What better way to learn about retirement than someone who meticulously prepared for it. On this episode we talk with Fritz Gilbert, who chronicled his own retirement every week for the past five years.
Fritz is the founder of the blog The Retirement Manifesto and the author of Keys to a Successful Retirement: Staying Happy, Active, and Productive in Your Retired Years
In this episode, you will learn:
- What retirement looks like
- How to start planning for retirement
- What to expect in your retirement
- How to account for “doomsday scenarios” while planning for retirement
- And more!
Tune in now to hear what the process of retirement is like from a first-person perspective!
Welcome back to the Agent of Wealth Podcast. I’m your host Marc Bautis. Most information out there on planning for retirement comes from advisors like me or even from academia. But today, I brought on a special guest on the show: Fritz Gilbert.
Fritz is going to provide a unique perspective on retirement. He wrote about his retirement journey every week for the past 5 years at The Retirement Manifesto, an online blog that he founded to share his experience as he prepared for and transitioned into retirement. Fritz is also the author of the newly released book: Keys to a Successful Retirement: Staying Happy, Active, and Productive in Your Retired Years. Fritz, welcome to the show.
Thanks, Marc. It’s an honor to be on. It’s great to chat with you and I appreciate the honor.
Like I said, it’s pretty cool to have a unique perspective on retirement: someone who actually went through it. How did you decide to start chronicling it and create your blog?
I actually tell this story in my book. If something intrigues you and you’ve got a curiosity about it, just take the first steps. I think my blog is a good example of that. I had a curiosity about 5 years ago. I’ve been a DIY investor for 30 years.
I always liked personal finance. I never really did writing other than my corporate job: emails and things you have to do for work. But, I started it about 5 years ago just as kind of an interest thing. I just fell in love with it. I’ve been writing every week for 5 years.
I think what I enjoy so much is that it forces you to really think. You have to develop a thought, put it into a structure that’s appealing to the readers, and then put together a logical story that ties it all together.
Then you get the reader feedback, the engagement with the readers, and the community: the bloggers and the podcasters.
It just turned into this tremendous thing that to me is just really adding a lot of fulfillment in my retirement years that I really never saw coming. It’s kind of serendipity, to answer your question in one word.
What is Retirement Really Like?
I know you start the book off with what I think are two really great comparisons. First, everyone wonders: what is next? What is retirement going to look like? You kind of summed it up in one word: you called it freedom.
Yeah. Marc, when I was approaching retirement, I started the blog 3 years before I retired. Obviously, once you start writing about it every week, you really start thinking about it.
- The first year, I was really focused on the numbers and making sure those were tight.
- Probably about 2 years before I retired, I kind of knew the numbers were good and I started looking at more of the soft side of: what’s life going to be like after retirement?
The closer I got to it, I almost got obsessed. What’s it really like?
Retirement is something kind of like getting married; you can’t really appreciate what it’s going to be like until you actually experience it.
To me, a big focus on the book was for people to have that same curiosity: what’s it really like to retire? Nobody can really explain it perfectly. Even if they could, your individual experience will probably almost guaranteed be different than mine.
But, I really put a lot of energy in the book to try to explain what the transition is like because to me, it’s intriguing and it’s important that you get it right and kind of understand what it’s going to be like before you get there to help answer some of those questions of what you should be preparing for. It’s so much more than the financials.
I see it all the time on my side: let’s analyze the numbers, let’s look at if this happens or this scenario.
It’s always: will the money run out? Will you have enough money for expenses? But, probably the non-quantitative aspect of retirement: the emotions, the relationships, all that stuff is probably just as important or just as much as a change.
Absolutely. The way I like to think about it is: the financials-absolutely, you have to have them. You have got to understand your financial situation. You have got to understand your safe withdrawal rate. You’ve got to understand how you’re going to replace your paycheck.
But, I would say it’s necessary but it’s not sufficient.
You’ve really got to look at the non-financial side, especially in your final year of work when you’re approaching the “starting line,” as I call it, to really think about the non-financial aspects of it.
The more time you do that before you retire, it’s been proven statistically through different studies, that that is the number one thing you can do to ensure a successful retirement.
I would say that financials are necessary, but not sufficient.
