For early retirees, what are your safety nets?

[flyingaway]

We would move fulltime to our condo in Mexico and our budget would drop in half. This would enable us to live on our pensions. We could cut out our annual trip to e.g. Europe and further cut our spending. We could reduce our quality of wine. We could reduce our quantity of wine. We could buy local Mexican liquor for $4/litre. We could reduce our cars from 3 to 1.

After doing all that, we would still have a pretty good life.

If you move to Mexico, do you have to sell your house in the U.S. to save money?

 

[Out of Steam]

An 8 year old minivan is still considered "new" to most folks here.

True, but I'm better at fixing old houses than old cars. Even in retirement, I will probably still drive a lot.

 

[flyingaway]

True, but I'm better at fixing old houses than old cars. Even in retirement, I will probably still drive a lot.

Interestingly, I have found most Japanese cars start to have major problems (repairing cost from $500 to $1,000) starting around the 7th to 8th year. My 2010 Lexus RX350 (bought in September 2009) just had a water pump problem early this year. My previous Nissan and Infiniti cars and minivans had some major problems around the same period.

 

[aja8888]

Interestingly, I have found most Japanese cars start to have major problems (repairing cost from $500 to $1,000) starting around the 7th to 8th year. My 2010 Lexus RX350 (bought in September 2009) just had a water pump problem early this year. My previous Nissan and Infiniti cars and minivans had some major problems around the same period.

Yep, they are not made to last forever.

That's why they have a maintenance schedule in the owner's manual and are known to have parts fail that are outside of normal wear items like tires, brakes, water pumps, timing belts and chains, ball joints, struts and shocks, wiper blades, coolant hoses, etc, etc.

 

[cyber888]

How could you do that in your 70s or 80s?

Many 70s people do that. I saw them in the Philippines, plus they sport a 20+ something young wife.

 

[flyingaway]

Many 70s people do that. I saw them in the Philippines, plus they sport a 20+ something young wife.

I don't know people in their 70s or 80s doing that. We had a colleague who retired at 60 (for a professor it was not normal) around 2000. He was single and went to Thailand. He sometimes came back to our events with a much younger Thai partner. He spent about 50% time in the U.S. and 50% in Thailand. He dies at 73 a few years ago when he was in the U.S.

 

[jebmke]

WE never counted SS or my pension in our planning. It looks like they will cover ~80% of our expenses excluding the taxes on RMDs. I may not pay those so I don't include them in the math right now.

 

[RobLJ]

Safety nets:

1) like OP, I'm an academic but I took modified employment to teach half-time online. I like teaching part-time, a lot. DW is still working but probably will retire in a year or two, but we have not touched my retirement funds (403b for me; 401k for her; no pension for me; it's funny what people assume about others), so they have continued to grow. Very Lucky.
2) I plan to take SS at full retirement and delay DW, but SS is an option on stocks, and a very valuable one. I figure on a 25-30% haircut to SS benefits for planning purposes.
3) downsize house in Reno. We had planned on downsizing when we moved here from Houston, but the grandbaby on the way in Cali changed our mind. But it is a luxury and a lot more space than we need.
4) 3 years cash for expenses in case of stock crash
5) DW is an accountant so always can go back to work in an emergency, although that's last on the list. I've been renewed for another two years.
6) cook more and travel less (discretionary is 40% of budget, and we can simply travel and hike around Reno/Sierras, very cheaply rather than overseas. I'm planning on 5% withdrawals until SS, but we can get by fine on 3%.

 

[flyingaway]

Safety nets:

1) like OP, I'm an academic but I took modified employment to teach half-time online. I like teaching part-time, a lot. DW is still working but probably will retire in a year or two, but we have not touched my retirement funds (403b for me; 401k for her; no pension for me; it's funny what people assume about others), so they have continued to grow. Very Lucky.
2) I plan to take SS at full retirement and delay DW, but SS is an option on stocks, and a very valuable one. I figure on a 25-30% haircut to SS benefits for planning purposes.
3) downsize house in Reno. We had planned on downsizing when we moved here from Houston, but the grandbaby on the way in Cali changed our mind. But it is a luxury and a lot more space than we need.
4) 3 years cash for expenses in case of stock crash
5) DW is an accountant so always can go back to work in an emergency, although that's last on the list. I've been renewed for another two years.
6) cook more and travel less (discretionary is 40% of budget, and we can simply travel and hike around Reno/Sierras, very cheaply rather than overseas. I'm planning on 5% withdrawals until SS, but we can get by fine on 3%.

