Expenses, cash flow in retirement

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blmarsha123
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Expenses, cash flow in retirement

Post by blmarsha123 »

Coming up on three years in retirement, and will soon see a significant reduction in expenses along with a new income stream. I wonder if I am looking at this correctly?

Let's say that at the moment, expenses are $6,000 a month and income (pensions, SS) is $4,000 a month. The difference was initially (~ 18 months) made up from after tax savings and more recently, from 401k withdrawals (not really counting that as income, though -- is that wrong?).

Soon, will pay off one long term note and one short term note, for a total of $1,500 a month. Shortly thereafter, will begin a new income stream of $2,500 (after tax).

So I look at this as a net of $4,000 a month. (No plans to incur any long- or short-term debt.) Is that correct? Or should I simply adjust my monthly expense budget to $4,500 and my income to $6,500 and the true difference is $2,000 a month? Or does it matter?

I'm trying to project a couple of things: (1) How many months to cover expenses and rebuild savings to get to x dollars goal; and (2) Is income sufficient to cover costs for CRCC? Do I need to further reduce expenses?

Thanks!
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Watty
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Re: Expenses, cash flow in retirement

Post by Watty »

blmarsha123 wrote: Tue Dec 12, 2017 5:52 pm Let's say that at the moment, expenses are $6,000 a month and income (pensions, SS) is $4,000 a month. The difference was initially (~ 18 months) made up from after tax savings and more recently, from 401k withdrawals (not really counting that as income, though -- is that wrong?).

Soon, will pay off one long term note and one short term note, for a total of $1,500 a month. Shortly thereafter, will begin a new income stream of $2,500 (after tax).

So I look at this as a net of $4,000 a month.
If I understand it right you are missing the $2,000 a month you were previously withdrawing from the 401k. If you subtract that out you get the same $2,000 number.

One other twist is that if the notes that were being paid off were from for something like a home loan a small part of each payment would be interest and the rest would pay down the loan and build up the home equity. For example if you paid $1,000 and $100 was interest and $900 paid off principal then your net worth only went down by $100 so when you look at it that way your expense was only the $100 interest expense. The other $900 was just moving money from your left pocket(savings) to your right pocket(home equity).

Trying to figure out the net change numbers like that can get complex and confusing so I would just set aside the old numbers since going forward the only numbers that really matter are what you said.
blmarsha123 wrote: Tue Dec 12, 2017 5:52 pm expense budget to $4,500 and my income to $6,500
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FiveK
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Re: Expenses, cash flow in retirement

Post by FiveK »

scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

Ok, you have cash coming in and cash going out. In the recent past, your cash flow was negative $2k per month which you were making up with withdrawals from a 401k. In the near future, you will switch to a positive cash flow of $2k per month. This is a net change of plus $4k per month.

This is good because you no longer have to take $$ out of the 401k to pay part of your monthly expenses.

On an annual basis, you were spending $72k per year and bringing in $48k which created a $24k deficit that you made up by principal withdrawals from your taxable account or 401k.

In the future you will be spending $54k against annual revenue of $78k. This is good! Repair your house, take a trip, play some golf.....
dbr
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Re: Expenses, cash flow in retirement

Post by dbr »

scifilover wrote: Wed Dec 13, 2017 7:31 am Ok, you have cash coming in and cash going out. In the recent past, your cash flow was negative $2k per month which you were making up with withdrawals from a 401k. In the near future, you will switch to a positive cash flow of $2k per month. This is a net change of plus $4k per month.

This is good because you no longer have to take $$ out of the 401k to pay part of your monthly expenses.

On an annual basis, you were spending $72k per year and bringing in $48k which created a $24k deficit that you made up by principal withdrawals from your taxable account or 401k.

In the future you will be spending $54k against annual revenue of $78k. This is good! Repair your house, take a trip, play some golf.....
From the description this seems to be a correct translation of what is going on.

As to income, of course money withdrawn from a portfolio including 401K holdings is income. It looks like the new situation is that one can create negative income to balance expenses by reducing distributions from retirement accounts, pending RMDs, and/or investing the excess money in taxable investments.
rkhusky
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Re: Expenses, cash flow in retirement

Post by rkhusky »

Income/expense analysis is different from cash flow analysis if one has loans and payment on principal is not considered an expense. In that case, cash flow considerations are more important.
NotWhoYouThink
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Re: Expenses, cash flow in retirement

Post by NotWhoYouThink »

Is there a lump sum buy-in requirement at the CCRC? How much? Where will the money come from? What are the monthly fees? What money will you save at the CCRC, what extra expenses might you have? Any of the CCRC expenses considered medical expenses for tax purposes?

