One of the things I enjoy doing with my wife is just getting in the car and driving. We’ve done this throughout our entire marriage, over 30 years now. It’s a fun and inexpensive way to get out of the house, talk about stuff, and just be with each other.
Over the recent past, a common topic of discussion during these excursions has been our retirement. And together we came up with some warm and fuzzy — and not so warm and fuzzy — keys that we think will make our retirement secure.
On the warm and fuzzy side …
First off, we want to be together. We don’t want to spend a lot of time doing separate hobbies or going on trips without one another. I really enjoy being around Debi — and I think she does me — and we want that to continue.
Second, we want to keep to a schedule. Staying active is something that we have to do to stay healthy. The idea of sitting around and doing nothing — except in small bits — terrifies us both.
Third, we’d like to travel more than we do now. But unlike a lot of our friends, we don’t have huge travel goals: Just to every now and then get out and see more of the world.
Lastly, we want to remain flexible on what goes into this warm and fuzzy list. Maybe that means pursuing new passions, getting a part-time job, or volunteering. We don’t know. What we do know is that any changes need to be included on the list.
Now, the not so warm and fuzzy …
I’ve been in finance since I graduated from college over 35 years ago. I’ve been a bookkeeper, senior credit analyst, stock broker, financial writer, and, now, financial editorial director. I’ve done just about everything you can with numbers, money, and investing.
So, you’re not going to be surprised when I tell you that I’ve modeled our retirement finances to the nth degree. I’ve probably even overdone it a bit. But no matter, here’s a backstage look at what I do …
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| A good spreadsheet can help with retirement. |
1. In my retirement excel spreadsheet, I have our sources of income across the top. Since we’re both still working, these sources include our salaries. But as I build the spreadsheet out into the future, those income sources drop off and other sources are added in, including Social Security and income from our nest egg. Then, I simply add up all those sources of income.
2. Below our sources of income, I have our estimated expenses. These include things like groceries, spending money, and medical expenses. You can drill down as deep as you like into this detail. I recommend going only as deep as you can without making yourself crazy. I add up all these expenses as well.
3. Each column on the spreadsheet pertains to a time period. For shorter-term planning, a month is a good idea. For longer term, years are best. I structure the spreadsheet on a cash basis, with each column inheriting the prior ending balance.
4. I project this spreadsheet as far into the future as I think Debi and I are going to be on the planet. I figure mid-80s is a good enough number. Once you’ve completed that step, the heavy lifting is pretty much done.
So, what did we see?
We naturally began to see retirement deficits when we both stopped working and started our Social Security benefits. And the shortfalls were pretty eye-opening.
Fortunately, we started this planning process a while ago. And that gave us a bit more time to decide what we were going to do. Here’s what we did …
First, we cut expenses. The fact is, we simply can do without a few of the things we enjoy while working, like eating out more than once a week and cutting back on our personal spending. And that’s helped the budget. But it hasn’t been the biggest help to our deficits. That’s why …
Second, we realistically estimated our nest egg and how much we are going to make from it.
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Third, in our retirement spreadsheet, I carved out a section of it and listed our retirement assets on-hand today. Then, for each of the columns where we planned income and expenses, I estimated how much those assets were going to increase until retirement. Then, once I got to retirement, I estimated how much retirement income our nest egg could potentially throw off. I plugged that back into my retirement deficit.
The result? Probably no big surprise here: We were pretty close to erasing the deficit. But — and this is a big but — a lot of that depends on how much retirement income we could get from our nest egg.
A good rule of thumb: Well, frankly, I don’t have one.
With interest rates at nearly zero, plugging into the calculation the average rate on a CD — which currently stands at just 3/10 of 1% — makes the numbers terrible.
To improve things a bit, you could also use the current yield on the S&P 500 (2%). Or even better, the average return on the S&P 500 over the last 10 years (9%). But with the S&P returning just over 1% last year, relying on historical numbers gets tricky.
Our solution? We just use a blended return of 5%. That’s not as depressing as a CD or last year’s S&P, but it’s also not as rosy as the longer stock market returns. And we adjust that number as we march through time.
