Evaluating Social Security Benefits for Your Spouse

In the last edition, we took a long look at the math behind claiming your social security benefits by walking through a case study of a 62-year-old couple, Bill and Madeline.  

In this edition, let’s dig deeper into the rules surrounding spousal benefits.

To begin with, Madeline worked over her lifetime so she’s qualified to receive social security benefits on her own.  However, when her children were younger, she stopped working for periods of time so her benefits are significantly lower than Bill’s.

Spousal Benefits

There are two ways of calculating Madeline’s benefits. 

Even if she never worked over the course of her lifetime, Madeline is still entitled to one-half of Bill’s benefit at the very least (depending on when she decides to begin collecting as we’ll discuss shortly).

Since she’s also eligible for benefits due to her own employment history, Madeline has a decision to make as to which set of benefits to collect.

For example, let’s assume for a moment that Bill waits to collect his full social security benefits (FRA) of $3,000 per month at his age 66.4.

Given this, Madeline’s spousal benefit is $1,500 per month at age 66.4 as Bill’s wife.

If Madeline’s social security benefits from her employment are greater than $1,500 per month, she would begin benefits under her own employment records.  However, if they’re less than $1,500 per month, she will collect spousal benefits.

Other Issues and Strategies to Think Through

  1. Let’s assume that Bill continues to work until his Full Retirement Age (FRA – age 66.4), but Madeline chooses not to.  Bill would then wait until at least age 66.4 to begin collecting his social security benefits, thus Madeline could not begin collecting “spousal” benefits. 

However, Madeline could begin receiving benefits under her own account due to her earnings history.  Assuming for a moment that those benefits are lower than her spousal benefits as Bill’s wife, Madeline’s benefits would then bump up to the higher spousal benefit amount once Bill begins collecting his benefits. 

  • If Madeline has reached her full retirement age (FRA), she may begin collecting spousal social security benefits even if she continues to work past her FRA and accrue benefits under her own account.  When she later stops working, if her benefits are greater, she may then choose to switch her social security benefits from “spousal” to benefits from her own employment account.  This scenario assumes that Bill already began collecting social security benefits because spousal benefitsmay only begin when the second spouse has initiated benefits.  
  • If Bill began receiving his benefits at age 62, his actual benefit would have been $2,200 per month (75% of his full retirement age benefit at age 66.4).  Even though Bill began receiving his benefits at age 62, Madeline may decide to wait to begin receiving her spousal benefits at her age 66.4. 

*** If she chooses to do so, she doesn’t receive 50% of Bill’s reduced benefit of $2,200 per month (for beginning his benefits at age 62). Madeline would receive 50% of Bill’s full retirement benefit ($3,000) as if he began receiving benefits at age 66.4, or $1,500 per month.

  • If Madeline decided to begin receiving her reduced spousal benefit of $1,050 per month at age 62 (35% of $3,000 per month instead of 50%), she may not later draw an increased spousal benefit amount at age 66.4.
  • Assuming for a moment that Madeline was younger than Bill, she may not begin collecting any social security benefits before she reaches age 62.  (The exception is if Bill passes away.  In that case, assuming she has no dependent children, Madeline could begin collecting at age 60.)

As you can see, there is a lot of room for confusion and these decisions are not as clear cut as you may like them to be.

The key is knowing the rules and fully weighing all options before you begin collecting your benefits so that you can receive the largest amount you are entitled to receive.

Download the PDF

When Will You Start Collecting Social Security Benefits: The Math?

As I shared in the last edition, a new Relaxing Retirement member had a host of questions surrounding social security this past month so I thought it would be a good idea to share my thoughts with you as these are questions I receive all the time.  (To protect their privacy, I’ll refer to them as Bill and Madeline)

Since they were both age 62, one of their first questions was, “should we start collecting social security now, or wait until Full Retirement Age, i.e. age 66.4?”

As I explained to Bill and Madeline, there are 2 major factors to consider before collecting social security benefits before your “full retirement age.”  In the last edition, we began with “the penalty” if you begin too early.  Today, let’s explore the second major factor: The Math.

#2: The “Math” Behind the Decision

The second factor to consider is the math.  Since Bill is the one considering working part-time after he retires from his full-time work, he’s the one we are going to focus on today.  Madeline’s decision is actually different and we’re going to expand on her options in a little while. 

