Retirement Planning in Pittsburgh

“Unless commitment is made, there are only promises and hopes- but no plans.“

—Peter Drucker

Everyone dreams of retirement. Sitting on a beach, making up for missed time with family, or just getting well-deserved rest after decades of hard work – all and more make up most of our post-retirement dreams. 

But, like business legend Peter Drucker says above, we’re building a future on the shaky foundation of promises and hopes unless we commit to that vision. To achieve those dreams and ideas, we need to develop a comprehensive retirement plan today and commit to it. 

Everyone has their preferred retirement planning methods. If you ask me or anyone else on my team about any of our core retirement competencies – income and tax planning, estate planning, insurance management, and more – we could talk your ear off about different strategies and maximizing your opportunities today and after retiring. 

But we aren’t here to talk about all that (yet). Instead, we’re looking at basic, foundational principles to help turn your promises and hopes into commitment and plans.

The State of Retirement Today

“Retirement planning today is a very different game than when we started 35 years ago, but the core tenets remain the same.”

—Bob Hapanowicz

Retirement is very different than it was even just a decade ago. Pensions are nearly a thing of the past, and increased life expectancy means many find themselves running out of money in their golden years when least expected – and most disastrous. While not comprehensive, some of the most significant retirement changes we’ve seen in the past 35 years of our operational history include:

• A wider range of healthcare options and opportunities like HSAs and the like, but also an increasing Medicare gap that demands private insurance step in. Navigating insurance is tough enough when employed, but we see many retirees left adrift once they no longer have workplace benefits coordinators to help them.
• Women increasingly outlive men, meaning they must be more involved in financial management earlier in retirement – they’re often the ones who manage financial affairs and execute estate planning with the family’s financial advisor. Estate planning complexity, in particular, is compounded as we see modern family dynamics as very different than they once were (increased divorce, middle-aged children cohabitation with retired and elderly parents, etc).
• Regulatory changes, such as frequent adjustments to RMD scheduling and even talk of raising the retirement age (not to mention Social Security’s uncertainty), mean it’s harder to stay abreast of developments, let alone understand the complex legalese behind the initiatives.

But don’t stress yet. Though things change rapidly and often, planning for retirement slowly and deliberately doesn’t need to be a nightmare. First step – knowing how much money you need to retire.

How Much Money Do I Need to Retire?

“Considering the city’s many attractions, Pittsburgh is surprisingly affordable for most—including retirees.“

—Bob Hapanowicz

There’s no hard and fast rule laying how precisely how much money you need to retire – the reality is that the answer varies from person and may even fluctuate throughout your retired life as medical expenses, cost of living increases, and other factors put pressure on your retirement savings. Practically speaking, the only sure statement when it comes to answering How much money do I need to retire is “the more, the better.”

That being said, a handful of standard rules of thumb can help give you an idea of how large your nest egg must be before retirement. However, as we’ll soon see, even these broad generalizations have drawbacks and risks when not appropriately nested within a wider financial management ecosystem.

1. Salary-Based Method

Using the salary-based method to determine how much you need to retire, you should have 1x your annual salary stashed away by age 30, with the multiple increasing every five years as a function of both well-invested market gains and your annual earning potential increasing with age and career progression. The ultimate goal is to have 10x your annual salary by 67:

2. The 4% Rule

The 4% Rule flips the salary-based method on its head by reversing the calculus: instead of projecting how much you need based on your salary today, first determine your annual cost of living and typical expenses alongside a bit of budget bloat to account for unexpected medical bills, home repairs, and luxury splurging. 

That annual amount (withdrawal rate) should be 4% of your total retirement holdings when you first retire. So, if you calculate that you need $100,000 annually to maintain your current or desired cost of living, you’d need $2.5 million to retire. After that, you’ll withdraw the same amount annually, adjusted upward for inflation (2% is usually the norm, so your second year of retirement withdrawal will be $102,000, second year $104,040, and onward). 

The 4% Rule is based on the theory that you can safely withdraw up to 4% (plus inflation) of a well-balanced portfolio annually without incurring major losses or excess downside exposure across a wide range of market conditions for the duration of a 30-year retirement.  

This rule, of course, has a range of drawbacks, including:

• It assumes an “ideal” portfolio composition of 50% stocks and 50% bonds and that this composition will perform as it has in the past – which, as we’re increasingly seeing, is less a “sure thing” than ever today.
• It doesn’t account for unexpected, massive expenses that often crop up during retirement and are nearly impossible to forecast accurately.
• Likewise, it doesn’t include taxes (a major surprise for many come retirement) or investing fees and commissions, if applicable. 

