Will I Have To Work Until I’m 70?

Nothing wrong with saying “I don’t know”…

Just got off the phone with a nice couple.  The 2008 recession set them back something wicked and they haven’t fully recovered. In fact, they’re only sitting on $57,000 in liquid assets.

They ask me, will the hub, who is 63, be able to retire before 70, if he can even retire then?

So let me ask you, dear reader, what do you think?  What would you say?

Well, hopefully, you would think and say “I don’t know. It depends.”  Because ANY other answer this question is wrong.

“But Josh they only have $57k.  How could they possibly have enough income to retire?”  And thus the problem with a lot of retirement planning. The asset base is not what determines the ability to retire.  The spending does. Only after we solve that,  will income, and thus assets, be considered.

In this case, at Full Retirement Age, hub gets $2,400 month in Social Security.  Wife has a pension of about $2100 a month with a small Social Security benefit due to the Windfall Elimination Provision.  However, health care premiums are deeply discounted.

So, they’ll have $3,500 a month coming in, around $42,000 a year.  But here’s the kicker…NO MORTGAGE!  They anticipate they’ll need around $30k a year in discretionary spending which includes property taxes, home and auto insurance, another $5k a year for vacation and another $7k a year in health costs.  Now, be advised these are ALL estimates as they really don’t know what they’ll need due to the fact they haven’t retired.

Taxes are a nothingburger,by the way. Once they each reach the age of 65 there’ll be no income taxes because of the higher standard deductions, assuming the Trump Tax bill stays in force. Even before 65, we’re talking a couple hundred bucks in Federal taxes at most.

As you can see their income is matching almost perfectly their expenses. Without even having to tap into their $57k. Not too shabby, eh?

Don’t forget, hopefully that $57k will grow a bit before hub hangs up his boots. Maybe they’ll add a bit to it while he is working. Who knows?  But there are still a couple more cards up their sleeves here.

1. Their house is worth around $175k.  That is equity that could be tapped should the need arise.
2. Will that $5k a year vacation expense remain for the course of their lives? Of course not .Could it be replaced by other expenses? Sure.  But what will happen to that $30k a year of discretionary expenditures as they break into their 80’s? Will they spend that same amount each year or will it drop? Evidence shows us they’ll probably spend LESS as they age
3.  They don’t have a true gauge of expenditures.  Could that $30k a year be on the high end? Maybe.  Low end? They didn’t think so, but weren’t so sure.   Thus it is imperative to find out. Which is how we left things. Don’t do ANYTHING until that one number is solidified.

Oh, and they hadn’t updated their Will in years. Update that ASAP.

But as you can see, blindly saying someone can’t retire because of only $57,000 in savings should never be done by any professional financial planner. There is more to the story.  And it is up to professionals, or even lay people, to investigate further.

Saying “I don’t know…it depends” is an honorable thing to do when it comes to retirement planning.

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