Planning for Retirement

The Situation 

Reid’s employer just announced they would be offering early retirement buyouts. Reid, 63-years-old, had planned to work another few years, but he was considering the offer and wanted help making sense of it all. He had pretty much ignored his retirement accounts throughout his working years and hadn’t taken any concrete steps to preparing for retirement.

We started with a broad overview of his financial situation and goals. The company he works for presented him with an offer of a tax-deferred lump sum or an annuitized pension. He also had a 401(k), a pension from a previous employer, and a Roth IRA that he recently inherited from his mother. His wife, Adrien (a retired teacher), was entitled to retirement benefits as well through the Public-School Employees’ Retirement System (PSERS). Taking everything into account, it was clear that he could afford to take the early retirement buyout if he wanted to.

Our Approach 

To assess whether Reid would be better off taking an annuitized pension or the lump sum offered, we analyzed the rate of return that he would receive from the pension using various life expectancies. This showed a fairly low implied return. Given Reid’s high tolerance for market risk and concerns of his employer’s long-term financial viability, we suggested that he take the lump sum amount.

After evaluating Reid and Adrien’s likely expenses in retirement, we generated a projected income stream from their pensions and from systematic distributions from a well-diversified investment portfolio created by the assets in Reid’s 401(k) and lump sum pension payment. We also taught Reid about Social Security and dissuaded him from taking it immediately, especially since he planned to earn income by doing some part-time consulting upon retirement. With no children or close family, Reid and Adrien were looking ahead and considering that they may need to depend on a medical facility if they needed prolonged care. We secured multiple quotes for long-term care insurance and helped them understand the pros and cons of each policy.

Once all the pieces were in place, Reid and Adrien visited our office every few months to have their statements explained and review their accounts. They eventually asked to receive most information electronically and check on their investments through our website and mobile app. Now they usually just visit once during the course of the year when we reach out for an annual review, but can always reach us by phone, email, or in person to help with any issue, large or small.

Disclaimer: These case studies are being shown for illustrative purposes only. Actual performance and results will vary. These case studies do not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted.