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  • #16
    What is lost in this discussion if the behavioral finance issues transitioning to retirement. ANXIETY.
    *You will retire
    *Your assumptions will be wrong
    *You have not defined the "cushion" that will take away the anxiety that every responsible person feels for spouse and family if it goes south. It is not your fault.
    *You will reach a point where "fate" takes over. FOMO and fear of failure give way to the feeling that "this is the best I could do."
    *You will stuck living on what you have. Not bad, as long as you picked your plan. You can always adjust along the way. The big decision is the house in Philly suburbs.Expenses are a direct result of your decisions.
    * My concern is the behavioral finance aspects of relying on financial capital rather than personal capital. Deal with that. If you don't, the SOR risk will be with you until who knows when, it never disappears (65,75, 85). That is the problem if you plan borderline. Five gang buster years or five significantly below average years completely change the picture. Have a plan for your expenses. Likely moving to an hour or two outside of Philly and cutting expenses.
    You as a psychiatrist can handle the behavioral finance issues and the change in life issues. Hope you live to 100!

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    • #17
      I'm a details guy, but I wouldn't do all this work calculating expenses and then just multiply by 0.85 and assume that's my spending. I feel like that level of approximation is appropriate for planning level (5-25 year planning horizon) but I would personally take a full day or 2 and go through my yearly expenses line by line and put them into categories. (My personal excel file is 100 lines.) Then look over ever expense and figure out how your going to pull 28k out of expenses by moving to a lower cost of living area. (Noting that you already factored in the Lower house payment which is usually one of the main factors in lower cost of living).

      I mean food prices might decrease, maybe see a break on insurance, energy costs, utilities, etc. but if that's only 10-15k of your spending, where are you going to make up the other 13-18k. Apple Iphones costs the same, car prices are similar, and the 10k vacation to Paris costs the same if you live in NYC or PA. So make sure the activities, spending habits you do lend itself to a 15% discount.



      Last edited by Jack_Sparrow; 01-19-2021, 01:59 PM.

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      • #18
        Originally posted by Random1 View Post
        "relocate to a lower cost of living area in PA from NYC metro"

        PA has some high cost of living areas, especially in regards to school tax, probably not as high as NYC, but it can be substantial , so you need to pick your place of residence and school district appropriately at least to minimize taxes.
        Thanks. Definitely true relative to the country as a whole, but when I look at homes comparable to my present one, or homes I would consider purchasing in the Philly exurbs, they are max 50% of the property taxes I’m paying now including school tax, and often significantly less. It’s shocking, I guess I’m just used to astronomical property taxes where I now live.
        My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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        • #19
          Originally posted by Hatton View Post
          Some thoughts. I am glad Larry R brought up open social security. I would put your exact numbers in there for a precise claiming strategy.
          If changes are made to social security I expect those of us above a certain age will be grandfathered in. I think the haircut will be to the cost of living increases.
          The real wild card is medicare premiums. These are already means tested. It will be easy to have to pay IRMAA tax especially after RMDs. Antares you need to consider this in your calculations.
          Antares did you factor out FICA and medicare taxes when calculating your yearly expenses? It was not clear to me.
          Since this is important I would encourage you to really look at credit card statements and bank account statements and more precisely figure out your spending. If your mortgage is paid off your spending seems high to me.
          I think it would help you to get a better idea.
          I track my spending closely. I think this gave me confidence to retire and helps me not to panic with market downturns. It does not mean I am leading a spartan existence. I simply know what I spend.
          For comparison my spending in the last 12 months is 54K not including taxes. No travel due to COVID. This does include a housekeeper and lawn care company.
          Thanks - many good points.
          Regarding FICA and medicare taxes, yes since we are sole proprietors those are all bundled in our current tax payments (ie no W-2 income) so by subtracting taxes paid, I think am accounting for those going away as well.
          Yes, I am afraid I am going to have to do a closer look at actual spending, as much as I don’t relish spending the time that way. I agree with you that spending still seems high, especially since we are not big spenders outside of the costs of HCOL. No fancy cars or obvious very high living. There’s the HCOL area, there’s still having child expenses on the payroll, and it may also be that I saved more than I accounted for because there was still money in our work accounts at the end of the year. Maybe as much as 40-50K, I’m embarrassed to say. So my method has weaknesses, and I suspect you are right about spending really being lower.
          My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

          Comment


          • #20
            Originally posted by jfoxcpacfp View Post
            Great suggestions above and sounds like you are making fairly reasonable assumptions. Also consider retirement goals, such as extra/less travel, change in charitable contributions, vehicle use (go from 2 to 1? How often will you repeat?), order of withdrawal from retirement accounts (when the time comes), etc. What will you fill your extra free time doing? Those are goals I wouldn't necessarily include in the rough budget calculation b/c they may not repeat (studies, lifetime trip, funding grandkids' 529s) and (impo) s/b considered separately.

