I published an article about a year ago titled "The 8 Questions I Need to Answer Before I Decide to Retire." In it, I said that I did not know when I would "retire" and that I was taking it year by year.
I had no idea that just one year later I would be writing about my decision to retire; it seemed much further away at that time.
A lot has changed that has led me to this decision. And just in case you think I am going to retire to a condo in Florida or a cabin in the NC mountains, rest assured, that is not the case (which is the reason I put "retire" in parenthesis.) In this post, I will share my answers to the eight questions with you and why I made the decision to retire now.
Answering my own questions
I said in the earlier article that I think it's important to have a plan when you retire – a financial plan, and just as importantly, a pretty good idea of how you will productively spend your time in retirement.
In that article, I listed eight questions that I thought would be helpful to answer by anyone contemplating retirement. Since I believe that we all need to "eat our own dog food," I will share my own answers with you.
1. What is God's will?
I believe that it is God's will that I retire at this time. I have always thought that I would "know in my heart" when the time is right, which is admittedly on the subjective side of things, but if we ask him, God will give us guidance and assurance. "If any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him" (James 1:5, ESV).
Proverbs 16:9 tells us that we may have plans, but ultimately it is the Lord who directs our steps. One of the ways that God gives us more objectivity is by ordering specific events and circumstances, and in my case, he has also sovereignly orchestrated a situation that has led me to the same conclusion. My wife has also told me that she thinks it is God's will and that she feels very good about our decision as well; I say our choice because it affects her directly, although in different ways than it does me.
2. Do I really want to leave my job?
I am not retiring to get away from my job. I have been with the same company (a large regional bank) for almost five years, and I have really enjoyed the work, and I think (hope) I have made some positive contributions there. But some changes are happening in the company that makes this an excellent time to transition out, which is one of those specific circumstances I alluded to above. They aren't bad changes – it's a major "information technology (IT) transformation" program similar to what other companies have initiated that are highly dependent on IT.
That said, I know I will miss my job. I have been working in the IT profession in quite a few different positions in the financial services industry for almost 30 years. I have seen a lot of incredible advances in the world of technology, and I have learned a lot along the way – it is a fascinating field. I have also had the opportunity to work with a lot of great people, and I have made a lot of friends. There have also been some big ups and downs (most notably the "Great Recession" of 2008-2010 when the bank I was working for was sold by the federal government due to prevent insolvency). Things look pretty different now 10 years later, but those were dark days for many.
I will discuss this in more detail in question six, but although I am leaving a job and a 30-year career, I am not going to stop working. I have a firm conviction that we are called to work all of our lives, for as long as we are able, using the gifts and talents we have to serve God and others. Therefore, in "retirement," I plan to continue to work, just not necessarily always for pay.
3. What will it cost my wife and me to live in retirement?
All retirees need to "count the cost" (Luke 14:28). Going into retirement without some level of understanding of what our expenses will be would not be wise. Fortunately, I have a pretty good handle on our current spending because I have a budget and track it in Quicken and have been for about 20 years now.
I have put a preliminary retirement budget together, which frankly isn't that much different from our pre-retirement budget. I know some expenses will be less, but all in all, I don't see significant changes. We will probably spend and give about the same, and sometimes more, but we won't be saving anymore either. We don't live a lavish lifestyle anyway, so it's not like we are going to have to make a huge adjustment. We may spend a little more on some occasional travel, and things like healthcare, so I think some of the reductions will be offset by them.
Since we live in a reasonably priced area and my house is paid for, we have no urgent need to downsize. We may do it someday, but it would mainly be to decrease our maintenance overhead. We aren't planning to move when I retire – we will stay put near church, family, and friends. I honestly think that will make for a much more purposeful and joyful retirement than moving to a retirement community and playing golf all day (especially since I stink at golf). Plus, we live a few hours from the mountains and the beach anyway (and I do hope to get away to them a little more often than I used to).
