The Cassia Life

Financing Retirement: Do-able but Challenging

It can be a tough pull, here’s some math: You plan to retire at 65 and expect to live on to age 85 or 90. At the extreme that’s 25 years of retirement.

The living expense for most of us is greater in the early years of retirement, wanes as we grow older, but say your average expense of living, for a couple, is $4,000/month, or $48,000/year. Income tax adds $7,000/year, bringing your earning need to $55,000/year. For one person instead of a couple, drop that to $3,500/month.

During the earning years you worked like the devil for your pay, inched it up to the point you could stash away an average of  $8,000 to $10,000/year. Forty years of work plus the return on investing what you saved as you went along boosted your nest egg to $500,000. That’s half a million! Good job!

My guess is that most of us don’t get that done; I didn’t! Several factors can come into play that are significant:

  • You may want to leave some of your assets for your kids. Or you don’t. Either way, I believe it’s best to so inform them in advance of your passing. Hard feelings rise swiftly when money is involved.
  • Social Security monthly payments are a big deal. Don’t believe for a minute that payments will disappear in the future.  We’re a wealthy nation, not in the habit of letting our seniors starve.
  • Double-income couples who both receive Social Security and share living expenses find that Social Security doubled helps immensely: Twice times $1,500/month equals $36,000/year.
  • Expected big inheritances from other than parents often vanish when the chips are down.
  • By itself, Social Security is not a living. “It’s survival,” said one senior.
  • Got your house paid for?  My, how it helps.
  • Receiving a pension, such as from teaching, from a company, the military, a government job is a blessing.
  • Leaving the savings–your principal–intact and invested, your $55,000 Annual income need is met if you can wrestle an 11% return from your half million investment. Hefty In today’s world!

Because money often is short, or can quickly get that way, I’ve found it vital to keep track of it, of income and expenses, in detail.  I call my system, in use now a good 50 to 60 years, a budget. It is not complex, requires use of only a simple hand calculator, and carries category underspent and overspent amounts forward into the next month. In other words if I budget $200/month for an item but spend only $150, the next month’s budget for that item is $250.

I recalculate overall at the end of the calendar year and update as appropriate. I’ve found that when I’m careful, my year’s end expenditures are no more than 3% or 4% off. Below is a typical Expenses page. The figures are fictitious.  

What this monthly budget system does that most others I’ve seen don’t is allow over- and under-spending to be carried over to the following month. For example note that “Eat out” has an Available this month of $80, meaning that the previous month in the category was over-spent by $20: 

“Rent” was a consistent $900 both months. “Gasoline” was under-spent by $20 the previous month, so the current month has that amount added to it’s available spending amount in the current month. 

What the carryover idea does is help bring budget and spending together into accuracy by year’s end.

Eat Out$100$80
Health Insurance$106$106

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