Retirement Planning - Lessons Learned

[lman]

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.

We both work in town about 7 miles away with same hours so we only use one vehicle that gets 40 mpg. Don't eat out now. Our place has been paid off for some time. OTA TV and netflix only. Price of fuel to mow about 4 acres and maintain woodlot is going up every day along with food. Medical insurance is no fun either as we are not 65 yet. We don't buy hay for my horses as the farmer down the road bales his share and then bales mine at no cost on my land.

I guess we would save about 2 or 3 gallons of fuel per week by retiring. I need to replace about 10 acres of fencing and finish my basement that will cost me when I retire. I actually already retired and am drawing my pension but went back to work at a part time job.

 

[beowulf]

I think a fallacy is that your living expenses will go down when you retire.

Doug, I sort of agree. That is, living expenses may not go down, but I think it is important, when considering whether you can afford to retire, is to compare net income before retiring with net income after retiring. For example, from the gross income before retirement are deductions for pension, deferred compensation, and social security. After retirement those "expenses" no longer pertain. And after retirement, if you add the amount you can receive from your pension, from Social Security, and deduct money you no longer have to spend to commute and for other work related expenses - at least for us - we had more 'net' money after retiring. And Medicare plus a medigap policy was less than our health insurance we were paying through our employers.

It will be different depending on individual circumstances - e.g., some may have planned to have their homes paid off - but anyway, I think it is important to think 'net to net' in the comparisons.

Now, other expenses can go up, e.g., hobbies, traveling, and money spent on projects (tractor related) to fill the extra time we will have.

 

[JethroB]

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.

 

[goeduck]

I expect to have more time when I retire to throw money into my hole in the water. Old Joe's going to take it, so might as well blow it.

 

[newbury]

Newbury,

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

Like Larry wrote, no commuting cost, where we absolutely needed 2 cars (unrealistic to drive and park my dually in Washington DC traffic) , clothing (though I have not gone to Carhartt, I favor Duluth Firehose) for both of us - have not put on a suit for a decade except for the occasional wedding or funeral, no more almost required dining out for lunch to stay abreast of office politics.
One unforeseen side was savings on tools. Both my and my wife's computing needs dropped greatly when we stopped developing and modifying complex Powerpoint briefings.
And

That is, living expenses may not go down, but I think it is important, when considering whether you can afford to retire, is to compare net income before retiring with net income after retiring. For example, from the gross income before retirement are deductions for pension, deferred compensation, and social security. After retirement those "expenses" no longer pertain. And after retirement, if you add the amount you can receive from your pension, from Social Security, and deduct money you no longer have to spend to commute and for other work related expenses

I always considered "deductions for pension, deferred compensation, and social security. " etc. as "work" expenses.

I thought I wrote this elsewhere in the thread but a while before I retired a group of us were talking on a break (and remember we were all CSRS employees with 30 to 40+ years of government service) and I pointed out that if one compared what each of us was "netting" after all the payroll deductions and work expenses versus our retirement pay we were only clearing a few dollars an hour. Even though on paper we were all making $120 to $140K/year.
One guy figured out he was actually basically PAYING to work. He retired darn soon.

 

[goeduck]

I figure it will be easy to meet my expenses..... everywhere I go, there they are.

 

[Jstpssng]

My brother told of going to a retirement seminar when he was in his thirties, when he got there and saw the other attendees he thought “I’m here about 20 years too early.” At the end many of the others were saying “I wish I had done this 20 years ago.” He retired at 58.

I come in with the latter crowd, and expect to work until I’m 70, although probably not my current 45 hour per week job.

 

[California]

My brother told of going to a retirement seminar when he was in his thirties, when he got there and saw the other attendees he thought “I’m here about 20 years too early.” At the end many of the others were saying “I wish I had done this 20 years ago.” He retired at 58.

54 retirement here. Partly to look out for elderly parents and keep an eye on two teens. Wife had worked half time in a professional job since the first kid was born. She loved that job and stayed until about 60.

Around age 50 I attended a retirement seminar at work. All that consultant would talk about was investing for retirement, preferably with their firm, but I couldn't get them to include in their projections the pensions all of us would qualify for. Theirs was an incomplete picture of everyone's actual circumstances.

Then a while later I accepted a Fidelity invitation to consider engaging a for-fee financial advisor there. He said he couldn't include our government pensions or deferred compensation savings in his portfolio modelling. So we halted the interview and walked out.

Instead of relying on either, I bought Quicken's retirement modelling software and ran the calculations myself. (this was 20+ years ago, I see today Fidelity and Vanguard have free software for this). Then the stock market boom of the late 90's jumped our savings up surprisingly and the modelling showed we had already reached our goals. Spending cash and deferred compensation along with pension before SS kicked in would provide an inflation-adjusted sufficient income over our lifetimes.

It has worked out as modelled. In fact a little better. Our savings today are 50% more than the day I retired. Today I stopped by the Tesla showroom, considering replacing our 15 year old Focus Wagon with a Model Y. I'm not sure I want a car that big but its nice to know I can pay cash for it.

In summary get retirement planning software and see where it goes. You might be surprised what it shows if you never spend as much as you earn, both before and after retirement.

 

[Fuddy1952]

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.

Yes! ^^^^^ I thought FOOD would be my #1 expense retired at 61, wife 59...nope...health insurance until Medicare at 65.
Rule of thumb (worked for me). Paper & pencil write down everything you can think of, insurance, food, taxes, utilities, even things like new roof every 20 years, appliances...everything you can imagine.
Now take THAT figure and double it. You should be fine .

 

[California]

Yes! ^^^^^ I thought FOOD would be my #1 expense retired at 61, wife 59...nope...health insurance until Medicare at 65.
Rule of thumb (worked for me). Paper & pencil write down everything you can think of, insurance, food, taxes, utilities, even things like new roof every 20 years, appliances...everything you can imagine.
Now take THAT figure and double it. You should be fine.

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.