with at least $1,000 in it within 30 days, we both get a $20 Amazon Gift Card. Sweeeet!
The Future
Roth IRA Conversion Ladder
At the end of the year, I am going to take on the first rung of the famous Roth IRA Conversion Ladder. While I am making little money, I want to move as much money as I can tax free from my Traditional IRA to my Roth IRA to decrease the amount of RMDs I’ll have to take at 72.
I’m nervous to do this my first time because I need to figure out how much accidental money I will make, calculate how much tax-free room I have left to fill with this Roth conversion, and then be sure about it because in 2017 these transfers became irreversible – le sigh. Once I do all that, I’ll let y’all know how I did it – and whether I succeeded or failed 🙂 .
Tax Gain Harvesting
The other thing I need to decide if I want to attempt is Tax Gain Harvesting. Once again, since I’m making so little money, I pay a 0% capital gains rate up to about $40,000 of taxable income. So I could use that space to sell some investments and buy back similar ones at a higher cost basis. This will lower the amount of taxes I have to pay in the future. I’m still debating if I want to attempt this in my first year of retirement – it would be the optimized thing to do, but I am a pretty big proponent of ‘one thing at a time’ 😉 .
Conclusion
And that’s how I manage my money these days! The final step will be actually doing what retirees are supposed to do and withdrawing from my portfolio 🙂 . When I do that, I’ll tell y’all step-by-step how I did it. Based on my research, it should be super simple with Vanguard, but I prefer to see exactly how to do things with my money from others who have done it before me, so I promise to provide that for y’all as well. Until then!
How do you manage your money?
Thanks for the post and your blog. Keep it up.
Question: If your portfolio say doubled when you reach the point of taking money out , would you increase your yearly spending? 1/2 of FI plans end up having portfolios considerably higher than they start with.
Hi Jack! Thank you – I’m glad you liked it. And yes – my original retirement plan includes variable spending with no spending ceiling. At minimum I will be increasing how much I spend by inflation each year and on top of that spending more in up market years if I want or need to. I go into the numbers of that more in this post if you want more details: https://apurplelife.com/why-im-comfortable-retiring-with-500000/.
Thank you so much for sharing the details! We have a very similar plan. We had a 3 year runway for cash and have been doing Roth conversions. Next year is our 1st drawdown from our brokerage account 🤞
Super cool! I didn’t realize living off of cash in the beginning was a common thing – that’s awesome 🙂 . Nice on Roth conversions – please send me your strength that I won’t mess it up somehow 😉 . And woohoo first drawdown!! You’ve got this!
This is super helpful. I’ve read similar things from other blogs, and I read JL Collins stock series many times, but the way you explain things is always so refreshing; not too detailed; a bit of a “big picture” view and a few specifics. It’s perfect!!!
I’m so happy to hear that! As I mentioned, I debated if this kind of post was needed from me, but it sounds like it was so I’m thrilled 🙂 .
“I can have anything, but not everything” is so simple yet profound! Love this.
I very much doubt I can take credit for that line – it sounds too eloquent for me to have thought of it on my own 🙂 .
You’re definitely capable of such eloquence, but I do believe that particular line belongs to Paula Pant who hosts the Afford Anything podcast.
You are too kind, but YES! That sounds right – thank you for finding it 🙂 .
This was super helpful, Purple! Thank you for being so transparent with how you’re managing your money. I love your candor and sense of humor. I’m now thinking of trying out YNAB and Personal Capital. Thanks for the recs.
Yay! I’m so glad it was helpful and thank you for your kind words 🙂 .
Thank you for covering this, it helps me to plan for the future! I appreciate all of your early retirement wisdom! Your slow travel posts are making me wonder how I can get to that point quicker than I was already planning!
Happy to help 🙂 . And ooh if you can fit that into life earlier I will be cheering you on! I wish I had been able to do that.
Great article and I appreciate the details.
Thanks Debbie!
Great post! So looking forward to the Roth conversion ladder. I get how it works, but like you, feel some resistance about actually doing it. Thanks as always for sharing your journey!
I’m glad you liked it 🙂 . And haha yeah trying something new for the first time always messes with me. Hopefully I won’t find a way to mess it up too badly 😉 . And thank you for reading!
