Beyond The Rainbow – A Map to the Good Life in Retirement

This is the last vendible in a series that describes what I learned in the year pursuit retirement. Without fifty years of working, military service, and getting two university degrees, I took the first year as “Me Time”. I once worked with an Australian who was fond of saying that he had his $100 in the bank, meaning that he was financially secure. I have reached the end of the rainbow without decades of investing and financial planning. I just signed up for Social Security, which, combined with pensions, will imbricate normal spending needs, plus I have my $100 in the bank.

This past year, I put my investing on autopilot with Fidelity Wealth Management and Vanguard Personal Advisory Services managing my long-term investment buckets. I am surprised at how much relief I finger putting these plans into whoopee and how much time it has freed up. I am ready to squint vastitude the rainbow and create a map of the good life in retirement.

REACHING THE RAINBOW

I had a rocky start to my career but was worldly-wise to finish strong with peak earnings in my later years. I began evaluating scenarios mid-career of retiring at 57, 59 ½, 62, and 65, not considering I wanted to retire early, but in specimen I had to. The benefits of working a few years longer were shocking. Brian J. O’Connor does an spanking-new job in Bad News: Early Retirement Can Create a Financial Crisis, which summarizes the risks of retiring early based partly on a study by Allspring Global Investments. He describes that someone retiring at 62 is three times increasingly likely to run out of money than someone waiting until age 65 to retire.

The five decades regarding personal finance since I graduated from upper school have been characterized by the following:

• First Decade: Military service, peekaboo university, stagflation, working temporary jobs.
• Second Decade: Globalization, layoffs, mergers & acquisitions, starting a professional career, marriage, MBA (between layoffs).
• Third Decade: Professional development, Dotcom Bubble, ownership a home, setting goals using Vanguard’s retirement tool.
• Fourth Decade: Working internationally, inward management positions, financial crisis, towers a home, using the Fidelity retirement tool, whence DIY financial planning, hiring fee-only financial planner, using Schwab robo-advisor, developing an investment model.
• Fifth Decade: Peak earning years, COVID, merger, retirement planning, retirement, cancer, relocation, hired a financial planner, writing wares for Seeking Alpha and Mutual Fund Observer.

Needless to say, things often don’t go equal to plan. You may not be worldly-wise to work as long as you would like to well-constructed your financial plans. There are financial speed bumps withal the way. Ultimately, I worked until age 67, which is vastitude the normal retirement age for both my employer pension plan and social security. Working longer ways that you are still subtracting to savings instead of drawing from them. The impact on Social Security benefits is described later.

Setting Goals

Setting a goal to have a unrepealable value saved by retirement unchangingly seemed a little esoteric to me considering there are so many variables. However, I have unchangingly kept an eye on the size of the prize. Fidelity’s guideline is that people should try to save at least their salary by age 30, three times their salary by age 40, six times by 50, and eight times by age 60. The median salary in the 55 to 64 age group is well-nigh $76 thousand. That would imply that the savings of a typical person nearing retirement should be between $450 thousand and $600 thousand.

The Wealth Calculators provided by DQYDJ estimate that to be in the top 50% for households in the 65 to 69 age group, one would need a net worth of $272 thousand, including home equity. The Fidelity Guideline is an reachable stretch goal. Having $1 million in net worth is in the top 20%, and to be in the top 10% requires at least $1.9 million. This does not include pensions, annuities, and social security. A Pension Present Value Calculator from Financial Algebra shows the present value of a $4,000 monthly pension at 6% interest for 25 years has a present value of $624 thousand. It does not take into worth adjusting pensions for cost-of-living adjustments like Social Security and some pensions do. Flipside important factor is whether the savings are in Traditional IRAs, where taxes are owed on distributions.

Figure #1 shows unscientific net worth, including home probity by age group from DQYDJ.

Figure #1: Net Worth Percentiles by Age in the United States (2020)

Lifetime Budgets

How much is required for retirement should be derived from a lifetime upkeep taking into worth sources of income, expenses, and including the expected return from investments, and unscientific inflation. Fidelity has a retirement planning tool that is misogynist to worth owners. Vanguard has one that is misogynist if you use their Personal Advisory Services. Of course, there is the DIY spreadsheet tideway that I moreover use. The forfeit of living can vary dramatically by state, as shown by Robin Rothstein in Examining The Forfeit Of Living By State In 2023. John Csiszar estimates that typical 401k savings will last less than seven years in some states: The Stereotype 401(k) Is Worth $300K at Retirement Age — How Long It Would Last in These 10 States.

Financial Planners

I am a strong well-wisher of using a financial planner, although I reached this conclusion late in my career. Social Security, Medicare, and tax rules can be complicated. Financial literacy is important to help us understand the tradeoffs between risk and return. Financial planners can help with these topics. What I have found is that it may take a financial planner and tax purser to teach on these topics. Rodney Brooks describes why you might need a tax purser and a financial planner in Should You Consult a CFP or CPA to Plan for Retirement? Sam Lipscomb describes why you might want an counselor who specializes in Social Security in Financial Advisors for Social Security. I took the Do-It-Yourself route, which has been time-consuming. Robert Powell describes unrepealable advisors who specialize in Medicare in How Financial Advisers Can Help Clients With Medicare. I use Alight, which is a retiree goody from my former employer, to identify the weightier Medicare plans.

