You be the Financial Advisor

[RetireeRobert]

Originally Posted by Running_Man

I am interested in what you would advise in the following circumstance. This is to be your advice that will be followed to the letter and never adjusted in the future (unless stated in the advice to rebalance or change as time passes in % ownership of asset classes)

Retiring couple ages 58 and 62. 62 year old eligible for $750 per month Social Security now. 58 Year old will be eligible for $1500 per month at age 62. 58 year old could take immediate non-cola pension of $2000 per month now or wait to age 65 for $3,300 non-cola pension - only option available as only retiree from active employment can get early retirement. There is no cash-out offered on pension.

Monthly expenses are $4,000 per month after-tax. Assets consist of 100K in taxable money market account 500K in 401K account. Also a home with a market value of 210,000 and a mortgage of 90,000 and a monthly payment of 700 per month P&I and taxes of $2,000 per year and insurance of 680 per year expenses included in the $4,000 per month after tax.
1000 square foot 2 bedroom condos in this area sell for $110,000 - $145,000 depending on the amenities desired. Couple prefers to stay in their current home but desire to not work is much higher than their home loyalty.


Couple is counting on you for advice and the expectation of never working again while maintaining their current lifestyle, what is your advice to this couple? They will follow it 100 percent to your plan but of course if it fails may be coming in to live with you.

So, you want to retire now. You "can" just barely do it.

Income now would be $9000SS, + $24000pension, + $20000portfolio withdrawals, + $4000MM income = $57000 annually. (This assumes 4% withdrawal from the $500k 401k adjusted annually for inflation increase. This makes the SS cola'd and the portfolio cola'd. The $100k MM needs be kept as reserve for illness/other emergencies, but it gives 4% annual income to use.)

Needs are $48,000 after tax. The $57000 above just barely gives you $48k after tax if your effective tax rate is 16%. Hope you live in a no income tax state. If not, forget it.

In four years you do then get breathing room from the additional SS of $18000/year, putting you up to $75000/year---UNTIL one of you dies. Then some of the SS stops and some or all of the pension stops.

MY RECOMMENDATION? Wait till age 65. Going now cuts it just TOO close for comfort. Does not give totally adequate inflation protection, IMHO. And what happens to either remaining spouse's income if one of you dies?

In three years you will get about $12000SS, + $39600pension, + $23500portfolio W/D's, + $4600MM income = $79500. THEN only 1 more year after that you add the other SS at 62 of $18000 making total income $97500. (Again I assume portfolio withdrawals of 4% rate with annual inflation increase, I assume $115700 (by 3 years from now) MoneyFund kept as reserve but giving income to use of $4600/year.) OR that second SS could bve delayed to 65/66 because with $79,500 already you could afford to wait for the 2nd SS. By waiting another 3/4 years for that second SS it would be $24000/year when taken.

SO, in 3 more years from now spent working, you can further pay down mortgage, add to financial emergency reserves, perhaps contribute more to 401k.

For this measely 3 more years, your picture looks a whole lot more secure.

My advice--what I would do--work the 3 more years. Then really relax and actually enjoy your retirement. And not worry as much about what spouse is going to do for income after the first one of you croaks.

[RetireeRobert]

Originally Posted by Running_Man

I am interested in what you would advise in the following circumstance. This is to be your advice that will be followed to the letter and never adjusted in the future .

So, what advice, if any so far, appeals to you?

[Running_Man]

Well there was so little given to the advice and so much time spent on why I should not be giving the advice that I gave up the idea of getting unemotional advice, the forum turned out to be very emotional and doubting of the facts that a couple could retire with $40,000 after tax!?

In December the older will turn 62 and the 58 year old will be on the last months of employment with current employer. They are selling their house after which they will purchase a condo hopefully for cash which will reduce their requirement by 700 per month to the $40,000 after tax need per year. There didn't appear to be a good solution to defer taking the pension to age 65 so upon retiring the plan now is to take the 2K per month.

