For most of our married life, every Sunday in the autumn we would read through the big Sunday paper & ads while watching the GB Packers or MN Vikings. It’s been about 10 years since we’ve had a newspaper subscription, but yesterday I accepted a $1 offer for the digital version of our local paper.
One of the articles in the Business section was titled “Ten Smart Moves Before Retirement”. It was well-written – kind of a construction plan for a strong retirement. Today, I thought I’d “grade” our own performance against their planning ideas. Overall, we did pretty well …
1. Clarify your retirement vision and goals
1. Clarify your retirement vision and goals
They encourage people to have a good idea of what they want their retirement so they can tie that to the time & treasure needed to fulfill it. You can see from articles I wrote before I retired, that I had a lot of plans spelled out in quite a bit of detail – including a “Not Bored List” and “Life Wheel”. They are some of the most popular posts I ever shared.
2. Maximize your retirement savings
We pushed to have about 115% of our target retirement nest egg before we retired. It probably meant that I worked a year or two longer than I needed to. After 24 years at MegaCorp, I took a job for 3 more years at another MegaCorp. I enjoyed those extra few years and some of the money I earned went into our “One More Year” charitable fund.
3. Strengthen your rainy-day fund
We were financially comfortable before we retired, so rainy day needs weren’t much of a concern. You should have 3-6 months cash to cover rainy day needs, but we have always maintained a 2.5-3 year cash buffer in case the investment markets have a pretty severe “storm”.
4. Get a handle on your spending – today & in the future
I tell everyone who asks for retirement advice to figure out what they spend today and how it would change relative to their retirement goals. Multiply that by 25x or 30x and you can be reasonably sure you have saved enough. There are a lot of other ways to “pressure test” your nest egg by employing a number of different lenses. We did them all.
5. Prepare your portfolio for retirement
The advice here is to diversify your assets and shift into less risky ones. I recall our financial planner saying that at a certain point, protecting what you’ve earned is more important than growing it aggressively. We’re in that situation and so I when I get interested in some speculative investments (like crypto or angel investing), I remind myself to keep it a small hobby share, not a major portfolio push.
6. Create a tax-efficient withdrawal strategy
There’s only so much you can do to avoid the tax man. We employ a “three bucket” approach to structure our portfolio, which also recognizes which investments are taxable. We’re currently keeping our withdrawals low right now to avoid taxes and accommodate a few years of Roth Conversions. Anything we move now will save us taxes when we hit required minimum distributions in 10 years.
7. Make social security and pension decisions carefully
Social Security is still a few years off for us, but we started taking our MegaCorp pension when I turned 55. Our pension comes in two pieces: one part had to start at age 55 (I’m not sure why); and the other part that we could defer. In the end, we decided to take both of them at 55. Given the performance of our investments over the past 5 years (S&P 500 up +79.6%), I’m happy that we tapped the pension early.
8. Plan for health care
People worry a lot about the cost of health care / health insurance in early retirement, but it’s just another expense you need to plan for. Many self-employed Americans do that throughout their careers. I simply sat down with a local insurance guy about 6 months before I retired and he helped me find a policy almost identical to what I had at MegaCorp. I recall that MegaCorp told us that the health insurance they provided was worth about $18K a year, but I was able to replace it for much less.
9. Pay off inefficient debt
We paid off all of our debt (including our mortgage) years before we retired. For us, debt has always been a 4-letter word, although I know people who retire with liabilities. You’ll notice that the tip here is to pay off “inefficient” debt. Many would say that a low-interest rate mortgage is efficient in that it allows you to deploy more money to investments. Paying off our mortgage early certainly cost us money over the years, but we’re not terribly disappointed with what we did.
10. Review your life insurance needs
We gave up our life insurance when I stopped working. All we really had at that point was insurance through MegaCorp, which was the basic 1x salary for “free”, plus an additional 4x that we paid for. At that point, we were easily “self-insured” for whatever needs we had if one of us should pass away early or to provide for our son, who was finishing his senior year of college. Life insurance can also be used for legacy goals, but we haven’t planned for that at this point.
Conclusion
I think overall, we were very well-planned for our early retirement. If anything, we probably planned too conservatively, so maybe we could have just retired earlier. The one financial mistake we made was paying off our mortgage early, so that’s not all bad. We probably should have just refinanced to a lower rate and tucked the money into some investments.
How does / did your planning follow their suggestions? What might you add to the list?
Image: Pixabay
