5th Retirement Anniversary - Financial Planning

One of the advantages of writing a personal retirement blog is the ability to look back on posts and reflect on the paths I have chosen that led me to where I am now and where I'd like to be in the next five years.  I am happy that I organized this blog in a way that allows me and the reader to see my goals' progress in the top ten categories of relevance to me.  Many of my posts cross into more than one category or "Label."  It is a good time for me  to look back from the first post in each category or "Label" and summarize the highlights to see the level of progress made in my first five years of retirement.  I can more clearly see a path ahead and adjust or make new goals.

I will write ten posts on this 5th Retirement Anniversary addressing each category or "Label." I can also see the stats and which posts have had the most public views.  At this time, my blog had 22,400 views.  That's about 100 views per week in 18 different countries around the world!  It is very rewarding to know that there is interest in what I have to say.  By helping myself I must be helping others with similar interests.  It is an incentive to continue.

Here are my brief summaries of the first five years of retirement and goal adjustments I want to make at this time.  If you want more information on a subject, please scroll down on the right side of the main page and click on the first months in 2011 where you will see where I'm coming from.      
My journey continues....

Financial Planning

Most of the anxiety experienced in the first year or two of retirement has subsided.  My original plan worked well and any adjustments were minor.  I had the expertise of the State of Missouri Compensation Plan for at least 25 years which was helpful as I grew to understand financial choices I needed to make.  Along with Missouri State Employees Retirement (MOSER), I was actually well prepared.  This benefit which goes with being a state employee was the main reason I became a state employee instead of taking my skills to the private sector (commercial mortgage lending) where I could have made three times the amount of money.  I choose the stability and security path and that has been reflected in my investment choices as well.  My choice to become manager raised my salary for the three years that my retirement pension was based on.  It was a good plan.  It also was reassuring that my plan was approved by my husband who is a Financial Advisor for the world's largest bank.  But most of all, I had the advice and final numbers adjusted by my son who had completed his Masters Degree in accounting, investments, and statistics.  

The biggest change came when I turned age 62 and one third of my pension was stopped because I was expected to take Social Security.  I had thought I could hold out until I was older and eligible for a higher amount.  It turned out that there were some marital strategies available.  Although the apply and suspend did not benefit us as it did for most married couples where one spouse didn't work much.  For us it was good for me to take minimum amount at the earliest age and then my husband continues to work until age 70 which is the maximum amount.  At age 67, my husband applied for spousal benefits because I had signed up.  He was eligible for about half of what he would have gotten at age 67 if he had not been working.  The benefit is that we now have money to remodel the house before he retires at age 70.  My widow benefit would then increase to his amount, the higher of the two.

So my challenge in the next five years is to stay on budget.  My investments had not been increasing much but not decreasing either.  The pension and social security increase each year a little.  Hopefully, I will see more of an increase in the investments.  There's no new money going in and my expenses are manageable.  I would like to have increase from investments to do some more extensive traveling.  When my husband retires in a couple years, I expect his spending to decrease as commuting 150 miles four days a week was expensive.  I hope he makes a budget he can live with too!  Our finances have always been separate and likely will stay that way.

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Financial Planning - Beginning my 5th Year of Retirement

I have ended my 4th year of retirement in a good way.  The decision to begin Social Security at age 62 was made and it will work very well for me.  An added bonus is that is will also work very well for my husband.

From my last blog about Financial Planning, I was undecided about starting Social Security and thought I should try living on my base retirement and profits from my investments until I'm age 66 which is the full benefit age.  I had no significant savings as I have been making large purchases instead.  Here are the reasons that this appears to be the best decision at this time:

1.  The Temporary Payment portion of my state pension ends when I reach age 62 with the assumption that Social Security will take it's place.  This payment was about 1/3 of my total pension.  Social Security is a couple hundred dollars more per month than that Temporary Payment.

2.  The marital strategy of "file and suspend" would not benefit me but would be much less in dollars and runs the risk of less payment should I become a widow before my husband reaches age 70.  This "file and suspend" strategy will be discontinued by March 2016 as it was found to be a legal loophole by politicians that was recently negotiated to close.  I think it worked best for those couples that had one spouse with very little work history that paid into the system.  I have 40 years paying good wages into the system and now it is payback time!  Remember the TV horse show from the 1960's, "My Friend Flicka?"   Well, now it's My Friend FICA!  Thanks to all you wage-earners out there!

