Meet Paul, age 56, whose employer of almost three decades offered him early retirement.  He’s afraid that if he doesn’t take it, the offer will be smaller next time. His wife, Maria (age 57) has a consulting practice, and would like to see Paul slow down for his health and sanity.  They came to us for clarity on their retirement readiness and advice on strategies for moving forward.

In our Discovery Meeting, we learned that the couple has two grown, who appreciate some financial help on occasion.Their parents are financially stable today but likely will need assistance as elder care needs increase.  Eventually, they will downsize their home and dream of a small lake house, if possible.  Their only debt is their home mortgage with eleven years remaining.  Maria will need a new car soon and hopefully there’s a daughter’s wedding on the horizon.  

Paul consistently contributed to his 401(k) and is eligible to receive a pension starting as early as age 60.  His offer is for six months of severance pay with health coverage. Maria has some retirement savings from previous employers and the couple has accumulated some non-retirement investments and savings.  They agreed that Paul could find work he enjoys and does not need the stress that goes with a six-figure income.  Since he wants to see an endgame, we started by exploring strategies for taking Social Security.   

Paul’s Social Security check will be the largest, which we suggest deferring, while feasible, so the surviving spouse continues receiving a higher income.  (Social Security income goes up about 8% for every year delayed and maxes out at age 70.)  We recommend Maria taking a reduced benefit immediately upon retirement, as early as age 62.  We also suggested a small business health plan for Maria’s consulting business, which can be replaced by Medicare and Supplemental Policies after age 65.

In facilitating a conversation with his pension administrator, we learned that Paul has a “lump-sum” option, to take an immediate payout in lieu of a lifetime pension.  He liked this idea and wants to invest the proceeds in an IRA. This can provide multiple benefits: potential increase in value, flexibility to use the funds when he likes, and protects any remainder for his heirs.  These funds won’t be available without penalty until Paul turns 59 ½, which is fine because employees attaining the age of 55 before the end of their last year of employment are eligible to take 401(k) distributions without penalty.

Paul did elect to leave his company, and after a few months accepted some consulting work, which paired with Maria’s income to meet their monthly expenses.  They have flexibility to draw moderate 401(k) distributions, as needed for extraordinary expenses.  Their goal is to let retirement plans grow for now and eventually take a distribution and use some savings for the down-payment on a lake house, which they might even rent occasionally.

Paul and Maria are more careful about spending for now but are happy and see a comfortable retirement when they downsize. We will help them realize that dream when they have only the lake home mortgage, supported by income from the retirement accounts and two social security checks.  We also introduced them to Generational Conversations, our initiative to support adult children and parents explore plans for senior housing options, elder care, financial continuity, and legal strategies.