In recent months I’ve been sharing more reader stories, and they’ve been well received. If you enjoy reading about other people’s journeys on the road to retirement, you’ll enjoy today’s post.
Today we’re featuring the story of Michael, a reader of this blog who also enjoyed reading my book and is well on his way to retirement in 4 years. As a newbie woodworker, I could relate to the title he chose for his story: Measure Twice, Cut Once (or, How to Have a Resilient Retirement).
I think you’ll benefit from his story. I’ve added some commentary throughout his guest post with my thoughts on Michael’s retirement preparation.
Let’s chat in the comments: What do you think Michael is doing well, and what advice would you give him as he prepares for retirement?Today, a reader shares how he's preparing for retirement in 4 years. He's measuring twice, since he only gets to cut once. Click To Tweet
Measure Twice And Cut Once
Greetings and welcome to my retirement journey! Hopefully, some things which I am learning will be helpful to you.
First, a little background…
My retirement date is planned for December 31, 2024 after working for 36 years in the chemical industry (two companies). I’ll be 62 years old when I retire. Both my wife and I are lucky to have non-contributory pensions. She plans to work for at least five more years after I retire since she likes her job so much. The last tuition payment for my youngest is in three weeks so there will be a well-deserved household raise. We live a simple lifestyle, have no debt, and live within our means.
The plan is to ensure readiness in three life areas before I pull the retirement trigger.
Measure twice, cut once!
The three areas of preparedness are:
- Financial health
- Physical health
- Emotional health.
Mastering all three, or at least being proficient, is a critical part of my journey.
Fritz’s comment: I love how you’ve targeted three specific areas of preparation. Too many people focus exclusively on the financial aspects of retirement. This is one aspect of your retirement planning that many people should strive to replicate. Especially impressive given that you’re still 4 years away from The Starting Line. Well done.
Let’s look at each of the three areas in turn:
Many people focus on the amount of savings which they have as the major retirement milestone. We are focusing on cash flows from multiple sources including:
- Roth IRAs
- Brokerage account
- Social Security
We’re planning on deferring Social Security until we are 70 years old to get the maximum benefit that will be there for the rest of our lives. The added benefit is that it is indexed to inflation so as our costs go up, we get a bigger monthly check. I have been contributing to a 401K since 1988 but have only contributed the maximum permitted ($19,500 plus $6,500 catch up in 2020) for the last five years. My employer also contributes a 100% match for the first 5% of my salary.
The power of compounding is amazing. Being a math geek, a spreadsheet plots the actual versus anticipated savings amount since 1995. As of today, we are seven years ahead of plan. Said another way, the amount of money we thought we would have at 65 we now have at 58.
Our retirement income will come from a roughly equal mix of pensions, Social Security and investment income.
The plan is to have four years of cash in the bank to protect against unanticipated emergencies and stock market volatility. We have a bond ladder maturing each year from 2014 through 2019 so no money will be withdrawn from stock accounts until I am 67.
Budgeting is not my favorite activity but I’ve tracked the monthly delta between what we’ve earned versus what we’ve spent. Since we always paid ourselves first we just needed to ensure we spent less than we made on a monthly basis.
Beginning three months ago we started tracking every dollar spent to better understand our spending and project cost increases going forward. Our current budget is not what our retirement budget will be since we still have a bit of children expenses (remember the last tuition payment plus her apartment and food). Measuring how the money is spent will allow us to adapt to the changes in spending habits as we move into retirement lifestyle.
At tax time this year I’ll have our accountant model what our taxes would be under various retirement scenarios. This will allow us to plan on a steady cash flow which exceeds our bills and tax requirements. The “extra” money will go into a brokerage account. We plan to keep investing into retirement.
Fritz’s comment: Kudo’s for building a diversified income stream for retirement, and for beginning to track every dollar spent. We also tracked our spending when we were 2 years from retirement, and something everyone should do as you’re finalizing your retirement plan. Knowing what you’re actually spending, and estimating how it will change in retirement, is one of the 5 Simple Steps to Retire. Double bonus for doing a deep dive on your estimated retirement taxes with a professional, another area many people overlook. Comparing your estimated retirement income to spending is the key objective in determining your financial readiness to retire, and “measure twice, cut once” is a key lesson in this critical area of retirement planning.
The pandemic has closed the health club where I used to exercise so I adapted and now walk five to ten miles per day. As practice for retirement, I do this during the day. In the winter season, the time choice is the warmest part of the day. Listening to audiobooks while I walk allows me to accomplish two things at once. The audible.com subscription ensures fresh content each month. There are also podcasts and “The Economist” to keep me up to date on all the news. I weigh myself daily and modify my menu to keep in the desired weight range.
Fritz’s comment: Focusing on physical health is critical as we age and has been a focus in my retirement. Michael and I had an email exchange about his health insurance after he submitted his story, and he advised that he’ll be fortunate in being able to purchase insurance from his previous employer through age 65. Make sure you’ve “measured twice and cut once” on all your retirement expenses, including health insurance. It’s a huge issue for anyone retiring before the age of 65.
The goal is to “retire to” something versus “retire from” something. My job is very rewarding but pre-pandemic travel was 50% of the time and mostly international. I’m looking to do worthwhile things while keeping my feet in the USA. Sailing has been my hobby for the past decade and I look to get out at least once a week during retirement. It gives me an excellent opportunity to bond with family and friends as we sail around the local lake. I am still deciding if I want to get a part time job to help the transition from full time work to a life of leisure .
For the first six months of retirement I’ll take a sabbatical and not work. This should give me ample time to decide if I want to work for pleasure or look for volunteer opportunities in the community. I might also take that cross country train ride which is on my bucket list.
Fritz’s comment: With four years to go until retirement, you’re ahead of the curve by recognizing the need to focus on emotional health. You’ve got plenty of time to figure it out, and the fact that you’re already thinking about it bodes well for your transition to a great retirement.
Four years of planning is a long time but the ability to get an equivalent job in this area of the country after I retire at age 62 is not highly probable. Reading books (“Keys to a Successful Retirement” by Fritz is excellent), listening to retirement podcasts and YouTube videos have become a daily routine. Discussing the future with my wife and children makes the transition easier. I know there will be mistakes but I hope the preparation will guarantee that we do not make unrecoverable ones. In future posts, I plan on going into more depth into the financial, physical and emotional programs which I am following. I also hope to continue sharing some helpful tips for others as they finalize their plans for retirement.
Fritz’s comment: I commend you for starting your retirement planning four years before your planned retirement. It’s one of the biggest decisions we make in life, and no one has ever said they over-planned for retirement. I would encourage you to enjoy the journey, however. Four years is a lot of life, and you won’t want to look back with any regrets. Some folks focus too much on the destination and forget to enjoy the journey. I don’t perceive that issue with you, but it’s a good reminder for all of us who are on the journey. I look forward to hearing how your progress evolves and welcome you back to share your progress as you near The Starting Line.
Your Turn: What tips do you have for Michael as he continues to work on his retirement plan? Does he have any “blind spots”? Are there things you did as you prepared for your retirement that he could benefit from? Let’s chat in the comments…