Her (60F)
A family member of mine (60F) retired on February 29th as a GS-11 after 30 years in a government job. Last month she spoke with me about her finances for the first time and she was interested in getting some help planning for her retirement; better late than never, right? The recent downturn has accelerated that interest and we're picking up the conversation again.
Decades ago a financial advisor recommended she contribute to her Thrift Savings Plan, which she did with every paycheck contributing a 50/50 split between bonds and stocks. This was never changed and her portfolio was never rebalanced. Last month when we looked at it she had 450k split between 33% Bonds and 67% Stocks. I don't remember the exact stocks but I do recall they did appear to mirror the S&P 500 so I suspect the stocks have lost 23% (69k) of their value since then. She left because her work environment has been unsustainable for years. She is willing to go back to work, private or public, but doesn't have any leads at the moment.
Him (59M)
Her spouse (59M) doesn't have any retirement savings recently quit his job, so he can't collect unemployment. He also had to have his hip replaced on February 26th and is out of work for the indefinite future but does want to go back when he can. If and when he gets back to work he'll be making 40-50k a year.
Family Overview
- They do not budget
- They do share some finances with each other but historically not 100%
- No emergency fund
- Neither is collecting social security at the moment
- They're paying to continue their healthcare under their previous plan, but I don't know the cost
- She (60F) retired after 30 years as a GS-11, with a FERS plan and has 400k in a Thrift Savings Plan with an estimated 148k Bonds and 232k Stocks
- He (59M) is out of work indefinitely, has no retirement savings
- $20k in Credit Card Debt
- $900mo Rent for Housing (this is a great deal for their area, renting the same place for 13 years)
- $300mo Car Payment, unsure how much is still owed
- $400mo Truck Payment, unsure how much is still owed
My Thoughts
- The Thrift Savings Plan allows you to get payments out three ways (single withdrawals, annuities, and installment payments based on your life expectancy). I had the idea of recommending a one-time withdrawal to create a three month Emergency Fund (7.5k-10k) and to pay off their 20k in Credit Cards. Installment payments you just define how much you want monthly, and you get that much monthly with the option to change it annually. If it were someone else with more responsible financial history I would think the installment payments at a safe withdrawal rate of 3-4% rebalanced annually would be a great option; but not for them. With the annuities, it guarantees payments for you (and optionally your spouse) for the rest of your days. That annuity payment would provide them peace of mind and guarantee a base level of income. And considering neither has been great with finances this seems like the safest bet for the two of them.
- Those Truck and Car payment are killing me. I'd love to see them sell their vehicles and buy two cars outright. Possibly just one while he's out of work and then a second when he returns.
- It appears that FERS retirement calculations dramatically changes if you retire at age 62 with 20+ year of service, to the point annual payouts could jump 10%. Should she try to hold on collecting this retirement in the hopes of getting a government job again and getting those two addition years? Is that even a thing she can do? My guess is now that she's retired she needs to find someone with OPM to help answer those questions?
- They need to agree about their plan of action, it can't just be one of them. And I do think they're both finally engaged in this conversation. I also feel they need to be more collective in their finances, where right now it feels siloed from each other. This plan of action is going to include creating and sticking to a budget for the long haul. And no longer using Credit Cards.
Next Steps
This weekend I'm trying to help them facilitate this planning process for immediate and long term next steps. As mentioned we spoke last month but that was before her spouse's hip surgery and the sudden drop in stocks.
What other questions should I be asking them to help through this uncertain period in their lives?
Submitted March 12, 2020 at 11:23PM by scratchnsniff https://ift.tt/33goeMw