            Moving from f.t. to semi-retired to retired can be challenging if you want to optimize but most doctor families (at least, participants here and other physician financial sites) don't have to worry much about optimizing.
            Thanks Johanna. Yes, the transitions need to be figured out. I think now that we’ve proved we can work remotely from home indefinitely, we might opt for doing this 5-10 hours per week just because we like our work, and the money wouldn’t hurt. But to be determined. Have to figure out how this affects potential Roth conversions.
            The extra free time I have covered. I have a written list, a lot of thought has gone into this, and it is long! I’ve always hungered for more time for the many things I love outside work. Most of these items are close to free, which is a nice bonus. I will have enough when needed, for example, to buy a book, repair my bike, cook for guests....
            My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

            Comment


            • #21
              Originally posted by Tim View Post
              What is lost in this discussion if the behavioral finance issues transitioning to retirement. ANXIETY.
              *You will retire
              *Your assumptions will be wrong
              *You have not defined the "cushion" that will take away the anxiety that every responsible person feels for spouse and family if it goes south. It is not your fault.
              *You will reach a point where "fate" takes over. FOMO and fear of failure give way to the feeling that "this is the best I could do."
              *You will stuck living on what you have. Not bad, as long as you picked your plan. You can always adjust along the way. The big decision is the house in Philly suburbs.Expenses are a direct result of your decisions.
              * My concern is the behavioral finance aspects of relying on financial capital rather than personal capital. Deal with that. If you don't, the SOR risk will be with you until who knows when, it never disappears (65,75, 85). That is the problem if you plan borderline. Five gang buster years or five significantly below average years completely change the picture. Have a plan for your expenses. Likely moving to an hour or two outside of Philly and cutting expenses.
              You as a psychiatrist can handle the behavioral finance issues and the change in life issues. Hope you live to 100!
              Good points, Tim. No doubt the behavioral side will present challenges especially early. A healthy cushion would help! But I agree especially with your first bullet point : “You will retire”. The rest is part of that reality and I’ll have to navigate it. I am comforted when I hear retired people say “I have more now than I did when I retired”.
              My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

              Comment


              • #22
                Originally posted by Jack_Sparrow View Post
                I'm a details guy, but I wouldn't do all this work calculating expenses and then just multiply by 0.85 and assume that's my spending. I feel like that level of approximation is appropriate for planning level (5-25 year planning horizon) but I would personally take a full day or 2 and go through my yearly expenses line by line and put them into categories. (My personal excel file is 100 lines.) Then look over ever expense and figure out how your going to pull 28k out of expenses by moving to a lower cost of living area. (Noting that you already factored in the Lower house payment which is usually one of the main factors in lower cost of living).

                I mean food prices might decrease, maybe see a break on insurance, energy costs, utilities, etc. but if that's only 10-15k of your spending, where are you going to make up the other 13-18k. Apple Iphones costs the same, car prices are similar, and the 10k vacation to Paris costs the same if you live in NYC or PA. So make sure the activities, spending habits you do lend itself to a 15% discount.


                Good points. I have become convinced that as much as I’d really like a shortcut, because I don’t relish spending my time on the line-by-line, it’s probably a good idea. Without that, I’m estimating something that probably needs more granularity. My method is only ballpark. I think I’m overestimating needs, but I’d hate to be wrong later!
                My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

                Comment


                • #23
                  I think sitting down and figuring out your spending will give lots of peace of mind. You will notice things that you can eliminate now. You will notice things that go away with retirement. I am one of the people who has increased her net worth since I retired. Compounding.

