At the end of August, my husband will be bidding farewell to a high-pressure job that he has dedicated 31 years of his life to. As we both stand at 64 years of age, this significant milestone marks the beginning of a new chapter in our lives. While I still intend to work until I turn 65 and become eligible for Medicare, it is likely that I will continue for at least another six months until my husband also qualifies for this program.
Naturally, retirement planning is at the forefront of our minds. We have carefully accumulated a combined total of approximately $1.25 million in tax-deferred retirement plans, primarily invested in securities. On top of that, we possess an additional $250,000 in Roth accounts, $125,000 in a brokerage account, and $25,000 in personal savings. Moreover, we are fortunate enough to own our house outright, which currently holds a valuation of around $400,000.
Looking into the future, our Social Security payments are projected to reach close to $7,000 per month when we both reach the age of 70. However, it is important to note that our retirement planning does not take into account an expected inheritance of at least $1 million within the next decade. While we are grateful for this potential windfall, we strive to maintain a realistic financial outlook.
One aspect that provides us with confidence for our retirement years is our family’s longevity. Remarkably, all four of our parents are currently in their late 80s or early 90s. Additionally, between the two of us, we have three grandmothers who have surpassed the age of 90. With such genetics on our side, we recognize the significance of maintaining good health and prioritizing family.
In line with our core values, we are committed to preserving our current standard of living throughout our retirement. Additionally, we aim to allocate charitable contributions towards causes that hold deep personal meaning to us. Furthermore, we hope to leave a meaningful inheritance for our beloved children.
Lastly, as we embark on this new chapter, I have considered the possibility of working part-time during retirement. While this idea resonates with me, I understand that it may not hold the same level of priority for my husband. As we navigate this transition together, we remain focused on building a fulfilling and financially secure future.
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Addressing Philosophical Differences in Retirement Fund Management
As we consider our retirement funds, it becomes evident that there are some philosophical differences between us. While I lean towards a more conservative approach, my husband seeks to make the most of our hard-earned savings.
Preserving the principal of our retirement funds is a top concern for me, especially in the years leading up to when we begin drawing Social Security. With a potential 25 to 30 years of relying on these savings, it is crucial to proceed with caution.
However, my husband suggests that now is the ideal time to seize opportunities and make the most of our financial freedom. He believes that travel and funding family gatherings align with the very purpose for which we have dedicated ourselves over the years. Furthermore, he highlights that our projected Social Security payments can act as a safety net. Even if we choose to withdraw a significant amount from our retirement savings early on, we can scale back these withdrawals once we reach 70. This, he argues, will allow our remaining principal to potentially rebound to some extent. Additionally, he acknowledges the importance of considering any likely inheritance we may receive, emphasizing that it presents us with additional choices and responsibilities.
While I fully appreciate my husband’s hard work and desire to enjoy retirement, I am also mindful of the long-term implications of our financial decisions. It is crucial that we strike a balance between early enjoyment and ensuring our wants and needs are met in our later years.
In light of these differing perspectives, I would greatly value hearing your thoughts on this matter.
Dear Too Cautious,
Seeking Professional Guidance for a Secure Retirement
If you find yourself being too cautious about your financial future, it may be time to consider seeking help from a third party. A financial planner or accountant can provide valuable insights into your financial situation. They can analyze your figures, taking into account your projected income, future expenses, and retirement goals. Additionally, they can assist with strategic planning, such as building an emergency fund and preparing for long-term care.
Balancing Life’s Experiences and Financial Stability
From your concerns expressed in your letter, it appears that you worry about the impact of your husband’s desire for memorable experiences on your financial security. It’s understandable to fear that these desires might drain your resources over time. Yet, travel and other life adventures are an essential piece of the retirement puzzle. So, how do you strike the right balance?
Determining Sustainable Withdrawal Rates
First, establish how much income you intend to withdraw each year as part of your retirement plan. The “4% rule,” as discussed by Mark Hulbert in a previous column, suggests that someone with $1 million in their 401(k) could safely withdraw $40,000 annually, adjusted for inflation. However, a study by researchers at the universities of Arizona and Missouri proposes that a withdrawal rate of 1.9% may be more practical for individuals with modest savings.
Fortunate Financial Circumstances
Given your financial situation, it is evident that you are in a very fortunate position. This acknowledgment highlights the importance of careful planning and seeking professional guidance. By collaborating with a financial expert, you can gain confidence in making informed decisions about your retirement finances.
Remember, with proper assistance and sound strategies in place, you can enjoy both the adventures you seek and long-term financial stability.
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Setting a Budget for Socializing and Travel
As a professional copywriter, I understand the importance of budgeting for experiences and adventures. When it comes to socializing and travel, it’s crucial to have a clear financial plan in place. Considering that every individual’s circumstances vary, I suggest starting with an annual budget of $10,000. While this number is arbitrary, it serves as a useful starting point for your financial planning.
Remaining open to discussions about adjusting this figure either upwards or downwards is imperative. Your spending preferences and priorities may evolve over time, so it’s essential to be flexible. For instance, you might consider alternate options like Airbnb or VRBO instead of staying at expensive hotels. This could help you save money or even make your travel expenses cost-neutral. Embracing such possibilities allows for more flexibility in your budget.
Responsible Travel Budgeting
James Miller, the founder of Baobab Wealth Management, assures that being responsible and prioritizing travel are not mutually exclusive. He recommends setting aside money monthly specifically for your annual travel plans. By doing this, you ensure that your wanderlust doesn’t jeopardize your future financial stability.
To put this into action, Miller suggests determining the amount you want to spend on travel in a year. Let’s say it’s $4,200. Divide this by 12 to get $350 per month. To automate your savings, establish an automatic transfer from your checking account to a dedicated savings account reserved solely for travel purposes. By consistently setting aside this amount each month for a year, you’ll accumulate $4,200, which you can then allocate towards your dream trip.
Remember, a well-planned travel budget not only allows you to fulfill your wanderlust but also ensures your long-term financial well-being.
Start with a Conservative Approach
I’ll give you the same advice a cardiologist might give a patient when they put them on blood-pressure medication: Start low, go slow. In other words, it’s best to start with a conservative figure — perhaps it’s that $10,000, or maybe it’s less — and see how comfortable you are with that and whether you are able to manage your annual budget.
Reduce Expenses and Enjoy Retirement
Because your house is paid off, your overhead expenses will be greatly reduced in retirement, so you may be able to afford to spend 5% to 10% of your income on travel and leisure. But you may both end up with wanderlust for your own home.
Advice from the Moneyist Facebook Group
The Moneyist Facebook Group had a lot to say about your letter. Here are some good suggestions:
- Set a budget prioritizing 10 years of annual travel — the big trips, international trips, huge family outings, high-end domestic jaunts.
- Maybe do both by traveling in the off or shoulder seasons, which are actually more fun as a tourist and cost less.
- Tomorrow isn’t promised. Don’t go crazy, but enjoy life today.
Embrace Life While You Can
You may live into your 80s or 90s, but you may not be able to travel for all of the next 30 years. Enjoy the world while you can.
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