July 24, 2018

What Was The Dumbest Thing You Did In Your Retirement Planning?

Am I restricted to just one mistake, one dumb decision? Well, for purposes of this post I will hold myself to just one of many dunderhead moves.


Who forgets to plan for health care costs?  Me

The dumbest thing I did in my retirement planning was forgetting to allow for health costs. For someone who is dedicated to budgets and paying attention to finances, this was a very large boo-boo.

For the twenty years before retiring in 2001, my company paid for our family's health care. One of the pluses of being a corporation is the ability to have the company pay some of the expenses of the employees and their families.. The costs are treated as an expense by the corporation and are not taxable to the individuals. 

In my defense, even though I was the corporation and wrote the checks every month to pay our family's health care costs I wasn't paying close attention to yearly increases, which were modest compared to today's situation. Plus, I was so used to not thinking about health insurance, I left it out of the retirement budget!

Within 6 months, my oversight became painfully obvious. I was receiving a bill that had no money allocated to pay it. The costs for me, my wife, and two college age daughters was high and ratcheting up every year. The future trend was clear even then: a for-profit health care system meant rates would only increase, along with all the other expenses of health care.

Because we were buying insurance on the individual market I had to find $500 a month in 2002 and almost $600 a month in 2003, just for the premiums. When our daughters graduated from college the costs dipped by a few hundred a month, but then started climbing again, eventually topping out at 25% of our income for health costs.

What could I do? Since I was living off investments and savings, I had one logical choice: cut expenses. Three cars became two. Meals out several nights a week became once every seven days. Yearly trips to Hawaii ended. A reassessment of wants versus needs took place. I squeezed the budget to make room for health care costs.

Everything worked out. We discovered we liked a simpler, pared down retirement lifestyle. I learned my lesson and made sure health care was in every budget from that point forward. Of course, the insane increases of the last several years made me readjust again, until Medicare relieved some of the pressure when I turned 65.

Even now, 18 years later, I can look back at the first year's budget and get the shudders. Missing something that obvious was really dumb.


Your turn. 

Your retirement planning oversight doesn't have to be as major as mine to share, though if it is I might feel a little better! It doesn't have to be financial, either. Maybe you moved because you thought you'd love the mountains, and learned the thin air gives you a permanent headache. Or, maybe you thought you'd love to be close to the family....until it became clear they had their own, very full lives without a lot of time for you.

What is on your retirement wall of goofs?  

_______________________________________________


The second in a series of three new booklet-length resources is now available. Preparing For Your Active Life After Retirement is a guide to the most exciting journey of your life, the one that takes place after retirement.

Whether you are still working toward this new phase of your life, or already there, Preparing For Your Active Life should be one of the resources you consult. I'd appreciate your support.






48 comments:

  1. The one that keeps coming to mind is not developing strong interests or hobbies outside of work before retirement.

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    1. Me neither. If I had my transition to a satisfying life would have happened much more quickly.

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    2. Same here. Except for reading and enjoyment of films, but also nature, I had no hobbies to speak off. I did have in mind lots of smaller and some bit things I wanted to do (learn how to make a good bread, try some interesting cooking, have an herb garden, and of course travel). However, once I retired some of the things I thought I wanted to do weren't as appealing. I think it was NOT having the time to do them when working that made them seem more attractive. I've yet to make bread for example, and now all the yeast I bought is probably too old to use!

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  2. I agree with Juhli. Unfortunately I retired from something to nothing. Now, 4 1/2 years into retirement, I still regret leaving my job.

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    1. Interesting the first two comments identify the same problem. I did not have any strong interests before retiring either. My life had been my job. It took a few years to begin to find things that kept me engaged.

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  3. Probably my one thing was trying to do too much when we first retired. It was all go on home projects. Then we had a self-guided trip in Europe and the days were too jammed with driving and sites. About halfway through we had to recognize that the schedule was exhausting us and we took 2 days off to just relax. Now, 3-1/2 years in, I think we've found the right pace.

