. OK, so I’ve been working the new 3-day-a-week job for 3 weeks now, and I’ve gotten a few paychecks under my belt. Now that I know what kind of net income I’m dealing with, I thought I would go over my monthly income/expense scenario again, with an eye toward fine-tuning and tweaking, especially as it affects my retirement.
For a long time, my retirement goal has been, after using countless retirement calculators offered by the likes of T. Rowe Price, Kiplinger’s and others, $1,250,000. That, I felt, was an accurate representation of what I would need to retire comfortably.
While knocking out the mortgage last summer was a big milestone, it certainly doesn’t mean I can just relax and forget about retirement planning. Although my 3-day-a-week job may transition into 4 or 5 days a week at some point down the road, I really have no knowledge of whether or when that will occur, so I’m focusing my re-budgeting based on the 3-day-a-week scenario.
I decided that prior calculations about what kind of savings it would take to save even $1 million by age 60 would not, realistically, be something I can achieve with my current income. (Assuming a 5% interest rate, I’d need to sock away $2,683 a month. Or $1,015 a month based on an 8% interest rate. Yeah, it would be less if I didn’t have to stop working at 60, but I don’t think I want to be locked into working f/t after that age.)
So I adjusted my sights downward somewhat by deciding to concentrate on a goal of saving $750,000 by age 60. Based on a modest 5% interest rate, I’d only have to save $247 a month to accomplish that. Remember that number; we’ll return to it below.
I looked at my revised “bare minimum monthly expenses” once again and made the following adjustments to it:
1. I set health insurance at $589 a month, though I am sort of in limbo right now and not yet accepted into the state plan. My application’s being processed.
2. I was happily able to adjust my monthly allocation for property taxes down to $488 a month, thanks to our recent town-wide revaluation of real estate. That’s a savings of $62 a month, or about $750 a year! You’d think it would be more, given that the last reval was done at the peak of the market five years ago, but hey, I’m not complaining.
3. My insurance for the new car will only increase $100, mainly because I boosted the deductible to $2,000. I’ve never filed a claim on car or home in 18 years, so why pay more each year in insurance if I don’t need to?
4. The big unknown at this point is how much my car tax will be. This is a hugely unpopular tax in Connecticut which legislators recently failed to do away with, but anyway, I called the town and she said it wouldn’t be due til January, so I’ll wait til then to find out.
So with these various adjustments, my bare minimum monthly expenses are actually a bit lower than before, at $1,922. Psychologically, I really like having it stay under $2,000 a month.
My net income from working 3 days will be $2,564 a month, and I’m adding an additional $200 in net income each month from my freelance work. I’m just guessing at the taxes on $300 gross. So with $2,764 in total income each month after taxes, I’ll have $842 left over each month.
I will put aside $247 of this toward my $750K retirement goal on the 1st of each month, starting in July. It represents a 9% saving rate on my NET income, not bad on p/t income, but that’s what you can do when your mortgage is paid off. That still leaves me with $595 for discretionary spending which I predict will be spent on things like home maintenance and the occasional eating out, clothes, Christmas and, hopefully not anytime soon, the vet….none of those expenses are included in my “bare minimum monthly essential expenses.”
In summary, I think this is a doable budget for me that allows me to save a meaningful amount toward retirement, something that has LONG been on my back-burner due to under-employment.
I’m not saying I want to retire on $750K and I’m not sure I could. It would be a fairly spartan retirement, perhaps something like my mother has. I always envisioned something more comfortable that would allow me some travel abroad etc. So while $1.25 mm is still the ultimate goal, for now, I will set my sights a little lower just so the bigger numbers don’t make me throw up my hands and give up. I am definitely a goal-oriented person and I do better when I have a goal I’m working toward, provide that it’s reasonable and doable. I believe this one is.
It also allows some additional funds for who-knows-what. I know this old house sucks up money like nobody’s business. In the back of my head are big capital improvements coming down the road like: new roof @ $8,000, upgraded kitchen cabinets/counters @ I wonder how much and a variety of other assorted upgrades/repairs.
My Retirement, Redefined
June 27th, 2013 at 08:18 pm
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In the meantime, there is still the possibility of additional work days per week, plus your freelancing (in excess of $300 per month). Any additional income from either of those, I don't doubt will either be saved or invested, cuz I know that is how you roll.
I also notice you have changed your asset allocation plan a little bit. I think you have a very sensible aa.
June 28th, 2013 at 12:12 am 1372378376
So living on savings and p/t income alone for 5 years could shrink my nest egg, but it would increase my eventual Social Security take-home for the rest of my life by a substantial amount.
Yes, I did tweak my asset allocation. I figured since I paid off the mortgage, I really had no real estate exposure anymore and in the interest of diversification into asset classes that hopefully don't correlate 100% with equities, i figured the REITS was not a bad way to go, especially since I believe real estate prices are still somewhat undervalued. Gosh, what a geek I sound like.