What Typical Retirees Are Being Told About Early Retirement
I recently attended a presentation on planning for retirement at my work.
These financial talks are presented at lunch time a few times a year, and I try to attend one or two of them.
Financial advisors will typically put these on, of course hoping that people in the audience will realize they want them to be their advisor after hearing what they have to say. Even though this is advertising for them, I do think they have a lot of insight based on what they’ve learned and worked through with their clients. I’ve always been very cautious to take advice from financial advisors, but I do think that most of them are interested in helping people, and not solely in it for their wallet.
I’ll briefly summarize the main topics during the 40 minute presentation and throw in a few of my thoughts along the way.
Premise
This presentation was supposed to be about what to do earlier in your career to position yourself for an early retirement. It looked like the slide deck was titled something like “Preparing for Retirement”. I’m guessing they just copied their much longer slideshow and removed slides they wouldn’t have time to cover. They did talk about younger people and early retirement, so I still think it’s worth discussing. I’m always interested in different perspectives when it comes to finances, and I like to see how advisors approach the various topics.
Social Security
On the topic of Social Security, the presenter mentioned that as a rule of thumb, Social Security will replace about 40% of pre-retirement income, but since some people don’t work as many years, and pay can change over time, they highly encourage people that are within ten years of retirement to log into the Social Security website to look at their own situation.
Something else that was brought up was that the Social Security fund is not sustainable based on current benefit and tax rates, and in 2021 it was predicted that the reserve fund will run out in 2034. They also said that close to half of social security recipients would be behind on their rent and/or bills if they missed a check. This would imply that it is highly unlikely that Social Security would be completely taken away from those of or close to retirement age.
They talked about how they’ve encouraged clients to take Social Security at different ages due to their specific circumstances. Sometimes it makes more sense for one spouse to take it early and the other to start later. If a spouse’s benefit is less than half, they may qualify for up to half of their spouse’s Social Security, depending on their age and other factors.
Survivor benefits are also available to surviving spouses, which is worth noting. They mentioned that the surviving spouse will receive the higher of their own benefit or the deceased spouse, depending on age.
My thoughts:
I’m glad Social Security is discussed. Although this presentation seems to be geared toward people in their 50s, everybody should probably keep an eye on what’s going to happen with the social security fund that so many rely on. Even though Social Security is based on 35 years of working, someone that stops working in their 40s or 50s may qualify for some Social Security income. They may cut benefits in the future, but don’t be surprised if you get something.
Healthcare
They encouraged the audience to check out the actual cost of healthcare for ourselves. They said that many people just assume that healthcare is extremely expensive through the Affordable Care Act (ACA) and through Medicare, and work much longer only to find out it doesn’t cost as much for them.
However, some people do have medical conditions and need expensive medications that do require them to use up to their out of pocket maximum. So it’s good to look at current and potential medical needs when considering the plans that are available.
They went through Medicare briefly, explaining what is covered in Part A, Part B, Part C, and Part D, but highly encouraged a deeper dive.
Long term care was something else they touched on. They explained that some people have to pay for an expensive facility for multiple years to meet their needs. This can add up quickly depending on location, services, and the size of the room. Their clients have paid between $7,000 to $20,000 per month for long term care. It’s worth considering a Long Term Care policy or setting money aside for this.
My thoughts:
Health care is something I will definitely need to do more research on before my wife and I leave our jobs. This makes me want to not get so attached to our house that we won’t move somewhere else when it makes sense for medical and/or economic reasons.
Pension
One advantage of having an advisor present at work is that they understand the basic setup that most of us have. Working for a local government means that most of us have a pension. They shared that a pension is typically the primary source of a public employee’s retirement income. They went into some differences between plans, and explained some choices we all will need to make when retiring, and various consequences if we start taking the pension earlier than 65.
Retirement is not defined as when you stop working for the public sector, but rather when you start taking the pension. Many people start taking their pension right after they stop working, but you can go for years, or even decades before you actually “retire”, which is something to keep in mind for early retirees. It is worth looking at the numbers to decide if it’s worth taking the early retirement with penalties or to wait all the way to 65 to get the maximum amount. When you do retire, you have to choose from several options between getting a single lifetime benefit, or whether to include a survivor benefit.
My thoughts:
Having a pension sets the public sector apart, and in general helps a bit with the pay gap between the public and private sectors. Although they explained the basics and calculations involved, I wish they would have spent a little more time on this subject. I’m more of a visual person, and would have liked to have seen a few charts and graphs that showed different scenarios with regard to pay ranges and time worked under the pension plan, and what kind of monthly or yearly income would be received. I do this for myself, but I think it might have helped those in the audience. I have a feeling that many people wait until they are 65 only to find out they could have retired a few (or more) years earlier when they find out their actual monthly income.
Retirement Saving Accounts and Planning
They briefly described different retirement accounts, including pre-tax accounts and after-tax accounts. They explained that if Social Security and the Pension don’t cover your expenses, these other accounts can provide the rest. If there is enough money in these accounts, they can fill years of retirement before Social Security and the Pension kick in.
What the money in each of these accounts is invested in can make a huge difference with overall performance. They mentioned that just 1% less or more of a return can result in millions of dollars over a long period of time. The most consistent low-performing asset is cash, but there are other low-risk assets like CDs, Money Markets, and Fixed Income.
They also made a point to explain that every person is different, and finance is personal. Just because you know someone who paid their house off before they retired or saved up a certain amount of money doesn’t mean that’s what you need to do. What you need to do is determine how much you need for the lifestyle you want. They mentioned having clients that live on $3,000 a month and others that live on $30,000 a month. It’s important to think about where you want to live too.
They mentioned required minimum distributions as well, and how that should be a part of planning. Large distributions from pre-tax accounts can cause extra income and taxes you may not have expected.
One thing that was mentioned a few times is to go ahead and talk with a fiduciary and show them your situation and plan to see if it makes sense for you. They said that most fiduciaries are not going to charge you a fee unless they’re actually managing your accounts. According to
My thoughts:
I like the fact that they brought up different accounts, even if they didn’t have a lot of time to talk about them. There wasn’t enough time to talk through a lot of scenarios, tax planning, or different types of assets, but to be fair some of these topics were covered in presentations I haven’t attended. Looking back on the presentation, I think there was actually quite a bit of talk about early retirement. However, they seemed to be talking about people in their late 50s and early 60s. I think that the financial industry is realizing the interest in retiring early, but it might take a while for the average financial advisor to talk about reaching Financial Independence in your 30s or 40s.
Final Takeaways
I’m not sure if I learned anything new during the presentation, but I do think that there was some valuable information for most of the people attending. I’m also pretty sure several people took the presenter’s card. There were quite a few attendees, so it makes me feel good that financial education is being spread to my colleagues.
Links/Resources:
Question(s) for the Community:
- Do you attend Personal Finance presentations? Do you find them helpful, confusing, or something else?