Bylaw 1.7(a)(4-3) of this blog’s charter states… “A topical post relevant to retirement must be published at least once a year”…
So, campers, how’s everything going in your tent?
Just to be clear, I’m speaking of your billfolds and wallets here. Whichever is holding the wad of cash that Fed chairman Powell says is responsible for overheating our economy. All of these inflation and supply chain woes are your fault. Yes, you! You and your silly, so called “needs” for chicken thighs, boneless chuck roasts, semiconductors, and now baby formula. Dare I add new kitchen appliances too, ahem? All this rampant and plainly unnecessary consumerism is making an utter wreck of my retirement savings. Yours too, you say?
UPDATE: After writing the above only a day ago, conditions have now changed. Both Walmart and Target are complaining in their quarterly earnings report that although customers are still coming in regularly, they’re now not spending enough money. It seems consumers are looking for less expensive alternatives, which in turn affects the bottom line for these retailers. It’s still your fault, of course; that part hasn’t changed. Wall Street traders need a scapegoat.
So with all of that as background, I’m once again instructed by the home office that it’s time to again provide an annual update on my retirement situation. I also offer my regular apology to international readers, who must find America’s retirement system to be confusing, unnecessarily draconian, and tragically biased in favor of the affluent. But not to worry: the same people charged with writing laws to remove guns from our streets are working on a solution to fix this too.
I knew everything was starting to become a bit dire starting last week, when I rang Hank, our intrepid financial advisor. He answered his phone with a shrieking “WHAT?!” Always a charmer, our Hank.
Such are the circumstances in which I currently find myself. At the start of the year, my pension was reduced due to a fact of life over which I have zero control: the vicissitudes of the aging process. I turned age 62. Oh, the humanity. When I started retirement back in 2014, all was hunky dory with my monthly stipend because of a special supplement included in my pension. It was offered as an enticement by my employer to take an early exit. Management said,“Here’s a little extra bonus for you, now go away.” But there are always strings attached to any deal. In the case of this supplement, it ended on my 62nd birthday, which was last December.
Ever the planner with foresight and vision, I eagerly started preparing for this reduction early last year.
With the exception of one small IRS-allowed withdrawal for the down payment of our condo in 2017, my 401(k) was left untouched so as to continue to grow during the remaining reign of the-then bull market. Starting monthly distributions a little early would help replace the loss of that supplement. And, with aplomb along with the diplomacy and charm of a Madeleine Albright or a Dean Acheson, I attempted negotiations with my ex-wife for a graduated end to alimony payments.
Yeah, the six of you out there might recall that last part didn’t go so well. I suspect my ex saw me as less a Madeleine Albright and more of a Mike Pompeo.
So here we all are facing a plummeting stock market. My retirement portfolio is taking a huge hit, and I continue to pay monthly alimony. At least I’m not alone though: even poor ‘ol Elon Musk is all atwitter in coming up with enough money to actually buy Twitter. Misery loves company.
The entity that manages my 401(k) recently announced a surprise mid-year recalculation for everyone in the Plan who receive distributions using the life expectancy method. This means that starting in June, I will experience a reduction in my monthly deposit. Yet, at the same time, this will also help to preserve the nest egg by not withdrawing at the earlier rate calculated on January 1st, when my balance was much higher than it is now. It’s like having to swallow Robitussin cough syrup after reading the “New and Better Taste!” label. Sure, okay, if you say so…
Although an early start to social security would greatly add to the coffers right now, that would also be a huge mistake. According to William Reichenstein, head of research at Social Security Solutions in Overland Park, Kansas:
“[A]ssuming a healthy retiree with an average life span, deferring benefits generates an 8 percent return each year that they hold off. For example, a 67-year-old would collect 108 percent of his or her expected benefit by waiting until age 68, and 116 percent by delaying until age 69. Conversely, those who collect earlier, at age 62, receive only 70 percent of their expected benefit with incremental increases each year they hold off” (see 4/22/2022 NYT article).
So for now, both Gorgeous and I will delay social security till at least our full retirement age (“FRA”) and most likely later. It’s hard to ignore that 8 percent.
We continue to be covered by the health insurance coverage I was fortunate enough to take into retirement (the cost of which is shared with my former employer). It takes a hefty chunk out of my monthly pension, but it’ll remain in place until we both start medicare at age 65. After that, while we will remain covered by it as secondary coverage to medicare, its cost will be reduced with co-pays and deductibles mostly eliminated (similar to a Medigap policy). According to a recent estimate by Fidelity Investments, A 65-year-old couple retiring this year can expect to spend an average of $315,000 in health-care and medical expenses in their retirement. If I’m going to be that out-of-pocket, I’d rather be over-insured to help sleep at night.
And speaking of sleeping at night… let’s hope we all can continue to do so in the days ahead. Try not to look too often at your own savings, stick to your plan if you can, and stop reading blog posts like this one.
Until next time…