How to Retire – the RIGHT WAY

How to Retire – the RIGHT WAY (a title suggestion from Karen A)

1. Plan ahead. Take vacations to check out places where you think you might want to retire. The internet has lists of ‘Best cities’ – large, small, affordable, etc. (I already knew I wanted less humidity, outdoors stuff and no hurricanes. Colorado, New Mexico, Arizona. I crossed off the best state because it’s too expensive. Figure I can travel there.) Start planning right away so you won’t feel rushed.

2. Set a goal for retirement. Age, or year, or savings dollars. All three if you want, they will probably NOT coincide. (also see 4. below)

3. Check your $$ (you’ll likely need money to your mid 80’s) (sorry this is a long subject)

You’re going to need some facts for the calculator: income you need (use 60% of current), date you retire, current assets (savings) and SS income (mine is $25k at age 66) you will get. The calculator will ask you a couple of other things: inflation (use 5%), average rate of return (use 5%), age at death (use 90). (I decided NOT to use my house in my assets, because I planned to sell it and buy another, resulting in no mortgage.) If working, you’ll need income and estimated savings until retirement.

This is one calculator: http://partners.leadfusion.com/tools/motleyfool/retire02a/tool.fcs (They’re pretty much all the same, try several to get comfortable) (google:  ‘retirement calculator’)

‘They’ say you’ll need 60% minimum of what you make when you retire. You can count social security as part of that. (That’s been about right for me except I keep buying toys to keep me occupied. So, see no. 8 below and add more for what you want to be doing. Living expense + LIVING! expenses)

Figure your taxes at 15-25% from investment income and 401K withdrawals.

Most of you reading this will be already old so also, use a little common sense. If you’re living from paycheck to paycheck, just keep working until you get laid off. If you have saved some money, and if you’re like me, you’ll see that adjusting your death age or inflation rate or ROR will make a huge difference to the results, and thus leave you confused. Stay at work and keep saving until you get comfortable with your results and sick of working. (For me, it was a compromise: retire on the savings I had now while I was young enough to enjoy what the world has to offer; or, keep working until the calculator said I could live to 110 without going broke.)

Don’t forget  that when you retire while still ambulatory, you can easily get an ‘old persons’ job or even go back to work in your field again. I have several banker friends who retired early (usually from a buy-out) who then went gladly back to being a banker in their 60’s, sometimes in a job they liked better. They tried retirement, decided they were happier working. Now, how can you beat being happy at what you do? (Ralph W, you are this example, plus your wife ran you out of the house.)

4. Train your successors at work. Before you go, they should know all your secrets. Particularly if you’re expecting them to pay off the buy-out. Don’t start too soon, they won’t listen. (They might not listen anyway if you’re an ass.) Six months is about right, the last month they should be begging for your time.
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5. Decide on a place to retire. This is the fun part. Choosing the place you will live next! Who gets to do that? My whole life I was either ordered to a station or imprisoned* in Houston to make a decent living as an architect. Freedom for old people! (*Houston, forgive me, you’re a good city except for the humidity, traffic, crime and hurricanes) (*Houston, it’s you that made me a success and enabled me to retire and you’re the home of Rice U, the best* U in the US) (*But not in football, of course)

6. Get serious about your money. Pay off your house, increase your savings rate, max out any employer plan benefits, scrimp a little. (if you have credit card debts, stop right here and do not come back until they’re paid off!) Sell your house NOW if the market’s good. (See no 9. below)

7. Find some ‘gap’ Health Insurance (unless you’re 65 already) (figure $500 per mo per person, and with a big deductible)

8. Figure out what you’ll be doing. When you DON’T have a job. (at least, TRY to figure it out) This is a fun part too, but most folks have never thought about it. (I certainly did not.) If it entails extra $$ (i.e. travel), be sure you add that in to your requirements in 3. above. If you retire young enough to enjoy life, you might need more money than if you are already happy in a rocking chair. Don’t forget to factor in a new car every so often, maybe one-time medical expenses, helping out the kids, etc. Or, an RV, motorcycle, personal country club membership, things you didn’t spend for while working.

9. Buy your retirement home. If you’re sure of where you want to be, get looking for your place and buy it early. (Rent it out temporarily if you can) Sell your current house and move in an apartment for the last year or more of your career. You’ll save a bunch of money and then, be really happy to get out of the apt and into your new retirement home. And, even better, you won’t be trying to sell your old house and move to your new retirement home at the same time. Much less stress. Do all the stress stuff (selling and buying) while you’re working and it’s a normal thing (stress, that is).

Also, if you have the resources, consider having two places, spring/summer and fall/winter. You’ll always have something exciting to look forward to. (Wish I’d done that, but expensive) (May do it anyway, later) (Just smaller spaces in exotic places)

Consider renting, at least for  a year or two of retirement. These days of iffy housing markets, not a bad idea. It’s always been a shock to me how much money owning a house really costs. Check this out on-line: renting vs. owning. Also, what if you don’t like your retirement city? Or neighborhood? If you’re renting, you are in charge of what does and doesn’t make you happy. No compromising because you own and can’t move. This is a big deal.

10. Investments, which? While saving for retirement, and then, during retirement, where should your savings be?  This is a big question and you’ll find most advisors will always be big on stocks and stock mutual funds. I never was. For the last 25 years of my career I stuck with usually more than 50% in CD’s, bond funds, and (horrors) a MMA account. When the 80’s market was booming, yes I was in stock funds, but never more than 50% of my worth. Overall, my conservative investments saw gains of 8-10% in the good years, 0% in bad years. My goal was to keep my savings rate up as my income increased. My house investments were good, not great. (Live close to work, so I will enjoy work) My philosophy: work hard, earn a salary, save the part I don’t need. Make sure the savings stay where I put them. Make a return, that’s a bonus. (So, if you see me in Walmart getting you a cart, get back into stocks right away. Walmart will be selling stocks in a booth in front next to the bank, eyeglass place, hair salon and nail shop)

11. Considerations. This is just a guess in late 2009: taxes – going up; inflation – heading up; housing values – stagnant. Make plans accordingly. (I did NOT say stocks will help with ANY of these situations!)

12. Estate. Get your affairs in order: 1. Will, 2. Durable power of attorney, 3. Living will.  At a minimum. You will feel freeee knowing how organized you are. (Use the internet,  a lawyer can check your work.)