Financially Able to Retire?

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cloneman33
Posts: 9
Joined: Tue Dec 04, 2018 9:05 pm

Financially Able to Retire?

Post by cloneman33 » Tue Dec 04, 2018 9:45 pm

Ready to retire, burned out and tired of the Corporate grind.

33 year career and counting
Turn 60 in Feb 2019. Wife also turns 60 in February.

Pension vested will pay gross $52k per year until 2nd death
$825k in 401k, passed 59.5 so have full access now. 50% equities, 50% fixed.
$70k in Roth IRA’s.
Health Ins now $375 per month premium, will double in retirement to $750 month through employer until Age 65 Medicare.
Soc Security this is my 35th year of higher earnings employment. Plan on waiting to draw Soc Security until FRA. 66 years 10 months. Wife homemaker with low earnings. Same age 60 in February. Max Spousal Soc Security at FRA, will not increase from there, penalized on spousal if taken before FRA. Expect mine to be $3k and her spousal $1.5k per month at FRA.
Still have mortgage payment for 8 more years on 15 year refinance. Home worth around $500k owe $240k.

Need to live off pension and 401k for 6 plus years until Soc Security and any part time income on fun jobs if desired. No earnings restrictions since not drawing SS.
Need about $90k take home in retirement in early years with mortgage. Expect larger draw down in 401k until SS. Which I feel helps the SS tax and RMD after SS begins at FRA.
We both have good health.
Any thoughts, ideas, critique is welcome and appreciated: Thanks!

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Financially Able to Retire?

Post by delamer » Tue Dec 04, 2018 10:29 pm

It sounds like you’ll need to withdraw about $350,000 (in today’s dollars) from your 401(k) until you get to your FRA to cover your expenses (in addition to your pension).

At FRA, you’ll need to withdraw little or nothing from savings to meet your expenses.

I don’t see a problem, assuming your expense estimate is accurate.

FoolMeOnce
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Re: Financially Able to Retire?

Post by FoolMeOnce » Wed Dec 05, 2018 12:16 am

Others here are better at this analysis than I am, but a couple thoughts/questions to consider jumped out to me:

1) Does the pension have a COLA?

2) You might want to consider making your investments more conservative between now and when you start collecting SS. Perhaps even extremely conservative. As a thought exercise, consider if you put it all in TIPS or something similar. Calculate what you would have left after making up the spending difference b/t expenses and pension between now and SS. Then ask yourself if you would be happy at that point having that balance with future spending pretty much covered by the pension and SS (with the mortgage payments ending, perhaps more than covered). Then consider a scenario where you remain allocated at 50/50 and the market tanks in the first month of retirement and your balances drop 30%, and takes a few years to recover. Meanwhile, you are withdraw your spending needs during those years. Would you sleep fine at night, or would this cause you to spend the first years of your retirement a worried wreck?

With the numbers you gave, it looks like you'd be fine either way. Maybe split the difference, using TIPS or CD ladders to cover your first several years of spending needs while leaving the rest invested. If the market is fine during the first year, then add another year to the ladder at the back end. If it tanks, you'll be covered to wait it out for a couple years.

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Watty
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Re: Financially Able to Retire?

Post by Watty » Wed Dec 05, 2018 12:47 am

cloneman33 wrote:
Tue Dec 04, 2018 9:45 pm
Pension vested will pay gross $52k per year until 2nd death
Would that start immediately or when you are 65?

This website was created by a poster her who has written a book on Social Security. You can use it to check your claiming strategy to see what it thinks is mathematically optimal. It does not take things like taxes into account so you should use it as a starting point in deciding what to do.

https://opensocialsecurity.com/
cloneman33 wrote:
Tue Dec 04, 2018 9:45 pm
Need about $90k take home in retirement in early years with mortgage.
It sounds like that is after taxes so you might need something like $120K in income to have $90K after taxes.

