Friday, April 24, 2015

How Ready Are You For Retirement? Part 2

                    photo by Joe Belanger
Ok, so having a financial cushion is only one part of being ready for retirement.....albeit, a MASSIVE Part of it!

If you go into your retirement years without money(or for a rare few these days, a company funded pension)your Golden Years won't be so golden.
After all, it takes money to sustain even the most modest of lifestyles.
And let's face it, living on ONLY your Social Security check just won't cut it.

That Social Security check, once you hit the major age(depending on what year you were born in)is a help but unless you had a very high paying job for many years while working that check probably won't cover all your costs of living ANY sort of life.  A married couple has a better change of eeking out a modest lifestyle on only Social Security but really, if you don't have to, don't plan on SS being your own source of funds.
Again, there are exceptions, but for most people, you need other assets to draw upon in retirement.

And then, if you retire early there are those years of not working you need to bridge with cash until you can access your own directed retirement funds, your pension(if you get one)and/or your Social Security check.

And if you are in the US and retire early there is also that small worry about paying for your healthcare(unless your ex-employer funds something for you to draw to pay for these expenses)until you hit the golden Medicare years.

There are two other big components, besides how much cash you bring into retirement, that will have a large affect on you and what kind of retirement you have......

One--Your financial position at retirement in regard to debt.
Two--How much it will cost you to maintain any lifestyle.

So it pretty much goes without saying that you need to be DEBT-FREE once you decide to retire.
Retiring with personal or mortgage debt is not a good thing and not the optimal state to be in when you retire.
As commenter SAK noted in my last post on retirement, "The reality is that the biggest driver of what you need in retirement is driven by where you start your retirement. No debt, own home, savings, good health AND good health insurance.....".

The best position to begin retirement in is to carry no debt.
Get your house paid off(if you own one).
While it's possible to retire with a mortgage, if at all possible, it's not something you want going in.  A mortgage is just another bill(usually one of your larger ones)that will have to be paid until you get that sucker paid off.
Now it IS possible to retire with a small mortgage(that is going away soon once you retire)but most people and financial experts will tell you it's not an optimal state to be in.

And depending on the owning versus renting options, in your chosen area it may be cheaper to rent.
The real estate markets as you all know have been crazy since the early 2000's.  Some parts of the country it just makes no sense to buy a house.  The prices are just so high it would tie up all your assets and leave you with little to live off of.(Of course, when you die and your heirs sell the house they will be rolling in dough.)

 Many people go into the retirement years without a paid for house.  Just remember that the real estate market can change at any time, even if renting is cheaper now.  Rents will most certainly increase as the years go on so if you don't plan on retiring in a paid for house, adjust your living expense sheet to cover rental increases.....or be prepared to move(which will incur it's own set of new expenses and may not be something you are physically up to doing as you age).
Have a housing plan if you rent, but it's pretty smart to also have a back-up plan if markets and prices change drastically.

Again, as you look to your retirement years don't do anything stupid with debt.
Pay off your house, your car(s), any unsecured debt(credit cards), loans on lifestyle toys like boats, trailers, ATVs, etc.

And if you still have student loans going into retirement?!  You need to get those paid off asap.
If you cosigned on any loans for your kids or others you need to make sure those are paid off as well......and on second thought, you really shouldn't have co-signed in the first place, especially if you are too close to retirement to get them paid off. ;-)

We all want to help our kids and family but really, is it a wise choice to put yourself into more debt for them?  The government will give your kids loans to go to school, but they are not going to loan you money to fund your retirement.
If you only have so much money and it's a choice better funding their college education and your retirement, pick your retirement.  After all, if you don't have enough to live on in retirement that means your kids may be obliged to support you when you can no longer work.  Don't plan on being a burden to your kids.  Between paying off student loans, their own mortgage, car payments and paying the expenses their own kids will cost to raise them, your adult children have their own hands full!

Besides, your kids will have a long working life to pay back their student loans while you may only have 10 years or so left to fund your retirement. 

Not that I am suggesting your kids wait for 30 years to get student loans paid back.....they should be doing whatever they can to pay those back asap!  Deferment interest really adds up on non-subsidized student loans.  Even though my husband had both undergrad and graduate school federal loans, bringing both into our marriage, that was a top priority early on in our marriage-to pay those loans off!  The sooner you pay off student loans the less interest you will pay and the sooner you get to decide what to spend your money on next.

