Before I set a retirement date, I wanted to be sure that I could afford to retire. Most of my working life I owed my own business. I lived with debt. I got a paycheck only after all the bills were paid and after everyone else got paid. Seven years ago I closed my business and went to work for the school district. Now I have regular paychecks and health insurance and paid vacation and sick leave and once I turn 65…a modest pension. I no longer have debt, except for my mortgage. I do not want to retire and then find out that I don’t have enough income to go anywhere or do anything or to fall back into debt.
There are lots of free calculators out there to help you decide how much you need to have in retirement. But those calculators are useless until you figure out how much you currently have coming in, how much you have saved or invested to date, and most importantly…how much you have going out. I keep track of my finances on Quicken. I know at a glance what the answers to those questions are. But that is only the beginning. The next part takes work….lots of work.
I like the Expense Tracker on the Suze Orman website. http://www.suzeorman.com/suze-tools/expense-tracker With the help of Quicken, I made a spreadsheet using Suze’s expense-tracker as a model. Furthermore, I had to look back at previous years to make sure that the amounts I put down for each item were realistic. This exercise is a real eye-opener for most people.
Next, I had to run different scenarios to be able to fill out the spreadsheets projecting into the future. If I retired at age 62, what sources of income would be available to me? How would that number change if I wanted until 65? What if I wanted until my full retirement age of 66? What if I waited until 70? I remarried seven years ago and my husband is fifteen years older than me. If he died, would I still be able to afford to retire? I own two rental properties and am currently paying mortgages on both, as well as our home. Would I be better off to sell one or the other of the rental properties, or both…. or neither? These are the types of questions and scenarios that aren’t covered in those retirement calculators one finds online.
The last time I upgraded my Quicken to Quicken Deluxe, it came with a tool called Lifetime Planner. Using what you already have entered into Quicken, it prompts you to put in all the information above, including all your assets, any loans, any future big purchases, how much you plan to contribute to your retirement accounts each year and etc. It uses all that information to give you a red, yellow or green light about whether you should have enough money for the retirement date you put in. The tool also allows you to change play around with different scenarios to see how changes might affect the plan. After putting in all my figures I was happy to get the “green light” saying “you should have enough to fund all your life event goals and your expenses in retirement”. For me, that was the confirmation I needed to feel confident that I had figured things up correctly on my spreadsheets. It does appear that barring some sort of financial calamity, if I continue to put away what I have been every month, and keep paying down my mortgages, I should be able to afford to retire at the end of June, 2017.
There is a commercial on TV that always makes me smile. It asks “Isn’t that what retirement really is…paying yourself to do what you love?” That’s what I’m hoping.