This following Paragraph in this month's Commentary provided by
@CharlesLynnBolin or
@lynnbolin2021 seems worthy of further discussion here on the board.
Thanks for sharing your personal experiences and decision that you have made.
@CharlesLynnBolin wrote:
The Modern Wealth Survey for Charles Schwab by Logica Research shows that of the participants, Americans believe that it takes a net worth, including home equity, of $774,000 to be financially comfortable and $2.2M to be wealthy. FatFIRE Woman has an interesting Net Worth Calculator. The concept behind FatFIRE is “Financial Independence, Retiring Early,” but with enough to have a good quality of life. The calculator shows that the median net worth of households in the 65-year age group is $189,100, including home equity, while ten percent of households at age 65 have a net worth of $2.3 million or higher. Pensions are often not included in net worth calculations and greatly distort comparisons.
We spend our working life depending on work income to provide the funding source for our "cost to live" a quality life. If we are lucky (and maybe a bit frugal) we also squirrel away some of our work income for retirement. The above paragraph captures where most of us (65 and older) are at. If we are at the median or below, we are probably still working (if that is even possible). Using a SWR (Safe Withdrawal Rate) of 4 % this "median net worth of $189K" would barely provide $600 per month ($189K*.04/12month) of "safe withdrawals" from somewhat "uncertain and illiquid sources" (our investments & home equity values).
@CharlesLynnBolin last line:
Pensions are often not included in net worth calculations and greatly distort comparisons.
Whether one will receive a pension, an annuity, a Social Security benefit or some other form of monthly/yearly income stream these "payments" are often difficult to quantify in terms of their worth in one overall portfolio or as part of one's net worth. After 40 years (25 - 65) of accumulating a retirement nest egg and living in a home, I personally struggle to think of these two assets as the first place to turn for income in retirement. In fact, I have often thought of my investments and my home's equity as the last place to seek income (withdrawals).
As important as our portfolio and home value is, it might be better for us to find alternative and additional income solutions to help meet income needs in retirement.
Social Security:Most of us will receive a Social Security Benefit. Spend some time crunching numbers regarding SS strategies.
Annuities / QLAC:Increases in Interest rates may now be making annuities more attractive. Annuities are a topic on to themselves. For example, a QLAC is an annuity that you set up early in retirement, then dispersed later in retirement at a higher payout.
Our Home/Vacation Property:Aside from home equity, a home could be rented for inflation adjusted income in retirement. Rent part of your home and have this rental income help with expenses or provide funds for you to travel in retirement. Consider running a part time business out of your home.
Reverse Mortgage Line of Credit:Consider setting up a reverse mortgage early in retirement. This allows the reverse mortgage's line of credit to grow over time. Then, later in life, you can access this reverse mortgage line of credit and make much larger payments to yourself. This strategy (setting up a reverse mortgage early in retirement (age 62) and letting the line of credit grow) reminds me of how a QLAC (purchased early in retirement then dispersed later in retirement at a higher payout) works. There is a cost to setting up the reverse mortgage similar to any mortgage.
how-does-the-line-of-credit-for-a-reverse-mortgage-work/
Pension:Some pension plans have features that allow funds (retirement savings) to be added to one's pension so provide a higher pension payout. Spend some time understanding what is offered at retirement. What's a Pension Worth? It could be a lot:
what-is-a-pension-worthPart Time / Volunteer Work:Retirement might be the best time to work at a passion that either pays you an income or provide you a productive way to spend your time.
Some of these income payments have little or no death benefit (SS might provide a burial benefit), some have a diminishing cash value (upon death), and some die with the beneficiary, some have a date certain end date, but all provide a partial solution to a retiree's income needs and might help you sleep better at night.
Love to hear what others have planned and implemented for their retirement income.
Comments
68 here and retired. My "solution" is to be married to a much younger spouse, who still works.
Pension, SS, and her wages cover what we need plus university expenses for the nieces and nephews, in Asia. School is much cheaper over there, when you're paying in dollars. Of course, extra money gets sent over there, almost every month, for one reason or another. Satisfaction comes from helping out. And we would expect the kids who graduate to take over helping their families, after school is done.
