(October 2005)


Rick & Rory-


I actually got to your web page through the Kaderli's web page, which I'd linked to from a Motley Fool email I receive weekly.  Then, when I saw your name, it sounded familiar.  I knew why as soon as I saw the Kiplinger's reference; I'd just read that article in my Kiplinger's about a week earlier.  What a connected world eh?

I'd like to hear more about how you have/are managing some of the things I consider key to retirement planning for my wife and me.


1.     How do you manage the expense side?  Strict budgets or, ensuring you have enough cash flow to maintain what you've grown used to spending, or a combination?

RICK: I am a Fidelity customer and use their Retirement Income Planning tool.  The first step is to determine what your expenditures are.  We have kept track of every nickel we've spent over the past three years.  Rory is a QuickBooks "guru".  We use this as our tool to record our expenditures and track against our budget.  We can print several reports out of QB and we print a monthly statement to see how we're doing year-to-date.  In December/January we budget for the upcoming year, and again, track our expenses to the nickel.  We enter the budget amounts (for each category) into the Retirement Income Planner.  Since all of our financial accounts can be tracked thru this tool (even if they weren't already under the Fidelity umbrella), we can also enter our holdings.  We also enter our projected income from salaries (for now), pension, and social security (when it's time).  The tool takes all this information and tells us how much $$ we will need to draw from our holdings each year to meet our budget.  It shows 30 years worth, but of course, the only "real" numbers are for the current year.  However, it will tell you what % you would draw out each year and whether or not you're likely to outlive your assets.  The planning tool also lets you project significant changes year to year.  For instance, we intend to travel 6 months/year and have a line item for this.  If, after, say 10 years, we decide to cut back our travel and spend the money elsewhere (or not), we provide that information to the planning tool.  It also allows you to do "what if" scenarios with your portfolio and to vary the risk factor.  I've been using this tool for 2 years and it works well for us.  Oh yeah, the tool factors in inflation (separately for medical and regular CPI) and allows you to project when "windfalls' might occur--like an inheritance.


You may have read that you will need a certain percentage of your current income in retirement to maintain your standard of living.  I believe this is a myth fostered by the investment industry.  Actually, it's expenditures that will determine how much you need.  Reducing expenses by downsizing your home; moving to a less expensive part of the country; etc. go a long way and you shouldn't have to deny yourself anything that you've gotten used to.


2.     I see you have long term care insurance.  How about normal medical insurance?  Does your former employer provide primary insurance or, what will work as a Medicare

supplement?  Any thoughts on other medical insurance sources you may have considered?

RICK: We bought long term care insurance because we did not want a catastrophic situation to force us to run through our assets.  The earlier you buy this, the cheaper it is.  If you decide to buy it, definitely do so before the older of you reaches 60.  Also you want to buy from a company with a history of never raising their premiums.  (John Hancock was our choice.)  We wanted to make sure that if one of us survives the other, that the survivor can continue the retirement lifestyle without financial worries.  I have the option of taking medical insurance from my former employer (as a retiree) and also using it to supplement SS when I reach 65.  We have calculated the maximum out-of-pocket that we might be forced to spend and included it in our budget.  If we don't spend it, it's there for something else the next year.  We recalculate this every year when we get the open enrollment material.


The only other medical insurance thoughts I've had involve the cost of medical in a foreign country, should we choose to emigrate.  Medical care in places like Thailand, Argentina and other countries is superior to ours and cost much less.  This might eliminate the insurance line item altogether; but that's really getting ahead of ourselves.


Any other thoughts or lessons you've learned would be appreciated.  My wife and I are about a decade behind you and very much looking forward to joining you in retired life.

RICK: Our retirement planning began almost three years ago.  We started from scratch, finding tools and other sources of information.  We started with the idea of traveling half the year.  I would recommend that you have a reasonable idea of what you want to do in retirement and begin planning for that.  You can always modify your plans.  As we get closer to R-day, little pangs of doubt creep in; but the Kaderlis (and others we've talked to) say once you've jumped, you won't look back.  If you haven't done so already, I suggest you purchase the Kaderli's CD-book.  Even if you're not interested in the life of a perpetual traveler, the book is full of useful information gleaned from their 15 years in retirement