Purple, when the time comes, it’s VERY easy to withdraw tax deferred IRA funds from your Vanguard Settlement account into your linked checking account. I typically do this on a monthly basis. You can also specify the amount of Federal and State taxes you want withheld. Well, ok, nobody WANTS to have taxes withheld (LOL), but it is easy to specify how much is to be withheld.
Because my monthly withdrawal amount varies, I haven’t looked into how to set up an automatic recurring withdrawal amount. But I’m sure a large company such as Vanguard would have something like that. I would hope so anyway.
You say that now…but I have yet to tell the story of how I messed up opening my very first Traditional IRA – I can mess up anything if I put my mind to it 😉 . But no I’m not actually that worried. I’ll most likely call Vanguard and have them walk me through it like holding hands with a toddler and then feel silly I bothered them for something so simple 😉 . Thanks so much for the info!
I opened the Alley High Yield Saving Account and you are right, it pays at least something whereas others pay almost nothing. Helpful suggestion.
Oh cool! I hope you enjoy it 🙂 .
Thank you for this article! My husband and I are thinking of using the cash cushion approach and spending our cash for the first 2-2.5 years after we pull the ER trigger in about 2 years 9 months and twelve days 🙂 Am I excited? Nah…. 😉
We got this idea from you, so thank you!!! We want to let our money grow more before starting to draw down our taxable accounts (will start Roth conversion ladder in the first year after RE), but I have seen other bloggers use a strategy of refilling their cash bucket each year after using their initial cash cushion rather than just drawing what they need as they go from their investments monthly or quarterly. I think I am afraid of a prolonged market downturn after our cash cushion is gone, however i don’t really like the idea of refilling a cash bucket/selling a large amount of investments at once just to sit there all year long, or for several years like some do.
I’m curious how much cash you plan to keep on hand in case of prolonged downturns/recessions and if you had thought of using a longer cash cushion/bucket strategy a la Millennial Revolution and others? Apologies for the long winded question, but you’re the only FIRE blogger I’ve seen who is using their cash stash at once and not refilling it and for some reason I like that approach, though I can’t nail it down precisely!
Of course – thank you for reading it 🙂 . And woohoo 2 years, 9 months and 12 days let’s gooooo!!! I’m planning to keep 1 year of cash on hand ($20K) that I spend throughout the year and re-fill maybe 50% or 75% through the year (I haven’t decided on this yet – that’s 2025 Purple’s problem 😉 ). I don’t like the idea of having a lot of additional cash sitting on the sidelines personally, but thought it was a smart move since I was retiring into the ridiculousness of 2020.
In the future I feel comfortable with my nomadic lifestyle allowing me to cut costs significantly by moving to a lower cost of living area without decreasing my standard of living. I believe that flexibility and my ability to make money fairly easily are the reasons I don’t feel the need to have a cash cushion going forward.
Anyway, let me know what y’all decide – I’m super curious. This all is really just about what helps us sleep at night, which is definitely different person to person 🙂 .
As usual you are quite impressive and have things running like a Swiss watch! We just have auto withdrawals from Vanguard and Personal Capital show up in checking once a month. They come from the bond funds and eventually those rebalance with the stock index funds. So far we are paying ourselves too much but we thought we’d watch it for maybe six months to see how much we are really spending. We don’t actually track things, we just see if the checking account is growing, shrinking or staying the same. I’ve only been fully retired for about four months now so we are still feeling this “not earning” life out.
Haha I’m glad you think so 🙂 . That sounds like a sweet set up! I hope full retirement is going well.
Just an FYI, with Tax GAIN harvesting, you can buy back the exact same fund. You’re paying the taxes due, after all ($0) and then re-buying. With Tax LOSS harvesting, you have to be careful about the 30 days prior and 30 days after, plus buying something substantially similar is a no-no.
As for the Roth conversion, it’s fairly straightforward and I’m happy to talk to you about my first one during our FRIENDCON appointment 🙂 I rolled over all of my Traditional IRA gains from 2020 at the end of the year, so my Trad IRA was right back where it started the year, but my Roth IRA had a much bigger year instead! And I did that at my highest income year ever (maybe not the smartest idea, but now those dollars are growing tax free foreverrrrr)
For that I was going from the below comment JL Collins left on the Mad FIentist’s OG post about it, but if this is no longer a concern that’s awesome! And yes please for explaining at FriendCon – I would much appreciate that 🙂 . And woohoo tax free growth forever!
