A Helpful Statement View
When I get into any car, including our own, I look at the fuel gauge. I want to know if I will have enough fuel to reach my destination.
Before the big shortage of new Ford Escapes limited the supply, we were blessed to be able to purchase a 2020 Ford Escape Titanium model from Middleton Ford. One of the things of interest to me was the MPG ratings, and the size of the fuel tank. The goal is to minimize the number of times I have to stop to refuel. Because my commuting days are over, there are months when I can get by with a single fuel refill. I also get better MPG than the published ratings, because I no longer drive like a teenager and don’t have a heavy foot on the accelerator pedal.
There are also settings called “Drive modes.” These modes include “Eco,” “Normal,” and “Sport.” I don’t use “Sport” because it offers, “sporty driving with improved performance handling, and response. This mode increases throttle response and provides a sportier steering feel. If equipped with automatic transmission, the powertrain system provides improved gear holding, helping your vehicle accelerate faster.” I don’t want faster acceleration. Rather I want economical vehicle costs so the ”Eco” mode offers, “efficient driving. This mode helps deliver maximum fuel efficiency and helps to increase driving range.” FORD LINK
There are five income tanks in our Fidelity retirement accounts. We can draw from income that flows into these accounts from stock dividends, ETF dividends, mutual fund money market dividends, REIT dividends, and income I get from trading covered call options. The income can also be viewed by tax-type. There are taxable dividends, tax-exempt interest payments, tax-deferred dividends, and tax-free dividends.
Checking the Income Tank
In addition to our monthly Social Security Income, we have dividends and interest income from our investments. Because 99.9% of our assets are at Fidelity Investments, it is very easy each month to see the level of our income fuel tank and the likely mileage we will get each month from our investments. One of these gauges tells me how much spendable tax-free income we have each month.
Our 2023 YTD tax-free income is $30,267.75. This comes from Cindie’s ROTH IRA and my ROTH IRA. This is certainly easy income because all of it is available for charitable purposes or for living expenses.
The Fidelity statement breaks out our various types of income in a nice summary view. In the following snapshot from our August statement you can see our YTD taxable income, tax-exempt income from a municipal bond, tax-deferred IRA income, and tax-free ROTH income. About 30% of our investment income is tax-free. That is very easy income.
This same page in the statement does a nice job helping me see our top holdings, asset allocation, and asset classes. I have a very strong bias toward stocks and stock ETFs for income growth. As a caution, don’t think that I recommend holding 9% of your assets in AVGO stock. I will be reducing our AVGO holdings to bring that below 5% at some point in the future.
The Income Sources
Another helpful page in the monthly Fidelity statement (by account), shows the estimated cash flow. The estimates are for the next twelve months, and do not take into consideration dividend increases, decreases, or the sales/purchases of more shares of stocks or ETFs. This also does not show options income, as that is variable and is activity based.
Because I hold no bonds in my traditional IRA, there is no income from bonds (1-2). The largest portion of income (3) is from stock holdings, followed by “Other Income” from REITs (6). The ETP (ETF) Income is primarily from VYM (4). The “Mutual Fund Income” (5) is income from SPAXX, as I don’t hold mutual funds for income.
Why This Matters
Although the projected income in the traditional IRA, for the next twelve months, is $79,118, there is a drain on this income. If I withdraw the income, I have to pay income taxes. Because our effective combined federal and state income tax rate is about 17%, after itemizing deductions, the real income is about $65,600.
Starting in 2024 I am required to take the RMD based on my age. Based on today’s balance of the IRA account, next year my RMD will be $68K. This helps me know that the projected income of $79K is more than sufficient to cover the $68K RMD and enough to pay the income taxes. Even if the IRA account balance shoots up, I won’t have to sell any investments to cover the RMD.
Finally, this is helpful because it shows that monthly income is not the same each month. Most dividends are paid quarterly: September, December, March, and June are the big income months. October, January, April, and July have healthy dividends as well.
In Conclusion
In my experience, most investors never look at their monthly statements. That is a rather broad statement, but I have worked with enough investors to know that they feel intimidated by the statements and just file them. That, I believe, is both naive and harmful. The day is coming when you will undoubtedly need income from your investments. If God blesses you with long life, then you should be thinking about how long you will be able to work and what income sources you will have in your investment fuel tank when you do cut back on your hours or cease the Monday through Friday commute.
