I am fascinated with retirement. I plan to retire a bit early, in 10 more years. It may seem far away to you, but not to me as there's much savings I have to do! I really feel as though i can see the light at the end of the tunnel.
First, expenses. I created a chart with my current monthly and annual expenses in all spending categories. I know these numbers are pretty accurate because I used my actual 2008 expenses.
The chart actually has 3 parts:
1. Pre-Retirement (the next 10 years)
2. Semi-Retirement, when I'll work on a part-time basis (mainly to get affordable health insurance and partly to contribute a modest amount to my current living expenses). This is the period between age 60 and 66 and 10 months, which is the age at which I've decided I'll start collecting Social Security benefits.
I could wait as long as age 70 to do so, and instead of getting about $2,076 at 66 and 10 months, I'd get a maximum payout of $2,615 a month, but heck, I want to be alive enough to enjoy that money, so while in the past I said I'd wait til age 70, I've decided to "compromise" and start taking payments at nearly age 67. (If, as most people do, I wanted to start collecting as soon as I legally could, at age 62, then I'd only get $1,430 a month.)
3. Retirement, from age 66 + 10 months to 95.
Because I'm assuming I'll be home more, many of my utility expenses will rise somewhat, like heating oil, electricity and water use. The biggest drop will be in my mortgage payments as the house will be paid off by age 56 if I stay here, and I'll buy the condo with 100% cash, but there will be some sort of condo common charge (I'm allowing $300/month for that) and I'll still have property taxes.
So alongside my "current" living expenses, I projected living expenses for semi-retirement and retirement.
The main distinctions between semi-retirement and retirement is that I will be living solely on personal savings in my 6 years of semi-retirement; when I hit 66 and 10 months, I'll start collecting Social Security and have to dig in a lot less from savings.
I tried to be as conservative as possible because some of these expenses, like healthcare, are impossible to predict. I assume I'll want to spend much more on travel (I'm allowing $5,000 a year), entertainment (I'm allowing $1,200 a year for that) and dining out ($2,000) in semi-retirement and retirement, but less on home improvements, because by that time I should have moved into a largely maintenance-free condo.
Keep in mind I'm not trying to factor in inflation. That would make my head truly spin. I'm also not factoring in investment growth. This is simply a "real time" snapshot of what things look like from today's perspective.
To give you some idea of where I'm going with this, my 2008 annual expenses were a whopping $44,141. My projected annual expenses in semi-retirement are 21% lower, at $34,572. In retirement, my annual expenses dropped just a bit further, to $32,748.
I was able to calculate how much money in savings I'd need to live on for the six years semi-retired and 35 years (to age 95) after that because I know what my average annual expenses are. So I backtracked into that figure by calculating Social Security payments and using savings and my part-time work to cover the balance.
Retirement Income Needed
From Age 60 through 66 and 10 months:
$33,360 annually from age 60 through 66 and 10 months (nearly 6 years) = $200,160
From age 66 and 10 months through 95:
Use of personal savings of $8,592 annually from age 66 and 10 months through age 95 (28 years) = $240,576
It doesn't seem that daunting. $440,000. Am I missing something? My goal remains to have $1.2 million to retire on, and that's based on the many retirement calculators I've spent time with. Would inflation account for the huge difference?
Retirement Calculations Make My Head Spin
May 27th, 2009 at 10:20 am
May 27th, 2009 at 12:07 pm
May 27th, 2009 at 01:24 pm
IT also would cover medical care and the unexpected. I'd put heavy emphasis on the unexpected. My issue with long-term retirement planning (though it does need to be done!) is that you are assuming things are as they are now. When really you can't predict what prices will do in the future. Hell if I knew my health insurance costs would go up 1000% in the course of a few years.
As far as taking social security, my understanding was it was always better to take it ASAP. IT's all the same in the end when you consider inflation, etc. Though planning ahead is a good exercise, it is something I wouldn't 100% decide until you were 62. In today's interest rate environment (zilch) and if you were still working (meaning social security is then taxed more, or maybe even reduced), I could see the benefits of waiting. But if interest rates return to a more "historically average" level you'd generally come out the same if you just took the money ahead of time and invested it (even in cash). Inflation and compound interest does it's magic from there.
I do believe if you work a certain amount that your benefit is reduced though. Then I would most certainly wait. I'd do some serious number crunching when the time comes.
Until then you are doing the best with the knowledge you have. & I think it's great to think ahead!
May 27th, 2009 at 01:55 pm
The problem with taking it immediately is, as you pointed out, that you automatically limit whatever extra income you might want to make in your earliest years of retirement (early 60s) when you're still relatively young, fit and able. My feeling was that I know i wouldn't want to work...at all....after i reached a certain age, like past 70, and to expect to do so is not realistic. Hence my plan to work earlier and while i was at it might as well plan on delaying SS benefits entirely if i could.
And yeah, i know there's a limit as to how much you can earn before they reduce your SS, but my plan would not be to exceed their limit.
I don't really want to work, but feel i must until age 65, for the sake of the health insurance coverage, especially with my MS. So i could take any old p/t job, as long as it offered insurance coverage (Starbucks, Costco, etc). The fringe benefit would be a little extra cash to reduce the amount of savings i'd need to dig into, at that point.
I hadn't actually even considered that i could take the money at 62 and just invest it if i didn't need it. Duh. Youy're right, depending on interest rates, i could just bank it, though of course it would be subject to tax again.