“I experience problems with arthritis, which limits some of my activities.” (The subject of the photo is a model.) – Getty Images/iStockphoto
I’m almost 69 and close to retirement, but I just can’t seem to pull the trigger.
I am currently working as a design engineer, and my salary is very good. I am married, and my wife works one day a week in retail. He earns $1,800 a month in Social Security. I spent most of my life playing with collector cars, but I noticed that I was losing interest in them. I experience issues with arthritis, which limits some of my activities.
We are financially settled, with no debt and $3 million in savings ($1.6 million in pre-tax retirement accounts, $750,000 in Roth, $700,000 in brokerage/cash accounts, and $60,000 in HSAs). I could get $4,300 a month in Social Security if I retire this summer at age 69 or $4,765 if I delay until age 70. We also have a rental house.
We live in North Carolina, so the cost of living is not that bad. About six years ago, I discovered that my employer was allowed to make 401(k) contributions of up to 50% of my salary before and after taxes. The IRS limit on all contributions before and after taxes is about $75,000, so I’ve been working to pad our Roth savings over the past few years.
My original plan was to work until age 69, then do Roth conversions and delay taking Social Security until 70. With all the talk about Social Security running out of money earlier than expected and Social Security payments not getting inflationary adjustments, I’m wondering if I should start taking Social Security this summer.
Also, does social security increase every month that I wait, or just every year? If I decide to sign up for Social Security at 69 ½, will I get about a 4% raise? And if I die before I start drawing Social Security, what will my wife be entitled to? It looks like I should have already drawn social security before he could open my account.
I have this mindset that I should always be prepared for the worst, but the worst never happened. I’m not sure I’m ready to go into a life of entertainment.
what do you think?
Going strong
Related: After 46 years of work, I’m not retiring—instead, I’m taking vacation every month. Is it a good life in your 70s?
The “setting of return risks,” where poor market performance in the early years of retirement, can put pressure on the portfolio you’re withdrawing from. – Example of Market Watch
Your passion seems to be financial and psychological.
Since you don’t mention that you are burned out, I assume you are enjoying your work. This is the perfect combination to work into your late 60s and beyond. You diligently plan your distribution, because you are an expert at the collection stage. Ultimately, you are the source of your identity, not your job. This means you can plan your retirement – and how you spend your leisure time – just as you planned your career.
You maximize your Roth conversions and perhaps wait until 69½ or 70 to collect Social Security. With $3 million, you can take 4% a year from your retirement fund, and it will technically never end if it rises to the 7% historical average (or 5% after accounting for inflation). This would actually grow to $3.3 million over 10 years and $3.7 million over 20 years, assuming 1% growth (5% after inflation and a 4% withdrawal rate).
In the real world, of course, markets are unpredictable. Some years may see returns of 10% or 20%; In other years, your portfolio may fall by the same amount. This volatility creates a “return risk scenario” where poor market performance in the early years of retirement can put pressure on the portfolio you’re withdrawing from. That’s why you have Social Security and $700,000 in brokerage/cash accounts.
What you don’t mention in your letter is your monthly or annual expenses, nor your lifestyle, which may be less busy than considering your arthritis symptoms. A 4% withdrawal rate will give you $10,000 a month or $120,000 in your first year of retirement. Not bad for passive income and well deserved after more than four decades of work. You and your spouse will have Social Security benefits to supplement your income if you decide to reduce your benefits.
But you must also follow your required minimum distribution. The formula is your account balance at the end of the previous year divided by your life expectancy factor. At age 73, the factor is 26.5, which means you’ll have to withdraw about 3.77% of the account balance, pretty close to the 4% offer above. So with $1.6 million in pre-tax retirement accounts (your after-tax accounts are not subject to RMDs), your first RMD would be about $60,400.
By delaying your Social Security until your full retirement age of 70, you’ll get about 8% extra a year; If you take your Social Security at 69 ½, yes, you’ll get about 4% extra when you claim. But you’ve only come so far in your salary, so it’s not worth paying to claim the Lifetime Bonus before six months. Any potential cuts won’t happen until 2032 or 2033 if Congress doesn’t act first.
If you die before claiming Social Security, your spouse receives 100% of your FRA amount, not the amount you would have received by delaying to 69½ or 70. If you die while claiming Social Security, your spouse will likely receive 100% of the amount you were claiming at the time of your death. Bottom line: You don’t have to start collecting Social Security for your spouse to collect your survivor benefits. This is another hot wind in your favor.
Remember, your spouse can claim up to 50% of your primary sum insured if it is more than that ($1,800). However, the spousal benefit calculation does not include the extra money you receive through deferred retirement credits. (The spouse receiving this benefit must be at least 62, have been married for one year, and you must have previously filed for benefits.) However, you are in pole position to retire.
The worst has not happened. Enjoy your savings while you can.
Related: ‘I didn’t ask a man to rear-end my car’: Social Security replaces my disability benefits. Will the fund lose money?
More columns from Quentin Futrell:
‘I don’t own a home’: I’m 62, unemployed and have $1.5 million in retirement. Can I divorce my husband?
‘My parents begged me never to keep him at home’: I have taken care of my disabled brother all my life. Am I doing enough?
Can I prevent my children from using my inheritance to support political causes that I strongly oppose?
