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Ignoring the Experts

Kristine Hayes

I’M NOT A RULE breaker. In the nearly 40 years I’ve had a driver’s license, I’ve received just one traffic citation. I follow all the laboratory safety rules when I’m at work. When I fly, I’m the person who removes the card from the seatback pocket and follows along with the flight attendants as they do their safety briefing.

But when it comes to finances, I don’t always follow the rules laid down by accountants, financial planners and other money experts. While I respect their suggestions for improving my financial life, I sometimes choose not to abide by the guidance they offer.

Rule No. 1: Don’t buy a house unless you plan to stay put for at least five to seven years.

I took this one to heart when I got divorced almost a decade ago. I didn’t know what my future held so I opted to rent a small, one-bedroom apartment rather than purchase a home. But when I decided to remarry three years ago, owning a home became a necessity. My husband-to-be and I had four dogs and finding a landlord who would rent to us was impossible.

Because of our retirement plans, I doubted we’d live in any home for the recommended five-to-seven-year timeframe, so I was hesitant to take the plunge. I worried being a short-term homeowner would mean not accumulating enough equity to cover the cost of real-estate agent fees and other closing costs when we sold.

Over the past year, I’ve become much more comfortable with our decision. Real estate values in our area have soared to record heights. The average home stays on the market for just five days and often sells for more than the asking price. Of course, I’m also aware of the housing market’s fickleness and know values could decline by the time we’re ready to move. Still, for the time being, I feel confident we’ll walk away with a substantial profit when we sell.

Rule No. 2: Save at least 10 times your salary before retiring.

I’m not retired—yet. If I continue to work until my full retirement age, it’s possible I might reach the goal of amassing savings equal to 10 times my annual salary. At age 54, I have just over $455,000 in my various retirement accounts. I also have a small pension that, if I chose, would pay me a lump sum benefit of $55,000 in a couple of years. Those figures put my savings at seven times my salary. That’s about where I should be at age 55—but I doubt I’ll hit the goal of 10 times salary before I leave fulltime work behind.

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The fact is, my husband is already retired. Three years ago, he left his decades-long career in law enforcement. I’m looking forward to spending more time with him and together enjoying the various activities we participate in.

To be sure, if the stock market continues to grow at a reasonable rate over the next decade, it’s possible I’ll reach my mid-60s with 10 times my final salary sitting in my retirement accounts. But it’s also possible a stock market crash could leave me with significantly less retirement savings than recommended. But either way, I’m not going to let the “10 times salary” rule determine when I retire.

Rule No. 3: Delay taking Social Security for as long as possible.

I’m still eight years away from being eligible for Social Security benefits. But if my retirement plan goes as I think it might, I’ll likely claim benefits well before age 70. My own work record should provide me with approximately $1,300 a month if I take the benefit starting at age 62. My husband, whose work record is both longer than mine and with a much higher average salary, is planning to delay taking his own Social Security until age 70. I’ll receive his benefit as a survivor benefit, assuming he predeceases me, at which point the size of my benefit will no longer matter.

My hope: By taking my own Social Security benefit early, I’ll be able to let my 403(b), annuity and pension accounts continue to grow for several years before tapping them for income. And who knows? Maybe my investment accounts will end up at 10 times my salary—but it’ll likely be some years after I quit the workforce.

Kristine Hayes is a departmental manager at a small, liberal arts college. She enjoys competitive pistol shooting and hanging out with her husband and their dogs. Check out Kristine’s earlier articles.

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Kurt S
Kurt S
4 days ago

I have broken almost all the money rules from “experts” my entire life. I figure if I do what most everyone is doing, I will get what most people are getting. Which is not good enough.

My favorite is 95% individual stocks, 5% cash, never any bonds, no mutual funds, no ETFs. It has served me extremely well. Humblebrag, if my portfolio went down 85%, it would not change my lifestyle. I will continue until my dying day. Taking Social Security at age 70 will be my fixed income.

kristinehayes2014
kristinehayes2014
3 days ago
Reply to  Kurt S

It sounds like you’ve found a financial strategy that’s paid off (no pun intended) very well for you. Well done!

Olin
Olin
5 days ago

One of the outliers we factored in to our retirement was an inheritance on both sides of the family. We knew in advance what that figure would be. With that addition thrown into the whole kit and caboodle, it made it difference in our working years, family and quality of life. What the experts say don’t necessarily apply to everyone, but are a good guide.

kristinehayes2014
kristinehayes2014
4 days ago
Reply to  Olin

It’s true–it’s hard to provide rules that will apply to everyone. And I do appreciate that those rules at least get people thinking about what they need to do–even if they don’t take any action.

tshort
tshort
6 days ago

mailbox money (aka pensions) change the math significantly in terms of what size pile one needs.

I suspect that law enforcement husband’s pension plus her SSA go a long way toward covering expenses, especially if they’re living in a lower cost area.

Last edited 6 days ago by tshort
kristinehayes2014
kristinehayes2014
4 days ago
Reply to  tshort

Between his pension and Social Security (taken at age 70), my husband will be close to replacing about 80% of his final income. It remains to be seen how much my pension, retirement accounts and Social Security will provide me with. I suspect if I started taking all of it at age 62, I’d be getting about 50-60% of my final income.