Once we got through this process and plugged in our numbers, we had this neat little plan.
But we immediately learned that it could change dramatically in the blink of an eye: One of us could get sick … we could lose a job … we might have to move unexpectedly. Who knows. The important thing is that we have a blueprint.
And just as important, we continue to take those drives we enjoy so much.
Until next time,
Wayne Burritt
{ 15 comments }
Can you provide a link to a sample retirement spread sheet constructed as you described? It would give us a place to start.
Thank you.
RK
Why not use a blended number of four percent. Just as good a guess and most brokers I read now aren’t using five percent over time.
Where did you come from? That is a nice article.
Will
I really like this – nice writing & a really personal touch to bring it all home – we used to take those drives you talk about – time well spent for working the bugs out of a hard weeks work…
One thing you did not include in you lise of COSTS – Inflation – with the current sprint to spend more money but the dump truck load, you can bet that 5 years from now we will not be looking at sub 2% inflation – the cost of a new car or a dozen eggs will escalate and years of spread sheets will be stretched – on the other hand you cannot plan for the tax man & what next years taxes may look like – by the middle of ’17 we may have a better idea –
THANKS for the personal touch – it really is missing in most all financial writing.
capt.bill – Õ¿Õ¬ (7 years into R.M.D.’s and all is well with NO forward planning).
I’m sure that your forecasts make you feel more in control. At least now you know what feeling in control is like. Once you’ve retired, unless you have gobs of money, all bets are off. You’ll not only have no outside income, but the gyrations of the stock and bond markets may be such that you’re forced to consider abandoning your long term investing horizons for the realization that the money at stake is all that you have in the world. (When I retired at the end of 2007, the bottom was falling out of the market, the Dow at 6000, and Weiss was still urging us to sell. The next day the Dow suddenly reversed course. Too late.) Then there’s the issue of Social Security and Medicare. If Donald and his Republican cohorts have their way you’ll be on your own to figure out how to get the investment returns you need, because there’ll be no guaranteed SS payments from the government.. And because there’ll be no Medicare as we know it, you’ll only get vouchers to help you buy insurance (which will cost more than the amount of the vouchers). Then there’s the problem with the fallback of going back to work to make ends meet. In all likelihood one or both of you will not be as healthy as you are now, with aches and pains not compatible with working. And of course there will be a lot of others in your same boat, so the probability of getting a job to fill in your financial deficit will be low. I sincerely wish you Good Luck.
PS And we haven’t even talked about the damage to your ego from suddenly feeling useless because you haven’t got anything meaningful to do once you stop going to the office. I can’t overemphasize how depressing this is for many retirees whose identity has been tied to the work they do. Really really tough to get through. Cause the next question you ask yourself is “Well, then. What is the purpose of my life?”
Umm, useless? Why? You mean you didn’t plan for anything to do after retirement? 30 years before I retired, I bought some metal-working machinery (lathe, mill). I’ve made metal parts for people are building their own airplanes. I’ve invented a few niche things that have utility to others than just me. I make custom things for people who can’t find just what they need still on the shelf. My religious affiliation provides myriad opportunities for service.
My uncle used to say, “No one is totally useless – they can at least serve as a bad example to others.” ;)
Interesting short retirement article. My background is a CPA with 30 plus yrs in community banking as an owner, director, president, CEO, chairman of board, down to the starting position as the assistant cashier with holding company auditor and public accounting with what was a Big 8 accounting firm which is still one of the large 4 in the background. I have taught budgeting and finance classes along the line of Dave Ramseys program and still counsel financial stress at our church. My xcel spreadsheet is not quite as extensive as yours but gives us a similar plan as you discuss with similar info on a shorter term because as you said things change but we have several alternative plans that will work if things change that much. Great to find someone that has done similar planning for ourselves. My monthly income/expense tracking is quite extensive to manage the process while we still create income outside of SSA. Thanks for sharing your financial planning and experience.
The best to you in dealing with the current economics. Hopefully some decent changes will come about without bankrupting America which we are already.
