This is logical follow up to the previous post, What was the Dumbest Thing You Did in Your Retirement Planning? After admitting a mistake or miscalculation, let's turn our attention to what worked so well we'd like to brag a little about it.
I will start the ball rolling with what allowed us to retire after my business failed and then transition into a satisfying retirement. It was a decision that seemed difficult to accomplish at the time. But, without it, I might still be living for a paycheck.
When I married my wife, Betty, I was 27 years old and not making much money working for a radio station in West Virginia. She had a job that paid about as poorly, but with careful budgeting we were doing OK.
The "smartest thing" was to start a savings plan in our very first year together. Frankly, I don't remember how much we set aside though I am sure it wasn't substantial. What was important was establishing the habit of paying ourselves first. We bought mostly zero coupon bonds which were quite popular then and provided for tax-free growth. As my income grew so did the contributions.
Regular investments continued for the next 24 years. Starting seven years after our marriage I also set up an IRA account. The two large companies that employed me had defined benefit retirement plans. Too bad I didn't stay long enough at either job to have it make much difference.
When I started my own business I began a Keogh plan. Later, my company contributed to a retirement plan. Importantly, that IRA had its last contribution in 2001 but I have yet to start taking any of the funds that have been growing for 35 years. The Required Minimum Distribution law will force me to start withdrawing money next year when I turn 70.
That means that from 2001, when I retired, until Social Security payments started in 2011, Betty and I lived off the savings account we began in 1976. As I noted, we haven't touched the IRA money at all. Inheriting some money from my parents starting in 2015 certainly helped delay the start of the IRA drawdown. But, that had no effect on our ability to live for 10 years strictly on our savings.
Did we skip some of the "toys" that those around us were enjoying? Sure. Old cars, smaller TVs and vacations in tents or a small popup camper suited us. We were cautious by nature and determined by decision.
The end result was a savings account healthy enough to retire when we did, and an IRA account that will take care of us from next year forward.
How about you? What was the smartest thing you did to prepare to retire? If you are still working, what have you done to get ready? It certainly doesn't have be financially-oriented. Maybe it was earning an advanced degree. Or, maybe you decided to skip college and run with your great idea. Who knows? The "Smartest Thing" can be almost anything that worked for you.
Let's share our ideas and successes so everyone can learn.
Both my husband and I say now in hindsight that the smartest thing we did for retirement was his completing 22 years in the navy. Neither of us had ever thought he would make the navy a career, and staying in was based on what job he was offered and where we could go at each reenlistment. We had a good life in navy, although it was never easy, with frequent and sometimes long deployments. Brett worked in aviation maintenance, so even on shore duty he was often sent out at sea. We had a bittersweet joke that the first thing he had to do when he checked into a new duty station was turn in a list of our important family dates, like birthdays and anniversaries, so they could make sure he would be deployed at those times.
ReplyDeleteWe initially never thought much about retirement other than receiving a check each month, but while that income is important we've also come to see that it is the other benefits Brett earned, like military medical insurance and travel benefits, that that are what made staying with the navy the smartest thing we did. We were promised free healthcare for life for staying 20 years with the navy, but we knew years ago that was unsustainable. Before Medicare we had out-of-pocket costs but they were always *very* small in the grand scheme of things. These days, what Medicare doesn't cover Tricare for Life picks up, so everything is covered. When I read about what most retirees will pay, and should have saved, for medical care I know how fortunate we are to have the medical benefits we do.
The military also offers terrific travel benefits for retirees including lodging, tickets, and transportation. We haven't tried Space A travel yet, but have taken advantage of several military lodging options, from beach cottages here on Kauai to the 4-start New Sanno Hotel in Tokyo, at costs far, far less than we would have to pay otherwise. We get discounts at other places too, like 10% off every purchase at Home Depot for example.
Military life isn't for everyone, and staying in can be difficult or impossible for some families, but in our case Brett's staying in the navy turned out to be the smartest thing we did to prepare for retirement, even if we didn't know that's what we were doing at the time.
A military career can take quite a toll on family life. But, as you demonstrate, it comes with enough perks, bonuses, and after separation benefits to make it attractive to many. And, don't forget the part a military person plays in defending our way of life.
DeleteMy son-in-law was in the Navy. He was planning on a career until he started having children. Then, the 4-6 month deployments became a bridge too far. His military benefits did help him get his college degree and develop a very nice career in the civilian world.
To follow your point, the Navy did decide he needed to go on a 6 month deployment to the Middle East just 2 weeks after his marriage to our daughter. Not good.
Bravo for your wise savings and thrifty lifestyle, so unlike most Americans. The smartest thing I ever did was to be resolute to keep working for the state of Texas so that I would get the lifetime pension and, so far, the significant health insurance benefits due to retirees (the latter is not a lifetime guarantee). I got to do a variety of jobs within 5 different human services or higher education agencies and at the governor's office, yet underlying it all was the employee pension and insurance plan.
