Thoughts on retirement budgeting

[Jim Bennett]

"It's not what you earn, it is how much you spend". I heard this version many, many years ago, and it is true. While I do like to spend, and do to some extent, I have seen others that spend whatever they get.......and more!

I have never used borrowing for anything other than what I see as investments, and even with two of my vehicles over time that I did use financing, I did so because I could leverage the money for better use elsewhere.

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 .

[Bobbie Mayer]

Originally Posted by P. Raz

My retirement plan was based on three principles.

1) get out of debt. Once something is paid off keep making payments to yourself. Retire debt free.

2) avoid thinking of affordability as a monthly event.

3) Even if you love your job, when you work you are trading hours of your life for money. Spend accordingly. Raz

Agreed on 1 and 3 but I don't know what you mean by 2.

I found that when I had direct withdrawal for a payment for a car, and it was paid off, that I could just redirect that chunk to savings with no pain. It turned out when I needed the next car I had a huge down payment, next car after that was cash.

I think the hardest thing to plan for is ill health- but having a paid-off house means you can always either sell it or get a reverse mortgage if you run out of money or need to go into assisted living.

[Carol H]

Originally Posted by Jim Bennett

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 .

I can relate..... a few years ago I thought I was ready to right size my home.... put it on the market prior to looking for a replacement as I wanted to sell and know what I had to spend prior to falling in love with a new place I thought I had to have. As a result I did not really start looking for a replacement until the day I had to go out while my home was being shown! Dang! Seems that although I could right-size the house I could not right-size the garage and property for my cars, trailer and other toys and hobbies!! After looking around & to annoyance of the realtor I turned down offers on the house and pulled the listing as soon as i could! Now taking a different approach ..... keep looking until I find a place that has what I need and in the right location! 4 years later still haven't found it!

[Raz]

Originally Posted by Bobbie Mayer

Agreed on 1 and 3 but I don't know what you mean by 2.

Didn't mean to be cryptic. Basing affordability on a monthly payment and not the total cost. Buying something for $1000 at $20/ mo. could end up costing a lot more than $1000. But it's only $20/mo.

[Byron Kinnaman]

Originally Posted by P. Raz

Didn't mean to be cryptic. Basing affordability on a monthly payment and not the total cost. Buying something for $1000 at $20/ mo. could end up costing a lot more than $1000. But it's only $20/mo.

I understand what you're talking about. I had a neighbor that would look at purchases strickly on monthly purchase cost. I can buy that trailer it's only $150.00 per month example. I on the other hand don't like paying interest, I figure I have a better use for my money than giving it away like that.

[Raz]

Originally Posted by Byron Kinnaman

I on the other hand don't like paying interest, I figure I have a better use for my money than giving it away like that.

Interest and fees.

[cpaharley2008]

The best way to borrow is to loan your money to a bank and get the best rate and then borrow it back, there are limits on the rate they can charge you, normally not more than 1-2 points in excess of what they are paying you because there is -0- risk involved, and risk is what determines your rate of interest charged. The interesting thing happens about midway thru the term, they start paying you more than you are paying them. In the end, the cost is minimal and your money is still in the bank.

[Jim Bennett]

I am a fan of using leverage, where I borrow using a low mortgage rate around 3%, and to invest the funds in something that will (hopefully) return better. It has worked out in my favour fairly well for the most part, using someone else's money to invest for my profit. Not a get rich quick scheme though at the level I do it at.

[Raz]

Originally Posted by cpaharley2008

The best way to borrow is to loan your money to a bank and get the best rate and then borrow it back, there are limits on the rate they can charge you, normally not more than 1-2 points in excess of what they are paying you because there is -0- risk involved, and risk is what determines your rate of interest charged. The interesting thing happens about midway thru the term, they start paying you more than you are paying them. In the end, the cost is minimal and your money is still in the bank.

But why borrow at all if you have the cash. Better to spend your cash and make payments to yourself.

[Franswa]

"minimal" is the spread....if you don't mind paying that it's ok I guess....but why?....the only reason I can think of is that when you look at your bank statement it "looks" like you still have the money...OR you are trying to build up a credit rating (but at retirement age that's doubtful)

I must be missing something....

I remember YEARS ago and old friend, who was old, to me in a very serious tone, making sure I was taking it all in......"The DAY you retire (he said it twice!).....will be FIVE YEARS too late."......he was impressing on me that fact that in retirement you generally spend way less money than when you were working every day (unless you want to see the world or spend all your time cruising I suppose)......he had a whole bunch of examples, humourous ones, that he had experienced first hand when he retired......it was a great monologue worthy of a comedy club

financial planners are in the business of convincing you to turn over/tie-up more of your money to/with them...they love to raise the spectre of running out of money in retirement and how awful that would be....but then, I look back on my life and realize that the best times, in hindsight, were the ones where I had little or no money.....so go figure...

unless one has "legacy issues" included in the mix of considerations (I don't) the math ain't that complicated...

[cpaharley2008]

For every year you work past 70, you lose 2 years off your life expectancy supposedly.

[cpaharley2008]

Originally Posted by P. Raz

But why borrow at all if you have the cash. Better to spend your cash and make payments to yourself.

Wrong, it is better to spend the banks money while you keep yours, this forces you to pay yourself vs voluntary repayments.

[Glenn Baglo]

Originally Posted by cpaharley2008

For every year you work past 70, you lose 2 years off your life expectancy supposedly.

So, if you work to age 90, you'll die 40 years earlier?

[Raz]

Originally Posted by cpaharley2008

Wrong, it is better to spend the banks money while you keep yours, this forces you to pay yourself vs voluntary repayments.

I guess I'm just a dumb engineer. I don't see it.

Simple numbers. I put $100 in the bank @ 2 %, I borrow it back @ 4%. At the end of the year it cost me $2.

or

I spend my $100. I make payments to myself. At the end of the year I will have made money on what I have deposited.

What am I missing?

[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.

[Glenn Baglo]

Do you think the banks realize they are being had?
What's not in the calculation is inflation.
And, of course, you have to have the $10,000 in the first place.

[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.

I'm curious. Using your numbers if I use my own money and make payments to my self at 3%, how much will I have after 5 years?

[Franswa]

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

Mount Washington Alpine Resort - Snow Tubing

[Timber Wolf]

Originally Posted by P. Raz

Interest and fees.

Sometimes it is worth it. Next February, after my Scamp is paid for, I will have paid less than $75 in interest and fees. I did not want to use savings to pay cash at the time the Scamp was available and we will have used it for 9 months by the time it is paid for. I can't buy the 9 months of camping memories for $75 IMHO.

[Bobbie Mayer]

Originally Posted by P. Raz

Didn't mean to be cryptic. Basing affordability on a monthly payment and not the total cost. Buying something for $1000 at $20/ mo. could end up costing a lot more than $1000. But it's only $20/mo.

Yes, that makes sense now.