Downsizing is also under our consideration. But we cannot decide when and how as significant cost is also associated with downsizing, something in the neighborhood of 10% of the house cost.

 

[Blue Collar Guy]

(3) Back to work. I am an academics. There is no way to go back to work with a comparable salary once I quit. I cannot think of being a Walmart greeter in my late 70s, even if Walmart has not be replaced by Amazon by then.

For early retirees, do you have some safety nets in mind when you decided to retire?

Im less proud than you, I would go back to sweeping floors and cleaning bathrooms if it was required. I have a neighbor that hasnt worked in 5 years, he is taking hand outs from his 90 year old parents. I'd slit my wrists before I did that. Id be the best McDonald's worker you ever saw,no job is beneath me if required.

 

[Yarnstormer]

Main safety net - I will continue to work part time out of my home indefinitely, which is fine for now as I am still raising my kid and can't take off and travel for months etc.. If business continues as it is I can see me doing this until I am no longer able because it's kind of fun and pays well and I'm reducing the number of social security "0" years.

- still, I am willing to work any part time job later if needed.

- downsize house if necessary. Sell all my stuff.

- if I decide to stay in the house and need additional income, rent house for yearly sporting event in my town - would cover taxes and utilities for the year and is not taxable income. Not sure if it would count towards subsidies.

- I am counting on social security being there tho it will not be large. I will defer til age 70

- I am dependent on the ability to get health insurance even with pre existing conditions. If that goes away I'll be job hunting.

I don't think Id be comfy with a stated 4% withdrawal rate, esp if I did not build in a larger rate for later years when I might require in home help and more health care. Work a couple more years I say.

- possible small inheritance tho I do not count it in my calculations.

My early "retirement" was unplanned but necessary. For me, it has worked out well. However, the one thing I can warn you about is estimated monthly expenses and real world expense can vary quite a bit! I had to cut down a tree $800, major plumbing repair $1000, and it's time for a new roof and tires. Tracking expenses for a couple of years would be wise.

 

[Doc0]

Why not create your safety net by reducing your spending tomorrow, litteraly. 10K per year for 10 years at 6% is 150K, 5Kx10 @6% is 75K I've taken my own medicine and cut my budget by about 20% to see what I can stand. It's a little pinchy but I'm not dying.

I had 70K saved for a new retirement car, (5Kx10rs@6%). I had a G37 with 100K miles to trade, worth about 10K so instead of buying 60K or 70K car I bought a new "last years model" Honda for 15K plus my trade. I put the 55K into BRK.B which is very tax efficient investment. That 55K is worth 73K today, and I have an essentially new car, under warranty + a safety net. It's also my down payment on my next new car in 8-10 years.

I'm also taking a lower WR than 4% about 3%, but I think 4% is sustainable. My sister is doing 4%. I've taken 5 years of my budgeted living expense out of my portfolio and placed it in VWSUX which is a short term muni bond fund, (tax efficient). This forces me to try to meet my budget. If it goes to hell I have 5 years of muni cash to live on before I need to re-evaluate. Hopefully inflation remains low. Any way it gets me 5 years closer to my demise which means my re-evaluation can be a bit more risky if needed.

My mix today is 58:42 stock : (bonds:Ltips:gold:muni) mix. As I live on my muni cash my ratio will tend toward about 70:30, automatically becoming a bit more risky and I will re-evaluate my position at the end of 4-5 years, otherwise I'm not messing with it.. If inflation kicks up the short term nature of VWSUX and Ltips should help combat erosion from that. In 5 years SS security starts for me, and in about 10 years for my wife. If it's really bad I can take SS early or she can when she is eligible. If I need to I can increase my muni spending a little so my horizon can move from 60 months to say 50 months without upsetting the apple cart.

A few ideas for you

Best

 

[flyingaway]

Im less proud than you, I would go back to sweeping floors and cleaning bathrooms if it was required. I have a neighbor that hasnt worked in 5 years, he is taking hand outs from his 90 year old parents. I'd slit my wrists before I did that. Id be the best McDonald's worker you ever saw,no job is beneath me if required.

Since we are talking about safety nets, I would like to build something NOW to avoid being working at Walmart in my 70s, e.g., working one more year now is probably worth 5 to 10 years later at Walmart in my 70s.

 

[imoldernu]

A little late to the party, but, in effect we're into our safety net already @age 81.
FWIW, planning for the future, is much easier when the future is not so far off. Taking a part of a 2012 post, here's an excerpt from one of my posts. It covers what I would consider my safety net planning.

