What is 4 more years of work worth? (Retirement Question)

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defscott627
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What is 4 more years of work worth? (Retirement Question)

Post by defscott627 » Thu Aug 18, 2016 3:41 pm

Hi! I have a retirement question from a very close friend of mine at work who had asked what I thought, and I had told him about this forum and said I would phrase it here if he was comfortable. He is entering potentially his last year of teaching (will be 57 at the end of the year), and his wife will be 56. They earn a household income of approximately $250k currently (gross). She would like to retire when he does so they are basing it off his age since he is not entitled to full pension benefits until the end of this year (57).

Here are the facts:
-House paid off
-No debt
-College is paid already for two kids
-Annual spending of approximately $60-$70k (net) right now (includes all of their bills and entertainment expenses)

Based on two scenarios that he ran on Personal Capital, these are the two options he has:
Retire at 57 (end of this year): He will get a $90,111.78 yearly Pension (starting at 57) and his retirement portfolio (2 IRAs + 403b + 401k) will be worth approximately $2,018,396. If both he and his wife wait until 67 to collect social security, solely living off the pension and portfolio, Personal Capital is calculating a $16,058 monthly spending allowance.

Retire at 61 (four more years of work): He will get a $99,620.73 Yearly Pension (starting at 61 - this is calculated based on the small increases the teachers will get over the 4 years as well as the extra percentage added onto his pension) and his portfolio will be worth approximately $2,493,625 with a $18,650 monthly spending allowance.

The only "larger" expenses that he can foresee in the future is helping with two weddings for his children and buying a second condo in Florida (a relatively inexpensive one maybe $200k) so that he can travel back and forth.

He knows in either scenario he would be fine, but he said it is difficult to come to terms with the fact that an extra four years of working would yield quite a bit of extra money. So my question for all of you is - what would you do?
Last edited by defscott627 on Thu Aug 18, 2016 3:47 pm, edited 1 time in total.

pennywise
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Re: What is 4 years of more work worth? (Retirement Question)

Post by pennywise » Thu Aug 18, 2016 3:47 pm

Given the numbers here, this seems a silly question--this person/couple clearly is amply funded for a very, very comfortable retirement starting at 57 YO.

The only reason for any hesitation is if having more money is a comfort factor. They have plenty to live in fine style the rest of their lives :oops:

defscott627
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Re: What is 4 more years of work worth? (Retirement Question)

Post by defscott627 » Thu Aug 18, 2016 3:48 pm

I guess he is concerned with "leaving money on the table." Obviously everyone leaves money on the table when they retire, but he didn't know if sacrificing a few more years of work would be worth the increase in the portfolio.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by SRenaeP » Thu Aug 18, 2016 3:49 pm

I'd retire at the end of the year. His pension will cover expected expenses along with a little extra for one off events like weddings. If he wants the condo, he can pay for that out of his retirement accounts. SS will be the icing on the cake.

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Watty
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Re: What is 4 years of more work worth? (Retirement Question)

Post by Watty » Thu Aug 18, 2016 4:11 pm

defscott627 wrote:Retire at 57 (end of this year): He will get a $90,111.78 ....

Retire at 61 (four more years of work): He will get a $99,620.73 Yearly Pension (starting at 61)
He will have given up four years of the pension at $90,111,78 , or about $360K if he waits until he is 61.

I didn't try to crunch the numbers but spending $360K to get an extra $9,500 a year in the pension does not sound like a good deal.

No matter what they do they will have several times their needed income.

The big question is if they have some charity or someone that they want to leave a larger inheritance too.

