Early retirement

[Stelcom66]

I've received good advice on this forum related to wood stoves and related subjects, so I thought I'd ask about early retirement. Based on what I've seen there's a good amount of members in their mid 60s like me or older.

I have a good job now, but the commute is about 72 miles round trip. Gas prices are rising, even with the grocery store discount today 2/13/22 it was $3.52.gal. I'm in the I.T. field servicing a hospital, unfortunately at times requiring entry into rooms with Covid-19 patients. Dressed with the appropriate PPE with a N95 mask of course, but still... Also on call every other week, been on call for over 40 years. I'm a telecom guy, and these days that can involve some basic networking skills which I do have, but almost all the I.T. jobs posted want certifications that I don't have. I'll be 65 this year, and decided to look at the whole situation differently. Taking SS at age 65 vs 66 will result in benefits being reduced about $200 a month. At full retirement, 66 1/2 ~ $300 a month.

Ideally, I'd take Social Security (SS) at age 65 and work part time. With what I'd get from SS and ideally working part time I may be able to make ends meet. The limit is around $19,500 while taking SS benefits. My question for now is has anyone here taken the SS payments and exceeded the annual limit? If I understand correctly, for every $2 made above the limit, your SS benefit will be reduced by $1. So effectively if you made $4,000 in a year more than the limit, your SS benefits would be reduced by $2,000. That doesn't seem like such a bad option - your net income is still more than stopping at $19,500. Don't know if I interpreted this correctly, it almost seems to be too good to be true - but if you had payments withheld due to the example I mentioned, when you reach full retirement age your benefits are recalculated to what was withheld will be paid to you? If that was the case, you're not losing money - just getting it later.

I realize being home more will mean needing more wood for the stove - but that's ok.

 

[Dan Freeman]

I "retired" from regular work a couple of years ago, although I run my own seasonal business that brings in some extra income. I have lived on this income (+savings and investments) for the past couple of years. I "officially retired" (read: started taking SS this month Feb 2022 at 65+10mos) and while it is less than I could have gotten if I waited until 66+4mos (or even 72), everything I read says it all works out in the end. In other words, I would have to live to be 81+ to "lose" money if I had waited longer.

I do NOT miss "real work" and the 100-mile commute from PA to NY every day, and I am enjoying myself immensely. We don't lead any type of extravagant lifestyle. As long as I can pay our bills and have some "fun" money, I am satisfied.

BTW...I assume your full SS age is 66+4. If you retire when you are in your 65th year, the max you can make is $18,000+ before they take $1 for every $2 you make. If you wait until your 66th year (even if it is before 66+4) you can make about $55,000 or so (don't remember exact figures) and they will only take $1 for every $2 you make. A big difference. No way I am going to make over $55,000 this year, the year I hit my 66th birthday.

For me, it has been a matter of enjoying the rest of my life, and that is what I have decided to do.

 

[festerw]

I'm quite a few years younger than you but the way my financial advisor put it was 'could you afford to live the way you want without working'. If that answer is yes then go for it, if you have to find another job after 'retiring' then it isn't the right time.

Keep in mind I'm not quite 40 so this advice may but apply to your situation.

 

[Stelcom66]

I do NOT miss "real work" and the 100-mile commute...

Wow - that was a long commute! I also don't live extravagantly - I would have kept my 1999 Honda Accord if I still had a company vehicle. Traded that in for something newer due to the commute. My 2002 Silverado is fine. Like you, I've heard others mostly saying they're very glad they made the choice to retire a bit early. You have the ideal situation IMO with the additional income with your business.

My full retirement age is 66+6 months. I just read the document I downloaded from the SS site re: working while receiving SS. You do in fact get benefits previously withheld as when you turn full retirement age. I also read SS is adjusted for inflation - I wonder if it really kept up with the latest trend where inflation is reported to be the highest it's been in about 4 decades. At least it's something - the income from the job I had before this one didn't keep up with inflation!

I'm quite a few years younger than you but the way my financial advisor put it was 'could you afford to live the way you want without working'....

I can't live on SS only at this point. That's why working, at least part time must be a factor if I were to retire early.

 

[Highbeam]

There’s a big difference between retiring and the time when you decide to start collecting social security. Optimizing social security can be very complicated but beneficial.