It appears your income will exceed expenses if you stay put. If the note you paid off was a mortgage, were you paying into escrow for taxes and insurance? Have you accounted for those in your new projected expenses?
The Wizard
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Re: Expenses, cash flow in retirement

Post by The Wizard »

FiveK wrote: Tue Dec 12, 2017 9:36 pm CRCC?
Perhaps CCRC...
Attempted new signature...
Topic Author
blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

The Wizard wrote: Wed Dec 13, 2017 8:21 am
FiveK wrote: Tue Dec 12, 2017 9:36 pm CRCC?
Perhaps CCRC...
Sorry; yes, Continuing Care Retirement Community.
Topic Author
blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

Watty wrote: Tue Dec 12, 2017 9:26 pm
blmarsha123 wrote: Tue Dec 12, 2017 5:52 pm Let's say that at the moment, expenses are $6,000 a month and income (pensions, SS) is $4,000 a month. The difference was initially (~ 18 months) made up from after tax savings and more recently, from 401k withdrawals (not really counting that as income, though -- is that wrong?).

Soon, will pay off one long term note and one short term note, for a total of $1,500 a month. Shortly thereafter, will begin a new income stream of $2,500 (after tax).

So I look at this as a net of $4,000 a month.
If I understand it right you are missing the $2,000 a month you were previously withdrawing from the 401k. If you subtract that out you get the same $2,000 number.

One other twist is that if the notes that were being paid off were from for something like a home loan a small part of each payment would be interest and the rest would pay down the loan and build up the home equity. For example if you paid $1,000 and $100 was interest and $900 paid off principal then your net worth only went down by $100 so when you look at it that way your expense was only the $100 interest expense. The other $900 was just moving money from your left pocket(savings) to your right pocket(home equity).

Trying to figure out the net change numbers like that can get complex and confusing so I would just set aside the old numbers since going forward the only numbers that really matter are what you said.
blmarsha123 wrote: Tue Dec 12, 2017 5:52 pm expense budget to $4,500 and my income to $6,500
OK; that (going forward with the actual, new numbers) makes sense. Also, I missed accounting for the $2,000 from 401k. Thanks!
Topic Author
blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

dbr wrote: Wed Dec 13, 2017 8:04 am
scifilover wrote: Wed Dec 13, 2017 7:31 am Ok, you have cash coming in and cash going out. In the recent past, your cash flow was negative $2k per month which you were making up with withdrawals from a 401k. In the near future, you will switch to a positive cash flow of $2k per month. This is a net change of plus $4k per month.

This is good because you no longer have to take $$ out of the 401k to pay part of your monthly expenses.

On an annual basis, you were spending $72k per year and bringing in $48k which created a $24k deficit that you made up by principal withdrawals from your taxable account or 401k.

In the future you will be spending $54k against annual revenue of $78k. This is good! Repair your house, take a trip, play some golf.....
From the description this seems to be a correct translation of what is going on.

As to income, of course money withdrawn from a portfolio including 401K holdings is income. It looks like the new situation is that one can create negative income to balance expenses by reducing distributions from retirement accounts, pending RMDs, and/or investing the excess money in taxable investments.
dbr ... Ok; I see the error in my ways. I didn't count the 401k withdrawals as income because I knew that they would stop in January and were more like a temporary part time job to get over a hump rather than an ongoing income stream.

scifilover ... You know, the $6k monthly budget did include home maintenance, vacations, etc. all except emergency.
Topic Author
blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

NotWhoYouThink wrote: Wed Dec 13, 2017 8:16 am Is there a lump sum buy-in requirement at the CCRC? How much? Where will the money come from? What are the monthly fees? What money will you save at the CCRC, what extra expenses might you have? Any of the CCRC expenses considered medical expenses for tax purposes?
Yes, the residences run from the mid-200s to 700+ (of which 90% is returned to the estate upon death or otherwise vacating). I am probably in the middle, around 400k, which will be about 80% of the equity from my current home (estimated net from sale minus fees, moving, refurnishing, etc.) ... assuming the housing market holds.