ReplyDeleteA career within government can come with some tremendous perks that make retirement more pleasant (see Laura's comment above). I read somewhere that the vast majority of career government workers still have something that is increasing rare in the civilian world: a defined benefit pension plan.
DeleteSo far, my state retirement pension has been the smartest thing I have done. I started late with the state, age 47, and I am now 58. But I vested after 10 years and will receive a pension for life, although it is not much because I do not have 25 years in (our benefits go up significantly after 25 years)...still, something every month is better than nothing.
ReplyDeleteAnother vote for a government path. I'd ay vesting after 10 years is quite a nice perk!
DeleteWhen I bought my home, I got a 10 year mortgage, so it would be paid off when I retired. I bought it rather late, in my 50s, when I moved to a new location. Later, when I bought my Subaru, I asked for a 3 year loan, not the 6 some want to sign you up for. Also, with my home mortgage, until the recession hit in 2008, I sometimes paid extra on the principal, which also speeded payoff. Not having those two major payments lifts off a significant amount of financial pressure.
ReplyDeleteAbsolutely. While some financial people argue that paying off a mortgage isn't right for everyone, not having that large must-pay bill every month has a tremendous psychological benefit. Knowing that you are unlikely to lose your home because of someone unforeseen circumstance is priceless. Changes in the tax laws also make the deduction of mortgage interest payments less important for many.
DeleteA shorter loan period and accelerated payments for house and car does wonders to the amount of interest money you must spend. Good job.
I think these last two blog questions you've posted are two of the best ones I've enjoyed, especially the posts made by people answering the biggest mistake question and your replies. I need to make time to read through all of them. From reading through posts, it seems that it is under appreciated how retirement, rather than golfing and sipping umbrella drinks, can really be a roller coaster or tumultuous time, despite the best of plans. Decisions which are made can have unexpected consequences which then require total rethinking, such as moving to a neighborhood which turns out to be unpleasant or moving to be with kids. Even my inattentive slip up of not realizing I would still pay property taxes in the year of being 65 had a consequence, but I blame the Tax Office a bit. I faithfully went down and registered that I'd turn 65 that year, but no one told me that I wouldn't be free of taxes until age 66. Even if I didn't experience a particular tumult, I empathize with those who did, as it makes me aware that I did have those worries myself. For example, what if I move, a huge emotional and financial undertaking, and then hate where I'm at. I have a horrible neighbor who recently moved into my usually peaceful cul-de-sac, but when I read online, there are neighbors even more horrible than mine.
ReplyDeleteThanks, B.E. I enjoy posts that generate comments, especially ones that help readers find a new solution to a problem, or realize they are not alone - others have faced the same issues or made the same mistakes. As much as our society seems to be pulling apart, the commonality we all share becomes quite evident in comments on posts like these. We are all in this together.
DeleteI had a next-door neighbor from hell at one of our houses. I ended up taking him to court. We had a required mediation session before the court date. He was belligerent and combative, but in the end agreed to try to solve the problem. He didn't. We ended up moving about 8 months later for other reasons, but I was glad to go.
At age 45, I realized that my previous 25 years spent in private industry rendered me no pension. Fortunately, an inheritance handed me a lump sum that allowed me to resign and to take a low level job in the government. Over the past 18 years that mid-teens salary was eventually increased to an amount slightly above the U.S. median. Today it's still not sky-high pay but now I’m just 2 years from a pension that’ll bring in $25K per year for the rest of my days. And when paired an anticipated $35K Social Security check, $60K won’t be chicken change. Also helps to have elected a 15 year mortgage, so now I've just sold a home at a nice profit here in DC. With the net, I bought an investment property that today provides another $1700 monthly income. Just sayin'.
ReplyDeleteAnother vote for a government path to retirement! And, another vote in support of a 15 year mortgage and using it to invest in an additional income stream.
DeleteYou are on the right track! Just sayin' !!!!
We are with Laura. Staying in the military until retirement was not easy, but worth it in the end. We also chose to rent until we got out of the military. By doing that we saved and built our first house for cash 17 years into our marriage. Could we have made more money on the "outside"? Maybe. It worked for us.
ReplyDeleteYou raise an important point about making smart financial decisions. While promoted as part of the American Dream, it isn't always wise to buy a house. Particularly in a career where moves can be frequent, like the military, you are almost guaranteed to lose money because there is no time to build decent equity. Renting is the smartest choice.
DeleteThere is a growing trend in retirement,too, where more folks are renting instead of buying that next home. Renting requires no large down payment, minimal maintenance costs, no real estate taxes, and usually decent amenities. You can move whenever you want to try on a new lifestyle without worrying about equity or qualifying for a mortgage.
Savings and pensions seem to be a theme! I will join in the chorus. We lived below our means all the time and both worked full time, but still had fun and great experiences. As a result of that and the mixed blessing of an inheritance we have money in the bank, my husband's federal pension and health insurance as well as social security. It's working for us.
ReplyDeleteI see the reference to "my husband's federal pension and health insurance" as part of your financial pluses. That seems to be the common theme so far. If any younger people are reading this, consider what folks are saying and don't discount a career path than includes this support system.
