I was thinking this week about what I have learned since I started our retirement plan more than ten years ago and since I wrote Next Egg Care roughly eight years ago. I have not radically changed my thinking. If anything, the logic that I set down on paper eight years ago is more solidly fixed in my brain. This post restates the points key to our plan. I list three things that have changed here:

 

 

Details:

 

The objective of our financial retirement plan has not changed. Patti and I should spend the amount that is safe to sell – withdraw – from our portfolio each year. I definitely will not spend – sell securties and withdraw from our portfolio – one dime more than what I calculate as safe, and at the start of our plan it made no sense to me to spend one dime less. We worked hard, saved and invested for decades. We spent alll that effort to live well in retirement. The BIG CONCERN is not to outspend and outlive our money. What’s safe to spend? How do I invest to make sure that amount is safe?

 

Constant$. I must take inflation out of any calculation for my retirement planning. I must use dollars with the same spending power (constant dollars or Constant$) and real return rates for stocks and bonds to understand what happened or may happen to our portfolio.

 

The Most Harmful Sequence of Return. Over the last 100 years, stocks average ~7.1% real return per year; on average, they double in real spending power every decade. Bonds average ~2.3% real return per year; on average, they double in real spending power every 30 years.

 

But the patterns of returns vary widely. We’ve had a 17-year period of 0% cumulative return for stocks and many more years than that for bonds, for example. Now that we are in our Spend and Invest phase of life, we need to understand what happens if we ride the Most Harmful Sequence of return. I can’t get to what is truly a Safe Spending Rate using any other assumption of future returns.

 

History has to be our guide. I want to use the record of monthly returns for stocks and bonds since 1871: that’s 1,850 months of stock and bond returns. We can assemble over 1,600 20-year sequences of retuerns in the order that they occurred, for example. That’s plenty of history and divergence in results. I have soured on a mathematical approach that many financial planners use to assemble potential return sequences we may face when retired: Monte Carlo Simulation.

 

Each year, in effect, I assume that Patti and I are riding along the Most Harmful Sequence of stock and bond returns in history. For all sequences of return greater than ten years, this is the return sequence that started January 1969. It’s a stinker. That sequence will deplete a portfolio in the very first year, and a portfolio will never recover and return to its initial value. It will deplete a portfolio deeper than any other sequence of return in history.

 

Safe Spending Rate (SSR%). I can use FIRECalc or a spreadsheet that I built using the same return data that FIRECalc uses. I can find how a portfolio fares over time for a given spending or withdrawal rate as it rides that Most Harmful Sequence: I’m using a Constant$ withdrawal or spending amount divided by initial portfolio value. I can find the spending rate that ensures I do not deplete a portfolio for the number of years that I pick: that’s my “Safe Spending Rate (SSR%)” for those years. The SSR% increases with fewer target years for ZERO chance for depletion: we need fewer years for ZERO chance for depletion at age 80 than at age 70; our SSR% increases as we get older. Ours started at 4.40% ten years ago and is not 5.50%.

 

Safe Spending Amount (SSA). Our initial Safe Spending Amount is our SSR% times our initial Investment Portfolio. A 4.4% SSR% times an initial portfolio of $1 million is Constant$44,000 withdrawal or sales of securities to get cash for spending in the upcoming year.

 

Life-years Risk. I want ZERO risk of outspending our portfolio based on Patti’s life-expectancy. Her life expectancy is three years more than mine. I find the SSR% for that number of years. I don’t use more years for our calculations because I can always lower spending a bit, and that has an outsized effect on extending the number of ZERO years.

 

Index funds. I get to our SSR% by using market returns for stocks and bonds in the Most Harmful Sequence less an assumption of annual investing costs – that’s typically fund expense ratio. The calculation of what is safe to spend is based on that simple math.

 

I should never do something that worsens our net returns or adds more uncertainty or variability to returns:

 

• I can’t of afford to pay a high investing cost – high fund expense ratio: that just lowers the net to us. Advisor fees will hurt our net returns. The Most Harmful Sequence is then more harmful.

 

• I can’t build a plan that assumes I can beat market returns, because I no longer have logical assumption for the year-to-year returns that tells me how a portfolio will fare riding the Most Harmful Sequence. And the evidence is that that I won’t win that game: over time, only about one in 20 professional money managers return more to their shareholders than the performance of their peer index fund.

