Ep 54: Should You Delay Retiring?

Ep 54: Should You Delay Retiring?

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The Smart Take:

Some 24% of those 56 and older say the pandemic has caused them to push back their planned retirement date, according to a survey conducted by The Harris Poll on behalf of The Nationwide Retirement Institute. Hear Kevin discuss key variables you should consider as you plan through the COVID-induced uncertainty, including items that may nudge you to retire now and others that result in waiting.

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6:45 – Kevin’s First Impressions On Postponing Retirement Due To Pandemic

10:35 – Case Study (Mark And Linda Consider Pros And Cons Of Retiring)

16:28 – It All Starts With A Plan

18:04 – Unemployment Considerations

20:47 – Healthcare Considerations

21:56 – Further Considerations In Delaying Retirement


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The Host:

Kevin Kroskey – AboutContact

Intro:                                     Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to retire smarter.

Walter Storholt:                Welcome to another edition of Retire Smarter. I’m Walter Storholt, alongside Kevin Kroskey, president and wealth advisor at True Wealth Design, serving you throughout Northeast Ohio and Southwest Florida. Check us out online by going to TrueWealthDesign.com. Kevin, what’s going on in your world?

Kevin Kroskey:                  Walter, we’re getting ready for school, whatever that means, I guess, in this COVID era that we’re in.

Walter Storholt:                What does that look like, at least today, for you guys? I’m sure it could change tomorrow but in terms of right now.

Kevin Kroskey:                  So, in my household, my wife, she had worked for American Greetings for about a decade before we had children, and she was a writer and editor there. And once we had our daughter, Aubrey, she became a full-time mom. But before she was at American Greetings, she was a school teacher. So, she did that for a few years, similar to me, how I used to be a physics high school teacher.

So, we both have that common background, but my wife is just, she’s mama bear. Right? So, she’s on the cautious side. And she’s like, “Look, we can have first grade around our dining room table, and we can just  wait and see how this goes rather than subject our daughter to an experiment.” So, we’re fortunate that she’s here and can facilitate that. And there are a few different options, whether people are going to go back full-time, in the district that we’re in, or whether that’s going to be more of an online version, or what we are opting for currently is, it’s going to be the guide online. So, there’s going to be a teacher that is teaching the class, and my daughter is just going to be participating from home at our dining room table.

We have another family in the neighborhood that we’re very friendly with and comfortable with, and just how they, I guess, are handling themselves in their personal space and hand-washing and mask-wearing and all that good stuff. And they also have a first-grader. So, we are going to team up. It’s going to be Casa de Kroskey first-grade classroom around the dining table. At least that’s what it’s looking like.

Walter Storholt:                Nice. That’s awesome. It feels like we’re having a return of the old single-town schoolhouse feel where it’s one teacher, every grade, every subject, just going to guide a couple of kids through. I know a couple of neighborhoods where we are who are banding together to do that thing. They’re hiring a teacher split between X amount of families and then finding ways to just basically get that one-on-one attention for their kids. And I  love the innovation. I mean, obviously, this whole thing sucks, for lack of a better term. No one’s having any fun with all of this, but if we’re looking for silver linings, which I always try to do, we’re going to see some innovation, in many different ways, come out of this. Not everything we try is going to work and be good, but who knows what other methods of learning and teaching and all that we’re going to discover? And that doesn’t take into account any other crazy decisions and ideas we might come up with within other industries.

Kevin Kroskey:                  No, for sure. And there’s a lot of bad news and a lot of good news as well. We are creative people. Capitalism is called a process of creative destruction, and there’s certainly some pain, and that’s why we have safety nets in place in our country and in other developed countries around the world. But I’ve recently heard several good and innovative stories where people are taking the hand that’s been dealt with them, and turned lemons into lemonade somewhere else,  shifting into different business segments or some, certainly, there are all kinds of needs and demands that have popped up, in just terms of, obviously, the technology which we’ve talked about, but also in just terms of cleanliness.

