Even with my health problems, my wife and I believed we were prepared for retirement fifteen years ago. Our nest-egg was substantial and the economy was in good health. We optimistically believed our retirement funds would last until we passed, and we would leave a large inheritance to our kids.
I retired at the age of 61 in 1998. My cardiologist advised that with the continued stress of my job I could soon be dead or at least severely disabled, but if I would get my life-style under control, I could expect to live past my actuarial age of 85. I resolved to beat the medical issues and live well the next twenty-five years.
My wife and I had both stashed money into self-directed 401 K accounts. I had an IRA-SEP left over from a previous business venture, owned a block of stock in the company where I worked as VP of Engineering, and had a sizable chunk of options in that company that should be worth a cool six figure total. We were not worth a million, but we were not too far away.
We sold our condominium in Northern California and moved into an RV (recreational vehicle), a 35-foot fifth-wheel trailer pulled by a Dodge Ram pickup truck. My financial analysis showed we could live in that environment for about half the cash flow required to maintain a fixed home while we traveled. Besides, we planned to spend most of our time driving about to see the whole United States. Fuel was cheaper back then.
Most of my plans worked well, and we have enjoyed our roaming life-style. It has been good for my health, and I now fully expect to reach 85 or even beyond.
Our financial base proved to be less solid than I had assumed. My former company did not hold its great value. My stock options never came above water, and the stock I owned dropped in value faster than I could sell it off. We combined our tax-deferred accounts into new IRAs and managed them more carefully. However, a portion of our wealth was entangled in the Dot.Com bubble, and we lost on those investments. We also enjoyed a comfortable life-style that used more savings than prudent.
Fast-forwarding to today, my wife and I are both relatively healthy. We live on Social Security payments plus cash generated from liquidating our remaining retirement funds. Five years ago I moved most of our liquid assets into a gold ETF and gold stocks, so we have been lucky to see a nice appreciation in value and miss the low rate of return and capital deflation that followed the housing bust.
Like many in a situation similar to ours, I have come to realize that living to the age of 85 could be a curse. We face the prospect of exhausting our retirement funds in the near future, and when that happens a substantial portion of our retirement cash flow will simply disappear. Several of our contemporaries in the retirement community where we live have either gone through this transition or are about to do so. We like those others must develop a plan and learn the habits of living on less.
My first step in developing a plan has been to create a list of actions to take before or upon the reduction of retirement income. Most are obvious, especially when you stop and think about them, but it helps to have them written down. Maybe my list can be of help to you.
— Eliminate all debts and pay no interest to anyone. It is okay to use credit cards, but pay them off each month. If you forget to pay some credit card bill, let paying that interest and late charge be a lesson.
— Reduce or eliminate your more frivolous and expensive habits such as eating out at restaurants, gambling, and smoking tobacco. Give up drugs if you use them. Purchase basic foods for less money and develop a habit of preparing good meals at home. Do not purchase “toys” simply because you want them; buy only what you really need.
— Focus on controlling your diet. Reduce your food intake, both frequency and portion size. My wife and I do breakfast in the morning and “dinner” in the mid-afternoon. We limit extra snacks and drinks.
— If you eat out, split an entree with your spouse, skip desert, drink water. End unhealthy and expensive habits like smoking and high-class wine.
— Exercise will keep you healthy longer and improve your quality of life, and it provides an excuse if you want to eat more. Of course, exercise can add to the curse of living longer.
— Pick your retirement community with care; chose one where neighbors have much in common and help each other. We live in a 55+ years or older community for RVers with very moderate maintenance costs.
— Both might consider getting jobs, but do not expect high paying jobs. Retired executives and their secretaries are not in high demand once they are fifteen years out of date.
— Purchase everyday clothes from thrift stores or second hand shops. Some specialty second-hand stores even offer inexpensive glamorous clothes.
— Check out your health insurance plan. Maybe you can go with a cheaper supplemental health plan. If you live in the right area, consider going to Mexico for medications and dental work.
— Put a plan in place for possibility you may require assisted-care. This can cost hard-to-find money, but you could need this kind of care at the worst possible time, as your life is ending.
— Travel in an RV is still viable, but go for shorter trips and stay in each place longer. That becomes more important as the price of fuel rises.
— Keep a detailed accounting of what you are spending month by month. You may find some periodic expenses are being charged to your credit card without you even thinking about it. Determine if you can live if you only have Social Security. Plan ahead.
The next suggestions are controversial to some, but I find them to be practical.
— If you still have a life insurance policy, cash it out. Some people do like keeping a small policy to pay for the expenses of dying, but your spirit will not be there, so keep things simple.
— If you own a home, consider selling it now to get whatever money you can from its value. If you still have a mortgage on it, this can be especially important because you to eliminate those monthly payment and the debt. In fact, I suggest not owning any real property, so you pay no property tax or extra insurance. For an RVer this allows you to chose which state you want as your domicile.
— Do not plan to leave an inheritance for the kids; you may need the funds yourself. As my Dad said, “I expect to spend my last cent the day before I die.” He almost succeeded. But do have a will to cover momentos and whatever valuables that might be left when you are gone.
— Stop providing financial help to the children or grandchildren; they must learn to provide for themselves, and you may need the funds more than they do. It helps to sometimes warn them that you may have to ask them for help in the future.
Finally, do not fool yourself by thinking everything will be fine. Mrs. Murphy suggests something could go wrong. Plan ahead, and strive to make your life worth living, whatever resources you may have to live it.
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