I plan to retire many years before turning in SS. I’m hoping the rules stay the same but not going to depend on it.

 

[peakbagger]

Do you have a financial advisor?. Its worth paying a fee only advisor to have them run the numbers.
As mentioned, if you work after you start receiving social security, the taxes you pay ultimately raises your benefit when you do stop working. A big thing to look at is do you have enough quarters of working to qualify for full benefits. SS looks at your highest 35 years of benefits. If you worked for the government and didnt pay in those years do not count. If you do not have enough quarters, SS enters in zeros to add up to 35 years of 4 quarters. SS takes all your years of earnings and adjusts them for inflation. So money earned back 35 years ago are corrected to todays dollars (sort of). If you "peaked" on earning early in your career working a few extra years may not really change your benefit. SS also factors in where you were on the income ladder, folks who did not earn a lot over their career get a boost in benefits while those on the high end take a cut.

SS was never intended to make a well off retirement for decades. Its a safety net. So hopefully you have other resources like a very rare pension, 401Ks or IRAs. Most of those are deferred taxes so you end up paying income taxes on them albeit at hopefully a lower rated than when you were working. For many, that income puts them above the limit so they need to pay taxes on social security. The rule of thumb that has been around for years is add up all those plans you have and multiply by 4%, that is how much a year you can expect on average to be able to take out and not lose the nest egg, Some are arguing 3.5%. The numbers have to be conservative as no one can tell the future.

If you have 50K of assets Vanguard has something called the Personal Advisor Services who will run the numbers for free. If you decide to have them manage your investments, they charge you a maximum of 0.3% (3 bucks per $1000 less if you have more investments. They are up front with fees, their funds are non-commission and have no front and back-end fees. They are also fiduciaries, that means by law they have to treat your investments the best way for you, if they trade to their advantage they are in violation of the law. Before you talk to a so called financial advisor ask them the question, are they a fiduciary for you. If they say yes keep talking, if they give you a long story but never say yes, walk out the door. Edwards Jones has four pages of how they make their money off you https://www.edwardjones.com/sites/d...j-fas-ccompensated-for-financial-services.pdf. Vanguard doesnt really have anything like that as they have no shareholders, every dime they make goes into reducing the cost of the services for investors.

One thing that any financial advisor cannot do directly for you is set and follow a budget. They can prompt you but there is no substitute for making a budget now and trying it out before you retire. The other thing they cannot do is figure out how many years you need money for. We are all dealt genetic cards when we are born and along the way, we pick up additional cards that may be good or may be bad on how long we live. There are indicators and family history to go by but some folks may be looking at 10 years of lifespan after they retire and some may be looking at close to 40. If you have seen the folks who are still alive after they have run out of resources in nursing homes covered by Medicaid its a pretty sad existence.

BTW, I was supposed to retire at 62 last December. I have been working part time for the last year and expect to work up until this fall. My earnings have "peaked" so I get little or no extra social security for working extra years. I use Vanguard PFS and have very conservative assumptions in the plan. My budget seems to be realistic based on the last two years. I will need to pay for insurance for three years and its int he budget. Unless I want to move it would be hard to do the type of work I am currently doing. My guess is Covid burnout is influencing you (rightfully so) Yes Covid is major life event but no matter wo it feels like 10 years down the road it will be less eventful. I have been planning for retirement for three years and I do a sanity check at least once a year. Sure I may regret the change but I will not know until I try it. Given the population demographics with lots of folks retiring, I have no doubt if I want to work there will be plenty fo work to do.

 

[webfish]

Agree with peakbagger. I'm a big fan of Vanguard and Bogleheads. Lots of discussion on when to take SS. More complicated depending on your situation.

Mike Peters has written books on it and a good free calculator. Here is an interview with him. (broken link removed to https://www.morningstar.com/articles/1035566/mike-piper-delaying-social-security-not-always-a-good-deal)

 

[Stelcom66]

I don't have a financial advisor did consider the option of one. I do have a 401k, not a big one. I wish I started it years ago like I should have. Although I haven't even factored it into the calculations because I'll believe it when I see it - I do have one of those rare pensions. Again, not a big amount and it must be split with the ex. I'm leery about it because the administration is very hard to contact, and several years ago many former employees were offered a buy out. I declined, but makes me wonder about the fund's stability.

