Once upon a time there were jobs that could sustain you for your entire working life. Many of those jobs had valuable pension plans. If you worked there for 30 years, you could quit, take the pension and pay all your bills without having to work another day in your life. It's just not that simple any more.
When I was a kid back on the farm in Illinois, I remember my older cousins graduating from high school and going to work in the Caterpillar tractor plant 30 miles away. They farmed by day, worked the factory second shift for 30 years and then retired. A few of them retired in their 40s with a full pension, full medical benefits, a 401(k) account and a bunch of company stock.
It was pretty easy for them to decide when they could retire. The United Auto Workers contract spelled out how many years of service were required to get full benefits. When you had put your time in, you got to retire, simple as that. Those were the days.
Changes in retirement planning
Now, it's a bit different. Almost none of my clients qualify for a meaningful pension. Paying for retirement more often comes from savings, Social Security and maybe some part-time work.
When I talk with clients about how to decide if they’re ready to retire, I challenge them to stay focused on their goals and values. No two retirement situations are the same. If we stay focused on goals, we can build better solutions.
Let's look at Susan and Greg. They were both in their late 50s when we met and they wanted to retire at 60, if they could. We discussed three broad questions that helped them articulate their goals and make the right decision.
Top questions to consider before retiring
- Are you financially ready?
- We looked at monthly spending to determine how much income they would need each month. They needed about $4,300 spendable each month.
- We then looked at their Social Security earnings history and estimated their income benefit at 67 and at 70. At age 70, Greg would bring in about $2,700 per month and Susan would bring in about $1,300 per month.
- They have no pensions, but they did save into their respective company 401(k) plans for a total of about $450,000. We think we can pull about $18,000 off that savings before taxes, which would leave about $1,000 spendable each month.
- We discussed retirement plans and some part-time jobs that would be compatible with the lifestyle they want. They think they can each make about $10,000 per year in income in the first few years of retirement.
- Are you physically ready?
- Susan had a pretty reasonable medical plan that could bridge them from age 60 to 65. Then they can qualify for Medicare.
- Neither Greg nor Susan have any chronic illness or bad family medical history that would make healthcare a special concern.
- They have a long-term healthcare insurance plan that will pay up to $150 per day for care for either one of them for a shared total of eight years. This takes much of the risk of older-age care off the table.
- Are you mentally ready?
- Both Susan and Greg like their work, but they don't live for work. They are both ready to try something different.
- The couple each has plenty of interests outside the house, so there is less chance they will sit around and get on each other's nerves.
- Based on our budget estimates and some part-time work, they are planning to travel and stay active during the first 10 to20 years of retirement.
Plan for success
We made the plan that they would retire together the year Susan turns 62. This gives them five years to double down on savings and refine the monthly budget to reduce expenses. I'm meeting with them for financial planning meetings every six months to check their progress on specific goals along the way.
We are all looking forward to a great retirement party in a few years.
If you want to know if you’re ready to retire, contact me at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.