“Very interesting, but since you used VTSAX in your scenario, a word of caution. When using Vanguard funds there is this glitch:“If you sell or exchange shares of a Vanguard fund, you will not be permitted to buy or exchange back into the same fund, in the same account, within 60 calendar days.” quoted from Vanguard.” The easy way around this is to exchange from VTSAX to VFIAX (S&P 500 index fund) and back to VTSAX after 60 days. While VTSAX slightly out performs VFIAX over time, for short periods either could win making this an non-issue. In fact, I’d be comfortable enough with VFIAX to say just leave the funds there until you are ready to harvest the profits again.” – https://www.madfientist.com/tax-gain-harvesting/
I’m glad you decided to write this out! Boring in the best way–practical. Always love a look behind the curtains of executing FIRE principles.
So glad it was interesting!
I love your posts and this one doesn’t disappoint. Thanks for sharing your experiences! I am at the start of my FIRE journey, just 8-9 more years! 😅
I’m curious about your thoughts on what to do with your Vanguard account once you live internationally. I read that their accounts are only for people who live in the US.
I’m glad it was helpful! Last I checked you can only open an account when you have a US address. I have one and will for at least 6 years. I’ve also opened all the accounts I need currently. You can still keep and maintain the accounts while traveling no problem.
Hi,
Make adjustment in the plans along the way based on the prevailing circumstances. I believe that you will have FIRE for the rest of your lifetime.
WTK
Hey! I’ve really enjoyed following your path to retirement and the updates on how it is going. Especially your Instagram photos of all of the delicious food you’ve been enjoying along the way!
In terms of your Roth conversion, have you thought about increasing the amount above the tax free rate and paying some of the tax implications now while you are in a low bracket? The rational behind this being that you do end up paying some tax but then the future growth will be tax free? The other piece to this would be the unknowns of the US tax structure down the road.
I unfortunately didn’t get serious about retirement until I was 30 and missed out on many years of Roth contributions. I have a unique situation for the next few years, while my new spouse is in school, to take advantage of being in a much lower tax bracket than I would have otherwise been as single. I am using this time to convert over my old 401k’s and pad up my tax free retirement accounts for later in life.
I know all of our paths to retirement are unique and require different strategies to be implemented but I was curious if this was one you thought about. Based on current projections and planning, it is unlikely I will have to tap into any retirement accounts for a while so the future tax eliminated on Roth growth should more than make up for the tax I am paying now.
I’m so happy to hear that! And yasss the food haha 🙂 . I have thought of that and might do it in later years, but currently I’m just going to do what I can tax free. I know I’ll end up paying lots of taxes on my RMDs and am fine with that. I’m just curious what I can sneak by based on the current rules in the meantime 😉 .
Sounds like you’re making the most of everything and doing some smart money moves! That’s also awesome you won’t have to tap into retirement accounts for a while.
I have a question. You know how the 4% rule means that as long as your expenses are 4% of your NW, you should theoretically be fine if you retire then?
Should that 4% rule be based on liquid net worth, in your opinion. Or do you think your whole net worth is fine?
Based on my research, only the liquid assets you have invested when you retire count towards the 4%. What other assets were you thinking of including and why? I’m curious to hear a different approach 🙂 !
I haven’t thought of including other assets. I think a lot of the bloggers talk about the 4% rule and when they talk about it, they usually calculate using the whole NW so I thought I was doing well but actually.. it may turn out that I’m not doing so well in the FIRE pursuit. That delayed my early retirement a little bit!
Interesting! Do you remember which bloggers? I’ve never heard of that and would like to check it out. That’s too bad it delayed your pursuit. If it’s a house though, from what I’ve seen, that can still speed up your journey since then people don’t usually include rent payments/mortgage payments in their estimated retirement spending after they’ve paid off the house.
I don’t, if I do come across a post, I will send over!
It is bad that it delayed. I was including 401k as a part of the FIRE number but now I’m thinking maybe I shouldn’t. My net worth is majority 401k so… have to think of some other ways to generate after tax money!
Hold up – why wouldn’t you include your 401K? I’ve never heard of doing that before.
Well, 401k isn’t considered liquid, is it? I thought it should only be considered liquid at retirement age.
Hmm – I consider all investments liquid and things like houses, cars etc not liquid. You can access your 401k at any time – there’s just a 10% penalty to do so.
You can also avoid the penalty by taking substantially equal periodic payments I believe.
David, you should include the 401k,but also include an expense in your budget for taxes on the withdrawal.