The Year of Living Negatively

June 30, 2022 somewhere in the Yukon Territory on the Alaska Canada Highway my wife and I overtook a significant mile marker, not on the Al-Can but on the highway of life. At the close of that day my wife worked what was likely her last day of her last full-time job and with that our earned income as a couple ceased.

I had stopped working full-time back in June of 2020 but my wife’s income had more than met all of our needs and though I turned the magical age of 59 and a half (the age at which penalty free withdrawals are permitted from an IRA) in February of 2021, we had not needed to draw any of retirement savings.

On July 1, 2022 that all changed.

I started saving for retirement in 1987. I was 26 years old, and Barbara and I had just returned from a 16 month trip backpacking around the world. Though we spent just $7 per day, we spent everything we had. We came home with a net worth of just about zero -- actually, a bit less than zero as we both still had undergraduate student loan debt. We found temp jobs, rented an apartment in Arlington, Va. And in July of that year, I found a regular job that offered a 403 (b) type retirement plan sponsored by ICMA Retirement Corporation. A rep. from the company came one day to explain how it worked.

It seemed like a good idea. I started putting in $20 per pay period of my own money into the plan and after six months on the job my employer started contributing a few percent to the plan on my behalf.

Even then I knew that neither my wife nor I was likely to have a traditional pension and future of Social Security seemed in doubt back then too. I wanted to be able to retire at an age when I could still enjoy it and realized that everything would depend on what we were able to save and invest.

Then I blinked and the day had arrived. After 35 years of living beneath our means, saving the difference between what we earned and what we spent, and investing it as wisely as we could, there were no more earnings. The spigot was shut and now we had to pull the proverbial plug and live on the water as it drained from the sink. It was a disconcerting feeling.

As it turns out, Social Security is still around. However, though I am eligible to apply this year, I have concluded that it will be better to wait until age 70 to claim as that will result in a higher monthly benefit for me and perhaps more importantly for Barbara should she outlive me. Barbara can apply for her benefit now but has not yet done so. While we decide on that, her benefit is also increasing each month we delay.

So, for the last year, we have lived mostly on our savings. I say mostly, because at the beginning of 2023, I took a part-time job with the Jewish Grandparents Network. The bulk of our living expenses, however, are still being drawn from savings.

Once over the shock of money moving in only in one direction – out, I needed to make a plan for how to draw and manage the flow. And since I am a DIY when it comes to finances, I needed to create the plan myself.

We had multiple goals that were sometimes at odds with each other.

First and foremost, we had to managing the withdrawals in such a way that they were likely to last as long as one of us was alive. Of course, the big challenge here is that for the most part, one doesn’t know how long one is going to live. It could be five years or it could be forty.

The quick rule of thumb is the “4% Rule.” This rule says that if you have a portfolio that is invested in 60% stocks, and 40% bonds you should be able to withdraw 4% of that in the first year of retirement and then adjust that amount for inflation in each subsequent year. Your money should last for 30 years. Outliving your savings is more of a problem that your savings out living you, so it makes sense to be conservative here. Some experts say 4% is too high and that the number should be closer to 3.5% or even lower.

The opposing goal is that you want to be able to draw not just enough to meet basic needs but to do the things you want to do. The whole idea of retirement is to have the time and the resources to travel and do the things you couldn’t do when you were working full-time. So, although you don’t want to outlive your savings, it doesn’t make sense to die with a bunch of money in the bank either if doing so means living a smaller life in retirement than you need to.

Lastly, there is the goal of minimizing taxes. The bulk our savings is in tax deferred accounts like IRAs. Uncle Sam kindly allowed me to stash away all that loot on a pre-tax basis. But now, the man with the red, white, and blue suit and matching top hat is camped on my front lawn. Each time I go outside, he wants to have a word. He says he wants me to pay income tax on that money I earned as long as 30 years ago. For purposes of taxes, each time I make a withdrawal from an IRA, it is taxed like earned income and if I go over a certain amount, it could push us into a higher tax bracket meaning more taxes on each additional dollar withdrawn. The Great State of Maryland wants its share too. That means the amount in the bank is actually significantly smaller than it appears.