The company I worked for 5 1/2 years ago had a great 401k. I was told the thing to do was get it out of there after most of us were laid off (all of field services has since been outsourced) and put it into a new one. I wish I kept it there. The virtually useless 401k I have now is hardly earning anything. I did a 12 month CD with some of it a while back. That's when I learned about 'Callable' and 'Non-callable' CD. Callable CDs earn more but have the risk of being 'Called back'. I went for the Callable not knowing about the tendency - thinking it owuls be fine. After about 4 months it was 'Called' - or taken back. I earned what it did during that time, which was pretty good which is why I assumed it was called.

Yes budgets are important and one must be disciplined to follow them, especially after full or partial retirement. Hopefully retirement is still in the cards for you soon.

 

[Stelcom66]

Agree with peakbagger. I'm a big fan of Vanguard and Bogleheads. Lots of discussion on when to take SS. More complicated depending on your situation.

Mike Peters has written books on it and a good free calculator. Here is an interview with him. (broken link removed to https://www.morningstar.com/articles/1035566/mike-piper-delaying-social-security-not-always-a-good-deal)

Thanks for the reference - I'll check it out.

 

[peakbagger]

BTW, if its legit pension, many but not all pensions are backed up by the Pension Benefit Guarantee Corporation PBGC, a federal entity that keeps an eye on pensions and takes over failing ones. Worse case is they step in and administer the plan. Remaining pension plans have to meet certain federal standards on funding. The PBGC will not make up a shortfall if the company underfunded the plan but they will administer what was left. If there was not enough money, the folks with the highest pension will take a haircut while the lower paid employees will get a higher percentage.

Their FAQs page answers a lot of questions including if your plan is covered. https://www.pbgc.gov/about/faq/pg/general-faqs-about-pbgc

 

[Stelcom66]

BTW, if its legit pension, many but not all pensions are backed up by the Pension Benefit Guarantee Corporation PBGC...

Their FAQs page answers a lot of questions including if your plan is covered. https://www.pbgc.gov/about/faq/pg/general-faqs-about-pbgc

Good information - I'll check it out.

 

[peakbagger]

I have a small pension plan from a prior employer. The company spun our division into another company doomed to fail and when it did the PBGC ended up with it. They end up with a lot of orphan plans. As soon as they get it, they take what is left and set it up as an annuity payable at full retirement age. I am not sure if there is an early retirement date option. I think a lot of folks are owed from these plans but the contact info was lost by the prior employer.

 

[Stelcom66]

Any kind of pension is good to have. Re: working while on Social Security - if I understand the documentation correctly if you exceed the yearly limit, at least some of what was not paid, or in this case withheld - will be paid back by recalculating your retirement payment at full retirement age.

 

[PaulOinMA]

My wife has two small pensions from companies when she retires. Not a lot of money monthly, but nice to add.

I started at CL in 1990 right after they switched from a great pension plan.

 

[Stelcom66]

What is a CL?

 

[PaulOinMA]

Colgate-Palmolive. Stock symbol is CL.

 

[PaulOinMA]

I was in HR at Colgate in the late 1990s, and the person commented that I am on the great pension plan. I said I wasn't. She though I was and asked when I started.

March 1990.

She said I missed it by a few months.

 

[clancey]

That's my luck too and lost a lot of benefits just by the date when other rules went into effect to drop some of the benefits...clancey

 

[peakbagger]

The thing that many folks forget about pensions is that most plans were set up to enforce loyalty to the organization. There used to be a deal between big companies and the worker, work for the company long enough and when you are just about worn out they would cover your last few years of life. The average life expectancy of an American male factory worker was not great, between smoking and heart disease, few made it past seventy if they even made it to retirement. Most plans were back loaded where the benefits were increased base on a formula of longevity and age. Many had very long vesting periods. Managers knew that folks were depending on their pensions and used that as a subtle but constant hammer to keep folks toeing the company line. If someone left a company or the company closed down a division, the average workers were screwed unless they were in a union. Unfortunately many union pension plans were raided by crooks and frequently made poor investments so the ones that remain need massive federal bailouts as the money that was supposed to be there got siphoned off years ago. For a professional like me, there were rarely unions for us, so we were even more dependent on a company plan. Pension plans were not portable, if we went to a new company, if there was a plan, we started from scratch and at some point we got old enough that even if there was a plan we wouldn't get a enough years of service to get that pre-retirement bump as we didnt meet the formula of longevity and age.