You also need to look at your numbers three ways, as a couple and as if one of your survives the other. If one of you dies then the survivor would only get one Social Security check and they would be filing tax returns in the higher single tax brackets.

You might take a look at moving to a less expensive house. You should do that before you retire so that it will be easier to get a new mortage if you need one. In some cities a house that is 20 minutes farther out can be dramatically less expensive and you will not need to worry about the commute when you are retired. You might even be able to move to a nicer house that is less expensive.

Tal-
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Re: Financially Able to Retire?

Post by Tal- » Wed Dec 05, 2018 9:12 am

delamer wrote:
Tue Dec 04, 2018 10:29 pm
It sounds like you’ll need to withdraw about $350,000 (in today’s dollars) from your 401(k) until you get to your FRA to cover your expenses (in addition to your pension).

At FRA, you’ll need to withdraw little or nothing from savings to meet your expenses.
This is a simple post with a lot of insight. Taking it one step further, if you retire today:

  • At age 66 you have around 550K in retirement, take 100K from pension/SS, and will need to withdraw another 20k/year to get to 120 gross (90K net) until house is paid off.
  • At age 68, you have around 510K in retirement, but have paid off your 500K house which decreases your annual expenses from 120K gross to 90K gross. At this point, you will be able to live off pension/SS with 500K in retirement and a 500K house behind you.
  • At age 70, you'll need to start taking RMDs, and while you may not need them on day 1, long-term you'll need them to keep pace with inflation (I'm assuming your pension does not increase each year).

That's not the most robust plan, and I'm not sure that you could buy a second house, do a world cruise, or treat your daughter to a big wedding. More realistically, if SS payments are lowered, or you end up paying more for insurance, or have a medical issue, or forgot to include new vehicles, etc., the plan would struggle. Given the big withdrawal rate in the next 6 years, there is also a big sequence of returns risk. But, insofar that your assumptions are accurate and the world doesn't drastically change, you're probably OK.
Debt is to personal finance as a knife is to cooking.

Jack FFR1846
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Re: Financially Able to Retire?

Post by Jack FFR1846 » Wed Dec 05, 2018 9:50 am

Having a pension is a huge plus.

But I get a little scared about a few things and personally would take care of them or take them into consideration before retiring.

Social Security: Have you factored in the expected drop in payments of 25% around 2035 that's pretty well cemented in?

Health insurance: Although there's an employer plan in place now, this seems to always be a target for cuts when governments or agencies realize that their costs are higher than had been projected when the benefit was defined. I think I'd want to have backup money, expecting this might increase.

Mortgage: I know others are perfectly happy having a mortgage going into retirement. I wouldn't be. Knocking out the mortgage would be my own priority before even considering pulling the trigger.

Downsizing: Have you considered downsizing or even getting completely out of a house and simply renting? This puts a big chunk into savings and removes that mortgage monkey on your back.
Bogle: Smart Beta is stupid

smitcat
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Re: Financially Able to Retire?

Post by smitcat » Wed Dec 05, 2018 9:56 am

Tal- wrote:
Wed Dec 05, 2018 9:12 am
delamer wrote:
Tue Dec 04, 2018 10:29 pm
It sounds like you’ll need to withdraw about $350,000 (in today’s dollars) from your 401(k) until you get to your FRA to cover your expenses (in addition to your pension).

At FRA, you’ll need to withdraw little or nothing from savings to meet your expenses.
This is a simple post with a lot of insight. Taking it one step further, if you retire today:

  • At age 66 you have around 550K in retirement, take 100K from pension/SS, and will need to withdraw another 20k/year to get to 120 gross (90K net) until house is paid off.
  • At age 68, you have around 510K in retirement, but have paid off your 500K house which decreases your annual expenses from 120K gross to 90K gross. At this point, you will be able to live off pension/SS with 500K in retirement and a 500K house behind you.
  • At age 70, you'll need to start taking RMDs, and while you may not need them on day 1, long-term you'll need them to keep pace with inflation (I'm assuming your pension does not increase each year).