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    1. From under-active to over-committed is a standard retirement boo-boo. Some people never find the right balance, but you have.

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  4. I was a dummkopf about one financial decision from a dollars perspective, but at the time, from a psychological perspective is was soothing. I retired one year earlier than I was eligible for full Social Security. I had quite a bit of severance money, and funds in checking and savings, and my plan was to pay my own way until I reached full retirement age for social security. Halfway there, 5-6 months in, I started to feel panicky about all my handy funds draining away, even though I had strictly budgeted myself to get through a year without cashing in on any actualy retirement funds. Then I got hit with an unexpected tax bill. I thought that at age 65 I wowuld not have to pay property taxes. I found out, when I got a tax bill, that the state law is actually "AFTER age 65," so the year I was still 65 (the year I retired), I found out I would owe property taxes in January, before I reached Social Security age. Paying them would have put me on an even more strict budget. So I panicked and signed up for Social Security in December, about half a year before full age. I was aware that it would cut my income permanently, but signing up re-inserted psychological relief--having a regular check coming in and stopping the drain on my funds. The STUPID thing may have been that I had a few smaller IRAs sitting around, ones I hadn't consolidated into my larger retirement fund. I could have easily cashed a small one in to see me through to full retirement age, but I didn't, in part because they were still earning money for me. Also, psychologically I would have experienced that as more of a premature drain on my retirement savings. I try not to fret about the monthly lost income. It would pay my cable and internet bill which escalates every year. Also, I was able to take a nice trip to Canada, after I was on Social Security, by cashing in one of the smaller IRAs I would have used to just get through a few months. So, financially I took a ding, but psychologically, most of the time, the decision feels o.k.

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    1. In reality, the amount of money you lost was probably rather small. One year early doesn't amount to much. But, I certainly understand your anger at allowing a sense of panic to mess up you well-laid plans!

      Interesting you mentioned the smaller IRAs which would have gotten you through the tax bill problem. Betty has had a small IRA that we forgot about. Because it started small and has grown at 4.5% over the last 30 year it isn't a lot of money. But, your story made us think the amount of that IRA could cover a vacation at some point in the future. Yes, we will have the pay taxes on it, but that is still money we forgot we had.

      Thanks for the reminder.

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    2. Yes, and it wasn't even an entire year early, because they count the months, so it was more like 8 months. Psychologically, using a smaller IRA for a trip is rather pleasant. Its money that has sat around for a lot, grown a bit without attention, and feels like a real treat when used for a trip. Actually, you might consider this. I rolled mine over (consolidated it) to a credit union IRA account which I could withdraw partial amounts from, so I only withdrew what I needed for my trip. That helped avoid some taxes. Where the smaller IRA was parked intially, I could not withdraw a partial amount and the whole amount would have jacked up my taxes.

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  5. I can remember the stock market took a plummet around 2000-2001 and I was a smart investor so I didn't panic and sell. But after a year of watching one particular investment drain away I finally gave in and sold what was left. Needless to say the market came back but I had lost a bunch permanently. I didn't make the same mistake in 2008, I just stayed on for the ride.

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    1. I friend of mine sold everything at the depth of the 2008 recession. Needless to say, he lost a lot of money and had his retirement plans permanently upended.

      Like you, we stayed the course in 2008. By 2013 the accounts had recovered completely and even grown a bit. Sure, we spent 5 years replacing all the losses, but we feel good that we didn't panic.

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    2. 2008 dinged my major retirement account big time. It took several years until it got back to the point where it was. I keep fearing this happening again, but in 2008 I was younger and the funds were still in a higher risk category. Now they are not, so I have a bit more protection. Still I dread another 2008, because as years past, I don't have years to let the fund recover.

