Recalculate is an annual task if you Live the CORE. Alice follows the CORE. She chose October 31 as her date for Recalculation. I stopped by Monday to help her with the recalculation, rebalancing, and decisions for 2018 spending. She’s not super with spreadsheets, but she’ll get there.
Wow. Alice is living the life. We reviewed 2017. She had a blast. “I’ve never had so much fun with my money.” Alice enjoys traveling, and that she did. It was hard to keep track what part of the world she was in or which set of friends she was traveling with. But she tells me her best trip was ten days with her grandson in Costa Rica.
She did a great job on her spending. She spent her total pay (Safe Spending Amount) for the year, and she actually had to do some work to spend it all. That cooking school in Italy was the icing on the cake. Way to go, Alice!
And 2018 will even be better: a terrific year! Her portfolio increased by +18% over the last 12 months. This was fueled by stock returns of almost 24%. Recalculation showed she earned a big potential pay increase for 2018 – an increase in her annual Safe Spending Amount. It’s more than 16%, not that piddling 2% adjustment for inflation. She can step up to a new, 16% higher spending plateau for the rest of her life.
Recalculation also showed she had a hefty More-than-Enough if she chose to keep her pay at the same real level in 2018 as in 2017 – staying on her current plateau. She could gift all of that More-Than-Enough now. What to do? Ah, a delightful dilemma.
Alice has had a strong desire to help her two children and two grandchildren. But she never understood what was safe to spend. Or, if she was happy with her current spending, she never could understand if she had More-Than-Enough that she could gift to them while she was alive. Now she understands. Do you understand these two?
Alice decided to give $25,000 in total to her children and grandchildren out of her More-Than-Enough. This will be the first gift like this for her. I’m thinking it won’t be the last. She’s particularly pleased to be helping her granddaughter who may have some special needs in the future. I can envision it now. “Wow. We never expected this. Thanks, Mom. We love you.”
Part of her gifts will go 529 College Savings Plan accounts that her son has for her grandchildren. She’ll make the gift but her son will get a state income tax deduction for her gifts! (I’ll add a post on 529 plans in a bit to explain that.)
With these gifts Alice reduced her Investment Portfolio and her More-Than-Enough amount, and therefore she can’t increase her paychecks by 16%. But the $25,000 was not all of her More-Than-Enough. She’s still steps up to a higher plateau, just not one that’s 16% higher. She’s taking a big trip in January, so she’s going to be able to put some of her added SSA to good use right off the bat.
Conclusion: Live the CORE! It’s most probable, as Alice found, that at some time in the future you’ll accumulate more than needed for your current spending. When that happens – and it’s likely that it will happen for all of us in 2017 – we will face the same delightful dilemma that Alice worked through. Do we increase our Safe Spending Amount by as much as we can? Or, do we gift the More-Than-Enough? Or, a bit of both?