What was I thinking?

The other day I said to myself, “When I retire, I’ll spend more time on exercise and flexibility.” What was I thinking? If you want your best retirement, why would you not make the investment in your health well in advance. (I know I’m probably not telling you anything you have not heard before here…). In my case, and I am not a model for physical fitness, I am gradually upping my exercise goal from 30 minutes four times per week to 1 hour four times per week. I already do strength and cardio and I will add in flexibility. This will also go into my Retirement Activity Plan (RAP)! Reviewer’s note – Mrs. NoSurprisesRetirement notes that a) the road to hell is paved with good intentions and b) not everyone will be able to keep this schedule. She’s not wrong. I’ll let you know how I do.

One part of my goal for being in better shape is to support the more or less standard flow of retirement; go-go, slow-go, no-go. The other part is to help me keep living, working, and travelling now.

Speaking of travel, here’s a picture of me, morphed with the other 13,500 or so visitors to the Kunsthal Rotterdam that participated in the digital image exhibit a couple of years ago. (Off season, literally had the place to ourselves!) In modern art museums you can frequently become part of the art.

Rotter - modern IMG_0279-cropped

Go-Go, Slow-Go, No-Go

Michael Kitces, the financial planner, in his blog , notes, “Michael Stein, author of “The Prosperous Retirement” first popularized the concept of a three-phase retirement: the Go-Go years, the Slow-Go years, and the No-Go years. The approach was relatively straightforward: early retirement is represented by the “Go-Go” years and is characterized by an active phase, that may include a continuation of a lifestyle similar to pre-retirement, but with more time for spending and “extra” activities like travel; the “Slow-Go” years are when health and energy begin to decline a bit, resulting in some spending reductions as the budget for activities like travel or even just eating out begin to decline; and the “No-Go” years are characterized by an almost total shutdown of activity-related spending, as consumption decreases to just the core expenditures necessary to maintain the household itself.”

My takeaway from the above is:
-understand the phases
-understand what your budget can support (a trip up North v. an 83 day around the world cruise or something in the middle)
-think about not only your cash budget, but your energy requirements in each phase and see what your personal ‘energy budget’ will support.

There is some argument about the timing and applicability of the three phases, but it seems like a useful model. (Old saying, “All models are wrong, some models are useful.”). We have planned for go-go years until about 71, then the budget supports slow-go and no-go until ‘end of retirement…’

I know we watched the in-laws move through the three phases, some faster than others. Re-reading this before I posted it reminded me of the favorite saying of another friend, “Don’t postpone joy.” Genes, luck, and your version of the supreme deity will have a big say in the timing of each of our phases. We’ll likely return to look at the phases more in detail in later posts. In the meantime, think about your RAP and what you’ll do in the go-go years.

Do as I do?

In the Free Stuff post post I mentioned taking classes from providers such as FutureLearn and edX . I signed up for FutureLearn , but it’s for the past, the Cold War. I enrolled in “From World War to White Heat: the RAF in the Cold War.” taught by a professor from the U of London and a PhD from the RAF Museum.

Actions you can take include:
-Check yourself – are you doing what you can to be in your best shape for retirement?
-Take a look at the free education resources, including YouTube. An esteemed consultant once taught me, “We reserve the right to get smarter.”

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

When does 70 ½ equal 2?

A picture!

Since a reader asked for pictures, here is this week’s photo and a question for you. What is the furthest away license plate that you have seen driving near home?

Truk

Yes, you are correct, I got a picture of a license plate from Truk of the Federated States of Micronesia right here in Minnesota. Truk is in the Pacific, north of Papua New Guinea and SE of Guam. Anyone seen one from farther away near your home?

When is 70 ½ equal to 2?

We will be discussing RMDs here – Required Minimum Distributions. RMDs are what the government requires for you to generate taxable income (and, likely, taxes!) on the untaxed income you put away in your IRA/401(k)/etc. At some point (70 ½) they require you to take money out (or for most of us, we need to take money out…)

Remember that No Surprises Retirement’s goal is to help you not have bad retirement surprises. A key element of many people’s retirement income plans is the use of funds from IRAs/401(k)s, etc. Frequently those will be rolled into an IRA, so we’ll just use IRA as the example here. As always, please seek professional advice when you need it, because there are some wrinkles with defined contribution plans v. IRAs.

70 ½ equals two when you are required to take two RMDs in the same year!