3.  Instead of "file and suspend" we were told by a Social Security Representative that it would be to our benefit for me to file at my earliest time (my 62nd birthday) and then have my husband file on me while he continues to work until age 70, the maximum payment age.  This does not affect my amount in any way but gives my husband half of what he would be making at age 66.  We had thought it would be half of my age 62 amount but it turned out to be half of HIS amount at age 66.  The law had changed in recent years that allows a person to make a larger amount of wage and still collect Social Security.  Of course, there will be taxes paid on this higher income for my husband.  Best of all, his Social Security continues to grow to maximum and I can collect off his increased benefits should I become a widow.  Win-win situation!

4.  The money my husband unexpectedly will now be making off my age 62  Social Security filing has been earmarked for home improvement which will take any pressure off his wages (he's still saving for his retirement) and I likely will increase my savings for added security.

5.  My investment base amount has dropped in 2015.  I had expected a minimum of 6% growth each year and got in the first two years.  The past two years have been less than 6% and 2016 will be the first year I will not take any distribution.  The distribution was used to largely fund my Health Savings Account (HSA) each year.  That amount is the maximum out-of-pocket dollar amount I have to pay for my medical issues.  I will try to pay that amount in 2016 from my savings; if not, I will have to reduce the base amount of my investments.  I don't want to do that as I've stopped adding to it when I retired.

For the most part, I have been living within my means and enjoying my retirement with little restrictions.  My needs and expectations are less than when I was working and I'm traveling about as much as I want.  I still have a dream to go to Europe and may be getting closer to a real time as now I have decided I do not want to travel alone and may wait for my husband to retire since there appears to be no one else available in my life that wants to or is able to travel with me.  Maybe a few years of savings will make it all real and my husband and I will have the trip of our lifetime!

It still takes some planned effort to make sure I'm secure enough and manage any financial stress potentials.  I have recently been relieved from a 2% income tax loan that I finally paid off from 2011 as I had a very large backdrop payment when I retired from the state.  Half of that paid off bills and bought a new car for cash and the other half is my investment base.  I still kept a balance on a 9% credit card that did not get paid down every month these past two years.  I have recently put that amount in a 0% Credit Union credit account that I will pay off in 18 months.  Again, that increase savings potential from the new Social Security situation along with continuing with the normal payment I am use to paying for that 2011 income tax loan will take care of that as long as I keep the discipline and not add any more credit debt.

Because of the uncertainty of when my last Temporary Payment will be made and when the Social Security payment begins, I have been living lean so as to not spend money I don't have until I get it.  Christmas was leaner than usual.  I did spend more than expected on homemade gifts which for the most part was the final genealogy product I've been working on extensively this past year.  I made nine copies for family members and that cost.  It is also the final product.

So I'm starting out the new year with some uncertainty waiting to see my new reality.  Expected increases from Social Security and commitment to save more money so I can do more is the main plan.  My husband will take care of the household repairs and remodeling and my financial help will not be expected now.  My health expenses are big and won't change until I'm 65 when Medicare takes some of the load.  Best I can do is to manage my health issues as to keep my good quality of life and make sure the money is in the HSA when I need it.  Financing my activities is manageable as I have found a level of activity that is comfortable and do not want to increase.  As you can see by my other articles in this blog, I'm active enough!  I do plan to travel to see family out of state a couple times a year and 2016 will include a trip to the west coast for the first time.  There is much to look forward too and I can reasonably expect success.

The Beginning of My 5th Year of Retirement is optimistic!  My health issues have progressed but there are new medicines recently prescribed that are working good!  My prosperity is good as long as I keep within boundaries I have set with a realistic budget.  I am getting much better at it since I have retired than when I was working!  My happiness comes from being at peace with myself and improved relationships with my family and friends.

I have real expectations now that I own my own time and don't allow anyone to stress me out or waste my precious retirement time.  I am in a position to let everyone know how much they mean to me and that I value their time.  I am able to love unconditionally.  I let people know I can be there for them and am flexible to their time if they're still working.  But I can find many interests on my own when they are too busy to include me in their lives.  True happiness comes from within and not dependent on other people.  I am still challenged to find a balance between caring about people that may not care about me and being true to myself.  I do have more "true" friends now than when I was working.  Life's experiences have taught me that many relationships are conditional and self-serving.  Retirement has shown me that there are many people that truly value me and like having me around just because I am me.  Intuition has given me the power to see the difference!

Financial Planning - Two Years into Retirement

I did not go back to work.  Some family and friends predicted that I would be so bored that I'd be doing some appraisal work by the time I reached my second year of retirement.  They do not know me as well as they thought.  Yes, some newly retired people they know did not plan well and are either choosing to work part-time to fill in gaps in their money and/or their life.  They may not have planned very well.  I did.  I am in a good place.  My choices were right for me.