And I was talking yesterday with somebody that is manufacturing certain types of gowns for hospitals. Certainly, everybody’s heard about China producing a lot of this stuff. Well, he had a bright idea like, “Well, where’s China get the source materials for this?” And he narrowed it down to seven other countries. Lo and behold, he’s got a pretty robust manufacturing business of gowns that he’s shipping to many hospitals throughout the country now.

So, the news leads with a lot of bad news, but there is some good news there. And ultimately, we need to have certain safety nets in place to help people go through the creative destruction process that capitalism ultimately does. And unfortunately, the pandemic is dealing big blows of right now. So, it’s not all bad news that’s out there. We all have to be smart in our planning, certainly people that it’s almost a bit of a socioeconomic problem or almost more of a social problem, to some regard, because some of the portions of the population, I mean, a lot of the service industry jobs that are disproportionately affected tend to be lower-paid jobs.

As everybody’s aware, just with what’s happening over the last several years and with some of the political climates here in the UK, I mean, it’s almost like you have this class warfare going on, to certain degrees, and really politicizing beliefs. And this is probably going to exacerbate that to a certain degree, at least for a while. So, hopefully, we have some good leadership in this country. And even if we don’t have it at the country level, I mean, there are certain things that we can do individually, and just go ahead and be active in our communities.

There’s certainly good organizations, good community foundations that we have in Northeast Ohio that personally, my wife and I have donated to and increased our donations to, just because people do need more help, and there are people there to help. So, whatever we can do. I think if we can all take a vested interest, look a little bit outside of ourselves, look toward our neighborhoods, look to some of those that are less fortunate in our communities or in our surrounding communities. And hey, that’s what we can do. We can pull together and get through it.

Walter Storholt:                Taking individual responsibility to improve your neighborhood and surrounding community. Kevin, get that nonsense out of here. That makes way too much sense.

Kevin Kroskey:                  Yeah. Much better just to go ahead and do political posturing and not get anything done, right?

Walter Storholt:                That’s right. That’s right. Just get on Twitter and spout your opinions. We don’t need any of this common-sense talking. No, you’re exactly right. And making lemons out of lemonade and thinking about the impacts of COVID, of course, we talked over the last couple of months of how it impacts finances, how it impacts somebody’s planning for retirement. I’ve seen a couple of articles, one in particular that you happen to find it as well, Kevin, when we were talking about the show content for today, this particular one was on money.com, that’s starting to talk about the impact, we’re starting to see it now of, especially baby boomers, of course, saying that they’re going to postpone retirement due to the pandemic.

In fact, this one article points out that it’s about 1 in 4 baby boomers saying that they’re going to postpone their retirement date. About 24% of those 56 and older say the pandemic has caused them to push back their planned retirement date. This was all conducted by the Harris Poll on behalf of the Nationwide Retirement Institute, for full disclosure. And we can link to the article in the show notes of today’s program if you want to check it out. But what’s your initial reaction to that stat? And is this something that you’ve had conversations with your clients or folks that are coming to you for help over the last couple of months? Do you see some ground truth to this?

Kevin Kroskey:                  Absolutely. So, one, if we harken back to the last financial crisis a little bit more than a decade ago, you saw the same sort of phenomenon where people were just decided like, “Hey, my 401k is now basically half of the 401. It’s a 200k, and I’m just going to go ahead and keep working because of that.” And you definitely saw that for sure. This isn’t necessarily surprising, as we’ve talked about with the downturn in February and March, and at least in the stock market, the looking through the economic downturn and how the market tends to lead the economy and the somewhat surprising, and the rapidity of the bounce back is best, just been phenomenal this year. But certainly, having a cautious approach makes sense, right? You don’t want to lead with the chin and go into retirement,  blind, dumb, and happy and just say, “Woo-hoo. I’m going to do it.” And you don’t have a-

Walter Storholt:                Run through the brick wall.

Kevin Kroskey:                  Don’t have a plan in place, and fingers crossed, baby. Not a good way to go about a plan. If you back up for a moment, and you think about some of the keys, I guess, the key variables that go into a plan, and I’ll just focus on the baby boomers that are pretty close to retirement. You can work longer, for sure. You can save more. But when you think about it, I mean, if you’ve got a nice round number, maybe a million bucks that you saved over these years, and you save an extra 20,000, that’s not going to be all that much. It’s 2% more. So, that is not, compared to maybe working another year, maybe making another $100,000 versus saving 20,000. The working longer has a much, much bigger leverage effect than just trying to save a little bit more.