Bill’s social security benefits statement shows that his monthly benefit at age 66.4 will be $3,000 per month.  And, if he begins collecting at age 62, his benefit will be $2,200 per month.

If Bill starts collecting now, he’s going to take a 23.33% pay cut!  That doesn’t sound too great, does it?

However, he really needs to take a look at the math for a moment:

  • Monthly Benefit at age 66.4 (if he waits)      $3,000
  • Monthly Benefit at age 62 (today)                $2,200

If he takes his benefit today, Bill is going to receive $800 less per month.

What That Really Means

As I pointed out to Bill and Madeline, if they decide to wait until Bill reaches age 66.4, what they’re really saying is that it’s worth it to wait 4.33 years (or 52 months) to get the extra $800 in the 53rd month and beyond.

However, another intelligent question to ask is “what are they giving up by waiting”? 

What they’re giving up is 52 months (4.33 years from age 62 to age 66.4) of social security benefits.  That’s $114,400!

Not an insignificant number.

The “Break Even” Age

In order to recoup that $114,000 that they would give up by waiting until age 66.4, Bill would have to live another 143 months after age 66.4, or 12 years, at which time he’d be 78.4 years old.  ($114,400 divided by the incremental increase of $800 at age 66.4 = 143 months)

So, in order to break even, Bill and Madeline would have to live another 16+ years (4 years from age 62 to 66.4 + 12 years = Age 78.4).

And, this doesn’t take into consideration 3 other factors:

  1. Bill and Madeline are eligible to receive a cost of living increase each year on their social security benefits, so their benefits will begin increasing after their first year of collecting. 
  2. If Bill and Madeline begin collecting at age 62, they could invest their monthly check and potentially earn even more.
  3. Finally, and this is the most important factor in maintaining their lifestyle sustaining income over the rest of their lives, if they don’t draw from social security right now, they must draw income from some other source, i.e. their Retirement Bucket™ of investments. 

Delaying social security reduces their inflation fighting investments more rapidly because they have to make up for the income social security would have provided, thus reducing the amount their heirs will receive at their death because social security benefits end at your death.

And, if the majority of their investments are in IRAs or other retirement plans, it may potentially reduce them even faster because they have to pay income taxes on 100% of what they withdraw vs. a maximum of 85% of their social security income.

Other Factors For Bill and Madeline To Consider

While Bill and Madeline’s example should give you a good guideline to use, here are some other factors which may affect your own unique situation:

  1. Life Expectancy:  Bill and Madeline are both in good health and have no overriding problems.

The reason why this is a factor in their decision is that if they have health issues that are predicted to shorten their life expectancy, clearly this should lead them to collect benefits as early as they can get them. 

As it was in Bill and Madeline’s case, however, if everyone in your family has lived well into their 90s, this may pull you in the opposite direction.

  • Severance: If you’re collecting severance pay from the employer you’re retiring from, this may alter your desire to begin collecting right now because of the taxes you’ll pay on your social security benefits while you’re also receiving large severance pay.
  • Deferred Compensation: This same principle applies to deferred compensation.  Let’s say that for the 5 years prior to your retirement transition, you’ve contributed to an executive deferred compensation plan.  If the plan calls for you to receive a payout immediately upon retiring, as many of our members do, this may have adverse tax consequences on your social security benefits.
  • “Other” Income: If you have other “locked in place” income, you have to weigh the after-tax benefits of collecting social security benefits early. 

This dovetails into a major principle that I recommend, and that is to never make any decisions concerning benefits or investments without also simultaneously considering the tax consequences. 

This is a monumental mistake that I see in way too many situations. 

As you can see, there are several factors that went into Bill and Madeline’s decision.  Hopefully, their example provided a good line of questions for you to answer in your own unique set of circumstances.

In the next edition, I’m going to delve into the questions Madeline had about collecting her social security benefits.

Surprising to many, benefits collected by working and non-working spouses vary greatly if you don’t know the rules.

Download the PDF

When Will You Start Collecting Social Security Benefits: The Penalty?

A new Relaxing Retirement member had a host of questions surrounding social security this past month so I thought it would be a good idea to share my thoughts with you as these are questions I receive all the time.  (To protect their privacy, I’ll refer to them as Bill and Madeline)

Since they were both age 62, one of their first questions was, “should we start collecting social security now, or wait until age 66.4?”

