After financial reality sets in? (supplement, emotionally, moving, state)

[GLS]

I am 5 years from retirement and financial paranoia is setting in, which is fanned by the stock market dive and the housing crisis. I read about people living on $12,000 a year, and while I respect their ability, there is no way I am going to be able to slam on the budget brakes compared to the way we have always lived. If we wanted something expensive we just worked more to get it. Not so on a fixed income.

Without giving specifics of my personal finances, I am interested in the wisdom of people who have been retired 5 years or longer. The first few years many people can "coast" on their savings. What is the psychological impact of going from a good salary ($200K annually) to $50K/year? Looking back, would you have worked a few more years or part-time, or was the extra freedom worth the financial trade-off? Anything you would have done different in the 5 years preceding retirement to prepare? Thank you for your responses.

[HappyTexan]

Do not wait to see if you can make it on 50K til after you retire.

Start living on 50K right now and bank the rest of your salary. That gives you the 5 years to adjust and also save in case you need more then 50K per year.

Look at all your cash outlays and start living like you are retired now with only 50K coming in.

I'm not retired yet but have a few more years like you but I'm practicing what I'm preaching to you.

[Tesaje]

Originally Posted by HappyTexan

Do not wait to see if you can make it on 50K til after you retire.

Start living on 50K right now and bank the rest of your salary. That gives you the 5 years to adjust and also save in case you need more then 50K per year.

Look at all your cash outlays and start living like you are retired now with only 50K coming in.

I'm not retired yet but have a few more years like you but I'm practicing what I'm preaching to you.

I plan on taking a 40% drop when I retire in 545 days from now. A 75% drop is huge. I do what HappyTexan says - I'm already living on my retirement income and banking the rest (it adds up fast that way). It is made possible by having paid off my house and not paying out all that mortgage payment. I'll be living off of about that much spending money after taxes, health insurance, etc.

I'm not sure how doable it is dropping that much now while you are still working. There are quite a few expenses to working that I expect will disappear once retired - commuting being a big one, clothing, etc. Other cutbacks like bringing your lunch cooking all your own food may or may not be feasible. I do it for the most part, but mostly to address my health. It does take time and energy to do that.

If your family is living on $200k but needs to drop down to $50k, that probably means the really big things like a smaller house is order. Fewer and less expensive cars, less expensive habits and hobbies (country club fees and the like would have to go). Your income level goes from upper middle class to almost wealthy down to an average income.

I would recommend working up a detailed budget over the whole year so you know exactly what your spending the money on. After you know that, you can work up a projected retirement budget and see what needs to go and what can't on your prospective retirement income.

No wonder you are scared. That is a really huge change if you are accustomed to living a $200k lifestyle. You might have to relocated to one of the much lower cost areas which may or may not be ok with you and your family.

[cdelena]

We had more than we needed when we first retired four years ago but with good health and freedom our lifestyle has changed (for the good). The combination of changes we made, inflation (higher health care, taxes, fuel, food, etc.) and lower income (market funded retirement) has us looking hard at our plan.

Although we are fine for right now if the trend continues for years we will see a squeeze that will be unpleasant in best case and potentially very serious. We are now discussing if we should return to work now for a year or so to insure against bad times later.

All of this to say that expenses will change and income (unless insured) can vary so be conservative in your estimates. Being active people we retired spending about the same as we were while working, and now question if we can continue.

[texdav]

Going from 200,000 to 50,000 is a big drop. I just hope your overhead expoenses are not targeted at the200,000 level. It will eman a big change in life style . My income is bascially 85% of gross and my expenses is alot lower since I eliminated all debt before retiring.I certainly wouldn't try to keep the same lifestyle by supplementing with savings once retired because you need to have a substancial emergency fund available after you retire.If you are one of those that used alot of credit then you may find that you actually lead a lifstyle beyond 200,000 so I would start adjusting now not when you retire. I've been retired 8 years and my income is 85%of what I grossed with lower expenses and no debt right now. I have about four years income as a emergency fund and actually have been adding to it. Don't wait until retiremant to adjust your style of living with that kind of drop is my advice.

[elousv]

Can't bestow any wisdom, can only add that you are not alone in "financial paranoia" land. I have basically come to the conclusion that I would rather be frugal and not working than working and buying whatever I want. I know one critical component to my plan is removing a $35K house payment to zero by moving to a smaller house in a less expensive area. I think you have to get over the hump of making the decision and then doing what is necessary to make it happen.

