Meet Jim (58) and Sally (56).  Jim has worked for the past 30 years at a large manufacturing company.  He has earned a company pension benefit and saved almost one million dollars in his employer-sponsored retirement plan.  Sally worked as a teacher earlier in their marriage and then left that work to raise the kids.  They have two children, Ann and Doug.  Both graduated college and are starting exciting careers in finance and engineering, respectively. 

When we first met, Jim and Sally were financially comfortable and  pretty confident about their prospects for a secure retirement.  They assumed Jim would need to keep working until age 65 (if he didn’t get laid off first!).  Their reasoning is that Jim gets 100% of his pension benefit at age 65, which combined with Social Security retirement benefits would provide them with a livable income.

Sally took care of her mom who suffered from dementia for many years prior to her death, which is why Sally is quite concerned that she may get dementia herself. 

A projection of their retirement income from all sources showed that they could Jim could retire at age 60 and be able to maintain their standard of living.  During the data gathering phase of their plan, we uncovered a pension benefit of which Jim was unaware: an “early” retirement feature that, because of his longevity of service, allowed him to start pension benefits at age 60 without giving up too much in the benefit amount. 

Still they needed to draw additional money to add to the pension benefit to meet their income needs.  They decide to downsize their home – something they had intended to do at some time – and use the net proceeds, after purchasing a new home – to meet their additional income needs before they started Social Security.

We also showed them that delaying Jim’s Social Security until age 70 would provide greater cumulative benefit over their lives and provide far higher income for Sally after his passing than if he started “early” at age 65.  As this decision won’t need to be taken for some years, however, we agreed to re-examine it in a few years.  We also showed some ways to manage withdrawals from retirement plans that will save them money on taxes.

Finally, we analyzed and discussed what they would do if one or both of them needed long-term care at some point in their lives (a near certainty based on Medicare statistics – link).  They are unlikely to qualify for Medicaid under current rules.  Their assets will exceed the minimum.  They don’t want to rely on Ann or Doug for their care.  A probability-based projection showed that they could likely pay for a 3-year nursing home stay for one of them out of their own assets and guaranteed income.  So they decided to invest a lump sum of assets into a LTC policy for Sally.  If they every decide to terminate the policy they can get their premium back.  This extra bit of LTC protection provided financial confidence for Sally that combined with the pension, Social Security, and their financial assets, they would be able to pay for her care if needed and still leave the house and likely some other assets for the kids.

With retirement plan in hand, Jim and Sally were able to retire with confidence earlier than they thought.  Working together over the coming years we will update their retirement status annually to keep them on track and to respond as necessary to any changes such as new tax law or Jim getting laid off.  We’ll also pay particular attention to the risk in their portfolio to avoid steep losses that could negatively impact their plans.

These stories are not of actual clients and are being shown for illustrative purposes only.  Actual performance and results will vary.  These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.