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Making the Decision to Retire

August 18th, 2010 at 11:09 pm

How much money will I need to retire comfortably? This was the burning question I pondered for several years before retiring. My retirement planning involved some specific steps to answer this question and it helped me feel confident in my decision to retire. Even though I retired two years ago when the economy was imploding, I have not regretted it for a moment.

Here is what I did to come up with my answer:

1. I determined the annual income I would need in today's dollars. This involved creating a budget that allows for unexpected expenses and also a healthy amount for travel. My basic budget categories are:

Housing (includes expenses for second home)
Utilities (includes phone)
Food/Misc.
Auto (gas, maintenance, insurance, registration)
Medical
Charitable Donations/Gifts
Personal Allowance (includes clothing)
Insurance
Entertainment
Travel Savings
Regular Savings
Taxes

2. I chose my planned retirement date: August 19, 2008.

3. With input from my accountant and financial planner, I analyzed the market value of my investments. These included both taxable (cash, stocks, real estate) and tax sheltered accounts (IRAs, 457 and 403b). Taking into account a conservative rate of return on these investments (2%), we projected values at 70 1/2, when Required Minimum Distribution (RMD) kicks in.

4. I requested a benefit estimate from my state teacher's pension plan. In my case, I knew the exact amount of my pension and that it is supposed to have a guaranteed 2% annual COLA.

5. I calculated the withholding on my pensions at approximately 25%.

6. I determined my pension WOULD NOT keep pace with inflation (using a 4% lifetime average inflation rate). In the future it would mean saving less and/or drawing from my retirement accounts to supplement my pension income (definitely will need to do so by age 70 1/2).

I put all this data on a spreadsheet and saw that I could afford to retire on my chosen date, even though waiting three more years would have provided a significantly higher income. In my case, the additional money was not worth the stress generated by my work. My job as an elementary school principal was taking a toll on my health (e.g., high BP) and I wanted to retire on a high note, rather than after I'd burned out.

These are the steps I took to "crunch the numbers." There are plenty of calculators available online, some of them very useful. However, I just used a simple Excel spreadsheet. I did this exercise at least once a year for about 4-5 years before retiring. I knew it was time to retire when I began to review my retirement spreadsheet every month!

My husband retired in 2009 so we are now both able to enjoy a completely different life. People sometimes ask what we do to keep busy now that we're retired. The reality is that we are always busy, but what we do to keep busy is our choice. It's wonderful to have so much control over our lives. We love to travel and have documented some of our adventures on our travel http://www.sagetravelers.com/.

In addition to retirement income planning, we downsized in 2006 to a condo in Silicon Valley. This was a good move because we sold our big house when prices were high and we were able to move to the condo that we had bought in 2003 but had rented out. We used profits from the downsize to buy our Idaho home for cash, so there is no mortgage. So now here we are in beautiful Boise where we have relocated. We still have the CA condo, but it is now our second home.

Before/After and More

July 18th, 2010 at 11:58 am

Hope everyone is having a great summer. Ours has been busy. We are back in Idaho after spending two weeks in Hawaii and then two weeks in our CA condo. The Hawaii trip was planned to help my DS and BIL celebrate their 40th wedding anniversary. My dh had never been to Hawaii and he liked it so much he wants to go back... I LOVE Hawaii, especially the weather, so we will go back in 2011.

We spent the first week on a cruise circling the islands of Maui, Hawaii, and Kauai, and the second week we spent in a timeshare condo on Oahu that I exchanged through Interval International. Here is a view from our room:


One of my favorite memories is of the spectacular Naapali cliffs in Kauai:


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Back in Idaho, the landscape contractor completed our patio project. I love the low maintenance aspect of our new patio. Our back yard is very small and faces an alley that gets very little traffic. BEFORE all we had was a patch of lawn and a concrete patio:


Now we have pavers and rock planters with excellent soil and an automatic watering system. Dh and I spent the last two days planting. The planters contain perennials and I also have 8 large pots with annuals. Here is a picture AFTER the project was completed:


Vent Cleaning Scam

June 19th, 2010 at 08:43 am

Yesterday morning we had the vents to our forced air heating and cooling system cleaned and the process was a nightmare. Why? We chose a company based on a coupon we received in the mail, and they had a hidden agenda. We get coupons all the time but I chose this company because they gave a "15% senior citizen discount." All the coupons charged about $65 for the service which included "free" dryer vent cleaning.

