For those that are already in retirement, did you try living on your anticipated retirement budget before you retired.

My wife and I are going to set a weekly budget equal to our anticipated retirement income and live on it for a year to see how it feels. Anyone ever done anything like that, and how did it turn out?

I applaud you for looking at it this early and having a plan.

Lived on well less than our anticipated income for many years. That's one thing that let me retire early, and I've still not started to milk any of my IRA's. Being completely debt free is also a wonderful benefit.

Will of course start in on those at the mandated 70.% yrs and simply view that as play money.

It really helps to enter retirement without a mortgage.

Going into retirement debt free is critical, as is having a budget that is realistic and allows you to set aside a portion of your monthly income for both anticipated and unanticipated expenses. A lot of people forget how expensive home and vehicle maintenance and vehicle replacement is today and will continue to be tomorrow.

EDIT: Another drain on retired folks are their children and grandchildren. A lot of retired folks spend a significant portion of their savings supporting their children, often paying for luxuries of the sort that they would never have bought for themselves. My 32 year old niece is a prime example of this. She and her husband earn about $400K, but manage to spend all of the net and then some. She is regularly asking her grandmother, my MIL, for a couple thousand here and a couple thousand there. Fortunately, my MIL can afford to give her the money, but I don't think that my MIL's enabling her to live beyond her means is helping her learn how to manage her money so that she can live within her means when her grandmother is gone.

That said, I do not agree that retiring debt free is best for all. Very dependent upon one's situation.

While every situation is different, I can't see how being debt free is ever a bad thing. Debt has to be serviced and the money to service the debt has to come from somewhere.

That is one view and one I do not share given my circumstances.

You must have special circumstances. Care to share?

Put away about 20% into a 457 plan while I worked and got a small raise when I retired! Was used to living on less so it was no adjustment. Had house free and clear and no xtra bills. Part of a 20 year plan!

I won't pretend to speak for EdM, but with some mortgages around 3%, and considering that You can get a quarter or a third of that back on your taxes, getting it near 2%, it almost makes sense to make use of such "cheap" money, to free yourself up to use the cash on other things, be they amusements/necessities/investments.

I won't argue the benefits of getting out of debts that are racking up 6-18% interest. You don't want that hanging over your head, but at 2-3% interest, I don't see much benefit to going all "Dave Ramsey" on certain debts...

My mortgage is just over 3%. I plan to pay extra principal, but at this point I'm more concerned with building more cash, 401, etc. In fact, I'd rather find the right investment property and invest in that, than pay down mortgage. As it stands, if monies increase as I plan, I can cover my mortgage into retirement.

Retired almost 10 months ago. Life is good so far!
I would definitely recommend preparing a budget based on your past actual expenditures for both essential and discretionary expenses. Then look at some free sites like Investopedia to see how your income streams will match up to expenses (4 box method). Found that useful to find any problems.

In addition to others comments I recommend consideration for "consequence of events". Or more simply because life happens, have a cash cushion for unplanned expenses or if your investments are in the [bleep] (like the stock market since I retired). I'm ok for a few more years but.....

Last year my biggest personal expense was on fuel for hunting and fishing adventures cause I have most of the toys I need. Might even need a new truck a little earlier than I had planned! (But not complaining cause it isn't work related anymore)

Agree with Ed. Retired 2 years ago. The only bill I have is a 15 year mortgage at 3%, sold my big house in a high tax area downsized to a low tax area away from the big city. Used the 50K in tax free equity put most in the bank, used some to upgrade the house. Still haven't touched any of my annuities or 401k's and shouldn't have to for another 10 years, but .gov is going to make me in 6 when I turn 70. I do work 15 to 20 hours a week out of my home shop to pay for health insurance until next year when I have to join Medicare.
All in all life in retirement is good, I get up in the morning drink coffe while watching the sunrise, and think about what I don't have to do today unless I want to.

With such low mortgage rates, I can see the financial sense in holding, or even taking a 2-3% mortgage, then investing that money and if you can make 5%+ you are actually in the positive.

