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My questions are in bold italics and his responses follow in black.
Let’s get started…
How old are you (and spouse if applicable, plus how long you’ve been married)?
I’m 59, my wife is 62.
We’ve been married 35 years.
Do you have kids/family (if so, how old are they)?
What area of the country do you live in (and urban or rural)?
We live in a rural area in the Smokey Mountains.
Is there anything else we should know about you?
When we first got married we were both in banking. The banking and Savings and Loan crisis of 1990 ended both of those jobs.
We decided to move to Florida and start all over. I was 30, she 32.
We sold our home ourselves, along with most of our possessions and started once again from scratch. Glad we did it, wouldn’t want to do it again!
I think this is a huge part of our financial story. If we hadn’t had this major upheaval and financial set back, I don’t think we would have been able to retire early.
We live modestly. We lived beneath our means during our working years. Still do.
How do you define retirement?
Retirement is not working anyplace…anytime…anymore.
How long have you been retired?
Is your spouse also retired?
Wife is also retired.
What was your career and income before retirement?
I was a sole proprietor running a one man residential cleaning service.
My wife worked in the internet services business.
I made $80,000 per year and she $40,000.
Why did you retire?
We retired because my wife was really starting to hate her job.
I was not a kid anymore and the physical labor was taking its toll on me.
PREPARATION FOR RETIREMENT
When did you first start thinking seriously about retirement and when did that turn into a decision to do it?
Our initial plan for retirement was for us to work until ages 60 and 62 respectively. That scenario was formulated when I was 50 years old.
We had long since paid off our home and were debt free.
Our investments were growing and we continued to plow money into them.
Put our lives on cruise control until I hit 60 was the idea.
What changed the above mentioned retirement plan?
Two events occurred that created a sea change in our thinking.
The first was our house being ransacked and burglarized. Our hearts were just not in that home anymore or that town.
Secondly, the real estate market crash. My wife had the idea of buying a second home. We took advantage of the depressed prices and bought a nice home in the mountains.
We bought the house in 2012. We knew immediately it was where we wanted to retire.
What were the major steps you took from deciding to retire to developing a plan to do so?
I’ve been a number cruncher my whole life, so I knew exactly where we were on our path to retirement.
Owning the second home for several years before we moved enabled us to know what our living expenses would be once we were there full time.
What did your pre-retirement financials look like?
Here are our financials:
- After tax account (mutual funds and stocks): $207,490
- Municipal bonds: $50,000
- Traditional IRAs: $213,304
- Roth IRAs: $257,544
- SEP IRA: $215,823
- Real Estate (Investment property): $71,500
- Inflation Protected Savings Bonds: $79,000
- Trust: $166,000
- Cash: 274,162
What was your overall financial plan for retirement?
As we were saving over the years I always made it a point to beef up our after tax accounts. I didn’t want all of our money tied up until we were 59.5. I didn’t have any specific plans in mind for that money, I just wanted to have it available. I am really glad I did that.
Also, having tracked our living expenditures for years already, I knew how much we spend on a monthly basis.
My target number for retirement was $1,500,000. I figured a 30-year retirement needing $50,000 from our investments per year. The balance of our income would then come from Social Security, about $34,000 for the two of us.
We funded our investments by living off my wages and saving my wife’s salary. We saved $35,000 or more a year for many years. Our modest lifestyle plays a huge role in our finances. We never kept up with the Jones’s! Can’t stress that enough.
Did you make any specific moves to prepare your finances for retirement?
We sold our Florida home. I sold my business and we sold one investment property. Those sales gave us a big infusion of cash.
The stock market crash of 2007-08 was in my mind as we planned retirement. I absolutely did not want to be dependent on selling investments to fund our monthly expenses. That’s why we had the big cash account when we retired.
I figured we needed three buckets of money for retirement.
The first bucket would be a bridge from day one of retirement until we were eligible for Social Security. It would also be a cash account to hold our monthly/yearly expense allowance.
The second bucket would replenish bucket one so that we always have 2-3 years worth of living expenses in cash. Our after tax investments would be bucket two.