I think there’s a funny quote or statistic that says: “Most people prepare more for a two week vacation than they actually do with retirement.”
With anything, prep and planning will definitely enable more success with it. The other comparison I liked is that you compare retiring to baking a cake. How did you come up with that comparison? What goes into that?
I guess I question how I come up with a lot of the things I come up with.
I really like using metaphors and analogies when I write. I think it’s a nice way to think outside of the box. As I started thinking about it, I don’t bake cakes obviously.
As you start thinking about the process, it’s so similar to planning for retirement. If you think about it: okay, I’m going to bake a cake. Okay, I’m going to retire. What type of cake would you like to make? What type of life would you like to live in retirement? I’d like to make a chocolate cake; you better make sure you have chocolate. I’d like to travel the world; you better make sure you have the financials in place to travel the world.
The steps that you go through all the way through-putting it in the oven, giving it time to bake-that’s kind of building your financials and getting them to the point where they’re “done” or ready.
In each of the steps, there’s almost a perfect correlation with the steps that you need to take as you prepare for retirement. I think that night, it came out pretty well; it was clear to understand and it works.
Is that the point where people start? What do they want their retirement to look like? Is there somewhere else that someone should start once they want to start planning for it?
I think most people, obviously, are going to start with the financials and that’s fine. But, I don’t think you can really do the financials right unless you spend time thinking about what you want your end product to be; what type of cake do you want?
You’ve got to think about what type of lifestyle you want to support in your retirement. Then, back into the financials from that.
If you’re going to downsize, sell your house, move out of New Jersey and move down to Tennessee, and get rid of your taxes, you have to factor that stuff in because your living expenses in retirement are really the ultimate driver for whether or not you have enough to retire.
So, I don’t know how you can really answer the question of if you’re ready to retire until you spend some time thinking about what type of lifestyle you want to have in retirement and much that is going to cost.
To me, that is the bedrock foundation that you have to answer. How can you do that if you haven’t taken the time to think what you want your life to be when you retire?
Tips for Financially Planning Your Retirement
When you did that for yourself, did you go through to the dollar or some kind of estimate looking at what you thought your expenses would be during retirement?
Yeah. We’ve never been budgeters. I’ve always saved aggressively. My wife and I are very aligned in the way we think about this stuff. We’ve always lived below our means, we paid ourselves first. Once we automated our savings, we just kind of spent the rest. We would do nice vacations, I had frequent flyer miles, etc., etc. We knew we were saving 20/25% of our pay so we could afford to spend the rest, but we never really tracked our spending.
Track and Project
So what we did is we started getting serious about paying for retirement:
- We actually tracked every penny we spent for a year; we did about 11 months by category.
- We just got a spreadsheet and entered it.
- We added all of the major categories, actual spending for 11 months.
- Then, what we did is we created a new column and basically said: how do we see these expenses changing in retirement?
Obviously, I’m not driving to work anymore so the car expenses should go down. I’m not buying new clothes for work, etc. So, we kind of went through it category by category. We were going to start camping more, so we added some travel and entertainment-type expenses. We tried to do the best we could at health insurance. We had company-sponsored health insurance. Now, obviously, we’re paying private medical. We tried to adjust the things we could based on the best estimates we could find.
We took the current actual, made a retirement-projected. I actually ran that through to age 95. I did some inflation adjustments on each of the categories, looked how spending could change, and I actually laid out a projection through age 95 to make sure that we were thinking holistically and long-term rather than just looking at a snapshot in time.
One of the things you mentioned about especially health insurance; I see that’s an area where a lot of people are not sure. It’s an unknown; they don’t know what the cost of increase of health insurance is going to be. One thing you mentioned is that you didn’t go from your company’s employer plan to Medicare. You didn’t retire at 65, correct?
No, I retired at age 55, so I have 10 years of private medical before I’m eligible for Medicare. That was a big factor in our decision.
Basically, what I did is I read all the stats. Everything we did, we kind of hedged. We used $2,500 a month, but we’re actually paying $2,000 now. So, we used the highest reasonable estimates that we could in each of the categories as a little bit of a hedge in case we missed on a couple of major elements, we wouldn’t get caught by a surprise.
