1. Plan on receiving Social Security (or the equivalent). That may provide about 40% of your needs. Most seniors need from 60-75% of their pre-retirement income to live modestly in retirement. Figure 70%. Social Security will also continue to pay after you die, helping provide for your latter-life children (until 16, longer if in college), your spouse (even ex-spouses, sometimes), and dependent parents. Doomsayers notwithstanding, Social Security may look a bit different but it will still be around.
2. Most of the rest of your retirement income will probably come from your 401k or pension at work, similar programs if you are self-employed (like Keogh and SEP-IRAs), and from any IRA money you slipped out annually before filing taxes. If you lucked into some form of “golden parachute” for early retirement, that can be a big help too. For most, pensions and savings are what later provide that needed 30% of your present income for a more comfortable second life.
3. Add to that any additional savings or personal investments (like money market stocks, bonds, property, collectibles, or annuities) and you may already have more than you need to do as you wish later.
4. If you do, bingo—because the moment your second life starts that money isn't going to simply fall in your hands! You will extract it in planned portions, with the principal continuing to earn compound interest as long as it lasts, which, alas, may be long after you are using the bank eternal!
5. Not planing to retire? All the better. Any income you continue to earn once you are at the comfort stage keeps adding up and compiling more interest, which earns even more interest. You can even delay drawing Social Security for a few more years, earning an additional 8%, inflation adjusted.
6. If your folks or kin were kind enough to leave you some form of inheritance, that could proportionally increase your financial freedom. (Alas, if that kind soul had gifted it instead during their life, they would have probably saved in taxes and you could have been investing that too, compounded, to free you up even more. But you don't want to be ungrateful...)
7. Sometimes, sadly, somebody dies and you are the beneficiary of their life insurance. But you can't depend on this—and it's imprudent to speed it up. Still, it means more funds, which means more choices.
8. While not income per se, if you are insured for disability and that occurs, that may help keep you solvent in your later years.
9. And you will have access to Medicare and Medicaid (or whatever they are called) to help offset your main health costs. Like Social Security, some sort of net will be there.
10. Most people enter their second lives with a home mortgage substantially or totally paid. (The happiest retirees are those without house payments at all. Many of them got there—and saved as much as $150,000 or more in interest—by fattening up their monthly mortgage payments. They probably paid their credit cards first, then slipped in a few extra bucks on the mortgage principal each time.) If you subtract the house payments, you also need less income. And kids gone can reduce your annual expenses as much as $15,000 each.
11. Having a low or paid mortgage can be a financial boon if you downscale and sell the big house, which is easier to do if the kids are gone and you tell freeloaders that you have become deranged. Or you can simply live there forever and either will it to your heir(s), Pollan and Levine be damned, or you can use it as a new source of steady income through reverse mortgaging, should your health or other expenses outpace your savings—or you live far too long!
12. Another way to “find” income is to take any savings you make by not having to pay credit card interest or not having car payments and put that amount either into the bank to compound or to add it to the mortgage payment. When you make the last house payment, you might take a victory trip on what you would have had to pay the next month or two, then put the subsequent monthly non-payments into your own account. Since you're not used to spending that money anyway, why not give it to yourself to grow on your own behalf?
13. When you sell off the toys—the boat, the snowmobile, the trailer, etc.—you not only get a boost in bucks, you no longer have to pay for their upkeep, license, or storage.
14. There's another win-win that, if done right, can bring as much joy as income: if single, marry again, pool your combined retirement holdings, and cuddle into the twilight! Prenuptial agreements are in order here, even if you’re Willard Scott regulars in the centenary club.
15. The main idea in your second life is to not let your expenses get ahead of your budgeted reserves and income.
16. But life isn't always that kind nor are the two often in perfect balance. You can’t just keep making soup of your pets or lowering the winter heat. When or if it gets way out of balance, you must get some advice, cut back on the excessive spending, or find some new income, like reverse mortgaging or taking on a part-time job.
17. While you won't spend nearly as much in retirement as you did before (unless you go batty), you will continue to have bills that must be paid: maybe a house payment or rent, utilities, phone, doctor, and food. Those are the core costs that your savings should meet.
18. Physical and mental health are more important than money, it’s said, so if you are blessed with good health, you should spend to keep it so. If not, you must get it as good as possible, then sustain or improve it. That means that the costs for treatment, medicine, fitness or exercise, transportation, education, and some entertainment have high priority. Also long-term insurance, which should be considered and probably begun when you are young and healthy.
19. The happiest retirees are the most active, so other elements of that high quality of life might be travel, hobbies, public service, even pets. Volunteering and personal growth aren't free either, but those expenditures can be especially valuable.
20. The biggest fear of most retirees is that the moment they leave a secure job they will catch or suffer some disastrous malady and be consigned to a full-care facility for their last 30 years! A foolish fear, numbers tell us, since the percentage of people in a nursing home at any one time is 5.2%. (Most of those spend less than a year there, often their last.) So the million-dollar reserve nest egg for that "certainty" probably costs ten times its worth in ulcers, overtime, and exhausted spouses during your prime earning years.
21. But you will have health costs, so an important budget item is insurance, then Medicare supplements, and finally personal money for co-payments, full payments, and prescriptions. This usually stabilizes and the cost is manageable. Often it goes down in the final years.
22. One expense that can put a big dent in your budget is a car. If you’re used to buying a new car every 40 minutes (worse yet, leasing one), you must think twice or thrice. It's best to wait to buy until you have the cash, or get a car that’s a year or two older, or keep your current clunker rolling.
23. Divorce is a real second life bummer. It can reduce a well-financed couple to two marginal survivors. One solution? Strengthen the marriage earlier so at retirement it is intact. One way to do that is to actively collaborate to make Super Second Lives a dual reality.
24. If you’re still using credit cards with abandon, you’ve simply got to get your expenses on a tighter budget. Unless your cards have no or a low fee, the 18-24% interest can quickly undermine years of sensible saving. Reduce the cards to one, then limit its use to emergencies or for big-ticket items.
25. You may still have lingering obligations into your retirement years, like assumed debts for your kids' schooling. It’s best to pay them off as soon as possible, to lower your monthly outflow.
26. The hardest financial burden is when you are entering your own second
life with dependent parents, bless them. But it may not be nearly as bad
as it appears. You must sit down and figure out their income or support
sources—like pensions, savings, and Medicare—before assuming that their
entire support will all have to come from your savings.
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To go to the Super Second Life Money Page