That's not the most robust plan, and I'm not sure that you could buy a second house, do a world cruise, or treat your daughter to a big wedding. More realistically, if SS payments are lowered, or you end up paying more for insurance, or have a medical issue, or forgot to include new vehicles, etc., the plan would struggle. Given the big withdrawal rate in the next 6 years, there is also a big sequence of returns risk. But, insofar that your assumptions are accurate and the world doesn't drastically change, you're probably OK.
"
  • At age 66 you have around 550K in retirement, take 100K from pension/SS, and will need to withdraw another 20k/year to get to 120 gross (90K net) until house is paid off.
"

I do not understand - a couple with a 24K standard deduction drawing 52 + 54 = 106K will have a take home pay of about $96K+ not including state taxes worst case.

bloom2708
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Re: Financially Able to Retire?

Post by bloom2708 » Wed Dec 05, 2018 10:08 am

I think the OP will be fine. Is "fine" good enough?

Downsize the house and spend $20k less and they can do whatever they want.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

Brit
Posts: 49
Joined: Wed Oct 10, 2012 6:33 am

Re: Financially Able to Retire?

Post by Brit » Wed Dec 05, 2018 10:16 am

@cloneman33, totally understand the pressure of the corporate grind.

I've been recently going through a similar process to set my plan for retirement (a few years out for me).

You may find this posting on asset allocation and safe withdrawal rates helpful:

viewtopic.php?f=1&t=236571&p=4240413#p4240413

That posting led me to the Variable Percentage Withdrawal (VPW) strategy and an immensely helpful spreadsheet for calculating withdrawal rate and adjusting withdrawal each year based on performance of portfolio in previous year:

https://www.bogleheads.org/wiki/Variabl ... withdrawal

NOTE: This is appropriate for folks like me who do not intend to leave an inheritance. However, if that is not aligned with your goals you may wish to stick to the 4% Safe Withdrawal Rate (SWR)

marcopolo
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Re: Financially Able to Retire?

Post by marcopolo » Wed Dec 05, 2018 10:29 am

Brit wrote:
Wed Dec 05, 2018 10:16 am
@cloneman33, totally understand the pressure of the corporate grind.

I've been recently going through a similar process to set my plan for retirement (a few years out for me).

You may find this posting on asset allocation and safe withdrawal rates helpful:

viewtopic.php?f=1&t=236571&p=4240413#p4240413

That posting led me to the Variable Percentage Withdrawal (VPW) strategy and an immensely helpful spreadsheet for calculating withdrawal rate and adjusting withdrawal each year based on performance of portfolio in previous year:

https://www.bogleheads.org/wiki/Variabl ... withdrawal

NOTE: This is appropriate for folks like me who do not intend to leave an inheritance. However, if that is not aligned with your goals you may wish to stick to the 4% Safe Withdrawal Rate (SWR)
A desire to leave a legacy should not stop you from using VPW method, if that is what you think makes sense for you.
The Advanced VPW spreadsheet handles that scenario by defining a "Target residual portfolio"
viewtopic.php?t=250391
Once in a while you get shown the light, in the strangest of places if you look at it right.

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: Financially Able to Retire?

Post by megabad » Wed Dec 05, 2018 11:01 am

I think you are ok OP, but I would make sure you have some flexibility in that 90k expenses since you will be very exposed to sequence of returns risk from 60-70. If returns are poor, you may need to adjust spending. It looks like you need 40k or so a year from retirement plans for the next 10 years but this will partially be offset by spousal SS for the last 4 years (more on this in a sec). Lets call that 350k or so, assuming no growth, you would still have 500k or so at 70 in retirement plans. With 50k pension, 60k SS, and 20k from 401k at 70, that gives you 130k or so before tax. If pension is inflation adjusted you should be more than ok. If not than let's get back to SS. You have stated that you and spouse are in good health. This conflicts with your desire to claim at FRA. I would almost certainly delay high earner to 70 in your case. This gives you a form of longevity insurance with an inflation adjustment.