You could go ahead and try to seek higher returns with your investments. The only way that you can do that is to accept more risk, which is, by definition, risky. You could spend less. Maybe you could downsize a home. Maybe if you just really want to go ahead and retire, and maybe there are areas where you can cut back. Or somewhat relatedly, but a little bit more skewed to the negative, you could just plan on dying younger as well, I suppose and have your money last not as long, but that’s not necessarily a good plan though. That is something that is commonly expressed when we talk about long-term care. “Well,” somebody will just say, sort of tongue-in-cheek. “Well, I’ll just go outside and shoot myself.” And I don’t think that’s a good plan either.

But working longer is by far the thing that you could do that could most impact the success of your plan. And I think most people, at least, should have a bit of caution in the uncertain environment that we’re in, and just think about that, say, “Hey, I can just keep working,” assuming that you can, assuming that you haven’t had a job loss or something like that. But you may not need to either. Again, it still comes back to the planning process. And we’ll talk about that here in a little bit more in a moment, but I had a meeting, oh, about a week or ten days ago now. A super nice couple actually shared that they’ve been listening to the podcast for, I think, about seven months. And they just were about 30 minutes away from us, where we’re at in Southwest Florida. Reached out to us, and we got together.

Just absolutely phenomenal people. She had a really great retirement vision, things that he wanted to do, things that she wanted to do, things that they wanted to do together. They were really wonderful in terms of visualizing what they wanted retirement to be. I could tell you do this long enough, and you do enough financial plans, you become unconsciously competent, in a way. A lot of times in a meeting like that initially, you can tell if somebody is ready to retire, financially speaking. And by and large, they were. Their needs were provided for. We had some good spending data that they had provided in advance of the meeting. We have to do some confirmation of that, just to make sure that we have good data there, but it seems to be good. We have some car purchases they just did. A big move put a pool in the house, got a lot of these big one-time expenses out of the way.

So, we really narrowed down to, what are the core expenses that they have? Then we talked about, “Well, what else are you going to do in retirement?” On their goal worksheet, they had RVing. And that’s a common thing that people want to do. That’s particularly common this year in COVID since a lot of travel destinations aren’t really, you’re not getting on a plane and flying somewhere, at least a lot of people aren’t. I will generally ask them, “Hey, have you done it before?” Just making sure that it is something that they want to do. Having an idea is one thing, and having a goal, something that you’re really certain that you want to do is something else.

So, we’ve talked in past episodes about, “Hey, if you’re thinking about being a snowbird, maybe you should just  rent for a while before you actually go ahead and make a big financial commitment.” Same too goes for the RV, in my opinion. I mean, you can rent these things. You can give it a shot. Rent it for a week or for a month. Yes, it is expensive to do it on a nightly basis, but it could be really cheap in the long run, if you find that you don’t like it.

Walter Storholt:                You don’t want to go out and buy the 20-footer and then say, “Wow, we really should have bought the 28-footer. We needed that extra space.”

Kevin Kroskey:                  Or whatever it is, or, “Hey, I was driving this thing, and it’s a lot of work, and I got this one tank, and then I got this other tank, and then the toilet overflowed,” speaking from somewhat of experience here. And for me personally, I didn’t really enjoy it. It felt like work to me. Now, I’m a rookie, but we’ll see.

Walter Storholt:                This is why you went in the direction of boating instead.

Kevin Kroskey:                  Right. Yeah. And I haven’t sunk that yet. So, so far, so good. But so, Mark and Linda were just going through this, and it was very clear to me that they could afford to retire. But when I asked them what their questions or concerns were, the first one that they said was, “Hey, just timing retirement. After all, we are in a pandemic right now, and there’s no vaccine just yet, even though there are positive developments for many vaccines. And there’s this uncertainty, and should we just keep working?” So, they were, and we’ve had similar conversations to this, but they really hit the nail on the head. And when I was talking through it, in the meeting, and this RV that they want to do is pretty significant.