I would rather be surprised to the positive than surprised to the negative. Yeah, we factored in pretty expensive healthcare and we said that once the numbers say we can do it, let’s not let healthcare be the reason we don’t retire. Let’s assume we’ll be able to find it and we just know we have to pay for it.
As it turns out, we’ve been able to do it. As long as you plan for things, I don’t think fear and anxiety should be the reason you don’t retire. As long as you have the financials to cover the worst-case scenarios.
Did you ever put any kind of hedge in place that said: if this doesn’t work out, my plan to go back to work is this?
Nope. My plan was always that once I retired, I never wanted to be dependent on side-hustle income.
Obviously, I make a little bit of money on my blog, and I made some money on the book, etc. None of that was built into our plan. We always assumed that once the paycheck stops, it stops forever.
If we’re not in the situation that we can do it based on that, why would I retire? Let’s keep working; I have a good corporate job, I have good benefits; we’ll work another year or two. I didn’t want to be in a situation where we had a high probability of having to go back to work if we missed.
I would rather assume the worst and then if some of the things fell together better than we planned, hey that’s great and if we probably have a little bit more money than we need, that’s okay. That was the way we approached it.
Was your wife working at the time as well?
No. Once we had our daughter, she was a stay at home mom. Actually, one of the things we did right is that early on in my career, before we had our daughter who’s 25 now, when my wife was working, we talked about it.
We said, obviously we wanted to start a family. We both agreed that she really wanted to be a stay at home mom. We said that’s great and we were both aligned with that.
So, when she was working, we saved 100% of her pay and we never got dependent on it; we never bought cars, we never bought houses based on her income so we would be in a position that one the child came along, she would be able to quit and our budget wasn’t dependent on that.
That gave us a nice savings boost at the beginning. She hasn’t worked outside of the home since our daughter was born.
Even with that though, I think that’s one thing people don’t necessarily think about as much. You think about leaving the workplace, what a big change it’s going to be.
Don’t underestimate the amount of change it’s going to be for stay at home spouses as well. Retirement is equally big for both of you, regardless of where you’re coming from.
That brings up a good topic. You actually moved either close to or right after retirement?
Yeah, we had a vacation home up in the mountains. We lived in Atlanta at the time, and we had a vacation place we bought maybe 7-8 years before I retired.
We were renting it out, making some income on it; it was paying for itself. We always knew that our retirement plan was to sell the big house in the city and move up to the cabin full-time.
We actually moved up here. My wife was actually caring for her mom -she had Alzheimer’s- so she lived with us for the last 4 or 5 years that I was working. Towards the end, she ended up being in a nursing home. The nursing home facilities up here at the cabin were a lot better than they were down in the city, so we actually moved 2 years before my retirement just for the sake of her mother.
We got her in a nice nursing home up here, my wife moved up here full-time. Then I got a small apartment in the city and I would drive down in the city every Monday morning early and I would come home Thursday night and work from home on Friday. So I was home 4 nights a week, down in the city 3 nights a week, and we did that for 2 years to make the transition.
That’s almost like when you hear: “test drive your retirement.” It’s almost like what you did with getting a feeling for it. For some people, it is a big change and sometimes, it’s a “flip of the light switch change” and they have trouble with it.
Yeah, and I think when you think about moving, the hardest part of it I think is your friendships, relationships, your dentist, your doctors, etc. Doing it the way we did it actually gave us the opportunity to be engaged in the community up here.
I was home almost every weekend, so we started volunteering with some charities, we started getting to know people, we started going to a church. We made the connections that would become our retirement life while we were still working, even though we were in a new environment. It worked out really well for us. It’s not something that everyone can do, but it really worked out well for us that way.
What changed in terms of your daily day during retirement?
Everything. It’s incredible. That goes back to the question: what is retirement really going to be like? I would say it evolved.
The first probably 3 or 4 months, I was just so happy to not be working. I didn’t hate my job or anything, but I was so excited about getting that ultimate freedom and not having to set an alarm clock, and all of those things. So, for the first 3 or 4 months, I really just disconnected, really enjoyed the serendipity of an open day, no scheduling, and things like that.
What I found probably at about the 4-month mark is (a lot of people do find this) that there is some value to having some structure in your day.
When you’re working, your entire day is structured: you’ve got to go to the office, you have meetings, you;ve got deliverables, you have your monthly reports, etc., etc. In retirement, all of that is gone; there is no structure at all.
