Hubs and I had a big sit-down over all the retirement money stuff in August.
We got all our numbers set down on paper in one place and went over the options. This took about 3 hours but was well worth the time to get everything gathered and all the information hashed-out.
It was our big reality check moment after so many years of working our plan.
First off the medical insurance stuff--
Once Hubs retires we need to buy our own insurance until Medicare kicks in at 65 years.
Hubs company puts money into a retiree medical savings account each year for him to pay for medical bills once he retires(in lieu of a retiree medical pension plan). This money is in addition to any money the employer and employee contribute to the HSA account each year until he leaves the company, which by then will be another small pot of money to pay these expenses from.
We've figured that the best plan once he leaves his job is the pay for COBRA coverage for the 18 months after his retirement date, then buy a High Deductible Health Plan(HDHP)for the 34 months after COBRA eligibility expires until he reaches Medicare age(plus we'd have to keep paying for the HDHP for another 8 months for me alone until I reach Medicare age too).
When the time comes to pay for the COBRA we'll explore the cost of ACA plans-if this current system is still in place- instead of COBRA and will choose whichever is less money for equal coverage.
Then we both are on Medicare and the fun begins on figuring out which plans beyond Part A & B we need to buy.
Fun. Fun. Fun.
At this point in time, that medical retiree savings account has almost enough to cover premiums for buying coverage until Medicare time fully.
We project it will be just under $7K short for our needs. That's not a problem for us to cover that bit with personal savings or use whatever is in the HSA to cover this piece of the premiums we will be short.
On to the retirement savings--
We have 2 separate "retirement" accounts.
One is the cash balance account(what replaced the company's pension plan).
The other is our 401K containing what we've socked away over the years from his pay.
There are 3 options on the cash balance account--
1. take it as a lump sum and invest it, drawing down as we need funds to live on and if needed, continue to draw it down once Social Security kicks in.
2. Buy an annuity that's "grandfathered". (A portion of his money is grandfathered, meaning it's earning at a higher rate as it was the cash in his pension account before his company went to a cash balance plan.)
3. Buy an annuity that separates the 2 parts of the cash balance money.
Option 1--
We ran the numbers and if we take out the lump sum we may run out of that money in 18 years unless we invest it in riskier parts of the stock market.
Now if interest rates do head up before we have to decide in 3 years, we could take the lump sum and not need to put it into riskier places and NOT run through it in 18 years.
So depending on what happens in 3 years with the economy option 1 "might" work if market conditions change for the better.
Option 2 & 3--
He works in this field(retirement/insurance)so he gets a special, better rate if he buys an annuity.
Of those 2 options, Hubs wants to take out an annuity with the cash balance monies that doesn't separate the two parts(grandfathered/non-grandfathered). We ran the numbers between the 2 annuity options and combining the monies version gives us more income.
Since he plans to retire the end of the year in which he turns 60 this annuity has 2 different payout rates--one for the 4 years/3 months before he turns 65 and one which is $755 less per month after he reaches 65 until his death.
That's a yearly drop of $9K a year from what we'd collect for the 4+ years before he turns 65.
I don't quite understand why this is set-up like this. It could be that the powers that be who concocted this scheme give you more until your Social Security kicks in since that will cover some of your expenses.
But for now Option 2 is the plan for that money.
Now since Hubs is retiring before he plans to collect Social Security at his designated full retirement age of 66 yrs. 10 mos. we'd have to live on this annuity amount alone which isn't our idea of an optimum situation. It "might" be enough but it might not be and at this point we can't tell which way it would go.
So Hubs wants to drawdown on our 401K funds until we start collecting SS. The 401K monies after he leaves his job will stay invested in the account they are currently in. It has a guaranteed rate of return of at least 3.5% per year but we've been seeing 7-8% during this Recession, meaning we could see better returns in the future(or not)but it won't go less than 3.5%. This money is NOT in the stock market and won't see much if any losses over the years if we keep it where it is invested now.
If we withdraw $30K a year for 7 years we will still have 77% of the balance we started with in that account after 7 years. Even though we would have taken out almost half of what we had in there, because of the interest it continues to earn it will only deplete the account to the tune of 23% of it's value.
Once Social Security kicks in, the 401K monies stop being tapped and we will live only on the annuity amount and Hubs SS check amount.
This SS and annuity amount will be slightly more than the annuity and savings drawdown amount we lived on for the 2 years preceding that date(but still almost $8K less than the annuity and savings drawdown amount from the first 4 years after he leaves employment).
