Thursday, March 18, 2010

Will I Need More or Less During Retirement

Some of my most interesting thoughts about finances come in response to reader's comments.

Master Po, the author of The Po File left a comment on my last post wherein he takes issue with my expectation that my financial needs will be less after I retire.

I will resist all my inclinations to make "grasshopper" jokes (though anyone setting themselves up as "Master Po" has certainly heard more than a few!) but I would respectfully disagree with his position.

I admit to being influenced by Jonathan Pond, particularly his book, "You Can Do It: The Boomer's Guide to a Great Retirement."

It is Pond's theory that all those charts showing that we're going to be eating catfood once we reach age 70 are self-serving statistics twisted by various financial institutions who want us to invest with them.

If all our dreams are of fancy beachhouses in Bermuda, then most of us are bound to be disappointed in retirement. But if we're looking for a moderate level of comfort and security, perhaps on along the lines our parents enjoyed, then we are likely to get there. And that is true even for those of us with late-life debt and nearly-but-not-quite-enough savings.

My personal plans are to have $50,000 a year from a combination of Social Security and investments in retirement. But as I've said before, I actually think I could live well on $36,000 a year.

Why do I think that?

Well, for starters, that's what I live on now. I make more, but I'm putting a third of each paycheck into my 401(k). And I currently have a mortgage. But in 4.5 years, the mortgage will be gone. I'll still have homeowner's insurance and property taxes to pay, but that's a far cry from my current $1334 a month.

For another thing, by delaying retirement to age 69, I'll get a maximum social security payment, and I will be eligible for Medicare. I'm just not one of those folks who believes that social security is going down the tubes and won't be available when I retire.

And finally, there is always my hope that my family's needs will lessen over time as they become more adult in terms of their finances. I certainly do not expect to have children or grandchildren still living with me when I retire.

While I do want to do some traveling during retirement, most of my desires for retirement living have to do with reading, sleeping in, volunteering, and other things that do not take much in the way of money.

I do recognize that inflation is a factor, and that it must be accounted for. Hence, my desire to have $50,000 per year available to me.

While I value Master Po's input, I still think he's wrong. But if it turns out he's right, I'll put away my catfood and head over to his house for dinner!


Frances said...

I agree with you. I think we will need less in retirement. There are a lot of work related expenses that will end at retirement.

I am putting 20% in my 401K, so am living on 80% of my income and could manage on less.

Good for you for knowing yourself!

Joe Plemon said...

I am already retired (sort of), but you are right Grace, you can get by on less once retired. If you are already living on $36,000, you should do well.

DogAteMyFinances said...

Of course you never know. You just do the best you can, and that's all you can do.

Barb said...

Speaking for myself, my travel increased in retirement, and my utilites a little bit. On the other hand, there are no work expenses, and other needs go down. I mean, unless i make a huge climate change most of my clothes will last a long time...for example. I think the exception is an expensive hobby (like quilting, mine)/

MasterPo said...

Keep in mind that whatever you take out of your retirement accounts you're going to have to pay taxes on!

So if you feel you will need $36k/yr work the numbers back to the GROSS amount.

ps- One little tip: Retirement accounts (401k, IRA etc) do not work the same as non-retirement investment accounts when it comes to withdrawls!

A non-retirement account you can call and get a withdrawl any time.

But with a retirement account, most plans have limits how many times per period you can withdraw. And it takes much much longer to get the funds out. Don't know why but it does.

So plan carefully!

Grace. said...

Barb--I expect my travel costs to increase in the first ten years after retirement but I assume I'll slow down thereafter. Getting my family out of my house will put my utilities back to normal--right now, they are out of whack. I won't have a car payment and I expect to drive much less.

Po---I agree with your points. That's why I want $50,000 a year but plan to spend around $36,000.

Louise said...

I agree with you Grace,once the kids fully fly the coop and get through their education that should reduce a lot of our expenses.
I am hoping that what I save by downsizing and being more frugal will allow us to enjoy some travel and have a few pleasures without actually increasing our expenses. said...

Well my experience is closer to your expectations. The first year of my retirement, we spent 75% of what we spent my final year of working. (And, that doesn't include taxes, which went down to practically nothing.)

While we do spend more on health insurance, we spend less in all categories where we can do-it-yourself (home repair and maintenance), entertainment, clothes, and even travel, which is the most interesting since we traveled 9 weeks more last year than we could when I was working!

The second year our expenses dropped even further, in part because the recession: our property tax dropped 13% and our mortgage rate dropped 22%, by far offsetting the increase in our health care premiums.

I'm with you on social security too. From what I read, you are ok until 2036, and may experience some sort of cut after that, but we'll see . . .

Anonymous said...

thats another thing to bear in mind - there is no guarantee these days when if at all that the kids will leave home.

Grace. said...

Oh My! Anon--bite your tongue! I will NOT be one of those 80 year olds whose kids are still at home!

Anonymous said...

Well Grace I know, but you see it all the time now, thirty year old kids living at home, cant afford their own place, no job security etc etc.

Living Almost Large said...

I will say this...what will send you to the poor house is two things. Your kids/grandkids needing financial help. They could end up being your mortgage payment.

My mom knows TONS of people who work FAR longer than they should to financially support their grown children and grandchildren.

Two, long term medical care. Let's talk about what it really costs in this country to die. We prolong life a lot and 95% of our medical bills are accrued in the last 5 years of life. Add in long term care (nursing homes, etc) and we're out a pretty penny. With nursing homes costing $5-6k/month.

Ken said...

Hats off to you for being a great saver. It does appear to me that living on less in retriement is doable for you. As you said, you plan to keep same lifestlye after you get to that point.