Case Study #13: The Power of Flexibility


The Stock Series here is designed to slice thru the Gordian Knot of investing. To debunk the idea that investing is too complex for mere mortals and to dispel the fear surrounding it and our financial security.

Routinely, I hear from people who lament

  • “I’m 32. If only I’d discovered your blog when I was 22.”
  • “I’m 42. If only I’d discovered your blog when I was 32.”
  • “I’m 52. If only I’d discovered your blog when I was 42.”
  • “I’m 62. If only I’d discovered your blog when I was 52.”

Certainly the earlier you start, the better. The magic of compounding takes time to blossom. But is also amazing what can be accomplished with focused effort in only five or ten years.

That said, financial independence is every bit as much about controlling your needs as it is about accumulating assets. If you can live on $20,000 per year, having $1,000,000 makes you very rich indeed. Using the 4% rule, your needs are only half of the $40,000 your investments could provide. If you need $80,000 you are in serious trouble.

Most of the scary scenarios in the major media are centered around the idea that people have no flexibility in their spending. If that’s true for you, you have a bigger hill to climb. You are engaging only one half of our *accumulating assets/controlling needs* package.

In today’s Case Study, we are going to visit with Arnold, a 65-year-old man unemployed for the last 10 months. He is concerned about finding a job to meet his expenses.

After a lifetime of work, he has $73,000 to his name. He attributes this to having “…squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.”

He implores, “…please, younger people, don’t make the same mistake as I did…” in living the lavish lifestyle now gone.

Given my emphasis on the importance of accumulating F-You Money, you might expect this Case Study to be a cautionary tale. Certainly it would be in the major media: Another unfortunate who fell through the cracks.

But this discounts the “controlling needs” side of our equation. As I say at the end of this post:

“True financial security, and enjoying the full potential of your wealth, can only be found in this flexibility.”

Clearly, had he lived a bit less large and invested according to the principles we discuss here, he’d be better able to continue his former lifestyle. But I think there is a bigger and more important lesson to be learned:

Flexible person

The Power of Flexibility

Arnold writes…


I’m so pleased I found your blog. Thank you for the wonderful service you provide to so many people all over the world and your excellent advice!

I hope you don’t mind guiding me as well.

I am 65 years of age, in an informal domestic partnership relationship with a lovely lady, and recently “semi-retired”. I have $40,000 sitting in a zero interest money market account at Bank of America and two work-related 401(k) plans worth about $18,000. I also have about $15,000 in cash stored in a safe.

At this time, I have no income and for the past 10 months, have been drawing money from my savings to live. Fortunately, I am pursuing a frugal lifestyle and my living expenses are at about $800 per month – I can possibly trim it down another hundred or two a month. I will soon have to start working again part time to fund my living expenses.

Needless to say, I have so many regrets that I did not save and invest in my youth and during my adult working life and plan for my retirement. I squandered money on cars, travel, eating out, girlfriends, clothes, motorcycles, businesses, high interest credit card debts etc. without giving much consideration to the financial consequences of my actions.

The end result of these actions is that I now will have to rely on social security to sustain me for the remainder of my life. Who knows what will happen or where I will land up when I become too old to take care of myself.

JL, would you mind if I interjected a brief word of caution at this stage to the younger people reading your blog—please, younger people, don’t make the same mistake as I did…don’t…

I am not yet receiving social security—I am trying to delay claiming it for another 5 years until I’m 70, at which time my payout will be the highest, about $1700—$1800 a month.

The money I have in the bank, the two 401(k)s and the cash in the safe is ALL I have. During the recent recession, I turned a blind eye to the concept of investing any money into mutual funds or stocks, as I had a fear of losing it all, as many others did.

Truthfully, I really didn’t understand investing, the stock market and mutual funds—I still don’t, but I’m doing a bit better now and am learning more and more each day, especially from your blog.

I am fully aware that my money in the bank is losing at least 3% of it’s value every year as a result of inflation whilst at the same time, I am deriving no income from it whatsoever.

I have read your posts in which you strongly recommend to people that they invest their funds into Vanguard VTSAX and you are not the only person making this suggestion.

In an ideal world, and I emphasize IDEAL, I would like to invest the $40,000 into a fund that will generate an income of $800 per month to cover my income for the next 5 years till I’m 70, without any depletion of the principal. I would then turn down the heat so to speak, to a safer allocation of funds at percentages that would allow me to sleep at night…. That would be the ideal, but I presume it’s not going to happen in the present financial climate and that I’m going to have to work part time to supplement my income—like it or not—or alternatively claim social security sooner.

