Thursday, December 26, 2013

Life in Retirement? Better than you think

He knew now that it was his own will to happiness which must make the next move. But if he was to do so, he realized that he must come to terms with time, that to have time was at once the most magnificent and the most dangerous of experiments. Idleness is fatal only to the mediocre.”   - Albert Camus, A Happy Death

By Julia Anderson
Most mornings in the first months after I quit full-time work at the newspaper, I would sit in bed drinking coffee, watching TV news and reading my smart phone while thinking that I'd gone to heaven.
Not getting up at 6 a.m. and scrambling off to work was a luxury, especially on Mondays. Never had I had the pleasure of contemplating the day with a leisurely cup of coffee. My life until retirement has been filled with deadlines, responsibilities and obligations, first as a student, then as a parent and later as an employee with a full-time job.
Three years into retirement, I continue to relish Monday mornings and that delicious first cup of coffee.
For those newly retired or those thinking of making the change, retirement may be a happy surprise, financially and emotionally. Yes, I've made a few mistakes such as taking Social Security earlier than I might should have. But on the whole it's been good. Here's why:
- Financial planning: During my working life, I socked away a reasonable amount of retirement savings in a 401(k) with matching money from my employer. (Yes I could have done a better job of that, too.). And I kept debt to a minimum. When I retired I still had a house mortgage payment, but that's it. No credit card debt. No loans to kids, no car payments. Within a year, I'd refinanced the mortgage, which saved several hundred dollars of expense every month. At 64, I began drawing Social Security benefits as a bedrock piece of my retirement income stream.
- Working in retirement: I've continued to work as a freelance writer, which offers all the rewards of keeping my head in the game while giving me flexibility to travel, visit my mother and kids. The income isn't great and I could be working harder at it, if I had the time. But the additional revenue has supported my relatively modest lifestyle that includes movies and regular dining out and a bit of shopping. These income sources have allowed me to not tap into my Rollover IRA, now comfortably located at www.fidelity.com. Yes, I've seen a spectacular increase in value with this self-managed account in the past three years as U.S. stock markets have recovered from recession.
(Full disclosure: My recent remarriage has also been a benefit because my husband and I share in household and travel costs. Check out my blog post on the subject, click here. If we'd not met, I likely would have a roommate to defray some of those same costs. Meanwhile, self-employed work-related costs can be deducted from my federal income tax.
- Farm operations: Living on a rural property, I have a small amount of income related to boarding horses. That also gives me some tax deduction benefits and property tax deductions. It has been interesting looking into all that.
Retirement is a big change but it doesn't have to be scary. In fact, my anxiety about giving up the big job has faded (not overnight, but gradually over the past three years). Even in a worst case scenario, I now think I'd be OK. The trick was getting my lifestyle expenses in line with my income. And that income has got to be more than Social Security and can come from part-time work or carefully planned withdrawals from retirement savings or both. Withdrawals in the 2-3 percent range makes sense.
Scott Burns, among my favorite national financial advice columnists, said in a recent post that a new group of advisers is popping up ....people who will help you manage in retirement. (Check Scott's Web site at www.assetbuilder.com.) For me, it made sense to put half my money in a low-cost S&P 500 index funds and most of the rest into individual stocks. On average U.S. markets have produced 2 percent a year in earnings. I calculated how much money that represented in income per year for me and realized that along with Social Security, I would survive.
That's even if share prices go down. The world will not end. The dividend income would still be there. So far so good. A flaw in my planning is the required minimum distribution from my nest egg mandated at age 70 by the IRS. That means a bigger tax bite as those required withdrawals increase each year into my 80s. But that's a minor detail in the bigger scheme of things. Go ahead, retire!!!
Enjoy that Monday morning cup of coffee. 

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