Until the passage of a federal law called ERISA, companies played it fast and loose with funding pension plans, no one really looked over what was backing up the plan. Companies would load up the plan with their own inflated stock or use unrealistic investment returns and when the company went bankrupt the members of the pension plan might lose all or some of their plans. ERISA forced federal oversight and required prefunding the plans instead of pay as they go and provided some insurance that if a company went out of business at least some of the benefits promised would be paid. Once there was some oversight and companies had to manage their plans like the rest of the business, they decided to get out of them as it was drag on the bottom line when previously they would make false promises and hope they were gone before they had to back them up. More than a few big companies went bankrupt to get out from under underfunded pension plans (United Airlines). At the same time smoking reduced and cardiac disease was treatable. Life expectancies went up and the cost of the plans to the company also went up as instead of paying out for 5 or 10 years they would need to pay out 15 to 30 years.

I was lucky, my dad was financially savvy and knew that conventional pensions would be going away in my lifetime and encouraged me to fund IRAs in my twenties and eventually 401K plans even though I worked for a company that had a pension plan. That lasted three years and then they switched to a 401K plan, the investment choices were not great initially but they got better. When I quit 14 years later I took it with me and then started investing it myself in no load Vanguard index funds and even converted some to Roth's when the market was low. With later employers there were no conventional pension plans so I just put my money in 401K plans and hopefully got a company match and carried it with me to my next employer.

 

[Jags]

Retirement isn't an age, it is an ability.
My suggestion to anyone at any age is to sit down and do the math. With an unlimited number of variables to consider the math must be unique to you. Highly consider a financial advisor if you are not comfortable with all the nuances of the rules and regs.
Just one dudes opinion....
(For the record, I fully retired at 47 years old)

 

[mcdougy]

Retirement isn't an age, it is an ability.
My suggestion to anyone at any age is to sit down and do the math. With an unlimited number of variables to consider the math must be unique to you. Highly consider a financial advisor if you are not comfortable with all the nuances of the rules and regs.
Just one dudes opinion....
(For the record, I fully retired at 47 years old)

Sweet....care to share your story how you pulled that off?

 

[PaulOinMA]

I also retired early. Former financial guy mentioned a figure for retirement. Don't have to tell me that twice.

Wife is a bit younger. She's still working.

As mentioned, work with a financial guy. Based on our assets and lifestyle, I could retire.

 

[festerw]

Our guy suggested in general 10% of your yearly salary per year on top of what you're already putting in through your employer.

So basically as much as you can realistically afford.

 

[Jags]

Sweet....care to share your story how you pulled that off?

My situation was so unique (buying into the company at the right time), that it is not a model easily duplicated. There are however a few things I say to young people that if just one listens, I will consider it a win. First, don’t get a job, get a career. Save early and often - compound interest is good. No debt (or as little as possible). Borrowing for toys is not a wise financial decision. Etc... ya know - everything your dad probably told ya when you were 17 and knew everything . I never owned a new vehicle till AFTER I retired.

 

[PaulOinMA]

All of the above.

Live within your means. Don't borrow for items.

Save.

Save some more.

As mentioned, compound interest is good. I left a company in 1999 and set up the stock I had for dividend reinvestment. Has done well over 23 years. Cashed some out in 2013 to pay for a beach house and still have some remaining.

A friend and I had lunch last October with our former graduate advisor. He is 94 and sharp as can be. Frail, though, as he is 94 after all. He mentioned that the university had a great savings program where they could save a fair bit of their salary, and it would be matched, I think he said 2-for-1! The way it was invested by the university did exceedingly well. He left teaching in 1997 comfortably.

He never really retired. Still writing scientific papers at 94!

I did well. The friend I mentioned did WELL. But, you would never guess his net worth seeing him. I was waiting outside at the assisted living facility waiting for him before we went in for lunch. He drove up in a 2004 Toyota with 200,000 miles on it.