The third bucket is for long-term growth and will ultimately be used to refill buckets one and two. Our IRA accounts are bucket three.
Who helped you develop this plan?
This was my plan. I don’t like advisors.
What plans did you make in advance to leave your job?
My wife was lucky enough to get laid off right when she wanted to quit. This gave her a nice severance package.
I sold my business, trained the new owners and said thank you and good-bye to my customers. That was tough. I had a lot of customers that were with me for 10, 20 and even 25 years. Lots of tears.
What were your pre-retirement concerns (financial or non-financial)?
My biggest concern was we were moving to a town where we only knew one person. I was afraid we’d be isolated and lonely.
How did you handle deciding on and paying for healthcare?
Healthcare has been the wild card in the deck from day one. I fully expected us to be paying at least $2,000 per month for coverage.
Before we retired, I went to speak to a local independent insurance agent. Long story short, we qualified for a 100% subsidy on Obamacare.
Our taxable income is flexible. By keeping it low we qualify for the maximum subsidy. Another reason I’m glad we had the large cash balance to live on.
Of course, the ACA is a work in progress. This benefit may go away. But for now, our healthcare is free.
How did you tell your family and friends of your plans?
No big announcement. They knew we had the second home and would eventually retire there.
THE ACT OF RETIRING
How did you ultimately retire?
My wife had left her employer. I had the new owner trained.
We went to the real estate closing on the house sale, then got in the car and drove to our new home.
What went well?
We joined a local gym and have made a bunch of friends.
I have more friends now than I ever had in Florida.
What didn’t go so well?
Can’t really think of anything going wrong. We have no regrets.
How did you ultimately find the courage to do it?
There’s a cost/benefit analysis to consider when approaching retirement.
Is the cost of stress, anxiety, and sleepless nights worth the benefit of maybe one or two more years of saving?
Over a thirty year retirement, one more year’s worth of saving is not going to make or break the plan.
How was the adjustment, especially the first few months after retirement?
The first few months were somewhat disjointed. On the one hand we slept in every morning till 8:00…and loved it! On the other hand we were so accustomed to hectic schedules that we didn’t quite know what to do with ourselves with so much free time.
We decided to join a local gym. That move was beneficial in many respects. First it gave us a reason to get up in the morning. We had a beginning to our day again. Secondly, we met and continue to meet a lot of nice people.
I was also amazed at how quickly my past work life faded in the rear view mirror. I thought my old business would be in my head for a long time. After only a few months it seemed like ancient history.
How is retirement life now? What do you like about it and what do you dislike?
Retired life is great. We both love it.
I really enjoy not having to rush through everything all the time anymore. I always had a clock in my head when we were working, even on the weekends. I gave myself only so much time to cut the grass, go shopping, wash the car, etc.
I was always assessing the opportunity cost of my time regardless of what activity I was engaged in. No more.
What do you do with your time? What does an average day look like?
During the week I get up at 6:15. I’m at the gym within an hour.
I exercise then play pickleball will my friends. Every Friday the pickleball guys go out to breakfast together.
My wife goes to the gym to, just a little later. She exercises and then does Zoomba with her girlfriends.
After the gym I’ll come home and work on any projects I’ve got going. I’ll keep myself busy till 1:00 or 2:00, then get cleaned up. I like to read in the afternoons.
Every Wednesday we watch an old movie on DVD from Netflix. Our movie time meal is always hot dogs. It’s become a new tradition in our household that we both enjoy very much.
One thing I do now is cook. I never had time before. Now I cook most of our meals. I enjoy shopping for all the ingredients. I go to Walmart or the grocery store a lot.
We watch TV in the evening hours only. No TV in the morning or during the day.
I have a never-ending list of little things I want to do around the house. I seldom get bored, but it does happen occasionally.
One thing we’re on guard about is developing bad habits. It’s really easy to eat too much when you’re retired. Easy to drink too much also.
Every week is six Saturdays and one Sunday. Having some structure to our days helps keep us on the proper track.