This life expectancy calculator is pretty simplistic but according to it there is about a 20% chance that one of them will not make it to be 70 years old so there is a lot to be said for retiring sooner rather than later.

https://personal.vanguard.com/us/insigh ... ement-tool

My numbers were not nearly as good as theirs but I retired last year just before I turned 59 and I have no regrets. In addition to enjoying being retired I have been a lot more active, exercising more, and eating a lot better so I have lost a lot of weight. I suspect that I have added years to my life, or at least better quality years.

basspond
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Re: What is 4 more years of work worth? (Retirement Question)

Post by basspond » Thu Aug 18, 2016 4:12 pm

Go at the end of the year and enjoy. No matter when you decide to retire wou will be leaving money on the table. People also forget to calculate NPV when deciding on when to retire. But the most important thing is loosing freedom years to the company store.

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JDCarpenter
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Re: What is 4 more years of work worth? (Retirement Question)

Post by JDCarpenter » Thu Aug 18, 2016 5:35 pm

Another vote to leave now.

We, like nearly everyone, were/are in a similar position and will be exiting at 57/56 next year.

We looked at it as surrendering the 4 or 5 most physically/mentally fit years of a hopefully active retirement for more, but not needed, dollars of spending in our relatively less fit years.
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MP173
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Re: What is 4 more years of work worth? (Retirement Question)

Post by MP173 » Thu Aug 18, 2016 6:03 pm

health insurance situation?

ed

ralph124cf
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Re: What is 4 more years of work worth? (Retirement Question)

Post by ralph124cf » Thu Aug 18, 2016 6:37 pm

Does he love his job?

Does he hate his job?

Answer this honestly and he will know the answer.

Ralph

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Re: What is 4 more years of work worth? (Retirement Question)

Post by Grt2bOutdoors » Thu Aug 18, 2016 6:58 pm

Tell your friend to leave at the end of the year. Life is short. This is not a question of not being to afford it, this is plain and simple a case of greed. Leaving money on the table? Let me couch it another way......how does your friend feel about leaving 10 or 20 percent of his remaining life on the table in exchange for $9,500 (make it half of that after tax) a year? Fair trade? Retire, life is short.
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MathWizard
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Re: What is 4 more years of work worth? (Retirement Question)

Post by MathWizard » Thu Aug 18, 2016 8:35 pm

If he wants to keep working, he could retire to get the pension, then take jobs as a sub. teacher.
This won't increase his pension, but he gets the money from working.

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cfs
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Re: What is 4 more years of work worth? (Retirement Question)

Post by cfs » Thu Aug 18, 2016 8:46 pm

Short timer!

133 days and a wake up [for Friday 30 December 2016], and for your friend, good luck with your retirement [no, don't wait, run now].

Thanks for reading.
~ Your Money, Your Portfolio, Your Decision ~

bhsince87
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Re: What is 4 more years of work worth? (Retirement Question)

Post by bhsince87 » Thu Aug 18, 2016 8:51 pm

Leave ASAP! And where do they teach? I'd love to get a gig like that!
BH87

22twain
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Re: What is 4 more years of work worth? (Retirement Question)

Post by 22twain » Thu Aug 18, 2016 11:59 pm

defscott627 wrote:The only "larger" expenses that he can foresee in the future is helping with two weddings for his children and buying a second condo in Florida
What about health insurance? Will they be covered by retiree health care benefits until age 65, or will they have to buy coverage on the open market or under Obamacare?

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Re: What is 4 more years of work worth? (Retirement Question)

Post by WarChest » Fri Aug 19, 2016 12:14 am

Who cares about health insurance? They are so easily set with that pension and portfolio that the expense won't even make a dent.

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celia
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Re: What is 4 more years of work worth? (Retirement Question)

Post by celia » Fri Aug 19, 2016 2:05 am

Public school teacher? What state? This brings up several questions:

Is the quoted pension for the life of the teacher only? What would the pension be for teacher and spouse (as long as one is alive)? If the teacher dies a month after starting the pension, would the spouse be able to live on the remaining part of the pension? Is it indexed for inflation?

Is the SS quoted for the spouse only? Is the teacher eligible for any SS due to non-teaching work? (Teachers usually aren't eligible since they usually don't contribute out of their teaching salary.)