3. The Most Important Consideration

Though the 4% Rule alluded to it, the biggest factor when considering how much money you need to retire is at the intersection of quality of life and cost of living. 

Quality of Life

How do you picture your retirement? Frequent overseas travel or simply kicking back home to enjoy well-deserved rest? Are you catching up on your hobbies or exploring new ones? Are you eating out and living it up or enjoying a low-key life with plenty of leisure time on your hands?  

Cost of Living

What baseline expenses can you expect besides quality-of-life costs? Will you rent or buy a new home, complete with a mortgage? Or travel the country in an RV? Is your region pricier when it comes to basic food and staples costs, or is it relatively cheap?

Often, quality-of-life plans that include an active retirement center themselves in higher cost-of-living environments – meaning that, even as your quality-of-life spending goes up, you’re also at a higher baseline expense level than you’d otherwise be in a cheaper area. This is why, no matter the rule of thumb or general guideline you follow, determining how you want to live in retirement and where – then working backward to find your annual expected costs – is the most important step to deciding how much money you’ll need in retirement. 

That’s also ultimately why finding a local financial planner well-versed in retirement planning and local cost expectations is preferable to working with a “big box” planner who runs calculations based on some chart or survey with little to no lived experience in the region you plan to retire in. Pittsburgh, luckily, offers a range of tax benefits to retirees and is surprisingly cheap to live and retire in – but make sure your financial planner understands the ins and outs of the area before deciding to lay down roots!

A Working Retirement?

One way to make your dollar go further in retirement – and stave off the inevitable boredom many retirees report – is to make your retirement a working one. This doesn’t mean you’re not retiring. Instead, you’re taking advantage of your wealth of life experience and expertise (and likely abundance of free time) to work a part-time or consultancy-style job to bring in extra spending money or close any income gap you and your financial planner identify.

Luckily, Pittsburgh is awash with opportunities for a working retirement. Typical senior jobs perfect for working retirees in the city include:

1. Tax preparers: Pittsburgh’s wide-ranging financial scene includes robust accountancy firms and opportunities for seniors to help prepare tax returns on a seasonal basis. Luckily, basic tax filings take very little training or experience to complete, so you needn’t have been a financial wizard in your working life to take advantage of the opportunity. 
2. Consultancy: If you do want to put your past life’s expertise to use, you can also work for many of Pittsburgh’s professional service firms on a consultancy, contract, or freelance basis. This will allow you to command higher rates than you may have during traditional employment while often letting you set your schedule. Likewise, global demand for high-quality professional contracting work means you can enjoy your retirement at home while bringing in additional income. 
3. Daycare and medical center assistance: Facilities like daycares and some clinics often need help on a part-time or as-needed basis to help with basic tasks that frequently don’t require extensive or complex credentialing, if any. Working in daycares and the like as a retiree offers the dual benefit of meeting new people you’d otherwise not be exposed to, expanding your network, and forging new friendships.

Conclusion: Retiring in Pittsburgh

If you’ve made it this far, you likely have a decent idea of the nuts-and-bolts retirement considerations. But, while financial outlook and the like are key to a successful transition, they aren’t the only lynchpin to a fruitful retirement. Luckily, Pittsburgh offers a range of unique retirement benefits that you should also factor into your planning and decision-making:

1. A range of attractions and leisure opportunities, including the Carnegie Museum of Art, plenty of parks and green space, and 77 acres worth of enjoyment opportunities at the Pittsburgh Zoo. 
2. Top-tier healthcare, including the University of Pittsburgh’s Medical Center, which is nationally ranked as one of the top healthcare facilities. 
3. Plenty of unique restaurants and eateries for foodies, as well as dozens of 55+ communities for active adults looking to enjoy their retirement away from the city’s hustle and bustle. 

Ultimately, your retirement is what you make of it, whether you retire in Pittsburgh or elsewhere. But, no matter where you hang your hat, you won’t be able to maximize your opportunities and potential without a well-rounded, comprehensive financial plan and ecosystem that supports your long-term goals and a fruitful retirement. And when it comes to retiring in Pittsburgh, no one knows the city – or is as adept at accounting for its many financial variables in retirement – as a local Pittsburgh advisory firm, like us.  

Thinking about retiring in Pittsburgh? Reach out today for a free consultation call to look at your current financial standing and begin making preliminary plans to build the best retirement for you.