Secure Comfortable Retirement

Secure Comfortable Retirement

Check these three boxes if you want to secure a comfortable retirement. by Peter Dunn, Special for USA TODAY

Pete: I have a question about retiree housing which I’ve never seen addressed. What about people who’ve rented most of their working lives? This would include many career military or foreign service staffers and clergy. My career moves have precluded purchasing anywhere with the idea of a paid-off home at retirement (for no/low shelter overhead or reverse mortgage). I’m a decade away from retirement, renting cheaply, and currently save into my pre-tax Thrift Savings Plan the difference between my current rent and (principal, interest, taxes and insurance) on a house I’d buy. Current conservative projections indicate I can totally replace pre-retirement income through Social Security, my federal pension and TSP/other savings. I’m also aware that future changes in states’ tax treatment of Social Security and pensions could make retirement location flexibility an advantage. But I’m building no equity for a potential reverse mortgage benefit down-the-road. Anything I’m overlooking? — Robert M.

I have a retirement checklist which consists of three boxes. The goal, of course, as with any checklist, is to place checkmarks in the boxes as I complete each task.

Sustainable retirement income.-The first task-adjacent box is securing reliable, repeatable and sustainable retirement income. It appears you’ve checked that box, Robert. I’d credit great planning and three retirement income sources. Sometimes this column is about how a person goes about checking this box, but not today. You’ve checked it — let’s move on.

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Health care strategy.-The second box is one I refer to pretty regularly in these columns: Establishing a realistic health care strategy. Early retirement has always been a relatively difficult goal for middle America, especially for those without a pension. But now it’s reached unicorn level rarity for the middle class because of the cost of health care. As a working person, your health care coverage is often significantly subsidized by your employer. As a non-working person or retiree in this case, your health care coverage isn’t subsidized at all prior to age 65. Unless your former employer continues their subsidization once you retire, you’ll be paying full price. Prices are all over the board, but health care premiums prior to age 65 (when a person become eligible for the more reasonably priced Medicare) can reach $2,000 per month. Shutting off the faucet of work income is challenging enough, without having to increase your net income by roughly $24,000 per year.

Way too many hopeful pre-retirees assume they’ll be able to easily absorb increased health care expenses and check a box they shouldn’t check based on their reality.

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Affordable housing strategy.- The third box to check prior to retiring is the “I’ve got an affordable housing strategy.” As you mentioned, Robert, there’s a ton of advice out there for people who are homeowners. Although the health care box is the scariest and the income box is the highest mountain to climb, checking the housing box can take a tremendous amount of pressure off the entire retirement process. It’s most people’s largest monthly expense. Of course, this is best accomplished via home ownership, but you can achieve a similar outcome as a renter.

What can be scary about retirement is the prospect of living on a fixed income for the rest of your life. When you combine that idea with the likelihood of your rent increasing on a regular basis, you can easily start to feel as though your ends will eventually stop meeting. You can prevent this inevitably by making sure your rent payment is a less-significant portion of your monthly expense obligations.

Obviously, this imperative is easier said than done. Homeowners can have a bit more of their income dedicated toward housing because they’ll eventually own the home outright and eliminate the expense altogether. A renter must create the budget wiggle room at the beginning of the rental experience.

This can mean strategically moving to a lower rent property just prior to retiring. This will allow your budget to account for gradual rent increases throughout retirement.

Addressing the question at hand.-As a federal employee, you’re more or less able to check the first two boxes because of your pension and continued health care coverage into retirement. You’re wise to turn your attention to housing. Since your health care costs won’t skyrocket in retirement because of your government employee benefits, you should easily be able to find the room within your retirement income to fund monthly rent payment indefinitely.

One additional technique is to make sure you’re able to give yourself a raise throughout retirement. As you distribute income to yourself from your TSP and other savings, make sure you don’t get too aggressive with your early withdrawals. Instead, start smaller and then increase your income over the years to match the increase in rent payments.

Once you’re able to confidently check this final box, you can sit back and enjoy the retirement you worked so hard to create.

Call Scott Underwood, Alabama’s Reverse Mortgage Guy if part of your retirement plan is possibly a Reverse Mortgage. In Birmingham call (205) 908-2993.