IN SUMMER 2012, MY boss of 17 years announced he planned to retire the following year. I had enjoyed working for him and considered him both a mentor and a friend, and I had some trepidation about working for a new manager at this late stage in my career. While I enjoyed my job and was good at it, and I liked most of the people I worked with, it was a stressful, demanding position, particularly when budget cuts necessitated layoffs. I looked forward to not having to deal with those issues anymore. My wife and I started thinking seriously about when we might retire.
I was age 58 then and I had two more years to work before I could retire without taking a reduced pension from the State of North Carolina. The penalties for retiring early were fairly steep, so I didn’t want to quit work any earlier than age 60.
Medical insurance was also a consideration. Fortunately, North Carolina has good and inexpensive medical benefits for state retirees. My wife was working as a private practice clinical social worker, and she’d been covered by my state medical plan. I found out that I could continue to cover her once I retired, and it would cost even less once she went on Medicare.
I tried various online retirement calculators and those gave promising results, even with very conservative estimates of market performance. But the calculators I tried all assumed a constant level of spending over time and they didn’t factor in taxes. This left me with the sense I wasn’t getting the full picture.
By 2012, most of our money was at Vanguard Group, which would provide some limited free advice if you had a certain amount invested there. Several times, I spoke with a Certified Financial Planner for an hour or so. The Vanguard planner plugged our numbers into his own models, and he assured us that we were in good shape. He also suggested we might shift to a more conservative portfolio, since we had enough for our expected needs and might want to reduce risk—something I’d also been thinking about.
To feel comfortable, I wanted to see the numbers in more detail. Since spreadsheets are my forte, I worked up a large, complicated spreadsheet to calculate how our financial situation would change over time. With the spreadsheet, I could change spending and return assumptions to see how these would affect the outcomes. After reading Rick Ferri’s All About Asset Allocation, I looked up his 30-year market forecast. Using his estimates, I came up with a conservative expected after-inflation annual return of 2.4%, based on our planned retirement allocation of 40% stocks and 60% bonds.
I also read The Bogleheads’ Guide to Retirement Planning, which had a lot of useful suggestions. For example, to estimate the amount we would spend in retirement, I took our current expenses, and then subtracted those that would no longer apply in retirement, while also adding in new costs, such as increased travel, hobbies and other leisure activities.
My spreadsheet allowed me to factor in Roth conversions, large occasional expenditures like a new car or replacing the roof, and onetime sources of cash, such as from the sale of real estate. It also computed state and federal income taxes, as well as required minimum distributions. I lowered our estimated spending needs as our retirement progressed, on the assumption that we’d travel less and that our long-term-care insurance would handle most of the increase in medical costs.
It took months to tweak the spreadsheet just the way I wanted it. But after completing the first iteration, my wife and I were convinced we could retire comfortably in summer 2014. So that’s what we did.
Brian White retired from the University of North Carolina, where he worked as a systems programmer and then director of information technology in the computer science department. His previous articles were Limited Selection, Lesson Well Learned and Rookie Mistakes. Brian likes hiking with his wife in a nearby forest, dancing to rocking blues music, camping with friends and stamp collecting. He also enjoys doing Volunteer Income Tax Assistance (VITA) work in the Chapel Hill senior center.