DeleteLike you, Betty and I have always lived beneath our means and continue to do so into our 18th year of retirement. We don't want for anything and can afford European cruises or taking the whole family to Disney World. Spending less than you earn or generate in investments is not hard and has a tremendous upside.
We were fortunate enough to attend some financial planning seminars in the 80’s that encouraged us to get debt free early. So we did.We paid off a mortgage in the early 90’s and though we moved a couple of times,never took another one. We paid off student loans (they were not as large as today’s folks are looking at.) We drove our cars for an average of 13 years each. Lived within our means,Enjoyed vacations but never as extravagant or as often as some people we knew. We saved regularly. We weren’t brilliant with investments but we did not lose anything in the 2008 crash. And, two years before Ken sold his practice, we looked at our housing and started downsizing—selling,donating, and then, selling the large home to move into our “right sized” house which still has all the amenities we feel we need to be happily retired. SO,for us the key was to get debt free before retiring(in our case,way before..) and right sizing our home so upkeep expenses and safety are easier for us as we age. So far so good.
ReplyDeleteThat is a plan for financial security and a satisfying retirement that I encourage anyone to follow. Getting out of debt, keeping cars until they die in the parking lot, living within one's means (or even below), regular savings, and downsizing.....if more people did what you and Ken did I wouldn't receive so many sad emails from people who are struggling just to stay afloat, often because of poor choices earlier in life.
DeleteAll of us probably suffered during the 2008 recession. But, if our basic foundation was solid we have survived and even prospered.
We have always been careful about housing, never self indulgent. Several years before we retired we sold our modest four bedroom home and bought, for cash, a two bedroom home in a retirement community. Having a paid off house while we were still working made a huge difference in our psychological welfare.
ReplyDeleteI remember one realtor that we interviewed who called our four bedroom a "starter" home. I was amused and offended. The idiot should have at least looked at us, in our fifties and sixties at the time, and kept her mouth shut. We couldn't get her out of the door fast enough. We wondered what she would have called our current retirement home, pre-casket? :D
Too many real estate people spend too much time watching HGTV and think that is the real world. The only place a 4 bedroom house would be a starter home is in places where very large families are the norm. We had a 5 bedroom house in Salt Lake City in the early 80s...it was the smallest house in the neighborhood and the smallest one we could find!
DeleteCutting back from three cars, to two, and now to one has gone smoothly. Paying cash for our last two houses (because of strong real estate markets and 15 year mortgages) has meant no mortgage worries for quite a long time. As you say, it is a priceless psychological plus.
When Ken and I first stared making some money from careers, and ready to buy a home, the realtors wanted to sell us TWICE the amount of house we bought and felt comfortable paying for. It's very pushy out there and too many young (AND middle years) folks are watching way too much TV. A house is your HOME not a palace or a showplace. Ken's Mom and Dad raised 4 rowdy boys in a 1000 square foot home in the city till they pooled resources with Granma and built a 1400 square foot home in jersey, and had room for Granma too. Here in Arizona it seems 3000 square feet PLUS is a "starter home!!!!!" Just say no.
DeleteI'm financially cautious by necessity/nurture and determined by decision. I worked FT for 33 of 34 yrs in a nursing career. Don't ask me what motivated me to contribute to the pension plan, which was optional back then. I know colleagues that didn't and are still plugging away in the healthcare system in their late 60's. God only knows that I needed that monthly contribution back then, and yet I invested it. I've always been able to live below my means. I built my own home and paid it off 3 yrs into my retirement so I'm debt free. That's the financial end of things. A 10-month nursing strike in the early 80's taught me that I had many options when it came to work; I was never "married" to my job which contributed to much mental freedom. "At every moment I have the right to choose." I looked at that motto daily. A divorce in the late 80's contributed to considerable personal growth and a sense of self that I carry with me in retirement. I had to "fight" for what I was due and learned to stand on my own 2 feet. Another good thing? I always had a full life outside of work so when the time came to retire, I had more to retire to. I've never looked back.
ReplyDeleteThanks, Mona, for bringing up several non-financial decisions and moves that have left you in a good place.
DeleteWe are friends with a woman who had a long nursing career but realized how in demand good RNs are. So, she travels the country with her husband in an RV, taking on 2-4 month temporary assignments, and then moving on to the next. They get to see the country, live in different climates, and take a few months off every summer just to explore and relax. There are lots of job skills that are easily transferable. As you say, being "married" to one job in one location isn't always required.
I wish our story was the same as everyone else's is the above comments. We really never planned much of anything and of course, now we will have to deal with that. My husband didn't even start a job with benefits and 401k till the mid 90's. Before that we made 2 attempts at our own business. One a bookstore, and a second massage/counseling service. I was mostly a SAHM which was great, but not financially.
ReplyDeleteSo we enter retirement age with a mortgage.Also, my husbands student loan from forever ago that will never get paid off.
So no inheritance here, my husband's going to be 68 and working full-time to keep medical benefits mostly for me with Multiple Myeloma( thankfully in remission ) and trying to build up 401K.
