40 Replies Latest reply on May 26, 2015 2:53 PM by Bob_o

    Time of Year to Retire

    Subert

      I am planning on retiring in April of 2016 when I turn 63.  I plan to live frugally on my 401k retirement income (husband will still be working full time) and collect my social security when I turn 64.  Does anyone see issues with my plan to retire mid year (April) instead of at the end of the year (December)?

        • Re: Time of Year to Retire
          MyR Community Manager

          Subert, thank you for starting a discussion thread! I moved your post to the My Money topic, as I think it fits better here. I look forward to seeing how others respond.

           

          Happy New Year!

          • Re: Time of Year to Retire
            JerryD

            Got the health care costs covered? December is closer to age 65 and Medicare.

             

            Regarding income, why tap into 401k so early and why SS at 64 and not 66 or your full retirement age? Can you live on one income and maybe some investment income or savings? Your retirement funds may be worth more by waiting a bit. SS certainly will.

             

            You don't say whether you intend on working part time and I am not an expert on SS, but aren't there some limits on earnings in the first year when you have some earned income. Have you checked out the tax implications of your choice, if any? Does your HR department have any helpful advice?

            • Re: Time of Year to Retire
              BoBraxton

              My spouse continued to work. With not much choice on my own, my last day of work was June 30 (2009). Spouse and I file federal income tax returns jointly. I had worked for a large insurance company 1974 - 1985 and received a very small pension payment (taxable) from that company. In addition, because getting me out was in the interests of my employer, I had a "golden parachute" which paid in full my "base" pay for 11 months, corresponding to my 11 full-time years of service with them. I turned 65 the August after my last day of work; however, the "base" pay continued through the following May. When my spouse retired 2011 September and we both were age 67, that is when I also "retired" and began Social Security and Medicare. Prior to that, my spouse's employment covered my health insurance and dental.

              • Re: Time of Year to Retire
                TroutBum

                After much consideration I've about decided to postpone my retirement from the first of July (as originally planned) until the first of January. It was mostly a financial decision. For the past few years I've been contributing the maximum to my 403 and plan to continue doing that until I retire. By postponing retirement I'll end up with 6 months more income, 6 months more retirement contributions (both my SRAs and my employer's contribution) and will be able to defer most of my lump sum severance. My wife will continue to work after I retire so I'll basically become a kept man and have no intentions of withdrawing anything from savings, investments or SS, allowing all of those to continue to grow until after her retirement in '18.

                • Re: Time of Year to Retire
                  PAULMAC

                  Just my 2 cents worth.

                  I retired in mid-July more than 10 years ago.  I did so because my union contract was up for renewal on July 1.

                  Then, with a sizeable payout (incentive to retire, vacation time, etc) I lived on that income and did not start

                  my TIAA pension until the following Jan.  If I had done so in July, I would have been in a higher tax bracket.

                  Good luck = the more questions you ask the more you will learn. 

                  • Re: Time of Year to Retire
                    KaKu

                    I retired last April at 63 and enjoyed having Spring and Summer to decompress and take advantage of outdoor activities. As part of preparation, however, carefully review your sources of retirement  income. In our situation it made sense for me to claim SS and for my husband to file for spousal benefits, which he puts into my account because I'm taking a permanent reduction for early filing. (He will claim SS on his own work record when he turns 70.) RE my private pensions, I don't plan to collect until age 65 to be eligible for the full amount. With your financial security in place, you can enjoy your retirement whether it's mid-year or later!

                    • Re: Time of Year to Retire
                      lilydac

                      I retired on October 31, 2014 at the age of 62.  Social security has a 'first year rule' for those that retire between age 62 and 66 (for my birth year) and retire after earning full wages.  They will ignore the amount that you earned that year prior to retirement so that you receive the full monthly SS amount.  I honestly could not work another day without screaming.

                       

                      I have an unusual situation in that I am able to live on SS alone because I am thrifty.  I am drawing my deceased husbands SS until I am 70 because I will receive $750 more/month when I switch to my own SS.  I hope not to draw from my TIAA-CREF retirement account until I really need to.

                       

                      I have no debt.

                      • Re: Time of Year to Retire
                        LilTut

                        Thanks Subert for asking the question. My retirement is likely a few years away.

                        And thanks everyone who has replied. Everyone's response was so respectful 'This is what I did', not 'This is what you should do', so it made it educational rather than everyone trying to be more impressive. Great post!