Don't fund your kids' lifestyles by carrying debts for them into retirement.  If you feel compelled to loan money to your adult children then at least make sure it doesn't impact you too much financially and for gosh sakes, get something in writing that can be enforced spelling out the terms of the loan, in case they decide on down the road to just not pay that money back.

The other component that can have a big impact on your retirement is how much you will need to cover your lifestyle once you stop working.
You need to take a good hard look at  your expenses, both the every month regular ones as well as the irregular expenses that only come up so often in your year/life.

Hopefully you will not be supporting kids(grandkids too) or parents when you retire.  Optimally it will just be yourself(and your spouse if you are married).

Do you know approximately what it will cost you each month to live the life you want to?
If you are on the downslide into retirement(over 50 usually)but not retired yet, it's never too early to sit down and go over the numbers.

Find a good calculator online to project how much money you can/will draw each month from your savings(and how much your Social Security will be once that kicks in).
Then write down all the expenses you will have in your golden years and see if your savings/retirement funds/SS projections are enough to cover your projected living costs.
I know it won't be totally accurate but just having some idea of where you stand with your savings rate NOW can let you know if you are on target or need to beef up what you put away/invest.

Since your expenses will change as you age(you will spend more on lifestyle during the early part of retirement, while the later years will see that spending shift to being more heavily involved with medical expenses, even after you hit Medicare age)it might be wise to figure what you need when you are "young" retired(in your 50's, 60's and some folks into their 70's)as opposed to your last years(70's-90's and beyond).
You will most probably travel a lot more as a newly retired(if you are given to travel as a way to fill your time).
You may also want to volunteer your time in causes you believe in or work part time as you ease into retirement.  While a part time job will give you a little cash injection it won't fund your lifestyle and both non-paid work as well as paid work will mean more expenses incurred on your retirement budget.

A good thing to try when figuring out your retirement expenses is to see how little you can live on BEFORE you retire.
Try it for a month or two to see what level of lifestyle you are comfortable living.
Of course there will be things you can't do while working(like not using your car or public transport).
but you could go without eating out, or cable or cell phone plans, electronic toys, traveling.
All I saying is to find your basic living NUT.
The bare minimum you will need to spend in retirement to sustain you(and your spouse if applicable).
How much you need to spend each month for the bare necessities you are comfortable living with(or without).
If you can cover your NUT each month with your retirement fund withdrawals/pensions/social security you are doing aok.

Of course, if you will have more money than that amount each month, good for you, and you won't have to live a monk's life if you don't want to in retirement.
You can always add in more expenses to cover the extras in your budget as your money holds out.
Hopefully you will have enough to cover the needs of your life and can easily add back in some of your wants.

Now don't just sit there........get cracking on a Plan for your Retirement!
It's never too early. ;-)



  1. We do all of the above already - before retirement. No debt, house paid off, expenses low except the occasional travel. Hubby turns 60 in 7 years - we have decided to collect his Canadian Pension Plan early (usual is 65 or 70) at that point. I am 8 years younger so have a ways to go before I can collect lol. Those who wait until later to collect tend to be the ones that kick off the earliest - not us!

    1. Maybe one reason some people who delay retirement and collecting on their pension or SS die soon after finally retiring is due to those added years of stress from working longer? I don't know but in some cases it may be true.
      So the question you retire early to get away from working stress only to give yourself more financial stress having to stretch your savings out longer? Hmmmm....

  2. Good points, as always! My grandparents were prime examples of living on a modest social security income. They only had social security, a super small pension of less than $100/mo and about $80,000 in savings that they were just keeping for using up in long term care, when the time came. I think they lived on about $1500 a month.

    They owned a small doublewide mobile (paid for) that was in a nice little retirement park and paid about $300 a month rent for the space. They kept that little place and their yard immaculate. They sure didn't have a fancy life or traveled (not something they enjoyed anyway) but they went out to dinner every Friday night and puttered around their house and yard. They were able to put in new flooring and windows and always kept their place up. It can be done!

    My grandpa passed away and my grandma lived another 15 years on her own. She ended up using that $80,000 towards assisted living and nursing home the last few years and passed away just as she ran out of money and had just gone on medicaid.

    1. Yes, it can be done.....and folks who don't plan are more likely to have to make do/live on a lot less than they thought. All of us will make it work when we retire, we don't have a choice NOT to make it work!
      Thanks for your comment.

