Here’s our latest interview with a retiree as we seek to learn from those who have actually taken the retirement plunge.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
This interview was conducted in August.
My questions are in bold italics and their responses follow in black.
Let’s get started…
GENERAL OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
I am 64 years old and unattached.
I married in 1980 and have been divorced since 1990.
Do you have kids/family (if so, how old are they)?
I have one 38 years old daughter.
She has been on her own since graduation from law school.
What area of the country do you live in (and urban or rural)?
I live in a large California city.
Is there anything else we should know about you?
I wrote Millionaire Interview 169 in October 2019, posted in January 2020.
My family immigrated to the United States in 1973 from the USSR.
RETIREMENT OVERVIEW
How do you define retirement?
For me retirement is leaving the company where I worked for 34 years, not having an earned income and receiving a pension.
How long have you been retired?
I retired on April 1st, 2018, over 4 years ago.
What was your career and income before retirement?
I retired from a supply chain management position at a major aerospace company. I was a senior manager when I retired.
I was with the company for over 34 years, started after graduate school as a member of technical staff then switched to supply chain management, where I progressed from subcontract administrator to program manager.
My job income history is as follows:
Why did you retire?
My retirement was purely voluntary, aided by a maturing pension, unfavorable management changes and desire for freedom.
I always took my work responsibilities very seriously, did my best to meet deadlines and deliver above expectations. This often caused a lot of stress and many additional hours of work above the usual 40 hours work week. Work often spilled into nights and weekends, and I never learned how to turn it off at home. Work stress was affecting my eating habits, sleep and overall health.
A few things converged to help me decide to retire when I did:
- The main program I worked was winding down and many of my work friends moved on to other projects or retired
- Retirement savings were sufficient for a comfortable retirement
- Full pension age was attained
- I had 35 years of maximum or close to maximum Social Security earnings achieved (32 years at maximum, 3 years a few thousand dollars short of maximum)
PREPARATION FOR RETIREMENT
When did you first start thinking seriously about retirement and when did that turn into a decision to do it?
I started planning for early retirement in my early 40s, with a goal to retire at 55 in 2013.
At 55 I could have started receiving a reduced early retirement pension benefit, which was 80% of full benefit reached at age 60. But when I turned 55 my net worth was somewhat smaller than projected, my retirement accounts took a big hit during the 2008/9 global financial crises.
My salary increased and also my bonus target went from 10% to 25%. So, I decided to work one more year, and then another, and another, and another, and another. The dreaded One-More-Year (OMY) Syndrome.
Not all considerations to stay on the job were financial. I happened to be working on an interesting program, with a wonderful set of colleagues and frequent international travel, reporting directly to two vice-presidents, who were looking out for me. The knowledge that I can walk away at any time helped in reducing work stress.
All that changed about a year before I retired; a corporate reorganization caused a retirement epidemic to sweep through the ranks. I lost my mentors, inherited a pile of new responsibilities without a corresponding increase in compensation, and my major program was wrapping up. My nest egg improved substantially and I decided to pull the plug.
What were the major steps you took from deciding to retire to developing a plan to do so?
You can say I started planning for retirement when I got my first paycheck post graduate school in 1980, since that’s when the first 401k contribution was made. The same year first IRA contribution was made.
I started looking at my finances seriously in my mid-thirties. The first major step was to maximize 401k contributions and resuming IRA contributions.
As my compensation grew, I started contributing to after-tax 401k account, which eventually was converted to a Roth IRA at no cost.
I also converted most of my investments to equity index mutual funds for better growth opportunity.
I started reading personal finance books and articles, used various retirement calculators and cash flow projections. I created worksheets to track my spending, net worth, pension estimates, Social Security estimates, future cash flow, etc.
When I finally decided to retire, I carefully chose my retirement date to ensure that I received the prior year’s bonus. I also hoarded my vacation hours the last two years and received 10 weeks of vacation payout at retirement.
What did your pre-retirement financials look like?
My pre-retirement assets were as follows:
I had no mortgage or other debt besides credit card balances, which I paid off every month.
All the funds in 401k, IRA and brokerage accounts were in stock index mutual funds and ETFs, closely following Paul Merriman’s recommended Ultimate Buy and Hold Portfolio with 100% equities.
The 401k balance did not include $882K lump sum payment from my pension plan.
What was your overall financial plan for retirement?
I had detailed spending history going back 12 years prior to retirement. My spending averaged around $100K per year not counting retirement accounts contributions. Various taxes averaged about $60K per year, leaving about $40K per year for living expenses.
I figured my taxes in retirement will be reduced to under $10K per year, and $40K per year for basic living expenses, my needs. I figured that it would be nice to have another $50K per year for wants, such as travel, toys, gifts, house improvements. So, my goal was to spend at least $100K per year.
