URBAN and Virginia Linn figured they had a good idea of what to expect financially in retirement.
Urban, a mathematics statistician at the former Martin Marietta Corp. before retiring in 1989, was familiar with budgeting and investments. Virginia, who retired three years ago at 64, had seen the financial issues facing seniors through her job at Baltimore's Commission on Aging.
Still, the Baltimore couple had a few surprises. Virginia was shocked by the federal tax bite. Urban was struck by ever-rising insurance rates and the switch to a fixed income. Both wish they had saved more.
"For the average person, you can discover you will always need more," said the 75-year-old Urban.
The Linns live on less than $30,000 a year. More savings, said the couple, would allow them to travel more.
Retirement planning isn't an exact science. Workers salt away a nest egg based on assumptions about a wide range of variables, including the economy, their health and the stock market. But once in retirement, a sudden illness, market slump or appliance on the fritz can derail plans.
For instance, 43 percent of retirees surveyed this year said they had to quit work earlier than they expected, largely because of poor health, according to Employee Benefit Research Institute. The Washington-based nonprofit polled retirees about their experiences vs. what they anticipated at retirement.
While most retirees found that their standard of living and ability to pay medical and basic expenses were as expected or better, others' planning didn't pan out. Sixteen percent said their standard of living was worse than expected, 22 percent found it harder to meet medical costs, and 18 percent had less ability to take care of the basics.
Some experts say financial planning for the retired years is easier while you're still employed and can make adjustments, such as prolonging work, to meet changing conditions. That's harder to do at, say, age 80.
"Once you retire, you can't say, 'I'll work a couple of years.' You've given up a lot of flexibility," said Joseph Healy, manager of retirement and advisory services at T. Rowe Price Associates Inc. in Baltimore.
Whether you're retired or about to, retirees and financial experts advise you to consider these factors:
Living expenses. The rule of thumb has been that retirees need 70 percent to 80 percent of their preretirement income because expenses go down. They no longer commute to a job or buy clothes for work. They don't pay into Social Security or a 401(k).
For Ed Inglis, 77, who retired from Exxon Corp. in 1982, this formula works. "I wasn't spending 100 percent of what I was bringing in anyway," said Inglis, who lives in Charlestown Retirement Community in Catonsville.
But for others, this formula may lead to a shortfall. Often retirees initially "will spend as much as they did when they were working, because they are still very healthy and they have all this time," said Tom Grzymala, a certified financial planner with Alexandria Financial Associates Ltd.
Retirees travel, take up expensive hobbies or spend loads on grandchildren, he said. After about 10 years, retirees slow down and living expenses drop. They go up again when health problems arise, he said.
You may be healthy, but your refrigerator or car may suddenly croak. Don't forget the costs of maintenance or replacing big-ticket items.
"These things don't last forever," said Urban Linn. "These costs that come out of the blue are quite high."
Linn takes some of the surprise out of these costs by keeping track of the age of his appliances.
Inflation is low, but it hasn't gone away. That's easy to forget. "You have to recognize the erosion of purchasing power," said Price's Healy. A $6 movie ticket today, for instance, will be $11 in 20 years, based on a 3 percent inflation rate, he said.
Maybe you've never been sick a day in your life, but you must factor in the cost of health problems.
"The joys of aging also involve the joys of seeing the doctor more frequently," Urban Linn said.
You must think about how long you may actually live. According to the survey of retirees, nearly half had not figured out how long they would be in retirement, putting themselves at risk of outliving their money.
"If you have a mother who lived to 89 and a father who lived to 77, you may beat their record," said Don Blandin, president of American Savings Education Council, a nonprofit in Washington.
"People should realize they could be spending a lot longer [in retirement] than they anticipate."
Many retirees figure their portfolio will earn the average annual return, which they then can withdraw for income, Healy said. But the average is based on returns over many years.
Year-to-year, though, returns can swing wildly. If you start in retirement in a bear market, you may be forced to dip into principal. And that can lop years off the life of your portfolio because "the capital never has the opportunity to enjoy the rebound of the bull market," Healy says.
Beyond the financial concerns, retirement can bring up a lot of emotions. Some high-powered careerists, for instance, find it difficult to adjust to a more laid-back lifestyle.
"The people who seem to make the most successful transition into retirement stay involved in something they really want to do," said Lyle Benson, president of L. K. Benson & Co., a financial planning firm in Towson.
Urban Linn, for instance, became a tour coordinator at Martin State Airport and tour director at the Glenn L. Martin Aviation Museum seven years ago because he enjoys aviation and the visits from schoolchildren.
His advice for retirees is to maintain a positive outlook. "You're not put into pasture you're still very much a contributing member of society."
Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at firstname.lastname@example.org.