Ginger Williams
Ginger Williams
11 days ago

Buying a house is financially smart when you plan to live in it at least 7-10 years. You deliberately chose to break that rule because your pets were worth the risk of losing $10k or so when you’re ready to move. That’s why we refer to personal finance, because personal goals matter.

Like you, I won’t have ten times my salary saved when I retire. Instead, I’ll have two pensions, both in well-funded plans, which will cover regular expenses, health insurance, and taxes. I’ll claim Social Security later, giving myself an income boost after several years of inflation. My retirement investments will supplement my income as inflation eats into purchasing power of my pensions and will cover major expenses. With two pensions, I don’t need as much investment income as typical retirees. Given mandatory pension contributions, I would have lived a much poorer life if I’d saved enough to meet the rules!

Financial planning guidelines are for typical circumstances, giving people a starting place for decisions. Then you personalize, after you understand the rules well enough to tweak them to fit your personal circumstances.

kristinehayes2014
kristinehayes2014
11 days ago

I definitely took a risk with buying a house on a less-than-7-year time frame. During the first couple of years we lived here, I was hoping the value would appreciate enough to allow me to recoup my down payment ($80,000). Then the pandemic hit and I really panicked. I never would have guessed prices in my neighborhood would go up nearly 25% in just over a year!

My mother’s house, which is less than a mile from where I live and with exactly the same size and configuration (1100 square feet, 3 bedrooms/2 baths) as my home, is on the market right now. She was asking $500K for it and as of today, she has offers that exceed the asking price by…a lot. Given that I paid $375K three years ago, I’m now hopeful I will not only get my down payment money back, but perhaps make a substantial ‘profit’ off my investment. Of course, I was also a homeowner back in 2007, so I know not to count my chickens before they hatch…

R Quinn
R Quinn
11 days ago

That ten time salary rule is based on retirement at age 67, but another rule says 25 times expenses.

Based on the figures you stated, right now you would need $1,800,000 to generate your current income. That would be reduced by income replacement from SS AND of course, the extent to which you feel you can live in retirement on less than your current net income.

The experts can set general rules, but only the individual knows what works for them. By that I mean both a satisfying lifestyle in retirement and the ability to sleep at night when thinking about money.

parkslope
parkslope
11 days ago
Reply to  R Quinn

I estimated this quickly, but a SS benefit of $1,300 a month would reduce the $1,800,000 to ~ $1,400,000. If we further assume that Kristine is maxing out her 403(b) at $19,500 then ~$860,000 would generate the amount of income that is supporting her current lifestyle.

kristinehayes2014
kristinehayes2014
11 days ago
Reply to  R Quinn

Indeed. I recently reconfigured my retirement portfolio in a way that allows me to sleep more comfortably at night. I’m sure some would argue it’s invested too conservatively, but for me, it feels just right. A $1.8 million portfolio at age 67 likely isn’t in the cards for me, but who knows? A lot could happen (both good and bad) in the next 13 years.

R Quinn
R Quinn
11 days ago

The past is not indicative and all that, but I can tell you I retired in 2010 and hence stopped contributing to my 401k, but since then it has nearly doubled and that’s with five RMDs and conservative investments. It would be even higher if there were no withdrawals so anything is possible. The question is can we count on ten more years of a bear market.

mytimetotravel
mytimetotravel
11 days ago
Reply to  R Quinn

Yes, it makes much more sense to consider expenses rather than income when planning for retirement. I lived well below my income when I was working, and could not have retired early if I had used “rules” based on income. Even for people spending close to their income, presumably they will stop saving and pay lower taxes after retirement.

kristinehayes2014
kristinehayes2014
11 days ago
Reply to  mytimetotravel

I spent a few years living off approximately 50% of my income. It allowed me to save and invest a large amount of money in a short amount of time. I’m fairly confident I can live comfortably off substantially less that my current income, but only time will tell how necessary that may or may not be. How’s that for hedging my bets?

John M
John M
9 days ago

Couldn’t log on yesterday, but I wanted to say it’s really good. If you back out SS from your 50% of income, using the $1300 per month estimate for SS, you’re really close to 25x your minimum (50% of income) expenses by my calculations. Given you have some time yet to bump that a bit and let the market do it’s thing, you should have enough to survive the worst case scenario. From this point forward you’ll be building in a cushion, and that’s a nice position to be in. Good job!

kristinehayes2014
kristinehayes2014
9 days ago
Reply to  John M

Thanks for the kind words of encouragement. Most days I feel pretty confident about how my future will play out. That’s not to say there aren’t still plenty of days when I question my plan for leaving full-time employment behind as well. If there’s an upside to a global pandemic, it’s the realization that you never know what might happen in the future…

Paul Johnson
Paul Johnson
6 days ago

Given your writing talents, if the worst happens and retirement income unexpectedly takes a bad downward turn, may we expect you to supplement your income with an instructive series of columns on hacks for surviving adversity in retirement ? 😉

kristinehayes2014
kristinehayes2014
4 days ago
Reply to  Paul Johnson

I’ve been doing freelance writing for about 20 years now. I would say the total amount of money I’ve brought in is less than $10,000. Since I love to write anyway, I’m still thrilled when I get paid anything.

Boss Hogg
Boss Hogg
11 days ago
Reply to  R Quinn

Yes. I think of the “rules” as guidelines that you have to pick and choose from depending on what works for you. Similar to advice we get in other areas of our lives. I think what Kristine is planning is very reasonable.

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