The Gap Between Retirement and Social Security

Summary

Episode Summary: The Gap Between Retirement and Social Security

Release Date: March 5, 2025
Podcast: Jill on Money with Jill Schlesinger

In this insightful episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger delves into the critical financial challenge many face: bridging the gap between early retirement and the onset of Social Security benefits. Through a detailed conversation with Rita from the Pacific Northwest, Jill unpacks the complexities of retirement planning, offering listeners actionable strategies to navigate this transitional phase effectively.

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Introduction to Retirement Planning

[02:08]
Jill opens the episode by addressing the common fears surrounding tax planning, especially during tax season. She promotes an upcoming webinar featuring tax expert Ed Slott, emphasizing the importance of proactive financial education. Jill also highlights her sister podcast, Money Watch, aimed at individuals seeking to strengthen their financial foundations.

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Listener Call-In: Rita’s Retirement Scenario

[04:11]
Rita joins the show to discuss her and her husband's approaching retirement. They are contemplating retiring before claiming Social Security benefits, planning to wait until age 70 to maximize their Social Security payouts. Rita expresses her concern about making "unforced errors" during this transition.

Notable Quote:
Jill Schlesinger [04:33]: "I feel like as an aging athlete, the things that I've done stupidly in my life are usually the unforced errors. I like to minimize those as well."

---

Current Financial Status and Retirement Goals

[04:58]
Rita provides an overview of her current financial situation:

• Income: Rita is transitioning to a part-time role earning $34,000 annually, while her husband continues full-time employment at $195,000 per year.
• Age: Rita is nearing 59, and her husband is approaching 61.
• Savings: They have approximately $1.2 million in pre-tax retirement accounts, primarily in her husband's 401(k), and $20,000 in Roth accounts.
• Pensions and Social Security: Her husband is eligible for a $50,000 annual pension, and at age 70, Rita expects to receive $30,000 from Social Security, while her husband will receive $55,000 annually.

Notable Quote:
Rita [05:34]: "Our rainy day fund got nailed this year, so it's down to about $12,000."

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Addressing the Retirement Gap

[08:01]
Jill and Rita discuss the potential financial shortfall between their retirement onset and the beginning of Social Security benefits. Jill proposes several strategies to mitigate this gap:

1. Adjusting Withdrawal Rates: Instead of withdrawing $100,000 annually from pre-tax accounts, they could reduce withdrawals to $85,000-$90,000 to extend the longevity of their savings.
2. Incremental Work Hours: Rita considers slightly increasing her part-time income to alleviate the financial strain.
3. Spousal Support: Encouraging Rita's husband to possibly take on part-time work to further supplement their income.
4. Expense Management: Maintaining a disciplined approach to budgeting, as Rita has been tracking their spending meticulously.

Notable Quote:
Jill Schlesinger [09:03]: "We're gonna pull out less money from that pre-tax account every year... maybe you'll just be like, okay, yeah, we're pulling money out, but instead of spending, pulling 100 grand out a year, we're gonna pull out 90 grand, 85."

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Mortgage and Housing Considerations

[13:51]
The discussion shifts to their housing situation:

• Home Value: Approximately $550,000.
• Mortgage: Remaining balance of $80,000 at a 2.75% interest rate, set to be paid off by 2029.
• Housing Plans: They intend to stay in their current home, having already invested in remodeling to suit their preferences.

Jill emphasizes the importance of eliminating mortgage debt before retirement to reduce monthly expenses.

Notable Quote:
Jill Schlesinger [14:34]: "What I would be very clear about is you're not the type of people that I think need to convert a retirement plan into a Roth."

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Tax Planning and Withdrawal Strategies

[14:34]
Jill advises against converting retirement accounts to Roth IRAs for Rita and her husband. Instead, she recommends strategic withdrawals from their pre-tax accounts to manage tax liabilities effectively:

• Controlled Withdrawals: By taking only what is necessary, they can remain within a lower tax bracket, likely around the 22% range.
• Tax Efficiency: With the husband's pension and Rita's part-time income, their combined income allows for manageable taxation without pushing them into higher brackets.

