By CD Moriarty
Dear Ms. MoneyPeace:
My wife and I will be retiring in 2021. The company I work for was recently sold, and because I stayed through the sales process – which actually took years – the old employer gave me a bonus. I put the money in savings because I did not know about my employment status. Then, unexpectedly, the new owner kept me on.
The issue is my wife and I disagree what to do with our savings. There is $50,000 now and we have $46,000 left on our mortgage. I want to pay it all off. She is fearful that we will run into a large expense in retirement and not be able to get a loan because we do not have jobs. She wants it in savings.
We will both collect Social Security, and she has a teacher’s pension, so our basic expenses are covered. I have a small 401(k) – just under $100,000 – if we need extras. I am 67 and she is 64. I keep telling her we will be fine. And everything I read says to pay off your mortgage before retirement. That is what my parents did.
What should we do?
Ready to Retire Ralph
Dear Ready to Retire:
First, let me commend you on talking with your wife about this decision as well as for staying at your job when there was the anticipatory stress of new owners. You earned that bonus.
Times have changed, so what served your parents well may not be best for you. As far as retirement planning, here are some expenses you need to reconsider:
Health insurance: After housing, health expenses are the largest expense in retirement. Part of that expense is unknown and dependent on good health. You do not mention any employee health benefits for retirement. Explore these with both of your employers. In addition, work your Medicare and health-care premiums into your retirement spending. Medicare isn’t free or automatic) .
Income taxes: Before you do anything with that bonus, wait until your taxes are done for 2020. This added income may have boosted you into an increased tax bracket. This bonus from your former employer is taxable income. If enough taxes haven’t been taken out, you most likely will need to pay when you file your tax return.
As a Certified Financial Planner I have three concerns:
1. Your Social Security timing: Continuing to work or working part-time in retirement – even at your current employer — could let you delay taking Social Security and therefore receive a larger Social Security check each month. You can see what it means for you – and your wife — by logging onto your Social Security account . Explore your options, as they are not limited to both of you taking Social Security at the same time or starting a pension and Social Security together.
2. Your DIY style: When it comes to retirement, you and your wife are doing it once. Professionals deal with the nuances every day. Spend some money now on advice; even the best financial people I know also have their own objective professional.