                        • Re: Time of Year to Retire
                          Art99

                          Seems like from what I have learned (studied or understood), mathematically, one does better waiting to start SS as late as possible, unless there are other reasons to start early (health related). Our elected representatives (I didn't vote for all of them) are poised to change all of that if they can, and, on the more extreme side, maybe take away that and as much as possible. But for now, it's a matter of doing the calculations, and delaying (barring other circumstances), will put you ahead, over what will hopefully be a nice life span for you.

                            • Re: Time of Year to Retire
                              JohnPatten

                              Yes, I agree.

                               

                              But I have had so many, too many, family, friends and colleagues who

                              delayed and never collected a dime; they died before the first SS pay

                              arrived.

                               

                              JP

                                • Re: Time of Year to Retire
                                  Art99

                                  I agree. My younger brother started his SS at 62 for this exact reason. I'm betting the other way. One's perspective and financial needs help guide the decision, and hopefully it all works out for each person's situation.

                                  • Re: Time of Year to Retire
                                    smaneck

                                    That, of course would be true of most annuities as well. That is the way I see Social Security, it is annuity and as far as I'm concerned the best one out there. Since women in my family tend to be long-lived I hope put off collecting it until I am 70 if possible, even if I plan to retire soon.  But if I develop problems with my health or if the market takes another downturn I might collect early. In case of a market downturn I would not want to touch my other investments (except my rental income.) Any money taken out of mutual funds during a recession can not generally be recovered once your retired. If that happened before I reached my Full Retirement Age but after I retired, I would go ahead and take my Social Security but if the economy has recovered by the time I reach Full Retirement Age, I would then suspend payments until I reach 70. In other words if the economy is good, I'll live off of my rental property and retirement funds. If it is not good, I will supplement with Social Security. . Of course, if the economy is bad I'd likely delay retirement as long as possible anyhow.

                                  • Re: Time of Year to Retire
                                    TroutBum

                                    I agree with delaying SS as long as possible, and with it being a matter of doing calculations, but sometimes (at least for me) that isn't as simple as it sounds. Right now I'm actually giving some consideration to my changing my plan of delaying SS.

                                     

                                    My wife won't be retiring until at least 2 years after I do. Her salary is sufficient for us to live on but doing so would likely mean that she would have to decrease or eliminate her supplemental retirement contributions. But if I were to draw SS she could max her contributions and take advantage of the extra investment earnings.

                                     

                                    I'll be talking with our investment person about it during our next meeting but think it is likely that my wife will max her SRAs and see what happens. We have some funds that can supplement our income and we can either tweak her contributions or draw on my SS if necessary. It's somewhat important to keep in mind that SS benefits don't just increase annually, but monthly as well.

                                      • Re: Time of Year to Retire
                                        BoBraxton

                                        very thoughtful - and considerate of your spouse

                                        • Re: Time of Year to Retire
                                          smaneck

                                          Keep in mind that your investment adviser will likely have an interest in your wife continuing to contribute as much to an SRA as possible and that may not be in your best interest. I'm rather wary of investing too much more into the stock market right now, although with the strong dollar I am investing in global funds. One thing I like about SRAs though. Sometimes you can take loans from them if your employer allows this. Usually you can take up to 50% of the contribution. That has made me much less wary of contributing too much to my retirement, that and the fact that I turn 59 1/2 in a couple of months and could conceivable take the money out again if I find I contributed more than I could afford. That way I can have my cake and eat it too. 

                                          • Re: Time of Year to Retire
                                            trhao

                                            Assuming you also have taxable and Roth (or would like to add Roth) as part of your portfolio mix - you might consider drawing down the taxable first and not your tax deferred accounts while your spouse is still earning. With your spouse earning - it might be pushing your marginal tax rate higher when withdrawing from a tax deferred account. By waiting, you might draw down taxable investments when you are at a lower rate after the earning years are over... If you must - I recommend initially drawing down taxable investments (and only paying the relatively low long term cap gains rate (LTCG)).

                                             

                                            Likewise if you are comfortable w/ your current marginal rate - could also consider converting portions of pre-tax savings to Roth (which is a taxable event - so be careful, do conversions in bite size chunks!).

                                             

                                            This serves multiple purposes: Gives you some income at the relatively low LTCG rate of taxable investments, grows your Roth and decreases your exposure to required minimum distributions (RMDs) when you reach 70.5.

                                             

                                            Good luck

                                              • Re: Time of Year to Retire
                                                PAULMAC

                                                Another way if you have traditional IRAs to avoid minimum distribution is to roll it into a TIAA traditional IRA and then annuitize it with a 20 year guarantee .  No record keeping, no charts every year = TIAA sends normal year end reportable statements.  Very easy = TIAA helped me thru the bamboo jungle. Was successful.