After all of that, my questions are:

Is your recommendation to invest into Vanguard VTSAX geared more towards younger folks who still have years of investing time ahead of them, or does it apply equally to someone such as myself who has already reached retirement age?

If it applies to me, could you please suggest whether I should invest the full $40,000 into Vanguard VTSAX?

Alternatively, do you have another suggestion as to an investment into another kind of Vanguard fund that will produce a better monthly dividend?

Thank you very much in advance and I will look forward to your reply!


My reply:

Welcome Arnold…

…and thanks for the kind words.

Instead of directly answering your questions, let me give you three paths to consider. But before we get into that, let’s take stock of your situation.

We’ll get the bad news out of the way first:

There is no investment that can reliably return $800 a month ($9600 per year/24%) on $40,000. If we use the 4% withdrawal rule, generating $9600 a year would take $240,000.

This rule comes from an analysis of the Trinity Study and has become a popular benchmark for what can be considered a safe withdrawal rate. That is, a rate that allows for a portfolio to survive at least 30 years of inflation adjusted withdrawals.

That said, here’s the good news:

  • You only need $800 a month and we can make that income happen pretty easily.
  • You indicate that you could trim another $100-$200 from that, indicating some very serious flexibility.
  • Flexibility in spending is at least as important as assets on hand. I salute you!
  • You have $73,000 in investable assets: $40,000 in the money market, $18,000 in your old 401(k) and $15,000 in cash.
  • At age 65 you are only one year away from your full retirement age of 66.
  • If your Social Security benefit will be $1700 at age 70, it will be about 75% of that at age 66: ~$1275 per month.
  • The break even for delaying Social Security until age 70 is ~83 years old. Unless you are pretty sure you’ll live past 83, taking it at 66 might be the better choice. Of course if you plan to marry your lady and your benefit would be greater than hers, she could take it over upon your death. That would make waiting on your Social Security an advantage for her.

With those tools in hand, we have three very interesting options.

Three paths

Path 1: Draw on your savings and delay Social Security until age 70.

Roll your $73,000 into the Vanguard Balanced Index Fund, VBIAX. This is a balanced fund that holds 60% stocks/40% bonds, has a low ER of .09% and a dividend of 1.87%. It is less volatile than VTSAX (which holds 100% in stocks), and it will offer more growth potential than the cash you currently hold, giving you the the chance to keep pace with inflation.

Once it is there, instruct Vanguard to sell enough shares each month to transfer $800 to your bank account for your spending needs. I’d also have them send the dividend to your bank. At $73,000 x 1.87% that’s $1365 a year, paid out quarterly. I’d use this for extra “free” spending. (If you call Vanguard they will walk you through getting this all set up.)

Looking at the math, we can see that drawing down $800 a month, $73,000 will last for 91 months or 7 1/2 years. (73,000/800=91)

Of course, the market will fluctuate over that time. If it moves in your favor, your money will last even longer. If it moves against you, your money should still last through the five years until you reach age 70.

If it’s a disaster, you’d just have to go on SS a bit earlier. As we’ve seen, this would mean monthly checks ranging from ~$1275 to ~$1700-1800 at 70. Since you only need $800, you’d be golden even then.

Once you reach age 70 and start taking Social Security, you’ll  no longer need to draw on your VBIAX fund. You can just leave it to grow or continue to spend the money, but now as extra. It depends on whether you want to leave money to any heirs. If you do, you might also consider switching to the more aggressive 100% stock VTSAX at that point for better growth potential.

Path 2: Take Social Security starting at age 66.

As we calculated above, at age 66 your benefit should be ~$1275, very comfortably over your needed $800. Taking Social Security at age 66, you can either enjoy an expanded lifestyle with the extra $475 or invest it.

Your $73,000 you can invest in VBIAX and either let it grow, or draw it down as above to have still more to spend. This would give you a monthly income of $2075. ($800 + $1275 = $2075)

If you plan to leave it untouched for your heirs, you might consider the more aggressive VTSAX for more growth.

Please understand that both VBIAX and VTSAX will be volatile. You have to be prepared to ignore the inevitable periodic market plunges and stay the course for either of these plans to work. If you are used to holding cash this can be very unsettling.

If it is too unsettling, consider…

Path 3: Keep your money in cash, but otherwise implement Plans 1 or 2.

