Missing That Paycheck
THE LONGER I SPEND in retirement, the more convinced I am of the benefit of reliable income. One of retirement’s most pronounced psychological shocks is the loss of a regular paycheck. After four decades of working, you get used to one coming in every two weeks. The occasional consulting paycheck, even a small one, makes me inordinately happy.
I’m fortunate to have a traditional defined-benefit pension. It built up over 31 years of working with a large aerospace engineering firm. Unfortunately, the plan was frozen three years before I stopped working. Those last three years would have added almost $1,000 a month to my pension. And, as with almost all private-sector pensions, the payment I receive has no annual cost-of-living adjustment.
My wife earned a small pension while working for a local hospital in the 1990s. About 15 years ago, she received notice that the system was offering a lump sum payout to former employees. It amounted to about $30,000. Knowing that I had a pension, we opted for the lump sum and rolled the money into her IRA.
In January 2023, we started my wife’s Social Security retirement benefit. We still plan to delay my benefit until I reach age 70. This is the claiming strategy for couples favored by many financial planners—the lower lifetime earner claims early, while the higher earner delays, thus ensuring the maximum survivor benefit. The advantages are also clearly demonstrated by Mike Piper’s Open Social Security tool.
Another reason I delayed benefits: I still had opportunities to consult. Prior to reaching your full Social Security retirement age (FRA) of 66 or 67, you can both collect Social Security and have earned income, but your benefit may be reduced. In 2024, retirees can start losing benefits once they earn $22,320.
If my 2023 income had matched my 2022 income, I would have lost almost half my Social Security in 2023 to the “earnings test” if I’d been collecting benefits. As it happens, the projects I thought I’d work on in 2023 never came to fruition. I recently reached my FRA of 66 and six months, which means I can now work as much as I want without any reduction in Social Security benefits.
That makes this a good time to reevaluate my claiming decision. A few years ago, I wrote about the idea of “buying an annuity” from the Social Security Administration. The argument still makes sense to me, although today’s higher interest rates make delaying benefits somewhat less attractive. For now, I’m still delaying benefits, though I plan to reevaluate that decision regularly.
Commercially available immediate annuities are an obvious way to create steady retirement income. But they aren’t popular. Why not? Many folks seem to view the payouts as low and they don’t like turning over a large chunk of their savings to an insurance company. The “what if I die early” question is always present.
The process of converting a lifetime’s savings into a secure income stream is more complicated than many folks realize—and not discussed nearly enough. Over decades of working and saving, I had many conversations with friends and colleagues about investing for retirement. But I don’t recall many discussions about how to generate retirement income. It’s especially complicated for married couples. Ensuring Vicky’s financial security is very important to me—and it’s a big reason I’ve so far delayed claiming Social Security.
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