This all means we'll have about $8-$9K per year more to live on during the first 4+ years after he leaves his job and then a pretty even amount to live on once he hits 65 years old and beyond.
So here is the financial snapshot once Hubs starts collecting SS---
We'll have what is left in the 401K after the drawdown before SS kicks in(over $350K), all this cash savings I've been able to tuck away from our take-home pay since 2009(projected to be about $150K by end of 2015 plus whatever I can add to that in the next 3 years by 2018).
Add that all to the monthly payments we'll be receiving---between the annuity and Hubs SS we'll have over $6K a month "income" and once my pitiful little SS checks start it will be over $7K a month coming in.
I think we can manage to live on $7K a month plus a half a million $ nest egg we can tap. 8-)
Plus we'll have lower living expenses(hopefully)overall and a paid for house in retirement and it's looking mighty fine for us. 8-)
The only bleak part is that if Hubs dies before me.
The annuity goes down by half and his SS payments go away.
If I am not collecting SS when this happens I'll get almost his full SS benefit amount(as a surviving spouse)until I am SS eligible, then my SS payments will drop by half.
Once I start collecting SS it will be half of what he was collecting in benefits so at that point I'll have almost half of what we had together to live on in my old age.
I doubt if Hubs will go before me since he is by a wide margin the healthier of us two, but if something happens to him I am half screwed as far as the income is concerned. 8-(
Hopefully, if that scenario comes to pass, we will still have a substantial amount in our savings account to supplement my income, but we are also considering continuing a small amount of life insurance on Hubs(if it's not ridiculously expensive by then).
If widowed I could downsize my living situation or get a roommate/housemate to help with living expenses and knowing me, I'd find a way to live cheaper. 8-)
Otherwise my future as a widow will mean living with one of my kids.
I had better be nicer to them, don't you think? ;-)
Now we just have to figure out WHERE we are going to retire to as we are not staying here.
Once Hubs retires at the end of the year he turns 60, College Boy will be finished with school(in May of that year)so we don't need to be living in PA any longer for either Hubs job or CB's in-state tuition rate, so we will be free to relocate anywhere in the country where we want to live.
That part, the deciding where to live in retirement part, is a lot harder and will take more researching and planning.
And where we land may depend on where our kids are at that time, especially if any of them have kids by then.
This money stuff was easy by comparison....... ;-)
How are your retirement plans going?
Do you have a handle on where you are financially in regard to where you want to be at retirement?
Are you close enough to run the numbers yet on possible scenarios in retirement?
Sluggy
We got all our numbers set down on paper in one place and went over the options. This took about 3 hours but was well worth the time to get everything gathered and all the information hashed-out.
It was our big reality check moment after so many years of working our plan.
First off the medical insurance stuff--
Once Hubs retires we need to buy our own insurance until Medicare kicks in at 65 years.
Hubs company puts money into a retiree medical savings account each year for him to pay for medical bills once he retires(in lieu of a retiree medical pension plan). This money is in addition to any money the employer and employee contribute to the HSA account each year until he leaves the company, which by then will be another small pot of money to pay these expenses from.
We've figured that the best plan once he leaves his job is the pay for COBRA coverage for the 18 months after his retirement date, then buy a High Deductible Health Plan(HDHP)for the 34 months after COBRA eligibility expires until he reaches Medicare age(plus we'd have to keep paying for the HDHP for another 8 months for me alone until I reach Medicare age too).
When the time comes to pay for the COBRA we'll explore the cost of ACA plans-if this current system is still in place- instead of COBRA and will choose whichever is less money for equal coverage.
Then we both are on Medicare and the fun begins on figuring out which plans beyond Part A & B we need to buy.
Fun. Fun. Fun.
At this point in time, that medical retiree savings account has almost enough to cover premiums for buying coverage until Medicare time fully.
We project it will be just under $7K short for our needs. That's not a problem for us to cover that bit with personal savings or use whatever is in the HSA to cover this piece of the premiums we will be short.
On to the retirement savings--
We have 2 separate "retirement" accounts.
One is the cash balance account(what replaced the company's pension plan).
The other is our 401K containing what we've socked away over the years from his pay.
There are 3 options on the cash balance account--
1. take it as a lump sum and invest it, drawing down as we need funds to live on and if needed, continue to draw it down once Social Security kicks in.
2. Buy an annuity that's "grandfathered". (A portion of his money is grandfathered, meaning it's earning at a higher rate as it was the cash in his pension account before his company went to a cash balance plan.)
3. Buy an annuity that separates the 2 parts of the cash balance money.
Option 1--
We ran the numbers and if we take out the lump sum we may run out of that money in 18 years unless we invest it in riskier parts of the stock market.