[TuborgP]

Originally Posted by texdav

Going from 200,000 to 50,000 is a big drop. I just hope your overhead expoenses are not targeted at the200,000 level. It will eman a big change in life style . My income is bascially 85% of gross and my expenses is alot lower since I eliminated all debt before retiring.I certainly wouldn't try to keep the same lifestyle by supplementing with savings once retired because you need to have a substancial emergency fund available after you retire.If you are one of those that used alot of credit then you may find that you actually lead a lifstyle beyond 200,000 so I would start adjusting now not when you retire. I've been retired 8 years and my income is 85%of what I grossed with lower expenses and no debt right now. I have about four years income as a emergency fund and actually have been adding to it. Don't wait until retiremant to adjust your style of living with that kind of drop is my advice.

Thats a very solid retirement plan and if you are reducing debt or have none you are debt free. We recently retired and are in solid shape with a new house and no mortgage and well funded. We were able to make our move prior to the downturn in real estate and we feel for those in our age range who are now looking at working much longer then expectd. It is great to be 60 and retired with many secure years ahead. The market downturn really has not effected us much and that we are very thankful for.

[GLS]

Thank you to everyone thus far for posting. there is some collective wisdom here that cannot go ignored. Most of you have corroborated what I knew intellectually, but have tried to avoid emotionally. It's probably akin to taking Castor oil....I know it's necessary, but YECH!

I do look forward to the freedom of retirement, but I don't want to be so short of funds that I can't pursue activities which we enjoy (cooking, eating out at nice restaurants, taking my wife to a B&B once in awhile). Our biggest challenge will be to maintain the funds to support her hobby, training field trial dogs (which is very expensive). Using your ideas I have asked her to project an annual "hobby budget", so I can extrapolate costs after our income stream drops. My personal needs are pretty basic, i.e. I don't golf, belong to a country club, travel to Europe, or spend much on myself. I have no "boy toys" such as a boat, RV, etc. I have never been interested in "status" possessions and my off-work wardrobe consists of old T-shirts and jeans or shorts. I have a nice house,and have put so much work into it I don't want to downsize.

I have followed some of the advice offered and have paid off my mortgage (although insurance and property taxes are high here). I use only one Debit card and no outstanding revolving accounts.

Actually now that I reflect further upon your posts, my nervousness probably comes from potentially not being able to provide my wife with all the nice things we have grown used to. We have never been on a budget and I have never had to say no to any item for her hobby. We're spoiled, I admit it. I should make it clear that she is not demanding or unreasonable, but I just enjoy getting her things.

To reiterate, thank you for helping me to get started on readjusting psychologically. Nothing like a dose of reality to motivate self-discipline.

[forest beekeeper]

It does take some getting used to.

My career had me bringing in around $75k/year, so my retirement income dropped a lot.

Having been retired for 7 years now, I think that my Dw is getting bored. So we have begun looking at apartment buildings to buy.

This housing crash is great! and it puts us into a great spot to begin buying some more.

[Wicked Felina]

I wish I'd asked for advice before I retired (two years ago)! I took over a 66% drop in cash flow when I retired, for which I was unprepared. Therefore, I spent a lot of money uselessly - not for unnecessary things, but because I hadn't calculated properly. Yes, I "coasted" for about a year and a half. Talk about a learning curve!

The most important thing I did was to get out of debt completely before I retired. I don't like owing money on anything, or to anyone, so spending a lot to be clear of debts was critical to me.

And over the past few years, I learned to curtail some spendthrift ways (no choice!), i.e., spending cash on things I really didn't need. I still count myself fortunate, to be able to (God willing ) always have a roof over my head, food on the table...the basics of keeping one's head above water.

Your drop from earnings to retirement is indeed a huge one, but you sound pretty clear-headed. I think you're right, different situations require a different kind of discipline. You'll still be able to afford to give your wife nice things, just have to pick and choose a little more carefully, that's all.

Take it from these good folks, start living now on your projected retirement income. I think you'll do just find in making the adjustments needed. And, yes, the financial trade-offs are well worth it, imo.

I love reading these threads about retirement, how other folks prepared for it, and are dealing with the adjustments one has to make. Some excellent advice here. Good luck to you.