Do either have tax-deferred accounts that need to be converted to Roth? If they don't convert anything, what will their RMD be when both are over age 70.5?
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by 2comma » Fri Aug 19, 2016 2:44 am

Either way sounds like they will be fine. I wonder if there are other "psychological" things also going on here. Some people love their jobs, to some their job is a large part of their identity, others have a bequest goal they want to fulfil and some are fearful of some major catastrophe upsetting their plan. Personally, when we had more than enough, I was ready and never looked back to see what I had left on the table but others may not feel the same way. It's a tough decision but at least he gets to decide - many people don't have that luxury.
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afan
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Re: What is 4 more years of work worth? (Retirement Question)

Post by afan » Fri Aug 19, 2016 4:58 am

I have the opposite reaction to those above. Keep working.

Every year they work is a year they do not draw on their savings. Every year adds to their portfolio. Every year working puts them in better financial shape than they would have been without the earned income.

Someone mentioned giving up the pension in order to keep working. True but the earned income is way more than the pension. As long as that is the case they are better off working.

Of course they care about health insurance. Insurance is expensive and going without would be foolhardy.

My suggestion would be to keep working at least until they are eligible for Medicare. At that point one major expense goes away if they retire. Even better, work until their Social Security maximizes at 70.

Retiring at 57 means a much longer time in retirement, much more pressure on their savings, far lower lifetime earnings... I don't see the upside.
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Re: What is 4 more years of work worth? (Retirement Question)

Post by supersharpie » Fri Aug 19, 2016 5:14 am

afan wrote:I have the opposite reaction to those above. Keep working.

Every year they work is a year they do not draw on their savings. Every year adds to their portfolio. Every year working puts them in better financial shape than they would have been without the earned income.

Someone mentioned giving up the pension in order to keep working. True but the earned income is way more than the pension. As long as that is the case they are better off working.

Of course they care about health insurance. Insurance is expensive and going without would be foolhardy.

My suggestion would be to keep working at least until they are eligible for Medicare. At that point one major expense goes away if they retire. Even better, work until their Social Security maximizes at 70.

Retiring at 57 means a much longer time in retirement, much more pressure on their savings, far lower lifetime earnings... I don't see the upside.
The upside is four additional years of freedom. It isn't guaranteed the worker will live to be 61. Life isn't about collecting the biggest pot of money possible. They can live very comfortably on their pension and SS income in the unlikely event they exhaust their savings.

pennywise
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Re: What is 4 more years of work worth? (Retirement Question)

Post by pennywise » Fri Aug 19, 2016 6:09 am

bhsince87 wrote:Leave ASAP! And where do they teach? I'd love to get a gig like that!
Actually I'm also curious--in what state are public school teachers able to earn $90K-$100K pensions? This is a sincere question BTW not a veiled bid for a rant on government largesse :wink:

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Re: What is 4 more years of work worth? (Retirement Question)

Post by Ron » Fri Aug 19, 2016 6:47 am

supersharpie wrote:The upside is four additional years of freedom. It isn't guaranteed the worker will live to be 61. Life isn't about collecting the biggest pot of money possible. They can live very comfortably on their pension and SS income in the unlikely event they exhaust their savings.
viewtopic.php?f=2&t=157849&p=2368345#p2368345

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Re: What is 4 more years of work worth? (Retirement Question)

Post by carolinaman » Fri Aug 19, 2016 7:21 am

Does the pension have an automatic COLA? If not, the purchasing power of the pension will decline a lot over his/her expected lifetime. Even with low inflation the pension will probably be less than 50% of its current value in 25 years.

Does the pension include survivor benefit for his wife? Given their ages, this is highly recommended.

Assume public school teachers. If so, what state? Some states public pensions are grossly underfunded and likely to have great challenges to meet their long term liabilities (payoouts).

