Warren Buffett once said one of the first things he asks a company that he is considering is, ‘what is the discount rate that you use for your pension plan?’ as that will immediately tell him how risky/conservative that company’s management has been.
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Ah OK. Yes, I was answering based on the NASA/federal employment perspective.
Can anyone confirm a SS question in the following scenario. You’re waiting until age 70 to claim the higher benefit, but your birth date falls at the end of a month. Do you apply for benefits to start in your birthday month or the following month? The above video was VERY helpful, but I did not see this particular answer.
We’re not clear if the highest amount (for reaching age 70), is set exactly on your birthday, the beginning of the birthday month, or the end of that month.
Using a birthday at the end of January as an example: Do you ask that benefits start in January? Actual payments would start in Feb. However, is the payment amount slightly lower than could have been because you were not 70 for ALL of January?
To be safe, you could request that benefits start in Feb. (to be paid in March). But do you then lose one month of payment, or is it paid in arrears as a lump sum?
From SS website:
NOTE: The throughout the month rule does not apply to the attainment of FRA. Unreduced benefits are payable beginning with the month FRA is attained regardless of the day of the month. For example, if the birth date is June 1, 1935, FRA is attained on May 31, 2000 and unreduced benefits can begin with May 2000.
for reaching 70, it’s your birth month, unless your birthday is on the 1st, then benefits are attained on the month prior. So, Jan 1 really means benefit start in Dec and payable in Jan; end of Jan birthday means January benefit payable in Feb. btw: if applying online, there is a box to check to say, Maximize benefits; also, there is a comment box in which you can add, Maximize DRC’s.
If applying online most likely they’ll send you an email and ask them to call to confirm why you want a start date of Feb when the DRC’s stop in Jan.
…post deleted.
Wondering if I can ask those who have retired (or are close to it) - how much monthly retirement costs reduced (if any) from pre-retirement expenses?
If our current expenses continued we’d both have to work for years and years. But (as per 2 fin planners), if we could reduce costs to about half of that (incl private health care, cars, housing, food, etc). we could retire years earlier.
I’ve tracked all expenses for a few months (and am working to reduce in all areas!). Ideally we’d sell this unnecessarily big suburban house, buy something much smaller & reduce our monthly housing costs to 20% of current.
Just trying to avoid kidding myself (“Oh yeah, we’ll certainly be more frugal then!”) - and curious how it has gone for others!
I don’t think my spend will go down when I retire. I think it may even go up with additional traveling and spend on various hobbies (if I ever find any). I could down size my apartment, but I am used to it.
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I’ll bite. There are some expenses that have remained the same…our basic household and personal expenses, for example.
We do a lot less discretionary spending on things like eating lunches out, clothing, dry cleaning (not much needs that anymore), etc. We spend money on the things we want to spend money on.
And of course, we don’t have anymore college expenses for our kids, no more weddings to pay for (we will gladly pay if DS ever gets married). Really, no kid expenses except things we want to buy them. We did things like replace one car before DH retired. House is paid off (I know some folks don’t think that’s important but it reduced our monthly expenses).
Just ditching college costs saved us the equivalent of one of our yearly incomes!
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I’ve heard one FA say plan on 80% of current spending. YMMV
ETA: Our expenses have stayed about the same, because we always have lived really cheaply.
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Our expenses stayed about the same, other than the mortgage that got paid off about the same time we retired. Note that college payments were intentionally excluded from our logged expenditures.
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As usual with financial matters, I think the answer is “it depends.” For us our expenses didn’t go down at all, mostly because H worked from home for years due to health, so we had already incorporated things like no commuting, parking cost, wardrobe, work travel, etc. When healthier H did like to go out to eat for lunch, but had his health not taken a bad turn in the fall, I suspect he’d still go out every day to get out of the house.
I would love to downsize but not sure how much it would save us. Again, due to health of H we will not be doing more travel in retirement. I don’t think he ever needs to drive again so we could possibly sale his car and save on insurance, upkeep and taxes but I don’t think he’s there yet.
We’ve more expenses since I’ve had to hire help for nights and days in last few months.
I’ve heard the 80% rule is outdated, but again think it depends. If you retire before Medicare then your health care expenses may be higher for a few years.
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Our biggest reduction is that we no longer are saving for retirement. This was 20% of our pretax income. 2nd biggest is probably taxes, as lower income and various recent tax laws substantially lowered our marginal rate and overall tax burden. No more FICA, for example.
