Retirement Planning - Lessons Learned

[ultrarunner]

Is there a good way to factor future tax liability in retirement...?

Some of our neighbors left the State in the 70's due to double digit property tax increases pre Prop13

With taxes of all kinds totalling my biggest expense I can only see it becoming unsustainable in retirement unless I am missing something.

Plenty have retired thinking they were sound by inflation and longevity can throw a wrench into the best of plans even with good health.

 

[beowulf]

Is there a good way to factor future tax liability in retirement...?

One option - some states do not tax certain pensions. Some states do not tax income at all. But they may make up for it in other ways.

 

[goeduck]

Some states do not tax income at all. But they may make up for it in other ways.

Oh do they ever. No income tax here, it is excluded by the State Constitution*. Going into retirement I think I would prefer it IF (and only IF) they took other taxes away. But that will never happen.

*There have been efforts to change that by the big city dems.

 

[dirttoys]

I think a fallacy is that your living expenses will go down when you retire. About the only expense that went down for us was fuel costs. The wife and I were commuting separately 60 miles round trip each every day. Some expenses can actually go up. We tend to eat out a little more often, utilities are up a little because the A/C and heat are not dialed down during the day since we are home all day.

So I would make the safe assumption that your living expenses will stay the same or maybe go up slightly in retirement.

Doug in SW IA

Someone above said know your cost of living, and I think that is dead on. I think your points are valid, but personal. My costs of wearing nice cloths and eating out every day, and most evenings went down strikingly, fuel and cars probably a wash, just different gig in different place. If OP has a solid budget he tracks, he can get pretty close. My predictions and actuals have been under a thousand bucks apart for over 18 months.

Best,

ed

 

[dirttoys]

My biggest retirement cost for sure is healthcare. Over $1000/month for a Silver plan from Blue Cross. Go to healthcare.gov to see what the options are for your location. Many areas only have one insurance company offering coverage,,, and your preferred docs and other facilities may not be in their network. I’m not eligible for Medicare for a few more years.

Is the k a month single of couple?

Best,

ed

 

[dirttoys]

Work expenses disappear. No more commuting expenses, so vehicle costs go way down. Through the pandemic, I have only gone to town twice a month for supplies, so no eating out. Work clothing switched to durable Carhartt and sweats. I figure I saved over $500/month by not going to work. Entertainment expenses switched to streaming, so that was pretty much a push.

One big driver of inflation is housing costs. If you are a renter you are vulnerable, but if you have locked in your housing, the price won't change. If your housing costs are the average 1/3 of your income, that means you get a 1/3 reduction in the inflation rate. Property taxes are your local problem.

If worst comes to worst, you can always sell a project or two. Build a 3-point trencher that will fit a little Kubota and rake in a few grand.

Newbury,

What costs dropped? I read an blog that listed the top 10 items where your retired cost drop, no one applied to me.

I think a couple of folks got most of it.

1. saving and retirement went to zero which was a real number.
2. Food was a shocking savings.
3. Obviously income tax is a little easier to manage
4. Clothing and misc. is a couple of grand a year.

Couple that with moving from a big house in the city to a small house in the country, and I am very please with what we can get by on.

Best,

ed

 

[dirttoys]

Is there a good way to factor future tax liability in retirement...?

Some of our neighbors left the State in the 70's due to double digit property tax increases pre Prop13

With taxes of all kinds totalling my biggest expense I can only see it becoming unsustainable in retirement unless I am missing something.

Plenty have retired thinking they were sound by inflation and longevity can throw a wrench into the best of plans even with good health.

You are correct, living a long time can sure dork up a great plan. I don't know the correct way to project taxes, my sheet piles them into things that get hit by inflation.

So, the insurance and tax part of the house/farm note gets exposed to inflation, the P&I does not.

Best,

ed

 

[lman]

I think you can cut through some of the detail that would require, if you start with retirement planning software and plug in 'knowns' from your checkbook. Monthly groceries, car payments, whatever you expect to remain about the same. If your broad categories match what your bank statements add up to over a year, that's close enough. You don't need all the detail that would make the numbers more precise.

