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1 Year Into Retirement – Enjoy It And Stay On Track

by retirebyforty on December 10, 2012 · 20 comments

in retirement

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1 Year Into Retirement

We’re finally closing out this near retirement series. We saw what the so called experts recommended for the 10 years, 5 years, and 1 year before retirement. Now let’s see what they have to say about where you should be after retirement. I retired from a corporate career six months ago so I should be able to make a direct comparison here.

Savings

Money Magazine: Saving target is 12x household income when you retire at 65.

As I said in previous posts, I think it’s better to use your expense as a measuring stick. The target at retirement should be 25 x expenses. That way you can draw down at the 4% “safe” withdrawal rate. Before I quit my corporate job, we did not have 12x of our household income saved. Now that I’m self employed and making a lot less money, our net worth is more than 12x our household income. That’s why I don’t like using income as a benchmark. Income can fluctuate a lot especially if you’re self employed.

It’s better to use expense as the measuring stick. Before I quit my job, our net worth was a little above 25 x our annual expense. This gave me the confidence to quit and go it alone.

Don’t Go Chasing Yield

Money Magazine: The goal isn’t to maximize income, but to maximize capital preservation – by diversification. Every couple of years, trim a few percentage points from your stock holdings and stick the money in bonds and cash.

This really doesn’t apply to us right now because we are relatively young (almost 40) and we still have 20 years left before full retirement. It is very tempting to buy high yield stocks to maximize income when you’re not working full time anymore.  I can now see why a retiree would want more yield. At this point, I’m planning to stay invested in the stock market and hold 10-20% in bonds.  I’m converting my after tax stock portfolio into a dividend income portfolio. This will give me the flexibility to use that income or reinvest it.

Do A Yearly Spending Checkup

Money Magazine: Before you quit work, you gave yourself a budget. Expect to blow it. Track your spending once annually to keep yourself honest. Chronically going over a 4% inflation adjusted draw could cause your money to run out.

We have gone over budget once in the six months since I retired. It was due to a big repair bill on the rentals. Overall, we have kept our budget intact. I think going over 4% is a terrible idea and everyone should aim to spend less than that. It’s better to start living with your retirement budget a couple of years before the actual retirement date. That way you can fine tune your budget and see if it will really work.

Take From All Baskets

Money Magazine: Try to stay in the lower tax bracket by withdrawing from all accounts including taxable, 401(k), IRA, and Roth.

I think this is a good idea. We will be in a lower tax bracket in 2013, but I haven’t really looked much into it. Right now, we are drawing income from our after tax account (dividend), P2P lending account (interest), and rental properties (earned income.) All of this income goes into a general account and if we have a surplus at the end of the month, they will be earmarked for more dividend stocks and Roth IRA. We won’t withdraw from our retirement accounts until we’re fully retired.

Never Retire Your Resume

Money Magazine: Keep in mind that a worst-case scenario may necessitate your returning to work. Update your resume once a year even if it’s volunteer work or leadership in a social club.

This is probably a good idea, but I’m not going to follow it. I’ll update my resume when I really need to get a job. As of now, I am not planning to work for anyone else again. I love self employment and even if my online business doesn’t work out, I will try something else. Once baby RB40 goes off to kindergarten in a couple of years, I’ll have a lot more time to try other ideas. It was nice to have a regular paycheck, but I found that I’m an entrepreneur at heart and I don’t want to work for anyone else.

Wrap Up

Sticking to your budget is probably the most important thing after retirement. If you can stick to your budget and keep the withdrawal rate below 4%, it should be smooth sailing for many years. One alternative that I champion is to work part time after retirement. This will help put off withdrawal and give your portfolio a chance to grow.

Whew, that was a long series. Check out the previous articles if you’re not retired yet.

If you have 10 years before retirement.

If you have 5 years before retirement.

Getting ready to make the break – 1 year before retirement.

 

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{ 20 comments… read them below or add one }

Savvy Scot December 10, 2012 at 3:37 am

I have also recently made a break into P2P lending… So far so good! Have you had any bad debts yet?

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retirebyforty December 10, 2012 at 7:47 am

I’ve been lending for about a year and right now I have about 1% write off and about 5% very late. I would be happy with 5% default rate, but I think it will be between 5 and 10%.

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Glen @ Monster Piggy Bank December 10, 2012 at 3:56 am

I think it is great that you have got to a point in your life so early on where you have left the corporate ladder for a different way of life.
I like that the trusty budget gets a mention as it is more important that ever to keep onto of that when you no longer have a big weekly pay packet.

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The College Investor December 10, 2012 at 6:53 am

Great stuff! I also plan to retire early and one of the points I notice is to never retire your resume. I think having a fall back plan has its pros and cons, and I do agree with you its better not t to concentrate too much on this aspect, but if you’re the type who prefers to keep your option open, then it’s better to continuously updating your resume.