 

I can only invest in Index funds. They are extremely efficient in tracking market returns. Patti and I spend about $300 per $1 million invested (0.03%) for our four index funds that in turn own about 36,000 securities – practically every traded stock and bond in the world. Our 0.03% is 1/20th the amount that many retirees spend. That low cost means we keep more than 99.5% of market returns.

 

I’d estimate that my investment returns beat at least 95% of all retirees. Only an investor who sharply over-weighted their portfolio to hold US large cap growth funds this past decade could have returned more that the combination two stock index funds that we own.

 

Stocks are the surprising winner. For a retirement plan, FIRECalc and my spreadsheet show that a greater mix of bonds buys little in terms of the extending the number of years of ZERO chance to deplete a portfolio. On the other hand, a greater mix of bonds sharply lowers the amount you have in all other return sequences. It’s basically a tiny gain of safety in the worst one of 1,600 sequences and a big loss in 1,599 sequences. Bonds are really insurance that you hold to sell when you just don’t want to sell stocks for your spending.

 

Patti and I started at an overall mix of 80% stocks and 20% bonds. When I sold our Reserve in late 2022 for our spending in 2023, our mix changed to 85% stocks and 15% bonds. That’s where it is today. More bonds than this makes no sense to me.

 

Reserve. You need a Reserve, although it can test you when stocks are doing well. I started our plan with a Reserve – roughly 5% of our total – that I set aside. I did not include that amount in our portfolio to determine our SSA. That Reserve was roughly one year of spending. My thought was that I would use that Reserve for our spending in a year when stocks cratered; I wouldn’t have to sell stocks when they were low, low, low. I set the definition of “crater” at about -15% real return –  a one in ten-year event.

 

At the end of the first six or seven years of our plan, I thought I was making a mistake. My Reserve barely kept pace with inflation while stocks were running at about 10% real return per year. But then stocks really cratered – about -20% real return in 2022. That was the fifth worst year in my lifetime. I was very happy to use our Reserve for our spending in 2023. I sold no stocks for our spending; I gave them time to rebound, and they rebounded by +25% in less than two years.

 

Recalculate. I recalculate each December 1 to determine what we can safely spend next year – our SSA: I sell from our portfolio then; I like having the amount we will spend the next calendar year in cash by the end of December. I don’t have to worry about the vagaries of stock returns during the year. On average, I’m giving up some return, since rates on money market average far less than stocks. I don’t care about that.

 

In a year of poor stock and bond returns, our SSA for upcoming year is the same spending power as this year; it only adjusts for inflation. When stock and bond returns are roughly average, I’ll calculate to a real increase for the next year; I will have earned back more than I sold last year for our spending. The same SSR% results in greater SSA. Our SSR% increases as we age, and that will also help us calculate to a real increase in our SSA.

 

Our SSA increased in real terms in six of the past ten years. It increased 50% in real spending power. It’s really too much, since we were happy with our SSA a decade ago!

 

More Than Enough. I no longer sell securities equal to that 50% greater SSA. That means we’re “under-spending” from our portfolio. I can use the inverse of our SSR% to calculate exactly how much I need for the desired amount that I will sell for our spending. I then know our “More Than Enough.” We currently have 15% more than we’d need using our current 5.50% SSR%. I like that cushion.

 

Fun Money and Physical Assets. I don’t like shifting our financial assets to physical assets – primarily capital additions to our home – now that I’m retired. That just lowers the amount of money we can spend to enjoy.

 

Over the past decade, I’ve used our HELOC to replace our furnace, two air conditioners, built-in dishwasher and microwave, and pay for two jobs to repair to our stone patio. The interest rate is high now, about 7.5%, and I don’t itemize this expense on our tax return, so that means it’s a 7.5% after-tax cost. That’s $250 per month for our interest-only payment.

 

I soften the blow by shifting our December cash to get the HELOC balance to nearly zero at the start of the year and it remains low for most of the year. I view the $250 per month that I eventually pay late in the year as “rent” on all those items. I prefer paying that rent and keeping $40,000 to spend on travel and experiences that we’ll remember for the rest of our lives.

 

Taxes and “Rothification.” I was naïve about taxes ten years ago, and the story of taxes changed fairly dramatically in 2018 when marginal tax rates compressed. You and heirs will keep more from your Roth IRAs than from Traditional IRAs. You want to convert as much Traditional to Roth as you can.

