RETIREMENT NOTE #5: MONEY
The last in my series of retirement notes is about money. I held it for the last because so much good material is already written about this subject. So, one ponders how much you can actually add. Still, there are strategies that have helped us retire and live successfully. I want to share them with you.
Plan– When you think of retirement plans, you probably think of financial planners, numbers and graphs. All important. However, it is equally important to plan around your dreams and goals in retirement. Very early on in our marriage we developed a plan for retirement. We called it the 1999 plan. We did the numbers thing, but also included our dreams. We even cut out pictures of what our home would look like and the places we wanted to live. The plan included not only our retirement but also the interim moves we might make before then. Over time, we would update the plan and add the new strategies and dreams. Our actual retirement date got delayed some, but almost everything we pictured in the plan came true.
Value of Money– The best use of money is to buy your time back. It’s the best investment you can make. The more cash you have stockpiled, the more freedom you will have.
You May Not Make it– The financial planners drive stakes in the ground about how much you need to retire. Some say $5 million, some $1 million and some $500 thousand. These are “tall dog” goals to meet in this every changing economy. If you don’t make these goals, you don’t have to give up on a good retirement. Yes, you may have to work into retirement. However, that does not have to be the same heavy lifting career you have now and it does not have to be full time. The resources you have managed to save will buy some of the free time you desire. Additionally, there are a multitude of low cost places to retire and life styles that make things work on a low budget. Small work opportunities abound in local economies. Everything from window washing to house sitting. Some of these have surprising financial rewards. I once calculated how much Fred, our window washer, made. Being retired, Fred only worked four hours a day. He charged $75 for his service. I suddenly realized he had the potential to make over $70K a year. Not bad for a part time job.
Health– Eating well, exercising and avoiding bad habits will extend your active retirement years. It takes some self-management, but I have found building your own health routines versus joining an expensive health club to be the best. This way, you can pursue your health routine anyplace and anytime. When you retire, you become more aware that you don’t have that many years left. You don’t want to spend them in costly doctor’s offices and hospital beds.
Retire Now– The Millennials tout FIRE (financial independence retire early). While much of this thinking is about getting rich early, there are other excellent points they raise. The best one is practice living retired before you are retired. This may mean learning to live on a lower budget, take evening classes to retrain for what you want to work at in retirement, expand your social circles, develop skills in your desired retirement pursuits and explore places you want to live. As you cut down on your financial obligations and start to chart ways to live after retirement, your opportunities and freedom open up. A great way to practice all this is to carve out a period of time, say a month, and just do things that are cost free. Think library, wandering the city, taking photos, writing, attending lectures, going on picnics, exercising, meeting and learning about new people. Not all things that give pleasure to life cost money.
Own Your Home– If you been fortunate to own a home, your retirement nest egg has benefited. Home ownership still represents one of the best investment options, even in these new tax law times. If you choose property well, the roof over your head will not cost you anything. The mortgage you may have is in part a forced saving program and the appreciation over time recoups the other carrying costs of owning. If you rent for 10 years, you may pay $288,000 or more for a 2BR 1,200 sq. ft. apartment in the city. That’s money you could save with a home. You can buy a home twice the size of that 2BR apartment for the same expense. For example, the mortgage on a $440,000 at 5% interest plus taxes and insurance is almost the same as the cost of your rent over that period. However, you will gain $55K in equity plus your house appreciation. US Census reports home appreciation over the last 10 years has averaged 4.2% annually. This equates to a $223K. That plus the equity gain means your house cost nothing. One of the greatest things about this country is the right to own property. You can’t say enough about the feeling of owning your place.
Four Seasons Location– Moderate climates rule. It can cost you money to live in a place with a severe season. Yes, this includes the desert. You find that the months of severe weather will create the need or desire to travel more to avoid it or own a second home. Travel alone might cost $10K plus each year. Having a place in a location with moderate climate affords year round living.
Consolidate– Work to consolidate your financial resources. As you grow older trying to track numerous bank accounts, credit cards, brokerage accounts, your own stock portfolio and CD ladder can quickly become confusing. It’s good to consolidate where you can, without sacrificing diversification.
