Dear Quentin,
Today is my 61st birthday, which has me thinking hard about retirement.
Eleven years ago, I divorced after 23 years of marriage. I had been a stay-at-home mother for more than 10 years and was starting from nothing after my marriage ended. I used my split of my ex-husband’s 401(k) to put a sizable down payment on my house.
Here’s my current financial situation:
House: I owe less than $600 right now and the last payment is due on Sept. 1. Once that’s done, my homeowner’s insurance and property taxes will total roughly $2,300 a year, and both will allow me to make monthly payments to them.
Automobile: I bought a brand-new car just over two years ago. It will be paid in full in three years. I did this with the mindset that this was the last car I’ll ever buy, barring any unforeseen emergency or breakdown.
‘My marriage was an abusive one and healing from it was difficult.’
Credit-card debt: OK, this one was rough. I had a tough time having the discipline to pay off my cards. I finally turned them over to a credit-consolidation company eight months ago to manage and cut them all up. All credit-card debt will be paid in full in 33 months.
I’ll be honest, I struggled financially for 10 years. My marriage was abusive and healing from it was difficult given how toxic people in the world have become. I changed jobs several times over the last 10 years.
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Employment and Social Security
However, a year ago (almost exactly to the day) I was hired for a job with my state, which has been the best job I’ve ever had, and I am now paying into a public-employee-retirement system instead of Social Security.
At the five-year point, I am fully vested in the pension plan, but given the short time I’ve worked for the state, it won’t be a huge pension. The last statement I got said that if I retire at 65 the monthly pension would be $250 a month.
Given how long my marriage was, I qualify for half of my ex-husband’s Social Security. He’s been a six-figure earner for the last 20 years or so, and I strongly suspect even half of his Social Security would still be higher than my full Social Security.
I’m guessing half of his Social Security would be approximately $1,500 to $2,000 a month. I also receive payments from two of his retirement plans, totaling $550 a month for as long as he lives, as well as a veteran’s disability check as a result of my military service.
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Joking about finances
I joke with a couple of divorced friends that my ex is worth more dead than alive. When my former husband passes, I will qualify for widow’s benefits, which would give me a significant raise and would cover the loss of the settlement payments.
I’ve grown concerned about having enough to retire, though I’m in a much better position than a lot of other people in the world. I’ve been working a lot of overtime lately, and now put $300 a month into a high-interest savings account. This account is currently offering 3.75% interest.
That said, I realize that the longer I work, the more I gain financially. But I have a chronic illness and am also concerned that, if I wait too long to retire, my illness will have progressed to the point I’m not able to take a cruise I’d like to take.
I’d also like to visit my friend in Germany, go back to Ireland for a visit, or go on a wine-tasting trip to Quebec, Canada. My household consists of me and my beagle, and neither of us eats much. Should I retire at 65 or wait?
Divorcee and Dog Owner
Related:
I’m a stay-at-home mom. Do I take a part-time job to spend more time with my kids — or get a job for six figures?
Dear Divorcee,
You’re not the first person this week to appreciate the
posthumous financial gifts
of their former spouse. And you won’t be struck by lightning — I hope — for making a joke. It’s only natural that you should plan ahead for all eventualities. You don’t mention any other investments or IRAs/401(k)s, so given your current expenses, my message to you is to keep working.
But that does not mean you should skimp on visiting your friend in Germany or not take a cruise over the next 5-plus years. You will have a lot of free time in retirement and, I hope, you can take some vacation time while working full time. Your beloved beagle could stay with a friend or neighbor while you’re away, something you’d need to do if you took trips in early retirement.
If you continue working, your benefits would be temporarily reduced due to the Social Security Administration’s retirement earnings test. Given that you just celebrated your 61st birthday, your full retirement age is 67. That’s when you’d get 100% of the benefit you’re owed (you can get Social Security spousal benefits when your former husband reaches 62 and/or retires).
You have fulfilled the Moneyist’s ‘z rule’ for retirement. ‘Z’ is for zero debt.
Here’s the takeaway from what you’ve told me: Your biggest source of income in retirement will be Social Security. For that reason, I would prefer that you take vacations while you still have an income and, if it suits you, rent out your house on Airbnb while you’re away. That way, you’re covering your costs from both ends.
If you can keep working while looking after your health, do it. You get 100% of your Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and you receive a lesser amount if you claim at any time from the age of 62 until full retirement age. If you wait until age 70,
you receive roughly 8% more per year
.
Some advisers say it can work out roughly the same whether you start taking your benefits at 62 or at 70 — it all depends on how long you live. Others advise delaying Social Security benefits as long as possible, especially if they expect to live a long life. If you claim on your husband’s Social Security before full retirement age, your benefits may still be reduced.
Delaying Social Security
Virtually all American workers 45 to 62 should wait until beyond 65 to collect Social Security, according to
this working paper
from researchers at Boston University and the Federal Reserve Bank of Atlanta. More than 90% of people should wait until they reach 70, yet just over 10% appear to do so, they said.
“Ignoring cash-flow considerations, the vast majority of American workers should delay taking their retirement benefits until 70,” the researchers wrote. Doing so would raise the median lifetime discretionary earnings of those households headed by workers 45-62 by $182,370 or 10.%. This varies dramatically based on your earnings/Social Security.
Americans are obsessed with their nest egg. How much will be enough? In retirement, you can focus on two things: the nest egg or the monthly income. Some people have enough, like
this man who wrote to me
wondering what to do with a $130,000 inheritance, now that he has $500,000 in investments and $220,000 in CDs and high-interest savings accounts.
In retirement, you can focus on two things: the nest egg or the monthly income.
The “magic number” for retirement surpassed $1 million in 2021, up from $950,800 in 2020, according to widely publicized estimates by Northwestern Mutual. People told the company’s researchers that they expect they would need $1.26 million to retire. But those forecasts are based on castles built on clouds, dreams and fears. Retirement is relative.
You are not living by “the 4% rule” (taking 4% from your investments for the first year and future withdrawals adjusted for inflation). Nor do you have the “the 25 times rule” (having 25 times your annual income or living expenses). But you have fulfilled the Moneyist’s “z rule” for retirement. “Z” is for zero debt. And you are there, my friend.
You’ve crawled your way out of a financial hole, and you will have paid off your credit-card debt and house by the time you retire, and you have a reliable set of wheels to get you from A to B. And — here’s the best part — your income will outpace your expenses. Your doctor will be able to advise you better as to how work will impact your chronic illness. Keep at it, for now.
And before I forget: Happy Birthday!
Related:
‘I do all the yard work, cooking and cleaning’: I live with my daughter and her lazy boyfriend. She wants me to buy her house. Do I say yes?
Readers write to me with all sorts of dilemmas.
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More from Quentin Fottrell:
My wife and I have $7,000 a month in pensions and Social Security, plus $140,000 cash. Can we afford to retire?
‘Finance makes me break out in hives’: I inherited $240K from my parents. Do I pay off my $258K mortgage and give up my job?
My job is offering me a payout. Should I take a $61,000 lump sum or $355 a month for life?
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