If you have been a follower of my blog, you can see that I have varied interests and am open to new experiences.  These activities and lifestyle have always been a part of who I am.  I just have more time to explore my options and retirement has cleared out life's clutter that had kept me from seeing and making choices with my intuition.  I am a much happier person now than I ever have been.  Joy is a part of every day!  So filling in any gaps in my social and family life has not been difficult.  Yes, I would like to have more close friends and have family around more but I can only do the best I can in meeting people halfway.

So…financially things are not so bad.  On December 1, 2013, I will be two years into retirement.  I am as busy as I want to be and pretty much staying within my budget.  I have not saved money like I thought I would because I wanted to update my electronics and bought a TV, DVD player, printer/scanner and a MacBook Pro laptop last February. I bought most of what I wanted and using my savings to pay it off in a year.  I'm still on tract with that.  The only challenge was that I had unexpected dental and car needs that would have easily been paid straight up had I not bought the electronics.  So I will take out some profit from investments early next year to get caught up.  The Plan is to not to have any debts unpaid at the end of the year and that is my source if I cannot catch it with budget adjustments and savings during the year.  I also bought a kayak.  Keith kicked in about 40% of the cost as well as gave me use of an extra life jacket and paddle.  There's more than enough food in the house and all my bills were paid on time.  Life is good.

I still have a couple years to decide about taking Social Security at age 62.  That has been the plan as that is when the temporary payment portion with my pension ends.  There are two other options to consider between now and then.  The first one is to not take my Social Security until age 66 and live on my investments until then.  That would be stressful as it likely would reduce the basic amount I didn't want to use but the additional payment amount at age 66 would be tempting.

The other option is a new one that we just heard about from AARP that involves a marital strategy.  We would need to do further research before deciding.  We have already talked to a SS Agent in person who suggested that I would be best to take the SS at 62 as originally planned as I may not come out ahead should my spouse die early.  The plan is for my spouse to apply for his SS at his age 66 but suspend payments.  This allows it to grow at the estimated 8% until he takes it as planned at his age 70 with the highest payment.  If he does this, I can apply for my half of his payment at his age 66 instead of signing up for my SS payment at 62.  That way my SS can grow at 8% until I reach 66 when I take my full amount.  That would give me about half the amount of my SS at age 62.  The problem addressed by the SS Agent is that should my spouse die before he collects his full amount at age 70, I would only be entitled to his age 66 amount.  When I reach age 66, my full amount would be about the same no matter what.  Not sure if it is worth the hassle.  Will likely stay with the original plan and take my SS at age 62 which is still a couple hundred more than the temporary payment I have been getting.

There is a new law in 2014 that may make a difference for when my spouse takes his SS.  The original plan was for him to work at the job he likes until he is 70 then take the maximum SS.  The new law will allow full SS payment in addition to salary under $40K with no reduction.  Previously, one could only make about $15K at the same time collecting SS otherwise, the SS would be reduced $1 for every $2 in salary.  The tax issue needs to be researched further.  I think only 50% of SS is taxed.  We would need to figure out how much of a tax bite it would be in addition to his salary.  It likely would be worthwhile.  He would just need to decide what year he would collect instead of waiting until age 70.  

It appears that my Retirement Plan is working.  I am staying in my budget reasonably with my pension.  I must plan any new expenses carefully and not allow my base investment to drop below my desired amount.  I have not been as active as I thought I would be in making changes to my investments as the market has not shown the growth that allows me to take extra chances.  I like being at a safe 60/40 ratio right now.  Next year I hope to include one or two trips, a couple genealogy programs/memberships, and some education/license expenses to renew my appraisal certification.  I also hope to save more of my pension for unexpected expenses and not have to catch up again with investment profits.  Those profits from investments were basically planned to be for travel…hopefully Europe sooner than later!

Financial Planning - Reality Check

So now I'm into my 4th month of retirement.  The first month was a little scary because everything looked good on paper but I had to wait and see the process unfold before I could feel secure that the big change was actually real.  Because my retirement date was December 1, 2011, I knew taxes would take a big bite out of my income received because I chose to have my backdrop payment in addition to my pre-retirement income in the same year.  2012 will be much better.

As I suspected, there was not enough taxes withheld and I had a larger than expected tax bill for 2011.  There was no state tax taken out so I knew that would have to be paid also.  I am currently in the process of having my calculations checked by a professional accountant to be sure I am only paying what I owe and no more.  After my large tax bill is paid, I will rest easier.  There are still a few unsettled issues concerning a balance of security between my husband's income and my new income but I'm sure we will have things worked out in the near future.  I believe we have a gap in life insurance coverage and are in process of shopping for a good affordable policy.