As I explained to Bill and Madeline, there are 2 major factors to consider before collecting social security benefits before your “full retirement age”.  Today, let’s begin with “the penalty” if you begin too early:

#1: The “Penalty”

To begin with, the reason why Bill and Madeline have a decision to make is because they’re both 62 years old, and Bill still wants to work a little when he retires from his full-time job this month.  (A very common phenomenon we see)

He was told that there is a penalty for taking his social security benefits if he still earns income from work.

He’s partially right.  There’s a lot of confusion about what those penalties are, so let’s quickly outline the limits.

First, when you reach the FRA “full retirement age” (social security’s definition of full retirement age is between the age 66 and 67 for most), you can earn as much as you want from work (earned income) and still receive your full social security benefits without any reduction in benefits. 

How Social Security Defines “Income”

When Calculating Your Pre-FRA Benefits?

Only income you receive from work, whether that income is reported on a W-2 or 1099, is counted for social security income calculation purposes.

Income you receive from pensions, rental property, dividends and interest, and capital gains do not factor into the equation. 

Between Age 62 and Full Retirement Age (FRA)

As Bill is facing right now, the dilemma comes when you want to begin collecting benefits before your FRA “full retirement age”. 

Currently, from age 62 to 65, you lose $1 of social security benefits for every $2 of “earned” income over $18,960 (in 2021).  That’s $1,580 per month.

So, for example, in Bill’s case, since he’s 62, if he continues to work part-time, and he earns $18,960 from his new part-time work, he can still collect his social security benefit without any reduction in benefits penalty. 

However, if he earned $42,960 from his part-time work, that’s $24,000 over the limit, so social security would withhold $12,000 (or $1,000 per month) from his social security benefits (i.e. $1 withheld for every $2 you earn over the limit).

During the calendar year in which Bill reaches is Full Retirement Age (66.4), he would lose $1 in benefits for every $3 he earns in excess of $4,210 per month/$50,520 per year.

So, if you’re like Bill and you are planning on still working after you “retire” from your full-time position, you’ll want to consider these limits. 

Bill’s Earnings Limit When He Starts To Collect

An important distinction to note, however, is that you can earn as much as you want during the year you’re going to start collecting.  These limits only apply on a monthly basis once you start collecting social security benefits.

If Bill retired at the end of September this year, and he has already earned $190,000 this year through September, the “earnings” litmus test does not apply to the $190,000 he’s already earned this year. 

It only applies during the first month he begins collecting benefits.  So, from October through December, he can earn an additional $4,740 ($1,580 x 3 months) and still collect his social security benefits without a reduction in benefits “penalty”.        

Stay tuned for the next edition where we explore the second major factor you must consider before collecting your social security benefits: The Math!

Download the PDF

Vague Generalities vs. Meaningful Statistics

During times of great uncertainty or stress, we have always found that having our customary one-on-one coaching meetings, despite what’s going on, helps our Relaxing Retirement members gain perspective and maintain their confidence.   

Fortunately, due to the power of technology and the ability to share meeting information digitally, we were able to stay on schedule during the COVID-19 pandemic we all experienced in 2020. 

As we all know, it was quite an experience unique and challenging circumstances:

  • First and foremost, the global pandemic, and all the health-related fears associated with it for ourselves, our families, and our friends.
  • Second, financial markets’ negative response to all the uncertainty, and
  • Third, the government mandated stay-at-home policy which kept all of us isolated with a lot of idle time to stay “tuned in” to our televisions, our computers, and our electronic devices. 

Any one of these on their own would be challenging enough.  Dealing with all three at once created a very unique situation, and required all of us to be as vigilant as ever in order to remain rational and grounded long-term investors.

Staying tuned in to developments regarding the pandemic and how we could intelligently protect ourselves made complete sense.  The challenge for all long-term investors occurs when that spills over to never-ending “Breaking News” regarding the minute-by-minute gyrations of financial markets, etc. 

Unfortunately, keeping your television tuned in to anything market related, and/or checking on-line on your phone, laptop, or iPad throughout the day to see where the market is, or where your investment balances stand at the moment, will not provide you with usable information with which you can act.

It only further perpetuates a lack of confidence, and, in turn “paralysis.”

We know just how troubling scary news is to deal with, especially when you’re at the stage in your life where you’re dependent on The Retirement Bucket™ of investments you’ve built to support you going forward as opposed to relying on a paycheck from work. 

