Sunday, January 29, 2012

Tips on Retirement Planning

On Tuesday, January 31, Donna and I will have been retired for a full year. It has been a great year. I truly do love retirement. I've never felt more free in my life. I've learned a thing or two about retirement planning this year, and have a few tips for those of you who may soon be retiring.

First and foremost, determine as precisely as possible what your retirement income is going to be. Donna and I retired from TRS (Teacher Retirement System), and we were able to determine our retirement incomes to the cent. We knew what we would receive, and felt that we would be able to live on that for many years to come.

Next, prepare a budget based upon your retirement figures. I have a daily budget set up for us. This budget accounts for every penny we spend. If we purchase a cup of coffee at McDonald's, I enter it on our budget.

Once the budget is prepared, then about 6 months or so before you enter retirement, start living on that budget. You might find this difficult to do.

We retired at the end of January, 2011 but it was June before we were living within our budget. That means that the first 4 months of our retirement, we were in the red. Now, some of our expenses during this time are explainable. For example, we had to pay federal income taxes in March, and then we had moving expenses  in May. Both of these items put us over budget for those months. We also did a good bit of traveling in February. Still, we were over budget each of those first 4 months, and that concerned me.

Since June, we have been under budget every month -- and by a comfortable margin -- and we have taken several trips, including 2 trips to Laughlin, Nevada. It does take a while to get into a retirement rhythm, though, so I strongly encourage you to begin living within your new budget several months before you have to. If you are unable to live within that budget, perhaps you should reconsider whether now is a good time to retire.

You also need to consider that if you have difficulty living within that budget now, what will it be like in 5 or 10 years. Prices will continue to rise, but your retirement income will probably not increase. Since Donna and I expect to live another 20 years or more, it is important that we not only live within our budget but that we continue to put money back on a monthly basis.

I built 2 future expenses into our budget: property taxes and a future car. I put aside $300 each month for each of these (a total of $600 per month). Thus, when the time comes to pay taxes or buy a new car, we will already have the money.

And this leads me to another point. If you have debt, you probably shouldn't retire. You really need to be debt free and in a position where you pay cash for everything, whether it is a car, a house, a trip, or whatever. So, by putting money back each month for a future car, we will be able to pay cash when the time comes.

We have been able to do a number of things to reduce costs. One of the first things we did was to do away with our land phone line. We now use only our cell phones. That in itself gave us a savings of about $600 per year.

We also worked down to a single car, thereby eliminating auto insurance, maintenance and upkeep for a second car. The savings realized here is probably at least $1000 per year, if not more. Expenses here to consider are insurance, auto registration, annual inspections, and regularly scheduled maintenance at the very least.

We find that we eat out much less than we used to. I'm not sure exactly why this has happened. It may be that we simply don't have the need to eat out. When we worked, it was nice to go out for a meal to avoid cooking and cleaning up after a long day of work. Now, I find I'd rather eat at home; it's better food and it's just more comfortable to eat at home. When we do eat out, we normally go out at lunch and we usually look for specials. We're really quite happy with the places we do eat out and the quality we get.

For example, we recently ate lunch at a local "trendy" hotspot called The Cork and Pig. The place specializes in pizza and burgers/sandwiches. Even though it was lunch, the cheapest sandwich was a patty melt, which cost $9. I purchased the patty melt and Donna ordered the Cuban ($10). Both sandwiches came with fries. For this price, I expected real homemade french fries. I was disappointed. Basically, we got McDonald's fries with sandwiches that were, in my opinion, not very authentic. I've enjoyed patty melts for years, and what I got at the Cork and Pig was not a patty melt. Our total bill with drinks and tip was $26. We could have gone to Schlotzsky's and eaten for half that price and enjoyed much better food.

My point is that we are more selective about where we spend our money. We look for good value when we eat out, and there are plenty of places that offer good value. Trendy hotspots are selling decor and other things. I'm not interested in those items. We still have nice meals out. This past week we ate at a very nice local Mexican restaurant. Since we were able to order off the lunch menu, we had a much better meal than at the Cork and Pig and for about $10 less. On top of that, the service and decor was much better.

When we worked, we used to visit our local bookstores monthly and purchase books and magazines regularly. We no longer do that. We now visit our local library and check out books. We've also cancelled all magazine subscriptions. These actions have saved us hundreds of dollars.

Since we no longer have to dress professionally everyday, we are saving a considerable amount on clothing.

Overall, though, I strongly recommend that everyone prepare a budget and track expenses -- all expenses. Unless you do track expenses, you really don't know where your money is going. If you spend $3.00 a day for a cup of coffee from Starbuk's, that can easily result in an expenditure of several hundred dollars over the course of a year. Taking the time to track expenses is a small enough price to pay for the new freedom you are about to enjoy.

Good luck!

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