The tradeoff is piece of mind that you have 0 debt.

Westernmassman makes s good point. Gather up your toys before retiring if possible. I have the toys to play with in retirement and as important, the ammo to feed them, especially the rimfire. I expect to do much more rimfire for myself, as well as kids and any grandkids. Between the wife and I, I figure on one car payment. I have a company car now, but will buy a truck and drive to my grave.

I figure my retirement expenses for the first 10 years will be the same as my expenses today, minus the monthly contributions to 401, savings, etc.

I retired 9 years ago at age 51, it was planned since I was 20. My monthly income when I retired was 20% more than when I was working.

Several unforeseeable things happened in the past 9 years. The economy crash one year after I retired killing interest earned on investments and still is. Our Governor Snyder saw it fit, several years ago that I pay state income tax on my pension, 4.6 % of my monthly income gone. With Obama Care my monthly insurance premium went up 150 %. Went from Blue Cross Blue Shield that payed 100% of everything, optical and dental. To 70-30% no optical or dental. Automobile insurance has increased 100%. Then add in inflation on everything else.

Next year I can collect Social Security that will add 30% to my monthly income. My wife can collect 3 years after that.



It costing more than I planned but has not costing enough to change my way of life. As long as we have are health.

Always plan to have enough on an annualized basis to handle unforeseen changes, usually due to government policy changes (i.e. assumed interest rates on savings, health care insurance costs, etc). Also, remember to include in your budget taxes that will need to be paid and how that will eventually intersect with Social Security. We always lived on one income, although we both worked. Allowed us to retire early and to have spending patterns that remained fairly constant.

Predictions are difficult because everything changes, sometimes often. A medical emergency can wipe out anyone. A CPA isn't a bad person to consult. We have been retired for 4 years, and our CPA warned us about paying off our present mortgage (we moved) too quickly because the interest deduction lowers our income taxes by about 5%.
I turn 70 next November, so I'm facing the need to reduce the principal of my 401K enough the IRS doesn't give me a required withdrawal.
As you age, you will be able to do less. Remember the aging process accelerates. There's a much bigger change in your abilities between age 50 and 70 than there was between the ages of 30 and 50. I won't be going on any strenuous hunts or rough-water fishing any more because of my bad back.
Barring medical expenses (unpredictable), you will spend less as you age. As my 401K is decreasing, I can stay home more and spend less.

Always Always play with other peoples money not your own. Wise Jewish guy I used to work with , words of wisdom.

When my wife died 9 years ago, I considered doing that. Investments were paying a higher rate than my mortgage. However, I wanted to be debt free so I took her death benefit and paid off the mortgage. Less than a year later, the market crashed. If I'd invested it, I'd have lost much of it and still had the mortgage to pay. We are likely looking at a major crash in the next few years, especially if a Dem gets in the whitehouse again. Get out of debt while you can.

Bingo.

If you have the money to pay off your debts, including the mortgage, but instead invest it, you're essentially investing borrowed money. That's high risk and it can come back to bite you hard. That's what happened in the housing crash a few years ago. People were buying over their heads, borrowing on houses and thinking it was an investment. When the housing market crashed, millions got bitten hard. A lot have not yet recovered.

Yeah, but if you had a $400k mortgage on a $200k home like many folks ended up with during the crash(with little equity), it's easier to walk away from than a $200k home you "paid off" for $400k. There is a monetary advantage to NOT having your money tied up in an asset that takes a while to make liquid (like a home). For an interest rate that is LESS than inflation (real inflation, not the BS government #'s) I'm willing to keep a mortgage.

For that to actually pan out, it takes a considerable amount of money, to (attempt to) make money on based on the risk. Most people that have a mortgage don't have the additional assets to cover it should things go bad. Then they get really hurt.

I was an engineer for 30 years, working ~2 years at each company.

I would ask people, "Do you save money or live paycheck to paycheck?"

Half would say they save. Almost all of those said they were saving with maximum automatic 401k deductions from their paycheck.