As it happens, I will (hopefully) turn 70 in one calendar year and then (again, hopefully) turn 70 ½ in the year following. I was planning to take my first RMD, by April 1^st of the year following 70 ½th year (that April 1^st thing is the ‘Required Beginning Date’), which is also my 72^st year. Confused? I sure was; it reminded me of algebra class. Then I remembered a CRPC class I had taken which noted that in some cases two RMDs may need to be taken in the same calendar year! Yikes, that has the potential to affect the taxation of Social Security benefits in the RMD year as well as Medicare premiums in the following year!

I went to my friends* at the IRS who have this covered. They have a website that explains it all and it’s easy to understand, mostly.

Here’s a quote from the IRS RMD site (I added the bold italic underline):

“Date for receiving subsequent required minimum distributions

For each subsequent year after your required beginning date, you must withdraw your RMD by December 31.

The first year following the year you reach age 70½ you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½), and an additional withdrawal by December 31 (for the year following the year you turn 70½). To avoid having both of these amounts included in your income for the same year, you can make your first withdrawal by December 31 of the year you turn 70½ instead of waiting until April 1 of the following year.

Example: John reached age 70½ on August 20, 2013. He must receive his 2013 required minimum distribution by April 1, 2014, based on his 2012 year-end balance. John must receive his 2014 required minimum distribution by December 31, 2014, based on his 2013 year-end balance.

If John receives his initial required minimum distribution for 2013 on April 1, 2014, then both his 2013 and 2014 distributions will be included in income on his 2014 income tax return.”

Now you know! Also, that’s why you should save your year-end statements and Form 5498s’.

Now that we all know the rules, we can plan on when we will take that first required distribution from our plans that require RMDs. Good news, it won’t be a surprise.

Actions you can take include:

-Review the IRS RMD site and update your retirement income plan.

-Check out Volunteer Match https://www.volunteermatch.org/ for a volunteer opportunity that fits you.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

* – Seriously, I work with a number of IRS people when volunteering and they have all been professional and try very hard to get everything right for the taxpayer.

Oops, or New Year Fiscal Fitness

Oops!

One of our readers suggested more pictures and personal anecdotes, so here is an anecdote:

Last week Mr. and Mrs. No Surprises Retirement compared our actual spending to our proposed retirement budget. Oops – there were a number of areas where we were way over budget!

The picture, below, is of me looking at the results of the comparison!

The good news is that we’re not retired yet, so we weren’t overspending our ‘real’ retirement spending plan. There’s still time to tune and track better.

Fiscal fitness

The goal of No Surprises Retirement is helping you avoid bad retirement surprises. One of the worst retirement surprises is overspending in the early years and then running out of money in the later years. Almost every TV show now has a lot of fitness and weight loss advertising (like every late-December through early-January). This post will help you with improving your fiscal fitness in 2018.

Corporations and non-profits are experts at fiscal fitness (at least the ones that stay in business are!) They use budgets, income statements, and balance sheets to manage their business. We may talk about income statements and balance sheets in some later post, but for this post we’ll focus on the budget. The key parts to budgetary fiscal fitness are:

Budget – know what you plan to spend monthly/annually (and that the spending fits within your income).

Tracking – track your spending to the budget and determine where there you are going under or over, and why. (In corporate speak, we call these ‘variances’.)

Adapting – adapt to variances by adjusting future spending. For example, if you spent too much on medical because you went to the ER, you may need to cut out movies for the rest of your life a few months.

Just like the stretches you’ll do in the three times a week aerobics class that one month you go to the gym, budgeting is something you need to pay attention to frequently (at least bi-weekly) but unlike the gym, you need to do it all year.

Tools for you to manage your budget – spreadsheets

Since we had the budget surprise, I decided to upgrade our budget capability by finding a better spreadsheet than we are currently using. I decided to stay with a spreadsheet because I don’t need all the features of a personal finance software package and don’t want to maintain my finances on a website. I also decided to download (and don’t forget to virus scan!) because apparently a billion people have already shared their budget spreadsheets online and this way I could start without having to reinvent the spreadsheet the wheel!

As usual, Google helped out with the search and I ran across ‘the balance’.

There are a number of budget spreadsheets reviewed and linked to on ‘the balance’ site, so you’ll probably find one to use and like.

I liked a couple:

It’s Your Money! in their ‘Free Budgeting Spreadsheets’ has a number of budgeting spreadsheets. The IYM Spending Plan Spreadsheet looked promising.

Vertex42 also had budget spreadsheets. Their Family Budget Planner looked excellent.