In the Path 3/1 scenario you’d skip investing in VBIAX and continue to hold your cash. Then you’d draw down on it at $800 a month. As we’ve seen, the money would last 91 months/7.5 years. This takes you comfortably to age 70 and the highest Social Security payout.

In the Path 3/2 scenario you’d start drawing your Social Security at age 66 and just hold the cash as you have been doing.

Of course, as you observed, holding cash means watching it erode at ~3% a year to inflation and giving up the chance for growth. For this reason, Path 3 is my least favorite.

Regardless of which path you choose, the truth is you are in excellent shape due to your modest needs of $800 a month, coming Social Security and $73,000.

Hope this helps, and enjoy your journey!

PS: This is a post you might enjoy — What it looks like when everything financial goes wrong

Addendum 1: This post is an expansion of my original reply to Arnold in the comments. If you are curious, you can read that conversation here.


Meanwhile and unrelated, recently…


I was interviewed for the Create My Independence Podcast: F-you Money, Stepping Away, Fear and Investing. It was fun to do and I hope you find it fun to listen to.

And, if that’s not enough, check out my As Seen On… page.

New Book:  

My pal Matt Becker of Mom & Dad Money just put out his new book: The New Parents’ Guide to Financial Independence

If his name and website sound familiar to you, it might be because I have had the occasion to link to some of his past posts to amplify a point in one of mine or to introduce concepts I thought valuable to the readers here.

If you want to read all about it, just click on the first link. If you just want to cut to the chase and order it, click on the second. It’s worth your time.

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Important Resources

  • Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI, and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode, Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker, and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.
  • Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.
  • Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review.
  • Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here:Video version, Podcast version.
  • Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress.


  1. g-dog says

    Very interesting and impressive case study. Again, when trapped in the popular view of retirement needs, Arnold looks well and truly screwed! BUT, in a more flexible scenario, we see due to his willingness to keep expenses low and move lower if needed – he has three very viable options, some even bring in way more than his current monthly expenses!

  2. FloridaStache says

    Excellent post and a a great reminder about controlling needs. I recently moved from a low-cost area to a high-cost area where everyone seems to wear expensive clothes and drive expensive cars. I’ve struggled with feeling self conscious with my completely fine but not luxury car and am amazed at how powerful the “keep up with the Joneses” pull is even though I’ve been practicing a frugal lifestyle for a few years now. I’m determined to keep controlling my spending needs while taking advantage of the expanded opportunities this area has to offer.

    The flaw I see in the initial recommendation to invest 100% of his $73K is that he needs some of that money for immediate living expenses. He may not be able to afford to wait for quarterly dividend checks and this also doesn’t leave him with readily accessible funds for emergencies. He may want to keep $2400-$6800 (3-6) months of expenses) in cash in case something unexpected happens that simply can’t wait. Of course, at his income level I’m guessing that selling shares of his investment wouldn’t trigger a taxable event, but I’m not sure how long it takes for the money to show up in your checking account once you make a withdrawal from Vanguard.

    • jlcollinsnh says

      Thanks FS…

      …and hold firm to your path!

      You’re right: Arnold would be well served to hold some cash until he hits age 66 and has SS to pay the bills, if that’s the path he takes.

      Typically it takes about three-four business days for the cash to make it from selling Vanguard shares to the bank. If you set it up automatically, it arrives like an SS payment or paycheck.

  3. Wealth By Another Na says


    Love to see you post again! I like the other big financial blogs but yours always has a calming effect on me. I’ve been out of work for a few months since returning from Japan and it’s started to worry me. It’s nice to see that in the long run I’m probably going to be okay.

  4. Chaddogg says

    Nice case study. Hopefully this encourages Arnold…..especially since under the 3 scenarios you sketched out, Arnold isn’t even working! Arnold seemed to suggest a willingness to work part-time now/into-retirement, which means any money he could make that way could seriously stretch his long term security (since it would mean drawing down less on the $73k, and/or being able to invest his income)

    • jlcollinsnh says

      Thanks, Chaddogg.

      Yep, should he chose to work a bit, things look even better. My guess is he will.

  5. Fervent Finance says

    Flexibility is powerful! Even though Arnold he has only saved $73k over the course of his life, he’s basically set next year when he can draw on SS. All because his expenses are so low. Great analysis. Personally if I was him I’d chuck all of his money in VTSAX, except for 800/month until he can draw on SS of $7,600 which he should leave in cash. And then take SS at 66. Unless he’s convinced he’s got some great longevity genes. Great analysis Jim, and good luck Arnold.

    • jlcollinsnh says

      It really is remarkable, FF.