 

Distributions from Traditional IRAs are taxed at more than 22% because 1) distributions are taxed and also drive up the percentage of Social Security that is taxed; the effect is ~doubling of the 10% and 12% marginal tax brackets; 2) distributions change 0% tax on dividends and capital gains to 15%; 3) greater distributions trip IRMAA (Income Related Medicare Adjustment Amounts) and NIIT (Net Investment Income Tax). Cross a tripwire, and your effective tax rate can easily be more than 26%.

 

The ideal time is to convert is when you are in the 22% marginal tax bracket and before you start on Social Security. But if you are already on Social Security, you should convert as much as you can to Roth staying in the 22% bracket.

 

I plan our annual tax return each year so that I can convert Traditional to Roth at the 22% marginal tax rate. Our RMD puts in the 22% bracket; I’m constrained as to how much I convert before I hit tripwires that increase our effective tax rate to sharply more than 22%; typically IRMAA is the culprit.

 

 

Conclusion: I thought about how my thinking has changed since I started out our retirement plan more than ten years ago. A number of things are more solidly implanted in my brain. I am firm that our planning has to be based on the assumption of the Most Harmful Sequence of returns in history; I’m clear that we should use the sequence that started in 1969 as the basis for our planning; it’s really a bad one. I’m sour on results from a Monte Carlo Simulation that many financial planners use.

 

I was naïve about taxes a decade ago, and the tax landscape changed in 2018. You and your heirs keep more from Roth. I put a lot of effort to plan our tax return each year. I convert as much Traditional to Roth that I can at the 22% tax rate.

Inflation in May was less than inflation in April. Inflation in the month was the third lowest in the last year. The six-month run rate is about 2.6% for the year, lower than the prior 3.0% run rate. The historial 12-month rate for inflation has been below 3% inflation for the past year.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. May inflation was low – the third lowest out of the past 12.

 

 

Core inflation excludes volatile energy and food components. May was also the third lowest out of the past 12.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. It’s most similar to Core inflation, but it tends to run a bit lower. The graph shows the data ending April; data for May is issued at the end of this month. The last six aim at an annual rate of 2.6%.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 2.4%; that’s basically the same as last month. The past 12-month rate has been below 3.0% for the past 12 months

 

 

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for May was low. The rate for the past 12 months was 1.5%.

 

 

== Services ==

 

Inflation for services was in line with prior months. The last six months average to 3.2% annual rate.

 

 

 

Conclusion: The inflation measures released this week for May were in line with recent months: we have not seen an increase due to greater tariffs. Measures aim at about 2.6% annual inflation.

In February, Vanguard lowered expense ratios for more 168 mutual funds. The total cut in fees is $350 million that owners of Vanguard funds get to keep this year. I had not looked at the effect on our portfolio. This post shows that our total expense ratio was cut by 20% and that Patti and I get to keep $76 more per year relative to $1 million invested. That lower cost isn’t improving the fundamental “safety factor” in our plan. More likely, it’s a bit more that we or our heirs will have in the future.

 

== From the start of our plan ==

 

When I started our plan in December 2014, our expense ratio – after switching all my actively managed mutual funds to index funds in our retirement accounts – was less than 0.07%. That’s less than $700 per $1 million invested. You can see my notation on my Plan Worksheet in Appendix B of Next Egg Care. The 0.07% compared to the low investing cost of 0.18% – $1,800 per $1 million invested – that’s still the default assumption in FIRECalc.

 

• Being lower than the low 0.18% assumed by FIRECalc did not change the fundamental “safety” of our plan. When you run FIRECalc and focus on the point of “failure” for the most harmful sequence of returns, you find that the lower expense ratio increases the time to depletion – “failure” – for a given spending rate by months, not years.

 

• But for an expected or average sequence of return – and we’ve all ridden along an average to slightly-better-than-average return sequence this past decade – the lower expense ratio relative to FIRECalc’s default assumption translates to about $1,100 more to us each year (again on the basis of an initial $1 million invested). For our mix of stocks vs. bonds, Patti and I have earned an average 6.6% real return per year over the last decade. That added $1,100 per year accumulates to $14,900 in $2014 or more than $20,000 in today’s dollars relative to FIRECalc’s default expense ratio. Nothing to sneeze at.

