Retiring in June, Maybe Not a Good Idea?

Summary

Podcast Summary: "Retiring in June, Maybe Not a Good Idea?"

Podcast Title: Jill on Money with Jill Schlesinger
Host/Author: Audacy
Episode Title: Retiring in June, Maybe Not a Good Idea?
Release Date: May 12, 2025

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Introduction

In this episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, engages in a comprehensive discussion with Annie, a 65-year-old preparing to retire from her part-time state job. The conversation delves into Annie's financial situation, retirement plans, and the considerations she must address to ensure a secure and fulfilling retirement.

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Listener Call: Annie's Retirement Plans

Annie's Current Situation
At [02:43], Annie introduces herself as a single individual nearing her 65th birthday, set to retire from a 22-year part-time state position. She shares excitement about retiring to enjoy more leisure time but also expresses concerns about ensuring her financial stability post-retirement.

Retirement Income Sources
Annie outlines her various income streams:

• Pension: Starting at $1,100/month ([03:20]).
• Deferred Compensation Plan: Holding $448,000 ([04:02]).
• 401A Plan: Associated with her state job, containing $103,000 ([04:09]).
• 401 Roth and 401K Pre-Tax Accounts: $47,000 and $82,000 respectively ([04:20]).
• IRA: An older account with $12,000 ([04:31]).
• I Bonds and Savings: $27,000 in I Bonds and $63,000 in a high-yield savings account.
• Certificates of Deposit (CDs): $210,000, laddered to mature over five years ([05:03]).
• Real Estate: Owns a home valued at $650,000, fully paid off ([05:19]).
• Business Income: Receives $4,400/month from her own business ([06:22]).

Health and Social Security Plans
Annie plans to switch to Medicare in June ([06:31]) and has scheduled to collect Social Security benefits from her late husband's account in January 2027, receiving approximately $2,100/month. She intends to switch to her own Social Security benefits at age 70, expecting about $3,000/month ([07:20]).

Spending and Budgeting
Annie estimates her monthly expenses to be:

• Fixed Expenses: $2,700
• Additional Spending and Support to Children: Up to $5,000 in total ([06:52])

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Financial Analysis and Advice

Assessing Income vs. Expenses
Mark assesses Annie's financial standing, noting that her pension and Social Security benefits closely align with her estimated expenses, especially when combined with her business income ([07:40]).

Contingency Planning: The Role of Annuities
Annie expresses a desire to purchase annuities to secure an additional $1,700/month ([08:30]). Mark questions the necessity and benefits of annuities, emphasizing potential drawbacks such as reduced liquidity and loss of control over funds ([09:07]).

Alternative Strategies
Mark proposes alternative strategies to achieve Annie's financial goals without heavily relying on annuities:

• Utilizing Retirement Accounts: Suggests taking distributions from her 401A and 401K to generate the needed additional income.
• Laddered CD Maturations: Leveraging her existing CD ladder to provide funds over the next five years.
• Minimal Annuity Use: Recommends limiting annuity purchases to a fraction of her portfolio for peace of mind without compromising liquidity ([10:58]).

Investment Allocation and Inflation Protection
Annie has currently allocated her investments heavily towards bonds and savings, avoiding stocks to mitigate risk ([17:25]). Mark advises maintaining a portion of her portfolio in equities to hedge against inflation and ensure growth, even for risk-averse investors ([17:45]).

Estate Planning
Annie confirms that her estate documents are in order, ensuring that her assets are managed according to her wishes after her passing ([16:40]).

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Key Takeaways

1. Balanced Income Streams: Ensuring multiple sources of income, such as pensions, Social Security, and business earnings, can provide financial stability in retirement.
2. Liquidity vs. Security: While annuities offer guaranteed income, they can restrict access to funds. It's crucial to balance secure income with maintaining liquidity for unforeseen expenses.
3. Investment Diversification: Even for risk-averse individuals, maintaining some equity exposure is essential to outpace inflation and preserve purchasing power over time.
4. Strategic Withdrawals: Thoughtful distribution strategies from retirement accounts can help meet income needs without prematurely depleting assets.
5. Professional Guidance: Consulting with a fee-only financial planner can provide personalized strategies tailored to individual retirement goals and circumstances.

