Preparing for Retirement

[Barth]

Well I'm about 5 years out from making that transition.
Currently renting with zero debt and excellent credit.
Savings is good, but not spectacular.
I know living on SS is nearly impossible.
But would like that as a target with savings as a safety net.
Don't have enough cash to buy a house outright.
So I'm thinking with maybe two years of work left - buy a small (no HOA) home with a large down).

Any sage advise from the board on the Good the Bad and the Ugly of retirement?
Landmines I don't want to step on?
Unconventional winning strategies.
Not self-apparent things to consider?

Thanks in advance,
Barth

[CPTKILLER]

Consider acquiring your own home at a price similar to your rent. You are protected somewhat from mortgage increases unlike annual rent changes. A owned home helps with taxes and is yours to change as you like.

[ripley16]

My first thought was that having a new mortgage while living on social security would be quite a challenge. However that really depends on the cost of housing where you live, so that's hard to calculate. When we retired (in 2016), we downsized our dwelling and eliminated the mortgage. We live in a high housing cost area (Washington D.C. suburbs). Without doing that we would be in a much more precarious financial position. A mortgage would be a drain we could not easily afford on our social security and IRA withdrawals. Our early social security benefit only accounts for about 30% of our preretirement income. I'd advise you do the rent versus buy math to see where you stand. I personally would always advise buying but usually predicated on being during ones working years.

If you don't already have a IRA or Roth IRA I'd say open one and put away as much savings as possible. Five years isn't a long time to save but it's better than nothing. The tax advantages make these better than simple savings. We currently live on about 87% of our preretirement income, which leaves a comfortable buffer against monthly expenses. On social security alone we'd be underwater. I'm assuming you are 62 or 63 years old. This means you'll need to calculate your financial needs out for another twenty years or so. This means factoring in home repairs, new vehicles and other larger purchases.

Factor in your medical costs. Medicare currently costs $134 per month and that comes directly out of your social security payment. Supplemental plans cost from less than $100 to over $200 per month. You didn't mention any company retirement benefits so I assume medical plans will be a do it yourself endeavor.

Not knowing more about you makes it hard to give suggestions, only you know your annual expenses, but I'd advise you do some serious and realistic financial planning.

[ripley16]

Consider acquiring your own home at a price similar to your rent. You are protected somewhat from mortgage increases unlike annual rent changes. A owned home helps with taxes and is yours to change as you like.

The new tax laws may make moot any tax advantage. Depends on the amounts involved, but the interest and taxes would have to exceed the new $12,000 (single) or $24,000 (joint) exemption . There are limits on the deductions to consider as well. For most people the new tax laws change these equations... to the good for most people but not for everyone.

[dustnchips]

Large down payment is not descriptive, but I would suggest no more than a third down and hang on to your investments. The rates are low and you can probably make more on your money than the interest you would pay. My best advise though is to consult a professional financial advisor not a bunch of gun nuts on a web site. Me included.

[berettabone]

Maybe the unsuggestable...…………...sell some toys and start saving...……………..housing costs are starting to come back down. Owning versus renting was always a no brainer for me. You'll have lots of time on your hands, time to make purchases. That's the ugly side.

[Bobshouse]

Things worked right for me, in a way. My dad passed away from cancer in 1993 and left me a small inheritance. I payed off all my credit cards and purchased a home for 135,000.00...VA, no down.

I retired in 2003 at age 50 and started a second career at a local gun club. Just recently retired from there after reaching 62 with 12 years. My home is worth almost 400,000.00 now and my mortgage payments are lower than local apartment rentals.

I owe it all to my dad. When our house was being built, I placed a time capsule in a corner stone with my dads pic, a letter about him and us along with a few other items. We are debt free, the mortgage is almost paid and my savings is there for emergencies.

That being said, I'd rather have my dad back. He died young, 57, just when he should of been in your shoes, thinking about retirement.

Money isn't everything and if I could go back and do it again, hopefully I'd get it right the second time around.

[OldLincoln]

i can tell you a lot about what not to do.
1. I retired with a buy out and with a lot of "sage advice" invested it with a major broker Smith Barney. The market took several dumps and wiped out most of the balance and it was impossible to recover from that hole. Keep in mind to recover from a 50% loss you need a 100% gain. Had I put it all in long term savings bond which had a very high interest then (1994), I would be fine. So, my advice is to be conservative in investing.
2. We looked ok for a while then my wife was diagnosed with a long term incurable nero-muscular disease which is slowly winding its way to near total paralysis. You can't plan for that and the meds and medical ould have bankrupted us early except for insurance Rx and Medical (medicare Part F). So make sure you have good medical insurance.
3. Start adjusting your life style to a slimer model. Less entertainment, trips, etc. Of course this is predicated on a slim income in the future. Do the math on inflation: My medicare has increased a total of about $100/mth in the last 15 years. Food has increased about 300%. Used to fill a couple baskets a month at Costco, now less than one.

You're starting very very late but you can do it if you plan for it. Good luck!

[Tilos]

Hard to answer not knowing if you live in an area with high cost of living and tax burden, and plan to stay there upon retirement or move to area with lower costs.

Either way I'd say buy a house now, not for the tax deduction, but as an investment.
Yes, house values dropped in 2008 but have rebounded... just like any other investment, it's the timing.
If you're forced to sell in a down market, you will buying in the same down market, unless you buy in a different area, same goes for an UP market, so any gain/loss is just funny money...
jmo

[dustnchips]

SS does not keep up with inflation. Several times the SS increase was equal to the medicare increase. If you like what you are doing and are well paid you might want to consider working longer. Sitting home on the porch waiting to die will not be much of a retirement. My retirement would suck if I had to live on ss.

