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I’VE BEEN A WITNESS to inflation with every trip to our neighborhood H-E-B grocery store. As various articles have pointed out, inflation can disproportionately hurt retirees. Yet recently I stumbled on a piece that argued the reverse, at least for some of us. I think my wife and I fall into that lucky category, and I’m curious if other HumbleDollar readers feel the same.
We own our home free and clear, so there are no rent increases to worry about and no mortgage to pay. There isn’t much we can do about the cost of home repairs and maintenance. But we’re in good shape when it comes to property taxes, thanks to generous homestead and over-age-65 exemptions. For our comfortable 2,800-square-foot home on a one-acre lot in a nice neighborhood, we pay $2,619 a year in taxes, plus our annual homeowners’ association fees are just $195.
As empty nesters, we’re only buying for two people. That’s quite a contrast to earlier years, when we were raising four kids. Food, clothes, transportation, school supplies, health insurance, dental and orthodontics expenses all made for a hefty domestic overhead.
Later, there were high car expenses, including maintenance and insurance. The liability quote for a teenage male driver will really get your attention.
And the grand finale—college—was a whole different order of magnitude. We treasure our kids and wouldn’t have done anything differently. But for a long time, we didn’t have much discretionary income.
We’ve always been dog people, and have never been without one and usually more. Not long ago, we had four elderly rescues with a variety of medical conditions. The cost of their health care and medications was pretty staggering. You know it’s bad when you have your vet’s phone number memorized. While inflation has affected vet prices, we’re down to one canine companion, and our vet bills have plummeted.
Now that I’m retired, my 48-mile roundtrip daily commute is history. My gas and car maintenance expenses are at lifetime lows. Moreover, when we do need to fill ‘er up, we luck out. I’ve read that some folks out west have been paying $7 a gallon for gas. I recently filled up here in Texas for around $2.50 a gallon.
During my career, I was a member of that shrinking dinosaur class who had to put on a suit and tie every day. That meant clothing and dry-cleaning expenses, even if I did find a way to mitigate the former by buying clothes on eBay. That necessity, too, is now gone.
We live in central Texas. While we make constant use of the air-conditioning in summer, our typically mild winters—if you don’t count the Great Freeze of February 2021—mean modest heating bills. We are all electric at our house, so there are no heating oil costs, either.
I no longer pay for disability insurance, since I’m no longer working, or for term-life insurance, since our kids are grown and self-sufficient. Our savings are enough to provide for my wife should I die first.
When I turned age 65, I celebrated—not my birthday, but my Medicare eligibility. When my wife recently also became eligible, our happiness doubled. In 2021, we had been paying almost $900 a month for her health policy. In August of that year, we began instead paying $170 a month for her Medicare, $104 for her Medicare supplement and $7 for her Part D drug plan. That’s a total of just $281 a month.
Finally, in retirement, a greater portion of our expenses are discretionary. These are things we would’ve avoided during our high overhead years but which we indulge in now. If we ever needed to cut back, we could.
It’s not just the expense side that’s been favorable during our golden years. While we’ve lost my employment earnings, there have been some nice pluses on the income side.
The main one is Social Security. I still can’t quite believe this gift that shows up in my bank account every month like clockwork. The second Wednesday of the month seems a little like Christmas. The potent inflation fighter is the cost-of-living adjustment, with a recently announced 8.7% increase for 2023.
Icing the cake, my wife is about to start her Social Security, which will be a spousal benefit. She’s waiting till her full retirement age of 66 and four months to get the maximum. If I predecease her, she’ll enjoy maximum survivor benefits, too, since I waited until age 70 to claim.
Our cash is earning more interest these days. The same goes for other fixed-income products such as certificates of deposit and Treasury bills. While it’s true that interest rates aren’t rising as fast as inflation, the loftier yields still look pretty attractive compared to the anemic returns of the past few years. Our other investments, especially stocks, while depressed at the moment, should be an excellent source of inflation protection in the long run.
I realize inflation is still passed through to us in myriad ways, no doubt taking a toll. Still, as I look across our finances, I suspect my wife and I are getting off more lightly than most.
Andrew Forsythe retired in 2017 after almost four decades practicing criminal law in Austin, Texas, first as a prosecutor and then as a defense attorney. His wife Rosalinda and he, along with their dog, live outside Austin, at the edge of the Texas Hill Country. Their four kids are now grown, independent and successful. They’re also blessed with five beautiful grandkids. Andrew loves dogs, and enjoys collecting pocketknives and flashlights. Check out his earlier articles.
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Pretty interesting, and your expenses just change and overall don’t seem to go down that much. Your relatively reasonable property taxes likely help out plenty to keep your expenses in check.