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Notable Quotes

• Annie on Retirement Excitement:
  "Yep. Figure it's time to have some more fun than just work." ([02:58])

• Mark on Financial Security:
  "You have some good. You got a good chunk of money. That's more than halfway there, let's say." ([07:58])

• Annie on Risk Aversion:
  "But it's just because I'm so risk averse and I would like to know." ([08:44])

• Mark on Investment Allocation:
  "Even if you are really, really risk averse, having 20 or 30% in stocks just to keep up with inflation is important." ([17:45])

• Annie's Financial Confidence:
  "Yeah, but I think I'm not so concerned about the next, you know, few years as I am when I'm 85 and 90." ([12:58])

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Conclusion

Annie's case highlights the complexities of retirement planning, emphasizing the need for a diversified income strategy, cautious investment allocation, and contingency planning. Mark's guidance underscores the importance of balancing secure income sources with maintaining access to funds, ensuring that retirees can navigate both expected and unforeseen financial challenges with confidence.

For those contemplating retirement, this episode serves as a valuable blueprint for assessing personal financial situations and making informed decisions to secure a comfortable and stable retirement.

Transcript

[Jill Schlesinger]

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[Mark]

Seriously, all of it.

[Jill Schlesinger]

And we trust you to make smart decisions. After all, you listen to this show see [e-mail] credit card.

[Mark]

Welcome to the Jill welcome on Money show. It's Monday, May 12th and we are here trying to help you make better financial decisions. Sometimes they're just less bad ones. If something's going on in your life, maybe you're making a big transition, maybe you're retiring or maybe you're thinking about moving, maybe you're taking a new job, maybe you've gotten divorced or maybe there's an unfortunate, there's an illness or a death or something going on. Just get in touch with us. We can help you out. Go to jillonmoney.com, click the contact us button, reach out, write us that note. And if you want to join us live, check the box.

[Jill Schlesinger]

Mark does everything else because as everyone.

[Mark]

Knows, he is the best executive producer in the whole wide world. Okay, while you're on the website, don't forget, sign up for the free weekly newsletter. It's fantastic. I mean, mine was like in my spam filter for so long, I just started getting it again. Mark, it's really, it's great. So thank you for always doing that. Sign up for [e-mail] again. Free weekly newsletter. Check it out. All right, today we are talking to Annie, who joins us from Washington State. Hello, Annie. What can we do for you?

[Annie]

Hi. Thank you so much for taking my call. I really appreciate all your wisdom and advice that I've heard you give others.

[Mark]

Oh, very sweet. Well, what's going on? How can we help you?

[Annie]

Well, I'm turning 65 in a few days and I'm going to retire from my part time state job after 22 years at the end of this month.

[Mark]

Wait a minute. You're turning 65 in a few days? Congratulations. You feeling good? You feel healthy?

[Annie]

Yep. Figure it's time to have some more fun than just work.

[Mark]

Absolutely. My goodness. Okay, so you said you were working part time in a job that gives you a pension?

[Annie]

Yes, I've been there. I worked 75%. So I will get a pension, you know, now that I turn 65, which is why I decided to quit.

[Mark]

Okay, what will the pension be?

[Annie]

About 1100amonth.

[Mark]

Okay, great. Annie, are you single, married, partnered?

[Annie]

I am single.

[Mark]

Kids? No kids? Grown kids.

[Annie]

I have two grown kids.

[Mark]

Do you support them in some way?

[Annie]

I do at times, yes.

[Mark]

Okay, got it. All right, so you've got this pension that will start up and you've saved a bunch of money as well, is that right?

[Annie]

I have some. I don't know how much it is, but I do have some savings.

[Mark]

Okay, well, so did you also, in addition to the pension, did you have a deferred compensation plan?

[Annie]

I do, yes. I have that compensation plan which has $448,000 in it.

[Mark]

Great. That's fantastic. Okay, 448,000 in that. Okay. What else do you have in terms of retirement savings?

[Annie]

There's also a 401A plan which is associated with estate job that has $103,000 in it.

[Mark]

Anything else? Old IRA, old retirement account.

