Retirement, Retirement Journey, Social Security

62 or 67? The $188,000.00 Question.

Social Security Age-1.png

$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?

 

 

financial advisor, Retirement

Our first meeting with a financial advisor.

photo of person holding black pen
Photo by rawpixel.com

Since retirement is now  4.5 – 5 years away, Joe and I thought it might be time to consult with a financial advisor to find out if we are on the right track with our money.

We started the search for an advisor on Google, and found a fee only advisor in our area.  Although his rate was a hefty $300/hr., he did offer a free initial consultation.  We made an appointment.

Joe and I felt prepared for the meeting.  Armed with a solid base of personal finance knowledge and a list of questions, we anticipated a productive meeting.  As it turned out,  the meeting was quite a disappointment.  Most of the questions we had didn’t get answered, and several other factors led us to the conclusion that this particular advisor was not for us.

  1. His credentials.   He was a CPA with Bear Stearns before he became a financial advisor seven years ago.  He told us most of his clients were his family.  Red flag No. 1.
  2. He was ULTRA conservative (and I don’t mean politically).  We told him we had one investment that we didn’t need to withdraw from for at least 12 years. We felt confident, based on historical data, that it could average 8% as long as we left it moderately invested.  He looked at us and laughed.  He told us we were being way too optimistic.  He believed, at best, we could earn 4%.   (Hmmm, I’m not sure, but I would bet he got burned big time at Bear Stearns We told him we had already been averaging 8-10% over the past 15 years (which included 2008), and we felt we were already investing conservatively.   He told us we were the exception to the rule, and it was hard for him to believe that it would continue.  (Looking at the chart below, you can see the actual returns over the last 13 years.) 
    NASDAQ Composite – Historical Annual Data
    Year Average
    Closing Price
    Year Open Year High Year Low Year Close Annual
    % Change
    2019 7,575.92 6,665.94 8,164.00 6,463.50 7,742.10 16.68%
    2018 7,425.96 7,006.90 8,109.69 6,192.92 6,635.28 -3.88%
    2017 6,235.30 5,429.08 6,994.76 5,429.08 6,903.39 28.24%
    2016 4,987.79 4,903.09 5,487.44 4,266.84 5,383.12 7.50%
    2015 4,945.55 4,726.81 5,218.86 4,506.49 5,007.41 5.73%
    2014 4,375.10 4,143.07 4,806.91 3,996.96 4,736.05 13.40%
    2013 3,541.29 3,112.26 4,176.59 3,091.81 4,176.59 38.32%
    2012 2,965.74 2,648.72 3,183.95 2,648.36 3,019.51 15.91%
    2011 2,677.44 2,691.52 2,873.54 2,335.83 2,605.15 -1.80%
    2010 2,349.89 2,308.42 2,671.48 2,091.79 2,652.87 16.91%
    2009 1,845.39 1,632.21 2,291.28 1,268.64 2,269.15 43.89%
    2008 2,161.68 2,609.63 2,609.63 1,316.12 1,577.03 -40.54%
    2007 2,578.47 2,423.16 2,859.12 2,340.68 2,652.28 9.81%

    ***We didn’t realize how conservative we were investing until 2008, when we lost -12% instead of the -40.54%.  It had more than recovered one year later, and we have subsequently taken on a little more risk.

  3. He was upselling multiple services.  Besides offering to manage our portfolio (with an upcharge of 1% to do it) he felt we needed an attorney to handle our estate.  He had “partnered” with one, and would be more than happy to set up the appointment.  Besides his fee of $1,000 to change all of our investments to only realize a 4% gain (3% if we use his services), we could pay another $1,500, to have the attorney ‘dot our i’s and cross our t’s’.  Really?
  4. Lastly, he was condescending.  This advisor questioned everything we have done to prepare for retirement.  And not in the way one questions a person to gather information.  He challenged everything we did or are planning on doing as though we have no clue.  The best one? “Why would you want to retire so young??”   Suffice it to say, I was having none of it, and we will not be calling him back.

    adult blur boss business
    Photo by energepic.com

Although this first advisor meeting was a bust, we will continue to meet with different advisors (as long as the initial consultation is free).  But, if we can’t find one we like, we will continue to read, study and learn all about our own investments, and figure it out for ourselves.  After all, you are your best advocate when it comes to your money, right?