4. Have I saved enough to retire?
This question is directly related to the one above, and it's an important one. But it's easy to become overly obsessed with "your retirement number," and brokers and advisors are all too happy to address your uncertainty by offering you all kinds of sophisticated analysis, investment plans, and portfolio management services. I'm not saying that you shouldn't avail yourself of those services if you need them; I have just taken a more simplistic approach. You need a good estimate, but if someone tells you that they can come up with an exact number, I would be a little suspicious.
According to Fidelity Investments, the average couple needs between 8 and 10 times their annual pre-retirement income. That is based on some assumptions (Social Security benefits, inflation, and investment returns), but it seems like a reasonable number. Based on that formula, I am reasonably confident that I have saved enough.
Another approach is to assume that we need between 20-30 times the difference between Social Security and our annual expenses. I know approximately what our Social Security benefits will be, so I just took my estimated monthly cost of living minus Social Security, multiplied it times 12 to get an annual number, and then by 25 to give me a rough estimate of how much I should have saved (according to the "4% rule"). I think this would be overly conservative for some people, but I like the 25x multiplier because it reflects a "safe" withdrawal rate of 4% even though that percentage as a "safe" withdrawal rate is increasingly being questioned. The result is a little larger number than the Fidelity estimate, but I still think we'll be okay.
5. How will I convert my savings to income in retirement?
This is one of the more challenging questions for most retirees, so my answer is going to be longer than the others. As it turns out, saving in our retirement accounts can be easier than coming up with the right withdrawal strategy in retirement, especially since we want our savings to last as long as possible.
To start with, we had to decide on a Social Security strategy, which gave us an idea of how much income we need from our savings to meet expenses. Because my wife does not qualify for Social Security benefits on her own, I was originally going to use the "file and suspend" strategy. That would have allowed me to file and suspend my Social Security benefits while starting up her spousal benefits, which would have been 50% of my benefit at full retirement age (FRA). I would then just let my benefit continue to increase until I started receiving it at age 70. Unfortunately, as part of the Bipartisan Budget Act of 2015, that provision was ended except for those who had implemented it before 4/29/16, which was 2 1/2 years before my FRA of 66.
There is another strategy, known as the "restricted application" for spousal benefits only. This applies when both spouses qualify for benefits on their own earnings records. It allows one spouse to file a "restricted application" for spousal benefits (which are 50% of the other's) at their FRA. The other receives a regular benefit while the primary insurance amount (PIA) for the spouse who filed the restricted application continues to grow until they turn 70, at which time they can then apply for their "full retirement benefit."
The 2015 Budget Law said that anyone who was younger than 62 as of January 1, 2016, would not be able to file a restricted application, so my wife and I would have been eligible to use this strategy if we had both qualified for benefits on our own records. So, our strategy is now to simply claim my primary insurance amount at age 66 (my FRA) and also my wife's "spousal benefit," which could be as much as 50 percent of mine. If I delayed, my benefit would increase each year until age 70, but my wife's would not, nor would she be able to start receiving her spousal benefit until I began to receive mine.
I have a rough idea of what my expenses will be, what my wife and I will receive from Social Security, and how much I need to withdraw from savings to meet our spending needs. So, the next thing is to decide how I am going to withdraw it over the years – how I can write myself a paycheck.
I've already mentioned the "standard withdrawal rate" of 4%, which is a pretty good guideline. There are lots of other options: fixed or variable withdrawals, annuitization (i.e., turn it over to an insurance company), etc. I will probably consider all of these at some point. But for now, I think I will stick with a "safe" withdrawal rate (which is generally considered to be less than 5% – the lower the better).
I still have to decide how to withdraw it. If I can generate interest and dividend income roughly equal to my withdrawal rate, then I can preserve capital and just live off that (known as the "income only" approach). That can be very hard to do at current interest rates without taking undue amounts of risk. I could invest lots of money in things like long-term or lower quality bonds that pay higher interest, but they also carry much more risk. There are also alternative investments like Master Limited Partnerships (MLPs) and Options funds that also pay high interest, but I don't invest in them.