So why was it a scam? Well, the minute the two men started the job, one got busy working while the other, Leo, said their "service" included a free inspection of our furnace. Hmmm... first red flag.

After the inspection, Leo began a high pressure sales pitch trying to sell equipment and services ranging from $850 to $150. Leo began by telling us our furnace needed cleaning and the air in our house was 70% more polluted than the outside air.

First of all, a few months back PGE came out and inspected our furnace and said all was OK. We said no to the $150 furnace cleaning. Then Leo wanted to sell us a UV Cleanser... $850 but we would get a special price of "only $499." Again, we said NO. I told him I don't spend that kind of money without researching it first.

Then Leo insulted me by asking, "Are you Jewish?" I responded, "Are you suggesting that I do not want to spend money because I'm Jewish? It's very insulting to make remarks like that about any group of people, and it's none of your business..." I would not be ashamed to be Jewish but I was angry because it projected a pejorative attitude. When Leo saw how angry I was, he said, "Oh, I'm Jewish" and he walked away.

Next, Leo tried to sell us a washable filter for $150. We already use high quality disposable filters (~$20 each) and it had recently been replaced, so we said no. Leo then said he (Leo) could not believe my dh would not spend money to have clean air in the house, especially since I have allergies (something my husband shared when Leo asked why we were having the vents professionally cleaned).

Then we found out the service did not include cleaning the cold air return vent... that was $35 more. I said OK on that only because they had the grill off and hanging and it's located in a place that is too high for our only ladder to reach. Since moving to this condo, we've given away most of our tools and equipment.

Next, Leo told my husband we had holes in the vent off the heater and poked his finger through one to show him. But wait, for $200 he would duct tape it. By now my husband was fed up and told Leo to just go. So we ended up paying $65 + $35 minus 15% discount. My dh later patched the vent holes... he said he couldn't prove it but thought Leo purposely made the holes.

I had planned to pay by CC to get points but ended up paying cash because the invoice required me to put my CC number and CVC code. Leo was such a hustler that there is no way I would let him have this information. I later called the company and told them I would be filing a complaint with the BBB and explained why. They offered to return 50% of the cost.

So the lesson learned from all of this is that next time I decide to have our vents cleaned, I will ask some questions before booking the appointment:

~ Will you try to sell me other services or equipment?

~ Does the service include cleaning ALL the vents, including the cold air return?

~ Is the technician named Leo? :-


Rent or Sell?

June 9th, 2010 at 11:07 am

Now that we're retired and free to move about the world without the encumbrance of jobs, we've been contemplating what to do with our condo in CA. Here is what we have discussed so far:

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Sell It

Pros:
No more PITI, HOA fees, and utilities;

We could invest the equity or use it for something else, TBD.

Cons:
The real estate market's just starting to improve here, so it might be prudent to wait;

We might owe taxes since we would not be buying a replacement property.


*****************************************
Rent It

Pros:
The rent would cover all or almost all expenses (PITI/HOA/Management);

We could save or invest what we now pay in PITI/HOA;

We know a good property manager.

Cons:
Renting can be a disaster with the wrong tenants;

Renting won't help us tax-wise due to income limits.


*****************************************

So, back to the question: rent or sell? After much thought and discussion, we've decided to do neither. We're going to keep the condo and look at things again in a year or so. This way, we will have a place to stay whenever we're in CA, and we will be spending about 4 months here in 2010. Dh, as an Emeritus Professor, still has access to the campus library and other resources and he wants to do some research/writing (with no stress or deadlines, just for enjoyment). We'll keep the Prius parked in the garage for wheels and thankfully, not have to deal with packing and moving dh's office just yet.

