The Moneyist: My husband and I are 64. We have $1.5 million in retirement accounts. He wants to travel. I’m more cautious. Who’s right?

My husband will be retiring at the end of August after working a high-pressure job for 31 years. We are both 64 years of age. Both of us have health insurance under my plan. I intend to work at least until I turn 65, when I will be eligible for Medicare, and will likely continue until for at least another six months until he is also eligible for Medicare.

Together, we have about $1.25 million in tax-deferred retirement plans held mostly in securities, about another $250,000 in Roth accounts, $125,000 in a brokerage account and $25,000 in savings, and we own our house, which is currently valued around $400,000, outright. At age 70, our combined Social Security payments are projected to be a little under $7,000 per month. We expect to receive an inheritance of at least $1 million in the next 10 years but have not included that in our retirement planning.

“‘We expect to receive an inheritance of at least $1 million in the next 10 years but have not included that in our retirement planning.’”

Both of us have longevity on our side: All four of our parents are in their late 80s or early 90s, and between us we have three grandmothers who lived to be well over 90. We have shared priorities of family, health, maintaining our current standard of living, making charitable contributions to causes important to us and having some inheritance to pass on to our children. I’m hoping to work part-time in retirement, and while my husband does not reject that idea, it’s not high on his priority list.

I’m writing to try to address philosophical differences in our thinking about managing and using our retirement funds. I am more conservative. Given that we will likely have 25 to 30 years in which to live on our retirement savings, I am concerned about preserving as much of the principal as possible, especially in the five to six years before we start drawing Social Security. My husband, while not proposing anything too wild, does want to use the money to do things like travel and fund family gatherings.

He says this is exactly what we have worked and saved for all these years, and that while we are in good health, this is the time to take advantage of the opportunities. With the projected Social Security payments, he argues that even if we significantly draw down our retirement savings early on, our withdrawals will be scaled back once we turn 70, which he says will be a chance for our remaining principal to rebound at least to some extent. And finally, he feels that not taking our likely inheritance into consideration does us a disservice, given that that also comes with the responsibility of making additional choices.

My husband has worked hard, and I don’t want to put a damper on his enjoying retirement, but I also don’t want that enjoyment in the early years to negatively affect our wants and needs in our later years. What are your thoughts?

Am I Too Cautious?

Dear Too Cautious,

You need a third party to help you out. A financial planner or accountant can run through your figures, including your projected income and expenditures when you retire, along with your retirement goals, your emergency fund and any other strategies you need to put in place for such things as long-term care. Travel is a small but important part of that overall puzzle. From your letter, it seems you are concerned that your husband sees his desire for experiences — holding family gatherings and having adventures — as a never-ending porridge pot, one that you are afraid will run dry sooner or later.

Start by deciding how much income you plan to withdraw every year. As Mark Hulbert pointed out in a column last year, under the so-called 4% rule, a person with $1 million in their 401(k) who spends an inflation-adjusted $40,000 every year in retirement would, in theory, beat the odds of outliving their money. But Hulbert looked at a study from researchers at the universities of Arizona and Missouri that found 1.9% might be more realistic for people who have less money saved. That tells me one thing: Given your financial situation, you are in a very fortunate position.

Start with an annual budget for socializing and travel — $10,000 per year is a figure I picked out of the sky — and see how you get on with that over time. Agree to remain open to further conversations about adjusting that figure upwards or downwards. It may be that you don’t want to spend your money staying at fancy hotels but might explore other options such as Airbnb
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or VRBO. You might reduce your travel expenses or make them cost-neutral by turning your own home into an Airbnb while you are away. There are many ways to peel this apple.

Robert Seltzer, founder of Seltzer Business Management in Los Angeles, says your travel plans should remain flexible. “Just as life has unexpected turns, your financial plan should not be set in stone. If the market provides high returns early on, you should allow yourselves to increase your travel.”

“‘I’ll give you the same advice a cardiologist might give a patient when they put them on blood-pressure medication: Start low, go slow. That is, start with a conservative figure, and see how you get on.’”

He has some reservations about your stock-market exposure. “I don’t think that someone in their mid-60s entering retirement should have such an aggressive allocation. You should trim back your allocation in equities and increase fixed income. Since these assets are in a retirement account, there would be no tax ramifications on rebalancing,” he says.

“Also, for the first time in many years, the fixed income portion of your portfolio won’t simply serve as a buffer to the volatility of the equity portion of your portfolio, but will provide legitimate income,” he added. “Interest rates will probably go down in future, but current returns are higher than they have been for over 15 years.”

Based on your family’s longevity and your current financial situation, he agrees with your decision to defer taking Social Security until age 70. “I do think that the expected inheritance should be included in the plan. However, I would be conservative as to when you should expect it.”

“From an asset allocation perspective, given the current rate environment, you can somewhat have your cake and eat it too,” says Paul Karger, co-founder and managing partner of TwinFocus, a wealth advisory firm. “With your retirement funds in your Traditional and Roth IRA accounts, we would recommend allocating the funds with 50% to a globally diversified stock portfolio with an overweight to the U.S., and 50% to a conservative, diversified bond portfolio all via low-cost mutual funds. The equities should provide growth potential and a longer-term hedge against inflation, while the fixed income should provide a steadier income stream and preservation of capital.”

“‘Given the tax-deferred and tax-exempt nature of the Traditional and Roth IRAs, respectively, we would recommend tapping these assets for income only once you have exhausted your taxable funds.’”

— Paul Karger, co-founder and managing partner of TwinFocus, a wealth advisory firm

“Given the tax-deferred and tax-exempt nature of the Traditional and Roth IRAs, respectively, we would recommend tapping these assets for income only once you have exhausted your taxable funds,” he added. “To this end, we would recommend investing your taxable funds with 70% in bonds via mutual funds, and 30% in money market funds, which will provide for immediate liquidity for lifestyle funding needs.”

I’ll give you the same advice a cardiologist might give a patient when they put them on blood-pressure medication: Start low, go slow. In other words, it’s best to start with a conservative figure — perhaps it’s that $10,000, or maybe it’s less — and see how comfortable you are with that and whether you are able to manage your annual budget. Because your house is paid off, your overhead expenses will be greatly reduced in retirement, so you may be able to afford to spend 5% to 10% of your income on travel and leisure. But you may both end up with wanderlust for your own home.

Bruce A. Tannahill, director of estate and business planning at MassMutual, says it’s possible to be too cautious. “You don’t know your longevity or if your ability to travel and do the other things you want are limited due to a pandemic or someone else’s health,” he says. “You and her husband may be able to strike a balance between enjoying your good health and having enough for your later years. Your husband’s right that once receiving Social Security will reduce the pressure on your assets to produce sufficient cash flow.”

The Moneyist Facebook
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Group had a lot to say about your letter. Here are some good suggestions: “Set a budget prioritizing 10 years of annual travel — the big trips, international trips, huge family outings, high-end domestic jaunts.” Another member wrote: “Maybe do both by traveling in the off or shoulder seasons, which are actually more fun as a tourist and cost less.” And a common theme among the responses: “Tomorrow isn’t promised. Don’t go crazy, but enjoy life today.”

You may live into your 80s or 90s, but you may not be able to travel for all of the next 30 years. Enjoy the world while you can.

“Because your house is paid off, your overhead expenses will be greatly reduced in retirement, so you may be able to afford to spend 5% to 10% of your income on travel and leisure.”

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