Unplanned Early Retirement

Summary

Episode Summary: "Unplanned Early Retirement"

Podcast: Jill on Money with Jill Schlesinger
Host/Author: Audacy
Release Date: March 12, 2025

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Introduction

In this episode of Jill on Money, hosts Jill Schlesinger and Mark delve into the complexities of early retirement through a real-life case study. The episode provides insightful financial analysis and actionable advice for listeners contemplating an unplanned early retirement.

Guest Introduction: Ann's Early Retirement Scenario

At [04:13], Ann from California joins the show to discuss her situation after being laid off late the previous year. She seeks guidance on whether she is financially prepared to retire early or needs to return to the workforce.

Financial Overview of Ann’s Situation

Mark begins by gathering detailed information about Ann's financial standing:

• Age and Marital Status:

  • Ann is turning 60 this year, and her spouse is 63 and already retired with a military pension.
  • Ann: "I will be turning 60. This in a few months." [04:48]

• Income Sources:

  • Spouse’s Pension: Approximately $6,100 per month.
    • Ann: "It's about $6,100 a month." [05:11]
  • Ann’s Pension: Around $1,500 per month.
  • Social Security Benefits:
    • Ann’s husband receives $1,000 per month from Social Security, and Ann anticipates $3,937 per month at age 67.
    • Ann: "It's around $3,937 a month." [10:35]

• Savings and Investments:

  • Retirement Accounts:
    • $2 million in traditional retirement accounts.
    • $75,000 in Roth accounts.
    • Ann: "We have about 2 million... and another 20,000 TSP." [05:35]
  • Other Savings:
    • $400,000 in high-yield savings and CDs.
    • Ann: "We have some savings in CD and high yield savings, about 400." [06:10]

• Real Estate:

  • Home Ownership:
    • Owns a home valued at $2.1 million with an outstanding mortgage of $518,000 at a low interest rate of 2.25%.
    • Ann: "It's about 2.1." [06:32]
    • Mark: "That's really nice. I'm sure he earned every dollar." [05:15]

• Monthly Expenses:

  • Total Expenses: $12,000 per month, with $7,000 designated as essentials and $5,000 for discretionary spending.
    • Ann: "Around 12k a month. Essential is around seven." [07:10]
    • Clarification: Later, it's revealed that the $5,000 includes an extra mortgage payment, which they reconsider.
    • Mark: "You don't have to... Do not pay down a 2.25% mortgage." [15:33]

• Dependents:

  • Two adult children in their 30s; ongoing financial support for the daughter amounts to $700 per month.
    • Ann: "It's about 700." [11:04]

Analysis and Recommendations

Early Retirement Feasibility

Mark and Jill analyze Ann's financials to determine the viability of her early retirement without returning to work.

• Income Sufficiency:

  • Combining the $6,100 pension, $1,500 Ann’s pension, and $1,000 Social Security, Ann and her spouse have a robust monthly income of $8,600.
  • Their total monthly expenses amount to $12,000, leaving a $3,400 shortfall.

• Addressing the Shortfall:

  • Savings Utilization: With $400,000 in high-yield savings and CDs, Ann can draw from these to cover the deficit.
  • Retirement Account Withdrawals:
    • Ann can begin withdrawing from her $2 million traditional retirement account to bridge the gap until her Social Security benefits increase at age 67.
    • Mark: "I would start pulling money out of the $2 million sooner rather than later and just pull the money out and pay the tax on it." [12:00]

• Mortgage Strategy:

  • Despite the emotional desire to pay off the 2.25% mortgage, Mark strongly advises against it.
    • Mark: "Do not pay down a 2.25% mortgage... It's so much better for you to hold on to your money paying off that low-cost mortgage." [15:46]

• Roth Conversion Consideration:

  • Ann is contemplating a Roth conversion to utilize her $75,000 Roth account.
  • However, Mark suggests that it may not be necessary immediately and proposes alternative strategies to manage tax liabilities.
    • Mark: "You don’t need to [do a Roth conversion]. You just pull the money out." [10:22]

