A Reader Asks Some Financial Questions Regarding Retirement

My Financial Meeting Post, which is located HERE brought this comment from "Jenn in Indiana" that I'd like to discuss as it might explain our current position a bit better and it might help others struggling in some way with retirement planning.

Jenn said......
"I feel so behind for retirement.  How did you and your husband know where to even start when saving/investing? I would like to go to a planner but my husband has no trust in them. Maybe you could write some blog posts on how you made retirement so successful? And how do you pay for such expensive insurance since you don't yet get Medicare? You seem very knowledgeable and would love some advice?
J"

Let me put out there that I am no way a financial expert nor do I pretend to be one.  My Hubs did spend 33+ years in the insurance business(not sales though)and the last 20+ of those in retirement services specifically.

And again, everyone's financial journey is different so take any advice with a grain of salt and mine is worth about what you paid for it(which is nothing). ;-)
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Let's take this part by part......

"How did you and your husband know where to even start when saving/investing?"

It took years to get traction financially.  When we first married it was "keep your head above water time".  We were young, a year out of school(Hubs was still in a graduate program)with no 'real' jobs yet.  Getting Hubs established in his career took awhile and we relocated twice(2 different states)before he was offered a living wage.  We lived with family in 2 different states then rented half of a 2 family house from a family member before things got to a point financially when we could breathe.

As soon as Hubs began his corporate job in 1984(where he would work various jobs his entire career of 33 years there)we took advantage of ALL the employee programs to save--we bought US Savings Bonds, we contributed to the company 401K and received a 3% match(free money! always take that at the very least!!), and he got credits into a company pension plan once he was vested.  We always had everything taken out before we got his paycheck so we didn't see that money and never expected to spend it, living off what was left.
And when Hubs got raises and bonuses we never inflated our lifestyle to use up all that "extra" income.  We sat down and planned out if/when we wanted/needed to spend any of those windfalls but mostly we put them toward a goal(buying a house, college, etc.)or threw them into savings and didn't plan on touching them.
The only time you EVER touch retirement monies is in a severe financial emergency(if even then).  99% of emergencies don't meet this criteria IMHO and the penalties just make it an even worse idea.  We did withdraw a small portion from our 401K early on to buy our first house(one of the few exceptions they allow a withdrawal before 59.5 years old) but repaid it within a few years so it didn't set us back much.  If we had to do it all over again, we might not have taken that option.

The take away here is to ALWAYS put money into something your employer offers-401K, HSA, MSA, Savings Bonds, IRAs, etc. And read up on what each thing your employer offers is before paying into any of them!
And don't look at windfalls as "time to have a good time" money.  Put it to work for you for retirement.  The earlier you start socking money away for your old age the better but it's never too late to start!

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"I would like to go to a planner but my husband has no trust in them."

There are two kinds of financial planners--
The first kind are the ones who want to sell you their financial instruments.  They make a commission off of you so unless you want to be pressured into buying financial products or truly go to them planning/wanting to buy what they offer, and you aren't financially savvy, don't use one of these.
The other kind of planner is a Fee-Only Financial Planner.  This is someone you will pay by the hour or session to go over your finances and offer their best advise on what actions you need to take to grow your money.  They are a true fiduciary--someone is is ethically bound to look out for your best interests.  True that a financial planner who is working on commission to SELL you stuff is capable and suppose to be a fiduciary but seriously, given the choice of a planner who you pay for their advise vs. a planner who is also trying to sell you a financial product he has a vested interest in.....who do you think is more likely to have your best interests at heart?(Not to say that some sales planners aren't fiduciary but why take that chance if you aren't schooled in finances?).  Pay a planner to for his/her advise.  They won't pressure you into buying an investment since they make no money off selling such.
I've got a funny story(well not funny ha-ha)about meeting with a "financial planner" from our then current bank, a "free" meeting since we were that bank's customers.  His advise to us was to stop trying to pay off our mortgage early and to throw that extra cash into some financial investment his bank/he made a commission off of.  Well of course he wanted all that extra interest we paid them on our mortgage loan to continue to flow in plus the added bonus of a commission to get us to invest in one of their financial investment products.  He actually tried to tell me that paying off your house early was a bad "investment".   Yeah, a bad investment for HIM! lolz

I'd go HERE and find a Fee-Only Financial Planner in your area or use a similar site for licensed, reputable advisers.  Make sure you know up front what the planner charges and for goodness sake find out what documents you need to take and have it all organized.  This will mean your appointment will go smoothly and your hourly rate will be less if you aren't having to rifle through files and having to make subsequent appointments.  And it's learned advise but you are free to adhere to it or disregard it but if you aren't financially literate it's a GOOD thing to go get!  That few hundred $$s you spend on a planner may well be worth it's weight in gold.

