Here’s our latest interview with a retiree as we seek to learn from those who have actually taken the retirement plunge.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
My questions are in bold italics and his responses follow in black.
Let’s get started…
GENERAL OVERVIEW
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)?
No kids.
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.
RETIREMENT OVERVIEW
How do you define retirement?
Retirement is not working anyplace…anytime…anymore.
How long have you been retired?
2 years.
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
Total: $1,534,820
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.
RETIREMENT LIFE
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.
RETIREMENT FINANCES
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?
Initially yes.
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.
Barb says
Great series!!!
In this interview, I was intrigued by P.O.P. What I’d love to know more about is how to be “Poor On Paper” for taxes. I’m trying on my own with what I know about but feel like I know so little!
This year, I expect to make @$80k, which is a good 20k more than I make most years (and is coming as a pleasant surprise for me—the amount of work I’ve had the opportunity to do).
I can usually look POP with maxing my 403b and IRA so I don’t pay for my Obamacare and even get a tax refund, but with an extra $20K, I haven’t figured out how to do it for next year’s taxes. And that worries me!!!
ESI Money, I may have missed you writing about this…but do you have anything I could read/any suggestions that would help me still be POP with this higher income?
ESI says
Sorry, I don’t.
Bob says
Barb,
I wish I could say I was smart enough to have figured out the advantages of being POP before I retired. We needed to bridge the gap between initial retirement and Social Security. I did that with the sale of our home, my business and an investment property. That gave us enough cash to bridge that gap. The taxable earnings on my investments aren’t huge. As a result, we seem poor on paper. We’ve decided to defer Social Security (wife) as long as we can to maximize our healthcare subsidy.
Bob
Breezy says
Great interview. I love the retiree series.
#16 have you thought about doing any Roth conversions right now with your income being so low? I believe you can have AGI up to 64k and still qualify for massive ACA subsidies. With no tax liability today you have a real opportunity. I do understand not wanting to mess with the subsidies but I imagine you could probably convert 10k without effecting them. The country is in extreme debt and rates will , eventually go up, now is the time to strike! Talk with a CPA.
Bob says
Breezy,
I have not considered Roth conversions. In order to get the highest subsidy on healthcare, we need a taxable income of around $20,000 per year. As our income rises the subsidy diminishes and the deductible goes through the roof fast.
Even without the healthcare subsidy issue I’m not converting my IRAs to Roths. When the deductible IRA first came on the scene decades ago the idea was to enjoy tax deferred growth on the contributions. When the money was eventually withdrawn decades later, inflation would have eroded the value of the cash needed to pay Uncle Sam. Basically the notion was defer tax now and pay Uncle Sam with dollars that are worth less later.
Now that entire premise has been flipped. Advisors say pay your “good” dollars out now. I don’t agree.
In addition, I don’t trust Uncle Sam. Whose to say they aren’t going to tax those Roth accounts in the future. They’re already talking about RMDs for Roth accounts. RMDs on a Roth is a tax.
Beeezy says
May I make one more suggestion; assuming you have an HSA. Make the 8k HSA contribution from your cash and then do an 8k Roth conversion. Now you have 8k in an account that reduces your income, and is extremely versatile when it comes to health care, and you can do my Roth conversion idea for 8k and not increase your income above the 20k AGI. TAX FREE!!
Also don’t forget your one time transfer from an IRA to an HSA. As always please consult your tax professional!!
Bob says
We don’t qualify for a HSA. Need a high deductible healthcare plan to have an HSA.
Kraig says
Great interview and story. Congratulations on what you have achieved.
Bob says
Thank you.
Mike W says
Great interview! I think it’s really encouraging to see somebody who didn’t make half a million per year who was able to retire early. Not everybody has that huge E, and it’s great to see that managing spending and smart investing allowed an early retirement.
Bob says
Mike,
It is very doable. I’m not the smartest guy in the room by any means either. Most of our “financial plan” came from two things my parents drilled into us: Work hard and save.
We’ve been retired for two years and we have a lot more money now than when we initially retired.
