Tuesday, January 16, 2018

Rejiggering the Budget & Spending in Retirement-2018




We had our budget meeting for 2018.  That's our discussion on how much money we'd have for 2018 and where we are going to spend that money.

Just to recap, our income is derived from an annuity payment each month, and once we access it, our 401K account.  We also have additional regular savings that I've socked away since 2009 which we can access if needed(but I hope we don't need it this year).
We have a RMSA to reimburse for healthcare premiums in 2018 and I'll be starting to use our HSA account starting in 2018 for medical co-pays/payments.
So this discussion is just about how/where to spend the annuity income and how much 401K cash we need to withdraw in 2018.

First thing was to figure out how much money we spent in 2017.  This will help us figure out what we'll need to spend in 2018.  Using that as a base we can add/subtract due to changes we want to make in 2018.
After tallying it all up I found that we actually spent just shy of $60K last year.  That's a lot of money!  Some of that spending won't be happening going forward, like College Boy's tuition and living expenses at the apartment up at college.  And hopefully all the expenses associated with the Louisiana house will be going away this year too.  Other expenses we stopped paying in 2017 once Hubs retired were commuting costs, dry cleaning costs, and other costs associated with him working.  If the stars all align I believe we'll have expenses about $10K less than what we spent in 2017.

Last year we had a foot in both the regular income world and the retired income world so it was a hard year to balance spending.  This year it's Retirement 24/7 at Chez Sluggy. ;-)

Going forward our annuity comes to just over $38K per year net.  I don't know with the new tax legislation if the tax withholding will change so I'll go with what we've been getting so far.

First order of business was to figure out how much we actually "need" to withdraw from the 401K to supplement the annuity income in 2018.  We were able to hold off withdrawing from the 401K the last Quarter of 2017 but that won't cut it going forward as Hubs wants to spend more on "fun" in 2018.

* Hubs' plan going into retirement was that he wanted to withdraw $36K a year from the 401K($9K per quarter).  Even at this rate, once we stop needing to withdraw the 401K $ to live on in 7+ years, when Hubs hits full Social Security age, we'll have over 75% of what we had when he retired in that account. So it's in no danger of being depleted withdrawing at that rate.
$36K after tax withholding would be $30,600 net.
$38K+$30,600 is $68,600 net income a year.

Now I know if we take out that much Hubs will set about spending that much! lol  I really don't think, at least for now, we need to withdraw $9K every quarter to supplement the annuity and live a comfortable life.
Call me the "stick in the mud" in this relationship but starting in 2019, for the following 4 years and 3 months(4 years and 11 months for me)we are on our own with regard to healthcare insurance and who even knows what health insurance will look like/cost after 2018.  Yes we have a medical savings account but there isn't enough in there to pay for almost 5 more years on insurance premiums out of pocket.  I am staying cautious when it comes to spending money on "fun".  I pointed out to Hubs that we already spent over $8K in discretionary or fun in 2017 so we really don't need to withdraw lots more $ for that purpose.   ;-)

Withdrawing $6K a quarter gives us $20,613.24 per year after tax withholding which bumps our income up to $58,690.80 net per year.
It's about $1500 less per year than what we spent in all of 2017.  I'd like to try to keep the withdrawals to this amount per quarter, at least for now.

* Next order of business was the "Walking Around Money" or WAM.
Since retiring we've been allotting $100 each per month for each of us.
In the last 6 months I've found I can stay under $100 per month easy.  Hubs?....not so much.
He doesn't feel comfortable getting down to his last dollar.  He had a "situation" where he went out for Chinese take-out at the other place in our town because our usual place decided to close on Mondays(and it was a Monday).  This other place only takes cash or local checks, no credit cards.  We didn't think about that when he went and of course, being the end of the month, he didn't have enough cash to pay.  Ever since that incident he's been antsy about running out of cash.

Now I don't think it's "fair" that he gets more WAM than me to throw about anyway he wants and he doesn't think it's "fair" that he can't spend what he wants on what he wants.  It's the old "I work hard so I deserve it" gambit, right?

I asked him to make a list of things he might want to buy in 2018 and we can set this much aside for him to blow.  But he refuses to be pinned down or give me any inkling on what he WANTS to spend on in 2018.  This makes me nervous since I am sure between buying coffee drinks, trips to McDonald's, books at retail price, alcohol, spending money on chess(software and entering tournaments)and on his new beer brewing hobby(the equipment can be pricey!)during all this free time he now has, he could blow through his WAM plus another $10K in short order and have no clue he's blown through that much.

We came to a compromise on the WAM--we still only get $100 per month each BUT he gets an extra $50 in January ONLY.  He's going to keep that $50 as an emergency WAM back-up amount so "if" he runs out of WAM before the month is over he won't "feel" broke. lolz  I just keeping wondering how long until he spends that extra $50 and wants it replaced?...Hmmm.....

* Then it was on to the Sinking Fund to pay irregular bills out of.  Hubs didn't like the idea of pulling $650(or more if costs go up on those bills)off the top of the annuity payment each month.  I went through the IBs(irregular bills)per quarter and showed him how much we need each quarter to pay those in full. 
1st Quarter-$2558.51(Garbage, Sewage, R/E Taxes, LTC(Long Term Care Policy))
2nd Quarter-$1383.24(Car Insurance, LTC)
3rd Quarter-$3220.29(House Insurance, School Taxes, LTC)
4th Quarter-$1383.24(Car Insurance, LTC)

So I am taking the corresponding amounts in Jan., Apr., Jul. and Oct. off the top of the 401K withdrawals in each of these months to cover the IBs and putting it into a designated account out of which the IBs will be paid.
I really don't see what difference it makes if I take it out of the 401K withdrawals or $650 out of the monthly annuity payment but if doing it this way makes Hubs happy, I'm good with it.  8-)

For the 1st quarter after deducting the $ for the IBs into the Sinking Fund, we have $2,594.80 left in the 401K withdrawal to add to our income this quarter, or $86493 each month to add to the annuity income for Jan., Feb. and Mar. 
For the 2nd and 4th Quarters we'll have $3770.07 left in the 401K withdrawals to add to our income, or $1256.69 each month as the IBs aren't so much in those quarters.
For the 3rd Quarter we'll only have $1933.02 left in the 401K withdrawal to add to our income, or $644.34 each month.