‘the balance’ also has a section for Google Docs Budget Spreadsheets. I think we’re going to try the cleverly named Best-Personal-Budget-Planner. I downloaded it and converted it to Excel, but it looked very usable in Google Sheets as well (and if you don’t own Excel, Sheets is free.)

Most of the spreadsheets suggest budget categories. Another excellent source for retirement expense budget categories comes from BlackRock.

Actions you can take include:

-If you’re not already using one, pick a spreadsheet or some software to track your expense budget.

-Put your 2018 budget in the tool and start tracking and analyzing! Good luck!

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

A Christmas 10%, 15%, 25% or more short term return!

I forked over

I paid my 2018 property taxes early and I will net at least 15% on the deal! My county made it extremely easy to go on their website and eCheck the 2018 payment. I reviewed our 2016 Schedule A and our deductions were less than the 2018 tax year standard deduction ($24,400 for a married couple). I roughed in 2017 and it looked like the same case for what I’ll be filling out here in a month or so, still below the 2018 limit. Poof – easy choice to accelerate my 2018 payment, so then I went and found the money to put in checking to pay it (less poof there!).

Disclaimers, always disclaimers

Again, no, not a scam. This may actually be an opportunity for you. The latest tax changes have passed and will take effect in 2018 (mostly). We noted some tax planning opportunities in the “Urgent money opportunity!” post. Still acting quickly, there may be another 2017 tax planning opportunity with property taxes for you that could be the equivalent of a 10-25% return (or more depending on your marginal tax bracket). We’re providing general advice here, please check with your tax adviser for your specific situation. And by act quickly, that means by 12/31/2017.

Facts, again

Tax rates – generally going down next year, meaning that deductions are worth more this year than next.

Standard deduction – going up next year, meaning you need more deductions to obtain any benefit from a Schedule A deduction. Also, your state and local tax deduction (property and income taxes) will be limited to $10,000.

Property taxes

The facts above may add up to a planning opportunity for you this year with property taxes.

Hypothetically, maybe you are a retiree or near retiree that has paid their 2017 property taxes and you itemize on Schedule A and your Schedule A deductions exceed the standard deduction. The 2017 property taxes will be part of your Schedule A deduction.

You may be able to prepay your 2018 property taxes, on or before 12/31/2017. If you do, you will also include those on your Schedule A and the tax ‘reduction’ from that additional deduction should decrease the tax you owe by your marginal rate, 10 to 25% or more. That’s kind of like getting a CD paying a huge rate – something you likely don’t want to pass up.

Example

As an example, let’s say your 2018 property taxes are $1,000 (easy round number) and your marginal rate is 15%, and the extra $1,000 deduction does not move you into a lower marginal rate – that’s an extra $150 back as a refund. Or, like getting a one-year CD with a 15% return. You’ll have to pay the tax anyway, why not make it a little less painful.

In this example, we assume that in the 2018 tax year (the one you file by April 15, 2019) the $1,000 is ‘buried’ in the standard deduction and there is no ‘additional’ tax benefit. You only get an explicit deduction and bigger refund if you accelerate the payment to 2017.

If, based on your tax advisers’ analysis and your state/county/city allowing it, you make your 2018 property tax payment now, you may get a bigger deduction (and lower taxes/bigger refund) on your 2017 return.

How to from WUSA

Here’s a piece that WUSA 9 in DC did to help people understand how to prepay. They mention mortgages where taxes are escrowed.

Actions you can take include:

-Call your tax advisor and analyze your 2017/2018 planning opportunity.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

Urgent money opportunity!

No, not a scam.

This may actually be an opportunity for you. The latest tax changes have passed and will take effect in 2018 (mostly). If you act quickly, there may be some 2017 tax planning opportunities that will save you more money this year than next! (We’re providing general advice here, please check with your tax adviser for your specific situation). By act quickly, that means by 12/31/2017.

Facts

Tax rates – generally going down next year, meaning that deductions are worth more this year than next.

Standard deduction – going up next year, meaning you need more deductions to obtain any benefit from a Schedule A deduction.

These two may add up to a planning opportunity for you this year.

Charitable scenario

Hypothetically, maybe you are a retiree or near retiree that has charitable goals or commitments. You’re trying to make the world a better place, but you don’t want to squander cash. If, based on your tax advisers’ analysis, you make your 2018 gift now in 2017, you may get a bigger deduction (and lower taxes/bigger refund) on your 2017 return, and the charity likely won’t care if they get the 2018 gift a little early.