Family and Friends– I have seen numerous plans for retirement go sideways over perceived obligations to family and friends. You want to help. We all understand that. However, does it really make sense to co-sign a student loan or give money out for some need to family? In the long run, does this create good feelings or a sense of resentment on the benefactor’s part as they try to repay it? And who most often ends up holding the bag? Answer, You. Everyone to be successful at some point needs to take responsibility for their life. I am not sure family and friends really benefit from the band aid approach to financial needs you might be able to provide for them. It may just simply push off the ultimate realization on their part that they need to solve their own problems. This all may seem harsh. However, there are many other non monetary ways you can help friends and family, including good advice.
Always Feel Wealthy– You will always feel wealthy if you live within your means. Doing so guarantees you will not outlive your money.
Old Cars– As Suzie Orman says, “keep your car as long as possible.” The cost of new cars drives up financial burdens and even insurance costs. Numerous successful retirees I know (including one that drives people to/from airport) are keeping their cars to 150 thousand + miles. Most recent cars are built so solidly that they will last that long. Besides, there is the added bonus that comes from driving an older car. You fit in more places. Good to stay under the radar in retirement. Every time I look at our two 10-year-old autos in the garage, I realize that each month we drive them represents $1,000 in our pocket that we would otherwise be spending on car payments. I like our cars and often just walk by and touch them by way of thanks.
Health Care and LTC– Anything you can do, to carry your present employer sponsored health plan into retirement is worth it. Medicare supplement programs are readily available, but it’s an open ever changing market. If you have the option to convert your employer plan to a supplement plan, you will always have the strength of that employer group behind your plan. Beyond this, its important to find what ever plan you can. This includes purchasing long term care coverage. Both health issues and LTC can sink your savings.
Your Risk Appetite– We by nature have been conservative regarding risk. Yes, it has cost us some big investment gains (i.e. real estate). However, it has provided a consistent “guard rail” for us. Sometimes when you step outside your risk tolerance, you can find mistakes driven by timing issues staring you in the face
Consider Money Management– I have an MBA in finance, so it always caused me angst to have someone else managing my money. However, I remember statistical studies teaching that you can’t beat the market return as long as you are well diversified. Time has proven that. It has also made investment decisions far more complicated and complex. As you age, trying to stay on top of it all and make the always right timing decisions on investments can be challenging. Investment managers free you to better enjoy retirement. If they don’t perform, you can fire them and choose another. It’s better than your partner/spouse firing you for your bad decisions.
Budget– Developing a budget is a great retirement move. It will keep you on track with your expenditures and be something your partner/spouse can work on together. A budget is a great planning tool. It will help keep your retirement on track financially.
Wills/Health Care Directives/Executors– There is nothing worse than leaving your partner and heirs with no roadmap on how you want your estate assets handled. Also, I have seen anxious families in hospital waiting rooms trying to make decisions on health issues of a loved one with no guidance. A well prepared will and directives solves all that. You can also consider establishing a revocable trust to speed estate settlement through the probate process. The effort in developing all these is one of the best gifts you can give to your loved ones. A key element to make all this work is a careful selection of who your executor is going to be. You always run the risk of being hit by a Mack truck and both be out of it for a period of time. In short, you don’t have to die to use the value of a good executor to handle your needs on a temporary basis. Without all these elements, you could find yourself and assets handed over to a State appointed guardian who will mike your estate for high fees.
Temptations– They don’t stop just because you retire. Weigh things like travel, new cars, expensive décor and personal items carefully. You don’t have to keep up with the Jones anymore. This is your time and you can live like you want. There are other ways to find satisfaction now. These include personal growth and spirituality. You will be amazed about how much you can do that is fulfilling at no cost.
Expect the Unexpected- No matter how much you plan or save. The unexpected happens. This could be serious illness or financial reversals. It’s all about realizing the best active years in retirement don’t last forever and being thankful for every good day. Most importantly, keeping good communication with your spouse/partner on what to do if those events happen or if you are out of the picture.
These touchstones together with my other articles are my thoughts on how to have a successful retirement and what that means. The other four articles on Planning & Reality, Ghosts & Opportunities, Place, and Friends can be found on mywebsite. I wish the very best of retirement years for you.