I don't think downsizing is in the picture since the house we've been in for 23 years is less than 900 sq ft. So...
Everyone has a story , Right??
I am grateful for everything we have and that the bills are paid. Once we hit SS and no regular paycheck, it will be tough, but we will stay positive and grateful.
Thank you for adding your story to this discussion. Obviously, not everyone has a rosy path to retirement. Sometimes we need to stop and remind ourselves that all of us are just a major medical problem or some other emergency away from hardship.
DeleteIt is important to stress your "I am grateful for everything we have and that the bills are paid" attitude. That makes all the difference.
Thanks, Christina, and prayers that your medical challenges are behind you.
Bob, if it's okay, I'm going to link this post in my blog. i think it's important one for people to read!!!
DeleteSure!
Delete23 years in USMC was my husband's retirement plan and that was accomplished. After retirement, he tried a number of jobs, used his GI Bill benefits, went to law enforcement academy, and did 12 years as state law enforcement. So ended up with both military and state retirement. With my husband's military career behind him I was able to pursue a state and then county job that was covered under state retirement. I finally joined my husband in retirement. Now we are also both drawing SSN. The best thing about the military retirement was the medical benefits. We watched our husband's brother and wife struggle to pay insurance that once hit $1400 a month until they hit Medicare age. We consider ourselves extremely lucky and fortunate because believe me we never thought of retirement until much later in life.
ReplyDeleteEvery decision you made in terms of employment was leading you to a satisfying retirement even if that wasn't the motivation at the time. With all the various governmental and military pensions and benefits, you guys are about as rock-solid as it gets.
DeleteCongrats!
Judging from the comments so far it seems like the number one "smart" thing to do was to get a job with a really good pension (government or military job preferred). I dare say that few people think about their pension when they leave school and are looking out for a job. It seems to me that, at the time, this is more a lucky decision than a smart one.
ReplyDeletePersonally I was financially prudent and took full advantage of the maximum allowed tax advantaged saving so we'll be fine on that front. I do sometimes wonder if we overdid it on the saving as that meant a lot of scrimping and doing without over the years. One thing was that we had few family vacations when the kids were growing up and I regret that now.
I think the smartest thing I did to prepare for retirement was about 5 years out from my target date I stared reading every scrap of information I could find on retirement. This included the inevitable financial "how to drawdown your savings" but perhaps more importantly is the non-financial side of retirement, though there is far less information on that side of things. (Looking for the non-financial information is how I found this blog.) Reading the non-financial retirement material lead me to taking on some part-time volunteer work about 2 years before I retired and, with my wife, developing "retirement goals" -- things we agreed we wanted to do in our retirement.
Retired a little over 3 years now we both had an easy transition to retirement enjoying every minute of it and never once did either one of us think that going back work would be a good thing. In my experience preparing for retirement rather than just letting it happen pays big dividends.
You are so right: thinking about pensions and savings when you are in your 20's and 30's just goes against human nature. But, those of us in the "senior" category know how quickly time goes by and how soon retirement is starting you in the face.
DeletePreparing before retirement with interests and goals that will sustain you during retirement is very important, but too often overlooked. Most get caught up in the financial prep and figure the rest will just fall into place. Rarely does that happen.
I hung in there through good jobs and bad. We lived within our means and saved everything we could while still enjoying life. My husband retired from the military, which allowed me to bug out at 62 since I get his medical benefits. When deciding where to retire, we did a lot of research. I had a spreadsheet with 21 columns. In the end, we went with our hearts and stayed in California, but the research helped us find a less expensive area than where we were living.
ReplyDeleteSpreadsheets are your friend! A blogging friend who moved from Oregon to Kauai four years ago did the same thing: she and her husband detailed the pluses and minuses of everywhere they thought they'd like to live. In the end, the spreadsheet said Hawaii.
DeleteMost people assume that all of California has sky-high prices, but that isn't true. You did your research and found a place that made financial sense while still being in California. Good job.
Hi Bob! With SMART in the title of this post you KNOW I had to check in. My husband and I are not retired...more like semi-retired. We've also been self-employed our entire lives. Until we hit our early 40s we didn't plan a bit and didn't even have health insurance. But somewhere along the line we woke up and started investing when we could (and got health insurance in the nick of time before I had a serious need). Then about 10 years ago we did what I call "rightsizing" and it was the best and SMARTest decision we ever made...both financially, mentally and emotionally. We rightsized into a home that was the perfect size for us and eliminated our mortgage. We paid off all our bills and with all the money we saved we invested. Now 10 years later we are fully able to retire when we want to. My DH is eligible for Medicare this year and I will be in about 18 months. Even paying for a good supplement will save us a bunch of money. Otherwise we both enjoy our work and don't mind continuing to save and invest. Like I said, rightsizing was a real key for us and that's probably why I continue to write and promote the idea as much as possible. ~Kathy
ReplyDeleteYou have been a proponent of rightsizing for some time. I like the term better than downsizing, which implies giving up something important or sacrificing. As you well know, rightsizing actually can make you happier and more financially secure.