The monthly fees are based on the square footage of the residence and meal plan(s). For my price point, about $2500 for the first person and $900 for the second. However, the financial people are saying to plan on 2 - 4% increase per year, which is my real concern -- 30% increase in 10 years?

Medical is unknown. I am fairly healthy, and am pondering switching to a zero premium MA plan with a $6k OOP. My wife will probably go with a Plan G as she has some issues.
NotWhoYouThink wrote: Wed Dec 13, 2017 8:16 am It appears your income will exceed expenses if you stay put. If the note you paid off was a mortgage, were you paying into escrow for taxes and insurance? Have you accounted for those in your new projected expenses?
I pay taxes directly, two payments a year, which are included in the monthly ($6k / $4k) budget. As are other housing expenses, such as insurance, maintenance, utilities, and so forth.
scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

In the CCRC around here, there is an option to be there without using their meal plans. I think you can get an attached dwelling with a kitchen and live there without paying for their food. This would reduce the expense during the early years of your occupancy. Not sure how old you are. I think I would need to be mid-80s to eat institutional meals. Think you need to do a spreadsheet to see what your expenses would be there. Obviously, the CCRC would replace some of your existing expenses. I can't tell from your data how that would work out.
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blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

scifilover wrote: Sat Dec 16, 2017 9:54 am In the CCRC around here, there is an option to be there without using their meal plans. I think you can get an attached dwelling with a kitchen and live there without paying for their food. This would reduce the expense during the early years of your occupancy. Not sure how old you are. I think I would need to be mid-80s to eat institutional meals. Think you need to do a spreadsheet to see what your expenses would be there. Obviously, the CCRC would replace some of your existing expenses. I can't tell from your data how that would work out.
I don't think that there is a "no meal" plan. I think the choices are 20 or 30 meals a month, per person. The prices I listed were for 30 meals per person. From what I can tell (some first-hand experience and talking with residents), the dining experience at this particular CCRC is probably B+ overall. There are a couple of "A" spots (for example, a steak house with an upscale (cash) bar), other seated service, and the typical buffet and fast food experiences.

My CCRC budget is about $2100 a month (above the CCRC monthly). The budget includes health care (premiums, OOP, dental and vision), renters insurance, internet, cell phones, car (taxes, registration, gas, insurance and maintenance for one vehicle only), personal (clothes, food, beauty, household, dining out, gifts and donations), and a miscellaneous (travel?) bucket. I think that will be close to reality. Doesn't leave a lot left over. I will have an emergency fund, which will also have to double as a one or two year LTC fund when needed.
scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

Typically these CCRC places have three phase occupancy. When you are healthy(often called Independent Living), when you need assistance, and nursing home level. Does the monthly cost increase as you move into needing assistance with dressing, eating etc?
Same question with nursing home care? When my in-laws were in an assisted living facility, the cost of their care was based on the exact services they needed. For example, it cost more for them to pass your medications to you each day.

We spend the Winter is So. Ariz and there are some very nice CCRC places here. However, I am suspicious of any operation in which you have to go to a meeting with them in order to get the financial info on their costs etc.
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blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

scifilover wrote: Sun Dec 17, 2017 6:30 am Typically these CCRC places have three phase occupancy. When you are healthy(often called Independent Living), when you need assistance, and nursing home level. Does the monthly cost increase as you move into needing assistance with dressing, eating etc?
Same question with nursing home care? When my in-laws were in an assisted living facility, the cost of their care was based on the exact services they needed. For example, it cost more for them to pass your medications to you each day.

We spend the Winter is So. Ariz and there are some very nice CCRC places here. However, I am suspicious of any operation in which you have to go to a meeting with them in order to get the financial info on their costs etc.
Yes, there are additional costs for assisted living. For example, costs associated with rehab from in- or out-patient surgery or similar. That is, whatever is not covered by Medicare Part B and your MA or supplemental plan.

For long term (nursing home type of) care, my understanding is that those costs are outside the scope of Medicare and MA or supplemental plan. Therefore, you are responsible for those costs. And those costs are in addition to the monthly residence plan(s).
scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

So, you now have some surplus cash flow. These CCRC places want to get you in before you really need their services. That way, you make money for them from the gitgo. So, the question is when you join......and between now and then you could save a few bucks more and be in a position to pay for any surprises after you join. If your health and spouse's health are good, don't be in a rush to join.

