A Layman’s Look from Don: Streams of Retirement Income

by Donald Whelpley
@ 2022 All rights reserved.

Disclaimer: I am not a personal finance professional. The following opinions are my own. All info included is based in retiring in USA. I am not deluded into thinking that what I have to say hasn’t been said better SOMEWHERE else. The problem is finding that SOMEWHERE else.

The following series of articles will take many weeks to post. Keep coming back for the next set and encourage others who are nearing retirement to join you.

But the real question is “Why am I writing this?” Simple. After reading scores of articles on preparing for retirement I realized that NONE had me in mind.

In fact nearly half of the people attempting to save enough for retirement are poorly served by the professionals because (1) none of those professionals that I have read mention the serious loss of retirement resources which can result if Medicaid help is sought (and half of those who retire this year WILL need Medicaid help at some point). (2) Few professionals even mention that you should consult an elder law attorney to make sure you are taking full advantage of your own state’s laws (this is much more than just writing a will). (3) Finally, only a few talk about anything beyond stock market investments. So, all of those articles were sadly lacking in depth or scope for a majority of retirees.

I started researching about 13 years before retirement and started compiling my research about 7 years before. The following is a compilation of those years of looking for SENSIBLE answers. Sadly, most of the truly sensible information has not been easy to find. What started as a few personal questions about retirement options has developed into “Gee-wiz, shouldn’t everyone know this?!!!”

Putting away money is NOT the most important topic when thinking about retirement.  It is, however, essential if you are going to retire without constant worry about the budget.

As “luck” would have it, I retired in good health at 63.  But I did not count on luck.  I diligently researched, set realistic goals, and planned how to fund retirement.  Many retirees have not, mostly because it feels too difficult.  The truth is that a degree in economics is not required.

Before age 50 you MUST take a bold look at reality.  Your working life is going to end.  Someday you will die (happens to almost everyone).  Finally, the government may get involved in significantly negative and positive ways.  You need a practical way to fund your retired life, provide for a surviving spouse, and leave a legacy for your heirs.  Did I mention that we are looking at reality?

CALCULATING YOUR UNIQUE FINANCIAL SITUATION:

First, decipher your annual financial retirement NEEDS … which, since you won’t be raising kids, driving to work, or ordering business lunches … could be significantly lower than your current expenses.  (Start with your current income minus any of these expenses you are currently incurring.)  
Result $_____________

Second, you probably will stop contributing to your IRA, 401k, and/or other types of savings when you retire.  Note: There’s no longer a maximum age limit to contribute to traditional and Roth IRAs. (Amount from the above line minus the contributions you no longer will make). Result $____________

Third, you probably will pay less in taxes (while working you are likely sending 23% of earned wages to the federal government, more or less, including 7.65% [15.3% If you are self-employed] for Social Security and Medicare taxes).  You will not pay Social Security and Medicare taxes on Social Security benefits or on withdrawals from investments.  You will have income tax on a portion of your SS benefits.  You may pay income tax on traditional IRA-type withdrawals as well as on some pensions.  Some state and local taxes may also be lower.  (Amount from line above minus your tax reduction [You may need only 80 to 85% of the above amount].)  
Result $____________

Fourth, you will spend more for health care if your employer paid your premiums ($4,000-5,000 more per year).  Most of the experts assume that your employer pays your premiums.  Yet 35% of working adults pay for their own insurance or have none.  If you are in that group, as am I, your costs will DECREASE a lot (My medical expenses will decrease by 30% under Medicare with a Supplemental plan).  Add or subtract from the result in the third step.  Result $____________

Fifth, if you will be traveling and enjoying entertainment situations more than you currently do…add that to your basic needs.  Now you have a RETIREMENT FINANCIAL BUDGET to shoot for.  Result $____________

Sixth, remember to plan for inflation.  It has averaged 3.1% per year.  Build that into your budget (if you plan for too much inflation you are not required to spend it all).  Increase your “needed income” for the 1st year of retirement by multiplying .031 by the number of years until retirement (take the amount on the 5th line and multiply by this number, then add the 5th line and your result) … now you know your 1st budget.  Add 3.1% for every year thereafter to determine your retirement budget for the next 15-25 years.

SAMPLE BUDGET CALCULATION FOR FIRST YEAR OF RETIREMENT
$_________________________ Present Income
– $ _______________________  Cost of Working
– $ _______________________  Amount of annual savings (IRAs, etc)
– $ _______________________  Tax Reductions
+/- $ _____________________   Health Insurance increases/decreases
+/  $ _____________________   Entertainment Costs

= $ _______________________ SUB-TOTAL
____ years before retirement X 0.031 (inflation) = __________ (multiply the sub-total by this number below)

+/ $______________________   Inflation Cost

= $ _______________________ TOTAL 1st BUDGET (NOTE:  You will need this number next week.)

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