I haven't worked out all the details yet, but I plan to take a regular automated distribution from my Fidelity IRA and deposit them into a checking account. It will be the same account where my Social Security benefits are deposited monthly, which will also happen automatically. Since I am currently paid twice a month, I am planning to emulate that in retirement. According to the SSA, my benefit will be deposited on the third Wednesday of the month (the schedule for 2018 is based on your birthday; mine is the 14th and those with a birthdate between 11th-20th are paid on the third Wednesday). That will cover part of the second half of the month so I'll make another deposit from savings in the second half of the month if needed. The result will be that I get two paychecks a month just like I did when I was employed. Since that's how my budget is constructed, everything stays very simple.
Bottom line: I think withdrawals of 4 percent is an excellent place to start, but I will need to be flexible and make changes either up or down as conditions warrant. I plan to revisit my withdrawal rate and my asset allocation at least annually. For the income we need, I will get as much of that as I can from interest and dividends and rely on the sale of growth assets (mainly high-quality stocks) for the rest. Another option that I plan to consider within the next five years is using a portion of my savings to purchase a Single Premium Immediate Annuity (SPIA), and use the income to supplement Social Security to create a "guaranteed income floor."
6. What to do about Medicare?
If I had decided to retire before age 65, I would have been in a quandary about what to about healthcare. But now that my wife and I both have reached Medicare eligibility, that is no longer a significant concern. We both turned 65 in 2017, but since I was employed, we stayed on my employer's group health plan. (Enrollment in Medicare Part A is mandatory, but there is no cost.)
When I retire this fall, I will no longer be covered by my employer's plan, so I am in the process of signing up for Medicare Part B and shopping for a Medicare Supplement Plan ("Medigap Insurance"), prescription drug plan (Part D), vision, and dental plans. I am coming off my employer's plan, and that event triggers a Medicare "Special Enrollment Period" (SEP) during which I have 8 months to sign up for Part B without a penalty. (The regular Medicare enrollment period is January 1—March 31 of each year.) To qualify for Medicare Part B, my employer has to complete a form certifying that I was employed and covered by a group health insurance plan.
So far the process has gone pretty smoothly, but I suspect that bureaucrats will eventually have their day. I'll just deal with that when it happens.
7. What will I do all day?
Although I am well into my 60s, by God's grace I am still relatively healthy and active, and I want to stay productive and contribute to the world around me, especially in the context of my local church and community, for as long as I can. In other words, my main focus will be serving God and others in the ways he has gifted and called me to. I am not aiming for a life of just leisure and recreation, but I do hope to have a little more time to enjoy those things than I did when I was working.
My immediate plans are to focus on an incredible opportunity I have been given, which is to write and hopefully publish two books. I will share more on this in future posts, but they will be on topics similar to what I write about on this blog. I have signed contracts for both of them, and they will keep me busy for the next year or so. I will also continue to write on the blog, serve as a deacon in my local church (focus on stewardship ministry and financial coaching), teach in children's ministry, help lead a small group, and get more involved in various community outreach and mercy ministries. I have children and grandchildren who live locally so I will be devoting more time to them as well.
All in all, "retirement" in the foreseeable future is shaping up to be a pretty busy time for me.
8. Do I need a "Plan B?"
I'm not taking "early retirement," and since I'm reasonably sure I can fund the retirement we have planned, I am not too concerned about a plan B. If I ran into severe financial difficulty, I would first try to reduce expenses. I could also try to find a job or take on some consulting work, but I may not always be able to do that; the older I get, the less flexibility I will have.
There is always uncertainty in life. We can only wisely prepare as best we can and then trust God for the rest. "Commit your work to the Lord, and your plans will be established." (Proverbs 16:3, ESV)
Feeling pretty good, but…
As you can tell, I feel pretty good about my decision to retire and so does my wife. I was able to come up with satisfactory answers to the questions that I posed about a year ago. But that doesn't mean that it will be easy – major life change never is – nor do I think there won't be some adjustments to make. Nonetheless, I'm excited about the next season I'm entering, and my desire is to steward it as best I can for my good and God's glory.