My income would consist of a company pension, dividends, Social Security and asset liquidation.
At retirement, I had a choice to take a partial lump sum distribution from my pension plan of $882K or an annual payment of $54K. After much deliberation, I took the lump sum and rolled it over into my 401K account to avoid immediate taxation.
Pension payments have no cost-of-living adjustments, and I didn’t feel safe in case inflation spikes in the future. I reasoned that prudently investing the lump sum, I have a fair chance to keep up with inflation; time will tell if this was a good decision.
In addition to the lump sum, I still get a partial annual pension of $32K.
I planned on taking Social Security payments at 70 to maximize the overall benefit.
To reach my goal of spending $100K per year, I would get $32K from pension and $68K from savings through age 70 (1.3% withdrawal rate). After 70, Social Security would provide $54K per year and my withdrawal rate would fall to just 0.3%.
I also estimated that the maximum income I can have assuming a 4% safe withdrawal rate is $235K.
Did you make any specific moves to prepare your finances for retirement?
I paid off my mortgage in 1999 and own my house clear and free.
For a couple of years prior to retirement I started channeling dividends in my brokerage account into a money market fund instead of reinvesting in index funds to build up a cash cushion.
Who helped you develop this plan?
I did all the retirement planning on my own.
I read many personal finance books and followed quite a few sites: ESI Money, MMM, Early Retirement Now, New Retirement, Bogleheads, JL Collins, and Paul Merriman to name a few.
I used several retirement calculators to assure that I had sufficient funds to retire with high probability of success.
What plans did you make in advance to leave your job?
I increased my 401k contribution so I could fully fund it for the year even though I only worked 3 months.
I bought a set of glasses and had dental and medical exams done.
What were your pre-retirement concerns (financial or non-financial)?
Working the additional 5 years during a roaring bull market and being 98% in stocks put me in a solid financial condition. However, I was concerned that rising inflation will erode the value of my pension over the years. I was also concerned what not having a regular paycheck would do to my psyche, a history of 40 years of earned income is hard to abandon.
I am an introvert by nature, INTJ I believe (just like Elon Musk, Michelle Obama, Vladimir Putin and Walter White (Heisenberg)). I don’t make friends easily, but am devoted to those I have. A big part of my social network was at work, and although I was planning to keep in touch with some people through social media and occasional lunches, it’s not the same as stepping into the next-door office and chatting at your whim.
Also, people I was closest to have retired moved away. I was concerned with social isolation as I get older.
I’ve been blessed with fairly good health most of my life, but lately parts of me hurt that never hurt before. Declining health was definitely of concern.
I was concerned that my transition at work would not go smoothly and my reputation may get tarnished.
One of my managers from the late ‘80s retired a few years ago. He had three children, a much younger wife who still worked, a nice house near the beach and drove a Porsche. After a couple years in retirement, he was back working as a consultant and eventually a full-time employee reporting to me. When I asked him what possessed him to come back, he replied that his wife made him do it since he was buying too many toys and squandering their nest egg.
There were a few other folks that “flunked retirement” and were back working full time or as contract labor. I was concerned that circumstances may drive me to seek employment again after retirement.
How did you handle deciding on and paying for healthcare?
My former company had a subsidized retiree medical plan. When I retired the monthly cost was $140.
They eventually discontinued the retiree plan, but I was grandfathered in as a long-time employee.
The plan had $1,700 annual deductible and $6,500 out-of-pocket limit and qualifies for HSA. This benefit lasts through age 64, at which time I will switch to Medicare with a small Medicare subsidy ($2,160 per year) form my former employer.
How did you tell your family and friends of your plans?
I started telling my family and close friends about my plan to retire at 55 a couple of years before that.
Being infected with OMY syndrome, I stopped talking about it for a few years.
I finally told my family and friends outside work about 3 months before I pulled the plug.
I told my work friends a month before when I gave my notice to management.
THE ACT OF RETIRING
How did you ultimately retire?
I reached 90% confidence level that I would retire at 60 about 6 months before my birthday. I double and triple checked my projections and started thinking about my transition plan at work. I decided to work through March 2018 to get my annual bonus and be able to fully fund the 401k account for the year.
My initial plan was to give a 3 months’ notice to assure a smooth transition of my responsibilities. I reached 100% confidence level during year end 2017 holidays and for the next 2 months I did my best to avoid accepting any new long-term projects.
After doing additional research on retirement notices, I decided to give a 1-month notice. I finally gave my notice on March 1st 2018. At the same time I notified HR, Benefits and Security. I had a fairly new functional manager at the time and I don’t recall any sort of reaction from him. I immediately started transitioning some of my responsibilities to my employees, I was blessed with having excellent people working for me. My functional manager took his time naming a replacement, and I ended up with only one week transition period. I completed all the paperwork for my pension and was given a retirement checklist from HR.