[Annie]

I have a 401 Roth with 47,000 and a 401K pre tax at 82,000.

[Mark]

That's great. You saved a lot of money.

[Annie]

And then I have an IRA old one that has 12,000 in it. So those are the retirement accounts.

[Mark]

Okay. What about other accounts that you have? Like any non retirement brokerage account, anything like that?

[Annie]

Don't have any brokerage accounts, but I do have I bonds that are 27,000. I have high yield savings account that has 63,000 in it and 210,000 in CDs.

[Jill Schlesinger]

Whoa.

[Mark]

That's a bigger number than I thought it was going to be. I was sort of going down. Okay. And those CDs mature over some period of time?

[Annie]

Yeah, between now and five years.

[Mark]

Okay, so laddered for five years. Okay, great. Do you own your home?

[Annie]

I do, yeah. It's worth about 650,000 and I've paid it off.

[Mark]

And you want to stay there?

[Annie]

Yeah, for at least for the next five to seven years. I figure I'll stay.

[Mark]

Okay. All right. And you said you work part time, you know, and you're going to give this up soon. Will you be done working overall at that moment or do you want to keep working, doing something else?

[Annie]

No, I actually, I do also own a business which is why I've been working three quarter time at the state. I have a business that I'm going to continue to work with. But of course there is a. Depending on the impact of the tariffs, may have, you know, I don't, it's hard to tell at this point because we are directing direct importing things from Europe. So I don't feel like, well, it's.

[Mark]

Only 10 tax, there's that.

[Annie]

Right. So I don't know if I can count on it, you know, long term in the future in terms of let me sell the business or whatever do. But I should be able to still receive the current guaranteed payments that I, you know, that I get.

[Mark]

How much is that?

[Annie]

It's 4400amonth.

[Mark]

Until when?

[Annie]

Well, that's of course is the open ended question. I'm not sure.

[Mark]

Okay, once you are done with work, then are you going to then be on Medicare?

[Annie]

Yes, I will actually switch over to Medicare as of June.

[Mark]

What do you think is your spending on an annual basis or a monthly basis? What do you think you're spending?

[Annie]

Well, my fixed expenses are around $2,700 a month.

[Mark]

Okay, and now add some fun in.

[Annie]

Yeah, and then with fun and helping out the kids, then, you know, I'm estimating 5,000, maybe a little less, not.

[Mark]

An additional 5,000, but a total of 5,000.

[Annie]

Total, yes.

[Mark]

Okay, so five grand a month, when do you think you're going to claim Social Security? You're going to do your full retirement age? You're going to try to wait till 70?

[Annie]

Well, I am actually going to collect my late husband's account. January of 27.

[Mark]

January of 27. Okay. And how much would that be?

[Annie]

About 2,100. Okay, switch to my own at 70, which should be around 3,000amonth.

[Mark]

So really between Social Security and your pension of $1,100 a month, forgetting about the guarantee of the payment from your business, you're pretty close to getting the money you need, right? I mean when you think about it, you get. And is your pension adjusted for inflation?

[Annie]

Yes, it is.

[Mark]

Okay, so you'll have you know, you've got some good. You got a good chunk of money. That's more than halfway there, let's say. Or let's even say halfway because it's pre tax. Okay, Next up is what happens if the guaranteed payment goes away. Cause obviously if that payment continues, you're fine, right? Your expenses are. You can do that. You've got your pension. Plus the $4,400 a month would be fine, Right? What if that goes away? What's the game plan then?

[Annie]

Well, my plan is actually to buy a couple of annuities. I know you don't like them, but I am planning on doing that for additional 1700amonth that we get for.

[Mark]

Why? Why? Why?

[Jill Schlesinger]

Why?

[Mark]

Okay, I'm gonna whine right now. Hold on a second.

[Annie]

But it's just because I'm so risk averse and I would like to know.

[Mark]

But you could be risk averse and still have. You could still be risk averse. Okay. And not buy a product to. To do that. I mean, I'm not saying. First of all, you would never buy three annuities. That's silly. You would buy one, right?

[Annie]

Well, actually, it is through that state, you know, plan. And so there would be actually be two different ones and they have a T3% cola on them.

