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One of the scariest things about retirement is that you don’t know what you can expect to have for income. It takes time to work that out. Plus, you generally have to retire before finalizing things anyway. So here’s some idea of what to expect about learning what your retirement income will be.
This post is based on personal experience and does not constitute professional advice. For best results, please check with a financial professional before implementing a plan.
Social Security isn’t always straightforward about what you will get right away. If you wait till your Social Security full retirement age, you can find out what your gross will be from My Social Security. Be sure to enroll so you can watch out for fraud while waiting to retire.
If you retire at 65, as I did, or at another odd year, Social Security will prorate up or down. I’m supposed to retire at 66 but I didn’t wait, so I had to wait to find out how much I would get.
It went like this: I applied online and then got a nice phone call from Social Security, as they had mentioned I might. The Social Security man asked me a few questions to clarify things that were ambiguous on the form, and then he said I would get a letter outlining how much to expect.
A couple of weeks later they sent me a letter to say when my first check would be. It was much smaller than the usual check because I had to pay for Medicare Part B for a month in which I didn’t get a check. But, the letter also said the following check would be normal, just one month of Medicare Part B premium taken out.
Part B premiums
Medicare Part B is major medical insurance and you pay a premium for it. As of this writing it’s $135.50 a month. It is optional but if you refuse it and don’t carry other insurance comparable to it, you may pay more later. You could also pay more if you are rich.
My Medicare (with Part B) started the month of my birthday, June. But since I was still working I did not start my Social Security payments till July. And since Social Security pays you the month after for every month you are eligible, my July check didn’t come till August. So my Part B premiums for June and July came out of my July check which I got in August. My August premium will be paid with my August check which comes in September.
To confuse things more, I got a bill from Medicare for Part B premiums saying, in effect, pay up immediately or lose coverage. I paid and later got a full refund, because my checks were set to be modified to cover the premiums.
So, after starting my Social Security as of July 1, I finally get a stable, normal, repeatable check in September. This is the check amount that will come every month unless I work before my 66th birthday.
If you are lucky enough to have a pension, pat yourself on the back and then contact your pension plan office about collecting. They will have lots of questions for you and several options for how to take your pension. This may be a good time to have a financial advisor.
My husband had a tiny corporate pension after working ten years for a big company in South Carolina. He had begun his Social Security at 62 and contacted the pension people at 65, which was the required date. After the questions, he selected the option that pays a little less but has the pension pay to me if he dies.
If your pension is from a municipality with money troubles or some other distressed place, you may not be able to rely on it in perpetuity. That’s another reason to talk to an advisor you trust before electing any options.
Your defined contribution plans
If you have an IRA in a good place that is secure and doesn’t cost all outdoors, good for you! If not, it would be a good idea before retiring to put your IRA in a company you feel good about, with low fees. If you don’t have one, think about starting one.
Your work-based plans, 401(k) or 403(b), may have higher fees for operating than an IRA. The company you will retire from may not want to hang on to the responsibility for your money either. And you may have more than one of these things out there from working other jobs before this one.
Save yourself some grief. Centralize your money and make one account of it. One good reason for this is, once you turn 70 years and 6 months old, you have to take out a certain amount of money each year or pay big penalties. You will have separate minimum payments to take for each account you have.
Of course, there may be other consequences to putting your tax-deferred retirement savings all in one place. Check with your financial advisor if you have deep questions about it.
Centralized in an IRA
Now you can choose investments to generate retirement income. You can have help figuring out how to invest to get income while keeping the money you have.
When I retired, I was given a contact at the company hired to move my 403(b) for me. It took about 3 weeks but finally my money moved to the IRA I had set up.
Now I was going into unfamiliar territory: income mode. My advisor, who works for my IRA company, helped me make a plan based on my total income needs. Using what I had saved, he found he could set up an investing plan to cover my income needs and still grow over time. He said his algorithms planned out to 35 years, or my 100th birthday.
Regular savings’ role in retirement income
So this summer we lived on our Social Security, his pension, my severance pay and some leftover money I had. Later this fall I will have to dip a little into savings to pay the property tax but that’s what it’s there for. If it weren’t for some suspension work needed on the car, I would have paid it out of money on hand.
Long-term, such annual expenses will come annually out of the IRA. But for immediate repairs of things, we have regular savings. The account doesn’t pay much, but it keeps us from running up taxable income from the IRA, plus payout fees.
Long story short, it took me three months to work out what kind of steady income to expect. It helps a lot to know how much you spend going into such a process, so you don’t run short. And it’s really better to have a budget to guide your spending, with an emergency fund as backup, so you can live within your retirement income. Comments?