They appear to be in great shape, but they do need to understand these pension points before pulling the trigger.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by 10YearPlan » Fri Aug 19, 2016 8:04 am

afan wrote:I have the opposite reaction to those above. Keep working.

Every year they work is a year they do not draw on their savings. Every year adds to their portfolio. Every year working puts them in better financial shape than they would have been without the earned income.

Someone mentioned giving up the pension in order to keep working. True but the earned income is way more than the pension. As long as that is the case they are better off working.

Of course they care about health insurance. Insurance is expensive and going without would be foolhardy.

My suggestion would be to keep working at least until they are eligible for Medicare. At that point one major expense goes away if they retire. Even better, work until their Social Security maximizes at 70.

Retiring at 57 means a much longer time in retirement, much more pressure on their savings, far lower lifetime earnings... I don't see the upside.
While I agree with your synopsis, this argument could be made to continue working indefinitely. At some point, you have to just make the cut. I say that now, but I fear when my "time comes" to make that exact decision, I will decide to keep working indefinitely because it feels so much safer. But is it?

cpw84
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Re: What is 4 more years of work worth? (Retirement Question)

Post by cpw84 » Fri Aug 19, 2016 8:13 am

You can't buy back years of your life. When your time is more scarce than your money (looks like the case here) you should retire.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by Tamalak » Fri Aug 19, 2016 8:29 am

Retire, that is frickin obvious, I hope your teacher friend doesn't teach math or finance. He doesn't even get much more money for working 4 extra years, at all.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by Julieta » Fri Aug 19, 2016 8:47 am

bhsince87 wrote:Leave ASAP! And where do they teach? I'd love to get a gig like that!
Agree. Wow! That is a huge pension.
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Julieta
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Re: What is 4 more years of work worth? (Retirement Question)

Post by Julieta » Fri Aug 19, 2016 8:49 am

pennywise wrote:
bhsince87 wrote:Leave ASAP! And where do they teach? I'd love to get a gig like that!
Actually I'm also curious--in what state are public school teachers able to earn $90K-$100K pensions? This is a sincere question BTW not a veiled bid for a rant on government largesse :wink:
+1 Hope they tell us.
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defscott627
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Re: What is 4 more years of work worth? (Retirement Question)

Post by defscott627 » Fri Aug 19, 2016 9:02 am

22twain wrote:
defscott627 wrote:The only "larger" expenses that he can foresee in the future is helping with two weddings for his children and buying a second condo in Florida
What about health insurance? Will they be covered by retiree health care benefits until age 65, or will they have to buy coverage on the open market or under Obamacare?
Our contract is that our health insurance during our last year of employment is our health insurance throughout retirement (until the teacher dies however). We contribute 16% of the premium right now.

defscott627
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Re: What is 4 more years of work worth? (Retirement Question)

Post by defscott627 » Fri Aug 19, 2016 9:04 am

Julieta wrote:
pennywise wrote:
bhsince87 wrote:Leave ASAP! And where do they teach? I'd love to get a gig like that!
Actually I'm also curious--in what state are public school teachers able to earn $90K-$100K pensions? This is a sincere question BTW not a veiled bid for a rant on government largesse :wink:
+1 Hope they tell us.
We are in NY - Long Island. It's definitely an issue for non-teachers as property taxes are sky-rocketing (we teachers pay those property taxes as well) and are mainly due to the high salaries and pensions of teachers, but I am hoping this thread will not get into teacher bashing - we get that enough on some of the other forums :oops: . I'm only 30 so this is most definitely not my position - I have no idea what will happen to the pension system by the time I am ready to retire.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by Rob Bertram » Fri Aug 19, 2016 9:05 am

It sounds like your friend has more than enough saved to continue his same lifestyle in retirement. There is no financial reason to continue working.