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  6. Great job on rebounding after being hit with the unexpected health care expense, Bob. You did everything correctly to compensate for it. Unfortunately most Americans would find it "too difficult" to do what you did, and would just dig a deeper hole for themselves, not being willing to sacrifice in the least.

    My biggest mistake was listening to the so-called experts who predicted the demise of the stock market if Donald Trump was elected President. After the constant chorus of that theme from the mainstream financial media, I mistakenly took profits on many investments. Since then, with the continual surge of the markets after Trump took office, I have been struggling to get much of the cash reinvested, having to deal with targeted stocks and ETFs that just keep making new highs. No one to blame but myself since I make all my own investing decisions, but those lost opportunity gains have taught me (hopefully) a valuable lesson about the "professionals" and bias.

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    1. Most experts missed every major financial disaster and growth period we have experienced. You and I agree that our common sense and ability to filter information are great tools we depend upon.

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    2. An old saying in investing is "No one ever went broke taking profits" so you didn't exactly make a mistake. You aren't going to get it right every time and, as Bob says, neither does anyone else.

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    3. Good point. And while I appreciate profits as much as any investor, the opportunity gains I forfeited over the last two years by having too much in cash likely outweighed the profits I took. Oh well, it's only money.

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  7. I've been retired less than a year, and so far, so good. Financial planning is not my strength, but I understood my weakness and overcompensated. Maybe the mistake has yet to reveal itself.

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    1. There will be some, but hopefully not as dumb as mine!

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  8. One major mistake I made was not converting regular IRA to Roth IRA when I had the chance. Income taxes due to pensions & SSN are high for two people with no deductions. Inflation has made "you will make less in retirement" a myth. Too bad we can't have a one time reset button for decisions made over 30 years ago.

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    1. That is a good one. My IRAs are regular ones, so I am faced with RMDs starting next year. along with the taxes. Paying the taxes and converting years ago would have been a smarter move.

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    2. RMDs can be a bit of a nightmare. What I found out is that my retirement funds are categorized differently, depending on where they are. So I've got different types. For RMDs, you can consolidate some types to pay the RMD. Some types cannot be handled that way. For example, my employee match retirement funds apparently went into a different type than the fund that was being matched. I'm working on getting all this straight, so I only have to make one withdrawal from one place.

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  9. I haven't retired yet but we are planning on pulling the trigger this year. We are younger then traditional retirees but older than the new "FIRE" enthusiasts. We are right at 50.

    We think we have the money side worked out - again think we have. Medical is big. Wife is fortunate in that she can purchase for now anyway health care through the company until she reaches 65 at a pretty decent discount. Spousal coverage is expensive, but available. I have also been looking at the exchanges, short term policies that are not compliant, and the medi-share plans like Liberty. But at the rate medical increases, it is scary.

    Our other concern is the retiring to something dilemma. We both acknowledge that as of now we are retiring from something. We are so drained each night that it seems all we do is dream of leaving. I hope once we pull the trigger we don't find we have made an error.

    I enjoy your blog. I am always interested in coming across blogs of folks that are currently living what I want to aspire to. Thanks for taking the time to put your thoughts and experiences out there for us.

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    1. Those are two major stumbling blocks to lots of retirements. You are more fortunate that many because you are aware of them and have time to adjust or work on the "retire to something" dilemma.

      Of the two of them, personally I think finding interests and passions is the more difficult. You can adjust a budget to get over a money problem. But, if you have nothing to keep you excited about your days that will wear you down. If you'd like some specific suggestions on ways to find what you will be retiring to, the Internet has all sorts of resources. Also, I'll be glad to make a few suggestions if you drop me an email.