My follow up question would be, "So you can't save without them taking the money and keeping it from you with penalties for early withdrawal?'

They all said yes.

But there are some who can save:
1) Bachelors
2) Really old engineers who's kids are gone, don't need to work, but work for fun.


So I went back to the normal people and asked why they cannot save. It turns out that one person spends more and the other saves more. But after a while, the saver finds out he gets nothing. After that, the two are in a race to see who can spend it first.

In 1988 I told the wife that I am not working any more, unless every after taxes penny I earn is invested, and not spent by her.

Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference. -Robert Frost

With this countries economic nightmare, we could easily go into a major depression at any time. The money you put into investments would be gone and you'd still have your mortgage to pay. If you're debt free, you wouldn't have any less in investments but you do have your house. It's assessing the risk and I'll vote for keeping my house.

Bingo!

I'd consider debt in retirement only if my investments were accruing more interest than my debt. Presently, even our bankers are apologizing when we make a deposit. We've never ever borrowed for toys, and I for sure don't want any debt attached to my home.

I keep hearing 15 to $16K being tossed about as average credit card debt in the US. If that's true, we're in a sad state indeed.

Retired here, not exploiting all of my potential income, and still saving $$ each year. We started planning though about 30 years ago.

I retired when I was 49 years of age.

The answer to your question is YES, but we did it in reverse. I kept a listing of every single dollar I paid out for stuff for three years. Then, I had a good handle on what we were going to need.

We had, and still have, literally no debt. All of our stuff is paid for when we buy it. Home, car & truck, stuff like that ... free and clear.

Invest long term and diversify.

Worked for me.

God Bless,

Steve

yes there is that and that is a genuine possibility. I feel for the people in the real estate bubble states that think their house is their investment. 700-1 mil house , 13k in property taxes and think these houses will only go up in value. Its cyclical. My parents bought a house in 1963 for 29k in 1985 it was worth 400k in 1995 it was at 300 who knows what it was worth in 2008 and today it is at 750k.

The only function of economic forecasting is to make astrology more respectable

The late Ezra Solomon

Investment forum?

+1......you'd be surprised how little you can live on if you don't have house/car/credit card debt.....I started collecting SS at 63 so I don't get the full amount but I live on it just fine without touching my nest egg......

Retired 10 years ago, wife retired 7 years ago.

We have no mortgage, never did - inherited family home. Had no children, too busy providing home medical care of sick parents while holding full time jobs, and I attended evening college classes to pass state license exams. I attended continuing education training for my 32 year career.

Saved every raise in 401(k) or 457(b) accounts. Wife's 410(K) had company match, so she maxed that portion.

I didn't take an actual raise for 20+ years, salting it away in the 457(b). Wife laid off, changed jobs, bought 5 years of "air time" to add to her new public employee retirement - cost $75,000 out of her 401(k) as she had to pay both portions. Now the money is protected and receives a 2% COLA on her pension. She lost a considerable portion of her 401(k) investments just afterward when the markets crashed, buying air time proved a great idea.

Paid off all debits prior to retirement, use credit cards as monthly accounts.

We receive 6 separate pensions, as I had to begin distributions from my 457(b) at age 70.5. She began collecting private pension from her second employer at age 65. Two of our pensions have an automatic COLA's, we keep pace with inflation.

She still has 401(k) balances in the six-figure range, just by saving $50 then $100 per payday, money we would have spent on things that wore out, became obsolete, or were discarded. All that needful stuff is a liability, savings are assets.

So if a person is willing to save, (it cost me $35 for every $50 I saved in the 547(b) offset by the tax reduction) and manage their money they will do alright. I bought one new truck in 1976 for $6,050 and drove it for 30 years (still have it and it runs) until 2006. Wife bought one new truck in 1986 for $14,000 and drove it 23 years until 2009. Every mile in a paid off vehicle is money in the bank. I didn't care if the neighbors had new fancy cars, they didn't pay my bills. I did my own repairs and maintenance.