Now if interest rates do head up before we have to decide in 3 years, we could take the lump sum and not need to put it into riskier places and NOT run through it in 18 years.
So depending on what happens in 3 years with the economy option 1 "might" work if market conditions change for the better.
Option 2 & 3--
He works in this field(retirement/insurance)so he gets a special, better rate if he buys an annuity.
Of those 2 options, Hubs wants to take out an annuity with the cash balance monies that doesn't separate the two parts(grandfathered/non-grandfathered). We ran the numbers between the 2 annuity options and combining the monies version gives us more income.
Since he plans to retire the end of the year in which he turns 60 this annuity has 2 different payout rates--one for the 4 years/3 months before he turns 65 and one which is $755 less per month after he reaches 65 until his death.
That's a yearly drop of $9K a year from what we'd collect for the 4+ years before he turns 65.
I don't quite understand why this is set-up like this. It could be that the powers that be who concocted this scheme give you more until your Social Security kicks in since that will cover some of your expenses.
But for now Option 2 is the plan for that money.
Now since Hubs is retiring before he plans to collect Social Security at his designated full retirement age of 66 yrs. 10 mos. we'd have to live on this annuity amount alone which isn't our idea of an optimum situation. It "might" be enough but it might not be and at this point we can't tell which way it would go.
So Hubs wants to drawdown on our 401K funds until we start collecting SS. The 401K monies after he leaves his job will stay invested in the account they are currently in. It has a guaranteed rate of return of at least 3.5% per year but we've been seeing 7-8% during this Recession, meaning we could see better returns in the future(or not)but it won't go less than 3.5%. This money is NOT in the stock market and won't see much if any losses over the years if we keep it where it is invested now.
If we withdraw $30K a year for 7 years we will still have 77% of the balance we started with in that account after 7 years. Even though we would have taken out almost half of what we had in there, because of the interest it continues to earn it will only deplete the account to the tune of 23% of it's value.
Once Social Security kicks in, the 401K monies stop being tapped and we will live only on the annuity amount and Hubs SS check amount.
This SS and annuity amount will be slightly more than the annuity and savings drawdown amount we lived on for the 2 years preceding that date(but still almost $8K less than the annuity and savings drawdown amount from the first 4 years after he leaves employment).
This all means we'll have about $8-$9K per year more to live on during the first 4+ years after he leaves his job and then a pretty even amount to live on once he hits 65 years old and beyond.
So here is the financial snapshot once Hubs starts collecting SS---
We'll have what is left in the 401K after the drawdown before SS kicks in(over $350K), all this cash savings I've been able to tuck away from our take-home pay since 2009(projected to be about $150K by end of 2015 plus whatever I can add to that in the next 3 years by 2018).
Add that all to the monthly payments we'll be receiving---between the annuity and Hubs SS we'll have over $6K a month "income" and once my pitiful little SS checks start it will be over $7K a month coming in.
I think we can manage to live on $7K a month plus a half a million $ nest egg we can tap. 8-)
Plus we'll have lower living expenses(hopefully)overall and a paid for house in retirement and it's looking mighty fine for us. 8-)
The only bleak part is that if Hubs dies before me.
The annuity goes down by half and his SS payments go away.
If I am not collecting SS when this happens I'll get almost his full SS benefit amount(as a surviving spouse)until I am SS eligible, then my SS payments will drop by half.
Once I start collecting SS it will be half of what he was collecting in benefits so at that point I'll have almost half of what we had together to live on in my old age.
I doubt if Hubs will go before me since he is by a wide margin the healthier of us two, but if something happens to him I am half screwed as far as the income is concerned. 8-(
Hopefully, if that scenario comes to pass, we will still have a substantial amount in our savings account to supplement my income, but we are also considering continuing a small amount of life insurance on Hubs(if it's not ridiculously expensive by then).
If widowed I could downsize my living situation or get a roommate/housemate to help with living expenses and knowing me, I'd find a way to live cheaper. 8-)
Otherwise my future as a widow will mean living with one of my kids.
I had better be nicer to them, don't you think? ;-)
Now we just have to figure out WHERE we are going to retire to as we are not staying here.
Once Hubs retires at the end of the year he turns 60, College Boy will be finished with school(in May of that year)so we don't need to be living in PA any longer for either Hubs job or CB's in-state tuition rate, so we will be free to relocate anywhere in the country where we want to live.
That part, the deciding where to live in retirement part, is a lot harder and will take more researching and planning.
And where we land may depend on where our kids are at that time, especially if any of them have kids by then.