The CCRC near me here, has a much smaller assisted living facility than the independent living, and even smaller nursing one. If most folks are in independent living, then the level of support they must provide is a lot lower. Do they provide cleaning and laundry as a part of their fee?
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blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

scifilover wrote: Sun Dec 17, 2017 1:23 pm So, you now have some surplus cash flow. These CCRC places want to get you in before you really need their services. That way, you make money for them from the gitgo. So, the question is when you join......and between now and then you could save a few bucks more and be in a position to pay for any surprises after you join. If your health and spouse's health are good, don't be in a rush to join.
That's my plan, to save as much as I can between now and then.

As for a rush to join, there are two motivators: I am really looking forward to downsizing (for example, this year, I was still running the mower and watering into December!); and the social aspects of the CCRC are appealing to us.
scifilover wrote: Sun Dec 17, 2017 1:23 pm The CCRC near me here, has a much smaller assisted living facility than the independent living, and even smaller nursing one. If most folks are in independent living, then the level of support they must provide is a lot lower. Do they provide cleaning and laundry as a part of their fee?
In independent living, no cleaning or laundry; in assisted living, yes (included).
scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

I think you might consider a two-step process. There are over-55 communities in which there are properties which are condo or otherwise have exterior maintenance . My Winter home is located in this kind of community. They have over 100 clubs, a golf course, pickle ball, tennis, pools, and many, many social opportunities. The cost of living can be lower than your existing home, even with the condo fee and HOA fees. Many folks have golf carts for a second car.

There are 2500 dwellings here. Over the last 5 years half have changed hands, as the original owners have become too old to stay on their own. Some have moved on to CCRC, some to live with children, some to assisted living.

People come here at retirement, and then some move on in high 70's or low-80's. There is a small club of men who play 9 holes each week with a half-dozen 90+ guys.

Typically, when we have looked at CCRC places the folks seem older to me. (I'm over 70)

So, take a peek at Florida and Arizona. Maybe take a trip down and explore. There are many winter rentals where you can rent for a month to test drive a community.
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blmarsha123
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Re: Expenses, cash flow in retirement

Post by blmarsha123 »

scifilover wrote: Wed Dec 20, 2017 8:16 am I think you might consider a two-step process. There are over-55 communities in which there are properties which are condo or otherwise have exterior maintenance . My Winter home is located in this kind of community. They have over 100 clubs, a golf course, pickle ball, tennis, pools, and many, many social opportunities. The cost of living can be lower than your existing home, even with the condo fee and HOA fees. Many folks have golf carts for a second car.

There are 2500 dwellings here. Over the last 5 years half have changed hands, as the original owners have become too old to stay on their own. Some have moved on to CCRC, some to live with children, some to assisted living.

People come here at retirement, and then some move on in high 70's or low-80's. There is a small club of men who play 9 holes each week with a half-dozen 90+ guys.

Typically, when we have looked at CCRC places the folks seem older to me. (I'm over 70)

So, take a peek at Florida and Arizona. Maybe take a trip down and explore. There are many winter rentals where you can rent for a month to test drive a community.
Thank you for the information and suggestions.

You are correct; the CCRCs that I have visited have a lot of 80+ residents. Not thrilled about that, but I think that I may have missed the 55 active step in the process -- I'm kind of in between right now. (When we started looking about 10 years ago, we found that the 55 active communities in this area were very expensive.)

We booked a condo in Orange Beach, AL for the month of March. While there, in addition to heading to Huntsville for a few days, we also plan to drive around the FL panhandle and south, maybe to Sarasota and also visit the Dothan, GA area. This was not originally an exploration trip, but now you have me thinking.

I am not sure if I can handle the heat in Arizona. (I mean, I love Scottsdale in February, but ...) However, it would not hurt to try a rental as you suggested for a test drive.
scifilover
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Re: Expenses, cash flow in retirement

Post by scifilover »

Sounds like you have the idea. As far as AZ heat in the Summer, June is a scorcher. We wern't here to experience the ten day stretch of 116 degrees. However, what many year round AZ homeowners do is travel in the Summer, or at least for June. Scottsdale is nice, but it is expensive. Think further South. Tucson is 2600 feet elevation. Take a look at Green Valley S of Tucson. Another place we have heard good things about is Lake Havasu.

In both FL and AZ and other states, there are over-55 communities in which the folks live in manufactured houses, or mobile homes, or even RV's. There are lots of options. If you can live outside a lot, your inside space can be smaller.
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