Thoughts on retirement budgeting

[Bobbie Mayer]

I think what's wrong with the bank idea is the spread. When the bank is paying 3% interest on a loan is usually higher than 5%.

[cpaharley2008]

They are controlled by regulatory government agencies based upon the risk involved, I believe it is 2% when fully funded, check with your local state/federal banking agency.

[Dudley]

I love the statement, about retirement date being 5 years too late. I retired this April at 57 and yes the BS I put up with the last 5 years, probably cut 10 years off my life. The new "management structures and the damn spreadsheet toting supervisors" are what is killing us. I took pride in my job and tried to help the customers but that's not what they want now.

We are lucky as the wife has a good pension and we have good retirement savings that we can pull from. I paid off the house at about 3 years in and have stayed out of debt. That is the key. I am lucky as we don't have BIG wants and I can fix just about anything. I don't need the newest car or the 40' motorhome to have a good time.

[honda03842]

Originally Posted by Jim Bennett

I do realize that to some degree I will need to spend less money upon retirement. I do still hope to do a bit of destination travel, as well as spend a horde of time towing my trailer about. I guess I just want to plan for the worst, and best, case scenario.

I know I do need to right-size my house, as I have renovated and added on lots over the years, but as empty nesters we sure do not need 3,500 sf of living space, and a 1/4 acre of yard (at least a manicured one), though my oversized double garage (which is really a workshop), does need to be upsized a wee bit .

Jim,

As soon as both our sons were off to college, we moved to our 600 square foot beach cottage with about 4000 sq feet of grass to cut.

We sold our 3000+ home with two acres of grass, 55 windows to wash and 4 car garage with pit. We found ourselves spending time in only 3 rooms except to dust. Just too much space and grass.

Both of our kids have told us to spend 'it' and we are. As to the worse case situation, I live for the brighter side assuming I will be able to handle the darker side.

At 72 the statistics say I have about 10-15 years to live. I'm focusing on having as much fun as possible, doing things I like to do, and spending my time with people I really like. I really have stopped worrying about what I can't fix, nothing has been able to entice me back to work, neither money or exciting projects.

We, in a sense, stumbled into the rv life style and need little else.

Life can end all too quickly.

[Carol H]

Originally Posted by Franswa

it don't take long around here....

Yup got a pic text sent to me earlier today.. amazing transformation in 24 hours. LOL

I also dont like buying any big ticket items on a credit these days either. Took a lot of years for me to learn that lesson though - actually had to live with an account for a few years before I really got! But I agree there are times when its better to borrow if your being offered a much lower rate than what you are currently making on the money in a different investment.

[accrete]

enjoyed the read through the thread.
Cari & I ponder these questions often. Our biggest issue/concern is what medical insurance costs will be pushed on us for compliance sake. We've both had good health over the years with little fuss and really don't use (on an annual basis) any of it except Dental. That said, and talking to some of our friends, i'm still thinking of working till Cari turns 65 and that same year i'll turn 68. We have easy on the mind/body jobs for our employer (Costco, me since 1993, her since 2000). As for funds we should be fine as i was buying stock in the company back when i started for 8 bucks a share, have several thousand at this point and well...it's doing ok at $130+ a share. But it all really comes down to what we are forced to purchase for insurance, crazy as that might sound. And for several of my baby-boomer friends who have recently retired, it is a really big, if not the biggest expense for them, and they are healthy!

If things ever get crazy-bad i'll just put Kevorkian on speed dial.
Or hope Soylent Green comes into vogue.


Thom

PS...my dad is 94 years young and still ball room dancing. He's the hit on the dance floor at his retirement home.

[Raz]

Originally Posted by cpaharley2008

You deposit 10k and get 3% over 5 years and you borrow 10k @ 5% over 5 years.
Year 1, you receive 300 and you pay 500
year 2, your receive 309 and you pay 400
year3, your receive 319 and you pay 300
year4, your receive 327 and you pay 200
year5, your receive 337 and you pay 100
at the end you now have $11,592 and it cost you $1500- you made $92 profit.

Making payments to myself of $2000/ year
Year1 2000
Year2 4060
Year3. 6181
Year4 8367
Year5 10618

This assumes yearly compounding at 3% on money in the bank for at least a year. Example- Year 2. 4060 = (1.03x2000)+2000 (This makes the math easier.) At the end I have a profit of $618. Where's my error?

[cpaharley2008]

The difference is the amount of principal, in your case is smaller, 2k, 4k, 6k, whereas in my example the principal is $10k and goes up from there.

[Raz]

Originally Posted by cpaharley2008

The difference is the amount of principal, in your case is smaller, 2k, 4k, 6k, whereas in my example the principal is $10k and goes up from there.

Yes but after 5 years we both spent 10 k, you have $10092 while I have $10618 ???

[cpaharley2008]

No, I'll have $11,592 and you only have $10,618, I'm more than $900 a head of you. It is a result of compounding interest, getting interest on interest.

