Two days after retiring from The Sacramento Bee in 2006, my wife and I and our youngest son were off to New York City, celebrating his graduation from UC Davis and our new life without work.
We stayed in the Theatre District, took in a few Broadway shows, saw the sights and dined wherever we wanted. Then a few months later, after we shipped James off to graduate school in Eugene, Ore., we headed off to the Big Island of Hawaii, where we repeated much of our New York experience, sans the shows.
It wasnt too long after that that we took our first-ever cruise, checking out the sights in Alaska. We liked it so much that we followed it up with a cruise to Mexico and a 14-day trip through the Panama Canal.
Like a lot of the newly retired set, we couldnt get enough travel and adventure. But it comes at a cost ... and it can be a big one if you dont have a solid financial plan in place long before retiring. Invariably, the costs of the first year of retirement are a lot higher than most people estimate and a lot more unpredictable.
While there are scores of retirement calculators out there on virtually every financial website, the financial experts I talked with said that many people will put down a low-ball number for their first year of retirement, neglecting to factor in everything from vacations, increased spending on hobbies and even buying a new car if they had had a company car at their disposal.
Retirees who arent old enough for Medicare and who are no longer covered by their employer health plans can be shocked to find the cost of carrying their own health insurance. Thats why my wife and I both made sure that we had all our dental needs taken care of just before retiring. The cost of a getting a new crown could run you $1,000 or more if you have to pay for it yourself.
The bottom line for most new retirees is they arent prepared for the exhilarating temptations of this next stage of their lives.
For once youve got all that free time on your hands, you can come and go as you please and we and millions of other retirees did just that.
Sacramento financial planner Bob Dreizler says people need to be cautious as they enter their retirement years.
When you are not working, you have more time and ways to spend money to keep yourself amused, he says. While you want to live it up after retiring while you are still in good health and mobile, you need to monitor your spending during this transitional time.
Dreizler acknowledges that hes not a big believer in budgets, but this is one time in your life when it may make sense.
His advice is to start planning for your actual retirement five years ahead of time, although you need to start saving for retirement as soon as you start working.
If you start a separate fund, outside of a retirement plan, to use for a special trip or to subsidize those first few years, that is a good strategy, he adds.
Thats the strategy that we used, squirreling away money each month in the employee credit union at work. The beauty of a credit union account is that the money can be taken directly out of your paycheck and deposited into an interest-earning account.
Even if you start with as little as $10 or $20 a week, that nest egg really grows if you can resist the temptation to tap into it. And if you can increase your deduction with each pay raise, then youll have the opportunity to have a substantial cash account the day you retire.
Dreizler warns that investors can make a huge retirement planning mistake if they put all their spare money into their retirement account.
This saves current taxes, but if you are in a similar tax bracket when you retire, it may cost you $300 in taxes for every $1,000 you withdraw.
His advice? Use non-retirement retirement accounts and/or a Roth IRA. This way you can access funds later while paying a much lower tax cost. After you retire, all money is a retirement account, whether its in an IRA or not.
Sacramento certified financial planner Elfrena Foord says she likes to think of the retirement years in three phases:
The go-go years
These are the times when you likely will spend a lot of money, when youre traveling at a moments notice, just because you can, Foord says. Its certainly not a bad thing, if you plan ahead. The first year or two, you may spend more in retirement than you did your last few years working. She notes that this phase of retirement could last 10 to 15 years or longer, depending on your physical and financial health.
The slow-go years
Youve got all the big trips out of the way. Youve marked Paris and Australia off your bucket list and youre much more comfortable staying closer to home, taking local trips to Monterey or Palm Desert, she says. While you should be able to reduce your spending on global travel, other costs related to your health begin to rise so youll need to have a plan in place to cover those expenses. Youll find that while Medicare covers many things, it doesnt cover everything and youll need to have additional insurance. Consulting your insurance expert is a wise step before you retire.
The no-go years
This can be a time when youre just ready to settle down and tend to your garden or stay close to home. Traveling is no longer so important and many retirees develop other interests that often are volunteer-oriented. Certainly, some retirees in their 80s and 90s will still travel, but often as not its renting a place for a month or two to escape the weather.
For those on the cusp of retirement, here are two suggestions for helping to pay for the extra expenses that come in the first two years: Once you know when youre going to retire, dont use up any further vacation time at work. Youve got the rest of your life to be on vacation, so if its possible to stockpile vacation days at work, do so. Then when you walk out the door, youll get a nice paycheck for unused vacation time.
And if youre going to be light on your health, dental or eye care insurance, make sure you get any related issues taken care of on your employers insurance before you walk out the office door for the last time.