Thursday, May 22, 2014

When Can I Retire?

“When can I retire?” was a question that was near and dear to my heart for nearly ten years. I think I have explored that question from just about every possible angle. I have written many posts on the retirement question, but it is a subject that comes up again and again.

The first question you need to ask yourself if you are considering retirement is, “Am I having fun?” If your job is fun, keep doing what you are doing until it isn’t fun anymore or your health keeps you from enjoying your work as you once did.

If you are not having fun, the next question to ask is, “Can I afford to retire?” Here is the quick and dirty answer to that question. There are sophisticated retirement calculators on the Internet that can give you a more accurate answer. I suggest you use all of them—at least twice. I did.

Current Gross Combined Family Income X 0.8 = How much you are likely to need in retirement. For example:

$100,000 X 0.8 = $80,000 This amount is how much income this couple will need in retirement.

Let’s say this couple has one defined benefit pension and can draw something from Social Security.

-$30,000 in a defined benefit pension
-$20,000 in Social Security
= $30,000 a year shortfall in retirement income

Take the shortfall and multiply it by 25.

In this case $30,000 X 25 = $750,000

This couple needs $750,000 in savings before pulling the trigger on retirement.

Now add up your retirement savings, 401(k) accounts, Roth IRA accounts, bank balances, Certificates of Deposit, everything but the equity in your primary residence.

Do you have $750,000?

Next question, “Do you have health insurance covered until you are eligible for MEDICARE?” This is really important. If you will lose your health insurance when you retire, you better work until you are 65.

Now it starts to get a little tricky. Let’s say our couple who needs $750,000 lives in a high cost of living area like Washington DC. They can move somewhere that is warmer and cheaper, like Greenville, SC. where the cost of living is roughly 75% of the cost of living in Washington. Let’s make that 80% for safety’s sake.

Now the couple doesn’t need $750,000. They can get by on $350,000. “But wait!” as they say in the late night infomercials, “It gets even better.” If you sell that expensive house in Maryland and buy a less expensive house in South Carolina it could free up a lot of cash that could be added into your calculation. Let’s say this couple could reasonably expect to clear $100,000 after the dust settles. Now they only need $250,000 to contemplate a safe retirement.

Studies indicate that you will need 80% of your current income in retirement. That is just an average of how people actually behave. You do not need to be average. If you believe it is in your rational self interest to retire, there are additional acceptable compromises short of the life style you are currently living. Here are some additional questions you need to consider.

The next question you need to ask yourself is hard, “If I work for an additional five years how will this affect my life expectancy?” This question has no hard numerical answer, but look into your own heart, in my case both my physical heart and that other way we use the word heart.

The results of a Boeing study, prominently posted on the bulletin board at work for many years, indicated that every year of work past the age of 55 shortened life expectancy by two years. Is the additional amount of money you will take home over the next five years after subtracting your pension and Social Security benefits that you didn’t receive and the difference in taxes worth ten years of your life? I believe that the latter years of my career shortened my life. Now that I am retired I seem to have more time and energy to be good to myself. I have dropped thirty pounds. I am eating a better diet and doing things that are good for my heart. I don’t know when the good Lord is going to take me home, but I believe that the life I am now leading is making me healthy. I believe it is extending not only the years I may have left but making the quality of my life better and better.

Finally, ask yourself, “What am I going to do with all that extra time?” Curiously you will not find that you have the extra 45 hours in your average work week plus the 10 hours you spend on the road that you expect to find in retirement. Now you are cooking breakfast most mornings then cleaning up the dishes. There goes 5 hours a week, but is anything better than a leisurely breakfast looking out the window at the weed trees growing over the privacy fence in my back yard? I have more time to write. That is a very important part of my new identity. I am catching up with old friends and family members. I am rediscovering my vinyl record collection. In some cases that is just like buying a new album. Our new church is a good fit. We are already involved in a lot of activities. I haven’t yet used all the available cultural resources down the road at Furman University, but we are using our alumni library cards. Having both a public and university library at my disposal is – wonderful.

As you can tell, I am a great fan of retirement. I am certainly not bored. I hardly ever watch TV. If you want to retire and you can’t yet retire, cut your spending to the bone, double down on whatever is going into your 401(k) as well as your taxable investment accounts. If you get really serious about this, you will be amazed at what you can accomplish in even just a few years of conscientious effort backed by diligent study of different investment modalities. Try and change your situation at work. If that doesn’t seem to be possible, change your attitude. THEY can not control your mind. You are in charge of how you choose to view your life even as you are working to change your life.

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