When we retired our budget was the same as before we retired, a little less actually, as we no longer commuted saving on fuel.

My father died when I was age 10, left my mother with less than a quarter in her purse. She worked every day until her death at age 67. I vowed to never let that happen to me or my family. Bottom line is work, constant self-improvement, saving and frugality.

OrangeOkie: Congratulations on your upcoming retirement!
I hope you can "get along" on your anticipated retirement income during your trial.
My wife and I were lucky in that she sold her very successful business and I had two sources of income when we decided to retire.
I was 50 years of age and my wife was 46.
Plus we sold our home at the top of the real estate "boom" and we moved to a MUCH cheaper state to live in once retired.
I have been retired now for 19 years.
One suggestion I have along these lines is to not hesitate to move to a "cheaper" state to live in - this money (savings) adds up quickly and continually.
Again best of luck to you in your retirement.
Hold into the wind
VarmintGuy

It'd do better than that combo gun forum Flave talked you into that he never posts in!

That's a good idea for us 50 somethings Rick.

I'm all for it.

It's impossible to lay out one strategy for retirement. Everybody has different wants/needs for retirement. My wife and I are so cheap that we honestly couldn't cut anything from our budget in retirement. Our cheap living has enabled us to have a very nice lifestyle though with more "toys" bought with cash than people who make 2-3x more than us. My wife doesn't even work, stays home with the kiddos. We honestly cannot stand pissing away money, (my wife is cheaper than I am) and people don't believe us when we tell them what we live on. We do buy assets though, with cash. Cash means little, net worth means everything.

My plan is to get the house paid off ASAP. I could pay it off now, but have $ tied up in other things. Then, buy another house in Arizona, sun city, and then get that paid off ASAP. Buy a quality fishing boat in AZ while saving money. Meanwhile, I'll keep buying assets, whether they are in the market or boats, permits, etc. When retirement comes, life won't be much different than it is now. I will go fishing everyday until health wont' let me or I die.

And us 30 somethings also

If I was 30something again I would follow this investing strategy, once I was debt free except for my house and had 3-6 months cash emergency fund saved up.

3% Signal

Sun City, AZ? Yikes.
Sounds like you have a solid plan though! Fishing is never a bad way to spend a day. Whether your next or last.

I've always had one question for those that taut the Mortgage deduction. You say the deduction is preferred, but have you also figured in what the real advantage is compared to someone taking the standard deduction on their taxes. It definitely closes the gap, though I never figured out how much. Not sure, but it may make it a wash, or at least not near as much as your assuming.

Here's what Dave Ramsey says about it. Since I paid off my house early this year, I agree with him 100%

Why Should I Pay Off The Mortgage?

QUESTION: Laura on Twitter asks Dave to explain paying off the mortgage versus keeping it for the tax deduction.

ANSWER: If you have the opportunity to pay off your home and you don’t pay off your home in order to keep the tax deduction, that would be an indication that you are poor at mathematics. It’s a nice way of saying you’re stupid and you believe cultural lies that are out there. The cultural lie is never pay off your mortgage because you’ll lose the tax deduction.

Let me help you with the mathematics on this. Let’s use an example. Let’s say you have a $200,000 mortgage at 5% interest. If this is your personal residence and you do itemize—by the way, only 27% of Americans who file taxes itemize—you can write off the interest portion of your payment on your personal residence. If you have a $200,000 mortgage at 5%, that would be $10,000. We have a $10,000 tax write-off because we have a $200,000 mortgage at 5%. That’s a tax deduction, meaning if that couple makes $75,000 a year and they take a $10,000 tax deduction, they don’t pay taxes on $75,000. They instead pay taxes on $65,000. If you do this weird Dave Ramsey thing, though, and you pay off the house, you no longer pay taxes on $65,000 because you would not have a tax deduction. You’d have to pay taxes on $75,000. You’re in a 25% tax bracket if you make $75,000 a year. That $10,000 a year that we’re talking about is taxed at 25%. By paying off your home, 25% of that $10,000 that you’re going to have to pay extra taxes on is $2,500. In essence, you lost a $2,500 savings on your tax bill, but you gained $10,000 by not having to pay it to the bank.