DeleteBetty is 7 months away from Medicare. She is so ready.
We did 2 things to get ready - started an investment plan 40 years ago and kept our lifestyle manageable (stayed out of debt) so we ended up being able to fund it. We also got lucky with some inheritance that helped.
ReplyDeleteWe also stayed married and managed to keep decent jobs until we retired.
Keeping the life style manageable actually had 2 benefits - allowed us to save and to have our small pensions and SS provide sufficient income that we only have to dip into investment earnings for travel and major expenses. It really feels good to know that if we have to we can make the investment funds last by simply not traveling as much and being careful with major spending.
I will tell you that the greatest gift you can give your children is your fully funded retirement. They will not have to worry about you and if lucky might even have something to inherit.
Your first paragraph mirrored our approach. Betty was a stay-at-home mom for the time when our kids were younger, but otherwise the two "Bobs" are on the same page.
DeleteI did some calculations yesterday and believe my IRA along with SS will be sufficient to carry us to the end. If it works that way it means the investment side of things can grow unmolested and provide a decent inheritance for our daughters.
I started at a large company at 22, and my manager at the time pulled me aside & talked to me about investing in our company 401K. I did, and gradually worked up to the maximum donation per year. I also lived reasonably wisely in my 20s and paid off my student loan debts (which, weren't significant as I worked multiple jobs in college). I cash flowed an MBA, and used that to pursue higher paying job(s).
ReplyDeleteMy husband followed a similar path & we are both good shape as I enter my 40s and he enters his 50s. In fact, we are able to pursue me going part time over the next year or so due to some health issues, and having that flexibility is incredible.
Starting to invest in one's 20s is such an important step to take, if possible. The power of compounding should not be ignored.
DeleteI am amazed at the number of people who are forced to struggle with student loans for a big chunk of their lives. There should be a better system that allows someone to get the education needed in today's economy without leaving them up to their eyeballs in debt for decades.
Like you I worked during college and my parents paid for the first three years so I graduated with no debt from Syracuse. Today, a year at that private school is over $60,000...just ridiculous.
I also looked at the Hawaii Planner blog...you are a frugal lady and that is certainly a big help.
Another vote for a government pension which includes health insurance. Started investing in my twenties and always lived below my means. We both enjoyed a simple life, but took a nice vacation every year and went out for dinner once a week. Took full advantage of deferred compensation plan and IRA. Very grateful that I stayed with the job. It was part time but it had all the benefits. It's terrible that so many people are struggling mainly because of health care costs.
ReplyDeleteI don't mean to be provocative but seeing all the people that posted here about working for the government and having the "government healthcare benefits" I wonder why there is resistance to providing that to the citizen population at large rather than only to those who had the good fortune to land a government job.
DeleteAn obvious observation, and maybe the basis for another post.
DeleteI think that you will find that the largest group of people supporting universal health care ARE military. We have always had socialized medicine. It has directed my vote several times. My mother, who pays out of pocket, is strongly against it because she thought she would not be able to see her doctor. "Mom, Medicare IS socialized medicine." I think the push back is more from hospitals, pharma and doctors themselves.
DeleteI will second or fifth other responses, except that it was what my husband did not what I did. My husband started at an entry level federal job, hung in there for many years until death (before retirement age which is why I don't have a full pension) My partial/small pension and reasonably priced health care is what has kept me through a variety of financial hits and allowed me to do well on a fixed income. I am the first to admit that was his choice and not mine.
ReplyDeleteI do need to add a comment though. My husband could have made much, much more in the private sector than he did as a federal employee, all the bad stuff about government employees to the contrary. Most federal employees are not department chiefs or cabinet heads. My husband was a financial analyst who had to compete for every level and prommotion he got (often being turned down), and who was repeatedly offered positions that payed anywhere from half again as much to more. He made a conscious choice to do what he felt was best for long term good of his family by staying in a job that was often difficult, with bosses who changed with the political times, and in positions where he could be called to work at any hour of the day or night depending on the government crisis. Similarly, most state employees are clerks at the DMV, teachers and others who work in highly competitive jobs with stringent requirements including severe background checks who generally make less then they could in the private sector (yes, I know there are exceptions). Many of these places (state, county and federal governments) offer superior benefits because that is the only way that they can hire, and keep on staff quality employees without high turnover (which contrary to upper level political appointments is a very bad thing). Just food for thought.
And finally, I actually think that the federal government model is what we should be using as we move forward. The government negotiates on the behalf of all of it's employees, making premiums lower. The employess pay the government and then the government pays the insurers and doctors. The government requires that all of their carriers offer maternity care, birth control, and a variety of what most of us consider basic services.
Consider though, that that good government health care comes with.........wait for it......the government managing your healthcare.
And that was, much of it, wayy, off topic.
Not off topic, Barbara, and a very important point: government employees are provided with excellent benefits to make up for pay that is usually below what the private sector pays for a similar job. Working for a large bureaucracy, often with political overtones, comes with its own unique set of stresses. Thank you for that perspective.