Notable Quote:
Jill Schlesinger [15:32]: "I think that you're going to be basically depleting this account over the next 10 or 12 years anyway."

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Final Recommendations and Encouragement

[16:19]
Jill concludes the conversation by commending Rita and her husband on their proactive and disciplined approach to retirement planning. She underscores the importance of estate planning and maintaining flexibility to adjust retirement timelines as needed. Jill encourages listeners to evaluate their own financial plans critically and seek professional advice when necessary.

Notable Quote:
Jill Schlesinger [16:34]: "You've worked really hard and you've done a fantastic job. So good for you."

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Key Takeaways for Listeners

1. Start Early: Begin retirement planning well in advance to allow for adjustments as needed.
2. Flexible Withdrawals: Adjust your annual withdrawals from retirement accounts based on current financial needs and tax implications.
3. Minimize Debt: Aim to eliminate high-interest debt and mortgages before entering retirement to reduce financial burdens.
4. Balanced Approach: Combine part-time work with strategic financial planning to bridge the gap between retirement and Social Security.
5. Professional Guidance: Consult with financial advisors to tailor strategies that align with your unique financial situation.

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Conclusion

This episode of Jill on Money serves as a valuable resource for individuals nearing retirement, highlighting the importance of meticulous planning to bridge the financial gap before Social Security kicks in. Through Rita's real-life scenario, listeners gain practical insights into managing withdrawals, adjusting income sources, and maintaining a balanced approach to ensure a secure and comfortable retirement.

For more personalized financial advice and resources, visit Jill on Money and explore their range of tools and expert guidance.

Transcript

[Jill Schlesinger]

Gang.

[Mark]

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[Jill Schlesinger]

Welcome to the Jill on Money Show. It's Wednesday, March 5th and we are here trying to help take the mystery out of your financial life. Now, one of the big mysteries of your financial life may be the question about tax planning. We're right in the heat of tax season. Maybe some of you already got your refunds. Oh, you know I hate a refund, but maybe you want to know how you can do better next year. Well, I've got a great idea. If that's you, you should join us for our webinar tomorrow night. Tomorrow, Thursday, March 67 Eastern Time. We have a live webinar with none other than the amazing Ed Slott. He is a cpa, he's an IRA and a Roth IRA expert, and he will be joining us live tomorrow night, but only, only if you are a subscriber to Jill on Money Live. You know, that's the Service where for 45 bucks for the next 12 months, you have access to not just the ED Live webinar, but three more after that, bonus audio and video content, the entire back catalog, $45 for the next 12 months. It's a great deal. I hope you join us. I'm so looking forward to it. And, you know, I always learn something from Ed Slott. It's great. Okay. Also, just want to remind you that we have a second podcast. It is called Money Watch. And the Money Watch podcast is what Mark says is the Money Watch is for the Henrys, the high earner. Not rich yet, folks. All right.

[Mark]

It's not necessarily.

[Jill Schlesinger]

It's really for anyone who needs to go back to basics on their financial acumen. Right. That you really want to figure out. Well, how am I going to control my financial life if I really don't understand everything from, you know, the details of debt management and how to manage my taxes better and retirement planning basics, all of these things. That's what we're doing on the Money Watch podcast. It drops on Saturdays and Sundays. You can subscribe to it wherever you get your podcast. I'll tell you more at the end of the show. Right now, I have kept Rita from the Pacific Northwest waiting for far too long. Hello, Rita. How are you?

[Rita]

Hi, Jill. Thanks for having me on.

[Jill Schlesinger]

Of course. What's going on?

[Rita]

Well, my husband and I were getting closer to retirement, but our timeframe may become accelerated. We're going to have a gap between retirement and Social Security. We're going to try to hold out until we're 70 to take Social Security.

[Jill Schlesinger]

Okay.

[Rita]

And I really just want to make sure that, you know, we're not going to make any unforced errors.