It can be challenging to remain confident when the overwhelming majority of voices you hear are negative and scared.

It’s not easy, and it’s not fun.

So, as challenging as it may be, my first recommendation was, and always is, to be very intentional about separating the pandemic’s health related news from financial news. 

My second recommended strategy has both psychological and practical benefits which I recommend during any crisis.

I will say ahead of time that I recognize this may appear to delve deeper than necessary, and that I run the risk of having you gloss over it.  However, I believe you have to first understand the way the human brain works.  

We’re All Hard Wired

Studies have shown that the human brain is broken down into three sections:

  1. reptilian (back)
  2. mammalian (center)
  3. frontal

The two critical points of understanding for the purpose of our conversation are that the reptilian portion of our brain is our most primitive in that its response mechanism is dictated by “primal instincts”.  Essentially, it’s where our “fight” or “flight” reactions come from when we’re faced with any danger.

By contrast, our frontal lobe is where all critical thinking takes place, i.e. reason, analysis, prioritizing, rational thought, etc.

Now, what does this have to do with how I personally deal with challenges and what I recommend for you right now?  Answer: Everything

The key point is that when we’re faced with a challenge (danger), our initial reaction stems from our reptilian primal instinct, i.e. “fight or flight”.  To overcome this, we have to consciously move beyond this “primal instinct.”

Our brain can only deal with specifics.  Vague generalities, like what we’re fed every day by the media, do not help us obtain the clarity we need to make rational decisions, and, in turn, develop and maintain the confidence we need.  Instead, these vague generalities only serve to paralyze us.

Because of this, my reaction to all challenges is to de-emotionalize myself as quickly as possible in order to place it all in proper perspective.  In other words, I fight to stop the “reptilian” part of my brain from kicking in and dictating my response in a knee-jerk fashion.

Instead, I consciously write out all of the “perceived” dangers, obstacles, and setbacks in specific detail on a sheet of paper.

I then do whatever is necessary to quantify all of them as they apply to me and those around me so that I can make rational decisions and react with a well thought out plan.

How You Can Use This During a Crisis

During any crisis, fear, and the negative emotions that flow from it, are pervasive. 

However, each of us has a choice.

We can either engage in the “group think” perpetuated by the media, or we can get specific about what’s really true in your financial life because your brain can only deal with and act on specifics.

Here are some of the “group think” pieces of information and headlines reported by the media during one of the very first weeks of the pandemic:

  • Global Stocks Edge Lower After Oil Prices Jump
  • U.S. Braces for Surge in Patients as China Tally is Questioned
  • Crude Leaps 25% on Hopes for an End to Price War
  • The Dow Had its Worst Quarterly Performance Since 1987
  • “Selling Fatigue” Has Kicked in, but the Capitulation and Stock Market Bottom May Be Yet to Come, Strategist Says
  • China is Back to Work. But the Specter of Covid-19 Still Haunts the Economy
  • Fed Launches New Lending Facility For Foreign Central Banks
  • This Hedge Fund Saw Risks of Coronavirus Early.  Now It’s Up 36%

The challenge with all of this “information” is that it’s just a bunch of vague generalities.  It’s useless in helping you make rational decisions in your own life.

The Alternative: Meaningful Specifics

In contrast, here’s an “example” of meaningful specifics that would help you make rational decisions, and thus help you develop and maintain your level of confidence during a crisis.  Assume for a moment that these facts are your facts and we’re right at the beginning stages of the pandemic:

  1. The amount of income you receive from social security and your pensions will be $5,000 per month.
  2. Your fixed monthly expenses (per your Lifestyle Cost Estimator™) are $6,000 including income taxes.
  3. Your discretionary expenses are $5,000 per month in order to live the way you want, including vacations and gifts for your grandchildren.
  4. Given this, you need $6,000 per month ($5,000 of fixed income minus $6,000 for your fixed expenses and $5,000 for your discretionary expenses) from your Retirement Bucket™ of investments in order to make up the difference.
  5. Your current Retirement Bucket™ balances after the COVID-19 market correction now total $2,000,000.
  6. You and your spouse are 62 years of age and want to plan for at least another 30 years until age 92.
  7. You’d prefer to live in your current home and your small condo in Florida as long as possible, so you don’t want to “count” the equity in your homes in your forecasts.  If you had to, you would downsize at some point in your life, but would prefer not to “have” to.
  8. The nominal annual investment rate of return we determined that you needed to earn in order to continue your monthly Retirement Bucket™ withdrawals of $6,000 (plus a healthy 5% cost of living increase each year) was 5.60% back in December. 
  9. After four more months of withdrawals and the impact of the Covid-19 market correction on your Retirement Bucket™ balances, you now have to earn 7.25% (or 2.25% per year above your inflation target) to maintain your balances to age 92 while providing a 5% annual cost of living increase in your withdrawals.  