DeleteYour final point is one I can't argue with. With an estimated 23 million Americans employed by various levels of government and 44 million getting Medicare coverage, that is a large percentage of the total population that benefits from government negotiations in health insurance. Why it shouldn't be available to everyone is a good question and one that deserves follow up.
You do make pertinent and well-expressed points, Barbara. I also worked in a government job, and not for an entire career but only beginning, part time, when my youngest child was in college. The pension is small, but helpful. My boss was retired from the military at age 42, and so will eventually collect another pension. Some opinions are that “double-dipping” should not be allowed, but he spent the time in both jobs with the understanding of what earnings and benefits he would receive. Thank you especially for emphasizing that the great majority of government workers are the rank and file who sometimes have trouble paying their bills and are trying to raise and educate kids, fix up their homes, support their causes and save for the future.
DeleteI'd only object to "double-dipping" if both pensions came from the same work. Otherwise, it is two separate payoffs for two separate work-related functions. Should those of us who put away enough for regular IRA withdrawals not get Social Security, too? Is that double-dipping?
DeleteThanks, Cathie.
Excellent, thought provoking post, Bob!
ReplyDeleteMy husband and I made two decisions many years ago that had a huge impact on both our financial security and our ability to retire in our late 50’s. (1) Alan and I began saving money even before we were married, paid cash for a piece of property in the mountains we loved and built our own home (literally), paying cash as we went by living off my salary and investing his in the raw materials. Going through life without a mortgage payment has made a tremendous difference in both our lifestyle and our retirement. (2) Like many other commenters, we began saving for retirement in our early 20’s, as soon as we had steady, full time jobs that allowed us to do so.
Because traveling is one of our passions, we agreed early on that it would always be part of our lives, even after the kids came along. We did not want to leave all the fun for “when we retired” just in case something happened to prevent us from enjoying those later years. While that decision meant that we retired later than we had originally intended, it also meant that we have enjoyed many years of adventures and fulfilling family life. So, while that wasn’t actually a decision that prepared us for retirement, it was one that allowed us to enjoy life on our journey toward retirement.
You raise an important point, Mary: waiting too long to do what you love. Of course, family obligations and work commitments must be fulfilled. But, often there are things someone would love to do but keep putting off until some point in the future, a future that isn't guaranteed.
DeleteA similar issue many of us face is a desire to spend money after retirement on fulfilling our dreams but are hesitant to use the money because of a fear of running out. It is hard to reverse a mindset of saving and investing into one that allows for occasional splurges.
As I worked in our public sector (here in Britain) for many years prior to retirement - I took advantage of the chance to buy myself some extra pension years in their pension scheme. By far smarter than having bought in the separate schemes under their aegis run by private companies (which I didnt trust to "deliver the goods" and I was proved correct - as people lost money with that). The chance to buy those extra years was taken away some time later - but those of us that were in it anyway were entitled to finish paying in as we had arranged to. That was one of the single best things I did to arrange for my retirement. The other one was taking my chance to move out of rented accommodation and buy my own house when it arose (so I no longer needed to find money for rent in retirement - and I'd also made sure I'd paid off the mortgage in time too). Taken together - I often think "Thank goodness that I made those two decisions" - as it would have been so much different otherwise.
ReplyDeleteBuying extra years to get a bigger pension..interesting and something that I don't think ever existed in the States.
DeleteIf it can be done, paying off the mortgage before, or early into retirement, lifts such a tremendous load. There are still expenses connected with home ownership, but having that big monthly payment gone feels so good. It provides a sense of stability that is hard to beat.
A question "ceridwen". My wife is British though she left the UK at age 21. She did have 3-4 years working there and we have wondered how we would obtain her UK pension, small as it would be. My wife long ago misplaced her National Insurance Number and so on (a person in their 20s never thinks of such things) though she still maintains her UK passport. Knowing your National Insurance Number seems to be a prerequisite from what I've been able to find out.
DeleteHi, She would indeed be asked for her NI number. I don't know if it's actually possible to trace someone in any other way - and I'm estimating it wouldnt be easy. When you say 3-4 years worth of contributions though - I do know that the rules on this arent very fair imo. Afaik someone has to have a certain minimum number of years worth of contributions to be able to get paid any State pension for those years worked. I couldnt swear to it - but I think(?) that the minimum number of years worth of NI contributions they will count as worth giving State pension on is 10 years. You would need to check on that - but I have come across a couple of women that only paid in a few years worth of contributions - and they won't pay them any State pension at all for that time/those contributions because it's under that minimum number of years. It's not fair and I certainly always thought that if, for instance, a full NI contribution record was deemed to be 40 years for the sake of argument that one would get one-fortieth of State pension for each year NI was paid in. But I don't think it works like that. Don't take my word for it/do check. I have a full contribution record myself - so I'm not affected (ie I get the full State pension I've paid in for). I think probably your best bet would be to start by asking the DWP here a question, in principle, about whether there is indeed a minimum number of contribution years beneath which they don't pay you any State pension come the time. My suspicion is the DWP won't give her anything for 3-4 years worth and they've just taken and "pocketed" her money - but do check.