It’s, “Hey, we’re going to do it for five months out of the year. The RV’s going to be a… It’s going to be a nice RV. It’s going to be what they call a diesel pusher.” Those aren’t necessarily inexpensive. And those things consume a fair amount of gas. “We’re going to drive 6, 7,000 miles a year. We’re going to get about seven miles per gallon or whatever it may be. Our overnight fee’s going to be $42 a night. We’re going to be out five months out of the year. We’re going to have $300 per month storage costs during the seven months that we are not traveling.” Certainly, you’re going to have maintenance, so on and so forth. Then they want to do this for a while, maybe 10 or 15 years.

And so, when that was introduced, it was very clear to me like, “Well, hey, if this wasn’t on the table, no doubt that you could retire right now.” I mean, it was just very clear to me, even without running the numbers. But when you have a big expense like that and a big goal, then certainly, you do have to take the care and run the numbers. I mean, you always should run the numbers, even if I know somebody’s going to be okay financially, walking them through it, and showing that to them concretely and how all the pieces and parts fit together. Speaking from experience, that’s often some of the best value that people get in working with us, just having that peace of mind and just really seeing it, and how everything is really synthesized, and how their income is going to be replaced, once they do leave the job and they have to live on social security pension and everything that they’ve accumulated for those years.

So, they were asking the right questions. They had done a great job pulling everything together, as far as what they want to do. They were visualizing retirement. We were going through the things that were important to them in terms of their needs, some things that are a little bit more discretionary, and if they did have to cut back, what would those be? Like the RV, for example. I mean, maybe it’s 10 years, or maybe it’s 15, but a five-year differential could be lots of dollars. It could be retiring maybe 6 or 12 months earlier. We haven’t done the plan yet. We’re in the process of it right now, but they were asking the exact right questions.

So, the whole money.com survey, the 1 in 4 baby boomers postponing retirement, I think it’s right. I think it’s the right position to have coming into this when you have so much uncertainty. But some other things that I think, when I was  thinking about that, and I’m like, “Well, what are some considerations  pro or con, or what should some people be thinking about?” Like I talked about before, I mean, it does start with a plan. I mean, you have to put everything together. You have to see how well-funded the plan is. And you have to go ahead and just look and say, “Hey, I mean, if…”

I had a meeting yesterday, and the people had about $130,000 in annual income in retirement, and they were in their early 70s at this point, been clients for about 10 years, but it was between two good pensions and two social security benefits. And I don’t know about you, Walter, but hey, if I got a little bit more than 10 grand a month pre-tax coming in, I mean, I can feel pretty assured. I think it’s a pretty good starting point, a good foundation-

Walter Storholt:                We can work with that.

Kevin Kroskey:                  Yes. So, if you have that sort of income stream, that certainly reduces, what I will call, the pandemic risk, at least as it relates to your retirement and your retirement income. If you’re more relying upon assets and you don’t have pensions, well, obviously, there’s more uncertainty there. So, these are things that we all have to work through, but it does start with that plan. It starts by looking at the goals, how much it costs to live your lifestyle? What different changes you may have in retirement that you want to do, the needs, the wants, and the wishes? And then pulling that together, stress-testing your retirement plan, really measuring how productive your assets need to be, what rate of return or hurdle rate you need to achieve, and then just tying it all together. So, that’s really where it starts. It always starts there.

But outside of that, some other additional considerations that I was thinking of, whether it makes sense to postpone retirement or not. So, right now, you’re hearing some companies laying people off. Some of those jobs are not going to come back. If you are in that position where maybe you lost your job, maybe you’re collecting severance, or maybe you can opt for an early retirement buyout or something like that, there’s certainly some benefit to that. I mean, we’ve had clients that have gotten severance for 12, maybe even up to 18 months in some limited cases. And to be able to go ahead and retire and get your pay for another year, even if it’s six months, and not have to work for it, I mean, that’s not a bad thing. So, if you’re pretty close and financially can do it, and you feel like you’re ready, well, hey, maybe it’s just time.