So after taking the IBs dedicated amounts off the top of the 401K withdrawals here is what our net "income" will look like per month--
Jan. $4038.06
Feb. $4038.06
Mar. $4038.06
Apr. $4429.82
May $4429.82
Jun. $4429.82
Jul.  $3817.47
Aug. $3817.47
Sep. $3817.47
Oct. $4429.82
Nov. $4429.82
Dec. $4429.82
$50,145.51 Total for 2018 to pay all the variable bills per year.
(Plus $8,545.29 tucked away to pay the IBs for the year.)

So this is the financial game plan heading into 2018.

Questions?
Comments?


Sluggy

16 comments:

  1. This is a good case study, if you don't mind me referring to your budget as such, for me to start reality planning for 7 when hubs retires, and then 9 years, when I plan to retire,from now.The cost of living must be significantly higher in your area because even with your master frugality and shopping skills, I think our monthly living expenses might be a tad lower. We only have one teen and not two other adults though which I know is huge, but we have a lot of kid activity expenses. Still, It is nice to be able to use a normal spending family budget, as a starting place for a reality check.

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  2. Your hubby is lucky to have you - such a planner. The good part is no matter what happens you can always be a bit more frugal if necessary.

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    1. "I" can be a bit more frugal but can Hubs?....or will he? lolz
      It's frustrating sometimes when I am the one always looking to cut expenses but he won't.

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  3. I think you should teach classes on how to retire the right way - I know I would be the first one to sign up!!! You are so organized and on the ball....me, not so much.

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  4. Once your husband hits 70.5 you will need to start withdrawing a required minimum distribution from the 401(k), I assume. So you will have that plus the annuity plus social security . Your income should be even better. Of course there is nasty inflation to deal with!

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    1. Yes, we know about the RMDs but we are 10+ years from that. ;-)

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  5. Wow, timely subject. We had planned on my husband retiring in 5 years. Now he thinks he wants to retire earlier. He already has a military pension, and he is partially disabled. He works for the state and would only receive 50%. I have a small pension from my divorce and social security. I was a stay at home mom for most of my working years so I am screwed. We do alright now but I just don't think we are ready.

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    1. Go to your library and find "The 5 Years Before You Retire" by Emily Guy Birken. This book can be of great help to get you ready to retire or ease your mind that you CAN be ready when retirement comes. It's written in an easy to comprehend style and I recommend it to anyone contemplating retirement. I'd even say read this a good 10 years before you want to retire.

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  6. A few thoughts: 1-agree strongly that multiple streams of income are necessary for retirement. Woe is the person who expects just SS to cover their golden years . . . 2-one must consider the taxes and income as well as tax brackets. If you don't need to pull all of the funds out for the quarterly withdrawl-don't, 3-watch any fees for your HSA. Since I retired the fees paid for the HSA by my employer were passed onto me. Nope, I withdrew the funds, transferred them to my own checking account. No fees involved 4-insurance is a large concern of mine. I was able to join a private med ins plan, thankfully, as COBRA was out of reach and would have brought me right back to square one in just 18 months 4-cut all expenses NOW 5-build a cushion-life happens 6-sinking funds. I don't do this, rather, I account for all know expenses on a monthly basis and when I need to get my annual A/C tune up or the septic system cleaned in 3 years, the funds are available 6-estate planning, if you haven't reviewed it already: will, living will directives, burial wishes, trust etc On my end, I've tried to be as proactive as possible, and await filing 2017's taxes to see just where I am.

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    1. We also moved our HSA funds/account b/c of similar issues once Hubs retired. We don't plan on leaving our kids an estate per se(and we don't have kids who will remain dependent due to physical/mental issues)but we are at the stage of figuring out will vs. living revocable trust and end of life directives.

      Having a couple making money/life decisions is a double edged sword as opposed to a single person. Yes, you get the imput/thinking of a second person in decisions but not so great if the second person isn't "on board" with some decisions.

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  7. I like "Retirement 23/7." Thankfully, you have the reins, mostly. Maybe he has too much time on his hands to spend money or plan how to spend money? You have done a good job. Like I have said before, he is lucky to have you!

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  8. Great retirement info.
    Would love to win you bloggy box

    Gerry t
    merlinsfamily@outlook.com

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    1. Gerry t-you need to put this comment on the Giveaway post if you want it to count to win that. 8-)

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  9. My husband and I retired 10 years ago - he is now 75 and I am 72 - we experienced the same things you are - I had my husband keep an extra $50.00 in a hideaway compartment in his wallet for "just in case" situations - he probably still has it. I am like you - plan - plan - plan - and you know what 10 years later it's all come together - enjoy your retirement - don't worry (I did all the time and I don't know why) you seem to have thought of everything and eventually it'll all come together. Mary Ellen in Wisconsin

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    1. Thanks for the vote of confidence Mary Ellen. I'm glad your retirement has worked out so well! 8-)

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  10. I love reading your financial updates. I am almost 40 and had worked at a job with a traditional pension and now moved to a job with a 401K. So I feel I am behind and am anxious to learn about it now. Any book ideas to read or any tips are awesome.
    Thank you!
    Barbara

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