  3. Thank you again, Sluggy for your down-to-earth advice. I'm a realistic early, married retiree (hubby still works but part time only). One of my pet peeves is many retirement blogs out there in cyber space falsely depict themselves as super rich retirees. But when you pull back the layers, you find out they were able to retire 'successfully' because they got some million dollar buyout that they forgot to mention (in other words, they didn't save any money to retire so well). Or, they misled their readers into believing they sold their family home and bought another home, with their sister, for cash and don't have a mortgage. Only to find out afterwards that their brother really owns the home and both sisters are living in the basement paying the brother rent. Stuff like that makes my blood boil because these retirees just can't face up to reality and 'tell it like it is'. To me, I find this to be a big problem with so-called other retirement folks (and you know who you are!!!). They paint a false picture and make others feel less than. The latest one is this woman who brags about all her exotic traveling; her most recent to Budapest......only to update and say she had to cancel the trip (at a loss of over $9000) because her 75 yr old husband's pacemaker went on the fritz! People! It's a little bit different traveling at 75 than 35. Do your traveling while young! Don't wait till retirement. Ugh.
    Those images you see of rejeuvenated old folks playing golf, sailing yachts, climbing Mt Everest are so far removed from everyday retirement life! Yes, some folks can do it, but I think those are the ones who saved $2.5million (whatever) and are the exception to the rule. Not the normal.
    My only one true piece of advice for retirement is to be honest and realistic. It's not a game to play as in keeping up with Granny Jones. It's real life and if not properly prepared for, can leave you in dire straights. When you look at a human beings life span, we spend more time in old age (60 to 90 is 40 years of elderly living) than anything else. Being a teen ager is only 7 years. Childhood is 12 years. Young adulthood is only 10 to 20 years. Old age is like forever!
    OK. Off my soapbox.

    1. Yes Cindi, we are living longer and longer. full Retirement/Social Security age is 65(or thereabouts)because that was about the normal expected life span back when they set it up. Hardly anyone retired back then(unless due to health)before that and nobody expected to have but a few years.
      Now we have a whole culture built up around your Golden Years and a lot of what the media tells us to expect(every day is like a vacation and you just play, play, play!)is hogwash. Yes, you can have some good times in retirement but it's not just about cruising, golfing and dining out. We need to get real about what retirement really is for "regular" people.
      Thanks for your comment.

    2. I really suck at math, but am I wrong to think 60 to 90 is 30 years, not 40? Still, 30 years is a long friggin' time to be old. I never thought about it that way before. Now I'm really depressed. I haven't hit 60 yet, but I'm starting to feel pretty old at 56 already.

    3. Hi Clamco. I mean we live for 10 years in our 60's, 10 years in our 70's, 10 years in our 80's and hopefully 10 more years in our 90's. So, technically we all kick off at 99. That's what I meant by 40 years. In any event, as you said, being old is a lot longer in years than any time during our entire lifespan. I don't know what it is but as soon as I turned 60, everything changed. How people treated me. My looks. My health. All slowly downhill, I am sorry to report. PS: sorry I depressed you. I'm just so awful when it comes to reality. I got depressed also when I realized this fact! UGH.

  4. I have been planning for retirement for years. My dad told me to "save as much as you can for as long as you can" and I tried to follow that advice. Since my income is our only one, I have to fund a retirement for two and I plan to have a comfortable one.

  5. I'll just come live with you. That sounds like a good plan, right?
    Den had a 401k and a pension. They changed over a few years after he was there. We are only owe on the house and have a very small nut. According to the calculator we are on target for a decent retirement. But my plan is to keep our monthly nut so low that SS can cover it. We will see if that works or not but from what the numbers that I have crunched it seems like it might work.

  6. I divorced 2 years ago, but in good position, financially: no alimony to pay, my retirement left untouched by my now X; money in the bank, no debt beyond a 0% car loan, long since paid off. My new to me, replacement car bought 12/13 tapped funds out of my savings but it's paid for. I continue to live debt free, below my means, with a budget that is based off of my take home pay. $ is put into savings on a monthly basis, for my next forever home-a modest 3 bed/2 bath Ranch on 1/2 acre or less is the plan. I anticipate putting down a large down payment, so as to avoid PMI, to qualify for the mortgage as a single person, to keep the monthly mortgage low. I will get a state pension, and qualify for Medicare @65. The issue, should I have to retire early due to health. would be medical ins until Medicare kicks in. So, I live cautiously, planning for all scenarios, but plan A is to get aforementioned house, and pay it off early in the 12 years before I hit 65, retiring w/o a mortgage.


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