After posting about our expenses, the next retirement nut to crack is savings. Do we have enough?
Ah. The million dollar question. Literally.
We used NewRetirement, a free retirement planning tool to figure out if we were on the right track for retirement. After inputting all of our financial information, and with the assumption that we will continue to contribute the maximum to our retirement account over the next four years, we come out with a ‘great’ score for retirement in 4 years.
Our net worth includes retirement accounts, home equity and cash savings. This program also included our mortgage and healthcare expenses, so if we wanted to, based on the above, we could stay in our home.
Thankfully, we have weathered the stormy markets and have come out ahead. We are more conservative investors, and have rarely averaged a 12% return in a years’ time. Our average is closer to 8%. But we still managed to hit the $1M mark. After 35 years of saving in our retirement accounts, we are finally seeing the fruits of our labor. 😉
What I LOVE so much about the New Retirement site and the chart they provide, is that it lets you know when your social security starts and when you need to take RMDs (required minimum distributions) from your retirement accounts. It also assumes a 2-3% investment growth, which, to me, is very realistic.
So, do we have enough to cover our expenses and retire in 4 years? I believe we do.
I will follow this post up with a future post on how we managed to accumulate $1.7M in net worth. But for now, know that it took hard work, steady investing and a bit of luck. No inheritance. No rich relatives.
Expenses. This is probably one of the most important of all the areas of preparedness for retirement. Without knowing how much you will need in retirement makes saving goals for retirement a guessing game.
I have been preparing my budget now, and will be living off of our potential retirement income over the next four years, while saving the overflow in a cash liquid account.
Of course, we don’t know exactly what will happen in retirement, but we do know we will need a good amount for health care. I am not going to nickel and dime this category because quite frankly without health, nothing else matters.
Another line item I want to have is a significant amount in travel. For the first 10 years of retirement, we plan on taking full advantage of our current health (good!) to blow through our travel bucket list. (a topic for a future post!)
That leaves us with the every day expenses — mortgage, utilities, cell phone, car expenses (insurance, gas, maintenance) food, eating out, gas, gifts, clothes, subscriptions, giving, personal care, blow $, household, taxes and insurance.
Mortgage. Ultimately, we don’t want a mortgage. Unfortunately, four years doesn’t give us enough time to pay off our current home. Our plan is to sell our current home and downsize to a smaller home in our area. Our children and grandchildren are here, so moving to another area doesn’t appeal to us. However, downsizing into half the space, half the utility bills and half the taxes and insurance does. 😉 We hope to downsize in the next three years before we retire. Potential Savings: $30,000/year.
Cars. We will be going down to one car. In Virginia, there is a personal property tax on cars each year. If you have a fairly new car (which we do), it can be as high $1,000 or more. Going down to one car would be a HUGE savings to several line items, including car maintenance, gas, taxes and insurance. My husband never uses his car on the weekend, and I barely use my car during the week. When he is retired, we don’t see needing both. Potential Savings: $3,500.00/year.
By rejiggering just those two categories alone, we would save over $30,000 in yearly expenses.
All other expenses.
We are in a good place with other line item expenses, so I’m keeping them all the same for retirement. By saving on the big ticket items (mortgage and cars), the other line items can remain the same.
So, where does that leave us?
Here is our preliminary REALISTIC retirement monthly budget, and one we follow now except the $2,500 is our mortgage instead of healthcare, and our taxes and insurance is $1200/mo.
HealthCare: $2,500.00** (This includes insurance, co pays, medications, and concierge service for my endocrinologist )
Travel: $1,500.00 (5 trips a year)
Taxes & Insurance: $550.00
Eating Out: $100.00
Home/Car Maintenance: $250.00
Personal Care (makeup/hair): $100
Blow $: $200.00
**Healthcare will go down significantly when Medicare kicks in, although I anticipate spending some money for gap insurance.
Well there you have it. After months of agonizing over our expenses, I can honestly say the above numbers are as accurate as they can be. I’m not going to lie, that is a high monthly nut to cover. $400,000 for the first 5 years to be exact, then $135,000 for the next 2 years (when medicare kicks in). However, once we start social security at age 67 (yes, we changed our minds again 😉 ) our monthly draw from personal savings will be $2,625/month or $31,500/year.
Will we have enough to retire at age 60 given the above numbers? I think so. But stay tuned for the next post in our series, OURCURRENTSAVINGS.
If you are retired or planning to retire, how do your expenses align with mine? Please share!