There are hundreds of financial planners on line where you put in your estimates of assets, and return and inflation, and come up with the amount you need to retire. In our case it doesn't work... All of the planners make the assumption that you will want to maintain your asset capital until you die... In our case, had we followed their plan, we NEVER would have retired.
We just decided to die at age 85... dead broke. Made our planning much easier. Personal decision of course, but if you plan to spend down capital assets, it makes planning easier.

Our plan is extremely simple... On the spending side, we have three different budgets that we can adjust as circumstances warrant. Best case... Nominal... and Austerity.

On the Asset/Nest Egg side, We boil our assets down into three categories.
1. Fixed assets... house, auto, and other valuable non cash items... real property, jewelry, . We do not count household goods... (experience tells us that this is not realistic)
2. Non Income producing assets... bank accounts, cash, cash value life insurance policies.
3. Income producing assets... stocks, bonds, annuity.

All of these items are kept on a spread sheet and periodically updated. It's easy to come up with a total value... and then to average the income from the total...

To calculate where we stand in our retirement plan, we add
a. Social security amount.
b. Amount of interest earned on income producing assets.
c. ... and add the Total Assets divided by the number of years between now and age 85.

That establishes how much we can spend, which we then adjust to our best/nominal/austerity budget.

Sounds funky, but it works,and it takes about 2 minutes to tell if we're on budget or not.

So far everything has worked out as planned, except that when I recalculate based on the same formula today, the time frame extends to age 91 or 92. Very unlikely that either of us will reach that age. Our life expectancy back in our birth year of 1936, was 61 -63 years.

If everything continues the way it's going now, there could be a few dollars left over for some of my 4 kids, some of whom are already retired.

 

[daylatedollarshort]

Why not create your safety net by reducing your spending tomorrow, litteraly. 10K per year for 10 years at 6% is 150K, 5Kx10 @6% is 75K I've taken my own medicine and cut my budget by about 20% to see what I can stand. It's a little pinchy but I'm not dying.

Keeping a pretty low run rate relative to our net worth and retirement income is our main safety net. It is a hobby for me to look for ways to live better while spending less.

 

[flyingaway]

Why not create your safety net by reducing your spending tomorrow, litteraly. 10K per year for 10 years at 6% is 150K, 5Kx10 @6% is 75K I've taken my own medicine and cut my budget by about 20% to see what I can stand. It's a little pinchy but I'm not dying.
Best

I am very frugal. But I cannot force my wife to the same standard. In fact, I have talked to my wife about FIRE things for a few years and she has been reducing her spending. There will certainly be some problems if I push too much.

 

[flyingaway]

A little late to the party, but, in effect we're into our safety net already @age 81.
FWIW, planning for the future, is much easier when the future is not so far off. Taking a part of a 2012 post, here's an excerpt from one of my posts. It covers what I would consider my safety net planning.



So far everything has worked out as planned, except that when I recalculate based on the same formula today, the time frame extends to age 91 or 92. Very unlikely that either of us will reach that age. Our life expectancy back in our birth year of 1936, was 61 -63 years.

If everything continues the way it's going now, there could be a few dollars left over for some of my 4 kids, some of whom are already retired.

Hi, Imoldernu:

I read many, if not all, of your posts, and appreciate your stories based on real-life experience. Based on my reading, your retirement at 53 seemed to be involuntary and you were not as confident at that time as you are now. I am glad everything worked out nicely for you.

Since we are talking about building safety nets, which are something that we might (and could) do before we actually retire. So, given your situations at 53, if you had choices and proper opportunities, would you work for a few more years to build a better buffer?

(For a full disclosure, I am 53 now. If I lost my job now, I would not look for a new job, and would try to make my numbers work as you did.)

 

[Scuba]

Since we are talking about safety nets, I would like to build something NOW to avoid being working at Walmart in my 70s, e.g., working one more year now is probably worth 5 to 10 years later at Walmart in my 70s.

+1
Exactly how I looked at the ER decision. Didn't ER until we had enough cushion to make the possibility of going back to work very remote.

 

[imoldernu]

Hi, Imoldernu:

I read many, if not all, of your posts, and appreciate your stories based on real-life experience. Based on my reading, your retirement at 53 seemed to be involuntary and you were not as confident at that time as you are now. I am glad everything worked out nicely for you.

Since we are talking about building safety nets, which are something that we might (and could) do before we actually retire. So, given your situations at 53, if you had choices and proper opportunities, would you work for a few more years to build a better buffer?

(For a full disclosure, I am 53 now. If I lost my job now, I would not look for a new job, and would try to make my numbers work as you did.)