Dean Boyd
Broomfield, CO
“…blended return of 5%…” That’s new one! What’s depressing is you believe it as your “blueprint”. Go build a house with it then. That’s called speculation. Is it a key to “…A Great Retirement”? You might as well go blow your IRA in Vegas.
Imaginary numbers work very well for mathematicians, but not well at all in the real world.
Dream on.
Interesting article which went through all the steps BUT you left me, and I assume many others, hanging when you got to the most important point when you stated “Our solution? We just use a blended return of 5%.” What comprises this “blend”? Before this statement you refer to using the S&P 500 which is a crap shot at best. What many Americans have been setup for is a big loss if [Ooops, not “if” but when] this market dives. In short, your article left the reader hanging, at best.
Wayne, I have to know where you will invest your nest egg safely to average 5% into the distant future. If you think the stock market, insurance annuities, even bonds are a safe bet into the future, I beg to differ. I think there will be a strong economic meltdown soon and what if that decimates your nest egg, even if diversified? You have a lot more confidence for safe return on your money than I do. Maybe some cash under your mattress would be a good place to start when banks meltdown and close their doors with your money inside. This recession (depression?) could last for years, taking out many jobs, maybe even yours. Sorry to be a pessimist, but your plan is vague as to where exactly you can count on a generous 5% to secure your retirement with times like they are. Tell me more about your “blend”. Thanks for listening and reply if you would.
Wayne, nice article. You have definitely put time, effort and energy into your calculations. There may be a few additional considerations and perhaps you’ve addressed them yet for sake of the limited article print space you were unable to comment. Did you take into account the optimization of your social security benefit not only to get the most from your benefit but to do so most tax effectively? Did you account for “sequence of return” risks that could devastate your nest egg with just three consecutive down years in the market? Did you account for mortality credits? How about “longevity risk?” What about the probability of sustainable withdrawals based upon a 5% withdrawal rate, to your mid 80’s and even beyond? Did you account for taxes and inflation? You did mention healthcare risk, yet could there be some ways to better prepare for such a contingency risk? May I suggest you read Tom Hegna’s excellent book, “Paychecks and Playchecks For Life.” No opinions here. Rather the scientific, mathematical and economic facts. Go to my website, http://www.HeritageFinancialPlace.com and contact me and I’ll send you a copy. Meanwhile, wishing you a blessed future as you approach this next exciting chapter of life!
Dear Wayne: Enjoyed reading your essay about traveling in the car with your wife beside you. Congrats on saying that you enjoy being together. My beloved of 32 years do, too. However, I make the investment journey by myself. It’s just like any journey, it begins kinda scary, picks up speed as you learn the vehicle and signposts. The signpost you have for the expected end of your journey – your mid-80’s doesn’t sound to me, who is 84, healthy, adventuresome, and still learning, distant enough. Why not plan for mid-90’s, even l04 as was my Mother? The investment atmosphere now feels unplanned. We’re waiting, all investors, to see the effects of Trump. I’m hoping that X (steel), Northrup, and utilities, maybe Granite construction, do well, although I’m not ready yet to take cash to invest in those. What is your thinking? My watch list grows longer, just like a trip to an unknown destination, I’m excited to see what’s ahead. What about you?
Great article. My wife, and I, are within 5 years of full retirement age of social security. We have done similar assessment of our finances when we retire. We want to travel for a year throughout the United States and see this great nation. I believe we will cherish this time together. Maybe even find a new area to move to. Only time will tell. One thing is to have fun traveling together.
Can you make your spreadsheet available for us to fill in our situation?
Thanks Wayne. I’m a little late to the comment party but just wanted to share my appreciation for your piece. I’m a millennial and financial manager and track my current and projected net worth about once a month. The only way I can see a comfortable retirement is to assume real investment returns at 4+% to grow a seven figure nest egg and working til around 70, leaving 15 years of pure retirement. Very, very few of my friends and peers take retirement seriously, and I am actually quite frightened at how they will survive in old age. Good luck to us all!