Health and Social Security Timing

• Health Considerations:
  • Ann and her spouse have health issues, influencing the timing of Social Security benefits.
  • Ann plans to delay her Social Security until 64 to optimize her benefits and accommodate Roth conversions.
    • Ann: "Because I want to do some Roth conversion." [10:19]

Conclusions and Actionable Advice

• No Immediate Need to Return to Work:

  • Based on the comprehensive financial review, the hosts conclude that Ann does not need to re-enter the workforce to sustain her retirement.
    • Mark: "The answer is no, absolutely not." [15:33]

• Maintain Liquid Assets:

  • It is crucial for Ann to keep her savings and investment accounts liquid to cover ongoing expenses and unforeseen costs.
    • Mark: "I think you have to be smarter about how you're managing this cash." [13:14]

• Estate Planning:

  • With adult children, ensuring that estate documents are in place is essential for asset distribution and financial security of dependents.
    • Mark: "Make sure you've got your estate documents done." [15:33]

• Tax Management:

  • Managing withdrawals and potential Roth conversions to stay within favorable tax brackets is recommended.
    • Mark: "You could pull 100 grand a year out of that retirement account and either convert it or pay the tax due and stay in the 22% bracket." [13:30]

• Avoid Unnecessary Debt Repayment:

  • Paying down a low-interest mortgage is discouraged to preserve liquidity and investment growth potential.
    • Mark: "Stop prepaying a two and a quarter... It's not happening." [15:54]

Key Takeaways

• Comprehensive Financial Planning is Crucial:
  Carefully evaluating all income sources, expenses, and savings is essential for making informed retirement decisions.

• Maintain Financial Flexibility:
  Keeping funds liquid and avoiding unnecessary debt repayment can provide a financial buffer and investment opportunities.

• Seek Professional Advice:
  Personalized financial strategies, such as Roth conversions and tax management, should be tailored to individual circumstances.

Notable Quotes

• Ann on Her Financial Status:
  "We have about 2 million. Retirement account and then another 20,000 TSP." [05:35]

• Mark Advising Against Mortgage Prepayment:
  "Do not pay down a 2.25% mortgage... It's so much better for you to hold on to your money paying off that low-cost mortgage." [15:46]

• Mark on Social Security Timing:
  "If you really think your health is going to be okay, I would delay your Social Security till 67." [12:00]

Conclusion

This episode of Jill on Money provides a thorough examination of an unplanned early retirement scenario, highlighting the importance of strategic financial planning. Ann's case underscores the necessity of balancing income sources, managing expenses, and maintaining liquidity to ensure a secure and comfortable retirement without the immediate need to re-enter the workforce.

For more personalized advice or to share your own financial questions, visit jillonmoney.com and use the "Contact Us" feature.

Transcript

[Jill Schlesinger]

For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easyall the benefits of owning real tangible assets without all the complexity and expense. That's the power of the Fundrise Flagship Real Estate Fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as$10.4700 single family rental homes spread across the booming Sun Belt, 3.3 million square feet of highly sought after industrial facilities. Thanks to the e commerce wave, the Flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com jillonmoney to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship fund before investing. This and other information can be found in the Fund's [e-mail] flagship this is a paid advertisement.

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[Mark]

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[Mark]

Welcome to the Jill on Money show. It's Wednesday, March 12th and we are here answering your financial questions. And sometimes these questions are very detailed, sometimes they're broad, sometimes, sometimes you want to make sure you're on track. Some people are trying to figure out how to restart certain parts of their financial journeys. Whatever it is, whatever's going on, get in touch with us by going to our website jillonmoney.com on that website, when you're on there, it's the beautiful contact us button that is in your upper right hand corner. And that contact us button is there wherever you journey on the website. So when you push that button, when you click it, all of a sudden you'll hit a form that will pop up. That will be an email that we receive. If you'd like to join us on.

[Jill Schlesinger]

The air live, just check the box.

