RETIREMENT
PLANNING
(October 2005)
Rick & Rory-
I actually got to your web page through the Kaderli's web page,
which I'd linked to from a Motley Fool email I receive weekly. Then, when
I saw your name, it sounded familiar. I knew why as soon as I saw the
Kiplinger's reference; I'd just read that article in my Kiplinger's about a
week earlier. What a connected world eh?
I'd like to hear more about
how you have/are managing some of the things I consider key to retirement
planning for my wife and me.
1.
How
do you manage the expense side? Strict budgets or, ensuring you have
enough cash flow to maintain what you've grown used to spending, or a
combination?
RICK: I am a Fidelity customer and use their Retirement Income Planning
tool. The first step is to determine what your expenditures are. We
have kept track of every nickel we've spent over the past three years.
Rory is a QuickBooks "guru". We use this as our tool to record
our expenditures and track against our budget. We can print several
reports out of QB and we print a monthly statement to see how we're doing
year-to-date. In December/January we budget for the upcoming year, and
again, track our expenses to the nickel. We enter the budget amounts (for
each category) into the Retirement Income Planner. Since all of our
financial accounts can be tracked thru this tool (even if they weren't already
under the Fidelity umbrella), we can also enter our holdings. We also
enter our projected income from salaries (for now), pension, and social security
(when it's time). The tool takes all this information and tells us how
much $$ we will need to draw from our holdings each year to meet our
budget. It shows 30 years worth, but of course, the only "real"
numbers are for the current year. However, it will tell you what % you
would draw out each year and whether or not you're likely to outlive your
assets. The planning tool also lets you project significant changes year
to year. For instance, we intend to travel 6 months/year and have a line
item for this. If, after, say 10 years, we decide to cut back our travel
and spend the money elsewhere (or not), we provide that information to the
planning tool. It also allows you to do "what if" scenarios
with your portfolio and to vary the risk factor. I've been using this
tool for 2 years and it works well for us. Oh yeah, the tool
factors in inflation (separately for medical and regular CPI) and allows you to
project when "windfalls' might occur--like an inheritance.
You may have read that you will need a certain percentage of your
current income in retirement to maintain your standard of living. I
believe this is a myth fostered by the investment industry. Actually,
it's expenditures that will determine how much you need. Reducing expenses
by downsizing your home; moving to a less expensive part of the country; etc.
go a long way and you shouldn't have to deny yourself anything that you've
gotten used to.
2.
I
see you have long term care insurance. How about normal medical
insurance? Does your former employer provide primary insurance or, what
will work as a Medicare
supplement? Any thoughts on other medical insurance sources
you may have considered?
RICK: We bought long term care insurance because we did not want a
catastrophic situation to force us to run through our assets. The earlier
you buy this, the cheaper it is. If you decide to buy it, definitely do so
before the older of you reaches 60. Also you want to buy from a company
with a history of never raising their premiums. (John Hancock was our
choice.) We wanted to make sure that if one of us survives the other, that
the survivor can continue the retirement lifestyle without financial
worries. I have the option of taking medical insurance from my former
employer (as a retiree) and also using it to supplement SS when I reach
65. We have calculated the maximum out-of-pocket that we might be forced
to spend and included it in our budget. If we don't spend it, it's there
for something else the next year. We recalculate this every year when we get
the open enrollment material.
The only other medical insurance thoughts I've had involve the cost
of medical in a foreign country, should we choose to emigrate. Medical
care in places like
Any other thoughts or lessons you've learned would be
appreciated. My wife and I are about a decade behind you and very much
looking forward to joining you in retired life.
RICK: Our retirement planning began almost three years ago. We
started from scratch, finding tools and other sources of information. We
started with the idea of traveling half the year. I would recommend that you
have a reasonable idea of what you want to do in retirement and begin planning
for that. You can always modify your plans. As we get closer to
R-day, little pangs of doubt creep in; but the Kaderlis (and others we've
talked to) say once you've jumped, you won't look back. If you haven't
done so already, I suggest you purchase the Kaderli's CD-book. Even if
you're not interested in the life of a perpetual traveler, the book is full of
useful information gleaned from their 15 years in retirement
Regards,
Mark