James came to us to help determine if he should take the buy out his employer was offering. He was anticipating retiring in a couple years and wanted to see if you could afford to retire now. He only had a few weeks to make the decision. James was 60 years old, recently widowed after 27 years and one child. He and his wife, Regina, had saved well. She was a physical therapist. They both contributed to their 401k’s and to a brokerage account regularly. James would be eligible to collect his pension when he retired.
During our initial meeting, James expressed that it had been a stressful few years working and taking care of Regina, he was tired. He wanted to take the buyout if he could maintain his lifestyle. We worked with him to determine what income was needed to fund his lifestyle. Once the monthly income need was determined, we were ready to build the income and tax plan.
In building his plan we had several factors to consider:
- Whether to take his pension monthly or in a lump sum
- When to collect social security, because he was a widower, he could elect to start his widowers benefit at age 60 and delay his benefits. If he delayed his benefits, when should he switch over.
- After taking care of Regina, he was concerned about who would take care of him if he was to become ill. He didn’t want to be a burden on his son.
We built several versions of the plan to determine the best outcome. In the end we recommended that he take the lump sum option. He traded off the guaranteed income for the ability to control the funds and at his death the funds would be transferred to his son. He applied for his widowers benefit at age 60 and would switch to his benefit at his full retirement age of 66 and 10 months. We used a portion of his cash to purchase a hybrid long-term care policy that would provide care if needed and a death benefit for his son if care wasn’t needed.
We strongly encouraged him to meet with an estate planning attorney to set up a trust and the necessary power of attorney documents for health and financial.
James is retired and golfing as much as possible.