What to weigh for early retirement
Consider how much you need and want to spend, and err on the conservative side.
Dear Liz: I am almost 59½. Can I retire at 60½?
I have $570,000 in a 401(k) and $180,000 in an IRA. I owe $253,000 on a condo that would sell for $600,000. I plan to buy a home next year for $400,000 and pay off the mortgage with the proceeds of the condo. Then I would be left with no bills. I will start collecting Social Security at 62 for approximately $1,850 a month.
I had a wonderful job for 23 years but something changed at work and now just going to work is hard on me. Let me know if you think this is doable. Answer: That depends. How much do you need and want to spend?
Financial planners typically consider a 3% to 5% withdrawal rate as “sustainable.” The rate depends on how long you’re expected to live and your asset allocation, among other factors, but you should err on the conservative side if you expect to retire early.
A 3% initial withdrawal rate would give you $1,875 a month. A higher withdrawal rate could dramatically increase your chances of running short of money later in retirement.
You might not have a mortgage, but you would have other bills, including the cost of health insurance. If your employer is subsidizing your coverage you could end up paying a lot more.
And if Congress dismantles or alters the Affordable Care Act, your health insurance could get even more expensive or hard to find. Your healthcare costs may go down once you qualify for Medicare at age 65, but they certainly won’t go away.
Also consider that taking Social Security retirement early means a smaller check for the rest of your life. If you do run short of money, that check may be your only source of income, and you may curse yourself for locking in the smaller amount.
You certainly shouldn’t bail on your job before you’ve had a fee-only financial planner look at your situation and see if your plans are realistic.
How to f ight Social Security fraud
Dear Liz: To make us less likely to become victims of fraudulent activity, years ago I froze our credit bureau files. I assume the Social Security Administration could be hacked as well. Can those files be frozen? Answer: No, but you can create an online account to track and monitor your Social Security records — and it’s probably a good idea to do so. Fraudsters are using such accounts to divert benefits onto prepaid debit cards. If you created yours first, this fraud will be harder to pull off. If someone has created an account in your name, you can find out and start taking back your identity. The place to set up your account is www.ssa.gov/myaccount.
Adding adult child to deed is a bad idea
Dear Liz: I’m an estate planning attorney and I agree with your warning to the couple who wanted to add their daughter to their house deed to avoid probate.
The daughter’s share of the home would lose the step-up in tax basis she would get if she inherited instead, plus there are several other issues. What if the daughter gets sued or has creditor problems? The house could be at risk.
The parents also may not have thought through what might happen if the daughter marries, divorces or dies before they do. A living trust would cost some money to set up but would avoid these problems. Answer: A revocable transfer-on-death deed is another option for avoiding probate, but a living trust is a more all-encompassing solution that also can help the daughter or another trusted person take over in case of incapacity.
In any case, they should consult an estate planning attorney, who has a far better understanding of what can go wrong after a death and how to prevent those worst-case scenarios. Liz Weston, certified financial planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.