How Do You Sleep?

I recently read a post on Seeking Alpha. The title of the article was, “How To Fund Your Retirement With 15 Investments And Sleep Well.” The author said, “Our goal in retirement is to meet the required income threshold, achieve growth of capital to meet and beat inflation, and be able to sleep well without stressing out on a day-to-day basis. Obviously, there are many ways to reach these goals. We try to write regularly in many ways for individual investors to reach these goals.”

Investing and the Dreaded “B” Word

What was different about this article wasn’t so much the investment recommendations but the underlying concept. The concept was to buy stocks and ETFs that could cover the basic costs of living like utilities, grocery, housing, and transportation costs in retirement. I think that is an overly restrictive model

There was a time when our investments included shares of Madison Gas and Electric. (MGEE – MGE Energy, Inc.) I used to say we owned enough shares of MGEE to pay our utility bills with the dividends. That is no longer true, as we don’t own shares of MGEE. Furthermore, the rising costs of gas and electricity have far outstripped the growth of the MGEE dividend. The 5-year dividend growth rate of MGEE is only 4.88% and the yield is a meager 2.07%.

What About the “B” Word?

The Seeking Alpha author had this to say: “Maintaining the above goals, we adopted a somewhat non-traditional approach to selecting investments based on the expenses or budget heads (categories).” Here is the idea from the post showing the concept:

Note that the budget is lacking some items you probably have in your budget. However, the author is showing that Social Security won’t meet your needs in retirement, so you need to think about a budget that includes income from other sources.

Here is the problem: Most people I have helped in the past with their investments don’t have a budget. They don’t like them. There are a couple of reasons for this. One is that they have a mistaken notion about the purpose of a budget. Secondly, they think of a budget as a pair of handcuffs instead of a way to reduce stress and uncertainty.

The Winquist 2024 “B”

It took me very little time to create an updated 2024 budget. All I had to do was review our spending via VISA and from automatic payments from our checking account at Fidelity. I also added the income we receive from Social Security after Medicare Part B premiums. I sent the draft to Cindie, and she reminded me a of a few missing pieces.

This is an image of the annual and monthly spending (charitable giving excluded) to show that all of our regular expenses are covered by Social Security. That is possible because we have a combined net Social Security income greater than our spending habits. (Our charitable giving is greater than our total expenses, and that giving is covered by the QCD giving I can do from my traditional IRA.)

Income From the IRA

The final image shows our projected cash flow. This is, however, only the cash flowing from my IRA, not from our other seven Fidelity accounts. The bond and CD principal is not really income, but it is cash flow. The real income is the estimated total cash flow minus the return of principal. The vast majority of that income comes from dividend-paying stocks, ETF dividend funds, mutual fund income (SPAXX), and REITs.

Recommendation

If you don’t have a budget, are you really prepared for retirement? I suppose if you have several million dollars and your income is at least $100K per year and you have zero debt, perhaps you can sneak by without one. However, I would ask one final question: “What is your plan for giving?” You see, a budget should address the way you not only save and spend, but how you give. Sloppy management cuts into giving.