[Mark]

And Mark will do everything else. And the other stuff that's on the website is so great. We've got a bunch of free stuff like the free weekly newsletter and the blog and resources you can buy My books from the website you can subscribe to Jill on Money Live. That is a $45 investment for the next 12 months. If you are listening to this and maybe you have someone in your life who would prefer to kind of be in an environment where things aren't quite as rosy or you want to get back to basics, I encourage you to subscribe to our other podcast. It's called the Money Watch show and we drop our episodes on Saturdays and Sundays. And that is really going to be a podcast where we try to encourage folks who might not feel so confident in where they are in their financial lives. And we're also going to be talking about issues that are maybe a little bit more like, as I like to say, it's like the shooting foul shots, taking penalty shots. Like you are going to do your basics and relearn or maybe learn for the first time things as ranging from debt management or taxes or retirement planning basics or the way to buy a house or how to build and maintain your credit, all this stuff, we will take you back to the basics and we'll dive deep into topics that maybe you're a little too embarrassed to ask about. So check that out. It's all on our Money Watch program Saturdays and Sundays. Okay. Today we are talking to Ann, who's on the line from California. And Ann was telling us just how beautiful it is where she is right now. And Mark and I were crying and we're jealous. So welcome to the program and you should be in a great mood because things are so beautiful there.

[Ann]

Exactly. Good morning, Jill. Morning, Mark.

[Mark]

What's going on? How can we help you?

[Ann]

Well, I was laid off late last year and I wanted to check in if we are in a good position for me to just retire early or should I be going back to the workforce?

[Mark]

I'm sorry that you were laid off. I hate your boss for that. You said we. Are you married? Partnered?

[Ann]

Yes, I am married. Been married for 30, 33 years.

[Mark]

So it's still working. So far so good, right?

[Ann]

So far so good. Yes.

[Mark]

How old are you, Anne?

[Ann]

I will be turning 60. This in a few months.

[Mark]

60 this year. What about your spouse?

[Ann]

He's turning 63 also in a few months.

[Mark]

And is he working?

[Ann]

No, he's been retired. Retired military.

[Mark]

Oh, okay. Does he get a pension?

[Ann]

He does.

[Mark]

What's that pension amount?

[Ann]

It's about $6,100 a month.

[Mark]

Wow, that's a lot.

Nice.

That's really nice. I'm sure he earned every dollar. Ann, will you be entitled to any pension or not only for the first three years. Probably around 1500, meaning 60 to 63. Yes. Okay, and tell us about the amount of money that you've been saving.

[Ann]

So we have about 2 million. Wow. Retirement retirement account and then another 20,000 tsp.

[Mark]

Okay, and the 2 million in retirement, that is all a traditional retirement or is there some Roth?

[Ann]

We have about 75,000 Roth.

[Mark]

Okay, so 75 Roth, but then like the lion's share in traditional. Okay, what about a brokerage account, like a non retirement account? Anything there?

[Ann]

None in the brokerage account, but we have some savings in CD and high yield savings, about 400.

[Mark]

Wow. How come so much?

[Ann]

We're good savers.

[Robert Half]

You're good savers.

[Mark]

Okay, fair enough. So 400 grand in savings, CDs, et cetera. And what about your house? Do you own your home?

[Ann]

We do.

[Mark]

How much is it worth?

[Ann]

It's about 2.1.

[Mark]

Wow. Okay. Is there a mortgage outstanding?

Welcome to Southern California.

I know there is a mortgage.

[Ann]

There is. It's about 518.

[Mark]

Okay. What's the interest rate on that, Ann?

[Ann]

2.25.

[Mark]

Oh, God. So great. Okay, so you got a cheap mortgage interest rate. I'm not saying it's cheap, but because you probably have very high property taxes, you probably have high homeowners insurance. What do you figure it costs you to live every year? Like what is your. Or your monthly nut. What, what is it you think that you need to live on?

[Ann]

Around 12k a month. Essential is around seven.

[Mark]

What do you mean essentially seven? You mean 12k? 12.

That would be essentials or seven.

Oh, okay, okay.

[Ann]

Essential seven.

[Mark]

Okay, so seven grand a month in essentials, but then extra money just for fun.

[Ann]

Fun. Extra mortgage payment.

[Mark]

What? No way. No way. You cannot make extra mortgage payments. You have a two and a quarter percent mortgage.

