My Retirement Income

Last week I kicked off a four-part series about my retirement planning experience. I’m close enough to retiring to get serious about picking a date. Despite the reckless spending of my youth and some stupid decisions along the way, sticking with the plan cut my retirement age from seventy to sixty-five. I made a date with my financial planner to take a look at a realistic timeframe.

Before our appointment, I tried out different scenarios with a retirement calculator. If you’ve never played with one of these planning tools, you should. The results, although just estimates, give you an idea of where you are, when retirement might be possible, and things you can do to move your retirement date forward.

My planner’s projections are much more involved than the online calculators. She explained her assumptions when we met and showed me how much money I’d have to live on each year if I retired at different ages between sixty and seventy. The news was better than I’d expected.

Young folks pay attention! The dollars you sock away in your twenties and thirties, thanks to compound interest and the time value of money, count a lot more than the dollars you save at later ages. At this stage of the game, my retirement income is more or less set. The impact of any increase in savings this close to retirement is modest, at best.

Fortunately, despite what I’ve always believed, getting serious about saving for retirement at thirty-two wasn’t so late after all. The magic of compound interest works! Rather than catching up to retire on schedule (or at all, for some), I’m looking into how to move my retirement forward a few years.

Counting on your children to take care of you is risky business. If you haven’t started saving for retirement, do! It’s never too late, and whatever you can accumulate is more than you’d have otherwise.

My retirement income will consist of Social Security, a tiny pension from a previous employer, and the money in my retirement accounts. Yes, I have faith in Social Security — call me an optimist. Lots of people believe in stranger things. For planning purposes, I didn’t include future lottery winnings, inheritances from long lost relatives, or book royalties.

Because they are “defined benefit” plans, I know how much I’ll get for as long as I live from Social Security and the pension. Based on current spending, that base provides less than half the income I’ll need to cover my expenses until I die. The rest will have to come from my “defined contribution” plans, aka my retirement accounts.

Knowing when I’ll die would be EXTREMELY helpful. Absent such knowledge, I just have to guess. Risk factors, family history, and my medical record suggest I won’t see the ninety-two my planner assumed for her projections. Hitting eighty is rare enough in my family, so I’m comfy planning to eighty-five. Should I be wrong, to supplement my base I can always get a reverse mortgage and a job as a greeter at McDonald’s or Walmart.

My planner suggested maxing out my Roth IRA contributions right away. Done. We talked about a few short-term goals (paying off a credit card and beefing up my emergency savings), working on maxing out my 403(b) plan, and minor changes to the assumptions underlying her projections. Next week, I’ll a look at the expense side of the equation.