What I found works well for me, and I talk about this quite a bit in the book, you kind of have to play around with how much structure works for you. Some people like to have their entire day structured, and it’s a huge adjustment going into retirement. I found that a little bit of both works well.
My mornings are structured. I go to the gym everyday, we have different classes that our gym offers. I go to the gym every morning and take different classes; our gyms are open up now in Georgia, so we’re one of the early states to open. I missed it when it was closed, but now we’re back in business.
I go to the gym every morning, then come home and walk the dogs in the woods; we have beautiful woods behind our cabin.
Then, about 10/11:00 o’clock the day is less structured. We do whatever we want to do for the rest of the day. Having a little bit of balance like that works out really well for us.
Did you plan or have you done a lot of traveling in retirement?
Yes, we always planned on wanting to do quite a bit. Our daughter lives in Seattle. She’s 25 now, as I mentioned, so she’s married. Our granddaughter is out there and her husband is in the military.
Last summer, we took a three-month, 10,000 mile trip. We drove cross-country and took our time. The first year I retired, we took a train trip. My wife always wanted to go cross-country on a train, so we were like: great let’s go cross-country on a train. It was 7,000 miles I think. We went from Georgia all the way to Washington D.C., out through Chicago to Seattle. We got off the train in Seattle, stayed there for a while, and then came down the California coast and back across the southern route. We did a big loop on the train; that was great.
Last year, we did the three-month R.V. trip and spent the summer in the Pacific Northwest, which was great. This year, obviously with COVID, things are going to change. We’re taking off in August; we’re going to go up to Michigan. We were planning on flying out to Seattle and spending a couple weeks; obviously, that got cancelled.
So, we scheduled our trip to Seattle, we’re going to fly out there this Fall and spend maybe 3 weeks out there just flying out. Since we’re not going to be doing the big R.V. trip, we said: what do we want to do in lieu of that? We’re planning just a shorter one-month trip up to northern Michigan, the upper peninsula, visit some family, get out in the woods a little bit, get away from the Georgia heat.
So, you mix in some travel, you mix in some good stuff in your home environment. Again, that’s kind of like the structure thing; having part of your life where you’re free to travel and do things but still have a home base where you have your relationships and your sense of community. It’s worked out well for us mixing those two together.
What’s been the biggest difference from you going through the 3 years of planning, what was not what you expected?
I think as much as I was looking forward to the liberation and the freedom, I still don’t think I grasped how significant that really is. To have complete control over every minute of your day is so liberating. Being able to do only the things that you choose to do is a huge change in life.
With that comes a warning that you’re also responsible to fill your day with things that provide meaning and get you motivated and give you encouragement and fulfillment, because nobody is going to do it for you anymore. You don’t have a boss.
I think that whole transition into that freedom and that requirement to fill it with things that matter was probably the biggest surprise that I think both my wife and I faced.
You mentioned that freedom, and I think even in the book you equate it to freedom that no one has had since they were a child. I can actually relate to that. I remember hanging out with my friends on my friend’s steps when we were about 10 years old. My friend’s grandfather came up to us and said: “Guys, don’t forget this time. This is going to be the best time of your lives. You don’t have cares and responsibilities.” We were like: “Yeah, whatever.” Looking back at it, we were like: “He was right.”
And now you’re saying that to the kids and they’re not listening to you any more than you were listening to him. The cycle comes around.
I use that analogy in my book. I talk about how basically retirement is the summer vacation that never ends. If you were like me, you’re all excited about summer vacation; everyone is running through the playground and they’re all excited.
A month later, you’re bored. You’re sitting around saying: “Mom, I’m bored.” You can’t afford that to happen in retirement, because you’re not going back to school in a few months. It’s a good analogy, but it points out the importance if you think back to those summers when you started getting bored in the last couple of weeks, which I think most people did.
That’s a good way to frame retirement because if you don’t do anything and just expect : hey I’m just going to have fun, it doesn’t always work out that way. You have to have some design around what you want your life to be.
How to Prepare for “Doomsday Scenarios”
That’s true. Going back to some of the preparation work, how much of the planning or preparation did you put into, kind of going back to financials. What if there was a market crash after I retired? What if they cut social security? Sort of these “doomsday” scenarios? How did you account for those in your planning?