Then put in estimates of distant cost, that roof for example, kids or grandkids college, whatever. And any category that you expect to increase due to your personal choices in retirement. Travel for example. Or a new hobby, or buying rural land. The software will have estimates for medical insurance annual increase and other age-appropriate specifics that are beyond your control, you don't need to forecast those yourself. Then let the software apply overall estimates for inflation.

The output will show you what the future will most likely look like. I don't think a financial planner has much better tools than what you can estimate yourself. You may learn that you need to cut back on lifestyle and put more into retirement savings, or hopefully, learn that what you have been doing forecasts a comfortable retirement.

I was told that you should get rid of your debt before retiring. If you're still making car payments, you may not be ready to quit your job. If an emergency occurs you don't want to deal with payments that should have been taken care of before you quit the job.

 

[Torvy]

Oh do they ever. No income tax here, it is excluded by the State Constitution*. Going into retirement I think I would prefer it IF (and only IF) they took other taxes away. But that will never happen.

*There have been efforts to change that by the big city dems.

They real problem with income taxes is that they allows large numbers of residents to 100% avoid contributing to the common good. The argument against sales taxes is that they are somehow regressive. The data does not really support that position, but it has been repeated so much it is taken as gospel. Poor people will pay little to net taxes as necessities are often exempted and they get back more than they pay in benefits. (plus, you could easily implement a rebate system for those under a certain income) The rich will avoid many income taxes, but it is simply too annoying to attempt to avoid most sales taxes. This would be even more true if you were not next door to Oregon with no sales tax...for those unaware, Washington allows Oregon residents to skip paying sales tax on WA purchases.

Another beauty of sales tax only is that it encourages officials to grow the economy if they want to grow the budget.

 

[goeduck]

This would be even more true if you were not next door to Oregon with no sales tax...for those unaware, Washington allows Oregon residents to skip paying sales tax on WA purchases.

This is true. In border cities along the Washington side of the WA/OR line they ask if you if you are an Oregon resident. If you are you do not pay sales tax. The businesses on the WA side lobbied for it to attract sales.

 

[goeduck]

My costs of wearing nice cloths and eating out every day, and most evenings went down strikingly, fuel and cars probably a wash,

As long as there are 3 points of contact between my "under cloths" and the elastic band I can save money, no need to buy new.

 

[MossRoad]

I was told that you should get rid of your debt before retiring. If you're still making car payments, you may not be ready to quit your job. If an emergency occurs you don't want to deal with payments that should have been taken care of before you quit the job.

If my investments make the same or more than what I was used to making when I was working, and I could easily afford car payments, mortgages, taxes, etc., there's no reason I can't do the same in retirement.

 

[ultrarunner]

Around those of my parents age the emphasis was to be debt free and have the home in good shape...

Remember Dad's best friend working one more year saying he was using the money for a 50 year roof, paint, double pane lifetime windows... etc.

The lifetime window warranty really paid off... Several were replaced under no charge including a huge floor to ceiling picture window...

He retired in the 1980's and lived in the home almost 25 years after retirement only moving to retirement community near daughter after wife died...

Now my 106 year old neighbor outlived all her savings but owned her home outright and at 102 took out a reverse mortgage making her final years free from financial worry... she outlived her children and grandchildren and was widow at age 40...

When her husband died 65 years ago she received 10k life insurance and used that money to pay off her home in full...

Someone asked if this is wise saying what will you do when that money is gone?

 

[California]

I was told that you should get rid of your debt before retiring. If you're still making car payments, you may not be ready to quit your job. If an emergency occurs you don't want to deal with payments that should have been taken care of before you quit the job.

Yeah. I put car payments in that list because some people think perpetual car payments are just part of life. I've always paid cash for cars so I don't have a good perspective on that.

Personally I did put house payments (the only thing I've ever financed) into the modelling software I mentioned. With the final payoff, not very far in the future, as a point where spendable income would step up by the amount of the payments then avoided.