[Mark]

And what would your, what would your game plan be? Are you saying to me that you would take like your 401A or your deferred comp and take some money from that and create an immediate annuity from that?

[Annie]

That's right.

[Mark]

What if you did this instead of doing two. Okay. If you did, I'm just looking at like say the 401A, that $103,000. Let's say I buy into this idea, which I'm not bought into. I'm just. I'm assuaging your need to have certainty. Okay?

[Annie]

Right.

[Mark]

What if you took that 103,000 from the 401A and you know, you are 65 and you said, I'm going to buy an immediate annuity. And I want to annuitize that to get paid out over five years. Just get all the money out in five years, then the money comes out of there. The tax you pay the tax that's due. Right. Every year on the. I'm going to be round numbers. It's not exact, but you get 20 grand a year extra.

[Annie]

Okay.

[Mark]

Now that 20 grand a year extra is probably all you really need for now because you have other money and you have laddered CDs that are coming due and so you sort of do some nice combination of that and you don't have to touch any of your other money between now and then and life's fine. And if you did need money, you could just pull it out. Like you could liquidate that IRA you said is $12,000, right? You could just take that money out and be like, okay, I got 12 grand, I'll pay tax on it. Your tax liability will be below and you can just pull the money out that you need and use it and not worry too much. The alternative, I guess, is that you have. Which one would you do the second annuity with?

[Annie]

That would be the DCP.

[Mark]

That would be the 448,000.

[Annie]

Yeah, yeah.

[Mark]

So if that the reason why I don't like taking so much money and put it into annuity, is it you've lost the use of the money, meaning you can't control it. If something happened to your kids and you needed like a big chunk of money, it would be in an annuity contract and you couldn't actually use it. You have a short term, a very short term issue, which is essentially for the next five years, you. And again, if you, the business pays you, you're fine, Right? But if the, in the next five years you've got $1,100 a month, we need to create five grand a month. So we need, we basically need another, you know, bunch of money to bridge this period of time. And if you want to buy a contract to do that, I just feel nervous about putting so much money in a contract that then locks your money up. And I think that what we have to remember is this is all of your money. You can pull it out, you can do what you want with it. I guess before I would do any sort of annuity purchase, I would be very interested in saying what are the alternatives? Cause when you buy an annuity, there's a cost to it, right? So I mean, we're trying to solve for this problem. If you say, I really just want to make sure I have 60 grand a year, okay, total money, like 60 grand that's available to me every year and I know I'm only going to have 12 grand, where am I going to get that other 50 grand? You can take it from your 401A, but you could just take 50 grand out of your, your, for your pre tax 401K, you could take 12 grand out of your IRA. You just take the money and use that to live on and not worry about whether or not it's invested in a product that you can't use and that you can't touch and, and use as a whole basis of money that you are able to tap if something were to happen. Does that make sense?

[Annie]

Yeah, but I think I'm not so concerned about the next, you know, few years as I am when I'm 85 and 90.

[Mark]

Yeah, well, 85 and 90, we're in good shape because I look at it as the first five years, the big years, once you get to age 70. Right. We know that you have your own Social Security at age 70, right?

[Annie]

Yeah.

[Mark]

So that's 3,000amonth. Right. So you have 3,000amonth at age 70, plus your 1,100. So we know that you have $4,100 a month and yet. And that's taxable. So let's say you need 6,000, which means you only need to take two grand a month from your accounts in some way, shape or form. Okay. So you don't have to annuitize everything. You could do this right now. You could literally say starting in June, you might say, I will turn on my 401A, turn that into an annuity for five years or for all. I don't even care. You could do that or you could just take the money out. You could say, I'm going to take 50 grand out this year and keep the rest of it in fixed income. Just keep it really boring. And then next year do the same thing. And now the 401A is depleted. You could do the same thing with the 401k the following year. You can say, I'm just going to take that money out. That's the money I need for the year, the 82,000. And then you can start to do that with your deferred comp if you want to. But by the time you're 70, you don't need that much money. You just don't. You're going to be okay. And if it just feels so much better to do it, I would limit it. I would really limit it. I would say, okay, I'm going to take some portion of my annuity. I wouldn't do hundreds and hundreds of thousands, like, you know, 100, 200,000 maybe. I don't even think I would do that much. But you can do this. You can pull the money out that you need. And maybe if you don't believe me, you could potentially look at talking to a fee only financial planner who can help navigate this with you and just run some numbers. You have all the money you need. You're just trying to figure out the best way to get the. The. The. The cash flow that you need for the next five. And then once you get to be 70, there's no problem. You could live till 95. You're going to be fine. You're totally going to be fine.