Stock loss scenario

Also hypothetically, maybe you are a retiree with some stocks that have losses. If, based on your tax advisers’ analysis, you sell and take a 2017 loss, that will mitigate more taxes than the same action in 2018. And, your tax adviser may tell you that if you really love the stock that had a loss, you can buy it again after 60’ish days. Or, your tax adviser may tell you that it will give you the cash to make that charitable gift (above). So, give your tax adviser (and you!) a holiday season gift by calling them tomorrow!

Actions you can take include:

-Call your tax advisor and analyze your 2017/2018 planning opportunity.

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

My daughter said…

My daughter told me that I should add some personal things into No Surprises Retirement to make me more human to my readers. I’m an IT guy who has expertise in insurance, annuities, mutual funds, tax reporting, and tax preparation. What could be more warm and personal than that?

Ok, so to try and warm you up to me some, we did vacation recently in a world capital with excellent public transportation, friendly people, great museums, and interesting food ranging from Korean fried chicken to handmade (in a window so we could watch!) Chinese noodles. Which capital? Not Ottawa or London, it was Washington DC. We went in November because we find ‘shoulder season’ travel to be uncrowded, generally OK weather (and almost never too hot), and the rates are usually much lower.

Since going to Bonchon for the Korean fried chicken in DC, I have seen a couple of articles on Korean fried chicken and am waiting for it to arrive here in the heartland. (p.s. – the spicy was SPICY.)

RIP – Retirement Income Plan

Failing to plan is planning to fail (old saying). You should have a retirement income plan (RIP) well prior to retirement and you should maintain it in retirement, because changes happen that can affect your plan. I drafted my initial plan when I was 59, even though I was (and still am) a few years out from retirement.

In my opinion, a ‘good’ RIP covers all the sources of retirement income you (and spouse, if any) will receive, shows them year by year, lets you know if they adjust for inflation, and compares them to a desired budget amount to let you know if you need adjustments. A ‘perfect’ RIP would also make inflation adjustments.

This episode of the blog will cover the RIP. A future episode will cover the other half of the equation, budgeting. Note – another name for the RIP might be retirement income cashflow because it shows you the flow of income cash over the years.

Sample RIP spreadsheet(s) – free!

I put a simplified version of my RIP spreadsheet out on Google Drive for you to download and modify to personalize as needed. I included Excel and Google Sheets versions (the Excel is a little nicer but Google Sheets software is free). Copy and paste this link:
https://drive.google.com/open?id=1Ri7FRjzqUFj_iHKeeP_Nh_N8pFpDn_sv
into your browser (I primarily use Chrome) and you should be able to see them and download. Let me know at nosurprisesretirement@gmail.com if you have a problem.

TANSTAAFL* – The RIP will require work on your part!

The work:
-go to SSA.gov and get an updated ‘Your Social Security Statement’ for your Social Security income inputs.
-use an RMD calculator to calculate the RMD’s you’ll have to start taking at 70.5, but subtract out any funds from RMD’able accounts that you will take out prior to 70.5 Here’s a pretty good one from Schwab. You can also search ‘rmd calculator’.
-if you have a pension and/or annuity, figure out when you’ll be taking it and what the amount will be.

Use those numbers to complete the ‘Income Components’ tab of the RIP spreadsheet and enter the first year prorated amounts in the initial year.

Some of you may not be as familiar with Excel or Google sheets and may want your start year to be other than 2020. Two solutions; find a friend who can help or find an Excel or Sheets class at your local library or online. If you’re not a DIY’er on these things, a trusted financial professional most likely has retirement income planning software to use for your personal situation.

Actions you can take include:

-Develop and/or update your retirement income plan

-Don’t forget about your retirement activity plan – reach out to a friend and re-connect, especially now in the holiday season

And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/

Questions, comments, or suggestions for retirement surprise areas you want to know more about?

-Leave a comment
-Use ‘Contact’, above, to send an email.
* – TANSTAAFL – There ain’t no such thing as a free lunch.

A Tale of Two Motorhomes

The yellow star tells us we’ll be on the Activity-Personal side of the Retirement Activity Compass for this post:

A note on this post – we will primarily discuss married couples here, but unmarrieds will also find value because the same principles will apply if you plan to engage in retirement activities with friends or relatives.

The Two Motorhomes

Last week I heard from a reader about the motorhome that she and her husband researched and bought so they could tour the country when they retire. They read Bill Myers’ Buying a Used Motorhome and bought a lower cost motorhome. They will be trying it out this winter with a trip to Arizona and, if they don’t like it, they can sell without losing a huge investment. They have discussed their shared activities in retirement and are aligned. I suspect that if we measure their retirement satisfaction in a couple of years, it will be fine.