                                                  • Re: Time of Year to Retire
                                                    trhao

                                                    Annuitizing is an entirely different question and payments from an annuity are still taxable (much like RMDs). I may be missing something but I'm not seeing the difference between taking an RMD and paying taxes or annuitizing and paying taxes on the annuity payment. 6 one way or 1/2 dozen the other...?

                                                     

                                                    This would not be a leading decider for annuitizing for me. More important to me in that decision is a negative difference (if any) between a cost of living and SS payments as well as prevailing interest rates and (to some degree) a best guess as to life expectancy. But again, annuitizing is a totally different question than the one voiced in this thread.

                                            • Re: Time of Year to Retire
                                              Art99

                                              Just curious. Someone mentioned that the year in which you choose to retire, is exempted from calculations? Anyone have expertise to guide me?: I need full income to make up for lower income years in the past, but if I retire before my desired '66', say in the year I turn '65', with the hope of waiting until 70 to start, what will this mean in terms of the benefit? Another way of putting it: I may not make it to 65, so this year (2015) may have less than full income (i.e. job may end soon). SS calculates based on current income going to 66 (end of 2016). My hope was to wait until 2020 to start SS. Thanks.

                                                • Re: Time of Year to Retire
                                                  PAULMAC

                                                  Please go to SSA website

                                                  Main link

                                                  enter full retirement age in Search box

                                                  click on Finding Your Retirement Age

                                                   

                                                  You will then see what your full retirement age is and the percentage reduction if you retire earlier. 

                                                  My 2 cents worth.

                                                  • Re: Time of Year to Retire
                                                    smaneck

                                                    Social security will be based on the highest thirty five years of your employment. But it will be higher the longer you wait to collect up to age 70. I think they add some 8% a year that you delay.

                                                      • Re: Time of Year to Retire
                                                        PAULMAC

                                                        Forgot to mention = you can collect SS at your full retirement age without penalty and continue to work = every year's contribution  ups the ante.  Good if you can afford to wait = might be wise to retire sooner and get into the system before they change the rules yet again.  Just my 2 cents worth.

                                                    • Re: Time of Year to Retire
                                                      BoBraxton

                                                      I retired 2011 and began receiving social security (as did my spouse when she retired at the same time). However, my last day of paid employment was 2009 June 30 - so I postponed starting from just before my 65 birthday until I was past age 67 (same age at the time with my spouse, also 67 then).

                                                      • Re: Time of Year to Retire
                                                        Subert

                                                        Thank you everyone for your great answers/contributions to my original question.  The scenarios presented gave me additional things to consider, which is helpful.  I now have determined to retire at the end of June so I can make an easy transition to my husband's insurance plan (he's still working) as it is a July 1-June 30 plan.  By waiting until June, I will also have my car paid off, which is my only outstanding loan.

                                                         

                                                        Even though I said I will begin taking my Social Security at age 64, I'd like to wait longer as I know it will grow.  However, I too have seen a lot of people die in their early to mid-sixties and I am not too sure I want to gamble.  On the other hand, my dad died at 87 and my mom is still alive (90).  Aargh - I have a year to continue to think on this.

                                                         

                                                        Moving on to another topic - anyone familiar with the Longevity Annuities?

                                                          • Re: Time of Year to Retire
                                                            smaneck

                                                            Just see what your health is like at that age and what the market is doing. You want to avoid taking monies out of the market in years when it is not doing well. Keep in mind, also that if you decide to take it earlier you can still suspend payments when you reach your full retirement age. Then if at some point prior to your turning 70 a health crisis arises, you can take all the payments you suspended at once, but mind you, you have to pay taxes on it.

                                                             

                                                            You might want to start a new thread on Longevity Annuities but this will likely be the only annuity I will purchase. Recently passed IRS rules allow you to set aside part of your retirement accounts (up to 125K or 25% whichever is less) into a qualified longevity annuity without it counting as part of RMD until you actually start drawing on it (usually when you are 80 or 85.) All annuities are insurance products, this one insures against your living too long. From my standpoint, its advantage is that it leaves me free to spend the rest of my portfolio knowing my final years are taken care of. TIAA-CREF wrote an excellent brief to the IRS on this topic:

                                                             

                                                            Increased Longevity and the Annuity Solution: How Reti

                                                             

                                                            So far, however, they have not yet gotten the product. However, I don't intend to buy one until interest rates go up in any case.

                                                              • Re: Time of Year to Retire
                                                                trhao

                                                                "...this one insures against your living too long."

                                                                 

                                                                This statement is baffling. I'm not familiar with an annuity that would stop payments because you 'live too long'.