Making things more complicated is future Social Security. When I do finally claim my benefit, it will reduce my draw on savings, which means that I can draw a more now than I could if there was no Social Security. I do that by calculating a present value for my social security payments, which considers the current interest rate, our future payments from social security and a guess at how long we might live. The longer I live the better the numbers look. And if I don’t live long, well then running out of money isn’t a problem!

In developing my withdrawal plan, I started with the premise that, if possible, I’d like to stay under the top of the 12% tax bracket. The next bracket (at least until 2025 when the current tax rates could expire) is 22%. That means that for each dollar drawn after that bracket is reached, you are paying 22 cents on each dollar instead of 12.

Fortunately, the top of the 12% bracket happens to be very close to the amount that we need to live on plus be able to do most of the things we want to do. It helps that though we travel a lot, we travel modestly – cooking our own food and sleeping in our car (van). But even if we live on less, it still makes sense to draw up to the top of the 12% bracket since in all likelihood, taxes will never be lower than they are today (but who knows?). We can save the extra in an after-tax account. The other reason to draw up to the top of the bracket is that eventually (for me age 75) our kindly uncle begins to get antsy about getting his share and you are required to withdraw from your pre-tax accounts. These are known as RMDs, required minimum distributions. If you haven’t taken enough in early years, you could find yourself in a higher bracket as you age with few options at that point for reducing your taxes.

Fortunately, when future Social Security is considered our burn rate is less than 3.5% even if we spend every nickel we withdraw.

Plus, I do now have a small income and even a little bit of money flowing in, makes a big difference psychologically. It helps justify small purchasing or indulgences; I might otherwise be inclined to skip. “A new iPad? Why not, I’m working.” “The fancier coffee? Why not, I’m working!” “A summer cottage in Maine… well maybe not”

Retirement is full of adjustments and many of them are psychological. I have friends who are in their 70s who continue to work at full time jobs. I don’t know what their financial situation is; perhaps they need to work (but I suspect not). They claim to love their jobs, which may be quite true. But part of the reason to continue to work full time when you no longer need to do so, is that work provides an easy sense of purpose, an anchor for one’s life, an identity.

For my part, coming to grips with the idea what I do for work is not who I am, finding meaningful ways to spend my time that is not work, and yes, enjoying spending what I saved has been a worthwhile endeavor.

Living negative can be a whole new way of valuing your time, your life, and your money.

The world’s a narrow bridge; fear nothing.

Mysteries of the Internal Revenue Service

I prepare my tax return myself and I file it promptly.

As soon as I have all my 1099s (many) and W-2s (rare these days) I start plugging the numbers into TurboTax, the software I love to hate. It’s not terribly complicated though there are a lot of pieces, and the tax software does most of the math. I enjoy preparing my taxes and it rarely takes me more than an hour to do both the federal and the state. I don’t mind paying taxes. U.S. tax rates are among the lowest in the world and though I wish more of my money went to national parks and less to nuclear warheads and that the system didn’t favor the wealthy, I do my best to accurately pay every penny that I owe.

Because (you will be shocked to learn) I keep careful records throughout the year not only for my and my wife’s businesses but also for our household, I can tell you down to the penny our local taxes, charitable contributions, and IRA withdrawals to the penny. The numbers I need are all right at my fingertips.

We don’t have employers to withhold taxes throughout the year so I make estimated payments to the U.S. Treasury every quarter. Not wanting to be penalized or pay interest, I tend to overestimate the amount I need to pay. I know it is not good for the government to owe you money, lost interest, etc. but most years I find that Uncle Sam owes me $5,000 or more and Maryland maybe $2,000.

So, in late February when I determined that the U.S.A. owed the D.K.B.R. more than $7,000, I was excited to get it back!

I waited another week just to make sure everything was right. There was a lot to review!