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"Maybe you could write some blog posts on how you made retirement so successful? "

I plan on going in depth in a post on how our journey-from college to retirement-has played out in the near future.  It might help explain how we got to this financial point.
It would be too long for this post but look for it in the coming months(I've already begun work on it.). ;-)

********************** "And how do you pay for such expensive insurance since you don't yet get Medicare?

Ok, Hubs company(Prudential)offered a medical retiree plan for many years.  It was free and one of the perks of being a vested, "I don't know how many years exactly", employee retiree.  But about 10 years or so ago Pru changed things up.  They did away with the free retiree medical until Medicare plan.  Everyone who retires gets credits into a RMSA account(RMSA=Retiree Medical Savings Account)depending on years of service at retirement and your pay level/etc.).  Hubs was due to get approx. $60K in RMAS as of 2017.  But once we began the process we learned that since he was married Pru added another 50% of credits into the account for the spouse so our RMSA account at his retirement date was $90K+.   This was a surprise and make the decision to retire when he did highly doable and I  wouldn't be kept up at nights worrying about that cost. This money is not an HSA and can only be used to pay for health insurance premiums.

Prudential's thought was this RMSA would be enough to bridge any early retiree until age 65 to pay for private health insurance.  Unfortunately with the escalating cost of premiums it won't be enough to get us both to age 65 without having to use a bit of our savings.
Once it runs out(about 9 months before Hubs hits Medicare)we'll be eligible for the ACA exchanges(if those are still around then or whatever takes their place).  But for now the RMSA means we make too much money as it counts as income for ACA purposes.
So medical care is still a big unknown once the RMSA runs out but we've got lots of cash saved and we'll come up with a plan once we come to that bridge.

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The only other advise I'd offer up here is to go find this book at your local library.......
"The 5 Years Before You Retire: Retirement Planning When You Need It the Most" by Emily Guy Birken.

I've found it so useful that I've given a couple copies of this book away on the blog as I find them cheaply.

Some specific figures may be out of date as my copy was written in 2014 and I don't know if there is an updated edition of that book.
It's a handy little book and will help you see what you need to do/where you need to adjust/where you are doing well heading into retirement.  I'd say it would be better to get a hold of it 10 years before you plan to retire rather than 5 but that's just MHO. ;-)

If anyone wants to add any advise for Jenn, or ask a question, feel free to leave a comment.  

Sluggy

The 2020 Financial Meeting at Chez Sluggy

So Hubs and I finally got a chance to sit down and go over the finances to see how 2019 panned out and what's coming for 2020.

If you've been reading here awhile, you know that Hubs retired mid year in 2017 and turned 59.50 years old in Oct. of that year.  We didn't begin taking any 401K withdrawals until 2018, and we took 3 quarterly withdrawals that calendar year(no withdrawal in the 4th quarter)of $6K each.

After seeing how much leftover cash we had in the checking account when 2018 was over we decided to stop taking 401K monies in 2019.  We figured with our built up Slush Fund(the bulk of which was most of that 401K money we took and didn't spend in 2018)would cover any income shortfalls we might have in 2019.

To recap, 2019 income consisted of a monthly annuity payment, actual interest earned and charged to us for the calendar year of 2019**, a small bit of dividend income, my equally small blogging revenue and any eBay sales.  Also included in income was a small amount of company stock Hubs cashed in for his personal use in 2019.(Not counted as income here was RMSA withdrawal that covered the health insurance premiums and HSA deposits-of which there were none.)
Total income was $45,803.38 in 2019.

**Though I calculated interest earned each month, the 2 CDs we have don't actually pay out interest monthly but once the CDs are matured/cashed in. It's easier to calculate monthly but as far as tax purposes go, much of the interest earned on non-retirement accounts in 2019 won't be taxed until 2020 when the CDs mature.