Spoiler Alert. We now have a date. My husband is officially retiring in 4 years and we are busy gearing up for the day when he will no longer be getting a paycheck. My husband’s retirement age will be 60!
I guess that doesn’t qualify us for the F.I.R.E. (Financial Independence, Retire Early) movement, but it sure beats waiting until 70 or beyond to retire.
I have been reading a lot of articles on pre-retirement planning. While I may not have anything extra to add, I thought it would be advantageous to share how we will be preparing for our retirement. I will document our personal journey in this space as a way to keep me accountable.
For us, we have concluded that there are five things we need to consider before we retire. In general terms, they are:
Our Health – what will our anticipated well-being be when we retire – and what we will do in the next five years to make that the best it can be;
Our Wealth – what we will have potentially saved in our retirement accounts, how we will navigate withdrawals and when we will be the most advantageous time to take our social security benefit;
Our Expenses – what our retirement expenses will look like including medical expenses;
Our home – where we will live out our retirement years and if we will move, downsize or stay put; and
Our Hobbies & Interests – what we will do with all that free time.
In future posts, I will be sharing how we will be preparing and addressing each of the above five considerations. I hope you’ll join me.
If you are thinking about retiring, how are you preparing? If you are already retired, am I missing something?
$188,000.00 is the amount of money that we would leave on the proverbial table if we waited until our retirement age of 67 to take Social Security. By quickly calculating the difference in the amount we would receive, it would take 12 years for us to break even.
Waiting until 67 allows the benefit to ‘grow’ 8% each year, which financial advisors will tell you is a great rate. (But you all know how I feel about financial advisors) However, the 8% incentive is only good if you live well beyond 74. The operative word being ‘live’. All of the social security benefit goes away when you die. Since we don’t know when we are going to die, it remains the one thing that makes this decision a gamble either way.
I will have to make a similar decision on a pension that I expect to receive in five years. Based on the numbers at this time, I can either take $600 a month for life, or a lump sum of $137,000. If I live another 30 years, the monthly payment would be $216,000.00 in total pay outs but would end upon my death, whenever that may be. However, if I take the lump sum, invest it conservatively (earning 4-5%) while taking $600 a month, after 30 years I would still have $64,000.00. It can continue to grow and be given to my heirs even after I’m gone.
This seems very similar to the decision with Social Security.
If we never spent the monthly checks from social security from 62-67, the $188,000 could be invested (conservatively at 4-5%) until 67. At 67, we would have
Now let’s say I started taking the extra $1,200 a month I would have gotten if I waited until 67, from that investment still earning 4-5% a year. I would be able to pull that money out for another 25 years. If I die before the 25 years is up, that money can go to my heirs as well.
I’ve accounted for taxes and low investment yields. It seems like a no brainer to me. I should take the money the earliest it is offered.
A big part of our journey to retirement is figuring out what our future costs will be. Some of this is guess work, but we generally have a good idea because there is a short amount of time before we retire. One of the best things I’ve done, in my opinion, was plan our retirement budget and live on it NOW. I initially wrote about it here, but have changed a few things.
Here is our monthly retirement budget with our real numbers. (Instead of HealthCare, we pay a mortgage, HSA, and LTC insurance).
Taxes (Personal & Property)
Insurance (Car, Home, Umbrella)
$ To be determined
*In retirement, $3,000 will come out of a separate investment until Medicare kicks in at 65. We will be taking social security at 62, 67, which will give us another $4,500 a month. This should *hopefully* more than handle the medical portion of our retirement. That leaves a monthly budget of $4,400/mos. or $52,800 a year.
As you can see, I’ve kept in a sizeable monthly amount for travel. It is something that is important to us, and I wanted to budget for it. Of course at any time we may fall short, this will be the first to go.
Retirement advisors will tell you that you need 100% of your present day salary in retirement. I disagree. In retirement, we will no longer be saving for retirement, taking care of children, paying for college, etc. By living off of my ‘proposed’ retirement budget now and not spending more, it’ll be easier for us to make the transition.
This amount may seem high to some, and low to others. I know my parents, who are in their 80’s, live on MUCH less and they are very comfortable. When they were in their early 60’s they traveled a lot, and used up their retirement accounts. But my father worked for AT&T and has a great pension and social security to get them through these years. I believe our spending will go down once we reach our 80’s as well *God willing*.
I will keep evaluating the budget (and our investments) as we get closer to our target retirement date. Based on the numbers today, we are on track.