• Form 1040.

• Schedules 1-3

• Schedule B

• 2 X Schedule C (one for my wife’s business, one for mine),

• Schedule SE,

• Form 8889, and many more.

The PDF with my complete federal and state tax returns is 51 pages long and that is short compared with many past years.

Thankfully, one no longer has to print and mail the thing. Press one button and it’s on its way to Washington, D.C. and to Annapolis, Md. I also prepare my mom’s taxes and I filed them at the same time. By March 2, my returns were submitted.

With that taken care of, we set out on our trip to the Grand Canyon and points west.

Within days, my mom’s state and local refunds had arrived as did my Maryland refund. But the seven large from Uncle Sam was nowhere to be seen (or spent). In what is probably 20 years of filing electronically, this never happened to me. It is never been more than a few business days before my refund hits my account.

After a few weeks of no refund, I went to the website of the Internal Revenue Service. There you can plug in your filing status, Social Security number, and expected refund and it will tell you the status of your refund. The website simply said that my return had been received but that my refund had not been approved. No reason was given for the holdup.

So, I imagined some.

I imagined that some anomaly in my tax return had kicked it out of the computer into a massive pile that awaited human review in the woefully underfunded and understaffed IRS and then it had fallen behind a file cabinet.

I imagined they were holding onto my money in case the debt ceiling wasn’t raised.

I imagined that I had made a horrible mistake or that I would be audited and have to produce reams of documentation for every return submitted since 1979, the first year I filed.

I imagined going to jail.

But, as I reminded myself, I had done nothing wrong, certainly, not intentionally. So I decided to stop blaming myself and to blame Republicans instead.

The IRS tells you on their website not to call them about a refund. They won’t tell you anything over the phone, they say. If they want to communicate with you, they will send you a letter. But I was on the road and not getting mail. I tried calling once but it was not possible to reach a human being. The automated system just told me what I already knew. They received my return but hadn’t approved my refund.

I combed my copy of the tax return for errors, but I couldn’t find any.

When we arrived home in May, I anxiously awaited the next day when we could go to the post office and collect our held mail. I was certain that a letter from the IRS awaited me. Even though I was sure it would necessitate my traveling to an IRS office (I pictured walking into the massive IRS building on Constitution Avenue) with cartons of papers for the first meeting of what would, no doubt, be a year-long audit, at least I would know what was going on. Maybe I’d need to hire an accountant to accompany me. I don’t know any tax accountants.

Perhaps it goes without saying; there was no letter.

Throughout the following months, I continued to wonder and yes, worry, about the status of my return and my refund. I checked the IRS website at least once a week. Nothing changed. No letter arrived.

I considered my options. Send an inquiry to the Commissioner of the IRS? Write a letter to my representative, the Honorable Jamie Raskin? Write off the money as a lost cause? Or just do nothing and wait.

By default, the last option was the one I chose. I did nothing. I even stopped checking the IRS website.

I spoke with a friend who also does his own taxes. He said that something similar had happened to him once. Eventually, he got a reduced refund with a letter from the IRS explaining the mistake he had made. He found the letter incomprehensible and just accepted the reduced amount and went on with his life.

As the weeks turned to months, I began to believe that I would never hear anything at all. I started to forget about it.

Then yesterday, as I was updating Quicken a deposit from INTERNAL REVENUE SERVICE appeared in my checking register. It was for the full amount. They paid me no interest and there was no explanation. It’s been five months since I filed. I had plans for how to spend the refund, but I have forgotten what they were.

Likely, I will never know why it took so long but perhaps there are lessons to be learned here.

One is to try and end the year owing the government a little rather then it owing you a lot but also:

Lessons about patience, about worrying about things you can’t control.

That sometimes the right choice is to do nothing.

To wait.

To allow things to happen in the fullness of time.

To accept that you will never know why.

The world’s a narrow bridge; fear nothing.

Oh, Shenandoah!