DeleteBTW - the DWP is the Department of Work and Pensions. It is the new name for what used to be the DHSS (Department of Health and Social Security).
DeleteThanks for the info ceridwen. Using the info you supplied plus a little digging reveals that with a minimum of 3 years NI contributions you can buy (at a cost of £700 per year) the missing years to make the 10 year minimum which will get you 1/3 of the state pension. That's a good deal as you get your money back in about 3 years, after that you are ahead.
DeleteI also located on-line a form to find a lost National Insurance number. We downloaded the form, filled it out and mailed it off (they require it be done by mail) so we'll see what happens. Fingers crossed.
Glad it helped point you in the right direction. One does need a "base to start questioning from" sometimes.
DeleteFrom what you say - that sounds like a reasonable deal. Another point to bear in mind though is whether any State pension your wife gets would receive its inflation rise each year after it starts being paid. There are rules about which country one is in as to whether the British Government pays those inflation rises each year or no. The situation as it stands at present (ie 2018 and Britain still in the EU) I think is that British people in another EU country will get their inflation rises okay each year (in line with British people living in Britain) BUT I believe there are countries where those inflation rises WOULDNT be given and the money would remain exactly the same (ie £100, for instance, would remain £100 each and every year till death - and not be uprated to, say, £102 in Year 2 and £104 in Year 3 etc etc for instance). So you need to check that point too.
DeleteI swung hammer for most of my working years, (carpenter) worked both union and nonunion, back in late 80's with 10 union years I went to work for a fun company, nonunion, (house, trim, wood fun stuff) after a couple years I went back to union work, not as much fun, stores, malls, etc. but good pay and fast forward to the 2009 recession I had enough time to retire and get a good pension, also had 11 years in the national guard back in the 70's, late 80s went back in and stayed with 20 and receive a pension from them as well. we are living our dream and f9xing up our old house for fun, and to age in place. two pensions, SS and making as much as I did working. plus I also did 5 years at the local hardware after retiring, but not anymore, too much life to live.
ReplyDeleteYour story shows the importance of remaining flexible in job choices and taking advantage of opportunities. You have built a nice life out of determination and smart choices. I had six years in the Army Reserves so I never considered going back for 14 more - 9 more to get the pension sounds much more doable.
Delete"Too much life to live" is THE reason to leave even part time work behind.
Like many others I worked at a low paying state job for the pension. Started out at 2.52 per hour with my new college degree. I remember when the local newspaper started publishing all our salaries (public record). They were trying to prove how overpaid government workers were. They got about half way down the list and stopped. Everyone was writing in and saying "How can anyone live on that?" About 7 months prior to losing my job (the county hospital closed) I got a huge raise and was making $44,000 per year. I had been there for 21 years.
ReplyDeleteI could have made much more money in the private section but elected to work for the state in order to obtain my full pension. My new starting salary was $22,000, About 600 dollars more than a starting teacher. After 12 years, six with no raises I still had not broken the $30,000 barrier but I did have my pension. So I retired with my pension and finally went to work for the private sector. Immediate $5,000 raise. During my years with the state I had always saved in the 457 plan and in the private sector I started saving 25% of my salary. I had to retire early 5 years ago at 58 to be a caregiver for my parents. If not for my pension and savings, that would not have been possible. I was able to retain my healthcare benefits but I have to pay full price for them $692.84 per month. Working a job with a pension and saving as much as possible was the smartest thing I ever did.
It has been quite interesting to read all the comments that echo yours: being able to see the big picture. Making less money during one's working years but understanding the benefit of having a guaranteed pension and health care at the end of one's career is a tradeoff that has real value.
DeleteAs you point out, after qualifying for the pension it is quite possible to then transfer to a private sector job to make extra money that can be used as additional retirement savings.
By the way, $692 a month for health insurance is about half of what most older individuals pay before qualifying for Medicare.
The smartest planning we did was making the decision to have me aggressively work in the private area and maximize earnings, while Deb stayed in the public sector to get the eventual benefits (pension and retiree insurance). She loved public work, I did not, so it worked out. I maximized our retirement account savings giving us a pretty healthy portfolio today, allowing her to retire and 56 and me later at 60. Life is good.
ReplyDeleteGood...a couple that blended private and public employment, so higher income from one and solid benefits from the other.
DeleteThe smartest thing I did was seize a one time retirement incentive that my employer offered to use up an unexpected surplus. It was very generous and set me up with a full salary for a year plus a healthcare bonus.
ReplyDeleteHowever, this was only smart because I had already spent a lot of time with a financial advisor since I was considering retirement in the near future anyway. I knew that even without the incentive I was going to be okay financially. I had thought to take a couple of years to make further plans, but because I was already headed in that direction, I was in a good position to jump on the opportunity when the incentive was offered.