Fast forward to yesterday where I was talking with a couple where the husband will retire next month. The husband is looking forward to buying a motorhome and touring the country. Sound familiar so far? The wife is looking forward to starting a pottery studio, not driving around in a motorhome. As Scooby Doo would say, “Ruh ro”. This couple clearly has a failure to communicate. It appears that the couple did little or no shared retirement activity planning and are not aligned. Where do you think their retirement satisfaction measurement will be in a couple of years?

What Can We Learn from the Two Motorhomes?

Discussing, negotiating, and planning well before the retirement ‘day’ comes will help balance the interests of both parties. There usually has to be give and take on both sides, whether it be a married couple, or retired friends planning joint activities.

Be adaptable – you may find you don’t like to motorhome (or run a B&B, or a pottery studio…). Planning to try out any activity, especially the expensive ones, before you commit large resources will help avoid bad retirement surprises.

Be realistic – take into account your budget for retirement activities, mobility restrictions (oops, Bill’s knee can’t take standing for more than about 45 minutes!) and insurance restrictions (will I be out of network if I go to Alabama?).

On your own? Singles aren’t hermits, so consider starting to build your retirement activity network early, but remember, it’s never too late to start.

Actions you can take include:

-Open the discussion. Make a date to sit down over coffee and discuss what major activities you want to do in retirement (hint – surveys say ‘travel’ is on a lot of these lists.)

-If you find that you disagree on direction, search the web for ‘interpersonal conflict resolution’ and use some strategies for getting to compromise.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

What will you do?

Apologies

First – apologies for the lack of updates the past couple of Fridays. I was on a retirement test (vacation) and did not complete the weekly updates.

Activities

Ahhh, the dream of leaving the workforce. No more mandated schedule and your time will be your own! Does that leave you exhilarated, scared, excited, or confused, or even all of the above? I am personally in the all of the above category.

In my current state of still working full time, I go to work five days a week where I get:
-playgroup (meetings!)
-snack (breakfast and lunch)
-assemblies (all company meetings)
-individual work time.
I actually get paid to go and have organized activities, although not necessarily of my choosing. Once you are retired, the organization of your day and activities is up to you, and if you do not plan, it may be day after day of daytime TV.

Avoid the void

And there’s the retirement surprise we want to avoid – the retirement activity and social void. You and I need plans for what we want to do and, in some cases, we’ll switch from being paid for your days to paying for our days. As an example, if we want to go to an assembly (perhaps a movie in a theatre) after retirement, we could end up paying for a ticket. An article on CNN Money cited research that noted, “… a 2013 paper by researchers at the University of Exeter Medical School that reviewed numerous studies on the relationship between volunteering and health concluded that volunteers had a lower risk of mortality than non-volunteers, were less likely to feel depressed and had an increased sense of well-being.” Having a plan means you’ll be doing things and doing things will make for a happier, and likely longer, life. You might drink Coke, because ‘things’ go better with Coke… (perhaps I’ll take up stand-up comedy in retirement!)

Realism

One company I worked for had a policy of ‘realistic previews’ for people entering certain job categories. They had the job candidates complete tasks that were both challenging and related to the work they hoped to be doing. Candidates quickly found that they were suited for the job or that this was not for them. Consider trying the same for retirement. Perhaps you have always planned to make furniture when you retired. If you’ve never made furniture before, perhaps consider some ‘realistic preview’ way of finding out that it is or is not a viable alternative prior to getting a bad retirement surprise.

Maybe you dream of sleeping in until 10:00 AM daily. Not a problem if that’s your dream, but consider trying it next vacation to see if you can sleep that long and to determine how the rest of your schedule might fit with your late sleeping.

What is important to you? Travel, volunteering, kids, grandkids? Put those in the plan. Also, don’t forget to check out the senior discounts for assemblies!

Actions you can take

Actions you can take include:
-Put together a general retirement activity plan that might cover the routine activities for every month. It might include volunteering, grandchild care, movies, lunches with fellow retirees (they don’t happen if someone does not plan them!). What does a ‘normal’ retirement month look like for you?
-Look at the activities of your retired friends – which ones would you like to use as positive role models and which ones are models for what you don’t want.
-Remember you need your health – do you need to be exercising more and eating less? Should you be more blood pressure medication compliant?
Look for the next update on Friday, September 1 at 12:30 PM.

Questions, comments, or suggestions for retirement surprise areas you want to know more about?

-Leave a comment
-Use ‘Contact’, above, to send an email.