 

It’s been better than that: the big WAR on expense ratio was in 2018. Vanguard, Fidelity, Blackrock slashed expense ratios on index funds. (Fidelity introduced several of their ZERO expense ratio funds, and that quickly ended the war.) They cut the expense ratio on all four funds we own. Our total 0.68% expense ratio dropped to 0.39%. That was a 43% reduction. Patti and I got to keep an added $290 per year. That means we have more than the $20,000 I cite above. Thank you, Fidelity, Vanguard and Blackrock!

 

 

== Now: another 20% lower ==

 

This last cut by Vanguard only affects VXUS for us. The expense ratio on BNDX, our other Vanguard fund, did not change. The expense ratio for VXUS dropped from 0.08% to 0.05% – a 37% cut. But our expense for VXUS was more than half our total. The 37% cut translates to a total 20% cut. This is $76 per year on the basis of $1 million invested. WHOOPIE!

 

We now spend $310 per $1 million invested; we own nearly 36,000 stocks and bond with those four funds; we spend less than one penny per year to hold each stock and bond. AMAZING.

 

 

 

 

Conclusion: Those of us who invest in index funds have benefited in this last decade from the WAR on expense ratio fought largely by Vanguard, Fidelity and Black Rock in 2018. Patti and I own two Vanguard funds (VXUS and BNDX), one Fidelity fund (FSKAX), and one Blackrock fund (IUSB). If your portfolio is similar to ours, your expense ratio was cut by more than 40% in 2018.

 

In February, Vanguard announced a cut in expense ratio for 168 funds. This included VXUS, but not IUSB. It was a 37% cut for VXUS. Since the cost of VXUS was more than half our total fund expenses, that translated to another 20% cut in the total. Our total expense ratio and investing cost now is 0.31% or $310 per $1 million invested.

 

Over the last decade, we all have experienced a sequence of returns that has been average to slightly-better-than-average in real return. Lower than low investing costs have paid off in more money for us. In 2014, FIRECalc’s default assumption of 0.18% expense ratio was low – well below the average cost of all mutual funds. Over the last decade, Patti and I have averaged less than a third of the 0.18%. If I use the 0.18% as the base for comparison, the difference means we have $20,000 more in today’s dollars per each $1 million invested in late 2014.

The tax bill has passed the House will likely pass in the Senate. That bill provides an added $4,000 standard deduction for a single filer over age 65 who does not exceed $75,000 MAGI. That’s an $4,000 added to the $2,000 that single filers over 65 get now. (It would be $8,000 added for married, joint filers with MAGI less than $150,000; they already get $3,200 added standard deduction.) Who is this going to help? I’m assuming that you get the full credit if your MAGI does not exceed the limit stated, meaning I’m not assuming that the deduction scales with income to its maximum.

 

 

== NOT help ==

 

More Standard Deduction is NOT going to help the ~60% of taxpayers over age 65 on Social Security who do not pay tax on Social Security. They pay no tax on Social Security because their benefit is roughly average – about $22,000 per year – and their added work income or distributions from their traditional IRA is less than half their gross Social Security benefit: the math works out that almost none of their Social Security is taxed. Outside income for almost all these folks is less than the standard deduction – $17,000 for a single filer in 2025. Almost all these folks pay no federal income tax now.

 

== Help ==

 

1. It’s going to help middle income folks over age 65 who receive above-average gross SS benefit – more than $22,000 per year – who work or distribute enough from their traditional IRA such their other income is more than half their Social Security benefit. They are hit with the tax on their added income and on a significant percentage of their Social Security benefit. They pay federal income tax, and the added $4,000 directly lowers their taxable income. Most of their benefit will in the 22% marginal tax bracket or pay $880 less tax.

 

This roughly equates to all non-working retirees who have roughly UP TO $1 million in their traditional IRA. If they have $1 million, they are distributing roughly $45,000 per year or about 150% of their gross SS benefit. Distributions at this level drive the taxable percentage of their SS benefit to 85%, and they almost surely reach $75,000 MAGI.

 

That math doubles for married, joint filers. Those with with UP to $2 million in traditional IRAs benefit save $1,760 in tax.

