Retirement Pitfalls

Until I received my latest copy of NARFE Magazine¹, I suddenly realized that I hadn’t fully considered all of my post-retirement options. I’ve thought about employment, non-employment, travel, reading, writing, and lots of television viewing.  But one thing I never considered was prison.  Prison does offer an opportunity for great writing.  Martin Luther King Jr., Oscar Wilde, Nelson Mandela, and Jack Abbott all wrote while incarcerated, and those are certainly august names to whom one might want to try and emulate and attach their name similarly.  The person who submitted the question to the magazine (shown at the top of this post), earns my admiration for at least considering a unique approach to an impending retirement.  Or, as a friend of mine dryly observed when I shared it with him, this person might actually be charged with a crime and is looking for free advice.  Oh, such cynicism.  I choose to believe it’s simply another route to take after a long and distinguished career.

I really can’t blame the questioner for being concerned about his pension, though.  There are indeed more than a few pickpockets out there who can legally raid your nest egg. Aside from the prison warden, the government remains the most formidable adversary between my money and me.  For instance, starting next January I will be limited to earning no more than $15,720 from any employment that I might find.  If I go over that amount, a secondary pension supplement I receive will be reduced by $1 for every $2 earned over the earnings limit.  I tell my wife that this alone is a sufficient reason for me not to dip my toes in the employment waters again, and that I should stand up for certain principles about taxation and fair play.  The only way to prevent the government from taking such money, is not to even attempt to earn it!  She looks at me, shakes her head warily, and then announces that she has to go back to work.  So much for principled stands.

Another retirement area in which one needs to be watchful is with life insurance.  A few years before retiring, I had the benefit of a financial planner who looked over my overall financial situation.  The one area he focused on was the group term life insurance plan into which I had enrolled early in my career.  Besides the beneficiary change after my second marriage, I never looked at it or paid any attention to its annual costs.  The planner, however, explained to me that because insurers generally assume that a pool of people in any group plan is not the healthiest, they therefore charge higher rates for everyone in that pool.  The longer I stayed in the group plan, the higher the rates would appreciably rise as I age.  I was encouraged to instead find an individual life insurance plan for myself on the open market.  I followed that advice, was required to take a medical exam, and now have a term policy that is locked into a set monthly amount until I am age 70.  At that point, a new rate will need to be negotiated, or I will most likely just end the policy.  But the savings I achieved from switching are more than half of what I would have continued to pay had I stayed in the group plan.

I recently read an article about Florida senator and prospective presidential candidate Marco Rubio, who apparently cashed-out approximately $70,000 from his retirement funds for personal expenses.  This caught my eye for two reasons.  First, after all the scrutiny under which John McCain, Mitt Romney, and now Hillary Clinton have been subjected to about their own substantial wealth and holdings, Senator Rubio is in the extreme opposite position of perhaps answering charges that he might be living beyond his means. Secondly, he has put himself into circumstances where he will have to pay a 10 percent early withdrawal penalty in addition to paying an income tax on the amount withdrawn from his savings.  If those funds encountered any profits, he will also have to pay appropriate capital gains taxes too.  This might not a good harbinger for the good senator’s ambition, but that judgment will ultimately be decided upon by voters.

In considering Senator Rubio’s actions, though, it does remind me about the one warning in which both workers and retirees are relentlessly told prior to and during retirement: always refrain from touching any tax-deferred savings before you are eligible to do so.  Like vultures spotting red meat, the IRS and many state taxing authorities are more than happy to jump in with their very sharp teeth to gobble up their portion once someone makes that unfortunate decision.

One of my own specific pitfalls — or a snake in my grass, if you will — is the amount that I was required to pay in alimony to my ex-wife.  Alimony is something that needs to be included and considered in any list of projected expenses prior to retirement.   Though my ex probably continues to disagree with this contention, there was no concrete explanation in our divorce decree that provided the precise amount of monthly alimony to be paid after my retirement.  The divorce decree had clear stipulation over the retirement annuity and my 401(k) balance, but the alimony details were ambiguous.  Had I not suddenly taken advantage of an early retirement offer, I should have taken the time to flesh this matter out at an earlier date.  At the time of our divorce, the vagueness in the decree’s handling of alimony I thought worked to my advantage.  I was wrong.  It did work out in the end thanks to a skilled attorney, but my recommendation to others is to have alimony and all other divorce-related matters fully decided long before you swap the suit and tie for cargo shorts and sandals.

I hope for his own well-being that the person who wrote the above magazine query decides to forgo prison as a retirement choice.  There are so many things he’ll miss such as Stephen Colbert’s new talk show, the finale of Downton Abbey, the next James Bond movie, or an iPhone 7.  In spite of his chance to meet a diverse cross-section of society, one can also do that while standing in line for lottery at the 7-11 too.  There’s something to be said for looking over your latest annuity statement on the couch with a cup of coffee.

¹ NARFE is the National Active and Retired Federal Employees Association.  In addition to their very informative monthly magazine, they also advocate and lobby Congress on behalf of federal workers.