In our last blog on this subject (June 7), we opened the door to this vast unknown by describing the different phases of retirement most people encounter.  Now it’s time to start getting into the nitty-gritty of what you need to consider.

We can talk a little about some financial aspects of this new life chapter, but your individual needs and answers may require a relationship with a financial advisor.

So let’s start here by differentiating between “thinking about retirement” and planning your retirement.  It’s never too early to start thinking about retirement.  If you haven’t already, you should join AARP.  I’m not always comfortable with their politics, but it’s an inexpensive resource to enhance your thinking.  Bookstores offer a wide selection of dissertation on the subject, although most concentrate on the investment aspects.

The thinking part can and should include seeking the experience and advice of others, as well as exposure to different lifestyles, locals and venues.  You want to get a lot of input and consider a variety of possibilities.

Perhaps the most important part of the thinking process is when you want to cross the line and your thoughts on whether it will be full or semi-retirement.  In a semi-phase, you can continue part-time work, consulting or try a related or entirely new line of work.

You should continue the thinking about your retirement and all the options you’ll want to consider right up until you’ve set a date.  Then it’s time to start planning.

Planning is the process of assembling and organizing your collection of facts and thinking and reducing it to writing.  It’s a plan you’ve laid out like a roadmap and entirely possible you’ll make changes along the way.

Your Retirement Planning (from the AARP Bulletin), Self-Interview:

  • Where do you want to live after you finish your current career?
  • What will your annual housing and transportation expenses be?
  • How much will it cost you each year to visit friends or loved ones?


  • What will you do with your time when you’re no longer working a full-tine job?
  • Do you plan to travel? Pursue hobbies? Babysit your grandkids?  Volunteer?  Something else?

Your Nest Egg

  • How much cash will you need for everyday expenses like food, entertainment and shopping?
  • How much do you currently have in long-term savings?
  • What, if anything, could you be doing to save more now?
  • List all your ongoing sources of money after you retire?
  • How much money will flow in each month from Social Security, part-time work, a pension, investments?

Staying Healthy

  • How much do you expect to spend for health insurance and noncovered health care expenses after retirement? This spending tends to increase as time goes by.
  • Do you need to budget extra money for fitness, supplements, special foods, eye and ear care, and other routine health needs in the future?

Investment Returns

  • If the stock market takes a big fall, will you be in trouble?
  • Is too much of your money in savings accounts that pay next to zero interest? It’s important to spread your retirement savings across a range of investments, so that a loss in one kind doesn’t wipe you out.
  • Prices for everything—rent, products, services, utilities—likely will go up each year. Are your investments and savings accounts keeping up with the inflation rate?

What Do You Owe?

  • What are your current debts—and what are their interest rates?
  • Could you lower the interest rates you pay on your debts by refinancing a loan or negotiating with a lender?
  • Should you allot more each month to pay down your debts right now?

The Tax Man

  • Which taxes are most likely to cost you lots of money in the future: income tax, property tax, sales tax?
  • Do you think your future taxes are big enough to influence which state you decide to live in?

Draft a Budget

  • What will your monthly cash needs be after you retire?
  • Can you write a monthly budget for retirement now, based on your retirement vision?
  • Have you covered all true costs? It’s easy to overlook items like restaurant visits, gift giving, hobby expenses, copays for medicine or visits to children.

Some experts say a good rule of thumb for estimating your financial need is to accumulate 10x your annual working income.  Keep in mind any monthly income, like Social Security, can be multiplied by about 300 to add to your asset base.

So if your Social Security income will start at say $1,500 per month, for example, you can add about $500,000 to your asset base.

The $1,500 will have inflation adjustments; so even if you live to 100, that should be a nice little egg to add to your basket.

The 10x figure is not a minimum.  It’s a comfort number.  So even if you have less, some adjustments in housing or geography, etc. can still offer comfort.

Here are some tax-friendly states you may want to consider:

  1. Delaware – no tax on Social Security benefits
  2. Florida – no tax on retirement income
  3. Nevada – no inheritance or estate tax
  4. South Carolina – no tax on Social Security benefits
  5. Arizona – property tax break for seniors
  6. New Mexico – tax rebates for those 65+
  7. Idaho – no tax on Social Security benefits
  8. Montana – No state sales tax
  9. Maine – no tax on Social Security benefits
  10. New Hampshire – no income tax

If you have a mortgage with only a few years left, keeping it for a tax deduction usually doesn’t make a lot of sense and paying it off may offer you a greater feeling of independence and security.

A mortgage with a longer term may suggest some different considerations, like preserving liquidity.  You should be wary of tying up a large portion of your net worth in a home if the equity would be hard to tap in an emergency.  Home equity lines of credit offer one way to assess that equity.

An FHA-insured reverse mortgage line of credit can’t be shut down once it’s established, as long as you abide by the loan rules (such as paying your property taxes and insurance, and keeping the home in good condition).  In fact, the amount you can borrow can increase over time with a reverse mortgage credit line.  You don’t have to make monthly principal and interest payments on the money you borrow with a reverse mortgage.

In any case, preserving an inheritance probably shouldn’t be your top priority.  You should focus instead on preserving your quality of life and your financial flexibility.

Reverse mortgages have gotten safer and less expensive in recent years, but you would need to exercise discipline not to waste the money you borrow on frivolous purchases.  You want that equity to be available for you when you need it, such as for assisted living or other long term care expenses.

So let’s summarize:

  1. Understand the difference between thinking and planning.
  2. For budget purposes, assume you will live to 100.
  3. Be sure to include in your total assets the approximate current value of all monthly payouts, like Social Security.
  4. Assume you can have a comfortable retirement if your total assets are 10x your last salary.
  5. Don’t assume all you will have to live on are your total assets x some interest rate (2 to 3%) or an investment return of 5%.
  6. There are several other options to enhance your income; periodic withdrawals, annuities or a reverse mortgage.
  7. If you need more help, consider a fee-based financial advisor.

Next month we’ll get into housing and lifestyle options.


Filed under Blog

3 responses to “RETIREMENT 102

  1. tom adams

    Top notch aid for retirees. I’d like to do it again. Good work!

  2. Stephen Abt

    Great advice! I think you should write for Kiplinger Magazine.

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