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  10. Interesting question -- and a bit scary as I'm sure something will reveal itself more dramatically in time. So far two and a half years into retirement and biggest mistakes are two. First, because of some restructuring and drama at work, I ended up retiring two years earlier than planned. Still feel like we have plenty of assets/pensions even with the crazy medical costs in our society. (you said it all -- a for profit medical system ensures we will all continue to pay more). But I am concerned as I see other comments that maybe we have made all of the good tax moves with IRAs that we could have but looks like that is spilt milk. So the hardest thing for me was the almost immediate loss of identity -- and not being prepared on how to transition -- which is how I found your blog and found it most helpful to know I'm not alone. Still. I tell my friends/family looking at this transition to think about it and be aware. I have plenty of interests from writing, scrapbooking/crafts to photography and travel. But retiring as a junior executive from a global company, my hobbies haven't given me the reward/feedback/validation that I was used to. Still working on that. The second mistake was moving to quickly to a new town. We knew we wanted to move out of Phoenix when we retired -- 33 years in the heat was too much and my husband really couldn't tolerate the heat due to health. A few months after I retired my daughter also moved from Arizona to Wisconsin. With nothing to hold us in Phoenix, we bought a house in Prescott -- a somewhat cooler clime -- within a month of her moving and within six months of retiring. We ended up not liking the neighborhood we initially choose for multiple reasons and sold the house within 10 months and moved again to a different neighborhood in Prescott. We love it here now, but needless to say, moving twice within one year was brutal and we took a loss on realtor fees. We should have been more patient and taken our time in selecting a new home.

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    1. Your second issue, moving too quickly after retirement, is a very common mistake. Like you, we have suffered through Phoenix summers for 32 years and constantly talk about finding an escape. But, our grandkids are here, both our daughters are here, and everything we are comfortable with is here. Trust me, after 17 years of retirement we have considered every option, tried a few, and found them wanting for one reason or another. So, here we sit, baking until October.

      You are fortunate that you like Prescott (so do we), not just your first choice of neighborhood. I have had blog readers tell me about moving 2,000 miles away to be near a grown son or daughter and having everything go wrong. So wrong, they ended up moving back to where they started. That can be a nightmare.

      The loss of identity is a serious issue. Too many new retirees think they will be so busy and involved that they will never miss the work environment or feeling of contribution. As you know, that doesn't always happen.

      You will find something to restore your sense of identity. It could be volunteer work, writing, starting a business around your photography or crafts, mentoring someone from your old industry or becoming a consultant.

      Best of luck. Maybe we will see each other some weekend on Courthouse Square!



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  11. Worry was my number one blunder. I wasted the first two years in worry about finances. That worry took me away from our plan of retiring and relaxing into our new lives. Instead, I took up jobs that did not pay much, and used up much of my time and energy. It also caused a few arguments that were totally unnecessary.
    After two years I figured out that we always had plenty- for us. We had moved to a place for a job, so we made another move to where we wanted to be. Stress disappeared. AHHHH! I left worry at the back door, and have been enjoying our time ever since.
    I still don't have a great passion, but bounce in and out of enjoyment (and I just don't worry about it).

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    1. Good for you. Thank you for your story of a happy ending to a "mistake" that lots of us make. It is good to know there comes a time when we accept that we will be OK.

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  12. I am 58 and have considered retiring from my govt job, and opening up my own law practice. I had a private practice 12 years ago, and was successful. I would definitely ramp it down much more than when I was going full throttle 12 years ago. What is preventing me from doing so right now? Health insurance....... in my state, it is a much bigger nightmare now, than 12 years go. I pay $30 a month for my health insurance. If I retire right now, COBRA is $432 a month, and only good for three years, in my state plan. That would leave me at almost 62 with a gigantic health insurance bill every fricking month and scrambling to find a new plan. RIght now the costs of such plans, with comparable insurance to what I currently have, are over a $1000 a month. Right now my plans are to retire in 44 months, when I turn 62, pay COBRA for three years, and then have medicare and accompanying plans. I am not sure if this is a good plan or not. I really just do not know what to do about the health insurance issue. Do I move to Costa Rica, or Panama to take advantage of cheaper health care bills? There is also the issue of having a grown kid with major health issues of his own, and I do not want to move more than an hour away from him. So, right now, I am swimming in place. I have vested in my state retirement and could start drawing a check at age 60. Obviously, if I keep working, my retirement check for when I eventually retire, keeps going up....at little. It goes up about a $100 dollars a month, for every extra year I work. I do not want to make a bonehead move and mess up my health insurance costs...that is the bottom line.