Then we added up ALL our spending(again, not counting the monthly Healthcare Premiums or HSA spending). Every other penny we spent was included.
Total spending was $52,013.92 in 2019.

That means we had to pull $6,210.54 to cover expenses beyond our "income" and this mostly came out of the Slush Fund(plus our Federal Tax Refund for 2018).

Seems our spending in 2019 went down just over $10K from what we spent in 2018 so things are heading in the right direction on outgo.

And our income in 2019 went down almost $20K from 2018's level.  That is mostly accounted for with the $18K in 401K withdrawals we made in 2018 but did not take in 2019.
We figured that while $18K dumped into the budget in 2018 was too much, not taking any withdrawals in 2019 was not enough.

So we need to refigure what we need to do for 2020 in regard to the 401K.

Plus Hubs doesn't want to live so "close to the bone" like we've been doing and I agree with him to a degree.  We had planned originally to take $36K in 2018 out of the 401K($9K each quarter)but I talked him down to $24K in withdrawals and we ended up only actually taking $18K, which was half of what he wanted to withdraw.  I just didn't think at that point in our retirement that we "needed" to take $36K out and mostly I was right, as we took half of that out when all was said and done and we still had plenty of leftover funds in the checking account at the end of 2018.

But it's time for me to loosen up the reigns on spending a bit at this point.
Again, once you've been in a "save save save" mindset for 30+ years it's difficult to mentally and emotionally reverse direction and not worry about every nickel and dime going out.
But I am trying.... ;-)

Given our stats, we are doing well..........
We've got a guaranteed income for life(the monthly annuity payment), social security will happen in 5 years when Hubs hits full SS age(another 9 months later I'll hit mine), we've got over $500K in a 401K, I've got about $400K squirreled away in non-retirement accounts plus a paid for house.
We can afford to spend more. 8-))

The good news is that by just leaving the 401K funds alone and intact to sit and compound for 1.3 years we've got $26K more than expected in there now.....Woot!

The two additional changes to our finances in 2020 we talked about..........

*  Hubs sold the rest of our stock(all but my personal small holdings I inherited from my mother)in January 2020.  The price was right so he pulled the trigger on it.  Not only will we no longer reap dividends anymore for it(only came to about $300 per year)but we have to figure out how this will influence our tax rate in 2020(obviously our taxes will go up and we may get hit with capital gains tax what with the stock gain and planned 401K withdrawals).

*  With so little being withheld on our annuity and possible capital gains income threshold being reached with the stock income it now makes sense for us to dump additional monies into our HSA for the tax advantages and to keep our tax liability lower come April 15th(and offset that stock sale too).  Since Hubs retired in 2017 we haven't made any contributions to the HSA.  Medical expense are rising as we age and we will just need to pay for more and more medical charges going forward.(And our high deductible topped $4K in 2020 before we reap any health insurance benefit. ugh)
So instead of just tapping our HSA for Rxs it makes sense to tap it for all medical bills-bloodwork, office visits, procedures, etc.

So with these 3 issues(401K withdrawals, stock income, HSA)here is the current plan for 2020.......

* The first Quarter of 2020 we are taking $12K(gross)withdrawal from the 401K.  This will net us $9600 after taxes are withheld.
$6600K(net) of that will get put into the HSA for 2019 tax purposes(can do this retroactively until 4/15/20).
$3K(net)of that will get put into the budget spread evenly over the first quarter-so $1K for each of Jan/Feb/Mar).
*  The third Quarter of 2020 we will take another $12K(gross)withdrawal from the 401K.
$6600(net) will be put into the HSA for 2020 tax purposes.
$3K(net) will be applied to the monthly budget-$1K for each of July/Aug/Sept.
*  As for the second and fourth quarter we will withdraw $3K(net)in each of these 6 months and will apply $1K to each month's budget OR we may just take $3K for the second quarter and nothing in the fourth quarter depending on how finances pan out in 2020.  After the third quarter(and that 401K withdrawal)we'll sit down and see where the finances stand at that point and if we "need" to make the fourth 401K withdrawal for 2020.

So basically over the course of the year we will withdraw about $26K from our 401K with only $12K(or less)going into our spending budget. It is more than we withdrew back in 2018 but about half of it will be to beef up the HSA for medical spending, which also lowers our taxable income and it earns almost as much in interest as if it was left in the 401K.  The other $12K will mean an extra $1K per month income in 2020 for our budget/spending.