Great questions. I think everybody has to run some negative-type scenarios. We did- I talked about this cashflow thing that I did through age 95.
Basically, we had projections of how much we were going to spend. What is inflation going to be? I could play around with the inflation rates.
The big unknowns are:
- Investment returns
- Spending patterns
- Are you going to have enough money to last until you die?
Everyone is worried about running out of money. Basically, we played around with scenarios where we basically used 75% of social security. That’s what we always used as a hedger. Everything we’ve done has a kind of conservative tilt to it.
We used 75% of social security. We put in various: markets don’t work as well as you think, inflation runs higher than you think, how does that look?
The concern is that if you put everything to the negative, you might end up working 5 years longer than you really have to becaye everything negative probably isn’t going to happen. At the same time, you have to be cognisant that it could happen.
We basically went through every major risk and we kind of looked at it and said: what’s our best option to mitigate that risk?
As an example: bear market. It’s going to happen. We all know it’s going to happen, we just don’t know when.
So, to mitigate the sequence of return risk, which is the market’s taken a major downturn early in your retirement, we put in place the bucket strategy where we keep three years of cash, another five years basically in bonds, investments that hopefully will be more stable. Maybe you don’t get more returns, but they’re more stable.
Then, we reserve the equities for bucket three, which is maybe seven or eight years out. So, we could go seven or eight years without selling an equity of stock and be okay. We did that as a mitigation of sequence of return risk.
Longevity risk: what if you live to 100? We’ve looked at that and the two things we’re doing there are: at this point, we’re planning on delaying social security until age 70. We’ll push social security out until the latest optimal start date, just really as a longevity risk. It compounds off a higher base, you’re getting that 8% return for every year that you defer it, and we’re not going to need the money, so it’s kind of a longevity risk thing.
So basically, what we did is we looked at all of the risks. For longevity risk, delay social security for as long as you can. That will give you a higher base, that should give you a chance of longevity risk. We’re debating on getting deferred annuity at some point.
Again, as a longevity risk. In essence, we looked at all of those potential risks; sequence of return risk, we’ve got the bucket strategy. Longevity risk, delay social security. Those types of things and building in as much defense as you can.
Then, once you’re reasonably confident that you have addressed your risks, don’t let that fear keep you from retiring. Get on with it. Our whole goal of earlier retirement was really: you don’t know how long you’re going to be here, so let’s get out as early as we can so we can get as many good years of being able to do the things we want to do while we’re still healthy.
That was the whole drive behind our early retirement. Once we kind of knew we had enough, our life isn’t about the financials. It’s really about getting out and living life. We made the decision to really pull the trigger and it’s worked out well.
We’re two years in, loving life. We had a little blip in March with the market, but it didn’t bother us at all. We had our cash buffer, and everything was fine. So far, it’s working out; knock on wood.
Did you do any hedging or planning on the after-tax versus pre-tax aspects of some of your retirement account?
We sure did. Like most Baby Boomers, when I was coming up through the workplace, you didn’t have Roth accounts; all you had was the before tax 401(k)s and things like that.
Obviously, I was saving everything pre-tax because that’s what everyone said was right. The reality of it is that now the taxman is coming after his money. He wants his share.
If you look at the required minimum distributions and if you wait until age 72 to start pulling that stuff, you can really get hammered on taxes. We’ve put together a very solid plan.
We’re doing Roth conversions every year. We basically look at our marginal tax bracket situation. Let’s say there’s $40,000 left between the income that I’m getting from my pension, maybe my blog, some other side income-type things. If there’s $40,000 left between that and the marginal tax bracket, we’ll go ahead and take a $40,000 withdrawal from the 401(k) pre-tax, move it into the Roth, pay the taxes on it.
Especially now with the current tax structure for married filed jointly, the 2017/2018 reductions are significant. We’re really taking advantage of those to move as much as that before tax money as we can.
Yeah, there’s a tax optimization that we had. I wrote a whole post on our retirement drawdown strategy and kind of went through all of this logic and how we’re addressing these various elements. That was written before I retired. Now that we’re in retirement, we’re doing exactly that. We’re doing annual Roth conversions, we’re doing as much as we can to mitigate the tax obligations long-term.