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    1. I did retire at 58 and my health insurance was a problem. I am allowed to keep my state health insurance so long as I don't drop it and at 65 it becomes a Medicare supplement. Until this past year, my insurance increased $50 per month every year. During one year there were two increases. I only have health insurance, there is no dental coverage or eye care coverage and I spent a good portion of my emergency fund on healthcare related costs until I signed up for early social security. Please check with your personnel office. I am not on Cobra and have never been, the state allows me to stay on the group coverage as long as I pay the full premium. You might want to check with your state personnel office and see if that is an option. My current costs are $8.300 per year plus deductibles and copays. Dental and eye care are totally out of pocket. If you can wait until 62 great, but be sure and explore all your options.

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  13. "ago" not "go"...sigh

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    1. I can totally relate. As this post explains, being forced into the individual market in the early 2000s at age 52 was an abrupt shift from company-provided coverage. Today, my wife's policy is over $1100 a month. That buys a $7500 deductible and a very small network of doctors who will accept her insurance. She is counting the days until she turns 65 early next year.

      With the current administration I think you should assume things will continue to get worse in terms of costs and restrictions. Killing what is in place while providing no alternative seems to be the policy.

      That says to me you should stick with whichever path gives you the best coverage for as long as you can. COBRA is expensive since your employer no longer pays his share of the monthly premium. But, if the coverage is good and you can continue to see all your current doctors that is probably a better deal than trying to buy something through Obamacare. It would certainly be less expensive. I don't know the rules well enough to know if opening your own business gets you kicked out of COBRA, but that would be an important question to answer.

      If you quit at 62, can get COBRA for 3 years, and then grab Medicare and a Supplemental policy at 65, that sounds like a reasonable approach.

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    2. Cost Benefits- right? If you can "retire" and make more then $1000 a month at your practice, plus the good retirement pay- outs, you will be ahead? If you like the government job and don't mind the staying, then that would be a good option as well. My sister found a good insurance broker for her small company and that person found a great plan- for her. It might be worth looking around for that broker. Is your blood pressure sky high. Are you able to do the things you want to do with the job your currently have? Yes, the health insurance is crazy right now, especially for the unemployed. It was before the current administration and it will continue to be until universal health care. It all comes down to cost benefits.

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    3. I think it depends if you can afford to pay whatever it costs and there is no way to know what that will be. That would be too much uncertainty for me. If I had to make this decision I would probably work until 62 as long as the job is tolerable and pay the cobra. Can you be sure that you will earn enough in your business to afford this? Good luck whatever you decide.

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  14. I was laid off at 63 and decided to make it retirement. I was too tired for the full-on effort of job searching and there were health issues too. But the real mistake was the simple and common one that I didn't start saving early enough so that in my later years I was very aggressively saving. I was counting on the last couple of years, but I will manage with careful budgeting. I could kick myself for being so stupid in my youth, though!

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    1. I guess it is human nature to know we should do something, but then put it off indefinitely. When we are young time stretches on forever. That is also the time when we are building a life and accumulating what we need to launch ourselves as an adult so saving money is even harder.

      Congrats on making the sacrifices required to start saving aggressively in your later years. Certainly, better late than never! And, best of luck on this fabulous journey we call retirement. With "careful budgeting" you will do just fine.

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  15. We are happily retired, and my husband & I know that we need to talk financial specifics with our adult children, but we seem to keep putting it off. And, yes, we know that *not* doing this will complicate their lives if we were to both die without doing it. So I would love to see a post & comments from others about how to handle this important conversation — when, how, what specifics and how much to disclose.

