There’s a 61-year-old planning to retire at 62, receiving $3,375 monthly from a pension and $2,515 from Social Security, with a sizable $1 million in a 401(k). His wife, 68, has been retired for seven years with a lifetime pension of $10,000 per month. They own three homes, including two in California. Their Texas home is valued at $650,000, with a $315,000 mortgage. In California, they have a $650,000 condo, but it carries $370,000 in debt—rented to their daughter. All properties have a low interest rate of 2.75% after a recent refinance, with 28 years left on the loans. They aim to sell the Texas house to be closer to their daughter.
The question is whether retiring before collecting Social Security is feasible. The wife isn’t on Social Security, so it seems Medicare will only be accessible when the husband starts receiving benefits. He’s considering using his 401(k) in the meantime. They wonder if hiring a financial advisor would be a good idea to figure out when they can retire and how much they need to save for an early retirement.
Experts commend the couple on their substantial equity and investment strategy while noting several factors to consider before retirement at 62. Financial advisors can certainly be helpful in these situations. One professional, Jason Dallaqua, highlighted that it’s essential to know monthly expenses, including non-recurring costs expected in the coming years, like healthcare until 65 and current spending habits.
Jeremy Keel, another financial planner, suggests looking at take-home pay and creating a retirement spending plan based on that, health insurance costs, and relevant taxes. With a monthly pension income nearing $14,000, excluding Social Security, they have a solid income, reducing reliance on their investment portfolio. Dall’Acqua points out that taxes will apply on any withdrawals from a pre-tax 401(k), but if managed wisely, early retirement could still be an option.
Experts like Robin Lovely believe they’re positioned well for retirement given their two annuities, substantial 401(k), and low mortgage rates. Selling their Texas home might unlock extra funds that could support their new plans. However, an important consideration is the survivor benefits associated with their pensions. They should evaluate how their choices may impact each other’s financial security.
The husband’s query about the wife’s Medicare eligibility is partly correct; she doesn’t need him to collect Social Security to enroll in Medicare, just to be 62 for a month. For example, she could qualify for Medicare Part A without premium payments soon after his birthday if he’s born on February 15, 1965.
Seeking Financial Guidance?
A financial advisor could be crucial in piecing together their financial situation, helping to examine retirement timing, withdrawal strategies, and short- to long-term investment needs. Carlos Dias Jr., a financial advisor, recommends working with a professional for tailored guidance, balancing service and portfolio management based on individual preferences.
LaBrie echoes the importance of an advisor in fine-tuning their retirement plans, particularly regarding Social Security, Medicare, and drawing from retirement savings. It’s a pivotal moment for them, with choices that will have lasting impacts.
When collaborating with a financial planner, it’s not just about deciding if they can retire; it’s about clarifying the timing, reasons for retiring, and how to use their assets effectively. Various factors come into play—pensions, real estate, and Social Security nuances—meaning it’s essential to delve deeper than surface-level answers. Eric Kroke emphasizes that understanding the tax implications and preparing for unexpected expenses or market fluctuations is vital for a successful retirement plan.
The question has been edited for clarity. By sending in a question to The Adviser, there’s an agreement for it to be published anonymously.