[Ann]

I know.

[Mark]

You don't know.

[Ann]

You're.

[Mark]

You're making the payments, you know, and you still. No, no, absolutely not. I'm going down to the mat on this now. There is absolutely.

I think you're getting pinned on the mat over this one.

I mean, this is an absolute hard. No, no way.

[Ann]

Okay.

[Mark]

You got a two and a quarter percent mortgage. Okay. Is it a 30 or a 15 year?

[Ann]

30.

[Mark]

Okay, when is that? 30 year. How far into this are you?

[Ann]

Oh, I didn't figure out 30, but the 15. Because I'm trying. That's our goal is to. 15.

[Mark]

22.

[Ann]

20, 39.

[Mark]

Leave it be.

[Jill Schlesinger]

Just leave it be.

[Mark]

Okay, so are you saying $7,000 a month is. Is including your. Just your basic payment? On the mortgage, right?

[Ann]

Correct.

[Mark]

And your property taxes and your utilities and your fun and like that, right?

[Ann]

No, the fund is with the total of 12k.

[Mark]

But you said they were making extra payments on the mortgage. So give me the fun amount. Is it really five grand a month? That's a lot in fun.

[Ann]

No, not really.

[Mark]

How much. How much of that? 5 is an extra mortgage payment.

[Ann]

1,000Amonth.

[Jill Schlesinger]

So you're saying.

[Mark]

So now we're down to four. So you're saying you're spending 50 grand a year on fun in addition to your $7,000 as essentials.

[Ann]

You know what? No, let me. Let me see this.

[Mark]

There's no way this is working in my mind in that, I mean, the way that you just laid it out, there's no way they're spending.

[Ann]

Oh, you know what, Jill? Because I added, you know, car payments, future car payments in that.

[Mark]

Well, what do you mean? Do you have a car payment now or not?

[Ann]

We don't. We don't, but.

[Mark]

So you're saying you have. But you'll have to buy a car. You're not going have car payments. You're going to just car. All right, I'll just say $11,000 a month. Let's just go with that for now. Okay. How's that?

[Ann]

Sounds good.

[Mark]

Next of your 11 grand. We know that the military pension covers about half of that, right? I'm not even looking at this three year, $1,500 a month that you're getting. What is the Social Security benefit that you will be entitled to, both of you, let's say at age 67.

[Ann]

Actually, my husband is already pulling from his social. It's around 10, 28amonth.

[Mark]

Why did he take his Social Security so early? Is he not well?

[Ann]

We have health issues. I did.

[Mark]

You did. So you're both thinking about 62 for me.

[Ann]

Actually, I'm thinking about 64.

[Mark]

Why 64? Because that's when the. The 1500 month goes away.

[Ann]

And also, I do want to be able to do some Roth conversion.

[Mark]

You don't need to do a Roth conversion. Why would you need. No, you just pull the money out.

[Ann]

Because we're two kids, so I.

[Mark]

We'll get to them in it. We're going to. So let me just ask you this. At age 67, what's your Social Security benefit?

[Ann]

It's $3,937.

[Mark]

$3,937. He's got the $1,000 a month, plus he has his $6,100 a month pension, right?

[Ann]

Correct.

[Mark]

Okay. Tell me about these two kids. How old are they? Where are they? What's going on?

[Ann]

They're in their 30s. My son is a software engineer.

[Mark]

Okay, so he's fine.

[Ann]

He's fine. So my daughter, we're still kind of helping her.

[Mark]

Okay, how much are you helping her? Is that part of our $11,000 a month?

[Ann]

Yes.

[Mark]

Okay.

[Ann]

It's about 700.

[Mark]

All right, so just so we got this straight, you got this $2 million account, it's over there. You got this 2.1 million dollar home, it's over on this other side. Right. You got 11 grand a month in your ex for your expenses. Right. So for now, what I think you should be doing is I don't. I don't really think you're going to need to go back to work. Mark, do you agree with that?

100%? Just based solely on the pension?