Sometimes we are offered an opportunity in a way and a timing that we didn't expect. Trusting in yourself and your planning to take the leap is important in that situation. I know you are very happy in your retirement.
DeleteSometimes even the smartest financial decisions don’t work out as expected, especially with pensions. The current pension crisis is an indication of that. Private sector, union and even some government pensions are going bankrupt and terminating payments.
ReplyDeleteHubby worked for over 30 years with the goal of a union pension that is currently in jeopardy. He gave up raises, took pay cuts and worked for dismal pay but stuck with it for that golden goal of a pension. We lived a very frugal life but also saved very little because his pay was so low and mine wasn’t much better in a university job. Thankfully we do have my pension and social security to fall back on if/when he loses his pension. Our financial situation at that time won’t be because we made poor choices, other then the choice to stick with a low paying job that promised a pension. This is not the retirement we planned on and we will manage but I sympathize with families that will struggle through no fault of their own.
Most of the comments about having a pension have worked out well. Thank you for pointing out that there are times when promises made are not fulfilled. Through no fault of your own you and hubby may be in a bit of a bind. Best of luck that the pension issue is resolved in your favor.
DeleteWorked for a company that offered a pension and investment opportunities via a TSA. Stayed there beyond where it was fun. My husband did about the same thing. We drive cars for 15 years, think before we buy. I got an inheritance from my mother ten years ago and invested almost all of it. Still, we know we are lucky.
ReplyDeleteI know enough about you and your husband to agree. And, you found a real passion in your work in Greece and enjoyment in your winter home in Arizona. Lucky? Sure. Determined and focused? Yes.
DeleteThe smartest thing I did was to live below my means through my working years. Even in my low-earning years, I was always putting a little in savings. When the market crashed in 2008 and my retirement portfolio lost 25% of its value, I was able to keep my retirement plan on track by working one year longer, paring back my expenses just a little, and saving enough during my last four working years to live on for the first three years of retirement -- which allowed three more years for my 403(b) to recover its value.
ReplyDeleteYour experience shows the value of maintaining focus in the face of problems and sticking to your plan for your future. I'll throw in a strong will, too. Good for you.
DeleteThinking back to some of those decisions is fortunately a pleasant experience for me. I mostly stayed at home with my chikdren until the older was 16, babysat, sewed for others and did some temp work to make spending money to decorate our house and do vacations. Some of the planned and unplanned financial events that allow us to now have a comfortable retirement are as follows:
ReplyDelete1. Paid cash for a new car with a small inheritance but continued to make “car payments” to savings, enabling us to buy all future cars with cash. Saved tons of interest.
2. Serendipitously had bought life insurance policies when first married that matured enough to pay premiums from dividends at the same time our older daughter began to drive, freeing up just the right amount of money to pay for her car insurance.
3. Husband made some 401(k) contributions from the get-go, at least enough to benefit from his employer’s match. When I received a large share of my dad’s IRA when he died, to avoid paying the taxes over 5 years, husband was able to contribute the maximum to 401(k) and then continued until retirement.
4. Because we hadn’t depended on any income from me, when I did begin working, I was able to pay tuition plus room and board for two daughters at state university by working part time. No student loans.
5. We had a comfortable but modest home with smaller house payments so we could afford music lessons, cute girl clothes, and other activities while our girls were at home. Paid off the mortgage about 10 years before retirement and kept making “house payments” to our savings.
6. The last couple of years I worked, I made the maximum contribution to my 457(b). That left me with barely any paycheck, but the pretax contribution, and recent stock market gains, were really worth the investments.
Oops, that’s more than two, but I could summarize by saying pay off and avoid debt, and save as much as you can without sacrificing your family values.
Those are tremendous examples of long term thinking, Cathie. Points #1 and #5 contain an excellent practice that anyone can follow: make "payments" into a fund even after you no longer have to make real payments for a car or mortgage or any big purchase made over time. Basically, you are saving without any additional pain because you are already used to that monthly cost.
DeleteI did a number of things financially that resulted in being able to retire early with a comfortable margin.
ReplyDelete- developed the savings habit early; began saving for university as a teen
- invested in my education; paid my way through university
- always have lived below my means; lived below the poverty line during the first seven years at university
- improved my financial literacy. I subscribed to “Your Money” magazine in my 20s before the Internet age
- avoided debt when possible; paid it down as fast as possible if I had any; always pay off credit card debt in full each month
- opened a retirement savings plan in my mid twenties; contributed every year
- saved for each of my three children’s education, and also worked for a university that provided free tuition for dependents, so each of them obtained a university degree
- purchased houses in areas where the value was likely to appreciate; paid mortgages down rapidly
- learned to manage my investments
- took up career opportunities that were interesting, increased my employability, and increased my salary
- for the last five years of my career, I took a management position with a substantial salary and an excellent defined benefit pension plan
So, I would say that it was not any one thing but an overall strategy of taking personal responsibility for my financial health.
Jude
It is hard to find any flaws in your approach, Jude. This is a solid approach for anyone to follow.
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