Good luck and if you are unhappy, than I would say adios to the job sooner rather than later. I have never spoken to anyone that intentionally retired and wished they hadn't, but unicorns may exist.

btenny
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Re: Financially Able to Retire?

Post by btenny » Wed Dec 05, 2018 11:12 am

I think you are OK but marginal with that mortgage. If you downsize to a $250K - $300K house you will be a lot safer. Plus there are a few assumptions that need clarification. I think you should do some what if financial forecasting to see if you have enough money.

How soon can you draw you pension? If you can draw $52K at 60 you are fine. But over time you will need more income due to inflation. Is your pension have some sort of COLA?

How much will you pay for medical over time? Are you forecasting increasing medical costs in your budget? You say $750 per month as a retiree. But what will be the premiums in year 2-4 before Medicare? Does your budget include some serious $$ for medical deductibles and drugs and Medicare premiums?

Unlike some of the above I suggest you keep about 35% or maybe 40% in stocks and the rest in bonds. Using a Total Return plan will give your portfolio a lot of inflation protection and some growth capability and longevity through your whole retirement. You can draw about $32K from it with acceptable risk for a long time. So this will give you a $84K base income for early days. So I suggest you try to reduce your expenses to this level for the first few years.

Good Luck.

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CyclingDuo
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Re: Financially Able to Retire?

Post by CyclingDuo » Wed Dec 05, 2018 11:25 am

cloneman33 wrote:
Tue Dec 04, 2018 9:45 pm
Ready to retire, burned out and tired of the Corporate grind.

33 year career and counting
Turn 60 in Feb 2019. Wife also turns 60 in February.

Pension vested will pay gross $52k per year until 2nd death
$825k in 401k, passed 59.5 so have full access now. 50% equities, 50% fixed.
$70k in Roth IRA’s.
Health Ins now $375 per month premium, will double in retirement to $750 month through employer until Age 65 Medicare.
Soc Security this is my 35th year of higher earnings employment. Plan on waiting to draw Soc Security until FRA. 66 years 10 months. Wife homemaker with low earnings. Same age 60 in February. Max Spousal Soc Security at FRA, will not increase from there, penalized on spousal if taken before FRA. Expect mine to be $3k and her spousal $1.5k per month at FRA.
Still have mortgage payment for 8 more years on 15 year refinance. Home worth around $500k owe $240k.

Need to live off pension and 401k for 6 plus years until Soc Security and any part time income on fun jobs if desired. No earnings restrictions since not drawing SS.
Need about $90k take home in retirement in early years with mortgage. Expect larger draw down in 401k until SS. Which I feel helps the SS tax and RMD after SS begins at FRA.
We both have good health.
Any thoughts, ideas, critique is welcome and appreciated: Thanks!
Could be one of those cases where the power of OMY (one more year) or even two more years would add power and punch to your financial picture as you would not have to dip into the savings for another year or two.

https://www.youtube.com/watch?v=lxKRTwmMLDI
"Everywhere is within walking distance if you have the time." ~ Steven Wright

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Financially Able to Retire?

Post by delamer » Wed Dec 05, 2018 11:38 am

smitcat wrote:
Wed Dec 05, 2018 9:56 am
Tal- wrote:
Wed Dec 05, 2018 9:12 am
delamer wrote:
Tue Dec 04, 2018 10:29 pm
It sounds like you’ll need to withdraw about $350,000 (in today’s dollars) from your 401(k) until you get to your FRA to cover your expenses (in addition to your pension).