We're Moving

May 17th, 2010 at 09:06 pm

A few months back dh and I decided it was time to make Idaho our legal residence... we plan to spend more than 50% of our time there, and it makes sense from a financial standpoint. We bought our ID home in 2006. We will definitely save on some basic expenses:

Homeowner’s insurance:
ID - $320
CA - $578 (changed carriers)

Registration for my car (2007 Murano):
ID - $74
CA - $376

Auto Insurance:
ID - $1067
CA - $1459 (two cars)

State Income Tax:
ID - 7.8%
CA - 9.55%

State Sales Tax:
ID - 6%
CA - 9.25%

Property Tax Homeowner's Exemption Savings:
ID - $1,005
CA - $70

When I use Sperling's cost of living comparison http://www.bestplaces.net/col/, it's 42% cheaper to live in Idaho than our city in California. We've been in Idaho for about two weeks now and I definitely notice the savings at the grocery store and the gas pump.

We will keep the CA condo in Silicon Valley, at least for a few years. We have family and friends in the Bay Area that we will visit frequently so the condo will be used regularly. And, when it gets too cold in Idaho, or if we have to fly out of SFO or SJC for one of our trips, we have a nice place to stay. The Prius will remain at the condo for use while we're in CA.

In other news, I am scheduling some landscaping work in our back yard using Basalite pavers/stones. Right now, the back yard is a patch of grass with a small concrete patio... that's it. My vision is to create an "outdoor room" with pavers and stone planter boxes to be filled with perennials and annuals. We will also plant a tall, narrow tree for privacy in one corner. The work is scheduled to be done in June. Before and after pictures to be posted when the work is done.

April Update

April 29th, 2010 at 08:13 pm

It's been a while since I last posted to my blog. April has been a busy and expensive month. I say expensive because of all the taxes we paid... Thankfully, we had savings to cover our bigger-than-expected Federal and State tax underpayment. Then there were also property taxes due on our CA home. So glad that's behind us!

In mid-April we spent two weeks in Mexico, mainly to visit the World Heritage archeological sites near Villahermosa and Merida. These are both very safe cities but I especially loved Merida, a beautiful colonial city with a rich history.

Giant Olmec stone head in La Venta Park near Villahermosa. These are as big as a room:


The Museum of Anthropology in Merida is worth a visit:


The archeological site at Uxmal:


One day, we drove to mangrove forests of Celestun on the coast. Dh had a blast bird-watching. Celestun is the feeding ground for thousands of flamingos:


The Yucatan is riddled with http://yucatantoday.com/en/topics/cenotes-underwater-sinkhol..., called "cenotes." These are usually filled with clean water and are popular as cool, underground pools and for cave diving. These limestone cenotes are connected by a vast underground river system:


About the trip:
~ We didn't get sick;
~ We had great accommodations through our timeshare (Hyatt Regency in both cities);
~ While in Merida, we saved money and had more flexibility by hiring a private driver for the day instead of going on a group tour. We were able to see and do much more for less than $60 a day;
~ We went over on our food budget because we invited our driver to eat with us each day, but he was knowledgeable and helpful;
~ The weather was good... some days actually a little too hot (over 100 degrees) but after Florida, we welcomed it;
~ Speaking Spanish really helped us get around.

One thing that really "gets" to me when we travel in Third World countries is to learn how LOW the minimum wage is in some countries. At ~$5 USD a day Mexico has a minimum wage even lower than EL Salvador, where I was born. I don't know how people live on this, but they do.

It also distresses me to see so many stray dogs that look like they're starving. They wander the streets looking so pathetic, but what can you do? There is no SPCA that I know of and people are mostly indifferent to these poor creatures. If you try to feed them, people look at you as if you are crazy.

At La Venta Park, people do feed the coatimundis... it's the local practice. These raccoon-like animals can be quite aggressive, and even chase you if they think you have food.


And, yeah, they caught me!


In the next few days I will be posting more on the World Heritage sites on my travel http://www.sagetravelers.com/, in case you are interested.


Taking Stock

March 30th, 2010 at 11:55 am

Today I decided to analyze my stock portfolio, something I haven't done in over a year. Here is the lowdown:

1. The portfolio has now surpassed the high of October 2007;

2. It's gained 95% since the low of February 2009;

3. Overall gain since inception has averaged ~7% a year;

4. I have not bought or sold any stocks or mutual funds in years;

5. My portfolio consists of 90% individual stocks and 10% mutual funds;

6. My best performing stocks in terms of gain over purchase price are: AAPL, SBUX, PG, WMT, ABT, HPQ, AMZN;

7. I buy stocks based on liking/using a company's product, not on a high-level analysis. (Note: I DO NOT recommend this approach!) For example, I bought AAPL at $6 a share in 1996, because I'd used Mac computers since they first came out in 1985. I was lucky... AAPL has split twice and has had outstanding gain;

8. Most (but not all) stocks I bought outperformed mutual funds I bought (VFINX, SNXFX, SWPPX);

9. When I decide to buy a stock, I will buy between 100-500 shares;

10. As much as I'm interested in personal finance, I just haven't gotten into educating myself about the stock market, but maybe this is an area to explore. I still feel like a rookie.

