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Think again about your retirement plan

Published September 3, 2006

Karen Sherif used to be a budget analyst for the federal government, but even for a pro, projecting retirement expenses turned out to be tough.

"I have experienced three runaway expenses that were not in my control," she said. The list: property taxes, insurance and health care.

And Sherif, 59, says she's been wrong about some expenses she controls. Since her retirement eight years ago, she spends more than she expected visiting friends up north and entertaining them when they visit her.

Calculating how much money you'll need in retirement is one of the biggest challenges facing workers trying to plan for the future. The easy way out is to assume that your expenses will drop substantially, since that would mean you won't have to save as much.

But the voice of experience tells us you'd better not count on it.

"In general, expenses do go down, but not as much as people think," said Lewis Altfest, a New York financial planner and author of Personal Financial Planning, a new book for people studying to be planners.

A Georgia State University study two years ago found that on average middle-income married couples needed 75 percent of their preretirement incomes to maintain their standard of living in retirement. Those at the upper and lower ends of the income scale needed more.

But your personal number might be different.

John McBaine, 61, said he carefully calculated that he would need 80 percent of preretirement income when he retired from General Motors seven years ago. To his surprise, "spending continues at 100 percent of preretirement levels, if not higher."

McBaine, who lives in Indian Shores, said the experience impressed on him the importance of building a financial foundation that can "withstand the ravages of inflation over time."

The good news is that there are some expenses that go down when you stop working. You don't have to drive to work, pay Social Security taxes or save for retirement, and you're almost certain to spend less on clothes. If you eat lunches out or do job-related entertaining, those costs will be gone. And if your income goes down, your income taxes will, too.

The bad news: Housing and medical costs consume half of most retirees' incomes and have been escalating rapidly.

"Homeowners insurance and property taxes have more than quadrupled and that has upset my retirement spending," said Robert Concepcion, 63, of Hudson, who retired 19 years ago from the New York City Police Department.

And insurance and taxes aren't the whole story.

"Since I had sold my large home in 1985 and lived for 10 years in an apartment, I had forgotten all of the additional expenses that go along with owning rather than renting," said Donna Snyder, 76, of Tampa.

In her case those costs have included a new air conditioner and hurricane shutters for the condo she bought when she retired 11 years ago.

In addition, as they age, many homeowners need someone else to do jobs they no longer can handle themselves, from mowing the lawn and cleaning to painting and making simple repairs. If they can't hire help, the property often deteriorates.

Discretionary expenses may go up or down in retirement, depending on lifestyle. Some retirees spend big on travel, golf and hobbies. Some eat out more than they did when they were working. Government studies show discretionary expenses are highest early in retirement, then decline with age, while health care costs go up.

Planner Altfest suggests assuming that expenses will start out roughly the same as they were when you were working unless you plan to sit home and do nothing. He said he typically projects a 3.5 percent inflation rate, which means costs would double in about 20 years.

Of course there are ways to reduce costs in retirement. Top on the list: move to a less expensive area.

"The cost of food and living here is much less expensive than in the Chicago area," said Tarpon Springs retiree Herb Salmon, 78. "We have saved much more than expected by living here."

A Tampa Bay worker might save money by retiring to Tallahassee, Tennessee or somewhere else where living costs are lower.

Another big cost-saver is debt reduction. Only about one-fourth of retirees have a mortgage.

"We have no home mortgage and no car payments to pay and that is a major savings," said retired executive Sam Lasley, 75, of Clearwater.

Planner Altfest said many retirees spend less simply by paying closer attention to their spending, doing research and shopping for sales.

"If you focus on any one thing, you can reduce expenses," he said. "For some that could be considered a decline in their standard of living, but most people who retire don't view themselves as having stepped down, but rather just engaging in another activity that helps them reduce their costs."

But not every expense-paring effort has the expected outcome.

"The money saved on gas when the Monday-Friday commute ended now goes toward much higher gas prices, meaning my gasoline bills are probably about the same," said Kelly Bagley, 68, of Pinellas Park, a retired clerical worker.

Financial planners and retirees say it's worthwhile to try to project retirement income and expenses even though you know the numbers may turn out to be wrong.

"Waiting until retirement is not the time to see if you will be able to make it," said Robert Lartz, 69, of Seminole.

He retired from his job as a park ranger seven years ago and says "foresight and planning paid off."

At younger ages, a plan helps determine how much you need to save and may provide motivation to cut back on spending.

Once retirement gets closer, plan details become much more important, especially for early retirees who have to buy medical insurance. It's not unusual for a couple too young for Medicare to pay $10,000 a year or more for coverage.

Naval retiree David Vaurio, 59, of New Port Richey said his financial plan "provided the foundation for all of our financial decisions for about 25 years."

Many retirees say they use their plans- often computerized - to review their spending every month and make adjustments.

"The plan was a great idea because it gave a track to follow," said Belleair retiree Wayne Proctor, 60, a former marketing executive who works part-time as a softball umpire. "When things went higher than expected, I could increase my level or part-time work or try to cut back in other areas. Having no plan would cause unnecessary stress."

Helen Huntley can be reached at or 727 893-8230.

How's it going?

Tampa Bay retirees talk about adapting to the unexpected. Page 6D

[Last modified September 3, 2006, 06:39:00]

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