                  Comment


                  • #24
                    Calming Influence: Build a spreadsheet with the items below for the column headers. I originally copied the format from Fidelity (Performance Monthly Detail). See below.
                    I have this monthly back to February 2003. Burnt twice before. I had revamped my strategy to an AA and tilt of investments. The totals are the only thing that matters.
                    I see monthly and annually just the retirement dedicated accounts. Originally, my intent was to highlight the ups and downs to see how changing allocations impacted gains and losses. Guess what? I could not figure out a thing other than after the fact. The purpose changed. It is my security blanket. Five months in a row is the longest losing streak. Even 2020 was limited to two 2 months losing streaks. The biggest enemy is me! I use a more aggressive AA than I would otherwise. If I would have changing would have come back to biting me in 2020 and as well as prior years. I .have had loss years, but so what? The growth has given me the confidence to trust my AA. If you dig into your expenses (you don't have to capture every detail) at a top level, that will give you confidence in your spending. You will know when to hold back on discretionary and fixed spending. Marry the two and you will eliminate the anxiety. That is the only control you have. It will succeed or fail. I think you are underestimating the power of your financial capital to generate income.

                    "I am comforted when I hear retired people say “I have more now than I did when I retired”. Hey, you haven't even ran the model(s). So busy on the "expenses" in retirement that you are forgetting the forest, 30 or so years of retirement.

                    After you move in one year you will know for sure. Work more, cut expenses, or stay with your plan. Don't make the choice on one year's market returns. Important!
                    Go back to your spreadsheet. And you will see if the spending is sustainable.

                    Month
                    Beginning Balance
                    Market Change
                    Dividends & Interest
                    Fees
                    Deposits
                    Withdrawals
                    Ending Balance
                    Monthly %
                    Cum %
                    Cum Gain $

                    Annual
                    Balance Change - Amount and %
                    Withdrawals - Amount and %
                    Div & Int Inc - Amount and %

                    Comment


                    • #25
                      Originally posted by Hatton View Post
                      I think sitting down and figuring out your spending will give lots of peace of mind. You will notice things that you can eliminate now. You will notice things that go away with retirement. I am one of the people who has increased her net worth since I retired. Compounding.
                      Will do, and great to hear!
                      My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

                      Comment


                      • #26
                        Originally posted by Tim View Post
                        Calming Influence: Build a spreadsheet with the items below for the column headers. I originally copied the format from Fidelity (Performance Monthly Detail). See below.
                        I have this monthly back to February 2003. Burnt twice before. I had revamped my strategy to an AA and tilt of investments. The totals are the only thing that matters.
                        I see monthly and annually just the retirement dedicated accounts. Originally, my intent was to highlight the ups and downs to see how changing allocations impacted gains and losses. Guess what? I could not figure out a thing other than after the fact. The purpose changed. It is my security blanket. Five months in a row is the longest losing streak. Even 2020 was limited to two 2 months losing streaks. The biggest enemy is me! I use a more aggressive AA than I would otherwise. If I would have changing would have come back to biting me in 2020 and as well as prior years. I .have had loss years, but so what? The growth has given me the confidence to trust my AA. If you dig into your expenses (you don't have to capture every detail) at a top level, that will give you confidence in your spending. You will know when to hold back on discretionary and fixed spending. Marry the two and you will eliminate the anxiety. That is the only control you have. It will succeed or fail. I think you are underestimating the power of your financial capital to generate income.

                        "I am comforted when I hear retired people say “I have more now than I did when I retired”. Hey, you haven't even ran the model(s). So busy on the "expenses" in retirement that you are forgetting the forest, 30 or so years of retirement.

                        After you move in one year you will know for sure. Work more, cut expenses, or stay with your plan. Don't make the choice on one year's market returns. Important!
                        Go back to your spreadsheet. And you will see if the spending is sustainable.

                        Month
                        Beginning Balance
                        Market Change
                        Dividends & Interest
                        Fees
                        Deposits
                        Withdrawals
                        Ending Balance
                        Monthly %
                        Cum %
                        Cum Gain $

                        Annual
                        Balance Change - Amount and %
                        Withdrawals - Amount and %
                        Div & Int Inc - Amount and %
                        Thanks Tim. Makes sense. I will never turn down a calming influence!
                        My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

                        Comment


                        • #27
                          Another thing to remember Antares is that when you retire you will have plenty of time to tinker with spreadsheets.

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                          • #28
                            As an early career physician who has not put much thought into Social Security income in retirement, that amount is quite eye-opening.

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                            • #29
                              8arclay, I had no idea about SS amount until I signed into my account, and it shows you your earning history and expected SS income.

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                              • #30
                                Very interesting about the health care. I admit, I hadn’t thought about cost of health insurance too much in my calculations. Now I definitely will incorporate into the 4% withdrawal calculations.

                                That’s another reason to work part time if you don’t mind it - for benefits if you can get them.





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