This money stuff was easy by comparison....... ;-)
How are your retirement plans going?
Do you have a handle on where you are financially in regard to where you want to be at retirement?
Are you close enough to run the numbers yet on possible scenarios in retirement?
Sluggy
You lost me at 'hello'. Too complicated for me. My life is so much more simpler and easier for me to understand.
ReplyDeleteSuze Orman cautioned exclusively about annuities. She hated them. If one of you die, depending on how you set up the annuity, the money could all go away. I know many more annuity packages are coming out now, but I'm staying away from them. In order to get a decent return you have to lock so much money away. And then if you have an emergency and need money, it's not there for you.
I like our laddered ROTH IRA's instead. Unlike you, we never had the opportunity to invest in employee 401K's. But DH does get a pension from his years in corporate land many, many moons ago.
I'm just a straight shooting gal. I took my SS directly. No games there. Ditto for DH. We're just collecting at our desired ages. No hold and suspend, spouse collecting or any other SS games people are playing now only to find out later on the govt is on to the games and discontinues them by changing the laws. Leaving many retirees hanging.
My retirement plan was always to be out of debt and own my house outright in a home we planned to die in. RVing was also in our plan as we want to see America in retirement. We did all our overseas vacations while employed. It always bothered me to see very old people in walkers dragging themselves through the streets of Florence or Paris. But hey! That was just me.
My retirement planning also included investing in real estate vs Wall Street. That stupid decision caused me to lose almost $100K after 10 years of ownership. It's a loss now, in my 60's that could never be made up. In order to compensate for this loss, DH will be working 7 more years while we sock away as much cash as possible. Unlike you, we live on $40K a year. That's $3300 approx a month. I'd be in heaven at $7K like you guys. I wouldn't know what to do with myself.
My only advice I can give to anyone contemplating their retirement is: even the best laid plans go awry. Always have a Plan B, C D and F (for fu**ked).
Another thing I just recently learned, is to prepare for retirement from your death first and work backward. Figure out how long you are going to live (I hope for me it's 90) and then make sure you have enough money to last till then. We have to start thinking about death, which is what you guys have already discussed. If my DH died I could never live where I am at now. I'd sell and either move to Florida to be with my bro and sis. Or move in with one of my daughters and thankfully be able to pay my own way.
Lots to think about.
Good luck to everyone!
Like said, Hubs get a special rate with an annuity b/c he works for that company we'd buy it from. I don't think annuities are such a great deal for most(especially if you have to lock in ALL your nest egg). And we'd choose an option that would either give me a 50% or 75% value if Hubs kicks off first. And we'd only use a piece of our savings to buy it so for us it's a wise option.
ReplyDeleteWe do have back-up plans because things will go awry. But this is our Best Case Scenario.
I'd also suggest to anyone retired to go pre-pay/pre-plan your funeral arrangements. This is a good thing to do especially if you plan on living very long(and in that case the odds of needing nursing care go up exponentially). Get that all paid for before you have to spend down your savings to get Medicaid to pay for your care. So glad we did that in regards to Hubs mom before she passed. Everything was paid for and we didn't have to scramble once she died to make decisions.
I was just laughing at your pre-paid funeral paragraph. My parents had bought burial plots years ago, but decided fairly recently they wanted to be cremated so they bought a spot at the columbarium at our church. Before Dad died he made sure we all knew to not call the funeral home, but to call the cremation services direct. It seems there is a 300 dollar add on for the funeral home to make the arrangements. Nothing like being thrifty literally until the day you die!
ReplyDeleteAnne, thanks for the info. Cremation is on my agenda. I'd love to save my family three hundred bucks at the end. Frugal forever. And ever!
DeleteMy inlaws didn't want their sons to waste money paying funeral expenses so they donated their bodies to science. Their ashes were returned a few months afterwards. Didn't cost a thing. Now that's frugal! Sluggy, it sounds like you and hubs are well set for the future. You did good!
ReplyDeleteIt sounds like you are set for the financial aspect of retirement.
ReplyDeleteI have a ways to go, but I worry about retirement all the time. We are maxing out DH's 401K, maxing out IRA's and trying to pay everything off ... but I often wonder if that will be enough - particularly when healthcare gets tossed into the mix.
I have been planning for retirement for YEARS! LOL! I have been socking away money in my 401K, have a pretty decent IRA and some additional savings. Hubby has a small 403B fund from when he was a sub teacher. We have just left it there to grow a little more before he has to start taking it out. We live on less than 7 grand a month now, we can sure do it in retirement!
ReplyDelete