Retirement strategy question

8 years ago

Hello!

I am retiring from a job I've had for 20 years. I plan to do this over 1-3 years (not sure yet) where each year is 1/2 of my normal work hours and 1/2 of my normal pay. I'm 65 and am not yet getting SS. I will need to supplement my 1/2 pay during these 1-3 years with $ from elsewhere.

My question, which would make most sense for me in terms of optimizing my retirement savings:

1. To withdraw the extra $ I need from my retirement savings? (It is not an IRA account, it is an account set up by my employer with the employer contributing a certain fixed % [up to 10%] of what I contribute from my pay check.)

2. To get the extra $ I need by contributing LESS to my retirement account (thus getting less matching $ from my employer)?

3. A combination of the two?

Thank you!

Rick

Featured Answer

User

8 years ago

last modified: 8 years ago

I don't think you should work half time. You should continue working full time until you start drawing SS. I read you can not afford to work half time now.

Optimizing your retirement savings, usually means saving, not spending before you retire.

Does your work have a Human Resources department who can explain your option?

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Comments (8)

Elmer J Fudd
8 years ago
Why not start receiving social security? It doesn't make sense to me to draw from savings while you're working and while that source of extra income is readily available to you.

The "employer account" sounds like some kind of retirement program. Is that what it is? If yes, a double mistake to draw from that, since annual earnings in the accounts would normally be tax free until withdrawn. Meaning, faster accumulation and greater compounded returns. than funds in your own accounts outside of a tax-advantaged plan.
User
8 years ago
I have to agree with Elmer Fudd to a certain point. Since you are planning on working until full retirement be aware that until you reach Full Retirement Age for SS your SS payment may be reduced. Unless you own the company your employer may agree that you work 1/2 time for a while but then decide that that you must either work full time or retire. I have seen it happen several times where people have planned to work part time after retirement.

Your employer account may or may not continue to allow you to contribute and will not allow if you are drawing from it. If you can no longer contribute you will find that you may have the extra that you need. You also need to rethink retiring if you will have to supplement your retirement. Any pension that you have from your employer for most people will only be about 1/3 to 1/2 if lucky of your current income. Although it is common to read that once a person is retired their expenses go down if you plan on an active life after retirement they will probably go up. The expenses for things needed for work will go down but the other expenses of living will continue to go up even without changing your lifestyle. A major expense even if using a Medicare Supplement policy is health insurance as your employer may/may not continue your health insurance when you turn 65. Some employers only give a supplement payment for you to purchase health insurance rather than continuing employee insurance, husband's company gives him an extra $200 a month.
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jrb451
8 years ago
I'm with Jim. Why work half time if it requires you to tap into your retirement accounts.
User
8 years ago
The age at which you can collect your full social security benefit is probably not age 65. If you were born in 1960 or later, the age at which you can receive your full social security benefit if age 67. If you were born between 1943 and 1954, your full retirement age is 66. Benefits are reduced if you collect social security benefits before your full retirement age.

As has been pointed out above, you should continue to work full time until you can collect your full social security benefit. Also, if you can continue to work and defer collecting until age 70, your social security benefit will be increased for every year you defer collecting past your full retirement age.

Also consider that your employer's retirement plan may not allow partial in-service distributions. I concur with Jim Mat that you should seek out the HR rep to discuss the benefit implications of your continuing to work past age 65, both with regard to the retirement plan and any medical benefits provided by your employer.

Since you plan to retire and stop working within 3 years, you may want to consider locking in any gains in your portfolio now and invest in lower risk assets.

Regardless of which of your options you choose, you must apply for Medicare benefits upon attaining age 65 or there will be a penalty payment upon later application. Don't confuse Medicare eligibility with receipt of Social Security retirement benefits.

Earnings in your employer account are tax-deferred until withdrawn, unless they are in a 401(k) Roth. The latter benefit is tax-free even upon receipt.
Mrs Pete
8 years ago
last modified: 8 years ago
I will need to supplement my 1/2 pay during these 1-3 years with $ from elsewhere.

I understand the idea of "tapering off" your work hours. It'd be a gradual adjustment for you, and it'd allow your replacement plenty of time to question you about how you've done things.

BUT if you're going to need to supplement your income, is it the best choice? If you keep working for that one more year (three seems like a long tapering-off time), then you'd not need to tap into any retirement account.

I don't think anyone's going to be able to answer your question with a solid answer because we are missing several pieces of the puzzle: We don't know how much income needs replacing, how much you have in your retirement accounts, or how much your Social Security benefit will be ... much less how much you expect to need to maintain a comfortable lifestyle in retirement. Too many missing numbers in the equation.I mean, if you have $50,000 saved for retirement, you should not dip into that paltry amount ... on the other hand, if you're sitting on a million or more and are just looking for how to most efficiently make this happen, you should outright quit ... but none of us can give really good advice without all this missing information.

Since you are planning on working until full retirement be aware that until you reach Full Retirement Age for SS your SS payment may be reduced.

Since you're 65, I assume you were born in 1952 ... making your full retirement age 66. If you retire before 66 (and SS is a federal program; thus, the same everywhere), you will lose 6% of your SS benefit for each year you retire early. Given that you're so close, I'd say wait 'til you're 66 and collect full benefits.

You can postpone your SS benefit until you're 70, and that makes your benefit grow by 4% per year. Should you do this? Depends upon your health, how long you expect to live, and how much other income you have available to you in retirement.
joyfulguy
7 years ago
last modified: 7 years ago
Hi Rick,

If you're still considering this, I'm concerned about your thinking that you need to find more money than wages to live on while still employed.

It seems to me that it'd be wise to try to continue to contribute to your employer's pension plan, since he'll add a substantial amount that you'll lose if you stop contributing.

Probably your pensions will be lower than your Iast full-time wage level.

I think you may find that costs of living may increase faster than whatever increases may appear in your pension(s). I don't think that inflation may fade away any time soon.

I'm concerned that you may outlive your pension(s) and income from other investments. It ain't fun being broke, when one is young and able-bodied enough to develop fresh income, but when one is old and less able, as well as being less attractive to potential employers, that's not a pleasant spot to occupy. Especially so when the temperature is about zero F, as it has been around here in recent days: glad I'm not homeless after about 20 years retired!

ole joyful ... nearing 90
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last year
Hi Rick,

I wonder how you're feeling now about the choice that you made, 7 years ago.

ole joyful - now enjoying good health and enough to live on for a number of future years, if

Retirement strategy question

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