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    1. You raise a good question and one that has real life-altering consequences for adult children. I think your dilemma does fit the "dumb" premise of this post, but is also an intriguing idea for a future post. I have written quite a bit about the importance of financial preparation of a spouse or partner, but never about the place of adult children in that equation.

      Look for something that attempts to generate some answers for you in a future post.

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    2. Pauline in Upstate NYSun Jul 29, 12:08:00 PM MST

      Thanks, Bob — I’ll look forward to hearing your thoughts and those of your readers who’ve been down this path already!

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  16. Wow this really hits home for me, having been retired for only 1 year and 3 months. The ABSOLUTELY dumbest thing we did was overspend to the tune of being about 18K in debt now. Although we thought we were prepared, had no debt, a paid off home, 2 pensions, ect. I don't think we anticipated going wild our first year. We took over 4 trips some within the US, some abroad that we THOUGHT we had budgeted for. We decided that now that we were at home full time we would replace some serviceable, but ugly and old furniture. We got a dog. It seems like we were out of school for the summer with nothing to stop us.
    Then the bills for all the aforementioned items came in and we used up some of our savings to them off. Unfortunately, we are still in debt.

    So I think that we did not anticipate the EMOTIONAL impact of retirement on our finances and did not pace ourselves accordingly. Suddenly we HAD to do everything, immediately. Don't know why, looking back it was a very dumb move.

    DH and I are considering going back to work part time or as consultants (which we REALLY don't want to do) or biting the bullet and throwing everything we have at the debt which would take us less than 18 mos. to pay off.

    But I think that the emotional impact of retiring, after over 45 years in the workforce and not being cognizant of the fact that no, time isn't running out on us, we can pace ourselves and get to our bucket lists little by little, not in one year is something we did not consider. Live and learn. We are still kicking ourselves for our stupidity. Thank goodness we both have pensions and Social Security, but geesh….

    Teri

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    1. That is an excellent cautionary tale, Teri. I know another person who did something similar. She went through everything in short order and woke up one day to find herself broke.

      There is a very real emotional toll to retirement. Spending and fulfilling dreams is one response. As you learned, that can lead to a real problem if you don't pace yourself.

      Thanks for sharing your story. I know you are not alone.

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    2. My thoughts are did you really enjoy these trips? Do you have wonderful memories? If you can pay it off by spending carefully for a few years it's not a disaster. Some years you spend more than others. So you'll be more careful in the future and continue to enjoy your retirement.

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    3. To be honest with you yes we had a wonderful time in all of the trips we created some wonderful memories. The furniture we purchased I also do not regret for it, because the furniture we have had for years was rundown and know that we are at home it makes such a difference to see our home looking I agree it is not a disaster they could’ve been much worse if I had gone completely crazy but thank goodness We did not!

      Teri

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    4. I like Donna's follow up question and Teri's response. Even something we see as a mistake can still add to our retirement experience and we learn from what happened!

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  17. Ok I see now that my response by typing it into the phone is a disaster, so sorry ! DH and I have decided to dip into our savings to pay off most of the debt and will snowball the rest. And Donna is correct, the trips were wonderful, the furniture looks great and will last years and we stopped ourselves before we did some SERIOUS damage. Again, sorry about the response it was from my phone and a bit of a mess as I see.

    Teri

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    1. You should see every one of my comments before Google's spellcheck kicks in. Sometimes I think I'd be better to type with my elbows.

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  18. We did not anticipate that two of our (adult) kids would need quite a lot of financial help during the few months before and first year of my retirement. Fortunately, our financial planning was conservative, so we were able to manage these extra expenses. Our biggest mistake so far is that we do not have a will (long story). The implications of that are in the future so far, but we need to rectify that ASAP.

    Jude

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    1. Yes you do. Letting a judge decide how things are divided and giving lawyers some of what you have is not what you want.

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