Or if you’re not fortunate enough to have those kinds of benefits, I mean, there is unemployment that’s there as well. And we’ll see, Congress is going back and forth right now, finalizing another stimulus plan. It hasn’t been done yet as we talk on August 7th here, but something else is coming. There’s going to be some additional unemployment. I remembered back in 2008, 2009, we had a couple of clients that were literally unemployed for like two years, and unemployment benefits were extended for many more weeks than what was more customary, I think. At least, each state is a little bit different, but in Ohio, it was about 26 weeks. And I think it’s already extended to 52. Don’t quote me on that, but I believe that.

So, if you’ve lost your job or if you have an option for early retirement or something like that, well, again, you got to run the numbers, but you can work in some of these benefits, whether it’s severance, whether it’s some sort of buyout offer, or even just plain old unemployment benefits until they run out, and incorporate that as an income stream. Again, maybe that helps add a little bit more safety margin to your plan. And if you already have a well-funded plan, well, there you go, and you don’t necessarily need to go ahead and pursue additional work.

The other thing I’ve heard a few people say is, “Well, hey, this whole COVID thing, I mean, you can’t really travel or go have fun anyway. I might as well just keep working. I’m working from home, and I’m just going to keep doing that.” So, Walter, I mean, I know you’re working from home right now, as am I, and travel, if you’re lucky enough, I guess, to be able to get the RV or to get a boat, or what have you, I mean, there’s certainly some things you can do, but it’s not like it was pre-COVID. And so, we have a lot of clients that, when we’re meeting with them and we see their cash is higher than what we’re projecting in retirement, and they’re like, “Well, yeah, we had to cancel this trip, and we had to cancel that trip.” So, if you can’t really go out and do some of the things that you were looking forward to doing, then maybe it just makes sense to keep working. So, that’s something else I think you need to think of.

Healthcare is always a concern for anybody that’s working and making that transition into retirement. Medicare starts at 65, but obviously, the longer you just stay on the employer plan. And if you’re pre-Medicare, maybe you’re retiring say in your early 60s, you’re potentially going to have some high healthcare costs until you get onto Medicare. But if you keep working, obviously, you’re going to shorten that high-cost gap. It’s certainly not a reason to keep working in and of itself. It’s one that I will often hear people say and express like, “Well, I just don’t want to pay 15, maybe $20,000 a year for health care.” And I say, “I get it, for sure. But it’s only a couple years at worst and your plan, we can factor that in. We can factor in the worst case for that retirement, that high-cost healthcare spend for those few years, and you’re still okay.”

So, you still want to start with a plan, and just being pragmatic. I mean, it’s often, even though people can afford to pay for it, I’ve often found that people would just keep working a little bit longer, so they don’t have to pay for it. And it’s just the way that we are. Two more of that I’ll make a point on, but pension lump sum. So, we did a whole episode on this a few months back, and pension lump sums are certainly higher this year. Where we are here, and now in August, they’re looking to be higher even next year.

So, we have some clients that have pretty sizable pensions, and they do have a lump sum option that’s available on it. They don’t have to have a lump sum option that’s on it. In fact, the employer can take that away. They just promise to pay you a monthly benefit for as long as you live. And because the interest rates are a lot lower this year, which makes the inverse relationship for the lump sum a lot higher, I’m seeing some employers in some different  employee benefits periodicals talk about, “Well, hey, maybe we should strategically remove this lump sum, at least for a while, so we don’t have to fund these things to a much higher degree, just given the higher amounts that are currently available.” So, the lump sum timing is important, but just remember that it’s not a guarantee. I mean, the company can take that away at any time and just offer you the monthly amount. But at least as it stands here now in 2020, the lump sums are definitely higher this year than last year.

We had a client earlier this year. I mean, it went up by a few hundred thousand dollars, pretty sizable benefit. It’s probably going to be even higher next year, based on where interest rates are at this point in time relative to last year. So, we’ll see. It depends on the measurement month, and that’s how it works. If you’re more interested in that, you can always go back and listen to that pension lump sum podcast we did. And in fact, I guess finally, call it like a YOLO factor, you only live once. If you can afford it, and if you have things that you can do to find happiness and enjoyment, or you’re experiencing burnout, or just aren’t happy or lost your passion at work, then, I mean, why are you going to keep working? I mean, if you can, if your retirement plan is well-funded, if you can meet your goals with a very high degree of confidence, if you need a low rate of return, if you have a high safety margin, we’re going to get through this.