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Kurt @ Money Counselor December 10, 2012 at 9:03 am

Joe, I think your biggest challenge will be health insurance. If/when Mrs. RB40 decides to follow in your footsteps and you’re forced to buy private health insurance, you’re screwed (not to put too fine of a point on it!), financially. I know though from previous posts that you’re open to relocating to a country with a more sensible health insurance system, so that may be your salvation.

Thanks for the series!

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retirebyforty December 10, 2012 at 2:42 pm

I agree about the health insurance. We’ll see what happens in 15 years, but I am not very optimistic for the US.
We’ll keep our option open and see.

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Sustainable Life Blog December 10, 2012 at 12:14 pm

Great advice here joe – I think lots of this stuff (mainly the allocating to bonds) happens so infrequently that people forget about it, or just think it’s not a big deal. Hopefully the lessons of 2008-2011 will remind them this is not the case.

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RichUncle EL December 10, 2012 at 12:29 pm

Thanks for the advice Joe; I appreciate it as a future early retiree. Joe one thing that I do not hear you mention is the mortgage on your current property? Is it paid off or will you be paying it off soon? The savings from having your mortgage paid off will help you secure a retirement with no worries financially speaking. It’s the biggest drain on cash flow and with that out of the way you can travel the world.

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retirebyforty December 10, 2012 at 2:46 pm

In the 10 years article, they mentioned timing the mortgage payoff to your retirement date. We are timing it to coincide with Mrs. RB40 retirement. If she retire early, then we will sell the place and move. Good point.

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krantcents December 10, 2012 at 3:56 pm

Keeping the resume current is important! When I started volunteering, they asked for an application. Many organizations do background checks particularly if you are around children.

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Lance @ Money Life and More December 10, 2012 at 5:07 pm

I’d say if you can’t follow a budget you’re not going to be able to survive throughout all of retirement.

I probably would keep a resume up to date while it was fresh in my memory just in case desperate times come.

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retirebyforty December 10, 2012 at 10:21 pm

I updated my resume about a year ago, but I don’t think I’m going to update it every year. I wonder how many retiree or self employed do that.

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FI Fighter December 10, 2012 at 5:59 pm

I’m doing the same and focusing more on my monthly expenses than I am on income. My target retirement number is also calculated based off of 25x (or 4%) of my expenses.

So far, my impression has always been that a person will actually spend less in retirement than during their working career. Do you find this to be true? I always figured, once you have actual time, you can: cook for yourself, learn how to do repairs,services, downgrade your wardrobe, drive less, etc.

I like your plan of relying on dividend income, p2p, rental properties, online business, etc. I’m going to try to do the same, and build up these passive/semi-passive income bases so I don’t have to go dipping into the 401k/Roth IRA until traditional retirement.

And yes, once I retire, that old resume is going straight to the recycle bin ;)

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retirebyforty December 10, 2012 at 10:23 pm

We are spending a little bit less, but not much because we already cut down before I stop working full time. I am driving less, but I was already saving with company funded public transportation previously so it doesn’t make a huge difference. Good luck! :)

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Financial Samurai December 10, 2012 at 7:25 pm

I think I’m closer to 35X my annual expenses now in my retirement. But the thing is, I’ve got passive income (not including my online income) that covers all my living expenses. So….. what does that mean then? Infinity coverage if I continue to live w/in my passive income streams?

I try not to think about it though as I build my online income. I’m afraid i’d get lazy and do nothing if I decided to just live off passive income.

S

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retirebyforty December 10, 2012 at 10:25 pm

What can I say? You’re more awesome than the usual working stiffs. :) I’d say work as much as you’d like and enjoy life. You earned it!

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Financial Samurai December 10, 2012 at 10:49 pm

Haha, yeah right. I think people underestimate how much they have. It’s not just how much they accumulate. It’s also how much their money produces!

Accumulating money is the easy part. Making money work for you is the real challenge!

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Dividend Growth Investor December 10, 2012 at 8:23 pm

I honestly ignore articles from Money magazine. I much rather prefer reading about the stories of real people and how they managed to retire. That is why I like reading your site.

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Buck Inspire December 11, 2012 at 10:53 pm

I need to catch up on the other parts of your series. Sound advice! It’s great you found your passion and what makes you happy, being an entrepreneur. What advice do you have to someone who is working, but don’t have a clear idea if they are an entrepreneur or not?

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retirebyforty December 12, 2012 at 7:20 am

I would say save up as much as you can so you can comfortably make the jump. If it doesn’t work out, you can always go back to work for a big company. You can also try working for yourself on the side like you’re doing now and see if you like it.

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