Retirement is a significant milestone, and planning for it can be daunting, especially when faced with uncertainties about market risks, health insurance, and Social Security benefits. In this case study, we’ll explore how a couple in their 60s was able to retire earlier than expected, with a stable income and peace of mind.
Client Overview:
- Male, Age 67:
- Income: $75,000 annually (approximately $5,000 per month)
- 401(k) Balance: $400,000
- Social Security Benefit at Age 67: $2,700 per month
- Concern: Wants to retire but feels the need to work until age 70 to maximize Social Security and provide health insurance for his wife.
- Female, Age 64:
- Income: $20,000 annually (approximately $1,500 per month) Social Security Benefit at Age 65: $1,200 per month
- Concern: Continues working to supplement household income, unsure about retirement.
The Challenge: This couple needed $4,000 per month to cover their bills and live comfortably. The husband, wary of market risks, was reluctant to dip into his $400,000 401(k). Both were concerned about health insurance coverage, with the husband feeling pressured to keep working until age 70 to ensure financial stability.
The Solution:
- Optimizing Social Security Benefits:
- The wife began drawing her Social Security benefits at age 64, adding $1,200 per month to their income.
- She continued working, staying under the $22,000 income threshold to avoid penalties.
- Income Strategy for the Transition Year:
- The husband continued working for one more year, earning $75,000. ○ Combined with his wife’s $20,000 income and her $14,400 in Social Security benefits, their household income totaled $109,400, keeping them under the tax bracket threshold.
- Securing Lifetime Income:
- A portion of the husband’s 401(k) was moved into a privatized pension program, guaranteeing $15,000 annually for both of their lives.
- Retirement Transition:
- When the wife turned 65, she qualified for Medicare, allowing the husband to retire and draw his Social Security benefits.
- The husband’s Social Security ($2,700), the wife’s adjusted Social Security ($1,350 based on his benefit), and the pension ($1,250) provided a total monthly income of $5,300—only $1,200 less than their full-time income.
Outcome: This strategy allowed both the husband and wife to retire earlier than anticipated, with a guaranteed monthly income adjusted for the cost of living (COLA) for life. The financial plan ensured that they could enjoy an additional five years of retirement, with the option to work part-time if desired.
Conclusion: This case study highlights the importance of personalized retirement planning. By optimizing Social Security, leveraging pension options, and strategically managing 401(k) funds, this couple secured their financial future and gained valuable retirement years.
If you’re nearing retirement and unsure of your options, let us help you create a plan that maximizes your benefits and minimizes your risks. Contact your Key Retirement Solution agent today for a personalized consultation!