Good questions... Actually, my choice was made in 1986... My company (Montgomery Ward) was in the process of divesting from the catalog business. I literally worked myself out of a job, being responsible to close 2400 catalog stores and desks. I could have stayed on, moving to the retail division, which lasted another 5 years, but it was not in the area of my expertise, and, in effect, a different business altogether. Instead, went into business for myself, making the decision to retire three years later after cancer, at the time I was expanding and taking on some long term debt for a new location and buying extensive equipment. I couldn't stand the thought of leaving DW with that kind of debt.

About "confidence"... honestly, not so much... at least not as far as the money being enough to stay retired for the rest of my life. At age 53, my safety cushion was the ability to go back to work, even if at a lower salary.

So we looked at what we had, and did our calculations based on the years between age 53, and Social Security at age 62. We figured we had enough to make it if we cut our expenses. (Living in our Woodhaven campground in a Park Model, was supposed to be a sacrifice, but it turned out to be wonderful, living among others our age, and a busy social life. Total cost... membership, all utilities, taxes and insurance less than $2500/yr.)

So then SS kicked in @ 62 for about $23k/yr... and then three more years, Medicare, which meant another $8k/yr less in expenses.

I guess that this type of calculating was the way our confidence increased. While I think Firecalc is an excellent tool for planning, we approached the future with many, many spreadsheets to include a projected annual budget all the way up to age 75 (at the time). That included when we'd sell our house, out projected car expenses, cost of travel (very little at the time), when to move from the campground, to FL, and later, when to buy a home to keep one spouse safe (medicaid) in the case of nursing home asset depletion. We figured the reduced cost of travel, eating out, and entertainment that came from buying into our FL over 55 community. The spreadsheet plan was nitpicking, but the "nits" added up, and provided a way to double check.

Would we have worked as few more years for a $$$ buffer? In retrospect, no. The amount we would have been able to "put by for the future" would not have been enough to be worth staying in our more expensive location and at the then cost of living. Always kept a check on the safety zone.

Could things have gone wrong? Sure!... and some things did, but never a catastrophe. Of course, had we had a situation like my friend Bob... things would have been different. Five years in a nursing home with Alzheimer's would cost nearly a half million dollars today. We weren't in that price range.

I would never go back. the years of happiness that we've had could not be bought with money.

 

[almost there]

Male exotic dancer. Weekday lunch crowd.

 

[Blue Collar Guy]

Since we are talking about safety nets, I would like to build something NOW to avoid being working at Walmart in my 70s, e.g., working one more year now is probably worth 5 to 10 years later at Walmart in my 70s.

Then you have your answer. Work 3-6 more years. you buy 15-30 years safety. I wouldnt do it, Id wait for the trouble to hit, I already wasted too much time working.

 

[flintnational]

We could reduce our quantity of wine.

Not the wine. Anything but the wine.

 

[2017ish]

We are new to retirement (end of july, at 57/56), so discount accordingly. (FWIW, no desire/need to leave money to kids in lieu of spending it ourselves.)

Our buffers:

1. over half of our projected spending is purely discretionary travel and dining/entertainment (planning on being able to spend 2.175% of then-valued portfolio, recalculated at 6 month intervals; no pensions or healthcare). Our planned retirement spending very easily exceeds our "when-working" after-tax spending.

2. We continue to count Social as zero, as we have from the 1980s, but if we draw at 70, under present law we will be receiving over 70K a year.

3. We don't include house and associated acreage in our portfolio, but developers are interested and we could buy a fine place for 1/2 of the like net proceeds from any sale.

4. We don't include any hypothetical inheritances in our calculations.

5. We are maintaining our professional privileges for 2018 and maybe 2019--and we could always reup if needed.​

 

[Huston55]

Our back-up plans (safety nets) are similar to those already mentioned, with one additional possibility...a SPIA. I've listed ours below, in expected order of use as necessary.

[Note: I know SPIAs are a controversial subject on our forum with fans & foes so, let's not repeat that debate here.]

BackUp Plans

A. Use cash buffer: We keep 3-5 yrs in CD/bond ladder
B. Cut expenses: We have three budgets - optimum, median & bare bones
C. Do consulting work: An option for me for a few more years
D. Sell rental house: Essentially trading current income for a big chunk of cash
E. Take SS earlier: We currently plan to defer to 70.
F. SPIA: Buy a single premium fixed annuity (SPIA) to help cover "essential" expenses. Use Fullmer's "annuitization hurdle" concept or Otar's "zone" concept to guide any annuity purchases.