So my parents are thinking of retiring. They are 65 and 66 but have only $65k in savings. They do have a house worth $850k but have $450k outstanding in mortgages. They live in SoCal but want to sell their house (payments plus HOA plus taxes = $3000) and buy a cheaper house inland ($300k) and fully pay it off. FYI. I have tried to convince them not to do this, but they have made up their mond.
This will leave them with $160k ($65k in savings plus $100k from the home).
They are considering taking social security now which will give them $1100 and $2100. However, I’ve been telling them to not take social security and use the savings so that they wait until 70 and get nearly double in social security ($1900 and $2700) and continue working. Does anyone know of any good financial advisors / resources who focus on people making these decisions.
Everyone we talk to is an asset allocation guy who says put X amount in stocks and X amount in bonds, but has no idea on when to take social security versus use their existing savings. Need someone to walk through timing of various accounts and when to use them - maybe even run some Monte Carlo simulations as I think they will run out within 10-15 years.
By no means am I an expert in this, but for a complete picture on this what are they exactly planning on doing with SS? Sounds like they both have worked and earned SS credits? Are they both considering just filing for their SS benefits outright? Have you looked at filing full benefits for one and a spousal benefit for the other while they let their full benefits continue to accrue?
I’ll keep my opinion of their overall idea to myself. Good luck in the search for a qualified planner. They’re out there but the good ones will cost you for the consultation.
Well if they sold the house and got a cheaper one inland with a mortgage they’d have plenty of money IMO, depending how much money they “need” to spend to be happy. If they’re used to spending $50k a year (aside from housing), then maybe they don’t have enough saved yet. Sounds like they have ~$400 k and will draw almost $40 k/yr social security already.
I don’t know whether using equity and savings before drawing SS is likely to work out better or not. It probably depends on their family history and whether life expectancy is much longer or shorter than average. If much longer, then postponing probably makes more sense. If much shorter, then starting it ASAP probably makes most sense.
My opinion is slanted because:
Cancer got my mom (@67, within a few weeks of diagnosis) a few months after my dad finally retired from long, hard work for peanuts in pay. He should have retired much sooner. They also had plenty of assets but were worried about insurance/etc. We don’t need to inherit money from them. Probably going to be ~$1M including property sold still left over eventually as my dad doesn’t spend much either… They had probably under $50k liquid assets at the time he was forced to retire.
For one parent the benefit is $2100 and they are 66 now. If they take it now they get $25,200 a year with inflation adjustment. Thats $100,800 over the next 4 years they’d not get if they wait until they’re 70.
If they wait till they’re 70 then they get $32,400 a year. Thats $7,200 more annualy for the rest of their lives. It would take 14 years more to recoup the $100,800 that they didn’t get by waiting. Average lifespan of a 70 years old male is 14 years. So its just about a wash. (I’ve ignored inflation adjustments to simplify this. Inflation would matter some though.)
Do they want to retire? (seems like they do)
Can they live off the $38,400 /yr with a paid off house comfortably?
A 465k net worth plus social security isn’t much to retire on without radically downsizing, but it sounds like they’re prepared to do so. The key would be their annual spending.
Big question seems like how much money they’ll be spending. Any HOA fees and such on the proposed cheaper house?
It will be better to wait for the wife since her life expectancy is longer, barring worth than average health. All else being equal, OP should encourage them to wait - inflation adjusted annuities, which is what SS is, are quite valuable and useful for retirees with marginal levels of assets. On one hand, one of them might live longer than expected and then need the income (making waiting a good choice), whereas if they die early, the other spouse may have additional benefits and lower expenses so they wouldn’t have needed the earlier-but-lower payout structure.
Yeah the math is better for the wife waiting. (assuming its the wife who’s 65 and expecting $1100 of SS)
If she takes it now at 65 then she gets $13,200 /yr for life.
If she waits 5 years then it goes up to $22,800/yr. Which is $9600 more. Thats forgoing the $114,000 of SS for those 5 years though. It would take ~12 years to break even and a 70 year old woman has ~16 year life expectancy.
(again I’m ignoring inflation for simplicity)
Individual health should be taken into account. If you have significant health issues then there is a lot higher risk in not living long enough to see a benefit by waiting longer.
[quote=“simplecypher, post:1, topic:2377, full:true”]
So my parents are thinking of retiring. They are 65 and 66 but have only $65k in savings. They do have a house worth $850k but have $450k outstanding in mortgages. They live in SoCal but want to sell their house (payments plus HOA plus taxes = $3000) and buy a cheaper house inland ($300k) and fully pay it off. [/quote]
Why in the world would they want to pay it off ?
As others have mentioned, short of known health problems, taking SS that early is very unwise.
Unfortunately, your parents missed the cut-off to allow them to collect half of their spouse’s full retirement age amount for four years and switch to their own retirement benefits at 70 by about 18 months.
They can retire if they can control spending well. I’m speaking from experience since I handle all my mom’s finance. It really doesn’t take much $ to live on.
Having a paid off house helps greatly. I think my folks might have a few hundred thousand between themselves, certainly less than half a million, and a paid off house. They go overseas and go on various activities but have always been pretty frugal. If you want to buy a new car every few years like you were if you were working or take up private piloting or mountain climbing, then that budget might be an issue. Long term care could be an issue but my grandma went to a Medicaid facility. Her condition deteriorated quickly but it was already downhill when she went to long term care, and she died in less than six months after we put her there. She might have lived longer if my mom applied to be a HHW and get the state money but she stubbornly refused to do so, and by the time my grandma had an injury to get her to the nursing home it was too late.
If they don’t need/want the larger house, yes sell it. That will reduce expenses. They might as well fully pay for the house since it seems the mortgage deduction is going away. Wait until the lower SS person reaches 66 before they take SS to avoid permanently loosing a percentage of what SS they qualify for. A previous SS strategy “File & Suspend” has been eliminated, but another strategy is still available. The lower SS income person applies (aft reaching 66) and the higher SS person applies a “Restricted Application” to get 1/2 of the spouses SS. This allows the higher SS amount to grow until they achieve 70. At that point both can withdraw off the higher SS amount. One at the full increased amount the other at 1/2 the increased amount.
Thanks Everyone! Lots of great advice. I didn’t know about the Restricted Application. Also gives me hope since a few of you said that they thought that even with what they have + social security, they may have enough. They are both in good health (mom is in perfect health and takes no meds and dad does take some prescriptions though I don’t know what).
I agree that the house is excessive at $300k but hard to convince them otherwise.
Also did not think to bring up the costs of assisted living down the road. That might help convince them to work a little more.
Yeah I only meant that since the % is high, the $$$ amounts for sale prices could be lower relative to other non-specific “inland” places. A 10yr old 4bd 2300 sq ft single-story brick house is ~$230k.