[ltxi]

Expounding on OldLincoln's excellent advice.....

With five years to work on this, start sliming down your lifestyle and decreasing expenses...now! Bolster savings as much as possible, And keep investments conservative. Retiring debt free is always a huge plus, but in your case buying a house or condo with mortgage payments and maintenence costs at or around what your rent payments are now may well make sense....protecting from future housing costs increases.

Good medical insurance is essential, to my mind. Neglecting that, and betting on good health throughout the rest of your life, is a fool's game. Again playing off OL's comments......I fully retired just short of age 73 in apparent excellent health. Less than a year later I was diagnosed with Stage IV Pancreatic cancer. Despite having left the workforce debt free, with healthy pension income, and quite healthy savings, we'd be fnancially dead in the water by now had I not had rock solid medical insurance.

And also agree it's good you're looking hard at this now instead of waiting until the very last minute.

[O'Dell]

SS may go further than you think. Admittedly, my house and cars are paid off, but I live pretty well on it. I have CD's and funds in a brokerage account, but I seldom touch that. I did pull some funds out of my Schwab account when I bought the Jaguar last fall, but that's the only time. Utilities, insurance, property taxes, and my monthly Visa bill and living expenses don't take all of my SS, so I actually put some money back into savings every month.

[tpelle]

I agree with O'Dell. I retired last year at age 65 - one year early. My wife and I are living on SS, plus a small pension from where I had my last job, and are doing OK. We had to dip into savings a little due to a few unforseen expenses (needed a new roof on the house, plus an expensive mechanical repair to my car), but now that that's over with we should be in the black this year. We actually have three vehicles - my wife's SUV, a pickup, and my Mustang, all of which are paid for, and the house is also paid for. Our taxes are low here in Kentucky, and even lower due to a "homestead exemption".

Our biggest issue was navigating all of the Medicare twists and turns. On the advice of a friend we hooked up with an insurance broker who specializes on Medicare supplement plans. He had me e-mail a list of all of the doctors we see and the regular prescription drugs that we take, and he entered that all into a computer program that sorts all of the supplement plans by cost and best fit. Then he came to the house and spent about an hour explaining all of the different plans, and makes up a timetable/list of what we have to do and when. Then, just before we had to sign up for the insurance, he ran the program to see if there were any changes or new plans that might be a better fit.

When I asked him what I owed him, he said "Nothing"! He explained that he gets paid a commission on whatever plans we buy through him. He also leveled with us and said that, now that we had picked our plans, we could go directly to those companies on-line and buy the plans for the exact same price, but only if we bought through him did he get paid. But the advantage to buy through him was that every year he would check with us to see if we were seeing any new doctors or taking any new meds, and would run them through the computer to see if any other plans were a better fit. We were very happy with his service, and I suggest looking for someone like that in your area.

One thing that he pointed out, though, was to be wary of any Medicare "Advantage" plans. You see them being hawked a lot on TV. If you are basically healthy when you retire they offer sufficient coverage, plus a lot of fluff stuff like gym memberships and things, and they're FREE. But the catch is, if you develop some chronic illness like, say, some heart disease, cancer, diabetes (And face it, from retirement on you are only getting older and as you age things deteriorate.) and you determine that a regular supplement might be what you need and you want to switch, now they can require you to answer a bunch of medical questions and/or take a physical, and they can either adjust their rates or simply refuse coverage. You see, the only time you get to choose between a Supplement Plan or an Advantage Plan without a medical exam is during your Initial Enrollment Period, which is that first time you sign up for Medicare right before you retire. So choose carefully and look hard for good advice.

[ripley16]

The advantage plan that was offered to us upon reaching medicare age cost $210 per month versus a good supplemental plan at $150. The difference in deductable and copays however more than make up for the additional expense. No copays and only a $300 annual deductable made the advantage plan an easy choice. The past few years have both my wife and I dealing with issues and more on the horizon. It's a personal choice but in our case in a apples to apples comparison the advantage plan was clearly the better, less complicated and less expensive option. Plus we only have to deal with the one entity and not the government.

[340pd]

I have been retired for 8 years and owned my home outright for all of those years and still there are a lot of costs associated that many do not take into consideration.
Ripley16's tax considerations were right on target. Owning a home may not be the wisest move. Home can be a money pit with no return until you or your heirs sell.
Now there are options like renting a home, duplex, or townhome which gives you what you want without the investment.
My monthly healthcare costs per person,
Medicare $235.
Part D drug approx $45
Supplemental Blue cross $220
Supplemental drug $29 (ultra low because we take no drugs and get a great rate) otherwise $79
Dental $35 (covers little)

Summed up, your healthcare costs will not be lower.
Your home taxes will not be going down
Your incidental homeownership costs will not go down
Your homeowner insurance premiums will continue to rise.

Alpo is edible if heated in a microwave.

I am lucky. I should have all the money I will need for a very long time. My house is paid, I have no debt, I buy my cars with cash. and yet I am still looking into renting some sort of dwelling that eliminates or at least minimizes my exposure to unexpected costs. This makes it easy on our kids in the event me or my spouse passes away. The biggest hassle for us is, where do we put all the stuff we have accumulated over the last 50 years?
As you age, flexibility is king.