When should you retire?

I hear all versions of opinions on retiring—it ranges from “as early as possible” to “never”. While this is primarily directed to people who can afford to consider it, that is definitely not the case with everyone. So first, some factors in deciding whether you can afford it at all:

  1. Do you have enough guaranteed income to cover (at least) your fixed expenses? If you have good Social Security and a pension (that endangered species), you probably can afford it, especially if there’s a cost-of-living increase as part of your pension. You lucky duck.
  2. Do you have an investment portfolio sufficiently large to make up any shortfall? You can take a quick look and see if a 4% (or, stretching it, 5%) withdrawal will cover the rest of what you need. But also think carefully about what changes you may need to make. What if the market dropped by 1/3? Could you tighten your belt enough or put off discretionary expenses to cope with a lower withdrawal?
  3. Could you work part-time, as a consultant, or start a business with low start-up costs? This can work well for healthy, youngish retireds, but it’s not really feasible for older retireds who may begin to experience health issues. If the extra income is gravy, great, but if it’s essential any illness is going to be catastrophic.


Okay, you can afford it. Now, should you?

  1. How old are you? The younger you are, the longer your money will have to last, and the more certain it is that you’ll experience more market crashes. You’ll need either more money or a slower withdrawal rate.
  2. What will you do about medical insurance? If your employer has paid at least some of your insurance, you might be shocked at the actual cost of individual insurance (previously self-employed, not so much). Currently, you can’t get Medicare until 65, so check out insurance costs before you announce retirement. Even once you’re on Medicare, you’ll still have to pay for insurance for prescriptions and supplementary, and long term care insurance if you won’t be able to cover around $100,000 a year (in today’s dollars).
  3. Are you irreplaceable? The answer to that is probably no, no matter what you think. Sure, you may be the best producer, the best manager, the most skilled…but if a truck ran you over, they’d find somebody else. Exceptions may be medical personnel in rural areas and small towns, some politicians and leaders, and anyone who provides a unique or hard to obtain service, skill, or product, especially solo. Ok, I’ll concede that you might be the best at what you do, but the world will go on. Check your ego!
  4. Do you know what you’ll do with yourself? If your whole life or your identity has always been your job, you need some soul searching. Everyone needs a meaning in life, but at any age you can find new meaning, or hobbies, or learn something you never had time for, or friends…it’s very sad when someone retires and can’t stand it. It’s a failure of imagination and dimension, and a sure sign you need to grow your soul.
  5. Do you have any social outlets? Many people miss the social group built in to some workplaces. Truth is, all your friends are getting older, too, and even if you stay past your expiration date, they’ll probably be moving on. Find some interest group you can be part of, even if online.
  6. Is it time to give somebody else a chance? If your employees and coworker have any idea you’re working past retirement, they are almost certainly muttering about you—when is she ever going to leave? Doesn’t he have anything better to do? And they’ve almost certainly considered that they won’t move up while you’re still blocking the ladder. The best will leave for better opportunities. Don’t think upper management hasn’t thought of this. Not only do they not want to lose the best, they’ve also probably calculated that they could hire someone cheaper than you. You’re only one knee replacement away from them figuring out a way to ease you out. Maybe it’s time to go out on your own volition, in dignity and glory. If you’re all that indispensable, they’ll call you back as a consultant, but don’t bank on it.
  7. Just how old are you? Many people are healthy and sharp in their 70s. Some are, in their 80s. Some are Warren Buffett. But after 80, continuing to work really requires a Plan B: fewer days, fewer hours, fewer clients, more support for mundane tasks. Really, don’t you have anything else to do?
Image of a money ladder

Dollar cost averaging: what is it and should you do it?

Dollar cost averaging is contributing money to an investment over time, rather than plunking in a big chunk at one time. You might designate a specific amount to be invested each month (or week, or quarter). Conversely, you might put in your whole amount at the beginning or end of year, or whenever you get that bonus or pension payout or inheritance. Which is better?