Yeah. Okay, so we got that pension really takes the burden off of you. All right, so the next thing to say is, no, I don't think you should convert the $2 million. But what you can do is, I would probably, if your health is okay, if you really think your health is going to be okay, I would delay your Social Security till 67. I would start pulling money out of the $2 million sooner rather than later and just pull the money out and pay the tax on it. Okay, you've got money in. If you wanted to convert, I guess you could, but you don't have to. But you could take the $400,000 that's in savings, plus whatever you pull out of your retirement account if you don't want to convert it, and just open a brokerage account if you really want to convert. Okay, you can start converting and just use some of the cash on hand to pay the tax that's due. But I don't see that there's like a huge. You don't have to, because, you know, I'd like you to be able to have money available to you also to live on, because until you claim Social Security, we are going to need extra money for you. Right? So you can either spend money from your savings, you can. You can pull money from the traditional account, you could convert and then pull some extra money. Like it's some combination of that. But until you get, you know, seven years from now, when you're getting that extra four grand, you're going to need to. We're going to need to get you some of that money, you're going to have to be taking 30, $40,000 from somewhere every year. To make up the difference, right?

[Ann]

Correct.

[Mark]

I guess that when I consider the things that you're telling us, I feel like you have a great, great game plan here. You really do. There's nothing that can go wrong in terms of the money, but I think you have to be smarter about how you're managing this cash. I think Paying down a 2.25% mortgage makes absolutely no sense. And I just going to keep saying that over and over. Sure, you could convert, but you know, you could also just have the money available to you. You could let the money roll a little bit, you know, but I would start getting either convert or get some of that money out over the next seven years. You're still going to be in. You have a high cost of living state. Right. You live in the state of California. But, you know, you could still pull out. I don't know. Let's see, he's got 6100, plus he's got his 100. So, you know, you could probably pull 100 grand a year out of that retirement account and either convert it or pay the tax due and stay in the 22% bracket. Maybe you go into 24, but that's not bad. You're used to. How much were you making before you left?

[Ann]

Around $220,000.

[Mark]

Yeah, you're used to paying high taxes. By the way, that mortgage would be nice for you to keep also for tax purposes as well. All right, so your big question, you said you came in and you say I was laid off last year. Do I have to go back to work? The answer is no. The other things that we brought up in this call, no. Do not pay down a 2.25% mortgage. I know it emotionally makes you feel good. Just keep that money liquid. The money that you have in savings or the cd. You can use that money to supplement your income, which right now is the thousand dollars of your husband's Social Security, his $6,100 pension, and your $1,500 a month that you're receiving from your employer. You could pull out more money from your traditional account to get you your $11,000 a month. You could pull out even more and convert some of it as well, wherever you land. The answer to the big question, do you have to go back to work? The answer is no, absolutely not. And other than that, the only other thing I will say, because you have two kids, is make sure you've got your estate documents done. Do you? Yes, you do. That's good. Mark, Did I forget anything?

No. You guys, you guys did a great job saving.

Amazing. Well done. Congratulations. Stop Re. Stop prepaying a two and a quarter.

That's not happening.

Oh, damn it.

[Ann]

Thank you.

[Mark]

All right, if you are like Ann and you feel compelled to pay off your mortgage, let me make the impassioned plea with you. Pretty please call us. We'll talk about. Listen, there are some people that, yeah, sure, you could pay it off. It's not a big deal. But it's so much better for you to hold on to your money paying off that low cost mortgage. And if you're tantalized by that idea, get in touch with us. Or if you just want to talk to us, go to jillonmoney.com, click the contact Us button and write us a note if you'd like to join us on the air live. Check the box. Mark will do everything else. All of our content [e-mail] so please, please bookmark it. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Do me a favor, do something nice for someone else today. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you tomorrow.

[Jill Schlesinger]

For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easyall the benefits of owning real, tangible assets without all the complexity and expense. That's the power of the fundrise flagship real estate fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as$10.4700 single family rental homes spread across the booming Sun Belt, 3.3 million square feet of highly sought after industrial facilities. Thanks to the E Commerce wave, the Flagship Fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com jillonmoney to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship fund before investing. Then this and other information can be found in the Fund's [e-mail] flagship. This is a paid advertisement.

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