We are in an uncertain period for sure, but we’re going to get through this. And if you need a relatively low rate of return, have a high safety margin, and you’re just ready, then, again, you only live once, at least as far as I’m aware. I can’t remember anything from any prior lives. I don’t know about you, Walter, but. So, I think those are some of the things you think about when Mark and Linda came in. That was our first concern that they had, “Hey, when do we do this? And what about this pandemic?” And so, again, it all starts with a plan. I think that is the right question to ask. I think they asked exactly the right question. And I don’t have the answer yet because we’re going through the planning process for them.

But it comes back to those needs, to those wants, and those wishes. Most people want to go ahead and maintain the lifestyle that they become accustomed to, so that’s rule number one. Some people want to increase it and do some things like the RV like Mark and Linda want to do, and that’s fantastic. And it’s my job as an advisor to make it very clear as to whether they not only can afford to do it but hey, if things went bad if the market went back and we had some big losses in the early years of retirement, which was really the worst time to have it, what is at risk, if anything, in their lifestyle, in their financial plan? Is that RV, in that example, is it at risk? Might they have to sell it sooner? And if they do, I mean, is that okay?

I’m not one to judge that. It’s their plan. It’s what they value and what they find important. But it’s my job to do a really good job to understand who they are, to go ahead and do a really good technical job on the financial plan, and then explain it very clearly, to show them the trade-off so they can make an informed decision on what’s right for them.

Walter Storholt:                All of this just really seems to come down to uncertainty, Kevin, and just, why should you postpone retirement? Or why are people postponing retirement? Sometimes, it’s not out of necessity. Sometimes, it’s just that uncertainty that people don’t feel comfortable taking that step, pulling that lever. And that’s understandable, but do it with some backing, I think, is the thing that makes the most sense. Don’t do it on just the emotional side. Make sure you have the numbers to go along with that, and then balance the two out and see what makes the most sense for your situation.

Kevin Kroskey:                  Absolutely. Because if your plan works now, when the uncertainty lifts, then you’re probably going to be more mentally prepared to pull the trigger at that point anyway. And so, if you’re getting closer to retirement or at least think you are, whether it’s, you’re maybe not certain about how well your plan is funded. Maybe you haven’t pulled everything together and don’t have a cohesive strategy. I mean, the best defense for any of this is having a good plan. I mean, when I mentioned the key variables that impact your plan, I said, “Work longer, save more, you could see higher returns, spend less.” But all that implies that you start with a plan. If you have no plan, you really have no direction, or at least you really haven’t committed to a direction. So, it really all does start with a plan.

Walter Storholt:                Well, if you need some help getting that plan in place, you can always reach out to Kevin at any time the old fashioned way, 855-TWDPLAN is the number to call (855) 893-7526. But the easy way to do it is to go to TrueWealthDesign.com. That’s TrueWealthDesign.com and click on the Are We Right For You? button, and you can schedule a time for a 15-minute call with an experienced financial advisor on the True Wealth team. Again, that’s at TrueWealthDesign.com. And to make it even easier for you, we’ve put a link to the site in the description or the show notes section of today’s show. So, wherever you’re listening to the program, you can access it and find it easily there. It’s all at TrueWealthDesign.com.

Well, Kevin, thank you for the help and the guidance on today’s show. Good catching up with you about some of these things, and nice to hear the story about some podcast listeners who are able to get some help with you over the last couple of weeks as well. That’s fantastic. And looking forward to talking with you again on the next episode.

Kevin Kroskey:                  Yeah. My pleasure, Walter. Always good to talk with you and always good to do our best and try to help some people.

Walter Storholt:                You got it. We’ll talk to you next time. That’s Kevin Kroskey. I’m Walter Storholt, and we’ll talk to you next time, right back here on Retire Smarter.

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