During the last few years, Barbara and I have been trying to visit as many of the U.S. National Parks as we can. This past spring, a trip out west took us to Bryce, Joshua Tree, the Grand Canyon, Death Valley, and more.

But we have a treasure practically in our backyard. Shenandoah National Park, just about an hour from the DC area. It’s an often-neglected gem. I’ve visited it more than any other park, more than a dozen times, but still that’s not very often considering how close I have lived to it my entire life.

Earlier this month, we spend several days in Shenandoah camping and hiking, and I was reminded how beautiful this place is.

The entrance to the north end of the park is near Front Royal, Virginia. Front Royal has grown quite a bit since I was a kid but still has a reasonable amount of charm. Worth a stop is the famous Luray Caverns nearby. Shortly after leaving town, you turn onto the famous Skyline Drive and stop at the park entrance to pay the entrance fee ($30 per car) or if you happen to have a Golden Age Lifetime Pass (as my wife does and as I will in just about 60 days) you wave it at the ranger, he or she gives you a map, and you are on your way.

Upon entering the park, you immediately begin ascending. The park, established by Franklin Roosevelt in 1935, hugs the Shenandoah mountains (part of the Appalachian Range) and Skyline Drive soars along the ridge affording lovely views in all directions. The maximum speed on Skyline Drive is 35 mph and you really don’t want to go much faster as you navigate the many hairpin turns. Every few miles there are turnouts to gawk at the views as the Drive goes from nearly sea level to more than 1,000 meters (3,000 feet) above. As you ascend, the temperature begins to drop.

On the day we arrived, DC was experiencing its usual summer heat. Actually, they say it’s the worst summer in 150,000 years but I don’t know that first hand. I can tell you it was more than 90 F as we left the highway. Within an hour of driving into the park, the temperatures had dropped into the high 70s. Still warm but nowhere near as oppressive.

There are three drive up campgrounds in the park. We stayed at Big Meadows, which is the only one that has showers. With two days of long hikes ahead, a shower would be a necessity. We found our campsite and set up the van for our two-day stay.

The Appalachian Trail runs straight through the park and this would be the trail for our hikes. On the first day we hiked north 6 miles and then back and the second day we hiked 4 miles south and back.

Both of our hikes started at the nearby, rustic Big Meadows Lodge. I made a mental note that we had to return and stay in one of the cozy cabins. The lodge includes a restaurant, a café, a large sitting room and an outdoor patio where you can sit among the trees and scroll social media using the lodge’s wifi as most of the guests seemed to be doing. We had no time for this, but we did stop to download maps in case we didn’t have service on the trail (we didn’t) and to text a family member where we were going, just in case.

Most of the time, we were hiking through what is known as the “green tunnel” but occasional the trail would emerge into a clearing offering spectacular views of the valleys below. We often came upon deer grazing right next to the trail. They seemed completely unfazed by our presence barely bothering to look up as we went by. The woods were filled with the sounds of birds and other creatures but being mid-week, we saw just a few others of our species. Although the heat wasn’t too bad, it was still very humid and we were grateful for the showers at the end of the day. The showers are $5 for 10 minutes and are coin operated (quarters only) so that is forty quarters for the two of us! Fortunately, there was a change machine (ones and fives only) and we actually had a enough actual bills on hand.

At night the temperature dropped further and was perfect for sleeping in the van, which can get stuffy when it is too warm outside. Our fellow campers were quiet and considerate (mostly) and thankfully, we had been able to secure a spot in the ‘generator free loop.”

Shenandoah gets a lot of visitors, 1.4 million annual. But it didn’t feel at all crowded mid-week in July. Certainly, the parking lots fill up at the most popular hikes and the campgrounds are at capacity on the weekends, but with more than 197,000 acres of wilderness, there is room to spread-out.

Every time, I visit this park, I think, why don’t I come here more often? This trip was no different. Shenandoah is a cool, green mountain escape from the heat of the DC summer. If you are nearby, maybe it’s time to plan your getaway.