Episode Summary: "Unplanned Early Retirement"

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

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.