Given these meaningful specifics, i.e. “knowing your numbers cold”, this example illustrates how you would now know exactly where you personally stand in relation to current market conditions based on your own unique priorities and resources.

It may not provide you with what you might interpret as “good” news.  However, it does provide you with facts that you can make decisions with, such as how you choose to position your Retirement Bucket™ from here forward, or how you choose to spend in the future.

As I mentioned earlier, tuning in to “Breaking News” all day on your television, and/or checking on-line on your phone, laptop, or iPad throughout the day to see where the market is, or where your investment balances stand at the moment vs. the all-time high, will not provide you with usable information with which you can act.

It only further perpetuates a lack of confidence, and, in turn “paralysis.”

Given the stage in life that you’re experiencing right now where you’re contemplating having The Retirement Bucket™ you have accumulated over all these years support you, you have every right to be anxious and frustrated during a crisis.

However, as we just illustrated, do everything you can to focus on meaningful specifics as opposed to the vague generalities splattered all over the news every day so you can continue to confidently live the way you want.

Download the PDF

Portfolio Life

One of the biggest roadblocks I’ve witnessed with members over the last 32 years in my role as The Retirement Coach is not financial. 

There are three questions everyone has on their minds when we meet for the first time:

  1. Do we have enough? (i.e. to stop working if we choose to)
  2. How much can we afford to spend (or help our kids and grandkids) without the threat of running out of money?
  3. How can we make our Retirement Bucket™ of investments last?

Once we remove the financial hurdle and custom design a Retirement Blueprint™ to answer those three big questions, there is a strange reality that kicks in for those who have done a great job saving money: after 30 or 40 years of working and saving, they no long “need” to do it anymore.

Note the key word in quotation marks, i.e. “need.”  Released from the burden of the need to work anymore to support themself financially, many active and successful folks struggle with what to do with the rest of their lives. 

And, with life expectancy growing and growing, that’s likely to be another 20 to 30 years!

The solution to this issue is never just one thing!  It’s many things which is why I have always loved David Corbett’s book Portfolio Life

Corbett describes a “life portfolio”- a balanced mix of work, learning, leisure, family time, and donating time that individuals tailor to their personality and goals. 

He elaborates a disciplined, step-by-step process for creating this portfolio life with long and short-term planning. 

If you have ever struggled with the thought of “what’s next,”, I strongly recommend picking up a copy of Portfolio Life and reading it: Portfolio Life – Amazon. I look forward to hearing your feedback. 

Download the PDF

Know Your Numbers

If you want to free yourself, once and for all, from your dependence on your paycheck, there are four numbers you must know.

After you’ve discovered the first number we discussed in the last episode, i.e. how dependent you are on your Retirement Bucket of Investments each year, you have three more to go so let’s tackle them today!

#2: How Long Does Your Retirement Bucket Have to Last?

The second number you must know is how long your Retirement Bucket™ needs to last.

That may sound like a very morbid question, but there’s a very big difference if you’re asking your Retirement Bucket to last 15 years vs. 30 years, so you must know your number to arrive at an accurate answer to your biggest question, i.e. do we have enough built up to stop working if we choose to?

Most people grossly underestimate how long they’re going to live, so let’s take a look at the IRS Joint Life Expectancy Table which provides the average age at which the surviving spouse in a couple passes away:

  • 60-Year Old Couple: 30.9 years (to age 90.9)
  • 70-Year Old Couple: 21.8 years (to age 91.8)
  • 80-Year Old Couple: 13.8 years (to age 93.8)

If you are a 60-year old couple, on average, one of you will live to age 91 so that is how long you must plan for. No small task!

#3: What Rate of Inflation Will You Assume?

The third number you must be 100% clear on is the rate of inflation you will assume because of the enormous influence it has over your purchasing power.

Life is expensive and it keeps getting more expensive!