                                                                  • Re: Time of Year to Retire
                                                                    smaneck

                                                                    I'm not suggesting that they do. What I'm saying is I don't see the sense in putting the bulk of my retirement investments into an annuity, because annuities are insurance, they are not investments. But a longevity annuity does make sense. because it insures the very thing we worry about most, outliving our savings. Sure any annuity will do that, but in exchange you are making the insurance company your heir and your investments are no longer your own. Putting a much smaller amount into a longevity annuity leaves you free to do whatever you want with the rest of our portfolio and you know exactly how long it needs to last.

                                                                      • Re: Time of Year to Retire
                                                                        JerryD

                                                                        Partial portfolio conversions to an annuity is pretty standard advice on the web site I mentioned. Whereas I am little interested in turning over assets to an insurance company should I lose the bet with them, there is a very valid case for annuitizing enough in order to cover one's base expenses for life. I have also been sensitized to the possibility that one's investment "skills" can grow weak as one ages and a partial annuity can reduce the need for playing the investment game.

                                                                          • Re: Time of Year to Retire
                                                                            smaneck

                                                                            For an annuity to cover my basic expenses would take up more than the majority of my portfolio. The returns just aren't that great.  A Longevity Annuity on the other hand would take only 10% of my assets. I figure that by the time my investment skills grow weak, the Longevity Annuity will kick in. My mother is 83 and hers is still going strong. On the other hand, she was a financial adviser.

                                                                              • Re: Time of Year to Retire
                                                                                JerryD

                                                                                Let me take a different tact on supplying income in later years, and this option has an option to NOT take the annuity if it is not needed. There is one requirement. You must have a TIAA-CREF (TC) retirement account like a 403b to create it. IRA's and Roth's don't count.

                                                                                 

                                                                                I have had for a number of years a very small After-Tax Retirement Annuity (ATRA) at TC. I created it before I converted all of our assets at TC to IRA's and Roth's. This little known account is basically an annuity account that one creates with taxable funds. My primary goal for the account was to push back any "excess" RMD payments that we did not need to live on into TC investment accounts that we are familiar with. In case I wasn't clear, once your funds leave TC this is the only method that I found to re-invest taxable funds in favored TC accounts like the Real Estate Account or other annuity accounts.

                                                                                 

                                                                                The ATRA is very flexible on payouts. I believe that one needs to take very minimal amounts as payouts at age 90, I believe; certainly much less than any IRS-defined RMD. The way you take funds is very flexible. They can be lump sums and need not be annuitized. And the big benefit that it has and an TC retirement account annuity does NOT have is that excess funds can be left to beneficiaries like your spouse and then your children. The kids will have to take payments defined by the IRS, but at least the principal does not roll over to TC if you don't live long enough and you do NOT annuitize it.

                                                                                 

                                                                                As I warned, this is not an easy investment to find information about at TC. If you have a Wealth Management Advisor (depends on your retirement assets size), talk to him/her if you find this of interest. I will suggest that there is a specific thread over on the "TIAA-CREF Funds" option under the "Discuss" tab on the morningstar.com web site. Searching with "ATRA" should bring up that thread.

                                                                                 

                                                                                GOOD LUCK!!!   :-))))

                                                                            • Re: Time of Year to Retire
                                                                              trhao

                                                                              "But a longevity annuity does make sense. because it insures the very thing we worry about most, outliving our savings. Sure any annuity will do that, but in exchange you are making the insurance company your heir and your investments are no longer your own."

                                                                               

                                                                              This statement is just a non-sequiter for me. AFAIK you do not need to worry about outliving any annuity and the longevity annuity is not unique in this regard. A longevity annuity is *also* an insurance product just like any other annuity. Further, there are longstanding annuity options that account for heirs.

                                                                               

                                                                              I keep hearing two recurring concerns from above: 'passing unused annuity portion to heir' and 'outliving savings' and referring to the 'longevity annuity' as a unique solution. This suggests an inaccurate understanding of annuities. The overriding concern about passing on any unused portion of an annuity to an heir (if that's important to you) vs an insurance co is already addressed in many long standing annuity variants such as 2-life annuities (you and your spouse) and annuities with guaranteed payouts (if you unexpectedly died in the first X years - your heir gets Y dollars for example).

