Couple’s story sheds light on forced retirement
Forced retirement can add unforeseen obstacles. This week, we look at a couple mapping out their next adventure.
The situation
Mike, 60, and Janine, 58, live in Thornton (names and identifying information are changed to protect confidentiality) and have hit a fork in the road as to what is next for them. Mike recently developed a condition restricting his eyesight, and it is preventing him from being a skilled ultrasonographer.
Fortunately for Mike, he has excellent disability insurance and he hopes once his claim is processed and approved he will receive $5,000 per month from the disability insurance until age 65. His claim is currently under consideration by the insurance company.
Thankfully, his eyesight will not be so bad that he won’t be able to enjoy retirement. He could do other work, so it’s futile for him to try to claim Social Security Disability Insurance. Janine retired three years ago from teaching and was volunteering with a big animal-rescue group that recently offered her part-time work earning $1,000 a month. Janine is still passionate about working with these rescue animals.
Mike had financially planned to work until age 65, with his average annual earnings being $100,000 after overtime. He estimates they need $8,000 per month to maintain their lifestyle, $6,800 if the house is paid off. Janine currently receives $2,700 per month from her PERA pension, but if she dies, Mike gets $0.
Mike has $750,000 of life insurance payable to Janine should something happen to him. Janine has none. The couple has $600,000 in a variety of retirement accounts. Mike would prefer to defer Social Security until age 70, as he and Janine have longevity in their family. His Social Security will be $2,700 if he takes it as soon as possible but his statement shows his benefit at age 70 to be $3,300. Mike also has a pension from a previous employer of $700 at age 65.
Janine wrote in to What’s The Plan?, saying “people don’t think it’s (disability) going to happen to them,” but it’s happened to them. Her biggest fears for them, to both be retired, is part of the current political climate.
She sees that their stocks are in good shape now but worries that this will not continue. They would both like to create a portfolio that can give them peace of mind in a turbulent market. The couple have discussed selling their home, buying a more affordable home and a camper and exploring the United States.
They would love to stay in Colorado, but with the rising market they are not sure this is a viable option.
Based on sales in their neighborhood, Mike thinks the couple will be able to pay off the mortgage and walk away with $450,000 from their home. They have no children and no ties in Colorado, so they’ve discussed numerous places to live and seriously considered less expensive places worldwide.
The recommendations
Even if the disability insurance income doesn’t come through, Mike and Janine are in good shape, which was a welcome surprise for both of them to hear. With their assets and pensions they’ll have about $6,480 per month in after-tax income.
If Mike’s disability income comes through, they’ll have five years to let their assets grow and do their homework on places to live where their housing can be paid off.
Mike can expect for his Social Security benefits at age 70 to decrease a little, as his benefit has currently been calculated based on Mike continuing to work and earning the same income. He will stop working and paying into the program today, so the benefit will likely be about $2,700 per month.
A hole in the couple’s program: What if something else goes wrong?
With one reversal, we’d like to say that that’s out of the way, but just because they got a raw deal with Mike’s eyesight doesn’t mean they’re immune to other setbacks.
Should something happen to Janine, Mike’s income would drop by $2,700, the amount of her PERA. Also, neither spouse has long-term care insurance.
In the event either spouse needs long-term care, the other will not be able to make ends meet.
We recommend they research life insurance on Janine, possibly coupled with long-term care insurance on both.
We agree that moving to a housing market with more affordable homes would provide a paid-off house and the extra cushion to help Mike and Janine sleep at night.
Even though the couple has been discussing the prudence of this, Janine doesn’t like the idea. She’s passionate about rescuing the big cats (tigers, especially) and feels like leaving her job would create a void in her life.
Of course Mike and Janine realize the decision about their greater financial security shouldn’t hinge on a job that pays $1,000 a month. Janine is very fulfilled in the work she is doing, and there will always be volunteer or part-time job opportunities elsewhere.
“Plan A” didn’t go as planned for Mike and Janine, yet they were good savers and made wise financial decisions along the way that have them now in a comfortable “Plan B” retirement!
Pam Dumonceau has 24 years of experience and is the principal of Consistent Values, a registered investment advisory firm in Greenwood Village. What’s your plan? Send an e-mail to Dumonceau at whatstheplan@consistentvalues.com.