I’m a big proponent of annual Roth conversions and like you said, fill up your tax bracket bucket. Everyone says they think they’re paying too much tax. I get it, but you also have to look at the brackets historically.
Most likely, in the future, they’re only going in one direction. You look at all this stimulus now that’s going out now and eventually, the bill’s going to be due. Usually, that means that tax brackets are going to increase in the future.
That’s right. I actually put a chart together when the new tax brackets came out. It’s shocking how much more they are. You can go up to $350,000 of income and you’re only in the 24% marginal tax rate. That’s huge.
Now, granted, if you’re trying to play the ACA, the Affordable Care Act, for health insurance or subsidies, there’s things that you have to be aware of. If you blow up your subsidies because you’re doing big Roth conversions, make sure you understand all of the details of it.
Now is probably the golden era of Roth conversions because I don’t think that taxes will be lower in my lifetime.
I agree with you. What’s next for the blog? Are you continuing to just write for the blog?
Yeah, I write every week. I really enjoy it. Part of what I found when I first started the blog, it was 100% focused on the financial because that’s where I was.
As I got about a year away from retirement, it started to be more about: what’s this retirement lifestyle stuff going to be? Now that I’m actually in retirement, I kind of mix it up. I still throw some financial stuff in there, I throw in some lifestyle stuff.
I really like the challenge of writing every week and coming up with articles that are entertaining. My readership base has grown quite a bit. I got the “Retirement Blog of the Year” from the Academy Awards of blogging.
I think like you said in the introduction, there aren’t a lot of people who are writing or talking about this stuff that are actually retired. Bloggers are kind of the big fire enthusiasts, but a lot of the baby boomers can’t really relate to them.
I don’t relate to those 40-year-old kids. Being a Baby Boomer myself, and just in the early phases of retirement, I feel like I’m in a good place because there’s so many people in my demographic, but there aren’t a lot of people writing about it and the actual experience. I’m having a blast; I’m really enjoying it.
One of the things you have to look for when you get into retirement is that reward structure that you had at work: you get a pay raise, a pat on the back from the boss because you did a great presentation. That goes away. Finding things that give you that sense of achievement is really important.
My blog is something that gives me that sense of achievement; I enjoy doing it, it’s mentally stimulating, I have great social interaction with the community, and I get that sense of reward. At this point (things could always change), I’ve got the freedom to do it or to not do it obviously. If I get tired, I’ll stop doing it. But, at this point, I just love doing it. I think people enjoy reading about a fellow Baby Boomer on the journey and people can relate to it.
About the book, they say that most people don’t stop at one.
People have been saying that to me. It’s kind of like when I ran a marathon. I wanted to run a marathon before I was 40 and I did. I said: okay I did that, I’m not going to do another one. It was too much work.
I kind of feel that way about the book. It’s a lot of work. You always hear it’s a lot of work, but until you actually go through it, it’s a lot of work.
Having said that, the publisher actually approached me about writing another one; I think they’re pretty happy with the book. I said: “I’m going to take some time off, but let’s keep in touch.” So, who knows?
I really like the serendipity; it’s probably my favorite word right now. The sense of exploration and just see where things go. That’s kind of how I’m living life. Maybe I’ll write another book, maybe I won’t. If I feel like it, I will. If I were a betting man, I would say that the odds are probably 60/40 that I’ll write another book. Who knows, we’ll see.
The first one was a great book. I read it over the weekend. It’s full of tips you don’t find in some other books on retirement, so I definitely enjoyed it.
Thank you, Marc. I really appreciate that.
So, that just about wraps up our show for today. Fritz, how best can someone find out more information about your blog, your book, if they want to reach out and get in touch with you?
I appreciate it Marc. I’m easy to find. I’m at: TheRetirementManifesto.com. I’ve got a page on there that has my book; you can look it up on Amazon. Come and follow along. Sign up for my emails, I would love to have you on the team. I’m on Facebook, Twitter, everywhere else. The blog domain is probably the easiest place to find me.
Great. Thank you very much for being on the show today.
Thank you for the honor, Marc. It’s been great chatting with you.
Thank you everyone for tuning in to today’s episode. Until next time, have a great day.