I don't have any problem managing my bills and am able to save some money into an emergency fund each month.  I paid a couple years ahead for my Health Savings Account so that's not a worry.  My monthly health insurance premium is much higher than when I was working but I understand it is much less than the average retiree.  An added benefit I am seeing is an improvement in my health since I retired which means less medicine because of less stress from job-related traveling, eating out and politics!  I have also had more time for exercise and meal planning which has already made a significant difference by lowering my weight and blood sugars. 

I have been able to put some more money into the lower floor remodeling.  I have purchased six bookcases and a wall of Rubbermaid wire shelving for storage.  The only items left to purchase over the next few months are some additional cabinets for my hobby area, another area rug, and a sofa.  A few unexpected expenses have come up which included a new water filter system to replace the old distiller and some body work done on my new car from hitting a turkey. Time to slow down on the spending, get caught up, and then continue to move forward with home improvements later in the year.  I think there will be more fishing and gardening with less shopping in the next quarter!

A large portion of my backdrop money was not taxed and was instead transferred into my deferred compensation account already established that contained my investment savings.  This larger amount has shown a significant increase in January and February which I watch carefully.  I am learning more about my investment portfolio each week and have confidence that it is the best place for my money. The management company provides many tools for my use. Here are some sites that are provided for me:

http://www.modeferredcomp.org/
https://www.mosers.org/en.aspx

I think this first year of retirement income will be a good learning experience.  Now that all the backdrop money is put in the appropriate place, the investments are working for my future and I have only my actual monthly pension to live on, I can finally have a Reality Check of financial security.  It will only be as good as I make it.   I am fortunate to be part of a large public group with plenty of tools and resources to help me in my Financial Planning. 

Financial Planning

What better way to think about retirement than by first looking to see if one can afford it?  I understand that a good way to look at the stability of any plan is to visualize what it takes for something to stand on its own.  An example I heard of early on was to simply visualize a three-legged stool.  While a one or two-legged stool might work with a good sense of balance, that third leg gives more security and confidence to sit down and relax.  That's what I wanted in retirement...to relax and be as secure as possible.  So I have three legs to my financial plan:  Pension Benefits, Social Security, and Savings.  My initial goal is to fix any 'wobbles' and stabilize each leg for just the right balance to be comfortable.  I understand that when such a plan is in place it will require regular maintenance.  I don't want to find myself on my ass because I didn't check if each leg was supportive!

The first part of my plan was in place the day I started working for the State of Missouri August 1, 1984. The State offered a non-contributing pension plan that pays based on a formula that includes the three highest consecutive salary years and the total years worked.  I was 30 years old at the time and was attracted to the "80 and out" concept.  Simply put, age is added to years earning a state salary to equal 80 and that is the earliest retirement date with full benefits.  So at age 55 with 25 years on state salary, I could retire: 55 + 25 = 80.  There is also an option to buy specific public service work and that can be added to the formula to add 'time worked.'  I purchased time that I worked for my county which moved up my retirement date 17 months.  I will be retiring on December 1, 2011.  I will be 58 years old 17 days later.

An added benefit is the "backdrop" concept.  Basically, for every year past retirement date (up to five years), additional benefits are calculated because the government gets to keep your retirement money longer to invest.  The longer one stays (up to five years), the more cash will be paid out at retirement in a lump sum.  I chose to work 3 years and 9 months past my official retirement date (adjusted because I purchased time).  This lump sum payment goes directly into a deferred compensation account I can begin to withdraw with no penalty at age 59 1/2.  I have been saving to this account since 1996.

Now that leads to the second leg of my stool.  Savings are managed in this deferred compensation account by ING.  I have been and will continue to be involved in my investments.  When this 'backdrop' amount is deposited, I will take a more active role.  This will be the 'high maintenence' part of the plan and I will likely seek help from professionals in making my decisions about where to best invest, tax issues, and just how much I can pull out and enjoy.  I am fortunate to have a son that is educated in that field and I have begun to seek his advice.  Both my son and my daughter have expertise in insurance and have advised me where I have gaps in my present coverage which I will fix by my retirement date. 

The final leg would be Social Security.  I will be receiving a temporary amount added to my monthly pension when I retire that is about as much as my social security payment would be at age 62.  I will receive this amount for about 4 years and then it stops when I reach 62.  It stops because I would be eligible for social security at 62, if I should elect to collect.  The longer I wait to collect, the larger the amount up to age 70 1/2. 

My challenge is to not collect social security for as long as I can so as to get the highest payment. Right now my pension is 74% of my current income.  That will drop when I reach 62 if I do not collect social security.  If I can live below my means, that can work.  I am currently living less than 50% of my means now using the larger amount of my paycheck to clean up credit charges.  I will be debt-free in January 2012.  My challenge will also be to keep enough money in savings to make money.  Also, to keep the money I make and not pay any more taxes than I have too.  Most of all, I want to live a long life and I do not want to outlive my money.