I've always thought of my stocks as an asset I'd probably leave to my children or a charity and had not counted on these funds for retirement, but it's a good backup option. On the other hand, my retirement accounts (403b, IRAs, 457), some of which are invested in mutual funds, are entrusted to a professional financial manager.

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In other news, dh and I have been in ID for the last two weeks, enjoying some special time with my daughters and SILs. The weather's been colder than CA, but nothing unbearable. Dh has a new interest: photographing birds and wildlife, so we've spent hours at local parks and wildlife preserves. Idaho has abundant wildlife and beautiful landscapes, so there are endless photo ops. Dh just spent a small fortune upgrading to a better camera (Canon EOS 7D) but saved money on taxes (ID is 6% vs. CA @ 9.25%).

At the end of the week, we'll drive back to CA (with TC the cat) to spend Easter with family and friends. I'm looking forward to seeing my sister, niece, grandniece, and grandnephew. I love how the kids get excited about their Easter egg hunt and we'll all have a wonderful brunch with close friends and family.

Then in mid-April, dh and I are off to Mexico for a few weeks to explore some major archeological ruins in the states of Tabasco and Yucatan. From our base in Villahermosa, we will go to http://en.wikipedia.org/wiki/La_Venta and http://en.wikipedia.org/wiki/Palenque. Then we'll fly to Merida, and will go to http://en.wikipedia.org/wiki/Uxmal and http://en.wikipedia.org/wiki/Chichen_Itza from there.


Cancel Your Credit Cards Before You Die

March 22nd, 2010 at 08:00 pm

A friend sent me the following and it so funny, I just had to share. He swears it's true but even if it's not, it's good for a laugh:

Cancel your credit card before you die...

Be sure and cancel your credit cards before you die.

This is so priceless, and so, so easy to see happening, customer service being what it is today.

A lady died this past January, and Citibank billed her for February and March for their annual service charges on her credit card, and added late fees and interest on the monthly charge. The balance had been $0.00 when she died, but now somewhere around $60.00. A family member placed a call to Citibank.

Here is the exchange:

Family Member: "I am calling to tell you she died back in January."

Citibank: "The account was never closed and the late fees and charges still apply."

Family Member: "Maybe, you should turn it over to collections."

Citibank: "Since it is two months past due, it already has been."

Family Member: "So, what will they do when they find out she is dead?"

Citibank: "Either report her account to frauds division or report her to the credit bureau, maybe both!"

Family Member: "Do you think God will be mad at her?"

Citibank: "Excuse me?"

Family Member: "Did you just get what I was telling you - the part about her being dead?"

Citibank: "Sir, you'll have to speak to my supervisor."

Supervisor gets on the phone...

Family Member: "I'm calling to tell you, she died back in January with a $0 balance."

Citibank: "The account was never closed and late fees and charges still apply."

Family Member: "You mean you want to collect from her estate?"

Citibank: (Stammer) "Are you her lawyer?"

Family Member: "No, I'm her great nephew." (Lawyer info was given)

Citibank: "Could you fax us a certificate of death?"

Family Member: "Sure." (Fax number was given)

After they get the fax...

Citibank: "Our system just isn't setup for death. I don't know what more I can do to help."

Family Member: "Well, if you figure it out, great! If not, you could just keep billing her. She won't care."

Citibank: "Well, the late fees and charges will still apply."

(What is wrong with these people?!?)

Family Member: "Would you like her new billing address?"

Citibank: "That might help..."

Family Member: "Odessa Memorial Cemetery, Highway 129, Plot Number 69."

Citibank: "Sir, that's a cemetery!"

Family Member: "And what do you do with dead people on your planet???!!"

(Priceless!!)

You wondered why Citi is going broke and need the feds to bail them out!!