At FRA, you’ll need to withdraw little or nothing from savings to meet your expenses.
This is a simple post with a lot of insight. Taking it one step further, if you retire today:

  • At age 66 you have around 550K in retirement, take 100K from pension/SS, and will need to withdraw another 20k/year to get to 120 gross (90K net) until house is paid off.
  • At age 68, you have around 510K in retirement, but have paid off your 500K house which decreases your annual expenses from 120K gross to 90K gross. At this point, you will be able to live off pension/SS with 500K in retirement and a 500K house behind you.
  • At age 70, you'll need to start taking RMDs, and while you may not need them on day 1, long-term you'll need them to keep pace with inflation (I'm assuming your pension does not increase each year).

That's not the most robust plan, and I'm not sure that you could buy a second house, do a world cruise, or treat your daughter to a big wedding. More realistically, if SS payments are lowered, or you end up paying more for insurance, or have a medical issue, or forgot to include new vehicles, etc., the plan would struggle. Given the big withdrawal rate in the next 6 years, there is also a big sequence of returns risk. But, insofar that your assumptions are accurate and the world doesn't drastically change, you're probably OK.
"
  • At age 66 you have around 550K in retirement, take 100K from pension/SS, and will need to withdraw another 20k/year to get to 120 gross (90K net) until house is paid off.
"

I do not understand - a couple with a 24K standard deduction drawing 52 + 54 = 106K will have a take home pay of about $96K+ not including state taxes worst case.
Right, regarding federal income taxes.

Two big unknowns based on the original post are whether 1) state/local taxes come into play and 2) there is a COLA for the pension.

retiredflyboy
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Re: Financially Able to Retire?

Post by retiredflyboy » Wed Dec 05, 2018 12:01 pm

Consider viewing your retirement in two different segments. 60 to 70 and 70 on. I am in similar situation in that I have retired with pension (COLA) and am 61. I have my 457b in a stable return fund so that I can draw down with stable net asset value to reduce sequence of return risk over a 9 year period to start SS st 70. I view this as purchasing an attractive annuity from the government with 6% to 8% growth per year on top of inflation. I elected to go 100% fixed income in the account that is supplementing pension (9 year span from 61 to 70) while keeping DW IRA at our long term AA OF 40 stock 60 fixed as well as the uneeded balance in my 457b. I think as other posters have mentioned, it is important to invest for the period of time you need to get to your FRA on SS. Best of luck.
Facts are stubborn things. Everything works until it doesn’t.

dknightd
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Re: Financially Able to Retire?

Post by dknightd » Wed Dec 05, 2018 12:04 pm

bloom2708 wrote:
Wed Dec 05, 2018 10:08 am
I think the OP will be fine. Is "fine" good enough?
I agree, should be fine. Fine is good enough for me to pull trigger ;)

Yukon
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Joined: Wed Jan 23, 2008 8:10 am

Re: Financially Able to Retire?

Post by Yukon » Wed Dec 05, 2018 12:08 pm

dknightd wrote:
Wed Dec 05, 2018 12:04 pm
bloom2708 wrote:
Wed Dec 05, 2018 10:08 am
I think the OP will be fine. Is "fine" good enough?
I agree, should be fine. Fine is good enough for me to pull trigger ;)
I agree, should be fine. Fine is good enough for me to tell OP to pull trigger :wink:
Don't Work Forever.

cloneman33
Posts: 9
Joined: Tue Dec 04, 2018 9:05 pm

Re: Financially Able to Retire?

Post by cloneman33 » Wed Dec 05, 2018 2:20 pm

Thanks to all, the Pension does not have a COLA. Taking the lowest payout to protect to 2nd death. Can go 75% payout to spouse on my death for only about $3k per year or $55k instead of 52k. Lots of good points here. Will reread and continue to plan. Another year on the job is palatable, end of 2019. After that not so much! Thanks again!

whyme
Posts: 93
Joined: Wed Dec 14, 2011 1:22 pm

Re: Financially Able to Retire?