Even if we only use the average historical rate of inflation of 3% per year, if your ideal lifestyle costs $10,000 per month right now, here’s how much you will need in the future to support the same lifestyle:

  • 10 Years: $13,000 per month
  • 20 years: $17,500 per month
  • 30 years: $23,500 per month

$23,500 per month during the final year of your joint life expectancy! The key distinction is that this is not to support a better lifestyle. This is to support your exact same lifestyle you enjoy today.

#4: How Much is Inside Your Retirement Bucket™?

The fourth number you must know to determine if you have enough built up and how much you can afford to spend without running out is how much you’ve accumulated in liquid investments, i.e. your Retirement Bucket™.

It’s unlikely you will sell your home and/or cars to support your lifestyle, so let’s not count those right now.

The key distinction to make is how much of your Retirement Bucket his held inside vs. outside of IRAs and 401(k)s.

The reason why this is critically important is that funds held inside your IRA, 401(k), or 403(b) if you happen to work for a non-profit organization, are actually worth less to you when you withdraw funds to support your lifestyle because you have to pay more income taxes on everything you withdraw.
So, you must know the bottom line amount you hold in your Retirement Bucket, and the percentage of that total held inside vs. outside of IRAs and 401(k)s.
With these numbers in hand, you are now way ahead of the curve and on the way to finding accurate answers to your three big questions:

  1. “Do we have enough built up in our Retirement Bucket of Investments to stop working if we choose to?”
  2. “How much can we afford to spend without running out?”
  3. “How do we manage our Retirement Bucket to make it last?”
Download the PDF

Three Answers You Must Have to Free Yourself From Dependence on Your Paycheck

Every dedicated saver we’ve worked with reached a unique inflection point in their lives which we call The Paycheck Dependency Threshold™.

After decades of working, raising a family, putting their kids through school, and saving a large percentage of their earnings, they all sort of paused, reflected, and asked themselves three very important questions:

  1. “Do we have enough built up in our Retirement Bucket of Investments to stop working if we choose to?”
  2. “How much can we afford to spend without running out?”
  3. “How do we manage our Retirement Bucket to make it last?”

If you don’t have full confidence and 100% certainty with your answers to these questions, then it’s highly likely that you will go down one of two paths:

Path One: You will continue to work longer than you need to because you think you have to when in fact you may not have to, or

Path Two: You will stop working and “retire”, but because of your fear of making a mistake and running out of money, you will have unnecessary anxiety and “pull your punches” by restricting your spending, and end up living like the masses who have to say, “I can’t afford that. I’m on a fixed income now.”

Unfortunately, there are no reliable rules of thumb, and two couples with the exact same level of savings can receive completely different answers to those three questions.

Here’s why….

No Reliable Rules of Thumb

Let’s take a look at two couples, Mike and Mary, and Ron and Rose, both age 62. To keep it simple using round numbers, assume each couple has:

  • $2,000,000 built up in their Retirement Bucket™,
  • the same social security retirement income of $3,000, and
  • the same monthly pensions of $3,000

From a quick glance, they look exactly the same and would likely receive the same answers if they called into a financial talk radio show.

That would be a terrible mistake, so let’s dig a little deeper to discover what else we know about them:

Mike and Mary have no mortgage or home equity line of credit, and they have recently completed many major upgrades to their home, i.e. a new roof, indoor and outdoor paint, a new furnace, new kitchen countertops and cabinets, and new bathrooms. They purchased new cars with cash in the last two years which they plan to drive for ten years.

Ron and Rose still have $300,000 outstanding on a second mortgage they took out to pay for their kids’ college tuitions, weddings, cars, and a condo down in Florida they bought a few years back. They both drive high-end cars which they replace every three years. And, while their home is very nice, after 26 years, it is starting to look “tired” and will need significant upgrades in the next two years.

Even though both couples have the exact same level of Retirement Bucket™ of investments, and the same amount of income coming in from social security and pensions, their situations are drastically different because it will cost much more to support Ron and Rose’s desired lifestyle.

In other words, Ron and Rose are much more dependent on their Retirement Bucket than Mike and Mary. And, this is the first of four numbers you must know if you want to free yourself of your dependence on your paycheck, i.e. over and above income you may receive from social security, pensions, and rental property, how dependent are you each year on your Retirement Bucket™ of investments?

Before we delve into the best way to calculate your level of Retirement Bucket Dependence™, I want you to know that this is not about living on a “budget” and restricting your spending. This is about having an “accounting” of what it costs you to live the way you want so you can have an accurate and reliable measuring stick to make decisions.