 

2. It’s going to help far wealthier taxpayers (clearly multi-millionaires) over age 65 who delay Social Security.

 

A single filer not on Social Security could distribute roughly $75,000 from their traditional IRA (depending on the amount of interest, dividend and capital gain income). That means the added deduction benefits folks with UP TO $2 million in their traditional IRA. The $75,000 that they distribute places them in the 22% marginal tax bracket. The added $4,000 deduction means $880 less tax. This is another modest, added incentive for retirees with very health traditional IRAs to delay taking Social Security.

 

That math doubles for married, joint filers. Those with UP TO $4 million in traditional IRAs benefit, saving $1,760 in tax.

 

 

Conclusion: The new tax bill that is destined to pass has a provision of an added $4,000 standard deduction for single filers over age 65 with income (MAGI) less than $75,000. This $4,000 is in addition to the added $2,000 that single filers over age 65 gets now.

 

This post generally describes who this will benefit: it’s not the ~60% of folks over 65 who don’t pay tax on Social Security. It benefits a fairly large portion of tax payers on Social Security with meaningful traditional IRAs. The math works out to roughly UP TO $1 million in traditional IRAs for a single filer. It also benefits a smaller set of retirees who delay the start of SS benefit; those single filers with with traditional IRAs up to roughly $2 million will benefit.

Inflation for April was tame: no obvious increase from recent months. Inflation is running at about 3.0% annual rate, the same as last month.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. April inflation was in line with past months.

 

 

Core inflation excludes volatile energy and food components and was also in line with past months.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending March; data for April is issued at the end of this month. The last six aim at an annual rate of 3.0%.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 2.3%.

 

 

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for April was negative. Inflation for the prior 12 months was 0.7%

 

 

== Services ==

 

Inflation for services was in line with prior months. The last six months average to 3.5% annual rate.

 

 

 

Conclusion: The inflation measures released this week for April in are line with recent months: we have not seen an increase due to greater tariffs. Measures aim at about 3.0% annual inflation.

We’re back from Spain and the Camino de Santiago. I was worried about too active of an adventure, but I managed all the walking. My iPhone said I walked about 45 miles in eight walking-days. I shortened one day that started with a fairly big climb: others, including Patti, walked at least an added two miles. Our tour group was small; it was not sold out because it was early in the season: it was a bit chilly in the early mornings; snow on the mountains. Our tour was a good experience. I list experiences we enjoyed here, but here is one combined experience I will never forget:

 

 

== No electricity and our 150-mile cab ride ==

 

We were caught in the total electrical black out in Spain and Portugal. I don’t think they know the exact reason yet. We were on a high-speed train from Santiago de Compostela to Madrid. It makes two stops. We were sitting in the station before Madrid at 12:30 PM when the blackout hit. That was really lucky. We could have been out in the middle of nowhere. The longest tunnel in Spain – 7 miles – was ahead of us. The train operator handed out water and snacks, and everyone waited patiently.

 

The electricity came back on at 5:30 PM, but the train did not move. We finally figured out that the train was not going to go to Madrid that night, but we needed to get back for our flight the next morning.

 

We went out front of the station, and at about 8:30 PM, and a taxi rolled up. I think most all thought the train would still go, so there were only a few out front. I jumped to say we would go to Madrid. The driver only spoke Spanish. The taxi took four of us: Patti and me; a nice lady who only spoke Spanish, and an intrepid Japanese lady who walked the Camino who did not speak Spanish or English(!).

 

It was the driver’s second trip of the day. It was a 250 km (about 150 mile) cab ride, and over three hours to our hotel!

 

The Spanish lady got dropped off in northern Madrid; her husband was waiting for her. We then figured out that we were going to be dropped off at the main train station in Madrid to catch another taxi to our hotel.

 

When we got to downtown Madrid, about half the street and traffic lights worked. There were no lights around the train station; hundreds were waiting for taxis and buses, and there were none. Our driver realized he should take us to our hotel, which was at least in the direction of home for him. He dropped the three of us at our hotel at about 11:45 pm.

 

The cellular data antennas were offline. I could not pay with my credit card. I didn’t have enough cash. Fortunately, our hotel gave me the cash to pay the driver. I paid him and gave him a nice tip. Total for the two of us with tip: about $275; I thought this was a bargain.

 

The Japanese lady went to the hotel next to ours and managed to tell them that she needed a local cab to take her to her hotel in south Madrid. They waved down a taxi. Patti helped and made sure the driver knew the correct hotel.  