We can always work more, save more, and accumulate more wealth. However, there is a point when people have enough money to meet their needs. At this point, it sounds like your friend will run out of time before running out of money.

defscott627
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Re: What is 4 more years of work worth? (Retirement Question)

Post by defscott627 » Fri Aug 19, 2016 9:06 am

celia wrote:Public school teacher? What state? This brings up several questions:

Is the quoted pension for the life of the teacher only? What would the pension be for teacher and spouse (as long as one is alive)? If the teacher dies a month after starting the pension, would the spouse be able to live on the remaining part of the pension? Is it indexed for inflation? The quoted pension is for the life of the teacher only. I'm not 100% certain how survivor benefits work to be honest with you. The pension does have COLA adjustments but I don't know much about that either. This is the NYS Teacher Retirement System.

Is the SS quoted for the spouse only? Is the teacher eligible for any SS due to non-teaching work? (Teachers usually aren't eligible since they usually don't contribute out of their teaching salary.) The SS is quoted for two spouses. Both make over 100K. In NY Teachers do contribute to Social Security and are entitled to it.

Do either have tax-deferred accounts that need to be converted to Roth? If they don't convert anything, what will their RMD be when both are over age 70.5? I'd have to ask - I am not sure.

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Julieta
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Re: What is 4 more years of work worth? (Retirement Question)

Post by Julieta » Fri Aug 19, 2016 9:24 am

defscott627 wrote:
Julieta wrote:
pennywise wrote:
bhsince87 wrote:Leave ASAP! And where do they teach? I'd love to get a gig like that!
Actually I'm also curious--in what state are public school teachers able to earn $90K-$100K pensions? This is a sincere question BTW not a veiled bid for a rant on government largesse :wink:
+1 Hope they tell us.
We are in NY - Long Island. It's definitely an issue for non-teachers as property taxes are sky-rocketing (we teachers pay those property taxes as well) and are mainly due to the high salaries and pensions of teachers, but I am hoping this thread will not get into teacher bashing - we get that enough on some of the other forums :oops: . I'm only 30 so this is most definitely not my position - I have no idea what will happen to the pension system by the time I am ready to retire.
I am a teacher, retired but now subbing and loving it. I would NEVER teacher bash. It is an admirable profession and one that should highly rewarded IMO. Good for your friend and best wishes.
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Re: What is 4 more years of work worth? (Retirement Question)

Post by Ron Ronnerson » Fri Aug 19, 2016 10:13 am

ralph124cf wrote:Does he love his job?

Does he hate his job?

Answer this honestly and he will know the answer.

Ralph
This is very important. I'm a public school teacher in California. I would not retire even if I had the means as I look forward to going in to work on most days. I find my work fun and meaningful and there are still plenty of days off per year for rest and vacation. I'm in my 40s and may feel differently as I get older, of course. In your friend's situation, they can retire if they wish. Whether they should or not depends on how they feel about their job. The pension only goes up a little for 4 extra years so I wouldn't see that as a driving factor.

By the way, out where I live, pensions are about the same size. As a mid-career teacher, I'm making a little above $100k at this point and there are still quite a few steps for me to go up on the salary schedule. This may seem like a lot in some parts of the country but looks can be deceiving. I work in an excellent school yet they can't find enough teachers to fill the openings because no one can afford to live here anymore as houses cost over a million dollars.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by surfstar » Fri Aug 19, 2016 10:27 am

I would have retired at 50 and told the kids to pay for their own college and weddings :D

4 years at 57

Say you have 15 "good" years left, where travel is easy, you can hike, etc (I know many can do this for longer, but not all)

4 years is over 25% of your remaining "good" years. That is the important number to focus on, not the money.

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celia
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Re: What is 4 more years of work worth? (Retirement Question)

Post by celia » Fri Aug 19, 2016 11:03 am

I think teachers who make that much and have such large pensions should keep teaching if they like it. I know several teachers like that in California who can retire at about 90% of their salary. As a taxpayer, I think since we are going to pay them from state money one way or another, we might as well have them keep teaching instead of paying for an additional "new" teacher to replace them. It will put less pressure on the pension system.
afan wrote:My suggestion would be to keep working at least until they are eligible for Medicare. At that point one major expense goes away if they retire. Even better, work until their Social Security maximizes at 70.
Health care premiums on Medicare do not "go away". They will have to pay Medicare, Medigap, Drug plan premiums for each of them which could be more than the premiums they pay now.

