52 KIPLINGER’S PERSONAL FINANCE^ 10/2019RETIREMENT
BEGIN WITH A BUDGET
Get a handle on what your annual
expenses will be in retirement by
creating a retirement budget. Frank
Castello, a 66-year-old former IT man-
ager from Bowie, Md., gave his retire-
ment budget a test run before leaving
the workforce in 2016. He drew up a
spreadsheet with his anticipated ex-
penses, calculating that he would need
$4,000 a month to live on. He lived on
that budget for two years before retir-
ing, while also maxing out his 401(k)
and boosting his savings outside the
plan. “I was constantly refiguring, re-
jiggering, verifying and validating the
numbers,” says Castello. “Do I have it
right? Will I have enough? You don’t
know for sure until you live it.”
So far, it’s worked out for him. Cas-
tello, who isn’t married, lives on sav-
ings and a $1,490 monthly pension. He
rolled his 401(k) into an IRA that is
63% invested in stocks, with the rest
mostly in bonds—an account he hasn’t
touched yet. He has enough cash on
hand to pay expenses for a few years
without having to worry about stock
market f luctuations, and he has set up
an emergency fund that he might need
to tap when his 2005 Acura TL finally
gives out. And Castello is waiting until
age 70 to claim Social Security to get
the maximum benefit. “I’m healthy. I
don’t need the money now,” he says.
Take a look at what you’ve spent in
the past year. (If you don’t track your
expenses now, your credit card issuers
may offer a year-end summary of your
charges to get you started.) Then ad-
just those expenses for what might
change in retirement. For instance,
you won’t be commuting to work any-
more, but you might be traveling to
more far-f lung destinations.
Or you might decide to tackle some
major home renovations. “I always
joke with clients, ‘Look around your
house and see what you want to
change and start planning for it,’ ”
says Nicole Strbich, a CFP in Alexan-
dria, Va. Because once you retire,
you’re going to sit in your living roomand decide you need new carpet, a
kitchen renovation and a bigger porch,
she says. (Renovations often end up
costing more than projected, so
Strbich advises doing them just before
retiring, while you still have a pay-
check to cover any surprise bills.)
Don’t overlook health care sur-
prises, either, especially if you plan to
retire early. Judy Freedman of Marl-
ton, N.J., retired six years ago as a
group director in global communica-
tions at Campbell Soup. Too young for
Medicare—she’s now 61—Freedman
pays more than $1,000 a month for the
retiree medical plan through her for-
mer employer. And though she has a
dental policy that covers the basics,
such as teeth cleaning, expensive den-
tal work has to be paid out of pocket.
(After you sign up for Medicare, you’ll
need a supplemental policy to provide
dental coverage.) Before retiring,
Freedman, a widow, cut her expenses
by downsizing. She sold her three-bedroom ranch house on a large lot
and moved into a townhouse commu-
nity, which reduced her property
taxes, utilities and landscaping bills.
Once you’ve nailed down your antic-
ipated expenses, subtract all your ex-
pected guaranteed sources of income,
such as a pension, annuity and Social
Security. (You can get an estimate of
your future Social Security benefit by
opening an online account at www
.ssa.gov/myaccount.) The result is how
much you will need to withdraw from
your portfolio to maintain your life-
style in retirement.MAKE WITHDRAWALS
LAST AS LONG AS YOU DO
What if your expenses outpace your
sources of income, meaning you’re
likely to deplete your nest egg too
quickly? In that case, you may need
to consider working longer or go back
to your retirement budget and figure