Thursday, July 6, 2017

Budgeting for Retirement

My Father's decision to retire early

My father had received a diagnosis of pancreatic cancer from his doctor, when he was 60. He was naturally quite flummoxed, and wondered what to do.
He returned to work after the news, and made a list of his expenses, his current income, and his income as it would be if he retired. He also noted which expenses would drop if he did retire early, such as commuting expenses, lunches out, and clothing purchases/dry cleaning.
He found that he would LOSE money if he continued working.
He turned in his forms that day.
Was it a good choice? Well, he lived another 16 years, and was able to pursue his hobbies, spend time with his family, and enjoy the freedom of not having to answer to others.
I'm not that lucky. I've generally earned more in the last 10 years, and will stand to lose some income as a result of my decision to retire. That's even after factoring in reduced expenses.
For me, it's worth it, for the freedom it gives me to pursue a lifelong dream - writing.

Do I have enough money?

That's something you'll have to discuss with your financial advisors and family. Keep in mind that those terrifying articles that warn you of the need for more than a million dollars in investments to keep out of the poorhouse, never take into account things that will affect your comfort, such as:

  • Will you keep your home or sell and down-size? For some people, their home's equity represents a large chunk of their wealth. You can make a choice to cash out, use that money for investments/savings/paying down debt. All of those choices might make more sense than an over-sized house that is a financial drain.
  • What will your Social Security check come to at different ages? I worked out the numbers, and, even if I took my check now, I would collect $40K+ in the years before 70, when I would max out. I decided to play it conservatively, and just take my spousal portion (it's not that much, I lose due to WEP - total each month is - don't laugh - $8.00). I MAY decide to switch to my own check on my next birthday - it's still in discussion. But, the fact that we have other income allows me that choice.
  • How's your health? If you, like my dad, are facing an uncertain future, you might decide that it's more important to enjoy life now. Or, you might need the health care in your job.
  • Do/Will you get a pension? I do, and my husband does. It does make the choice easier.

Differences in the pre-retirement and post-retirement budgets

You might save a little, but, for most people, the post-retirement budget looks a lot like the pre-retirement budget. There are some savings, and you will have more time to scout out those coupons, deals, and senior discounts. But, for most of us, the difference isn't that huge, unless your commute is long.

CAVEAT: Health insurance is one of the biggest budget-busters in many seniors' money management. So many people, who get their health insurance at work, fail to realize the tremendous subsidy that their employer picks up. When they retire, they exclaim, "Why is this insurance so expensive?"

It always was expensive - you just didn't pay most of it directly. My insurance costs doubled; and, I have a reasonably high deductible. Others, wanting the generous health plan they enjoyed before retirement, find that the full cost - which they must pay without a subsidy - is out of their reach.

Shop around. Decide what you absolutely need, can do without, and are willing to compromise on.

For example, many had previously had eyeglass coverage. With the rise in discount eyeglasses, some on the web, others in-store, this might be one to dump. I use America's Best glasses, and am quite satisfied with both the exams, and the glasses. For someone like me, whose prescription has changed nearly every year in the last 5, cheap is better.

For my husband, who can still use over-the-counter reading glasses, and whose distance vision has been stable, quality and durability might be more important.

Bringing in income

Some suggestions:

  • For those with degrees in anything, subbing in schools (assuming you like kids). It is sporadic, but not too taxing for those who can't handle heavy work.
  • Use your expertise: bookkeeping, cleaning, yard work, babysitting, clerical - all of these can be done on a temp basis. For those with Master's degrees and above, colleges are looking for those who only want to teach one or two classes.
  • H & R Block and other tax services: there are classes you can take to prepare to help individuals during the January-April rush. My sister-in-law does this, and makes big bucks in a short time. She's been doing this for more than 5 years, so she makes the top rate. I don't see them going to a flat tax anytime soon.

Reducing the outflow

This is a good place to get your budget in order:

  • Look for 'leaky' parts of the expense. Subscriptions you don't use, food that can be bought cheaper/made at home, convenience foods/services you no longer use, etc.
  • Check out the unclaimed funds for your state - amazing how many times you find something you forgot about (old savings account, utility refund, etc.). A Google search will turn up those sites.
  • This is hard: consider what your car costs. I love my Tiburon, but - in another couple of years, when Den is not working (if that ever happens), we may not need 2 cars. Particularly with the popularity of Uber and Lyft, a 2nd car might be a luxury. And, without it, you will not only get money for selling it, but also for reducing the insurance for a 2nd car.
  • This is even harder: Internet. With so many businesses having access points, does it really pay for you to have a home network? For me - YES! But, it is a large expense, and one that some people will chose to relinquish.
  • Use the various sell-it-yourself apps to get rid of stuff. For a few things, you may realize a significant cash reward. For others, it de-clutters the house, and that is its own reward.
  • Regardless of other savings, take advantage of every savings you can. Plan your purchases around senior discounts (groceries), double couponing, and ads. Ask: do I really need this, or can I substitute/borrow/rent/do without?

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