Getting your retirement timeline right
This is part five of the New Bermuda Retirement series
WHAT IS YOUR TIMELINE?
There are three serious phases in retirement planning:
1. Fifteen to five years away from the accepted community retirement age (this varies by employer, government mandates and countries, eg various countries have gradually been raising retirement age).
2. Five years to exit.
3. Already retired adjusting to expectations, and believe me it is an adjustment.
Starting the process of figuring out what you will need in retirement.
The best time to think about your future in retirement, or as I prefer to call it, a reinvention of your life and lifestyle, is around age fifty. It is the best time if you are in a long-term relationship, have children you've managed to raise up and out the door (hopefully, and yes there are exceptions, since women are having children later in life), plus you are climbing to the peak of your career, you feel in control of your financial life.
It is the worst of times, too. Your parents are elderly, frail in need of extra care and in more instances than you planned for may need financial support. You are staggering under mortgage debt, university debts, and your job is demanding. You don't make good money without the expectation that your job comes first — close to 24/7. Your children haven't become the independent souls you hoped for and are seeking more financial support. You feel sleep deprived with little energy left to focus on keeping your personal relationship with your partner from deteriorating.
You are the sandwich generation, most days feeling just like a clubhouse sandwich held together with toothpicks to prevent it falling apart. Think of the layers: your job, your partner relationship, your children, and your parents — all demanding immediate attention.
Anecdotally, in personal and client experiences, whether you are single or attached, almost everyone goes through this sandwich phase. For many, it can be so emotionally brutal that relationships do not survive this life test. The great retirement plan becomes non-existent as the complex issues of the day overwhelm everything.
EVERYONE PLANS FOR THEIR OWN RETIREMENT FIRST
This is important. Money and finances are completely impartial. Finances do not discriminate in any relationship that exists today; either the money is sufficient, or it is not.
So, figure out your own retirement plan, then you can consider combining your individual plan with your partner. Generic retirement planning numbers assume a lot by virtue of having to appeal to a mass audience, too, so these assumptions can vary widely, from way-over optimistic highs to depressing lows. Thus all categories, from relationship status to inflation rates, investment rates of return, and life expectancy are only as good as the projections that you use. Times can change and life events can dramatically disrupt the so-called perfect plan, so it makes perfect sense to include the what-if contingency impact.
REVIEW YOUR FINANCIAL AFFAIRS
Budget spending patterns. Yes, let's start with the dreaded budget. You can use the pro-forma that I featured last year in the Bermuda 14-Week Financial Review for starters, the difference is this is the retirement version features current and projected spending. When we gather financial information in this way, we are attempting to clarify two things: what your spending patterns will cost in the future, meaning inflation, ie what will you pay for those groceries, or electricity — one, two or three years from now. We will also be interjecting the cost of what-if events into your present and future spending patterns as they may possibly transpire over the years.
Further, you don't have to track your costs down to each minuscule category unless you feel it necessary for your financial control.
So, we take the enclosed Bermuda Retirement Projection Calculator with the income/spending patterns sheet, assigning easy categories and start stretching it to future years. Note at this point, the calculator is incomplete. We will build as we go.
Categories for starters, and the ones that I have used in my practice, are:
• General living expenses: food, personal care, electricity, internet, mobile phone, cable, etc. These are necessary costs that you absolutely must pay every month in order to maintain a minimal lifestyle.
• Medical costs
• Housing: mortgage or rent
• Other debt: don't double count credit card debt
• Life and property insurance
• Education costs
• Other future capital events such as a new car, major repairs, elder care
• Other discretionary extras, vacations, etc. These can be added or removed depending upon your projection model.
General Income Sources will be discussed in part 6, taking in:
• Basic compensation
• Possible job promotion
• Other part-time work
• Pension distributions, if retired
• Dividends, cash — not stock
• Other income — rents, etc.
We will use the Bermuda Retirement Projection Calculator model to see how your lifestyle spending and income generated from various sources responds to inflation, and asset appreciation that can lead to additional savings in the 15 years pre-retirement. Those individuals already in retirement will be able to use this projection model to track your income spend down as well as the finished product calculator will feature two models.
1. Pre-retirement 15 years to exit.
2. Retirement start to your longevity factor.
Stay tuned for part six. Understanding the effects of inflation together with appreciation and depreciation. How to make good assumptions for you and your family.
But first, you need to get out your budget sheets and refine your lifestyle annual costs. Use the Bermuda 14-week Financial Review articles featured in The Royal Gazette between July and November last year. Links here http://www.royalgazette.com/article/20150808/COLUMN07/150809737
Once you have your numbers refined, I will issue a blank retirement calculator to anyone requesting it for your personal use only.
Of course, my final mantra for every segment of this series is do not quit your job, even if you are planning for retirement, until you are absolutely sure you can be financially self-sufficient. If you feel strongly that retirement boredom will set in quickly, then don't stop working. Period.
Readers can write to me confidentially. Tell me your thoughts and experiences. Are you happy in retirement? Do you feel confident (or afraid) that you can retire? Do you plan to continue to work?
I want to hear from you.
Martha Harris Myron CPA PFS JSM, Masters of Law: International Tax and Financial Services. Appointed to the Professional Tax Advisory Council, American Citizens Abroad, https://americansabroad.org/. The Pondstraddler* Life™ financial perspectives for Bermuda residents with multinational families and international connections on the Great Atlantic Pond. Contact: email@example.com