A week before my last day my manager arranged for a retirement lunch. Actually, I had a few going away lunches that week. On the last day I packed my belongings, went through a security debriefing and had my phone disconnected at noon. I went to a program status meeting around 3 pm and my program manager asked me why I am still here.
I experienced the surrealistic feelings the last month on the job, received many well wishes from employees and vendors I haven’t talked to in years and was bombarded with financial advice questions/requests. I retired from the same company that gave me my first professional job after college. The last building I worked in was just a couple of blocks from the first building I started my carrier in.
I had a sense of euphorbia the last working week, but the last few hours were very emotional, I had a very hard time holding back the tears. After all, I devoted over 34 years of my life to this company. As I walked up to my car and turned to see my building for the last time, the tears started pouring.
What went well?
I retired from a large company and they had solid processes for retirement. It all went very smoothly. I actually received my first pension deposit 2 days before retiring.
I am a worrier and always look for the worst-case scenario in stressful situations. I have to say the retirement process went very smoothly with no issues.
What didn’t go so well?
When I started receiving my pension, I noticed that the gross amount was a little less than the estimate I was provided before retiring.
A phone call to benefits resolved the error quickly and the underpayment was refunded.
How did you ultimately find the courage to do it?
As you can see from above, I suffered from one more year syndrome 5 times.
Eventually all pieces fell into place: my main program was winding down, my finances were solid, my back pain made it difficult to sit through a workday combined with a 50 miles round trip commute on a busy California city freeway. The company where I started my carrier was purchased by a bigger company and they eventually froze the legacy pension plan, which meant I would actually loose money to inflation the longer I stayed, and the lump sum would decrease as I aged.
Because interest rates were very low at retirement, the lump sum pension option was very attractive. I am not sure that it took all that much courage to retire at 60, let’s call it earlyish retirement.
RETIREMENT LIFE
How was the adjustment, especially the first few months after retirement?
During the first few months I went through a detoxification stage of retirement.
I loved all the free time. Waking up in the mornings without an alarm clock and realizing that there is no job to go to was bliss. Monday became my favorite day of the week. I caught up on all those TV shows everyone always talked about and I didn’t have time to follow (Breaking Bad, The Game of Thrones, The Americans, The Wire, Westworld, Top Gear, lots of good stuff). Reading a book a week was nice also.
It felt weird going for a walk in the middle of a workday. It felt like I was ditching school and being naughty. I often had work related dreams; waking up and realizing it’s no longer my problems was wonderful.
My father got very sick shortly before I retired and eventually passed a few months after. Having the free time to spend with him and my mother was a blessing.
I always had company laptops and cell phones which satisfied all my personal needs. At age 60 I had to buy my first laptop and cell phone.
How is retirement life now? What do you like about it and what do you dislike?
I am enjoying retirement life. I like all the freedom I have now, I can do whatever I want at any time. I also have a lot less stress in my life: no more daily commutes in heavy traffic, no worrying about work assignments. I definitely don’t miss that queasy feeling in my stomach on Sunday evenings.
It took me a while to disassociate my identity from my career. I was very proud of my educational and professional achievements, which were ingrained in my identity.
It took a few years to be comfortable with saying that I am a retired person.
What do you do with your time? What does an average day look like?
I don’t have much of routine.
I usually wake up around 7 am, turn on the local news channel, read my emails, read blog articles.
Most days I go for at least an hour walk around my neighborhood, or do yardwork, or go food shopping.
Then I prepare and eat lunch or meet a friend for lunch.
After lunch I check my investments, read a book, read blogs, play on-line poker, or work on a hobby.
I usually have a light early dinner at home.
In the evening I watch TV or socialize online, or visit my mother, sister or daughter.
What are the major activities that fill up your time in retirement? Are there any new ones you’re planning to try?
I am losing weight, limiting intake of white carbs and sugars, walking more and may rejoin a gym soon.
I enjoy listening to music and watching movies. I have nice home theater set ups in my family room and bedroom. One of my hobbies is speaker building, I’ve built several sets of speakers and a couple of subwoofers.
I like riding my bike in a local park.
I enjoy travel and plan to do more of it in the near future. I would like to visit Spain, Greece, Scandinavian countries, Italy, Australia and New Zealand to name a few.
I started dating again and plan to do more of it, even though I hate the dating scene; hoping to find a travel companion.
I also manage investments for my daughter, sister and mother, and do their taxes.
I like cars and may volunteer at an automotive museum after Covid subsides.
What is your social life like?