 

All electricity was restored in the early hours next day, and we had no difficulty getting to the airport in plenty of time to catch our flight back.

 

== No electricity for four days ==

 

Our last leg was Dulles to Pittsburgh. We landed at 4:45 PM. I could see that a big storm was near and moving fast. We sat to wait it out. It was ferocious at about 5:30 PM.

 

We drove home, and when we got near we could see that the electricity was out. At the peak, 400,000 customers lost electrical service. This was the biggest outage ever by far here. Ours was out for four days.

 

== No heat or hot water ==

 

The surge when the electricity was restored fried the electrical control for our furnace. We are without heat and hot water: our furnace boiler heats the hot water tank. Our HVAC folks say it will likely take two weeks to get the replacement parts. UGH!

 

We heat hot water on the stove and pour it over us to take a shower. The house temperature will eventually settle in at about the average for day: in the mid 60s now. Fortunately, this did not happen in the dead of winter.

 

== Spain again? ==

 

I must have liked Spain. I’m already googling day trips by train from Madrid. Lots of great, historic places are less than a one-hour train ride.

 

 

Conclusion: We liked our trip to Spain. An unexpected highlight was being caught in the complete electrical failure that hit Spain and Portugal. Once we got through that, we had four days with no electricity at home. It will be two weeks before our furnace controls are back for heat and hot water. This was a much bigger adventure than we had planned.

Inflation for March was less than half the rate of February. The most-widely reported measure, seasonally adjusted inflation, decreased very slightly in March; the last six months point to about 3.0% annual rate. Core inflation, the measure closest to the one the federal reserve favors, was less than a quarter of February’s rate; the last six months points to about 3.0% annual rate. In past months, the stock market reacted sharply to news on inflation. It ignored this news on Thursday: down about 3.5%. It’s obviously looking to the future and the effect of tariffs on inflation and our economy.

 

I display a table and six graphs that I use to follow the trends in inflation.

 

 

Details:

 

The two most widely-reported measures of inflation are Seasonally-adjusted inflation and Core inflation.

 

Seasonally-adjusted inflation is the most widely reported measure of inflation. March inflation was negative. The last prior month of decline was May of 2020, almost five years ago.

 

 

Core inflation excludes volatile energy and food components. This is similar to the measure favored by the Federal Reserve. Inflation was less than a quarter of the rate in February. We have to go back four years to find a month that was lower. The last six months average to 3.0% annual rate.

 

 

Personal Consumption Expenditures (PCE) excluding Food and Energy is the measure of inflation that the Federal Reserve Board favors. The graph shows the data ending Feburary; data for March is issued at the end of this month. The last six aim at an annual rate of 3.1%.

 

 

== History of 12-month inflation rates ==

 

Full-year inflation measured by CPI-U shows that inflation for the last 12 months is at 2.4%.

 

 

== Producer’s Price Index ==

 

The change in producer prices will impact consumer inflation. PPI for March was  below 0%. The high rates in January and February appear to be outliers.

 

 

== Services ==

 

Inflation in March for services was half the rate of February. The last six months average to 3.6% annual rate.

 

 

 

Conclusion: The inflation measures released this week for March are half or less the inflation in February. This is good news on inflation. The stock market ignored this information and declined more than 3.5%. Recent months point to about 3.0% annual inflation.

I had coffee with my friend, Steve, on Wednesday. He said, “You’re going to have to talk to Jo Ann (his wife). She thinks the stock market is going to hell. You’ll have to reassure her.” I said, “Maybe we should wait six months.”

 

My “calculation year” – the 12-month period I use to recalculate our Safe Spending Amount (SSA, Chapter 2, Nest Egg Care) runs December 1 to November 30. December was a down month; the first three months have no been good. I’m traveling this week end: I write this post early on Thursday morning. This week looks to be very ugly.

 

I calm my fearful, emotional brain from the risk of stock market declines by adding up that that I can – basically – wait more than three years before I actually have to sell stocks. Bonds are our insurance when we don’t want to sell stocks. When stocks crater, we sidestep the hole in front of us by selling bonds disportionately or solely. We give stocks time to recover. Three years is a lot of time for stocks to recover. You should do the same addition.

