Retirement Interview 1

Here’s our latest (first, really) interview with a retiree as we seek to learn from those who have actually taken the retirement plunge.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

There was no way to include every possible question in an interview like this, so if you’re wondering about something that’s not addressed, please leave your question in the comments below so the interviewee can address it.

My questions are in bold italics and his responses follow in black.

Let’s get started…

GENERAL OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married, kids, family)?

I’m 58 and my wonderful wife is a youthful 60 (looks much younger).

Married 26 years, all fun and easy. No children.

We have two brothers and their families within an hour’s drive, as well as elderly parents, and a disabled sibling that are appreciative of our help and attention.

We help with taxes, bill-paying, communication and coordination with government agency services, etc. all the way down to cleaning their rain gutters.

Another brother and his children, on the other side of the country.

They are all good people, no drama, and we like to see them.

What area of the country do you live in (and urban or rural)?

We live in a rural part of the western states, right at the snow line.

We have access to excellent professional and medical services. Major market entertainment and transportation. Low population density, low crime, older demographics (30% over 65).

Is there anything else we should know about you?

We are happy to be this age, because our lives have worked out. No more fretting and worry. All those decades of ‘getting ready’ and ‘someday when…’ with lots of ‘living like nobody else’ today so that we can ‘live like nobody else’ tomorrow, are over.

We are content and happy, and glad to put struggle and frustrations in the past.

RETIREMENT OVERVIEW

How do you define retirement?

We wake up when we are done sleeping.

Do what we want, when we want.

Answer to no boss, committee, demands on our time, etc.

That is our definition.

How long have you been retired?

Six years for me, and eight years for my wife.

We tried to retire a few years before this. The dramatic 2008 recession was so stunning in the destruction of wealth, that we reluctantly continued working a few more years in order to rebuild our net worth. It was quite humbling. As hard as it was to get up to work jobs we were ambivalent about, it was far worse to do so during those ‘penalty years’.

She retired a bit before me, her choice and I don’t blame her. I had been attempting to ‘engineer my layoff’ for some time, and the opportunity presented itself when my employer hit some rough patches. Very welcome, for both of us.

One aspect, that I sometimes forget to appreciate, is that I was able to work-from-home for a great deal of the last eight years of my work life. This allowed us to live in idyllic small towns, instead of a large metro region. Also very welcome.

What was your career and income before retirement?

We both had client-facing professional jobs.

I worked in project management, and she worked at the Director level in Contracts and Grants. We made similar incomes, growing slowly to a combined $250,000/year.

In the ESI formula, Earning is important. Savings is too, and in the last 15 years of our work life we were fortunate to become Super Savers at 1/3, with another 1/3 for taxes and remaining 1/3 for living expenses.

PREPARATION FOR RETIREMENT

Why did you retire? When did you first start thinking seriously about retirement and when did that turn into a decision to do it?

My wife wanted to retire from her high-pressure position at 50, in large part to qualify for benefit vesting.

I’ve daydreamed about it since my teen years. Just a few years into post-college work, realizing this grind could be facing me for 45 years, was enough to motivate me to do something about it.

She desired freedom and time to do things that interested her, and voluntarily separated from work when our financial foundation was set.

For me, a deteriorating business climate and poor work options made engineering my layoff the most attractive option.

What were the major steps you took from deciding to retire to developing a plan to do so?

The big one was automating savings into index funds, as well as 401(k)s.

Tracking savings, then forecasting a conservative return, estimating a Net Worth able to throw off enough cash flow for expenses.

What did your pre-retirement financials look like?

No debt.

No mortgage, and with the 2018 Tax law changes there is not much point to having a mortgage deduction in comparison to the revised Standard Deduction.

Total assets, including home, at retirement was $2.4 million.

Six years later, now, it stands at $2.9 million. It breaks down like this…

  • Tax Adv Equities: $80k
  • Tax Adv CDs: $1,405k
  • Post Tax Equities: $150k
  • Post Tax CDs: $725k
  • Home: $590k

Total: $2,950k

Yes, that is 72% of our net worth in Certificates of Deposit.

We sleep very well at night, and say prayers for the ESI readers that caught paper losses of $500K+ a few months back.

Meanwhile, this fits our risk tolerance just fine, and we would be happy to be on the far end of this ESI sample’s Bell Curve.

In addition, we have Shadow Assets we do not include in our Net Worth, which are expected to throw off cash flow.

One is a small monthly pension, imputed at $392K, and another is our respective Social Security benefits imputed at $800K, and discussed in detail later.

What was your overall financial plan for retirement?

“Three reasons not to have a plan. 1) You’re rich enough to buy anything you want and still have plenty of money left over. 2) I forget the other two.” – Jane Bryant Quinn

Yes, we did/do have a plan. Actually, several plans.

We have found it useful to make three scenarios, i.e. Goldilocks. Risk, Return, Duration, etc., calculated to a High, Medium, and Low value financial plan. We assume a forecast using the mean of the Medium and Low values. It has worked quite well for us, and we expect it to continue going forward.

