We have lamented these articles in a prior blog where we advised readers to “Know Thy Expenses” before stepping into any kind of retirement. People read these articles looking for solace in their own plans. Yet, until you match your income with your expenses in retirement, you are probably better off weeding your dandelion infested garden than trying to rely on counting “other people’s money” to see how it measures up to yours in retirement.

So here we go, recognizing that lawyers are not financial analysts or retirement planners. If you have done any retirement planning you probably have heard about the 4% Rule. It suggests that you can probably afford to spend 4% of your retirement each year. It has many vagaries and some detractors (e.g., Suze Orman) but you gotta start somewhere.

Let’s assume you and your spouse have $1,000,000 in retirement savings. Note carefully I said “retirement savings.” For the moment let’s set aside other assets, especially your home equity. With $1 million in retirement, the 4% rule says you can take $40,000 a year from your plan without much financial risk that you will go broke. Realize as well that unless you are a Roth investor, you will pay tax on the money you withdraw. So, figure you will pay some quarterly estimate tax and net about $3,000 a month to spend.

Next you layer in social security benefits. The average benefit is $1,800 a month today so we will use that. There will also be some portion of those benefits subject to tax. Let’s say that you net $1,500. You will also lay out some money for Medicare beyond Part A. That has to be budgeted either as a deduction from your social security or as an expense. For the moment, keeping life simple, you have $3,000 in draws on your retirement and $1,500 in social security.  Your “budget” starts at $4,500 a month to support the household or $52,000 a year.

Now shift to expenses. Housing, Utilities, Real Estate Taxes, Homeowners, Auto Expense in terms of car payments, insurance, repairs and gas. Food. Medications. Stop there and sum up those monthly expenses. How’s your $4,500 income looking so far? Then we can move on to vacation, hobbies, house cleaning, repairs, clothing, gifts, cable and the 15 things that are coming out of your account automatically each month. If you haven’t accounted for the Medicare supplements make certain you have some number budgeted. On the plus side, bear in mind that at some point your spouse may also be able to pull down a social security payment from his/her earnings. And today, there are plenty of part-time gigs to supplement income.

Now for the MayDay moment. Lots of seniors are getting divorced and should that occur, we will have a second household to pay for. That’s another warning we are reading about in the press. Won’t happen to you of course…….but………

Recall that we set aside home equity and regular old savings and investment portfolios. The portfolio and savings accounts really can be employed in doing the 4% calculation. Assuming you have $200,000 in bank and brokerage assets, 4% will pull $8,000 pre tax. It’s another $600 a month.

Last and not least is home equity. A lot of retirement age people were living in $400,000 single family homes until 2019. Their expectation was that they would be able to downsize to $250-300,000 homes, often townhouses where the yard care was avoided. The good news is that the market has pushed the retiree home up from $400,000 to $550-600,000. All good. Except there is almost nothing available in the $300,000 market to substitute. We are hearing from lots of retirees who are staying put because they don’t like or can’t find cheaper housing. A fair number of these people refinanced in the past decade so they also don’t like trading in their 3-4% mortgage.

Florida was always the other option. Alas, Florida is facing a homeowner’s insurance crisis where the premiums look a like car or mortgage payment. The states between Pennsylvania and Florida do offer alternatives but “coastal” life is going to come with floodwater premiums built in. Thinking about life in a planned community? “Plan” on seeing your maintenance fees rise as those costs are skyrocketing.

Many of us have that $200-400,000 of trapped home equity. If we can harvest that money and put it in stocks, bonds or savings, there is $1,000 a month more or less we can apply to needs and indulgences. But retirees of all stripes (married or divorced) need to pay careful attention when they reach for that home equity and convert it so cash. There once was an old woman who lived in a shoe. She’s got no intention of renting to you.