Slash your expenses
5. For years, management consultant Rick Ackerman, 61, paid a financial adviser to manage his investments. Then he decided he could do just as well himself with a well-diversified portfolio of low-cost mutual funds. The $7,500 a year he is saving on investment fees will more than pay for his increased health-insurance costs when he and his wife, Rory, 54, retire this spring. They'll begin their new phase of life with a three-month trip to Australia.
Rick and Rory rolled over all their taxable accounts and retirement savings to Fidelity Investments, and Rick monitors their portfolio regularly. "The corporation of Rick and Rory is doing fine," says Rick. "Our investments have been growing at about 8% annually over the past 18 months."
Rick, who also tracks the Ackermans' spending, planned their future budget in detail using Fidelity's Retirement Income Planner software. Rick figures that with a traditional pension from IBM, his former employer, partially subsidized retiree health benefits, and social security benefits beginning this year when he turns 62, he and Rory won't have to withdraw more than 3% per year from their $1.2-million portfolio, virtually ensuring that they will never outlive their money. (Financial experts generally recommend withdrawing no more than 4% to 5% of your nest egg each year.)
The couple is considering moving from their home near Fort Myers, Fla., where housing prices have appreciated an average of 90% over the past five years, to less expensive Columbia, S.C., where they can enjoy all the benefits of life in a college town. Although South Carolina has an income tax and Florida doesn't, Columbia has one of the lowest property-tax rates in the country because assessments are based on only 4% of market value.
The Ackermans, who own their current home free and clear, expect to pay cash for a new house if they relocate and invest any excess profit. They also prepared for future health-care expenses by buying long-term-care insurance before Rick turned 60, cutting their projected annual premiums by 20%.
Don't look for Rick on a front-porch rocking chair. "I plan to keep myself busy auditing classes, from law and architecture to languages and art," says Rick. Rory, who does contract work for a local accountant, expects to continue working, at least part-time, if they move.