[Jill Schlesinger]

Oh, yeah, you are. You know what? I love that because I. I feel like as an aging athlete, the things that I've done stupidly in my life are usually the unforced errors. That's the one I dwell on. I know I shouldn't, but I do, so I like to minimize those as well. So are both you and your husband working currently?

[Rita]

Yes, I have already stepped back to halftime to practice for retirement.

[Jill Schlesinger]

Oh, I love that. How's that going?

[Rita]

It's been going really well. I Was able to stay with my current employer and just restructure my position. They've been very supportive. I'm on my husband's health insurance, but they still. My employer still contributes a small amount each month to my retirement.

[Jill Schlesinger]

Oh, nice. So how much do you earn in your halftime role?

[Rita]

About 34.

[Jill Schlesinger]

Okay. And your husband's working full time still?

[Rita]

Yes.

[Jill Schlesinger]

Okay, and how much does he earn?

[Rita]

195.

[Jill Schlesinger]

Okay, and how old are you guys?

[Rita]

I'm going to be 59 in April and he's going to be 61 in June.

[Jill Schlesinger]

Okay, so it's getting to be that time.

[Mark]

Ish.

[Jill Schlesinger]

Right. And do you guys have kids?

[Rita]

No kids. We have cattle dogs.

[Jill Schlesinger]

Wait, wait, wait. You just used a term, cattle dogs. Tell me more about that.

[Rita]

They're Australian cattle dogs. Sometimes they're called heelers and they're very high energy breed that likes to manage their people.

[Jill Schlesinger]

There are plural. How many?

[Rita]

Two right now.

[Jill Schlesinger]

How have you and your husband saved to take care of these cattle dogs?

[Rita]

Well, we are pretty. Compared to a lot of your collars, I think we're pretty simple.

[Jill Schlesinger]

Okay, I like simple.

[Rita]

We have the bulk of our money in a pre tax account. Pre tax accounts we have very. We have two small Roths, but it's 20,000 combined. But overall we, you know, so we have about 1.2 million in pre tax accounts, the bulk of which is in my husband's 401k.

[Jill Schlesinger]

Okay, that's great. Any after tax savings in a brokerage account or savings, checking, CD kind of stuff?

[Rita]

Our rainy day fund got nailed this year, so it's down to about 12 grand. It rained.

[Jill Schlesinger]

Oh dear. Okay. Sorry to hear that. Yeah. Brokerage account?

[Rita]

Nope.

[Jill Schlesinger]

Okay. And will either of you be entitled to a pension? Yes, about that.

[Rita]

Yeah, my husband will have a pension of about 50,000.

[Jill Schlesinger]

Oh, when would that be payable to him? At what age?

[Rita]

When he retires.

[Jill Schlesinger]

Oh, so he's already in. He's already good for that.

[Rita]

Like he's already eligible.

[Jill Schlesinger]

Yeah. Great. And when you're both 70, tell us about the Social Security benefit that you'll be entitled to.

[Rita]

So at 70, my husband's will be about 55, 5,500amonth.

[Jill Schlesinger]

55,000 a.

[Rita]

Year.

[Jill Schlesinger]

Okay, thank you.

[Rita]

Mine will be about $30,000 a year.

[Jill Schlesinger]

Okay, now let's say that he pulls the plug right this second. He's like, I'm done, I'm out of here. Right. 61. Tell us about what the health insurance situation would be for you guys. What would the game plan be?

[Rita]

It would continue from his employer.

[Jill Schlesinger]

You'd be able to have that?

[Rita]

We would have that. It would just shift from the employer, you know, paid side to. We would pay it. So I have budgeted in our retirement budget about $800 a month to cover.

[Jill Schlesinger]

That's huge, isn't it? Just to have knowledge that you could do that, right?

[Rita]

It is, yeah. It's the thing that allows us to retire early for sure.

[Jill Schlesinger]

So the retirement budget, what do you think you'd like to have for your monthly or annual spend?

