Welcome to my exciting new board game, Financing Retirement! This game is for one or two players, and includes dice and two stacks of cards to draw from – Money In, and Money Out. The goal is to have a positive balance in your bank account when you reach the finish line – your retirement date!
Assuming you can choose your own timing for retirement, how will you know when you have enough to really live on? My beloved and I are working through this now. We’re playing the two-person version of the game.
He actually retired from a high-stress upper management career a number of years ago. We could afford it at the time because I was working and paying for benefits, and we agreed to cut back on meals out, some of our travel, and other optional spending. Because of the toll his work was taking on his health and well-being, frankly I pushed him into it, and we both still believe it was the right thing at the time – but it didn’t stick. To stay busy and pay for the vacations we wanted, he decided to work part-time until I retired. The new job crept up to full-time.
Then the situation reversed, and my job started taking a serious toll on me. I was able to retire, because he is still working. Now one of my primary goals is to figure out how, and when, we can both be (and stay) retired at the same time.
Really, this is a two-part puzzle, because (as with any balance sheet) there are two sides on the ledger, and they have to be in balance. We all know the drill: Assets and Liabilities. Income and Expenses. Deposits and Withdrawals.
Potential retirement assets are savings, a home, pensions or other retirement plans (including any IRA and/or 401K accounts), Savings Bonds, stocks, collectibles, part-time work, and (in the US) Social Security. These would be the Money In cards in our game.
Likely liabilities are a home and associated costs, transportation costs (car or other), food, clothing, entertainment, travel, hobbies, insurance, gifts, taxes, debts, and (particularly in the US) medical expenses. These, of course, are the Money Out cards. They may change as the game goes on.
Financial planners and brokerage houses have all kinds of tools and models to help with planning. Historically, they have commonly suggested you will need 80% of your annual pre-retirement income for each retirement year, or that you apply a 4% withdrawal rule (which amounts to a 25- or 30-year plan, where you live on 4% of your available assets annually) A quick wake-up call can be found on US News & World Report’s Money/Retirement Page – a calculator of how long your current assets will last.
These are obviously all meant as starting points rather than absolute rules, as every case is different. So, I plan to do a number of posts explaining my method for figuring out when we can both be retired at the same time – and pay for it.
The first step is to rough out the two sides of the ledger. If you’ve never used Excel or another spreadsheet program, this might be the time to start – otherwise, pull out some lined paper and a calculator! What assets do you have now, or can you reasonably expect to have by your target date? For Social Security, see the SS website estimator, if you need help.
Then comes the tough part – estimate your expenses. You can start by tracking your current monthly and annual expenditures. The biggest future unknown in the US is likely to be medical expenses. Medicare, Medicare supplements, deductibles, co-pays, dental and vision care, prescription drugs… all these can add up! To make it a little dicier, you have to guess at your future health needs and what congress will do with Medicare funding. (You might want to invest in some Tarot cards or a crystal ball for this.) The point is, you have to start somewhere. Forewarned is forearmed, and the worst thing you can do is nothing.
Take your time and get everything you can think of into your ledger. Each item should have 3 columns – monthly, annually, and total (initially, use the number of years it will take you to get to 90, depending on how old, or young you plan to be when you retire). Here’s a very basic sample of what a balance sheet might look like:
Alrighty, then! You’ve taken the first step in setting up the board! Next: Social Security and Other Assets
- Medical Costs Derail Comfortable Retirements (money.usnews.com)
- What To Do If You’ve Put Off Retirement Planning Till The Last Minute (businessinsider.com)
- Budgeting for Healthcare in Retirement (money.usnews.com)
Photo credits: board game: © linno – Fotolia.com, tarot: © Darla Hallmark – Fotolia.com, puzzle: © vege – Fotolia.com.