My social life definitely took a hit after retirement. I was very social at work and most of it is gone now. I meet with some of my former coworkers for lunch occasionally and joined a company retirement association; they hold several social events every year.
I have a few close friends that I visit regularly and spend time with my daughter, sister and mother, who all live nearby.
I have made a few online friends at various social sites. I am looking for more social groups to join.
Looking back, what would you have done differently?
Most of my retirement planning was concerning financial matters.
I should have spent more time planning what I am retiring to.
Was there any emotional impact from leaving the workforce?
I strongly identified myself with what I did for a living: an engineer, a senior manager, a “rocket scientist”. It took some time to get used to the fact that I no longer any of those. Most of my programs were for civil space, such as weather satellites, space telescopes, and scientific earth observing satellites. I felt that my work contributed to making our planet a better place to live for all.
I do miss the sense of pride when a project is completed followed by a successful launch. I also miss some of my former colleagues.
However, I do not miss the work itself: the deadlines, the tight budgets, management demands, employee issues, and many, many other issues, problems and setbacks.
What surprises (financial or non-financial, good or bad) have you had since retiring and how have you handled them?
The biggest financial surprise is much higher stock market volatility than I expected. So far, we had a big downturn in 2018, the Covid sell-off in 2020 and the current 2022 bear market driven by war in Ukraine and high inflation.
I am a buy-and-hold investor, so I do nothing except for rebalancing and harvesting losses when appropriate. My net worth is large enough to weather the volatility without much worry.
A pleasant surprise is that I rarely if ever find myself bored or anxious. I used to get regular headaches when working, which are much less frequent or severe now.
What are your future plans?
After Covid subsides some more, I would like to resume travelling and start looking for volunteer opportunities.
I hope to find a partner for companionship and to improve the quality of home cooked meals.
I plan to take more courses at a local community college. Maybe learn to play guitar again, I had one during my early teenage years, but was never very good at it.
I need to get my estate planning in order, not getting any younger.
RETIREMENT FINANCES
How has your financial plan performed compared to what you had estimated before retirement?
When I retired in 2018, I had projections for future financial assets.
The following table shows the amounts I projected by the end of 2021 and the actual amounts:
My projections were very conservative, the secular bull market was very good to me from 2019 through 2021.
Spending estimates vs. actuals are as follows:
My income consists of pension and dividends and is very close to what I estimated.
Can you give us some insights into your post-retirement spending and income? How much do you spend annually and on what? And where does the income to pay for your spending come from?
Last year my spending was as follows:
The expenses were paid by $32,091 pension and $46,542 from savings (0.75% withdrawal rate).
So far, I haven’t made any withdrawals from my IRAs or equity ETFs in brokerage accounts; all withdrawals came from my cash cushion, which is being replenished from taxable equity ETFs dividends ($36,722 in 2021)
How are you handling Social Security, required minimum distributions, tax issues and the like?
My current plan is postpone taking Social Security until age 70 to maximize the payment amount.
The thought process is as follows: a cash flow analysis shows that the breakeven age for taking SS payments at 70 vs. 62 is around 80, give or take a year or two depending on discount rate assumption. If I start payments early and live a long life, I loose. If I start payments late and die early, I loose, but I don’t care since I am dead.
Due to my large traditional IRA balance, I will have substantial RMD withdrawals starting in 2030. I estimate my RMD payments will start at $180K, which will push my taxable income over $315K per year and into the 35% federal income tax bracket at today’s rates. To reduce the impact of RMDs, I started doing Roth conversions to fill the 24% federal income tax bracket as soon as I retired. So far, I converted $506K, and plan to convert another $1.2M over the next 8 years.
Did you return to paid work? Why or why not?
I must admit that I was perusing the company job openings for about a year.
Right now I have no desire to return to paid work. I have more than enough funds to live a very comfortable existence.
Did you find it hard going from being a saver to a spender?
I have a spending problem, as in – it hurts to spend. I have been a saver the latter half of my life and am now struggling with loosening up those purse strings.
I always had that warm and cozy feeling from drawing a good salary; now my guaranteed income is down to $32K. The transition from being a saver to a spender proves to be difficult for me — I am open for suggestions.
And no, I am not going to invest in your hair growth miracle drug, pay for space tourism or buy you a boat. Actually, space tourism could be cool.
Looking back, what do you wish you knew in advance?
Because I did so much planning pre-retirement, I didn’t have any big surprises.
What advice do you have for those wanting to retire?
Plan, plan, plan then do it. I am jealous of the ESI readers who are taking investment education seriously in their 20s and 30s. Oh what bright futures await you!
Think what are you retiring to, rather then what you are retiring from.
Working an extra year or two to beef up the nest egg is not a bad idea — you will sleep better at night.