Too soon old, too late smart!

Today we had a chance to review our retirement plan allocations and I learned a number of things I either did not know or had totally forgotten in the two brief years I’ve worked here. There is a change on the horizon, due to be made August 1st which, in compliance with new government standards, places my fellow employees and me in a cohort system aimed at protecting our investments based on the decade in which we expect to retire.

I’ll be 65 in 2017 so I expect I’ll be lumped in with the 2020 cohort. I presume I’ll work until I’m 75 (assuming my health holds out) which means I’d probably do better (in investment terms) to put myself in the 2030 cohort, at least for now. Should I still be working here by the time I’m 65, I can always opt to change my grouping and my risk. Fortunately, that remains my personal choice and not fully left to the discretion of a plan manager.

All this made me begin to question the other assumptions I make about retirement. I don’t know for sure what all of them are or need to be, but here’s what I came up with as I listened to the 20-something fellow explaining options to a 50-something crowd. That alone made the presentation humorous. So what are those other assumptions?

Assuming I want to stay with my present employer, I should consider selling my home once I am widowed (a statistical given, hubby is 21 years my senior), and purchasing a condo near my workplace that I can buy outright – no mortgage needed. This will do two things, reduce my commute and thus, my commuting costs and time, and reduce my out-of-pocket monthly expenses since I would only have utilities and association dues to pay for in a considerably smaller home.

Assuming I want to stay working for the same employer until age 70 or 75, I should invest a larger percentage of my earnings every few years. Currently I am investing 4% to which my employer adds another 2% -- so that’s 6% already. Not shabby. On an increasing vesting scale, my employer will also add 20% (at two years) up to 100% (at five years) of an additional 2.39 % just to show how much they appreciate my growing tenure! So, by 2011, if I can remain with my current employer, I’ll have an annual investment of 8.39% (if I make no changes). But, if I increase my contribution just another 1.61%, I’ll be investing a full 10% of my earnings annually. Again, not shabby.

The real question, is it enough?

Let’s also assume I’d like at least $40K in annual withdrawals from this fund for another 30 years beyond age 70. The 20-something fellow told us we’d need $770K socked away in investments to do that! Of course who knows what $40K a year will feel like in 2022 given the growth of inflation? By then, a loaf of bread might easily cost $10.00.

Most of us boomers assume (rightly or wrongly) that Social Security will be there for us when we retire. We receive those annual prognostications from the feds each year showing us the predicted amount of our monthly Social Security check should we continue at the rate of our present earnings (another assumption). For me, it is a healthy $1500 per month or so. If that money is really still available by then, that would add another $18K to my annual income.

Then, there are the questions about taxes. What will my taxable income be? What portion of my Social Security income will be taxable? Also, if given the opportunity and should the funds be available to me, should I convert any or all of my retirement funds to a Roth account on which the taxes are paid in the year of the conversion rather than in the year of the disbursement?

Too many questions.

There’s no way to second guess this. What will it feel like to live on $58K in the years 2025 and beyond? I'll be at an advantage if. . .
• If I own the roof over my head.
• If I don’t need a car.
• If I continue to work and earn, even a little.
• If I develop an additional income stream (like writing).
So, these things need to be built into my planning, not just my assumptions.

One way to “try retirement on for size” would be to make the lifestyle adjustments noted above prior to retirement: to live near work, in a small condo, without a car and writing on the side. To do that and also invest whatever I earn above the needs that lifestyle presents, would certainly put me at an even greater advantage.

But how much money do you need anyway? Friends always joke that you want to die just as the money is running out. It would be tough to orchestrate things that precisely!

I’m guessing I won’t need much. I’m not a shopaholic and I feed hubby and myself on a mere 6.6% of our current income (the usual household expenditure is 10%). I already have too much stuff (which a smaller condo would help me curtail) and certainly all the furniture, dishes, and other durable goods I could ever need! Plus, when you’re old, nobody seems to care what you wear. I could easily adopt a uniform that requires little updating over time and wear essentially the same sort of outfit every day, especially the days I work! That would save tons and prevent a lot of useless shopping!

Time will tell. Life's all a big gamble anyway. We roll the dice every day, but it takes the "retirement talk" to remind us we live in a casino!