My wife quit smoking, joined Weight Watchers and lost 50 lbs. over the last two years.
I started a lunch club with the guys at the gym. A once a month outing. We all enjoy it very much.
Looking back, what would you have done differently?
I wish I had gone to a trade school instead of college. I could have been self employed at a much younger age.
Was there any emotional impact from leaving the workforce?
Relief! No more pressure and stress. Neither one of us misses work at all.
What surprises (financial or non-financial, good or bad) have you had since retiring and how have you handled them?
The previously mentioned health care windfall was certainly a surprise.
I’m most grateful for making so many new friends. I thought it would be harder to do and take a lot longer.
Financially we have more money now than when we retired. I’m happy about that!
What are your future plans?
We’ve taken four trips since we retired. We want to do some bigger trips beginning next year. Alaskan and Hawaiian cruises are on our list. We want to get some travel in while we’re still relatively young.
We’ll probably receive an inheritance. If so, I want to buy a condominium as an investment and a place to enjoy and live some day. Eventually we’ll have to leave our mountain home. It has a lot of stairs to negotiate. Our driveway is very steep. The day will come when it will be too much for us. Our plan is to sell the house and move into the condo.
How has your financial plan performed compared to what you had estimated before retirement?
We’re spending less than I thought we would.
Our average monthly expenses last year were $4,636. I figured they’d be $5,400 per month.
Can you give us some insights into your post-retirement spending and income? How much do you spend annually and on what? And where does the income to pay for your spending come from?
Our monthly spending allowance comes from the earnings from our after tax investments and from our cash account.
With the $24,000 standard deduction we also took some earnings from my wife’s traditional IRA accounts. Those distributions ended up being tax free.
We paid no federal income tax last year. We won’t pay any this year either.
Last year we spent $55,630. Here’s the breakdown:
- Food and household: $12,514
- Mortgage: $8,586 (paid off)
- Travel: $3,848
- General (Amazon, etc): $2,793
- Medical out of pocket: $2,188
- Gasoline: $1,839
- Cell plans including payments on phones: $1,793
- Dining Out: $1,743
- Auto Repair and maintenance: $1,722
- Household: $1,596
- Auto/Motorcycle Ins.: $1,565
- Life Ins.: $1,524
- Real Estate tax Investment Prop.: $1,397
- TV (Dish, Netflix): $1,346
- Hair/Nails: $1,278
- Phone line/Internet: $1,230
- Rainy Day Exp.: $1,170
- Gifts: $1,128
- Electric Bill: $1,094
- Propane: $762
- State Income Tax: $258
- Optical/Dental Ins.: $679
- Entertainment: $572
- Clothes: $537
- Vet Bills: $468
- Gym: $430
- Water Bill: $300
- Sports Equipment: $264
- Umbrella Policy: $262
- Prescriptions: $176
- Satellite Radio: $140
How are you handling Social Security, required minimum distributions, tax issues and the like?
My wife was going to start taking Social Security this year. However, our income would rise too high and our healthcare subsidy would diminish considerably.
We’ve decided to delay taking SSI for now. We’re still too young for RMDs. We have a minimal state income tax liability. Probably about $250 for the year. No Federal Tax liability for 2019 expected.
Did you return to paid work? Why or why not?
No. Once you’re self employed you can never work for someone else.
Did you find it hard going from being a saver to a spender?
But once we had several months of retirement under our belts, I became more confident.
I literally track every dime we spend with an app called Spending Tracker. The upgraded version costs $3.00. Well worth it! Great app!
Looking back, what do you wish you knew in advance?
I wish I had known that all our plans were going to work out as expected. Would have saved a lot of anxiety over the years.
What advice do you have for those wanting to retire?
Don’t concentrate on how much money you MAKE. Concentrate on how much money you SPEND!
Be flexible. Planning is essential, but life is unpredictable. Always have a “Plan B.”
Finally, be P.O.P. (Poor on Paper) when it comes to the tax man and healthcare, especially when entering retirement.