Retirement, Retirement Journey, SAVINGS

The Stock Market Ups & Downs and My 5 Bucket Sources for Retirement.

grey metal case of hundred dollar bills
Photo by Pixabay on Pexels.com

Preparing for an ‘earlier’ retirement requires making sure our money lasts.  Having various ‘buckets’ of resources is how we won’t lose our minds when the stock market takes a bit of a tumble.

Before I begin, if you are worried about your money in the stockmarket, please watch this video.  You’ll feel MUCH better.

Buckets 1 & 2 – Our Retirement Accounts

We have amassed, in my opinion, a significant amount in our 401K retirement accounts.  I will always be an advocate of the stock market, as it has proven over and over again that it recovers.  Slow, steady and consistent investing will give you the money you need over time.  We are proof.

We have two retirement accounts, and consider them buckets 1 & 2.

The first bucket will have ultraconservative investments, and we will use it to get through the first 7 years of retirement.

The second bucket will be money we will let grow.  We figure we have another 12 years of growth.

Bucket 3:  CASH. 

My goal before we retire is to have $200,000 – $250,000 in cash reserves.  I believe this will be enough for us to weather a long down market.

Our cash goal is a lofty one, but one we could do.  Thanks to my husband’s career, the fact that he was never unemployed, and his hard work to get to the position he’s in, we are now able to bank 50% of his take home salary.  (Of course it doesn’t hurt that all four kiddos are off Mom & Dad’s payroll!).  If I’m diligent with our budget, this goal can be obtained in three years.  I will take the fourth year to pay off our mortgage, which is the only way my conservative husband will retire. 😉

Bucket 4:  Social Security

Of course, we will have social security (yes.we.will).  We won’t start receiving it until year 7 of our retirement.  (I’ll receive mine two years before hubby).  If we keep our expenses low,  it will cover 3/4 of our monthly expenses.

Bucket 5:  A Divorce Settlement Pension (My HealthCare Plan)

May I just say I earned every penny of this? For all those that may not know, I was married and divorced in my 20’s.  I will never go into the specifics of that, but I came out ahead  with two GORGEOUS daughters and a pension.  I will receive the pension at age 62 (the same year my husband plans to retire).  I will take it as a lump sum, then roll it into an IRA.  This should cover most of our healthcare needs before medicare kicks in.

I believe it’s imperative to have several ways to get money in retirement, and cash will play an even more important roll in the future.

How are you saving for retirement?  Or, how are you spending in retirement?  Please share in the comments.

Retirement, saving money

Seriously. What took me so long?

https://www.thecollegeessayist.com/wp-content/uploads/2015/08/procrastinate-on-these-13-websites.png
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Procrastination.  It can be a true enemy to your financial life.  I procrastinated for many years by not looking at my fixed costs more closely.  Fixed are fixed, right?  Wrong.  And it cost me.  Big.  $3,240 to be exact.

I’ve been on a kick to save as much money as possible, as my desire to retire early is lighting a fire under my butt to get it done.  So, I’ve been looking at ways to lower our monthly bills which will allow more money to be saved.   In the last 30 days, I reviewed my fixed expenses, which included insurance policies, cable bills, cell phone bills, electric bills, water bills, and natural gas bills. The results were eye opening.

This is how I found more than $3,000 in savings:

INSURANCE

Homeowners.  I was being overcharged for home insurance by $400 a year.  They had an enormous replacement value on my home because they had in their records 1000 more square feet than its actual size.  If I had really read the insurance papers last June, I would have noticed it sooner.  I’d love to blame them for incompetency, but this one is on me.

Car InsuranceNot much to change here, but I did find an overcharge on my car for $80 a year.  $80 is $80, right?

CELL PHONE/CABLE

Our service provider changed it’s policies so I was able to get out of a cable contract that I had with no penalty.  I capitalized on this recently, and documented it here.   I also took advantage of internet/cell phone bonus and got 1 GBT internet and unlimited data for my cell phones .  This is where I saw the most savings, about $2,000 a year.   I am MOST happy about this change. 🙂

A side note:  If you are financing your phone through your cell phone bill, it’s not a utility bill, it’s DEBT.  It took me YEARS to realize this.  I’m glad we own all of our phones, and no longer finance them.

UTILITY BILLS

GAS & Electric:.  This should have been done YEARS ago, but I finally changed all of my lightbulbs to LEDs.  I’ve also lowered the temp to 68 degrees, lowered the hot water heater to 120 degrees, turned off the garage refrigerator, and started sealing up the windows.  I have yet to get the new bills with these changes, but based on the wattage usage, I should save $25-40/mos. just by unplugging the garage refrigerator.   By lowering the heat and hot water heater, I should be able to save another $20 a month.  Total savings for the year: $720.00.

Water/Sewer Bill: I changed out shower heads to get a slower flow, as well as other faucets.  The water bill has always been an issue, so I’m making a conscious effort to use less.  I am taking fewer baths, and shorter showers.  Hopefully small changes will add up to big savings.  I’ll keep you posted on this one.

I’ve realized, finally, that fixed bills don’t have to be ‘fixed’.  There are ways to save money.  And I have $3,000 more to prove it.  So, not only do I have $3,000 more in savings, but I have $3,000 less to come up with when I retire.  A win-win for sure.

If you have ways you save on your fixed expenses, please share!

 

 

 

Budgeting, Retirement, Retirement Journey

Series: Retirement Preparation. The retirement budget.

grey metal case of hundred dollar bills
Photo by Pixabay

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!)

white cruise ship
Photo by Matthew Barra

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
  • Utilities: $275.00
  • Cell/Cable: $200.00
  • Groceries: $500.00
  • Household: $100.00
  • Subscriptions: $25.00
  • Eating Out: $100.00
  • Home/Car Maintenance: $250.00
  • Gifts: $200.00
  • Clothing: $150.00
  • Personal Care (makeup/hair): $100
  • Blow $:  $200.00

Total:  $6,650.00

**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, OUR CURRENT SAVINGS.

If you are retired or planning to retire, how do your expenses align with mine?  Please share!

 

 

 

 

 

 

Retirement, Retirement Journey, Social Security

The 4 Years before Retirement

lose up photo of green flower
Photo by Vraj Shah

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:

  1. 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;
  2. 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;
  3. Our Expenses – what our retirement expenses will look like including medical expenses;
  4. Our home – where we will live out our retirement years and if we will move, downsize or stay put; and
  5. 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?

 

Goal Setting, Retirement, saving money

An update.

I was supposed to be off my blog for a month, not three.   I must admit I didn’t go cold turkey on social media.  I did read some blogs, watch some videos and follow some friends on Instagram during that time.  Although this blog remained silent, I’ve been busy moving forward with completing our Wills, updating our retirement accounts, bagging the concept of long term care insurance (blog post to follow), planning a few trips and generally enjoying the last of summer and beginning of Fall.

I do have a lot to share, especially with regard to some previous post ideas.  Needless to say, my opinion has taken a 180 on several concepts, which I will also share soon.

So, if you are still out there, I will be updating.  I look forward to talking with you all soon!

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!