[Rita]

Well, because I'm a spreadsheet girl, I've been tracking our spending in anticipation of this for the last three years. And this includes all of our travel, big purchases or emergencies that have come up. We're spending about 9,500amonth. Okay, but we can trim back.

[Jill Schlesinger]

No. Why are we trimming back? I was going to do ten grand a month because as someone just accused me of, I like to round up. I do like to round up. So let's just do 10 grand a month.

[Rita]

Okay? Yeah.

[Jill Schlesinger]

All right. Now what we know from the beginning here is that of that 10 grand a month or $120,000 a year, we, we know that your husband's pension will lop off 50 grand of that. Right?

[Rita]

Right.

[Jill Schlesinger]

Okay. Now, would you continue to work part time?

[Rita]

That is my plan, but I would also like to know how important it is that I do so to the health of our overall plan.

[Jill Schlesinger]

Okay. Okay. So what we're really trying to solve for right this minute is if you need 10 grand a month and you've got or 120 grand a year and you got 50, you're saying, what do we need to do to like bridge the gap for that $70,000, right? Yes. And so there's a few different ways to think about it. One is you could say, well, let's say about. I'm going to do like very simple. This is like arithmetic, not higher math. But let's just say that you were taking out 100 grand a year from that pre tax account for the next nine or ten years. Right. Just take 100 grand out, you'll deplete it. So it's, you know, it's got a couple hundred thousand in it, not much more. You take that money out, you pay the tax, you live on it, and you're done. And then by the time you claim Social Security, what we know is that that pension that he receives, does that have a cost of living adjustment?

[Rita]

Yes.

[Jill Schlesinger]

Okay. So that cola kicks in and your Social Security kicks in, and then by the time you're 70, you've got the pension and you've got two Social Security checks and you have the money you need. Basically you're good. Yeah. The question I have, when you say how important is that $34,000, it's not vital. But what it will require is that you have a real shift in your expectations. Because right now you guys are used to seeing a, you know, $1.2 million pre tax total. I ask you, how are you going to feel as that gets dwindled down every year?

[Rita]

I will be a little bit more freaked out about it than my husband already.

[Jill Schlesinger]

I like your husband. He's like, let's go. It's our money. The dogs will be fine.

[Rita]

But we balance each other because I'm the child of depression era parents and he is not. He is, he is the child of let's the next generation until we die.

[Jill Schlesinger]

You know, and, and throw caution to the wind, okay?

[Rita]

Throw caution to the wind. And so we, I think we balance each other well.

[Jill Schlesinger]

So how about this? Can I make, Can I maybe slide in with a little bit of a middle ground? You're working halftime at 34,000. Do you have the ability to pull back a little bit more and work some, but not a ton?

[Rita]

Yeah. Yeah.

[Jill Schlesinger]

So maybe what you do is at least in the beginning, let's just say he's done. Maybe you just kick in like 25, 24, 25 grand in a year for your work, your part time work. And then you're gonna have to pull out less money from that pre tax account every year. And then you've got a little bit of a buffer. And then I think you can probably see how just that little bit, that couple thousand bucks a month coming in might give you maybe a little bit more security. Maybe you'll just be like, okay, yeah, we're pulling money out, but instead of spending, pulling 100 grand out a year, we're gonna pull out 90, 85. And you might just emotionally feel better about that. Maybe you do that for a year, maybe you do it for two years. Maybe you can work even part time after that. Maybe your husband's like, hey, I'll work part time too. It gives you some time. Like you've already done this really cool thing, which is you went to sort of practice retirement by moving to halftime. And you could see how going from your full time salary to zero might have really freaked you out. But now you're at the halftime, maybe you go quarter time and maybe that'll just work out really well for you at the other end, just in terms of while your husband is still working full time, what's he putting away into his retirement plan?

[Rita]

Well, we just changed because the rainy day fund got depleted and because we were getting closer, we just pulled that back.

[Jill Schlesinger]

Good.

[Rita]

We were maxing it out to basically reduce our taxable income now, but now we've dialed it back to just enough to get the match perfect.