If you use a financial advisor or have in the past, please share your experience.  I’m all ears. 🙂

 

P.S. Thank you to all that add valuable information in the comments.  Several comments have led me to change my mind on certain things that I was not aware of.  If you haven’t already, go back and read some of the comments.  There are golden nuggets of information there too!

Budgeting, Retirement, saving money

Tracking my money…how I saved an extra $1,000 in May!

photography of one us dollar banknotes
Photo by Burst

Do you know how much money actually flows into your life on a daily, weekly or monthly basis?  Recently I started watching a YouTube channel, Enjoying Life’s Journey, specifically for her weekly budgeting videos.  I often pick up one or two golden nuggets from these types of videos, and this one was no exception.  What struck me about this particular channel and her budgeting videos (and there are a ton of them out there) is the fact that Jackie tracks every last penny that comes in and out of her life.  I mean every penny.

This past month, I decided to create my own excel spreadsheet and track every penny that came in and went out.  I thought I was already doing this, but it appears I’ve been letting money slip out of our budget, especially if it makes its way to me in cash.  In the past, I only budgeted the incoming paychecks.  I was shocked to see what actually came in, and what I was able to keep.  

Here is the extra money that came in May, 2019:

  • Interest in Ally Bank:  $10.59
  • Sold items: $275.00 (Facebook Marketplace)
  • Cell phone reimbursement from my husband’s firm: $60.00 (2 mos).
  • Chase Cash Back rewards: $117.50
  • Ebates: $37.50  (If you are an online shopper, this is amazing.  If you click on the link and sign up, we both get $25.00.  This is REAL money.  It took me a long time to sign up, but over the past 6 mos I’ve received $97 back.)
  • Medical Reimbursement check: $23.25
  • Anniversary gift from my incredibly generous parents: $500.00

Total ‘extra’ money for May: $1,023.84!!!

Normally, I wouldn’t track it and somehow it would be gone.  This month every last penny went into my savings account.

Keeping track of every penny allowed me to save an extra $1,000+.  I realize not every month will be as lucrative as this month, but I’m sure there will be something every month, and I will be tracking it going forward.

How much money is flowing into your life?

 

*Ebates is an affiliate link, and is the only affiliate link in this post.  Please know that I will never have an affiliate link that I don’t use or 100% endorse.

 

 

Budgeting, Retirement, Retirement Journey

What does a retirement budget look like?

pexels-photo-2068975.jpeg
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?

Goal Setting, Retirement

Our 5 Year Journey to Retirement

lose up photo of green flower
Photo by Vraj Shah

In about 4.5 – 5 years’ time, my husband and I plan to hang up the 9-5. We will be 60 and 62 respectively.

Saying goodbye to a steady paycheck can be a bit scary, but having the freedom to do things on our own time, while we are still relatively young, is intoxicating.  We will, of course, need to save a bit more and plan a bit more before we actually make the move.

Here is what we currently have:

  1.  HealthCare.  Good healthcare costs will be upwards of $30,000 a year before Medicare kicks in at the age of 65.  We currently have a Health Savings Account (and plan on keeping it!) that we contribute the maximum amount ($8,000) to every year.  This tax deductible account will cover deductibles and our long term care insurance.  Health insurance is the bigger nut to crack, and something we will research extensively.  We could use my husband’s firm COBRA for the first 18 mos, or private health insurance. We also have an investment account of $137,000 (the amount is an estimate, and could possibly be more) that I will receive at age 62.  We plan on pulling from this account to pay for our health insurance until Medicare.
  2. Retirement Account Growth. At the present time, our 401Ks and Roth Accounts stand just shy of $1.2M.  It’s been a bit of a roller coaster ride over the past several years, but it’s also been a steady climb.  We do not have a pension, so this, along with social security, is it.  We will be contributing the maximum amount over the next 4-5 years, so conservatively we believe it will grow to at least $1.7M.  Obviously we won’t touch a good portion of that so it can continue to grow over the next 10 -15 years, giving us enough to last our whole lives.
  3. Downsizing.  Since healthcare will, in essence, match the cost of our mortgage, it is imperative that we own our home outright.  We are not in a position to pay our current home off in 4 years (see #4), but we plan on downsizing and have no mortgage upon retirement.  Besides being mortgage free, we like the idea of lower utility bills, lower taxes and less to take care of.  The unknown at this point will be where we decide to live.
  4. A healthy cash stash.  By living well below our means, over the next 4-5 years we plan on having two years’ worth of living expenses in cash.  We hope to use this so either our retirement accounts can grow a bit longer, or use during a down market.  Of course, you know me.  I believe in balance and that tomorrow is not guaranteed, so we still will be taking vacations and having fun during this time period. 🙂
  5. Social Security. {UPDATE}  After learning more about social security benefits, we will both take our benefit at age 67.  I will be two years ahead of my husband, so part of it will start on Year 5 of our retirement.

Of course, you all know the best laid plans can go awry, but this is what we know right now.  I will be blogging about our retirement journey here in this space, (and hopefully be a bit more consistent. 😉 ).  I hope you will join me.

If you are retired, or planning to retire, am I missing anything??  Please share!

 

 

 

Goal Setting, Living for TODAY, Retirement

Making TODAY count.

See the source image
QuotesIdeas.com

This quote actually caught me off guard when I finished up my last post.  I’ve been concentrating on my dreams for my life seven years from now, when I should be concentrating on today.

Every now and again I have to remind myself to find the joy in what’s happening in the present.  I tend to find myself looking to the future and not enjoying what is today. Tomorrow is not guaranteed, so making each day count is imperative to living a full and happy life.

This doesn’t, of course, mean to forget about the the future.  Planning is important.  But planning and living a beautiful life today is too.

The weather has changed.  It’s cold and wet and dark out. I won’t be surfing the net to find a new property in Florida (to enjoy seven years from now).  Today I will enjoy a hot cup of coffee, walk my sweet dog, tidy up the house, prepare a warm meal for my family and enjoy a good book.  Perhaps I will bake a sweet treat.  I will definitely take a hot bath and listen to soft jazz. And be grateful.  Grateful for the days I’ve already been given, and for today.  24 hours, 1,440 minutes to enjoy and make count.

How are you making today count?

 

 

Florida, Retirement

Mother Nature’s Apology and a Retirement Epiphany.

person spreading hands against sun
Pexels.com

After the polar vortex last week, this week has been a dream.  (Mother Nature – you are forgiven).  We’ve experienced sunshine and temps all the way up to 72 degrees.  Yesterday I started some 5K training on my 3 miler route and I felt amazing.

And then it happened.  My epiphany.  I NEED sunshine and warmth to feel good. Of course I’ve always known this, which is why I sit under a light therapy lamp every morning in the winter.  But this time the answer to my retirement housing conundrum came to me as clear as day.

I’ve been struggling with where I’m going to live in retirement.  My health and well being seem to improve with the sunshine.  Yesterday’s run (jog) solidified the answer.  I need to spend winters some place warm.  My pick? The gulf coast of Florida.  A single family home large enough to house family and friends.  There are two cities I already am familiar with and LOVE.   Of course I will need to research everything from taxes to healthcare before I dive into such a large investment.  My daughter lived in that area for over 3 years, so I will start with her insights.

I still want a place here in Virginia to be close to my family the other half of the year, and it has now become clear as to what kind of housing that will be.  Of course, in order for it to work, both homes will be have to be paid off before my husband retires.  I guess we shall see.

I’m happy to have a vision and a direction in which to move forward. It may not work out, but at least I have a clearer picture of how I want retirement to look.

Time to do some research.

If you live in Florida, please share your thoughts!