Edward O. was forced into retirement in the field of information technology in 2018 when his job was reorganized out from under him. Though he did get six months severance, he quickly found that the “classic retirement advice doesn’t fit all, certainly not us.”
He explained how his and his wife’s retirement journey looked very different from many people’s — and what worked for them instead. While he does recommend that people start saving for retirement early and substantially, a lot of other key advice just hasn’t made sense for him.
In full disclosure, Edward revealed that he came into some inheritance from his parents at the age of 61. Before that, he was already aiming to retire at 62, which he was close to doing before he was laid off. The inheritance gave him and his wife the ability to do additional things they hadn’t budgeted for, such as international travel.
“From all of this you may be thinking that we are rich, and certainly we are in a lot of ways. But I spent my entire working career worried about having enough money,” he explained.
As an example, their two daughters did not have a cushy college fund — -they had to attend community college and take on debt because Edward was busy making ends meet.
Finally settling into retirement, he found himself surprised when the advice he had heard for years didn’t come close to applying to their situation.
Financial planners often advise retirees to pay off their homes before retirement, Edward pointed out.
“For us, this was wrong in two ways: first, the assumption is that we would be making less money in retirement, not more, so paying off your home makes sense. If you are making less money in retirement, having a home loan interest deduction on your taxes isn’t needed. But for us, making more in retirement, it’s a useful thing to have.”
Second, he said, there’s an assumption that they live somewhere affordable where paying off your typical 30-year mortgage is a likely scenario.
As homeowners in California, he said, “We actually owe more on our home at this moment than when we first bought it 24 years ago. This is because we have used our equity to buy cars and remodel our home. Although we are presently almost three years in on a 15-year, 2.25% fixed mortgage, we will be nearly 80 before we are scheduled to pay it off (and we’re in no hurry, see the first point).”
Classic Advice: You’ll End Up in a Lower Tax Bracket
He and his wife are actually in a higher tax bracket since he retired for several reasons:
He has a decent defined-benefit pension from the University of California.
He was good about putting money away early even before they inherited some money from his parents.
When he retired he stopped putting money into investments and started taking it out, going, he said, “from tax-sheltering to tax-loaded.”
They inherited half a stake in a small commercial building from his wife’s parents that brings in monthly rent.
He began collecting Social Security five years into retirement and his wife will begin collecting in another year.
They started renting out their second master bedroom on AirBnB not very long after he retired.
He has driven, off and on, for Uber and Lyft .
Classic Advice: Put Off Taking Social Security for as Long as You Can
Another piece of advice that didn’t work for Edward and his wife was putting off drawing Social Security.
“Putting off drawing Social Security is based on the idea that you will need that slight increment in your monthly benefit over the long haul, so you should do whatever you can now to put it off as long as you can,” he said. “But for anyone with stock market investments, you are actually better off taking Social Security earlier and reducing any selling of stock investments.”
In other words, by putting off drawing Social Security, you are extracting a cost in lost investment potential that could return much more dividends for your future.
‘Somehow It All Worked Out’
Despite what sounds like an abundance of riches, it was a very late surprise for Edward.
Prior to this, he said, “I had spent every single day worried about money. Worried about how to pay our bills, how to cover what small vacations we thought we could afford, how to put our kids through college (and then, essentially not), how to make our mortgage. Until, when I retired, suddenly discovering that it had somehow all worked out.”
Every retiree’s situation is different, and Edward acknowledged that if he hadn’t sat down with a financial advisor, they might not be in such good financial shape, even with all of the financial windfalls.
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