Same. Mortgage is fixed 2.5%… food and clothes etc are up, but it’s not a big impact. We now both wfh, so spending on gas has been down despite the volatility this year… and local prices are practically back to normal in Colorado. Mostly we notice it in restaurant prices… plus we’ve increased our standard tip from 18% to 25% as a way to give back and help people working hard at low wage jobs. Plus, we put away a lot the last couple years, and some of it is going into solar for the house, so we’ll be largely immune to electricity price increases also.
Restaurant prices are insane! We hardly ever eat out, but a couple of weeks ago both of us were sick and we just didn’t feel like cooking. I went to a local pizza restaurant (not a chain) and got two salads and a medium pizza. I almost choked (no pun intended) when the bill came to $60. The food was fine, but nothing special. It will be a long time before we eat out again!
Thanks to all for the varied comments. It’s been interesting to read how others are managing the current inflation spike. I’m not surprised that many HD readers are coping pretty well. But so many others out there are really getting squeezed.
My wife and I have also managed to mitigate the effects of inflation. We both delayed claiming our SS benefits until 70 which will increase to $96,000 next year for the two of us. We were also fortunate to have purchased our four rental properties in January 2020 shortly before prices took off. Rents lagged behind property values during the first part of the pandemic but are ahead of inflation this year. Also, as now-retired educators, the conservative portion of our IRA portfolio has always been in TIAA’s traditional annuity fund instead of in bonds. This fund has a guaranteed minimum 3% accumulation rate and our average rates are currently just under 4%.
Thanks, Andrew, for the “sunny side up” article from deep in the heart of Texas! It’s a little harder to be as optimistic as you when you’re waiting out an ice storm in Virginia…
If I didn’t have a mortgage and condo fees, I would be in much better shape for some of the reasons you listed. However, I bought the unit after my marriage ended just 15 years ago when I was 50 and financed it 100 percent, plus closing costs. However, rents for an equivalent apartment in my university town at this time would cost me about $400 to $500 more per month. So I feel fortunate to have a fixed rate mortgage and that our condo board has kept the monthly fees the same for a long time now.
Thanks for an enjoyable column, Andrew. Like you, I have celebrated my mid-60’s with gusto. Just two years ago, my biggest monthly expenses were housing and medical. Now Medicare has reduced my monthly health costs from thousands to hundreds, and my new Social Security benefit is sufficient to cover our mortgage, property taxes, homeowner’s insurance and utilities — even the DirecTV bill.
It’s a warm, fuzzy feeling of security that we savor every day. I’ve decided that my favorite relative is my Uncle Sam!
Your net SS benefit after deductions can do all that? Wow! What’s the secret?
Actually my wife’s and my SS benefit covers our basic living expenses also. Small mortgage and property tax payments definitely makes it doable. My pension covers our travel and other expenses.
I know when my husband gets his SS at age 70, his benefit (after tax withholding and Medicare premium) will be enough to cover our mortgage payment ($1100/month), our property taxes ($120/month), our homeowner’s insurance ($100/month) and utilities ($250/month). We’ll have enough left over to pay for a few other things as well. I guess the secret is to live in a modest home in a relatively low cost-of-living area.
I enjoyed reading your comments about your financial decisions. Thanks!
I stopped working at the end of September as a CPA at age 72 and am currently struggling with the decision to keep my professional license active or to change my license to an inactive status. I suspect I am dealing mostly with loss of work identity.
I would think you, and others, have dealt with a similar decision and would welcome hearing your thoughts on the non financial aspects of your retirement decision.
Best, Bill
Bill,
Thanks for your comments. Soon after I retired, I took a type of inactive status with the state bar and haven’t regretted it once. I was ready and, as Jeff alluded to below, I was happy to be free of the continuing education requirements.
It’s different for everybody but I don’t feel I had so much of my personal identity tied to my work, and so didn’t feel a great loss when I hung it up. I have a lot of other interests and the time and freedom to enjoy them during retirement has been great.
I hope you figure out the best path for your retirement….and enjoy it!
I appreciate your comments and those of Jeff. I had already greatly exceeded my upcoming period CPE requirements so I have made the decision to keep my license current for the 2023-2024 period even though I do not currently plan to do any professional work going forward.
I still enjoy seeing friends and colleagues monthly at the local chapter of our state CPA society meetings and will get most if not all of my future CPE there at a reasonable price while being mostly entertained by new rules and procedures that I do not have to deal with.
I am trying to not burn past professional bridges during the initial period of my retirement in case it turns out that I am one of the persons who will never retire. The hardest part was calling clients to let them know I was retiring; a few of these clients I had worked with for over 40 years. To a client they all wished me well. I am grateful for the career that found me. I do not claim ownership of past clients so I have just offered my opinion to them of where they may find future tax help that is the best match for them.