I was recently reading an investment article by a well-known academic. He used his model 12 asset portfolio and explored the option of investing $100 every month in that portfolio, for 25 years. The ending account value was $68,580 (your investment was $30,000 total). That didn’t look so hot to me, so I used an online investing calculator which gave an annualized return of 6.062%. He’s weighting each of the assets equally and rebalancing once a month (!!!)   That gives him approximately a 65/35% balance in favor of equities. He is using 12 indexes, which as we all know are not directly investable—mutual funds will likely have a slightly lower performance because of management fees. And, without at least knowing the Standard Deviation, it’s hard to see how much risk an investor would be taking. ~6% is pretty standard a performance.

But there is one advantage of investing monthly—potentially it allows you to buy at a lower average cost per share. If you buy on any given day, you have only one chance in 252 market trading days of hitting either the highest or lowest day. If you invest monthly, you have 12 chances, but it’s still unlikely that you’ll hit the lowest or highest trading day, unless you are very, very unlucky—you’ve diversified your risk. Still, since the market is up more than it’s down, your share cost will increase over time (which is what you’re hoping for, in a way, if you want to make any money). Also, if you’re investing a specific amount of money, you’ll buy more shares when the investment is cheaper, and less when it’s expensive. Finally, setting up monthly investments has the advantage that you might actually DO it. Dithering usually results in skipping at times—and there is never a good time.

But what about if you get a lump sum? By reserving some portion, you’re losing all the dividends and capital gains payments made, if reinvested. Let’s say that instead of investing $100/month over 25 years, you had invested that $30,000 all at once in his asset portfolio, held it for 25 years, and earned 6.062% annually. If I’m pressing the buttons on my calculator correctly, you’d have $130,652.15, over 45% more—so dollar cost averaging a lump sum over time could cost you a lot. But managing $100 a month contribution into 12 assets over 25 years is a pretty daunting prospect—if you can even find funds that would allow you to contribute $8.33 a month to each fund. So, let’s look at something easier. What if you had put that $30,000 “inheritance” into just one balanced fund, say Vanguard Wellington (no investment recommendation intended).  $30,000 invested on December 31, 1997 would have grown to $184,743.75 by December 31st, 2022, according to Morningstar. (I’m using the article’s measurement dates—Dec. 31, 2022 wasn’t a trading day.) I wish I could show you dollar cost averaging into VWELX, but it’s beyond my powers to calculate and the data obtainable—they only show 15 years, where the annualized return is 7.45%.

Those who are more skilled at statistics than I am may find these figures arguable (isn’t almost everything, depending on how you set it up?), so I refer you to this article. Investing regularly has the advantage that you might actually do it. But, while investing a large lump sum may require a big gulp and a leap of faith in the future (and some scary days of bad markets), you’re probably going to be better off than holding back anything in cash.


two persons sitting on grass facing the lake

Some misconceptions about Social Security

I hear these all the time. Maybe you know all this already, but there’s a lot of misinformation and outdated information, so browse through this as a self-check!

1. You can collect at 65.
Well, technically true—in fact, you can collect at 62, but you’re going to give up a lot. The full retirement age is NOT 65 and hasn’t been since the year 2000. If that one somehow slipped by you, don’t feel bad—most corporations are still designing their retirement programs around age 65 and don’t seem to have caught up with the change, either. If you were born in 1960, or later, your full retirement age is 67.

2. If you’re divorced, you lose all rights to a spouse’s Social Security.
Again, nope. If you were married at least 10 years, you can collect based on your own benefit or ONE HALF your spouse’s benefit as it would be at their full retirement age, whichever is higher. If you claim benefits, the Social Security Administration will give you whichever benefit is higher. Even if your ex-spouse is remarried, you can still collect. If they have multiple spouses, they can ALL collect, and this does not affect yours, theirs, or the ex-spouse’s benefit. You cannot sign away this right in a divorce settlement (and there would be no reason to do so). As long as you do not remarry before age 60, you can choose to collect off the record of whichever spouse (current or ex) has a higher benefit to you.