Did you make any specific moves to prepare your finances for retirement?

Yes, we moved to a lower cost-of-living region of the state, and having a free-and-clear home is quite liberating.

If readers are so inclined, one can impute the rent/mortgage payment equivalent into their cash flow. Once the home is paid for, the remaining expenses might be surprisingly low. Try it! Let us know what you find.

Who helped you develop this plan?

I must thank my father, who led by example. Many other mentors have generously given me useful advice.

Essentially, our retirement plan has been complete for a very long time. But I am still greatly interested in the subject of Personal Finance, and really like the FI/RE community of motivated, smart and knowledgeable people.

What plans did you make in advance to leave your job?

My advance plan to leave my job was rehearsed daily in my head for decades.

But when the time arrived, I left with a smile and a handshake for everyone. Not every plan needs to be executed.

How did you handle deciding on and paying for healthcare?

We are healthy, and expect to be for some time to come. Healthcare was/is a big financial consideration. Our solution should work for those in fairly good health.

We purchase catastrophic event health insurance, about $9,000/year for us. Things like annual checkups, eye/dental, etc. we pay out-of-pocket. Rarely is it over $1,000/year, for two people.

And now, a real life example where the rubber-meets-the road… I was hospitalized for six days with influenza this December 2018. My total bill was $49,000 including ambulance, Emergency Room, Intensive Care Unit, and double-occupancy room. My share is $9,000. Thankfully the care was fantastic, and I’m fine now.

When we turn 65, Medicare will cover most healthcare costs. More info on Medicare costs here.

How did you tell your family and friends of your plans?

My wife was a total Boss. She told a small circle of friends in the course of their activities together, and they were all cool with it. Didn’t hurt that they were all retired, too.

There’s a theory called “the five chimps theory” shared by Naval Ravikant, in Tim Ferriss’s book Tools of Titans: In zoology, you can predict the mood and behavior patterns of any chimp by which five chimps they hang out with the most.

I told nobody for a long time. I didn’t even tell my parents for 18 months. Partly because I wanted to make sure that this time I could stay retired, and didn’t want to explain if I went back to work for any reason.

But also, because I was somewhat self-conscious about it. My “five chimps” were not retired, or close to it.

The subject didn’t come up for a long time, but when it did I found people seemed to require an explanation. And because they had work and family obligations, we did not hang out much after that.

That was something I did not anticipate, incorrectly assuming that nothing would change. One friend actually became emotional, not in the good way.

I wasn’t gloating or rubbing it in, and only told him reluctantly. Fortunately, we got past the moment.

Most of my friends now are 400 miles away, and we see each other every few years. Phone and e-mail are good. I miss them, and would love it if they moved up here, when they were ready to pull the plug.

THE ACT OF RETIRING

What went well?

The financial aspect went well. Our actual spending was/is much less than we planned for, and net worth continues to increase each year.

What didn’t go so well?

For me, it was social. People my age are usually working, and certainly have family and other obligations outside of work. Anyway, it is hard to make friends as one gets older, and hard to keep them, too.

There is not a limitless supply of people, with shared interests and values, in your geographic region. It takes some effort, and there might be misfires, but when it works it is totally worth it.

How did you ultimately find the courage to do it?

Not sure it was in any way courageous for us, but we had tried-and-failed once.

We were simply tired of dealing with brutal super-commutes; we lived where we wanted to, but most of our time was spent navigating sociopaths, jobsworths, bullies, etc.

Of course there were nice people, too, some even turned into friends. But those in no way compensated for the aggravation and disappointment that problem clients and colleagues created. We prefer not to work. YMMV.

RETIREMENT LIFE

How was the adjustment, especially the first few months after retirement?

Pretty easy, I would say. I enjoyed the lack of structure very much, during this time. Still do!

How is retirement life now? What do you like about it and what do you dislike?

“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” – Ralph Waldo Emerson

Do all those things, and happiness sneaks up on you.

What do you do with your time? What does an average day look like?

I do keep a ‘to-do’ list, which is helpful in keeping me moving. My natural inclination is to sit on the porch and read and daydream.

She goes to yoga class often, has culinary pursuits that benefit us both. OK, mainly me.

My wife is quite creative, and has side-hustle in fiber arts. She has also completed certification and is an instructor in Master Food Preserving. The people that share these interests are great people that don’t cultivate drama.

I’ve struggled somewhat in making new personal connections. Still working on it. I am grateful for a group of guys at my local hardware store, who have unofficially taken me on as a “project” and are turning me into a “Mountain Man.” It helps that they are hilarious.

Also learning some skills and craftsmanship, working with tools and building a talent-stack. There is a lot one can learn on YouTube. In my case, I’ve acquired skills and experience in leather furniture repair, plumbing/electrical/HVAC, landscaping, etc.

The past five years, I’ve cleared about 250 oak trees, removed the stumps and chipped the slash (I’m told by neighbors that our property looks like a park.) Repaired chainsaws, power tools, riding mowers, etc. Lots of skinned knuckles, pulled muscles, and close calls.