      Flexibility is as powerful in retirement as savings rates are in the accumulation years.

      I like your plan.

  6. Nate says

    All I could think when I read through Arnold’s email was, “Oh no!” 65 and only $73K, but my immediate reaction was quelled as I dug deeper into the solutions. There seems to be hope in every situation, even when you believe the cards are stacked against you. Excellent post for anyone to digest. Being in my mid 30’s I’m heeding Arnold’s warning and taking steps to not have this battle on my hands in my mid 60’s. Jim, your blog has been a very educational and helpful guide to navigating the world of investing and becoming confident enough to take over my own investing decisions.

    • jlcollinsnh says

      Glad to hear it has helped, Nate.

      No question you are wise to begin building wealth. It equals more options.

      But I see so much fear out there regarding people’s financial futures, it is worth pausing to look at what happens when things don’t come together financially.

      The truth is, with flexibility, it is very manageable.

      This is one reason I’m very aggressive in my investing approach. It very likely will give me better results and, if some “black swan” event causes it to truly unravel my flexibility still provides options.

      There is always squirrel to be had… 😉

      • Nate says

        Nice little pun there at the end. If I’m anything like the game I pursue, I shouldn’t have a problem “Squirreling” savings away. Happy to say that I’ve moved from two “financial advisers” over to Vanguard in all the options that we currently have. It became hard for me to pass a $1000 investment around the table for everyone to get there cut before it made the market, when I could invest it on my own with a little education and over the years earn so much more by removing those fees. I appreciate your blog and stop by often to educate myself.

  7. Stockbeard says

    It’s awesome to see that even joining so late to the party, his flexibility is going to let him enjoy his retirement! Nevertheless, I’m doing my best to make sure I won’t even have to make such tough choices myself in the future. Save as early as you can, people!

    Great case study

  8. Done by Forty says

    $800 a month, with room to cut, illustrates the crazy power of frugality. I’d hazard that frugality is more important than any other single factor in personal finance.

    That said, I’m a little concerned that $800 a month is sustainable. Unexpected events (medical, car repair/replacement, etc.) could throw the plan for a loop.

    With expenses that low, I might supplement any one of those plans with some form of income generation that you genuinely enjoy. Even earning an extra $100 or $200 a month takes a lot of the risk out of the equation.

    • jlcollinsnh says

      That impressed me as well. So often you hear people talk about what they can’t do, what they can’t cut. Arnold is inspirational.

      My guess is he will indeed find some work that adds to the pot. He can even afford to be selective in choosing.

  9. FI Monkey says


    “I’m 32. If only I’d discovered your blog when I was 22.”
    “I’m 42. If only I’d discovered your blog when I was 32.”
    “I’m 52. If only I’d discovered your blog when I was 42.”
    “I’m 62. If only I’d discovered your blog when I was 52.”

    Yup, I fall into the first slot. Of course, your blog wasn’t around — as far as I know — when I was in my early 20s. Though, if only I’d bumped into you back then! (There’s my lament).

    Great case study and cheers for giving Arnold along with the rest of us hope. Just goes to show that there’s always some way to make it work as long as we’re willing to buckle down and get scrappy. That sounds like what Arnold is in the process of doing now, with direction from you.

    Still, this is a great reminder to the rest of us to keep on our toes and avoid collecting “things.” Things are empty and just clutter focus anyway.

    Also, I had no idea VBIAX existed. I must have had my nose too far into the “book” on VTSAX and the like. Sounds like a great fund to transition to in about 10 years for me.

  10. jlcollinsnh says

    Thanks FI-M…

    I think the only people who are really vulnerable are those who have it in their head that they have to maintain a certain lifestyle in a certain part of the world.

    Once you break free of those “certainties” the world is a lot less frightening.

  11. Chris says

    I don’t get people waiting on the SS money, especially when it’s going to provide him with positive cash flow for the month!

    Maybe it’s just me, but I’m more of a “give me the money now and I’ll decide how to use it.” I’m sure this will change with age (only 29 now).

    I had a pension from my first job out of school and rolled it over to an IRA (lump sum) when I transitioned to a new company. I don’t want it to be dependent on the original company. Now it’s all in VTSAX and will be through retirement (aiming at age 40).

    On top of all of the above, what about inflation and his SS payments?

    $1,700 in 5 years is only $ 1,463.48 in today’s dollars (assuming 3% inflation). That makes it even more of an easy decision. Take SS as soon as possible and invest the difference. No change in lifestyle and an increase in NW!

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