*  Another point we talked over and decided to make a change is on phone service.  We currently have 3 phone bills each month-a cell phone, a landline and long distance service on the landline.  Our cell network is terrible some places so Hubs has refused to ditch the landline and that long distance service on it.  So we are shopping around for a new cell phone plan/provider.  I am hoping we can keep the new cell bill at the same rate as we pay for the combined 3 phone bills we have now.

*  We have more home repair/improvement plans in 2020(to get the house ready to sell in the near future)and we are earmarking the Slush Funds left to cover those costs.  The house projects are part of the 2020 Goals so I won't go into those on this post.

Ok, I guess I have rambled on enough now on our finances.
But like everything else in life, things change, and we will most certainly be revisiting where we stand later in the year.

So do y'all sit down and go over your finances on a regular basis?
Any good or bad surprises lately with your money?


Sluggy

$24K Challenge.......JUNE Update

Every year I keep a close eye on our monthly expenses and our monthly income.
Our income is mainly the salary my Hubs draws from his job.  We have money taken off each paycheck from the top to put into savings, before we even get our hands on it.  This money that's taken goes into various pots....life insurance, health insurance premiums, long term care insurance premiums, investments and retirement savings.  It's automatic so we are never tempted to NOT put it into savings.

Once the automatic savings amounts, plus taxes and medical/dental/vision premiums are taken out, it leaves what we get to "live on".  From this amount we budget for bills, both monthly and irregular bills(semi-annual, annual etc.) and our variable bills(like food, eating out, clothing  etc.)  Anything left over once our monthly expenses are paid, I put aside into a Savings Challenge. 

For 2014 I am continuing my Yearly Savings Challenge.  I am raising the Goal amount slightly to $24,000 this year, $4K more than my goal for last year.

On to the June report.....

I have posted my June End of Month $24K $AVING$ CHALLENGE Totals.
Check out the Savings Challenge page tab at the top of the blog for the specific numbers.

I have 2 goals each month.....
The 1st is to actually finish each month in the black and not the red.
The 2nd is to hit the targeted savings amount of $2,000.

I have to report that we finished up June with a greater than needed amount.
The extra amount we ended the month of  June with?.......$2,302.33

Income
We had $2143.78 left over from our income after our monthly expenses were deducted.
 

Other monies received in June totaled $158.55.  This included interest made on accounts, a allergy med rebate and 2 dividend checks.

This brought us to our gain of $2302.33.
Since we have no debt anymore, this goes into savings.

Outgo

As for the expenses this June, here are the good and the bad side of things....

HERE are the GOOD THINGS

 

*  The electric bill went down $47.21 from May's bill.
*  The credit card bill was $2196.18 less than in May.  Some of the spending(for the car and sofa)on it came out of the Bonus money received earlier this year so didn't affect this Challenge(good) but did affect our Net Worth(bad).

 

HERE are the BAD THINGS

 

*  The cash withdrawals were $50 more than May.
*  Quarterly Garbage bill was due.
*  Private music lessons were $40 more than May.
*  We had a vet bill for the dog....her annual check-up and shots.
*  We had 2 dental bills to pay.

 

The Food Budget costs for June are in another post, which is located HERE.

The 2014 GRAND TOTAL.....
With 6 months accounted for, our Savings Grand Total for 2014 is $11,672.54
That's only $327.46 short at this point of the $12,000.00 I should have put aside after 6 months.
I was $629.79 behind in May, I am less behind in June.

Yay!
  

 

Looking ahead for July......

*  I will continue to do this Savings Challenge and report in each month on how it is going.

*  The lime green chair purchase will be due on July's credit/card bill but so far we don't have massive amounts charged to the card....yet. lolz
 

 

So how was your June financially?
  

Did you spend less than the income you had in June?
Did you stay within your budget or not?
Did you pay off any debts or put extra toward your mortgage principle or into savings in an emergency fund or a retirement account?

If you posted your financial progress on your own blog, leave a link in the comments so we can go check you out your progress too and celebrate with you!

Sluggy

Has your Money lasted longer than January has?

Dave agrees with me(LOL)that a Budget is a neccesity to WIN WITH MONEY!




Give him a listen.....and then start telling your money what to do.
I do.
And most times the money listens to me!
Unlike my kids.....


Sluggy