 

 

== The rest of 2025 ==

 

My practice is to sell securities to get the amount we plan to spend for the upcoming year into money market by mid-December. I then pay that total out in monthly paychecks on the 20^th of each month. We’ve been spending less than our monthly “paychecks” so far this year. I’ve “banked” one paycheck. We have a big travel bill to pay for a trip at the end of July, though. I don’t think I’ll have any excess cash by the end of November that I can carry over for spending for 2026.

 

== Three more years? ==

 

I have very close to three years of spending in bonds. That means I can sell only bonds for our spending for 2026, 2027, and 2028. Those are security sales in December 2025, 2026, and 2027. I’d be forced to sell stocks for our spending in 2029 – December 2028: three years and eight months from now.

 

== My bonds aren’t in the right place ==

 

This does not work out perfectly for me, though. I’ll be forced to sell stocks in our taxable brokerage account because I have too little bonds there.

 

Each year I sell more securities for our spending that I derive from our RMD: I withhold all taxes we pay when I take our RMD. The net from our RMD is about 70% of the total I need for our spending. I get the rest by selling securities in our taxable brokerage account.

 

If I had a mix of bonds as 70% in IRA accounts and 30% in our taxable brokerage accounts, it would be smooth sailing, but I have just 10% of our bonds in our taxable brokerage account. That won’t be enough for “only bonds” this next December.

 

I have two options:

 

 1. I can postpone selling stocks then and sell toward the end of 2026 for our spending. (I postponed selling stocks for our spending in 2023, and, thankfully, stocks rebounded during the year.)

 

 2. I could sell more than our RMD – more bonds – such that I could sell less stocks in our taxable account, but I’d be paying a hefty tax bill to do that. I doubt if I pick this alternative.

 

 

Conclusion: This year has had a rough start. The effects of high tariffs are unsettling. Returns this week look to be scary bad.

 

I settle down when I add up how long I can go before I actually have to sell stocks for our spending. It’s over three years. (It was four, but I used our Reserve in for our spending in 2023 and did not replace it.) That gives me some consolation to “just let it play out.”

I received our tax reporting statement from Fidelity on Saturday, February 8. That’s the day Patti and I left for a week in Jamaica. I started and completed our returns on Sunday, February 16. The IRS deposited our refund on February 26. Ten days! This is my third year with TurboTax, and it was the smoothest yet. TurboTax estimated I’d complete our federal return in 1½ hours. I forgot to pay attention to the timer on the TurboTax screen as I worked on it, but I’d guess I spent closer to 2½ hours to complete our federal and state returns. I paid TurboTax $112 for the two returns. That’s A LOT less than I used to pay an accountant.

 

 

I was glad to have my estimate of my tax return – refund due – to tell me that I had entered everything correctly: I don’t see the final return until I have paid TurboTax. Here’s the spreadsheet I used. The one for a single filer is here.

 

(FYI. I withhold the total amount I estimate for taxes + ~$500 when I take our RMDs in December. I could withhold less – 90% of my estimate and then pay the balance when I file. At today’s money market rates, I would make about 1% on that balance by holding on to it for roughly four months. I don’t fiddle with that. I’m a lot happier if I file my taxes within a week or so of getting my consolidated tax reporting statement from Fidelity; I also like the fact that I don’t have to pay taxes when I file.)

 

== State taxes: I messed up ==

 

I have not received my refund from Pennsylvania. That’s taken about six weeks in past years, but that won’t hold this year. I looked over our 2023 return in January and found I made an error: I had some outside income that I failed to report. I filed an amended return and sent the department of revenue a check for the added taxes and interest that I owed. They cashed my check and wrote and said my interest calculation was all that I owed: no added penalty. Then they sent me a check two weeks later with no explanation. That makes no sense. They made an error. I wrote to them with a spreadsheet that explains their error, but I think they will have to spend time to get the correct net amount they owe me: the refund due for 2024 less the amount they incorrectly sent me. 

 

 

Conclusion: I completed our 2024 tax returns in less than three hours of work with TurboTax. That was about twice TurboTax’s time estimate, but I was happy with that. I paid TurboTax $112; that’s a LOT less than I paid an accountant in the past.

 

I got our federal tax refund in ten days. I messed on my state tax return; I think I’ll be waiting a bit longer for them to close out my 2024 tax return and send me the proper refund amount.