In our area, some/many? school districts have historically given the teacher unions a choice if they want bargained pay increases to go towards paychecks or towards benefits, so while some teachers may be paid a lot, they might be paying more for health care.
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Re: What is 4 more years of work worth? (Retirement Question)

Post by MI_bogle » Fri Aug 19, 2016 11:19 am

defscott627 wrote:
Here are the facts:
-House paid off
-No debt
-College is paid already for two kids
-Annual spending of approximately $60-$70k (net) right now (includes all of their bills and entertainment expenses)


Retire at 57 (end of this year): He will get a $90,111.78 yearly Pension (starting at 57) and his retirement portfolio (2 IRAs + 403b + 401k) will be worth approximately $2,018,396. If both he and his wife wait until 67 to collect social security, solely living off the pension and portfolio, Personal Capital is calculating a $16,058 monthly spending allowance.
This is probably the easiest and most obvious no-brainer "retire immediately" thread I've seen on this forum! Lets see... they spend 70K per year, with no debt, and college paid for their kids. So if they both retired at the end of the year, they already have all their expenses paid for by the 90K pension, with a portfolio of 2M to back it up, plus an additional 16K of social security in a decade.

They will already have way more money than they know what do do with, even if they splurge some. And most likely plenty to leave to the kids if they desire

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celia
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Re: What is 4 more years of work worth? (Retirement Question)

Post by celia » Fri Aug 19, 2016 12:02 pm

After re-reading the original post, it occurred to me that we are addressing the wrong question. Your friend's question should not be "When should I retire?" but rather "How should I draw down my $2M tax-deferred portfolio?" Yikes! The taxes on that will use up a lot of his pension, whenever he retires.

Why not recommend he read not only this thread, but this one on converting large tax-deferred accounts:

viewtopic.php?f=1&t=194882&p=2970233#p2970233

The sooner he retires and starts working on this "problem", the better as he will be able to convert more of it.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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Re: What is 4 more years of work worth? (Retirement Question)

Post by afan » Fri Aug 19, 2016 12:31 pm

celia wrote: Health care premiums on Medicare do not "go away". They will have to pay Medicare, Medigap, Drug plan premiums for each of them which could be more than the premiums they pay now.
The comparison is not to what they pay now, but to what they would have to pay if they stopped working before going on Medicare. Their premiums at that point would likely be higher than what they are paying now.

The difference between current premiums and what they would have to pay if retired before Medicare is what goes away.

Even if the premiums were the same, right now they have earned income to cover them. If they stop working their health care premiums would have to come out of their pensions, which are much smaller than earned income, and out of savings.
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celia
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Re: What is 4 more years of work worth? (Retirement Question)

Post by celia » Fri Aug 19, 2016 6:45 pm

afan wrote:
celia wrote: Health care premiums on Medicare do not "go away". They will have to pay Medicare, Medigap, Drug plan premiums for each of them which could be more than the premiums they pay now.
The comparison is not to what they pay now, but to what they would have to pay if they stopped working before going on Medicare. Their premiums at that point would likely be higher than what they are paying now.
OP, who is a coworker, later stated that they could get the same insurance deal that they have now after he retires. I don't know how Medicare impacts that. But when I continued my school district insurance (same as employee's) past age 65, I didn't realize until later that unlimited hospitalization was not included like it is with the Medigap and Advantage plans. In addition it was hard to change to a Medigap plan after the age 65 window closed since underwriting applied to pre-existing conditions. Whatever OP's friend decides, he still has several years to make the Medicare decision. (Medicare could also change before then!)
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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