[Jill Schlesinger]

I was exactly what I was going to suggest. You don't even need me. You're done. I mean, really, this is very good. One other thing that we just didn't talk about is your home. How much is your house worth?

[Rita]

About 550.

[Jill Schlesinger]

Do you have a mortgage that remains.

[Rita]

Just about 80 and the interest rate's 2.75.

[Jill Schlesinger]

Do you want to stay in this place?

[Rita]

Yeah, we've done the Levitter list IT analysis on it twice and remodeled to make it the way we want it to be.

[Jill Schlesinger]

And so this is it. This is the house. And so when that mortgage is done, obviously you're not paying a lot on the mortgage. Did you factor that in with your retirement budget that the mortgage would be gone?

[Rita]

Yeah, it'll be gone in 2029.

[Jill Schlesinger]

Oh, all right, perfect.

[Rita]

The collective payments on it is about 19k a year until then. So I've got that factored into our deaccumulation plan.

[Jill Schlesinger]

I love that. What I would be very clear about is you're not the type of people that I think need to convert a retirement plan into a Roth. I know that some people might think you should be. I think you should just pull the money out that you need. I think that you're going to be basically depleting this account over the next 10 or 12 years anyway.

[Rita]

That was the question is whether or not we needed Roths.

[Jill Schlesinger]

No, I really don't because I think in your situation, it's not like you will be facing humongous required minimum distributions and you'll be able to methodically control your tax liability by taking out the amount of money you need each year. But you're not going to be popping up into a huge tax bracket. I mean, the pension is a nice chunk of money and your halftime or quarter time income is a nice chunk of money. And then if you pull money on top of that, you're going to stay in the same. You're probably in 22, maybe 24, but probably 22.

[Rita]

We're up to 24. Yeah, but I was planning to withdraw and keep us in 22.

[Jill Schlesinger]

Yeah, I think that that's fine. Also. Don't go crazy if you had to be in 24, it's okay. You see how I did that? Like, breathy. It's okay. You'd be fine. But you'll probably be in 22. Mostly. I think you guys are in good shape. I think that it's. It's very good. I mean, as somebody who comes from a world of media where there's so much uncertainty, it's like, you know, I know there's a lot of people that are like, oh, I'm in a great business. I'm in a great place. I was just with a bunch of bankers recently, and they're like, yeah, sky's the limit. We're rocking and rolling. I always think you never know. So even if you thought you had the most. The most secure job in the world, what I think it's good to do is just to contemplate, hey, if something were to happen or we want to actually move the retirement age up, could we do it? And I think the answer is, Rita, you guys can do it. You guys are on your way. I'm excited for you. Make sure you've got your estate documents done, especially if there's some, like, employee benefit where you can do that, everything tidied up and enjoy yourselves. You've worked really hard and you've done a fantastic job. So good for you. Anything else that we can do for you now?

[Rita]

No, you've hit all of my questions. Thank you, Jill. I appreciate your time.

[Jill Schlesinger]

Oh, we are so happy. Hey, Mark, this is a. Like, I have feel like I have been a bit of a dream maker lately, but it's not me making the dreams come true. It is you all who do such amazing job. You jillionaires, you're the best. I want to thank everybody who does come on the air with us. It's so much fun and it's the best part of my week, Mark. In fact, as before we came on the air today, I was in grouchy mood about something at work, and he's like, just do the thing you love to do. Talk to our listeners. And you can't imagine how wonderful it is for us to be able to do this. It is quite the privilege, so we thank you very much. If you've got a financial question, go to jillonmoney.com, click the contact us button. Write us a note. Let us know if you want to join us on the air live by checking the box. Don't forget to sign up for the free weekly newsletter comes out every single Friday. You can subscribe to us here at the Jill on Money show and also at our sister podcast Money Watch. On the Odyssey app, or wherever you find your favorite podcast, we ask that you put your hands metaphorically on someone's back. You know, just like someone needs kind of like a virtual hug or a real hug. Someone needs you. So go ahead and do that. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

[Mark]

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