Post by whyme » Wed Dec 05, 2018 3:07 pm

I am also trying to determine timing for my retirement. I found this product (which costs $99 and with which I have no affiliation except as a customer) to be really helpful: https://maxifiplanner.com/

It does a sophisticated financial plan (not investment portfolio advice) that shows how much spendable income you can plan on across your lifetime. It calculates the optimal decisions about Social Security, calculates taxes, Medicare part B expenses, recommends when and how much life insurance is desirable etc. It is possible to run all kinds of different scenarios (What if I retire in two years? What if we sell the house and move to Texas? What if income tax rates go up by 10% in 2021?, etc.) I'm really impressed with it--others here may have different opinions, but I think it is definitely worth looking over their website.

hawkfan55
Posts: 311
Joined: Thu Apr 03, 2014 9:04 pm

Re: Financially Able to Retire?

Post by hawkfan55 » Wed Dec 05, 2018 5:47 pm

Jack FFR1846 wrote:
Wed Dec 05, 2018 9:50 am
Having a pension is a huge plus.

But I get a little scared about a few things and personally would take care of them or take them into consideration before retiring.

Social Security: Have you factored in the expected drop in payments of 25% around 2035 that's pretty well cemented in?

Health insurance: Although there's an employer plan in place now, this seems to always be a target for cuts when governments or agencies realize that their costs are higher than had been projected when the benefit was defined. I think I'd want to have backup money, expecting this might increase.

Mortgage: I know others are perfectly happy having a mortgage going into retirement. I wouldn't be. Knocking out the mortgage would be my own priority before even considering pulling the trigger.

Downsizing: Have you considered downsizing or even getting completely out of a house and simply renting? This puts a big chunk into savings and removes that mortgage monkey on your back.
You have some good points, however, I disagree with your statement regarding Social Security. I do not agree that Social Security payments are expected to drop by 25% around 2035 or that this is "pretty well cemented in". Changes in Social Security benefits and, more likely, how benefits are calculated for future retirees, will undoubtedly occur in the future.

Social Security Statements currently state the following:
"* Your estimated benefits are based on current law. Congress has made changes to the law in the past and
can do so at any time. The law governing benefit amounts may change because, by 2034, the payroll taxes
collected will be enough to pay only about 77 percent of scheduled benefits."
"Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to live comfortably when you retire."

If, like you stated, Social Security payments are expected to drop 25% in fifteen years, many Bogleheads would not be recommending waiting until age 70 to start SS benefits. Retirees would begin SS benefits at age 62, or FRA at the latest, so they could maximize their benefits prior to having their benefits reduced by 25%.

As Jane Bryant Quinn states in her book "How to Make Your Money Last", …"But benefits won't drop. There might be tweaks that reduce your benefits' future growth, especially if you're among those with higher incomes. But Social Security keeps millions of older people out of poverty and saves millions of adult children from having to support mom and dad. No President, no Senate, no Congress will let those voters down."
Forum Library of Investing Advice: https://www.bogleheads.org/wiki/Main_Page

hawkfan55
Posts: 311
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Re: Financially Able to Retire?

Post by hawkfan55 » Wed Dec 05, 2018 5:53 pm

OP, I would recommend you use the Optimal Retirement Planner, extended version. It can be accessed at www.i-orp.com. This retirement calculator will help you answer some of your questions.
Forum Library of Investing Advice: https://www.bogleheads.org/wiki/Main_Page

cloneman33
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Joined: Tue Dec 04, 2018 9:05 pm

Re: Financially Able to Retire?

Post by cloneman33 » Wed Dec 05, 2018 6:20 pm

On delaying SS until 70 instead of FRA. The basis for that is that the Spousal doesn’t increase after FRA. We both have an FRA of 66 years 10 months. Spousal can’t be started until I start. My wife is homemaker and has very low SS on her own earnings. So if I wait until 70 we forego over 3 years of spousal which is half mine at FRA, estimate $18k per year spousal. Forego roughly $57k, 3 years and 2 months by me waiting to 70. That is my understanding, have used maxifiplanner previous poster mentioned and it shows me drawing at FRA is best to be able to draw Spousal at that time.

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