 

[lman]

If my investments make the same or more than what I was used to making when I was working, and I could easily afford car payments, mortgages, taxes, etc., there's no reason I can't do the same in retirement.

Nothing wrong with that if you're comfortable with making payments. We wind up being busy enough that we don't want to deal with it. As we get older there is more chance of a medical emergency and we would rather have access to funds.
I guess my Dad, who was barely able to keep his farm running rubbed off on me. He was tighter than a violin string.
My mother in law can't remember to pay her cell phone bill and she refuses to do auto pay. So we have to help her. Thankfully she doesn't have too many monthly payments.

 

[beowulf]

.... some people think perpetual car payments are just part of life.

We also pay cash for our cars. And keep them a long time. Pilot is a 2008, and my pickup is a 2010 - both taken care of and run great. But about twice a year or so I offer to buy the wife a new car - pointing out the new features and such. She always declines, saying our car is fine. So, the wife is also a keeper. If I ever feel a car is unsafe, or when the new features are too hard to resist, I guess we will get a new car. But not a new pickup - it serves me well.

 

[California]

... my 106 year old neighbor outlived all her savings but owned her home outright and at 102 took out a reverse mortgage making her final years free from financial worry...

At age 95 Mom shifted from normal living within the limits of her pension and SS, to new substantial expenses for a live-in caregiver. I explored a reverse mortgage. The credit union specialist who would have arranged it, counseled me of an alternative that would avoid the ~$15k lost immediately upon signing for setup costs (and investor profit), the high interest rate for unconventional financing, and a fixed monthly payout whether needed or not. I think also some reverse mortgage contracts also forfeit the house upon death of the borrower, a huge loss to heirs. The credit union advised go to her bank for a A Home Improvement Loan.

At the time, preceding the 2008 crash, banks were making crazy irresponsible loans just for the transaction fees with no concern for the credit worthiness of the borrower. As soon as they wrote the loan, they sold them into pools that were bought by investors (we know how that turned out). I was advised that a 'Home Improvement Loan' was what I needed. This creates a line of credit we could randomly draw from as needed. It doesn't need to be spent for improving the house.

We wheeled in Mom in her wheelchair and she signed for a HIL line of credit limited to $50k. With interest at 6% (variable) on whatever we withdrew. The house was worth over $400k so that particular loan wasn't a risk for the bank. We never did draw down the total available $50k limit over the three more years that Mom lived.

This provided all the additional money needed for first rate care, no more concern over money, and very low setup cost. And an unexpected bonus: The variable interest rate worked down to some 2.5% so this was near free use of their money. I was surprised the bank had no concern for payoff immediately after Mom was gone. They said just keep up the payments and pay it off when you settle the Estate.

I recommend this strategy instead of a reverse mortgage. Far lower costs. I think so long as loan-to-value is under say 40% of the house appraisal (and the borrower obviously won't live several more decades) any bank will be glad to write such a loan.

Added: HELOC, Home Equity Line Of Credit, is the modern name for the 'home improvement loan' we used.

 

[goeduck]

Now my 106 year old neighbor outlived all her savings but owned her home outright and at 102 took out a reverse mortgage making her final years free from financial worry... she outlived her children and grandchildren and was widow at age 40...

That is my last ditch safety net if I make it anywhere near 102 and all else goes in the carper. All the modeling says no way I would ever need to, but it is nice to have a backup plan to the backup plan.

 

[ultrarunner]

It was another neighbor a recently retired city manager that made it happen...

She had been helping since the 106 year old son died quicky of pancreatic cancer... healthy, active and with a vigor for life... 6 weeks and gone

Sometimes you don't know what you don't know... at least the last few years she had been able to enjoy her home on her terms with aids as needed...

Its nice to have the option as a backstop...

 

[kenmac]

If buying new, many times they will give you a better deal if you finance. So finance, and it you like, pay it off when the first payment comes.

I may finance if I can get a low interest rate. It may be better than cashing out my investments, paying taxes now, and then paying taxes at the end of the year due to adding to my income from cashing that investment out.
It really comes down to the, what's it really gonna cost me over all game !