Retirement decisions

 

I have been working towards our retirement strategies and all the decisions that come with it.  This process has come about due to the decision made by my wife to retire.  As I have stated in the past my wife has continued to work while I have retired.  The reality fo this situation is that we are not a "retired couple".  We are a single income household.  I am the lazy non working husband who sits on his butt all day and takes the occasional bike ride, lol.  Now with a semi firm date set we now know when the income pipeline shuts off and we begin to live off our savings.  I am finding this time of life quite profound.  Neither my wife nor I are fortunate enough to have a pension.  Few people these days have pensions.  Mostly only government workers have pensions.  Although these public sector pensions are at some risk.  Many states carry unfunded liabilities on their books.  Illinois seems to be in the worst shape.  In short, some of these states may not have the funds to pay pensions.  Our retirement is to be funded through social security and our 401k savings.

So with the date in mind there is a series of interrelated decisions to be made.  I have found myself thinking back on several posts and how I can use what I have learned to make sound decisions going forward.  My first thought was my post from 2022; "We all bring something to the table".  I know a little about stocks and bonds.  However, for the past 40 years the strategy has been the classic "time in the market" not "timing the market".  Now that we will be withdrawing funds we will in essence be timing the market.  We will now be withdrawing funds from our accounts.  Our accounts contain a variety of assets.  We do not have a pile of money stuffed in a mattress.  Our 401k's contain individual stocks. index and mutual funds, bonds and other assets.  I know that individual stocks are the riskiest asset.  These are stocks from one particular company.  A person may invest in these because they think a company will do well in the future.  The major risk is that the company may not do well.  It could even do well in it's market with a new product but the stock price may not increase in spite of that success.  Index and mutual funds are "baskets" of stocks.  One of the goals is to reduce risk through diversification.  These funds contain stocks from a variety of companies so if one company underperforms another in the basket could overperform.  Generally if the market goes up these go up.  Mutual funds tend to me more "managed" than index funds.  Index funds are closely tied to a specific market index such as Standard and Poor's.  Index funds have very little management interventions.  They tend to ride along with what ever index they are associated with.  Index funds have relatively low management fees where as mutual funds carry higher fees.  This is due to their higher level of intervention.  Index funds ride the market and Mutual funds attempt to beat the market.  Bonds are basically loans made to companies.  They usually pay a fixed rate and are considered less risky than stocks.  I know that if a company goes bankrupt bond holders are paid first and if any money is left over it is split among the stock holders.

In one paragraph I delivered most everything I know about stocks and bonds.  I am not 100% sure if everything in the preceding paragraph is correct.  I am confident it is close enough for me to make certain decisions.  For other decisions we pay a fiduciary who my wife and I trust.  One of the first things I did was sit down with him and go over some of the questions I had.

My wife and I have many decisions to make.  My first thought was "I need a framework.  More specifically a framework that lays out a time line so I know when certain decisions need to be enacted.  As an example the date my wife has chosen for retirement is 4 to 5 months short of our 65th birthdays.  So one of the first things we will need to address is health care until we can apply for Medicare.  A timeline will give us the series of decisions we need to make.  Usually the best approach is to know what decisions we will need to make and when they need to be made.  This will help us by reducing the possibility of rash last minute decisions.  It will also allow us to see the breadth of decisions and help us avoid conflicts.  We can assess an early decision against the decisions we need to make in the future.

I do need to pause and think about gratitude.  These decisions need to be made from a position of gratitude.  We have been very blessed in our lives.  Too many to list here.  I do think it is important to continue to practice gratitude as we continue on this journey.  Things will not always work out the way we plan.  A gracious attitude will allow us to weather these times and allow us to adapt in a way that is beneficial to us and those around us.

These are some of the basic decision categories.

Funding:

• What will our expenses be?  This will have a direct affect on how much money we withdraw.
• Tax implications of these withdrawals.
• When to take social security.  The longer we wait the larger the monthly amount.
• How to allocate our 401K assets.  The key is to avoid cashing out assets that are under valued.  Most strategies follow a "three bucket approach" or a "60/40 rule" with yearly redistribution.
• keep an eye on our eventual mandatory withdrawals

Health Care:

• When we turn 65 we will be applying for Medicare.  We will need to decide on the "extras"
• We need to bridge the 4-5 month gap between retirement and age 65.  There are a variety of options: Cobra, ACA and short term health care.

Miscellaneous:

• What are we going to do in retirement? Travel,  sit on our rear ends LOL?

As I have learned over the last 5 years writing this blog it is difficult to attain the right answer.  Rarely is any decision is set in stone.  These decisions represent a journey.  A journey filled with the practice of gratitude and probably a couple of questionable decisions.