There’s a big difference.

To determine your level of Retirement Bucket Dependence™, you have to be very clear on your inflows and outflows. On the inflow side, how much will you receive each month from social security, pensions, and rental property?

On the outflow side, what does your ideal lifestyle cost, including “fixed” or mandatory expenses, and “discretionary” (your choice based on your priorities).

Typical “fixed” expenses include utilities, insurances, groceries, clothing (at least most clothing falls under this category), mortgages, real estate taxes, etc. These are expenses that must be paid, and typically they’re paid every month.

“Discretionary” spending, on the other hand, is where we’d like to spend all of our money, like meals out, vacations, presents for your grandkids, and entertaining! However, when planning, most folks don’t account for them as much as they should. Things

Remember, this is all about living exactly the way you want, so you want to be generous with your estimates. If you guess too low, you’re only short-changing yourself.

The difference between your inflows and your outflows during any one given year is your level of Retirement Bucket Dependence™, and this is the first of four numbers you must know if you want to free yourself of your dependence on your paycheck.

Stay tuned for number two, three, and four.

Download the PDF

It’s Not About Stopping Work

Kevin and Barbara were anxious and came to us looking for answers to settle their nerves. Their reaction when they discovered the answers to their biggest questions at this unique stage in their lives used to surprise us. However, it has now become the norm among our members.

Let me explain….

After putting Kevin and Barbara through our extensive program and creating their custom-designed Retirement Blueprint™ based on their priorities and resources, I had very good news for them.

“Congratulations!” I told them. “You’re in wonderful shape. Given everything you’ve shared, you can stop working right now if you want to.”

Can you guess what their reaction was? Did trumpets sound and balloons fall from the ceiling? Did Kevin dance from the room and call his managing director to say he was finished?

No. What happened?

Instead, all I heard was crickets!

Kevin and Barbara turned to each other, confused. Now that they knew they could afford to stop working, they weren’t sure they wanted to.

Kevin derives an enormous sense of accomplishment from his work, and Barbara would miss the friends she has through hers. They wondered if perhaps they didn’t want to retire, they just wanted to know they could.

This is the reaction we see more and more among the dedicated savers we help.

Kevin and Barbara weren’t interested in the conventional idea of “retirement” that has been portrayed in the media because they weren’t conventional people. For one thing, they’d done a better job than most of putting money away. For another, they’d never aspired to what most people strive to afford.

It’s Not Just About Stopping Work

As your Retirement Coach, our goal is not to get you to stop working. Our goal is to get you situated so you never have to work—never have to do anything you don’t want to—ever again. In other words, our job is to help you live your best life, however, you define it!

Your ideal best life is one in which you do whatever you want, with whomever you want, where, when, and however you want, with no dependence on a paycheck from work.

Many of our Relaxing Retirement members have continued to work well past the point where they needed to because the work they are doing remains inside of their definition of their ideal best life.

Drilling down to what “ideal” means to you requires that you set aside any fears and misconceptions you may have. Look at things you think are facts, and question if they’re really true. Call on your imagination to paint your perfect lifestyle.

Even as an exercise, it’s a massive mindset shift to go from thinking about your responsibilities and constraints to imagining your dreams and freedoms. But that’s what your years of dedicated savings can purchase. You pre-paid then for choices now.

Define Your Ideal Best Life

As potentially morbid as this may be, here is how I recommend you begin. Imagine it’s the day before your last day. Reflect on any regrets you think you might have. In thirty years of doing this, no one has ever told me their vision of the future includes more time doing menial work.

Try to come to this exercise without preconceived notions of what you think you can do. Resist basing your expectations on what your friends are or aren’t able to afford.

Come to it with a completely different mindset. Go in thinking you can have anything you want. Later we’ll put a price tag on it and let The Relaxing Retirement Formula determine whether or not you can afford it all. Because if you could, wouldn’t you like to know?

  • What do you never want to do again?
  • What are you unwilling to miss any longer?
  • What will you regret not having done?
  • What have you wanted to do forever but didn’t think you could?

Create a picture of your ideal best life that is as detailed, as exciting, and inspiring as you can.
Do this without putting any financial constraints on your imagination. Don’t worry whether or not you can afford it just yet. We’ll work on that in another edition shortly.

Download the PDF