No longer setting an alarm clock or keeping my professional time in quarter hour increments has been joyful. More reading and walking has also been great.
Thanks for the kind words.
Best, Bill
Bill,
I retired from an engineering career 2-1/2 years ago, the last 20 years spent working with engineering software. I obtained my registration as a Professional Engineer very early in my career and kept it even though it was not required when I worked with software (although it was a credential that other engineers recognized and appreciated). I recently decided that I will not renew my engineering license with the state (NC) in 2023. The license wasn’t terribly expensive to renew, but the continuing education credit requirements are not insignificant, and I’ve had no reason to seal design drawings or associated documents in a long time. I’m OK with my decision as it doesn’t impact my day-to-day decisions or my view of self as an engineer.
Thanks for your thoughts Jeff!
Andrew, thanks for sharing and for an interesting article. Understanding one’s personal rate of inflation, and methods of insulating yourself, is a valuable personal finance concept. As the previous comments suggest, it will vary with situation and location. Once we understand things we have at least some opportunity to make choices that help us.
I started Medicare this fall, and my wife turns 65 in March and we will experience a very similar reduction in monthly health insurance costs. Our SS claiming strategy is similar to yours, although our ages are a bit closer.
I am glad you are doing so well. Everyone’s experiences will be different. Those who did not plan and prepare for retirement may be in more difficult shape.
I retired 12 years ago, and my wife and I live off of my pension and our social security. My pension is non-COLA, but so far we have managed to live comfortably off of it and SS. We have only spent money from investments to buy cars or major remodel projects. Thanks to substantial savings and investments, I do not foresee ever having financial issues, and we hope to leave a good inheritance to our children.
I realize we are blessed and that many are not so fortunate.
As the comments suggest, everyone experiences inflation and rising interest rates differently. Assessing your individual situation and adjusting accordingly are the things within your control. The headlines and punditry are background noise.
My husband and I have experienced something similar. We moved to Arizona earlier this year. Even though the Phoenix area has one of the highest rates of inflation in the country, we feel like we are doing better financially than we were in Oregon.
Our property taxes are almost 75% lower here. Food prices are lower. Gas prices are lower. It’s far easier (and cheaper) to find people to do home repair work here as compared to Oregon. Now that both of us are retired, I typically only fill up my car with gas once a month.
Andrew, thanks for your analysis of retirement finances. Learning about the real world is important. The thing is, outside Texas there are places that are quite different 😰
We live in a 2,000 sf condo and the property taxes are $13,000 (NJ) per year and the HOA fee is $870 per month. Both rising annually of course. Our gas is about $4.00 a gallon.
Given our home mortgage and college costs were paid off years before I retired, they weren’t any added value when I retired in 2010.
Thanks to a RMD and unexpected capital gains last year our Medicare premiums are several times the $170. To add insult to injury my employer dropped our medical coverage when we were in our 70s and 80s. That meant we each had to pay a age based premium for Medigap and Part D – $255 per month for Plan G and $56 for Rx after they also raised the deductible and co-insurance.
I think you will find that spending, discretionary and otherwise, often unplanned, will rise in the future offsetting the saving advantages from before you retired. Actually, given you have been retired six years I’m guessing much of the savings from your working years spending have already evaporated, I know mine have.
Richard, I think you and I are the only two guys in this blog who have these sorts of problems. The only thing in my favor is that I got a good price on Medigap and Part D. At least you don’t have to pay maximum IRMAA unless your income is over $500K/$750K.
The biggest financial concept in retirement is SORR; Sequence of Returns Risk; learn it
I think this fear of SORR is also overblown. I’m not sure what they prescription for it would be. It seems to me that this fear might encourage one to try to time the market by easing up on their preferred stock allocation right before retirement. However, since it is difficult to predict the future you might be missing out on gains if you sell stocks simply to avoid this issue. Perhaps, it might be better to view or think of stock returns over decade long periods in your planning.
Of course you should consider the possibility of bear markets when planning your retirement and your risk tolerance might change when you retire, but I don’t recommend trying to time the market. The bucket approach is one way to tackle this issue.
It’s good to know but I think sequence risk is overblown. Sure, the inherent risk is high if you maintain a fixed (inflation-adjusted) level of withdrawals from your investments throughout retirement, even during down markets.
But in the real world, people adjust and take less from their investments when markets are down. They will either cut discretionary spending or tap cash reserves until markets recover.
In any case, I think many will instinctually protect themselves from sequence risk without any in-depth knowledge on the subject, and there are many other retirement issues equally, if not more important to master.
Ditto!