Helping a friend prepare for retirement. pension and social security

[teacher2163]

I have a scenario that I think will interest some on hear. I am a teacher and had a maintenance worker approach me asking questions about his retirement situation. He worked for 27 years full-time in a job covered by social security. He had heard that he would not get much Social Security because of the Windfall Elimination Provision. I told him that it was my understanding that he would get most of it because he had almost 30 years of service. I think he may lose roughly 15% to 20% overall. He has never, according to him, received a Social Security statement. I helped him start the process to create an online account.

My friend is 59 years old. He currently lives pretty comfortable off of $2200 of take-home money. He would like to consider retiring as soon as he could afford it (earliest age 62). He is single with no kids. He has two whole life policies, one with a death benefit around $150,000 and a cash value of $58,000 and another one with a death benefit of around $25,000 and a cash value of $12000. His parents are the current beneficiaries. The only expenses after he dies would be funeral expenses.

Here are the questions:
Am I correct in estimating that he would get around 80% of his social security since he has 27 years of full time Social Security wages?
Would it make sense to cash in the whole life policies and either create an annuity or conservatively invest the money and prepay funeral expenses with the money at that time?
Is there anything else that I am missing as I try to help my friend?

[calmaniac]

He currently lives pretty comfortable off of $2200 of take-home money.

Are these his take home wages or some other sources of income?

He had heard that he would not get much Social Security because of the Windfall Elimination Provision. I told him that it was my understanding that he would get most of it because he had almost 30 years of service. I think he may lose roughly 15% to 20% overall.

• He should talk with Social Security. This is too important for guessing games.
• He should register with MySocialSecurity.gov Note that registration requires having a bunch of your personal financial history information to verify you are who you really are.
• Human resources at the school or school district has got to have someone who can help answer questions on WEP.

[LilyFleur]

I have a government pension through CalPERS, and attended an educational seminar put on CalPERS before I retired. The manager of the local Social Security office was one of the speakers, and I spoke with him afterwards. He said NOT to make any decisions based on phone calls to Social Security but to make an appointment at the Social Security and get an estimate in writing before retiring. He said the customer support for the phone calls is not necessarily accurate.

[teacher2163]

He currently lives pretty comfortable off of $2200 of take-home money.

Are these his take home wages or some other sources of income?

He had heard that he would not get much Social Security because of the Windfall Elimination Provision. I told him that it was my understanding that he would get most of it because he had almost 30 years of service. I think he may lose roughly 15% to 20% overall.

• He should talk with Social Security. This is too important for guessing games.
• He should register with MySocialSecurity.gov Note that registration requires having a bunch of your personal financial history information to verify you are who you really are.
• Human resources at the school or school district has got to have someone who can help answer questions on WEP.

The $2200 is his current take-home pay. I completely agree that he needs to eventually talk to someone at Social Security. I did register him with MySocialSecurity.gov. I wish there was someone at our school that would be able to talk to him about WEP. I am not bragging, but I know a lot more about it than anyone in the treasurer's office. I appreciate the response.

[Jovby]

His WEB reduction should be about $154 per month. WEP changes the percentage of income replacement for Social Security before the first bend point. For 2022 you would normally get 90% of the first $1,024 of average indexed monthly earnings (AIME). With WEP the 90% decreases by 5% for each year below 30 years of wages covered by social security. Since your friend has 27 years, his replacement for that first $1,024 will drop from 90% to 75%, or from $922 (1,024 * 90%) to $768 (1,024 * 75%). Therefore his WEB reduction should be about $154 per month. This assumes his AIME is at least $1,024, and his non covered pension is at least $308 (WEB reduction cannot exceed 1/2 of non covered pension). If he has indexed monthly earnings above the first bend point (more then $1,024) he will receive the regular income replacement percentages of 32% (over $1,024 and through $6,172) and 15% (over $6,172).

https://www.ssa.gov/policy/docs/program ... ision.html

As to the broader retirement questions we need more information. What is his SS? What is his pension? Does he have other retirement assets? Does he own his home?

It probably doesn’t make sense for him to cash out the whole life and purchase annuities. If he decides he needs more annuity money then it would make more sense to cash out the whole life, and use it to pay his bills while he delays SS.

However if he doesn’t have other retirement assets then he is already annuity heavy, and it would likely make sense to keep the whole life policy assets more liquid and not annuitize then. You could review the policies and see what their returns are, and any early surrender fees. That might help you decide whether to leave them alone, or cash them out and invest. Depending on the ultimate purpose of the money, the investments need not be too conservator. At 57 he could be looking at 30+ years.

[galawdawg]

Is there anything else that I am missing as I try to help my friend?

Why not suggest he check out Bogleheads? That way he can post more complete information and get advice from many of the experienced and wise "experts" here. No offense, but hearing directly from the person seeking guidance reduces miscommunication and confusion. It also increases the likelihood that we get the full financial picture and thus can provide more accurate advice.

You might also recommend the Bogleheads' Guide to Retirement Planning. https://www.bogleheads.org/wiki/Boglehe ... t_Planning

[teacher2163]

To answer a few questions. I think his pension will be between 800 and 900 a month. He owns his own home. I will know what his social security is when his account is set up. Ad far as him posting himself, that is not going to happen. And he wouldn't read the book. Just the honest truth. I do like the idea of investigating the terms of his whole life policy.