                                                                               

                                                                              I've still not seen anything posted here that explains a good rationale for longevity annuities or discriminating them as unique. So I did some quick research and found what I believe to be the 2 unique properties they offer:

                                                                               

                                                                              1. Longevity annuities are a vehicle for inserting an annuity product into an IRA.
                                                                              2. Longevity annuities allow one to purchase the annuity and determine a (non inflation adjusted) delay  period before they start (which does serve to defer *that portion* of RMDs)

                                                                               

                                                                              I'm ambivalent at best on annuities for my circumstances. As for longevity annuities specifically, I see nothing particularly advantageous about them over other options. However, If I were in the business of selling annuities - I would be VERY EXCITED about this product! ;-)

                                                                               

                                                                              The best so-called 'longevity annuity' might be to defer SS payments until 70.

                                                                               

                                                                              Since this is off topic for this thread - if someone is seriously interested in longevity annuities I suggest a new thread or googling elsewhere... It's also known as 'longevity insurance' or (more accurately) 'deferred annuities'.

                                                                                • Re: Time of Year to Retire
                                                                                  smaneck

                                                                                  What I'm saying is that a Longevity Annuity *is* an insurance policy. Any other kind of annuity would require me to put the bulk of my portfolio into an annuity in order to get the income I require. With a Longevity Annuity I maybe need to put 10% of it aside and I can spend the rest of it as I please. For instance, if I put 400K into a regular annuity it would only give me 25K in income, not really enough to get by. If I put 50K into a Longevity Annuity, however, it will produce about 43K when I reach 85. That leaves me with 350K for the say, the next 25 years. Assuming I get an 8% return on my investment (which is conservative for me) I would enjoy an income closer to 28K.

                                                                                   

                                                                                  You wrote:

                                                                                  "The overriding concern about passing on any unused portion of an annuity to an heir (if that's important to you) vs an insurance co is already addressed in many long standing annuity variants such as 2-life annuities (you and your spouse) and annuities with guaranteed payouts (if you unexpectedly died in the first X years - your heir gets Y dollars for example)."

                                                                                   

                                                                                  I have no spouse so a 2-life annuity is of no use to me. I expect to live long and I hope to leave something for my son. I also expect to get better returns on my investments than can be gotten through an annuity.

                                                                                   

                                                                                  You wrote:

                                                                                  "The best so-called 'longevity annuity' might be to defer SS payments until 70."


                                                                                  I very much agree that SS is the best bang for your buck as far as annuities go and for that very reason I will defer taking as long as possible so long as the market is up. A longevity annuity merely insures I don't outlive my money without having to tie up the bulk of it like I would in a regular annuity. But yeah, it is a good deal for the insurance company as well, because they don't expect me to live past 85.

                                                                          • Re: Time of Year to Retire
                                                                            JerryD

                                                                            As I have suggested in several other threads expressing interest in annuities, The mostly college profs over on the "TIAA-CREF Funds" choice under the "Discuss" tab on the morningstar.com web site are very, very expert on TIAA-CREF annuity options, performance and mechanics. GOOD LUCK!!!   :-)))

                                                                            • Re: Time of Year to Retire
                                                                              taconner

                                                                              You can get very good information by just calling & talking to the representatives at the local SS office. I called the local social security office & had the lady on the other end hang up on me after I requested she quit interrupting so I called another office in the suburbs & found them to be extremely informative & responsive which helped me decide to retire. They not only answered all my questions but also pointed out to my wife how she could maximize her payments. My current employer just decided to eliminate 100 positions & freeze 50 currently open positions due to "business reasons". While I was not selected for an eliminated position, I decided to volunteer for the reduction in force (RIF) after encountering a new supervisor who reminded very much of Gomer or was it Goober Pyle & how lucrative the severance package was so I'm out the door in 56 days & a wake-up -  but who's counting? I had figured on working at least one more year but at 67 went ahead & started SS for myself & wife. I'm currently looking at alternatives to working part-time but would like to take at least a month off besides my wife has a very long list of honey do's to complete around the house..

                                                                            • Re: Time of Year to Retire
                                                                              Bob_o

                                                                              One thing that I didn't see in the replies is the possibility of collecting a spousal benefit and later changing to collecting your own benefit at a time when the monthly amount will be more.  For this to work it apparently depends on your spouse's age now and on the spouse wanting to continue working.  It may be important that the spouse be the higher earner.  The game plan is for him/her to file for benefits and then suspend  the decision and not collect until, possibly, age 70.  If done correctly this may enable you to get the spousal benefit even though he/she continues working, then you may pick up a gain in the form of a bigger benefit later under your own account.  This is a tricky business and you should be guided by an expert, like maybe a CPA with detailed knowledge of the SS system (definitely not me).  I'm not sure if this scheme will work if you want to retire at 64. A book to consider is Get What's Yours by Paul Solman and others