After the pension and SS#1 the after tax need will be pulled from the 100 thousand after tax account till age 62. I worked out numbers for them assuming 3% inflation and a 2% annual increase in SS figuring on an eventual cutback in SS they will still have 25K in bank at age 70 when they could then begin to draw down their 401K, which should be in excess of 1 million by then. I have advised them to drop their stock allocation to 25 percent with the stock market at it's current level.

The first hurdle will be what the house sells for and how much cash they have for the condo, and then whether or not they can stay within their spending plans. Medical is obviously the biggest risk. On the upside there may be a termination offer to the younger on the sale of the company, but that is not in any plans at this point.

[RetireeRobert]

Originally Posted by Running_Man

Well there was so little given to the advice and so much time spent on why I should not be giving the advice that I gave up the idea of getting unemotional advice, the forum turned out to be very emotional and doubting of the facts that a couple could retire with $40,000 after tax!?

Perhaps responses were doubting the couple could retire with $40,000 after tax because the original post posited that "Monthly expenses are $4,000 per month after-tax." (which, if I am not mistaken, comes out to $48,000 a year).

Not to mention the problem even with the $48,000 "after tax" needs to meet expenses means the couple needs maybe $56000 before tax annual income.

So, perhaps a clearer statement of the situation might have eleicited more meaningful advice

[Running_Man]

I was not including your respone in that, in many ways I agree with your advice about 3 more years of work but that is what they want to avoid at almost all costs. And actually I had not considered if one died early the effect on the retirement plans, however if the idea was that one would die early that would only increase their desire to have spent some years together I believe, so I left that out of the equation despite it's obvious validity.

I agree that I probably did not provide enough clarity in my postings and will try and work on that in the future.

[Milton]

Originally Posted by Running_Man

Well there was so little given to the advice and so much time spent on why I should not be giving the advice that I gave up the idea of getting unemotional advice, the forum turned out to be very emotional and doubting of the facts

Sorry for any offence given by my previous "emotional" post.

Okay, let's get right to the nitty gritty. Tell them to sell everything, and borrow as much as possible. Then, use the money to trade forex options. They can quickly make a real bundle that way, and will have more than enough to retire. You will be their hero!

[RetireeRobert]

Originally Posted by Running_Man

I was not including your respone in that, in many ways I agree with your advice about 3 more years of work but that is what they want to avoid at almost all costs.

I can fully appreciate the desire for early retirement (see my signature line). You did originally, however, seem really interested in "unvarnished" advice--that is you seemed to not want to influence what the advisors might say.

I hope you would perhaps consider this idea----working just three more "little, fast passing" years so that you can take the age 65 pension of $3300/month, and take higher SS amount at age 65 than age 62. And even perhaps delay the other person's SS to later than age 62. All the while further paying down mortgage and further building cash reserves and 401k balance.

Now, how do you reconcile----"we want out now", with "work three more years"?

Why couldn't the two of you both work part-time for three more years at any jobs available so as to earn the required living expenses for those three years? Part-time employment gives you a chance to have more time together, sample retirement activities, get the "picture" of what full retirement life is going to be like---all the while immensely strengthening your financial position and putting your future full retirement on a very strong, stable, fully sustainable footing.

I would maintain your case does NOT have to be "either or". For a lousy three quick years it can be "half-and-half". Those three measely years then ending with you and your sweetie landing in Nirvana, in Eden, in Paradise. I see you in just three quick years riding off into the sunset together, the grins on your faces sublime.

This is my unvarnished best advice given what you have told us of your situation.

[Running_Man]

Originally Posted by Milton

Sorry for any offence given by my previous "emotional" post.

Okay, let's get right to the nitty gritty. Tell them to sell everything, and borrow as much as possible. Then, use the money to trade forex options. They can quickly make a real bundle that way, and will have more than enough to retire. You will be their hero!

Certainly no offense was taken.

I tried to phrase the question such that the issue of whether I should offer advice was proper was a non-factor, only what would be the best use of the financial assets to meet their goal of retiring and maintaining their current level of spending. My clumsy method of doing this has resulting in people I do not know believing I have insulted them which I most assuredly had no desire to do.