Couple must push back retirement date or risk running out of money

Photo: Hanacek

Joe, 56, and Mary, 55, don’t want Joe to stay in the workforce much longer.

Mary lost her job and is in something of a forced retirement, and they’d like Joe to join her when he turns 60.

“After nearly 40 years of working, I’d like to be able to relax, with little stress, while still finding a method of continued mental stimulation,” Joe said. “Prior to retiring need to come up with a plan that will ensure daily structure during retirement, mental stimulation, daily exercise.”

They’d also like to retire to a community in a warmer climate or at least be able to spend winters away from New Jersey. The couple hope to spend time with their three grown kids, and hopefully someday, their grandchildren.

The couple has speeded up their mortgage payments so the home loan — their only debt — would be paid off when Joe is 58.

As for savings, they’ve saved $187,800 in 401(k) plans, $46,600 in a deferred compensation plan, $405,500 in IRAs, $29,500 in a brokerage account, $57,000 in mutual funds, $6,400 in savings and $3,200 in checking.

In addition to his salary, Joe receives pensions worth $11,700 a year, and he’ll receive another worth $8,100 a year at age 65.

The couple also did an analysis of Social Security benefits to see how they could maximize the payments. They think they’d like to use the “file and suspend” strategy, which would allow Mary to collect on Joe’s higher benefit, while Joe’s actual benefit would grow until age 70.

Howard Hook, a certified financial planner and certified public accountant with EKS Assoc. in Princeton, crunched Joe’s and Mary’s numbers for


You need to have a starting point when it comes to retirement projections — including your retirement income and your expenses — but it’s important not to get too caught up in the actual numbers.

That’s because your future is a moving target.

“Being able to plot out 30-some-odd years accurately is near impossible,” Hook says. “Instead, we try to look at the trends that develop in determining the likelihood of success.”

Those trends include:

At what age does someone begin to withdraw from their portfolio?

What is their withdrawal percentage when they begin withdrawals?

At what age does the investment portfolio peak at before declining?

What is the projected portfolio value at life expectancy?

Taking all this into consideration, Hook says he ran a Retirement Cash Flow (RCF) projection based on the information the couple supplied. Additionally, Hook assumed a 6 percent rate of return, an inflation rate of 4 percent and a 3 percent inflation rate for Social Security. He also assumed Joe would continue saving at today’s rate until age 60, at which time he’d take a lump sum payout from his deferred compensation plan.

He also assumed the couple would keep their home, not increase travel expenses beyond today’s costs and that they’d live to age 90.

Overall, the news isn’t what Joe and Mary wanted to hear.

Considering the trends Hook noted above, they’d have to begin withdrawals from their investments at 62, at a 6 percent rate. The couple’s investments would peak in value at age 63, and they’d have little left at age 90.

“Although their expenses are modest, once they stop working they will need to begin to withdraw money immediately from their investment portfolio,” Hook says. “A 6 percent withdrawal rate at age 62 — coupled with a file and suspend Social Security strategy providing minimal benefits from age 67 through age 69 — puts too much stress on the investment portfolio.”

Hook says that’s what causes the portfolio to peak too early. While the projection shows they wouldn’t run out of money, there isn’t much room for error, Hook says.

“A long-term care need for example would materially change the results of the projection, as would adding additional travel expenses,” he says. “Based on our analysis above we would not recommend that Joe retire at age 60.”


Hook says a major part of the problem is that there’s too much of a gap of time between the time Joe wouldn’t be earning a salary and when they would start to take Social Security benefits.

“According to Joe’s calculations, their combined annual Social Security benefit between age 67 and 70 is only $15,748,” Hook says.

By delaying benefits, the couple would certainly maximize the benefits that would be coming to them, but they’d have to take too much from their investment portfolio early, which causes it to depelete faster.

To evaluate the benefits of working longer and collecting Social Security benefits earlier, Hook ran several scenarios.

The first, already mentioned, would have the portfolio peak at age 63 and only leave $66,000 left over at age 90.

If instead Joe retired at 62, even with increasing travel expenses by $7,500 a year, the couple’s portfolio wouldn’t peak until age 79 and they’d have $430,000 left over at age 90.

And finally, with that same scenario, but with Joe also collecting Social Security at his retirement age, the portfolio would also peak at age 79 but they’d have $800,000 left over at age 90.

“Working several more years and collecting Social Security a bit earlier results in their projected portfolio base peaking at a later age, which results in a projected greater balance at age 90,” Hooks says.


Given all this, Hook recommends Joe stay working until at least age 62.

Also, Hook recommends the couple re-evaluate their Social Security strategy to make sure it will meet their retirement income needs.

“The `file and suspend’ strategy works for some people, but for others, it may make sense to take benefits sooner in order to preserve dollars in your portfolio that would otherwise need to be distributed.”

Hook says the additional working years allow the portfolio base to grow, resulting in a lower initial withdrawal percentage. The lower withdrawal percentage is less than the expected rate of return on the investment portfolio, which allows the portfolio to increase even after withdrawals have begun, Hook says.

“Collecting a larger social security benefit earlier than originally projected reduces the withdrawal percentage,” Hook says.

Of course, the planning period between now and age 90 is quite long.

“Changes can and will occur which will cause the original assumptions to be different than reality, both positively and negatively,” Hook says. “It is important to understand that this projection is only a guide and as such needs to be monitored and reviewed to makes sure you stay on course.”

This story was first posted in November 2014.

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Net Worth:


  • Checking: $3,200
  • Savings: $6,400
  • IRAs: $405,500
  • 401(k): $187,800
  • Deferred comp.: $46,600
  • Brokerage Account: $29,500
  • Mutual Funds: $57,000
  • Primary Home: $440,000
  • Personal Property: $20,000
  • Autos: $30,000
Total Assets: $1,226,000


  • Mortgage: $63,600
Total Liabilities: $63,600
Total Net Worth: $1,163,000


Annual Income:

  • Joe Salary: $175,000
  • Joe Pensions: $11,700

Monthly Expenses:

  • Income Taxes: $2,609
  • Housing: $3,391
  • Utilities: $668
  • Food: $1,200
  • Personal Care: $160
  • Transportation: $515
  • Medical: $544
  • Entertainment: $35
  • Vacations: $300
  • Charity: $233
  • Gifts: $50
  • Misc.: $257