A $10,000 tax deduction is the same thing as saying, “I would rather give Countrywide $10,000 than give the government $2,500.” I’m not fond of giving the government money, but I think that that’s a pretty stupid trade, by the way. If you’re so dumb that you think giving Countrywide or Wells Fargo or whoever your mortgage company is $10,000 to avoid a $2,500 tax bill, you flunked math in the third grade. That’s stupid. I used to be that stupid. I believed that same mythology that a lot of you believe.

Here’s another idea. What if, instead of a $200,000 mortgage creating a $10,000 tax deduction, you wanted to trade $10,000 and save $2,500, why don’t you just give an extra $10,000 to your church or to the Red Cross? You don’t have to be in debt $200,000 to trade $10,000 for $2,500. You could do that just by increasing your charitable giving. Where are all these financial sophisticates who are suggesting that a mortgage is somehow financially sophisticated? Where are these sophisticates when it comes to saying increase your charitable giving? It’s the exact same mathematics as having a tax deduction on your mortgage. We live in the land of doofuses. That’s where they are. It’s what’s known as the blind leading the blind. The stupid leading the stupid, and I’ve been one of them. I’m not saying I’m above it. I’ve made these exact same mistakes. It was an old farmer in bib overalls who taught me that, and I’ve got a finance degree. Apparently, I didn’t learn much at that college. And apparently some of you CPAs didn’t if you’re suggesting people keep debt solely because a tax deduction is somehow mathematically a good deal. It’s not a good deal. Do not keep a mortgage to call yourself sophisticated. Bad plan.

Now if you’ve got a mortgage, until you get it paid off, for goodness’ sake, take the tax deduction. But don’t stay in debt telling everybody how smart you are.

That's one view, a piss poor one form some folks.

In what way do you disagree with the points he makes?

Once again, we're not talking 5% interest. My mortgage is 2.75%. With the tax benefits, it actually ends up being less than 2%. Despite what the govt tells you (that inflation is almost non-existent), it is actually probably 3-5% a year. Don't believe me?? How much did a truck or gun cost 10 years ago compared to today?? Bread?? Milk???

The point is, at 2% (after tax benefit) interest, you're essentially borrowing money for free.

Once again, I'm not going to argue that you shouldn't pay off a home loan that's at 6% or an 18% credit card. OTOH, if you can use money at 2% interest to invest at 5%-12% interest, or to buy tractors/trucks and avoid paying 6%-8% interest, or to avoid having to take so much out of a 401k or IRA (and draw a HUGE tax hit) why wouldn't you??

If all you are taking is minimum distributions out of your 401k/IRA, my way won't help, and it won't help if you have to draw from them to pay that mortgage. However, if you are exhausting savings(outside of retirement accounts) to pay your house off (and save 2-4% on mortgage interest), only to have to turn around and draw HEAVILY from retirement to pay living expenses (and have to pay 18%-25% ncome tax on those withdrawals), that doesn't sound real bright.

Also consider that what is left in your retirement account at death can be left to children and they can stick it in THEIR retirement account without a tax hit....

Dave Ramsey gives good advice when it comes to NOT being poor and being financially stable. OTOH, I don't think you'll find a large percentage of millionaires who got rich waiting to pay cash for all their business acquisitions/land holdings/etc.

This is the argument Ric Edelman uses:

Dave Ramsey is a twit, why He is still working, do any of you live? I mean really live? Enjoy life?

No two people earn the same nor spend the same, medical bills can be a killer, children they ain't cheap, Yellowstone is fantastic, it beats the hell out of reading 401 statements, or paying for cancer treatments.

Live your life, and enjoy every day of it, spend money on your kids, because they are going to spend it when you are dead, work hard live well and let the cards fall as they may, because you don't really have any say in the day the big guy calls your number.

Now, plug in a mortgage at 2.75% and tell me what that chart looks like.....

hmmmm