Dave says
Thanks Mike. Poor on paper seems to be the least understood part of Obama care. I had three buckets (like you), but took me a year to figure it out, finally getting it it November 2018 open enrollment. It’s a big deal to have an after tax bank balance and income below 2x the poverty line. And it made me accelerate retirement from Spring 2019 to Dec 2018. 4 or 5 months of paychecks would have added tens of thousands to healthcare.gov costs. Haven’t seen anyone lay it out more clearly than you.
Savvy History says
This is a very helpful series providing a lot of insight into people with a large variety of circumstances. I’m seeing it through new eyes now that I’m trying to help my mother navigate retirement. This situation closely lines up with my parents money-wise. Much like this couple, she is planning on $2,000 healthcare expenses as she tries to bridge herself and my dad to Medicare. Unlike this couple, she wasn’t thinking about it very hard until she was offered an early retirement package and my dad isn’t retiring so they are bringing in a lot of money and this is complicating her tax situation. I’m trying to learn as much as I can to help them (even if it won’t apply to me for several years).
117 says
Sorry. The free healthcare when retiring early had me drift from this article. Good for you but it’s why I can’t support socialized healthcare.
Bob says
I’m not an advocate for socialized healthcare either. Before the ACA an individual could buy a catastrophic healthcare plan through an insurance agent. That’s what we were planning on. A policy that just covered us in the event of a major illness or accident. The ACA outlawed those policies. So, if you didn’t have employer sponsored healthcare the ACA was your only alternative. Another government boondoggle!
#LearnedtheHardWay says
Hi Bob – awesome job at accumulation and using your assets wisely.
I’m trying to hold off till 70 on SS for survivor maximization.
Congrats and stay healthy with the gym habits.
Saving – A
Spending/Tracking/Frugality – A
Rental advantages – A
Owning a Business – A
Transition to Next Phase – A
Elephant in the room –
Healthcare coverage – I have to be honest here.
Legal/Clever, but I’m not thrilled to be paying
your healthcare bill given your asset level,
but I thank you for being 100% honest.
Readers: Strategy here https://www.kff.org/interactive/subsidy-calculator/
Bob says
I hear you about the healthcare subsidy. I figured we’d pay at least $2,000 a month for coverage. For us retiring at this age, the ACA is the only game in town. Other alternatives just don’t exist. In our shoes, what would you do?
#LearnedtheHardWay says
In the few conversations I’ve had on this topic and with limited research, I’m not sure there is much you can do other than play the cards dealt. The only other thing you could do to pay something is bring up you your AGI into some level of payment. Last I checked a full priced gold or silver was ~ $2500 not including a large deductible – I’m not sure who can pay that for an extended period. (Then add an LTC policy on to that for some of us.) ESI has suggested HealthShare – I have not researched deeply.
Dave says
I’m with Bob. ACA is like taxes – learn the rules and follow the rules. When I retired early and so have low income, I follow the same rules as others with low income (subsidies). With ACA, I cannot go directly to insurers. Income -based pricing is the only option. ACA is much like taxes that way – more income = higher cost.
My healthcare is not free, but is very similar to what I paid while working.
117 says
‘ACA is much like taxes’
Yep- we pay more taxes so others get to benefit. Often times the benefits go to people that shouldn’t get them. Not bashing Bob- just making it very clear that the ACA is a joke.
Bob says
Absolutely. The ACA is another government mess!
Jenn says
I’m curious about your life insurance. With no kids and yourselves set for life with retirement, why continue to pay life insurance premiums? (In fact, in your shoes, I don’t know that I would have ever bought it.)
Bob says
You make a good point.
At the time we bought the term policies we thought we’d be working longer than we actually did. We have three or four years left in the term, then we’re done with it. If we were into Medicare and social security I would cancel the insurance. I’m 59, she’s 62. It’s a fairly cheap layer of additional protection for our finances. It’s more for her benefit than mine. If I die tomorrow she’ll have a nice cushion of money to live on without having to immediately immerse herself in our investment portfolio. She has little interest in our finances.
Rjf says
Taxable is about 50/50 stock to bonds and cash. IRAs are 90% stock 10% bond. Our overall allocation is 44% stock, 40% bonds and 16% other. Other is outside investments in real estate, savings bonds.
Elaine Crum says
I see many similarities in our situation and way of thinking! I would be curious to know
what your stock to bond allocation is in your taxable account and IRAs!
Rjf says
I left a reply.
Elaine Crum says
Thanks so much! Very helpful!