Between the two of us, I'm the one who possesses a "Plan Ahead" bone. I squirrel away a bit every month. Then, when things like the car insurance bill comes due (annually,) we have that amount ready to send.
She's even able to travel in style when she gets some time off: business class. She prefers it, now. I generally don't care to go. And we still have no need to touch the portfolio, although I have been withdrawing a token amount, in January of each year.
The succession plan: When she becomes a widow, she'll move back to Asia, into the new home she's had built over there. Her brother stays there and operates a small farm on the land. Her expenses will be considerably less than in The States. If she's smart, she'll find a job that will fill-out the 40 Quarters she needs to be eligible for Medicare and Social Security. But she could just buy a medical insurance plan over there. It would need to be a good plan, though. Some family members over there have "insurance" but the policies never cover anything when you NEED them. My pension arrangement continues with her, after I'm gone, but at half. It will still be ample. And a one-time $10k death benefit. I guess SS will offer her a tiny amount of "death benefit" when I kick the bucket, too. And she will inherit the portfolio, making sure my son, her stepson, gets a bunch of it. (Or I might take care of that ahead of time.) Our total amount, including her small IRA, is in the low-average range quoted above. We have no Real Estate to worry about. We are renting, and that won't change. I never wanted the headaches that ownership brings.
So in-turn, we are both 60 this year, I am military and disabled retired through the Air Force. I’ve been this way since I retired in 2008. I worked full-time job for 10 years after I retired, but since then I’ve worked part time of volunteered. During the time I worked, I was plowing money into my retirement accounts and built up sizable portion for which we’ve just sat on and let it grow.
My spouse still works full time doing accounting stuff, but next year she’s dropping a day and still gets her vacation pay etc, which will work great for us.
We don’t have anyone to leave our money too, so now it’s time to spend it. But where do we put it. We have family in US and England, so there will be traveling involved, mainly airfare and food. So many friends all over the place. Where does some one start. Lol
This was our 13th move around and the last time we bought a house. I took a chunk of money from Roth and paid off the house, which still leaves a very large portfolio to spend. I don’t know if I get could get used to rental unless it had private back yard for small dog.
• 1) Sit down and map out your total annual dependable income from all sources.
• 2) Do the same for all of your predictable and repeatable annual expenses. Hopefully the income will exceed the expenses. Will it be necessary to draw down your retirement accounts to meet those expenses? If so, an additional level of careful planning will be necessary. Consider that inflation is certain to increase your expenses, but not necessarily your income.
• 3) Consider what resources you may have for unanticipated expenses- primarily health care. Would an illness requiring expensive or extended health care be covered by insurance?
• 4) If it looks like your retirement income will cover your expenses, and you have decent health care coverage, then (and only then!) can you look forward to spending down your retirement savings.
• 4) With respect to "where do we put it", I'm sure that you will get many responses from the folks here at MFO. My personal input: I believe that we are heading into a period of financial system instability which will likely take a couple of years to sort itself out.
During that period you should want to keep your savings as safe as possible. I suggest consideration of laddering fairly short-term (3 months to 2 years) FDIC insured Certificates of Deposit, or similar maturity Treasury instruments. These types of instruments are easily available through brokerages such as Fidelity or Schwab. We personally use Schwab, but many MFO posters would also recommend Fidelity.
For more information about these types of investments you might take a look at the "New to Brokered CDs" thread, and also the "Best Returns on Currently Available CDs or Treasuries Maturing 2024 to 2025" thread.
Best of luck in retirement- I can testify that my wife and I are certainly enjoying ours.
You can simply copy your post from above and then paste it into a new thread.
As far as Reverse Mortgages go, there is a reason they have a bad rep. High expenses (often 10% plus) combined with nefarious players dealing in that space make Reverse Mortgages a tough option. Read the fine print - they can often take your house if (they determine) you haven't been keeping up on various payments you owe as a homeowner.