Hanging it up at age 60 or 62 sounds like a lot of fun! Wake up when you want to, tee it up once or twice a week and enjoy the grandchildren. Even though I will be 68 on Nov. 2, I’m not quite there yet. I can’t buy enough liability insurance to get on the golf course!
If you have a pre-65 retirement offer, there are several matters you should carefully consider before saying “yes”.
Healthcare should be your top priority to have in order. If your employer is large enough to provide post-retirement medical insurance, you probably have a very nice gift. Also, COBRA health coverage is available from firms with 20 or more employees and can carry you for 18 months at the least. Buying individual medical insurance is a possibility, but premiums are stiff at older ages. The ACA healthcare exchanges are unstable at charitable best with greatly reduced choices. One positive is the availability of subsidy if post-retirement income is less than 400% of the Federal poverty level.
Social Security is the next topic to consider. If you are retiring early and have reached age 62, give some thought to whether you want to begin receiving payments. Your options go way beyond this article, but keep in mind, your payments are permanently reduced for each year under your full retirement age of 66. For the “youngsters” born in 1955 and later, the age gradually increases to 67 if you were born in 1960.
These two very important considerations warrant a bit of editorial comment. There is a lot of concern in our country about illegal immigrants. Did you know that an illegal over 65 can apply for Supplemental Security Income (SSI) and Medicaid and get more than a lady who worked for 60 years? I know of no one who can justify that type of discrimination against our own citizens. Please remember that when you vote in November. This is a good example of why our social support system is going broke.
If you’re ready to retire, you hopefully have a nice sized piggy bank. This is the time to evaluate your risk tolerance. If your IRA or 401-K was heavily invested in the growth arena and you don’t want to risk your principal, it’s time for a review. Personally, I don’t like a lot of risks, but the correct answer is what matches your profile. Rolling your 401-K, if you have one, to an IRA usually gives more investment options to consider.
Evaluate your spending patterns so that you don’t have to max out those credit cards and it’s definitely a good idea to reduce as much debt as possible. If you’re conservative by nature, consider inflation’s effect on fixed income assets over time. The risk of higher interest rates can cause problems for bond portfolios. As a general rule, a 1% interest rate increase will decrease the bond value over the maturity period by the number of years.
Longevity is another and hopefully pleasant topic you will have to deal with. The 2001 Commissioners Standard Mortality Table gives a 62-year-old male a life expectancy of 19.1 years and 22.5 years for a female. One reality we will all face in our later years is the expense of healthcare for critical and chronic illness and housing concerns. Is a reverse mortgage a worthwhile consideration?
Studies show that the greatest concern seniors have is running out of money and that’s a very legitimate concern given the conduct of both political parties to their working constituents. It stands to reason that if your retirement funds earn more than your withdrawals you will never run out of money.
When we have the next big correction, will you still be able to take the same withdrawal after a 25% drop in your account? If this concerns you, an annuity might be worth a look as it is the only financial instrument that can provide an income you can’t outlive.
Unless you are comfortable that you have all of these issues under control, it’s a good idea to consult a professional advisor. There’s a lot of moving parts here and a couple of mistakes can cause real problems. If you decide to take the early retirement offer, congratulations and enjoy the next 20 to 25 years. An advisor can make things go much easier for you and your family.
Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached at 770-786-2781.