Retirement is on the minds of many. This week we look at a newly married couple trying to determine if their seven-year projection is on target.
The Situation
Jim, 63 and Connie, 61, are The couple married three years ago and have no children. Jim, previously in the automotive industry, is currently working for the Colorado Department of Transportation with road construction and ice removal. Connie, a licensed teacher by trade, owns her own small business refurbishing antiques.
Jim earns $50,000 per year, and CDOT covers his medical costs and the minimum life insurance for the couple. Her antiquing business brings in approximately $10,000 per year.
The couple’s only debt is a mortgage of $68,000 with an adjustable rate of 2.75 percent. Jim pays $1,000 a month toward the mortgage, $568 more than the required payment. The home and all of the additional assets are in Jim’s name. He has a 401k valued at $126,579, a Fidelity IRA worth $78,821, and $9,000 in a savings account. Jim has done very well in choosing his investments and has had great returns.
Ideally, Jim would love to retire in the next few years, but he knows that working until age 70 will provide him and Connie with a greater income in retirement. The couple is worried, however, that because of the physical nature of Jim’s job, him staying at it for the next seven years may not be an option. That’s what brought the couple to write to What’s The Plan — they want to find out if they’re doing everything they can and make sure they’re not overlooking anything.
Recommendations
The couple’s plan to keep Jim on the job for another seven years is likely their best option. This would allow him to and benefit from CDOT’s pension plan. The current plan would pay approximately $2,500 per month. If Jim were to die while still employed, Connie would be entitled to $1,250 per month plus a lump sum of $10,000.
The most important recommendation for Jim and Connie at retirement is to choose the 100 percent joint and survivor benefit on his If they select his life only, and Jim dies, Connie would be left with nothing from CDOT’s plan. Regardless of his current health, this is the only option to choose to protect his wife long-term.
If Jim waits to collect Social Security until age 70, he is expected to receive $2,437 per month. Connie would get an additional $1,219 per month. If or when one spouse dies, the lower Social Security amount would go away, and depending on the pension plan chosen, they may or may not continue to receive payments.
I recommend Jim work as long as possible to maximize his benefit.
Jim and Connie are smart to pay off the mortgage earlier than the scheduled timeline. If they continue at the rate they are paying, they will have their home paid off in five and half years — meaning one less expense to worry about in retirement, allowing them to use the majority of their Social Security and pension on other things.
The couple is definitely on track, and staying the course for an additional five and a half to seven years will leave them in a great place.
Pam Dumonceau has 21 years of experience in the financial planning industry. What’s the Plan is not a substitute for financial planning or dedicated professional advice.
What’s your plan?
Ask Pam what you should do — e-mail whatstheplan@ consistentvalues.com to get advice. There’s no charge to be featured in the column, and names and identifying information are changed to protect confidentiality.