Pest control is another accidental skill picked up during spontaneous moments. One year I killed four rattlesnakes. In fairness, it was them or me.

“What do we say, kids? Safety First!” – Super Dave Osborne

This is still new for me, as a ‘city boy’ but the simple act of “trying” to learn craftsmanship has moved me past doubt and fear. Home repair and power tools still challenges. But I can highly recommend it for those who have the inclination and time to learn. Very satisfying. I’m able to ‘be useful’ with these skills for friends, family, and neighbors, too.

We both have held volunteer positions, and no longer do so. Working as a volunteer is still working. People don’t just give you credit for “caring” or for “trying” as the virtue-signalers quickly learn.

We’ve done grunt work, and held board positions for HOAs, professional organizations, and charities. I’ve been a Treasurer twice, and it can turn into being a Bill Collector. Both of us agree, never again.

We donate some money, usually between two and three thousand a year. When friends or family contact us for a cause important to them, we always say yes. We know how hard it is to raise money, and the rejection. We are supporting them first, and their charity second.

My wife notes that the cliché is true, “how did we ever find time to work?”

Was there any emotional impact from leaving the workforce?

Yes. I felt a huge relief, and the absence-of-stress was amazing. I was like the frog-in-the-boiling-pot for years, not aware of how I internalized the pressure and demands.

I also went through the Kübler-Ross five stages of grief, but it went by quickly.

What are your future plans?

We have made our home an oasis, and no longer have a need for vacations and weekend getaways, because there is nothing for us to get away from.

We have done our traveling, and the combined hassle of traveling and guaranteed illness upon return make it unappealing.

Our future is now, and that works well for us.

RETIREMENT FINANCES

How has your financial plan performed compared to what you had estimated before retirement?

The plan continues to evolve. I’ve made some tweaks, which are actually remarkable in result.

We are utilizing a tax-minimization strategy, taking advantage of a window in long-term Capital Gains where we can realize $30K and pay zero additional Federal Income Tax.

State income taxes are minimal, and our state does not tax Social Security.

How are you handling Social Security, required minimum distributions, tax issues and the like?

We both plan to take benefits as early as possible for two reasons.

1) 85% of the S.S. benefit is taxable beyond $44K/yr in earned income (this includes IRA, 401(k), 457(b), etc. withdrawals).

2) The ‘break-even’ for taking early benefits (62 at 70%) to our regular payout (67 at 100%) is age 78. Not only is the risk for an early demise removed for 15 years (not once, but twice for each of us), but we feel the utility value of a few hundred dollars a month in extra benefits after age 78 is lower than in earlier years.

More info on the taxation of SS benefits here.

Did you return to paid work? Why or why not?

No. We prefer not to work.

Did you find it hard going from being a saver to a spender?

Hasn’t happened yet. We have a draw-down strategy, but haven’t been compelled to start.

This nut might have to last us 35 years, and we have other family members we may be financially responsible for.

In example, an in-home caregiver at 12 hours/day is about $9,000 per month. A full-time skilled-nursing facility will cost about $107,000 per year, per person. This is a reality we are facing for parents now.

So, we are in no hurry to upgrade our lifestyle just to burn up the cash, just yet.

Here’s our deaccumulation plan:

Taxes and IRA Rollover withdrawals – we have determined the tax implications, and find the potential for compounding is outweighed by the benefit of minimizing taxation.

Our plan is to begin early withdrawals using the 72(t) Rule, realizing smaller amounts over more years. This will significantly reduce our tax bill, as well as keep our S.S. payments from being taxed at greater amounts.

The traditional advice for leaving tax-protected income as long as possible to allow maximum compounding; withdrawing tax-protected income with 72(t) in the 10 years before full SS eligibility will allow us to be taxed at the lowest brackets over a longer period of time. You can find more info and run test scenarios here.

Looking back, what do you wish you knew in advance?

You will be alone, sometimes. Embrace it.

Pick and choose worthwhile companions and activities when you can, and accept solitude when you can’t..

Guard your time. There will always be somebody willing to use your time and talent, when it costs them nothing. We were surprised to find that time is just as important to us as money.

You may be surprised at how little income is required to continue your lifestyle, unless you intend to ramp up travel, status homes and cars and memberships, etc. Income taxes, savings, transportation costs, etc. all decline dramatically.

Some people consider moving to other states for tax reasons. Do the math yourself.

First, “put a number on it” like they say in The Sopranos. What would it take for you to leave your current geographic location and residence? Do the calculation yourself, and let us know. For us, there is no way we could hit our number of $20,000/year.

Second, look at the lifestyle. Do you see yourself growing old in a big city? Mid-size urban? Retirement community? Near family? Weather? You might enjoy finding out that you don’t have to stay in one place forever, and that you can take longer hiatuses in different places.

In closing, thanks for reading. This was a worthwhile exercise for us, and we are looking forward to the new ESI series.

We’ve picked up some great information from the other series, as well, and it is so generous of these writers to share their stories. Thanks again, see you on the site!

 


Originally posted at https://esimoney.com/retirement-interview-1/

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