I am trying to estimate how much income we will NEED (as opposed to want) in retirement. Since our lifestyle is already fairly modest, I don't see any expenses that will be significantly lower after retirement than they are now. We will have no commuting costs (maybe only one car) and no lunches in the company cafeteria, but that's about it. Our basic expenses (housing, utilities, food, transportation, entertainment, charity, etc) will stay the same, won't they? On the other hand, our medical expenses may go way up (medical costs after retirement are a total black box to me).
Have you found a significant difference (up or down) in your post-retirement income needs?
We've been retired together since Jan 2010. Totally agree with Jerry re travel expenses. People forget, if you weren't able to afford a month's vacation for two when you were working, it's going to be just as expensive if not more so, when you're retired. Some folks love the RV lifestyle, but it isn't for everyone, and with the high cost of gas promising to go even higher (the US pays so much less than the rest of the world; it's about time we woke up to this), a lot of RVs are now just sitting around, parked in driveways.
We took a road trip in late 2010 to the Pacific NW and in rural areas it ran $150-200/daily with moderately priced hotels. In Seattle and Portland it jumped to $300-350/daily. We live in the San Francisco Bay Area, where people from all over the world come to visit, and when we do driving trips in the Wine Country or Monterey, even using moderate-level hotels, our costs run $350-400+/daily.
Having not traveled much before, we did have clothing costs to change our wardrobe from bus/casual to lots of Polarfleece and clothes that could take being folded up and smushed in a suitcase. New hiking shoes and Teva sandals - REI Co-op loved us that year, LOL, along with collapsible walking stick, custom maps and a GPS unit. Carry-on water filters (the public tap water in New Mexico was pretty disgusting until we got up into the mountains in Taos).
Don't underestimate how much car maintenance costs and home repairs will rise in the future, even short-term. On our 2003 Hyundai, when we bought it the 75K major tune-up was $850. By the time the 75K was actually reached on the odometer, the cost of that appt was $1100 and another $375 for the timing belt, and the sales tax had jumped to over 10%.
Can't help you with medical; we belong to an HMO with its own pharmacy, so co-pays are fairly modest.
... Some folks love the RV lifestyle, but it isn't for everyone, and with the high cost of gas promising to go even higher (the US pays so much less than the rest of the world; it's about time we woke up to this), a lot of RVs are now just sitting around, parked in driveways.
Thank you for the great info! You bring up some excellent points for us to consider. I did check our county real estate tax situation. In my county, there is a "senior exemption" but not unless and until you completely stop working (well, they allow $10,000/yr of earned income, which is not much). Since I plan to continue working part-time for a long time (I am self-employed and can pick and choose my hours), that probably won't kick in for us for many years.
However, I don't understand your statement, "One thing we are doing is converting IRA's to Roth's but only up to an amount where paying taxes is out of savings and capped at our chosen lower marginal rate." Could you explain a little more about how you decide how much to move into a Roth?
I think I understand now. Thanks!
Frankly, I've always been a little confused about the pros and cons of Roths. But what you suggest makes sense. As a matter of fact, Dinkytown.net has an interactive calculator called "Roth IRA Conversion". I just tried that and the Dinkytown analysis said: "Your retirement total savings, after taxes, would increase $11,519 by converting your existing IRA to a Roth IRA." Pretty cool! Now I'll play with it some more, trying the gradual conversion method you suggest. Thanks again!
Thank you all for your excellent adivce. It sounds like the bottom line is that our expenses during retirement will be approximately what they are now except for the fact that we will need to add the cost of some type of health insurance with it's premiums and co-pays.
We could lower our expenses by downsizing, moving to a less expensive area, paying lower real estate taxes, and being more frugal in terms of buying clothes, eating out, volunteering at local theaters, etc. On the other hand, we could increase our expenses during retirement if we plan to travel a lot. Travel is more expensive than we may realize. However, there are ways to lower travel costs, too (RVs, shorter trips, group rates, etc).
The only NECESSARY expense that is likely to increase during retirement is health insurance.So that's great. That's what I needed to know. I think what I'll do now is estimate our retirement income as best I can (SS, 401k, and part-time work) and try living on that NOW. See how it goes. That will give me a good indication about what lifestyle we can afford, and whether the 401k distributions we're planning to take will be enough. Thanks, everyone!
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