[Annie]

Oh, okay. Huh. Well, thank you.

[Mark]

You don't believe me.

[Annie]

Well, I mean, really, I'd like to believe you, absolutely.

[Mark]

I mean, I really think you're really. You're going to be okay. It's that Social Security plus your pension is okay, and we're not. And I am, again, I am saying I do. I think that you're going to have guaranteed income of 4400amonth. Forever. No, but I'm not even counting it. I'm counting that as a zero right now. But you've got a house that's paid for. You have $900,000, not including your CDs, a house that's paid for. And you've got income. You've got money coming in the door. I think you're really going to be okay, Annie. I really do. I would just be very careful about putting too much of my money in an annuity product. Where you really lose that money, it is now illiquid. So some portion that gives you peace of mind, I can get on board with it. And you gotta work with somebody who can help you find the right thing for you. Right? The right. The sweet spot. What's the amount of money that's gonna make you feel confident? And maybe it's just getting you through age 70. And that will be confident. Maybe for you, it's like, no, I need 10 years of confidence. Maybe that's the kind of thing we should be looking at. But it's. You're not gonna have a problem after the age of 70. You just not.

[Annie]

Okay, that's great.

[Mark]

All right, now, last. Do you have all of your estate documents done?

[Annie]

I do.

[Mark]

Okay, good. All right, your last question.

[Annie]

How do I allocate then the retirement accounts going forward?

[Mark]

Well, I mean, look, you have now had a crazy few months to really experience in few years, frankly. You've been an investor for a long time. So my question to you is, where is the allocation now? Is it stocks versus bonds? You know, how much is like one versus the other?

[Annie]

It's actually in January. I kind of freaked out thinking I was going to retire and, you know, and then I moved everything. Everything is very safe.

[Mark]

Okay.

[Jill Schlesinger]

Terrible.

[Annie]

Bond funds and savings, saving pools, so.

[Mark]

But you're. So no. But no stocks.

[Annie]

There is well, the 2025 retirement fund probably has a little bit of stock in it, but basically it's all, I mean, I haven't lost anything. I've gained like 1.8% or something since then.

[Mark]

Oh, my God, she's fabulous, this one. I mean, I would think that even if you are really, really risk averse, having 20 or 30% in stocks just to keep up with inflation is important. So I would try to like cycle some money back in especially look, the Roth account for sure. You could make that. Honestly, you can make that all stocks and not work and say that's where my stocks are. Fine, whatever. But like, you should have some stocks that are in, you know, if your overall portfolio allocation, you know, 20, 30% should be in equity so you have some portion that is keeping pace with inflation over time. That's your big worry over time is that you have all this safe money that's safe and all of a sudden, you know, you're getting 2 or 3% maybe, but inflation stays at, you know, sort of stays a little bit higher, two and a half or three percent and you're kind of breaking even and you want some money to be able to grow, right?

[Annie]

Okay, okay.

[Mark]

All right, that's it. I'm done with you. And you've got a Miss Annuity. We're going to call you. We're going to call Annie Annuity Annie the annuity lover. Thank you for getting in touch with us. Hey, are you thinking about something like, I want to be safe. Are you thinking that I'm your frequency out after the last few months in the markets, it's up, it's down, it's up again. Then get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note. Please check the box if you'd like to join us on the air live. Don't forget to check out all the content that lives on our website. We've got a sister broadcast on the weekends called Money Watch and you can subscribe on the Odyssey app, which is where you can subscribe to this or wherever you get your favorite podcasts. Try to lift someone up beginning of the week. Come on. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

[Jill Schlesinger]

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[Mark]

I know how hard it is and.

[Jill Schlesinger]

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