Retirement, Retirement Journey, Social Security

62 or 67? The $188,000.00 Question.

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$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.

Screenshot_2019-06-14 How long will my money last with systematic withdrawals Calculators by CalcXML

 

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

$216,000.00

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.

Screenshot_2019-06-14 How long will my money last with systematic withdrawals Calculators by CalcXML(1)

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.

Okay all you math nerds…am I missing something?

 

 

Budgeting, Retirement, Retirement Journey

What does a retirement budget look like?

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Photo by Alexander Mils

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).

Health Care/HSA  $                     3,000.00*
Utilities  $                         250.00
Homeowner’s Association  $                           80.00
Cell Phone/Cable  $                         265.00
Taxes (Personal & Property)  $                         600.00
Insurance (Car, Home, Umbrella)  $                         200.00
Home/Car Maintenance  $                          500.00
Charitable Giving  $        To be determined
Groceries  $                         550.00
Eating Out  $                         100.00
Household  $                         100.00
Gasoline  $                         200.00
Personal Care  $                         150.00
Clothes  $                         150.00
Gifts/Christmas  $                         300.00
Personal Spending  $                         200.00
Travel $                          750.00
TOTAL: $                       7,395.00

*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.

How does your budget compare?