This is offset to a degree by our housing expenses, which went up as we upgraded our house and have a large mortgage, and needing to get health insurance from the exchange.
We own a bunch of rental property, and these expenses have gone down as we paid off all the mortgages before we retired. This helps a lot.
Driving expenses have gone up, as we worked from home the last two years, and now we drive more.
I bought a boat, that’s a big expense I didn’t have pre-retirement, lol.
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We downsized our home and cut our utility costs at least by half. Property taxes only went down about 35%, but we moved from an unincorporated county area to a small city with higher taxes. HO insurance is about half as expensive.
H used to eat lunch out daily, so we no longer have that expense. Between our move and Covid, we haven’t entertained in four years other than family coming for birthday or holiday meals. We do most of our grocery shopping via curbside pickup, which has eliminated impulse purchases. Even with H eating lunch at home now, we probably spend about 60% - 70% as much on groceries.
H didn’t have to pay for parking, but we spent several times as much on gas then as we do now. If we needed to, we could get by with one car.
H used to send his dress shirts to the laundry and had his suits dry cleaned. None of that is needed now. I’ve only needed a dress three or four times since H retired and he’s worn a suit about that often. We spend very little on clothing.
We’ve had some one time or infrequently recurring expenditures, such as furniture and window treatments for the new house. If we’d needed to be frugal, we could have reused more of what we already had. Years ago, I sewed new curtains and valances, and dyed/hemmed others to save money.
A lot depends on how you want to live, and that’s not meant as a value judgment. We’re introverts who didn’t go out or travel much before the pandemic, partly due to health problems. The other big unknown is medical, as others have mentioned. So far we’ve been lucky.
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I forgot about those pay deductions that we don’t have any longer. Maxing out our retirement contributions, union dues for me, actually just about all the deductions except taxes.
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Once my husband retired we saved on commuting (he had an expensive commute - monthly train pass alone was over $350) and his lunches out.
We sold our house and downsized to an apartment. The house was paid off, and our rent is more than our real estate taxes used to be. It is a mixed bag on other expenses, no maintenance and cheaper home insurance, electric is higher (house had gas), etc. We are making nice interest right now on the proceeds from the house.
Our health insurance premiums are lower than when he was working, because we have no income per se right now and are on the market insurance. This will all change once we hit 65 and switch to medicare and then later when we start getting SS and pension payments.
We also don’t pay income taxes, as we have no income right now!
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Some of our health insurance is subsidized from the exchange, but our rental income is high enough that what we pay is substantially more than my 20% contribution to my employment health insurance, which also had much lower deductibles. Part of the price of retiring at 60, I’m just grateful the exchange is there and it’s easy to get health insurance.
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Thanks so much for sharing! I agree that it’s not really realistic to anticipate we will be living in half our current expenses - even if eliminating the funding of living expenses for D (when she graduates college) would be a big chunk.
These answers validate that I shouldn’t be too optimistic on how much more frugal we’ll be when retired!
Guess I’d better ramp up the current cost-cutting to see what’s realistic (e.g., heat now down to 63 at night & that is actually not bad at all! lol)
Thanks again!
I don’t know how many years you are from retirement but if you have a few years’ runway, you could analyze expenses for last year and then again in Jan of 2025 for this year. Having two years to look at may help you see trends.
I run all spending through one checking account, so I pull all transactions into Excel and sort. Assuming all bills are paid through the checking account, you can see your recurring expenses annualized. Those expenses are the ones not likely to change much in retirement: electric, heating oil, water, sewer, cable, cell phones, home/car insurance. Your utility costs might increase slightly if you live in an area where you need to heat/cool the house all day once you are no longer working.
I then do the same with all CC charges for the corresponding time period (full calendar year), although that sorting takes quite a bit more time. I don’t go crazy trying to figure out what it was I bought at Amazon or Costco, but I can see dining out, groceries, clothing, gas, medical, vacation, etc.
As others have commented, savings are not sizable other those already identified: stopping contributions to 401K and no longer having to pay FICA, commuting costs, etc.
If you had previously hired out lawn service and housekeeping, you could take on these tasks yourself, if desired, but if not, keep those in the ‘budget’.
Housing is the big unknown, and by unknown, I mean future repair/replacement expenses of HVAC, roof, driveway, exterior paint, etc. If you truly have to cut your expenses in half, moving to a smaller place or condo could eliminate some of the uncertain housing line items.
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Yes! We just started really (i.e., honestly and in complete detail) tracking monthly expenses about 6 months ago. A full year would probably give us a more accurate picture…
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