[Jim Bennett]

Originally Posted by cpaharley2008

No, I'll have $11,592 and you only have $10,618, I'm more than $900 a head of you. It is a result of compounding interest, getting interest on interest.

Yes, you do have $11,592 at the end of your exercise, but you forgot to include the cost of $1,500 to service the debt, a cost Raz did not incur.

In order to make it further ahead with any borrowing scheme, you have to make more of a return in your investment than you pay in the costs to borrow.

[C&G in FL]

Originally Posted by P. Raz

This assumes yearly compounding at 3% on money in the bank for at least a year. Example- Year 2. 4060 = (1.03x2000)+2000 (This makes the math easier.) At the end I have a profit of $618. Where's my error?

I'm curious what bank is paying 3% on savings. Even the credit unions, which generally pay more than the banks do not seem to be offering 3%. Perhaps a CD?


Sent from my iPhone using Fiberglass RV

[Timber Wolf]

Originally Posted by CPW

I'm curious what bank is paying 3% on savings. Even the credit unions, which generally pay more than the banks do not seem to be offering 3%. Perhaps a CD?

More like three-quarters of a percent.

[cpaharley2008]

Originally Posted by CPW

I'm curious what bank is paying 3% on savings. Even the credit unions, which generally pay more than the banks do not seem to be offering 3%. Perhaps a CD?


Sent from my iPhone using Fiberglass RV

Yes, a 5 year cd may pay that, the longer the term, the higher the rate. This assumption example is made to demonstrate the cost of borrowing over 5 years to purchase something for $10k and borrow vs pay cash.

[C&G in FL]

Originally Posted by Jim Bennett

Yes, you do have $11,592 at the end of your exercise, but you forgot to include the cost of $1,500 to service the debt, a cost Raz did not incur.

In order to make it further ahead with any borrowing scheme, you have to make more of a return in your investment than you pay in the costs to borrow.

Originally Posted by cpaharley2008

Yes, a 5 year cd may pay that, the longer the term, the higher the rate. This assumption example is made to demonstrate the cost of borrowing over 5 years to purchase something for $10k and borrow vs pay cash.

I tend to agree with Jim. After all the expenses and the hassle of having to make monthly payments for the term of the loan, any minuscule amount I might be ahead isn't worth it to me. I would prefer to pay cash and be done with it. I can then rebuild my savings with the monthly amount of what would have been the payment. Plus, there is satisfaction in not owing anyone anything.


Sent from my iPhone using Fiberglass RV

[cpaharley2008]

Most people do not have the propensity to save but these same people realize if they do make the monthly loan payment they are out of luck, go figure. In addition this exercise was not to demonstrate coming out ahead, it was to demonstrate another alternate to borrowing to purchase something and paying out several $$$ in interest and fees over the life of the installment agreement. Just look at your credit card agreements, 12-21% interest. In 5 years these rates will double the cost of borrowing.

[LarryandLiz]

This retirement thread has be an interesting read. This has been an eventful year for me: I turned 60, my wife and I bought a tug and new Escape 17b trailer; then my daughter and son-in-law asked us to consider selling our residence in order to move into a co-living arrangement with them so their mortgage burden would be less.

We are in the midst of moving into a basement suite in a home which was built with a spacious in-law-suite. It is a bit of a shock to my system but lots of benefits. We are close to assist with grandchildren when or if they come; we can leave to go Escaping and the kids are there to watch our suite. And the kids are around to help us as we age.

We live in the Vancouver B.C. area where realestate is quite expensive. Apparently my wife and I are part of a new trend of parents going into co-living arrangements to assist their children. There are lots of big issues to consider: financial, estate, co-living arrangements to be made. But the benefits to family make it worthwhile for us.

I may end up retiring a year or so earlier than planned and go Escaping more often.

(By the way, I enjoy reading this Fiberglass Forum - lots of great info and helpful people posting)

[LarryandLiz]

Oops - I edited my original post to reflect this:
I should have said we bought a new 17b Escape trailer earlier this year.

[Raz]

Originally Posted by CPW

I'm curious what bank is paying 3% on savings. Even the credit unions, which generally pay more than the banks do not seem to be offering 3%. Perhaps a CD?


Sent from my iPhone using Fiberglass RV

If you read the whole thread you will notice I was using the same numbers CPAHarley Jim chose. He picked 3% as an example. Best rate around here is a 2.1% 6 year CD.

That said, your comment does bring up what I think is a very serious threat to the retired, low interest rates on "safe" savings accounts. In an effort to boost the economy the fed has kept interest rates very low for a very long time. And the country is going into debt to do this. Both impact the long term buying power of savings. Raz

[Carol H]

Originally Posted by CPW

I'm curious what bank is paying 3% on savings. Even the credit unions, which generally pay more than the banks do not seem to be offering 3%. Perhaps a CD?

Here in Canada you would be hard pressed to be able to obtain more than that if you simple do your investments with the over the counter options offered at the bank level. You normally need to use the services of a detached investment company/advisor to do better. If your wanting to play it safe but do better than a savings plan - long term 5 to 10 year corporate bonds are a farily popular option.