3. You can choose to collect only a spousal benefit, then switch to your own at 70.
Nope, not anymore. That benefit went away several years ago.

4. A married couple can only get one Social Security benefit.
Again, nope. Each spouse can collect their own benefit based on their work history. If one has a large benefit and the other has a tiny benefit, the spouse with the small benefit will be paid ½ the other spouse’s benefit if higher. Let’s say spouse #1 has a monthly benefit of $2,400 and spouse #2 has a monthly benefit of $900. Spouse #2 will get $1,200. If #2 has a monthly benefit of $1,300 on their own work record, they’ll get $1,300.

5. Once you collect on your own record, you don’t get survivor’s benefits.
If one spouse dies and has the highest benefit, the surviving spouse can collect the full amount of the highest benefit, but will then lose their own. So, the surviving spouse from #4 can collect $2,400, but lose any spousal benefit and will switch from their own lower benefit. For a divorced spouse this is good news, but may be bad news for a married surviving spouse who will now lose some of the income they had as a couple. Don’t depend on Social Security to automatically make this switch–claim it. I’ve seen too many widows who haven’t collected the higher survivor’s benefit for years after they were entitled to it.

6. You’re better off not reporting tips or cash income.
Well, you already know this is illegal. Yes, it probably puts more money in your pocket today, but in the long run you’re screwing yourself out of Social Security benefits as well as (potentially) disability benefits and survivors benefits for your family if you die while the kids are young. Lots of people (hairdressers, food servers, contractors) try to get away with this but if continued for years, really comes back to bite you in retirement benefits. Think again.

7. You should get your money as soon as possible. Social Security will go away.
I first heard this about 45 years ago. Social Security is still here. The American voter (you!) has some say over this—Republicans want to reduce it, make the retirement age even older, and “sunset” the law every 5 years. Yes, Social Security is in trouble, but there are many fixes—including taxing all income, not just amounts under $160,200. Yes, you read that right—people making over $160k pay no further Social Security tax. Maybe there will be changes, but it will probably affect workers earlier in their career, not retirement age. Nevertheless, no one should depend on Social Security for their full retirement income if they can find any way to save.

If you claim early (say, 62) you’re losing about 8% a year in benefits. AND, if you still work from 62 to 63, you give back $1 for every $2 you earn above $21,240. And then there’s that “great” idea that people say they’ll take the benefit and invest it. Will your investments produce a guaranteed 8% return PLUS cost of living increase every single year until your full retirement age and make enough to compensate for your lifetime reduced benefits? Um, no. If you even do save it, which pardon me but I doubt it.

8. I’ll get the dollars it says in my benefit statement.
You’ll get those dollars minus payments for Medicare. So your check won’t actually be as much as your statement says.

9. I don’t need extra health coverage, I have Medicare.
Medicare pays for a whole lot, but not everything—there are deductibles and quite a lot of things it doesn’t pay for. You need some supplemental (known as Medigap) or a Medicare Advantage plan.

10. Medicare Advantage is very low cost or free compared to the Medigap plans. Why shouldn’t I go with it?
Advantage plans can be free, but be sure you look at the deductible, which can be quite substantial, and resets every year. They also have some serious limits on physical and occupational therapy, should you need it. It may be the only choice if policy price is the major consideration, but be aware that it operates much more like an HMO, and your choice of doctors and hospitals may be limited, and procedures denied or reviewed. They may appear to give you a lot of things not covered in a Medigap policy, but this is a teaser for things that are easy and cheap to provide, while they save on more expensive things or choices.

Once you choose an Advantage plan, you generally cannot switch to a Medigap plan. The opposite is not true—those with a Medigap can usually switch to Advantage. Why do you think that is? Because insurance providers make more money for less service with Advantage plans. If you were happy with an HMO, an Advantage plan may work for you, but I don’t favor them in most cases.

When to claim, and all the ins and outs surrounding claiming after a divorce are, of course, somewhat complex and decisions should be made based on your own financial situation. I’m here to help.