Edelman Financial Engines has financial services with fees based on a percentage of assets. There are moreover a variety of resources misogynist to find self-sustaining financial planners, such as FPA PlannerSearch and The National Association of Personal Financial Advisors. I wrote Battle of the Titans for Portfolio Management, comparing Fidelity to Vanguard. I am using both and will evaluate in several years if I have a strong preference for one over the other.

Understanding Social Security

I have tracked my unscientific Social Security (SS) pension as part of financial planning. The wiring specimen in Figure #2 is the SS pension that I would have drawn at full retirement (66 years and two months), shown as 100%. Your SS pension is based on “the stereotype of the highest 35 years of indexed earnings divided by 12 (to transpiration the goody from an yearly to a monthly measure)”. As we enter into our peak earning years, our social security benefits are likely to increase. This was particularly important in my case.

Figure #2: Changes in Author’s Unscientific Social Security Benefits

Working until age 67 displaced a year with low income with a peak earning year. Someone retiring early at age 62 will have approximately 32% lower benefits than retiring at full retirement age, excluding the impact of earnings and inflation.

I evaluated variegated dates for starting SS Benefits and unromantic for the goody to start early next year instead of waiting until age 70. One should take into worth Spousal and Survivor Benefits when making these decisions. Reaching the end of the rainbow includes leaving my wife in the weightier possible financial condition in specimen I pass yonder surpassing her.

CLOUDY DAYS

Our parents and grandparents were farmers and ranchers. They experienced yield failures, droughts, pebbles bowls, depressions, inflation, and world wars. I had a rocky start in my career due to not developing a well-spoken career path early and to downturns in the merchantry cycle. These experiences ripened a strong desire to unchangingly have a margin of safety.

People are often surprised that pensions imbricate less than they predictable or that savings don’t last as long as they expected. Some have had to segregate to protract working or go when to work. Then, there are unknowns, such as health issues that arise. The boogeymen that snooping me are upper Federal debt and upkeep deficits, geopolitical risks, climate change, underfunded pensions and Social Security, stagflation/inflation, sequence of return risk, political polarization, and upper treason rates.

As I was well-nigh to submit this article, I ran wideness one increasingly pertinent source by Chris Kissel at Money Talks News, 12 Hard Truths Well-nigh Retirement. These points are well worth understanding surpassing retiring.

1. Medicare won’t be free
2. Social Security won’t go very far
3. You will wish you had saved more
4. Housing will remain your biggest expense
5. Your dreams may not match reality
6. You may spend increasingly than you expect
7. Divorce will be a serious threat
8. You might not work — plane if you planned to
9. If you’ve never volunteered before, you won’t start in retirement
10. Retirement can be expressly lonely for single men
11. Health issues will likely reservation up with you
12. You may be disappointed — at first

We have tried to write these risks by using the skillet approach, diversifying investments, towers up pensions, working a little longer, delaying Social Security benefits, and living underneath our means. We elected pension options with 100% survivor benefits. Delaying social security until full retirement age increased Spousal and Survivor Benefits. Increasing financial literacy and using financial planners reduces risk. Eating healthy and staying zippy improves well-being.

In the short term, government shutdowns and strikes will dampen an once slowing economy. September and October are pursuit seasonal trends for stocks to dip. I have set a stage in October to do a Roth Conversion while stocks are hopefully lower. I am overweight mazuma equivalents and short-term yoke funds and ladders and underweight equities.

ASSESSING MY FIRST YEAR IN RETIREMENT

Before I retired, I created an would-be Skillet List of things to do in the year pursuit retirement. I fell far short of completing the list. I workaday everything on the list, just not to the extent that I wanted. We did well-constructed our financial planning and manor goals, a major xeriscape project virtually the house, installing a solar system, and serried for a kitchen remodeling project to uncork soon. I have been defended to the gym as planned. I moreover completed things not on the list, such as towers raised bed gardens and volunteering to remove snow for senior citizens. My biggest regret was wasting too much time pursuit political drama, and not unbearable time reading quality books.

My day starts with reading the news wrenched down, focusing on ten categories that snooping voters the most equal to a recent poll. I take a deeper swoop into these subjects. It surprised me that approximately twenty-five percent of homeless people are unquestionably employed, but can’t sire housing. I read well-nigh what states and cities are doing to reduce homelessness. My wife and I attended a fundraiser for a local organization that helps provide “sustainable housing, supportive services, and education to families and individuals”. I visited their office to ask well-nigh opportunities to volunteer. I unromantic to be a volunteer and expect to start in November.

My goals have reverted somewhat. Turning over long-term investment buckets to financial advisors shifted my interests to other goals. I have reassessed what remains on my list and reprioritized it. The list is still valid, and I will protract to work on it.

THE GOOD LIFE IN RETIREMENT

I have lived overseas for thirteen years, and traveling upalong is not a priority. What appeals to me is to visit places nearby. This month, I went to a national park to see the aspen leaves waffly color. I am currently reading a history typesetting of Colorado, which enriches travel to nearby places.

My map of the good life in retirement is not so variegated from what I envisioned a year ago. I had thought it out well. I have reprioritized my goals loosely as follows based on the time that I expect to spend, some of which overlap. I am updating the details for each of the categories.

1. Family
2. Health/Gym
3. Volunteering
4. Reading quality books
5. Following current events and news
6. Home improvements, maintenance
7. Exploring Colorado and nearby states,
8. Nature trails and scenic drives
9. Parks, museums, and culture
10. Social
11. Retirement planning/investing/financial literacy
12. Visiting interesting restaurants/breweries/wineries

This skillet list forms my map of the good life in retirement.