A Successful Retirement Plan
Many of the most successful retirement plan stories are just regular people who have done the right things throughout their life. They are not celebrities and don’t lead glamorous lifestyles. This is one such example. I have known S (she) and D (he) for going on 15 years and asked them to share their story (they have answered in the third person). I always enjoy our visits and catching up with them! They are successful because they have always lived within their means and saved regularly. For most of us, a successful plan is not much more complicated than this.
1) HOW LONG HAVE YOU BEEN SAVING? WHEN DID YOU YOU START?
We started saving around 1980 when S. was working full-time as a library assistant at the U of M Libraries and D. was just completing his Ph.D. in German Literature. A colleague got S. interested in the concept of IRAs and we started out with an IRA for D., putting in as little as $50 per month. Although our later careers included benefits with pensions, we continued to make small monthly contributions into D’s IRA, which we increased over the years, but never to more than $100 per month and eventually also opened up one for S.
2) WERE YOU SAVING SPECIFICALLY FOR RETIREMENT? OR JUST FOR THE “FUTURE?”
Since there were no children, we always saved specifically with retirement in mind. However, we also made sure that there was money in our regular savings account enough to cover any unexpected loss of income. During his last five working years, D. was able to put the highest allowable amount of money into his pension plan. This boosted his savings tremendously. After retirement, we converted these pensions–with the exception of S’s U of M pension– to IRAs invested in three different companies, making sure that our portfolios remain well diversified.
3) DO YOU FEEL LIKE YOU HAD TO MAKE MANY SACRIFICES IN ORDER TO SAVE?
Not really, because we always tried to live slightly below our means–that is, when we finally bought our first and only house, we settled for a small, modest two-bedroom dwelling with a monthly mortgage that was lower than our previously rented duplex apartment had been. For the first 18 years of our marriage we only had one car. Only later, when our various careers required of D. that he visit clients in the Twin Cities area and of S. long commutes, did we have to maintain two cars. However, we always chose smaller, compact cars with good repair records and drove them until they wore out at ca. 200,000 miles or beyond. Most of them ended up as a donation to Newgate School where they were used to provide students with free hands-on automotive training. We probably could have saved a lot more money than we did, had it not been for the fact that we have family in southern Ohio and in Germany and that most of our vacation time and regular savings were spent on visiting them.
4) IS RETIREMENT WHAT YOU IMAGED IT WOULD BE?
Due to several fortunate circumstances we were both able to retire early at the age of 62–D. in 2006 and S. in 2009. S. did not quit “cold turkey” as D. did, however. She continued to put in several hours per week in her former position at the U of M until May of 2014 and contributed about one day a week of volunteer time at the Kierkegaard Library at St. Olaf College until May of 2015. She will probably always have some kind of volunteer “job” or other project on the side. D. thoroughly enjoys his retirement and has never looked back. He is a life-long learner and enjoys his many hobbies.
5) WHAT ARE YOUR GOALS OR HOPES FOR THE FUTURE?
We hope to remain healthy and mobile for several more years to come. We would like to be able to enjoy our little house until we die, although some kind of senior living establishment would be an option as well. We try to stay connected with friends and family and support them in many ways, including financially. D. who is a very caring and thoughtful person keeps up something like an “online ministry” to family and friends via Facebook and e-mail. In addition, we support several humanitarian and environmental non-profits and make contributions in that way. We love nature and like to hike at the many beautiful state parks in Minnesota and have more recently become interested in bird watching and conservation. We currently do quite a bit of traveling around the United States–something we could not do during our working years. And yes, we are back to owning only one car, a so-called “SUV crossover,” which does cost a bit more to maintain than our previous cars–but it’s a reliable workhorse and fun to take cross-country as we still do occasional tent camping.
6) HAVE YOU HAD MUCH DEBT OVER THE YEARS? DID YOU PAY OFF YOUR HOME EARLY?
We never had much debt. We have one major credit card which is automatically paid off at the end of each month (have never paid interest). We always paid off our cars in less time than the loan agreement required. We paid off our home about three years prior to D’s retirement in 2006. S. is the “handy-woman” and has saved us a lot money by doing much of the house maintenance herself. With the help of a carpenter friend and neighbor, for example, she replaced our old 1920s “garage” (really a work-shed) with a new two-car garage and just recently completed a major window replacement project with him.
7) ARE YOUR ANNUAL EXPENSES MORE THAN SOCIAL SECURITY? IF SO, IS IT A LOT MORE?
Our annual expenses run about twice as much as our combined Social Security income. However, even now that D. has to take his RMDs we remain in the lower tax bracket, so that we have been able to convert some of our traditional IRA savings into Roth IRAs. We’ll no doubt move into a higher tax bracket, once S., too, has to take her RMDs. We could certainly live more frugally, but at this point we don’t feel that this is necessary. S. especially does not skimp on the grocery bills, because she is convinced that good (organic) and healthy nutrition is especially important as we get older.
8) HAVE YOU STUCK TO A BUDGET OVER THE YEARS?
S: Having grown up in post-war Germany and watched my poor mother keep up a meticulous household budget, I swore that I would never ever do the same. Instead, I use the checkbook to monitor our monthly income and expenses. I always make sure that there is a balance in the checkbook at the beginning of the month, enough to cover the expected incoming bills and expenses. I keep enough savings in the money market account to cover any unexpected bills–these savings are replenished from time to time from other sources (tax refunds, TIAA payouts, IRA distributions, inheritance money that we use for travel, etc.). Before retirement, I had a certain amount of money transferred automatically from our paychecks into the savings account monthly in order to cover extra and unexpected expenses. I still continue to do so from our monthly Social Security deposits, although a smaller amount.
9) DO YOU HAVE ANY SPECIFIC FINANCIAL CONCERNS? ARE YOU CONCERNED YOU WILL RUN OUT OF MONEY?
Since most of our savings are market-dependent IRAs, there is of course always the worry that the market will crash again as it did in 2008. However, our various financial advisers assure us that our portfolios are well-balanced and so we are not really concerned. At this point we don’t think that we will run out of money. Once our traveling and higher spending years are over–and provided that our health remains stable–we could probably live mostly on Social Security. However, we have always looked upon Social Security as an extra bonus rather than as an income we would need to rely on.
THANKS SO MUCH, D AND S!
IS THIS SIMILAR TO YOUR SITUATION? HOW IS IT DIFFERENT?