Tuesday, August 13, 2013

Decisions cubed! Pre-retirement seminar completed and streams of income issues

Today we attended a very informative pre-retirement seminar put on by the Federal government for employees. Contrary to what some people think, current civilian employees don't get pensions similar to military pensions. Instead they get a small pension based on years of service and salary, social security, and payouts from a retirement savings account similar to an IRA and dependent upon how much the employee contributed. A huge benefit though is the ability to keep participating in health insurance as long as you are willing to pay the employee part of the cost. Hubby is a federal employee so we are trying to learn about all of this and they suggested attending the first time when you are about 5 years from retirement. He has 4 1/2 years to go.

We learned that not only do you have a lot of decisions to make but many of them depend upon what kind of income you need to generate annually, whether or not you want to bet on a long life and buy annuities and what kind of spousal survivor benefits you think might be needed. We also have my social security and IRA savings and Hubby's IRA savings from prior employment. Ouija board anyone?

I'm not going to go into the details of what all we have to think through, but we will have to sit down with a counselor from where are IRAs are (educational employee program) as well to understand our options there. And I think one of us needs to get trained as a financial planner in the meantime LOL.

Seriously, the whole stream of income issue is one every retiree will have to address if they have any sources of income available in addition to social security. I think the decision process has to go something like this.

- What are your annual pre-tax income needs based on your planned expenses?
- How long do you want to assume you will live?
- What inflation rate and investment return rates are you assuming?
- Do you want a fixed annual income or a gradually increasing one to take into account inflation?
- What kind of survivor benefits need to be in place to ensure the widow/widower is not economically strapped?
- What income streams do you have available and how much do you want to take from each annually?
- What do you need to do to set up these income streams? What are the tax implications?
- Who can help you figure this out?????

For those who have already set up their retirement income streams, I am very curious how you thought it through?

I am so glad I have tracked our income and expenses for years as that will help a lot. However, since we will move after retirement our expenses will change in unknown ways.

I did get one question answered. Since I will be eligible for Medicare in a little over a year, I should sign up for part A which is free. Hubby will continue to provide health insurance for both of us. When he retires I can sign up for Medicare Part B with no penalty so there is no need to sign up for it before then and pay the monthly fee.


  1. It does depend on which retirement system you are in, like if you are FERS employee, In my case hubbys pension is not offset by social security in anyway, so it is based purely on years of service. Had he reached retirement age he woud have gotten seventy five percent of his base salary with no extra. Since he died pre-retirement age I get a partial percentage of that amount.

    it is wonderful that we can continue health insurance. The only thing I would suggest if you plan to live elsewhere is to remember that you can still only change your medical coverage at retirement and during open season-so make sure you have coverage that works where you are living. We have geha (which is united healthcare) and are very happy.

    1. The health insurance is wonderful. He is in FERS and after 20 years of service will get a pension of 22% of his high 3 average salary. Not huge but better than no pension.

  2. Sounds like you're on top of things, as much as possible. The problem, of course, is that none of your questions can be answered with any degree of accuracy -- you have to make a guess at all of them. And then, except for the pension, providing a reasonable income stream when interest rates are near zero is an almost impossible task. I do it with dividend stocks, a rental unit, and a part-time job. But not one of those is a certain thing. Best of luck!

    1. Thanks Tom. We have 4 1/2 years to come up with what to do and some of the decisions will be able to be modified annually. It is just rather mind boggling but we are very fortunate to have this "problem".

  3. I agree these things are mind-boggling to guess at! My dad was a federal employee and we talk about his retirement income and investments regularly, and since I help out with his tax forms, I know the whole picture. It really helps me to talk it through and to see a retiree plan in action!

    1. That would definitely be a help. I think we will run 2 or 3 scenarios and model it out - different life spans, different withdrawal plans, different return rates. Or we may give up and hire a financial planner.