top of page

Retirement Planning 101: An Insider's Guide

This Tip Sheet is not just to educate the community about planning, but to motivate you into taking the actions you need to take, and to maintain the actions you may already be taking.

About Gary:

44 years designing corporate pension plans and 401(k) plans, and advising others about the

legal rules surrounding these plans, as well as advising companies how they can best respond to the needs of their employees regarding their retirement.

Employed with 3 of the largest insurance companies in the Hartford area, as one of their chief technical consultants.

Educating and offering advice. Offering facts that will assist you in saving for your retirement and living comfortably in that retirement. Audience is anyone from a teenager to an existing retiree, there’s something for everyone.

Retired for 10 years, so I have already experienced what you are planning for.

There are many related areas to consider in planning your retirement – they will all affect your ability to retire, and retire well.

Historical Background:

Up to the 1970s, most of the plans that were available were defined benefit plans – plans usually based on a formula of a percentage of your salary times your years of service, giving you a monthly pension when you retired. If you terminated before you retired, you got nothing.

Employers were not required to put money aside for their employees’ retirement while they were working, it was not funded, it was a pay as you go – when someone reached age 65, the employer came up with the money necessary to purchase an annuity from an insurance company.

There were few laws protecting workers’ pension rights, however, and a company could just lay you off or terminate you at age 64, so they wouldn’t have to pay the pension. And it happened, and that was legal. Also, if a company closed, or went bankrupt, frequently there were no assets to pay the accrued pension benefits of the employees, because, as I said, it was pay as you go. So, the workers lost all their rights to a pension.

As an example, in the 1960s my uncle and aunt worked in a clothing factory in Chicopee, Mass. Myaunt decided to retire early at 55, and received the pension that she had accrued. My uncle decided to work to age 65 for a bigger pension. 4 years later, when he was 59, the company closed, and he lost his pension. He then worked into his late 60s to be able to retire more comfortably.

Then in 1974, ERISA was passed – The Employee Retirement Income Security Act, which, among other things, required companies to fund benefits during a worker’s employment, and also added a vesting schedule that gave workers a portion of their accrued benefit when they terminated before retirement, if they had worked at least a minimum number of years of service.

In 1983, came Spousal Rights legislation, that guaranteed spouses certain benefits. Before this

legislation was passed, a married person could name anyone they wanted to be the beneficiary.

under the pension plan. Beginning in 1983, a spouse is automatically the beneficiary of any pension of the employee. If the employee wants to take his annuity in a form that does not provide a benefit to his spouse in the event of his death, it cannot be done without the spouse’s consent. Even a withdrawal or loan cannot be taken out without the spouse’s consent.

Many other laws have been passed since, giving employees more and more rights.


There are two general categories of retirement plans that companies may offer to their employees:

Defined benefit - which typically gives you a retirement pension based on a percentage of your salary times your years of service – most or all of the cost is borne by the company or institution – this was the primary retirement plan until the late 1970s.

Defined Contribution - these include 401(k) plans, 457 governmental plans as well as 403(b) plans for teachers, SIMPLE plans for small employers, etc. – These are the dominant plans in effect today – one reason is that there is a lower cost to employers in funding the benefits. The 401(k) plan is generally less expensive for employers to fund, and of course the employee is expected to contribute in a way much greater than under the old defined benefit plan.

There are also IRAs – Individual Retirement Accounts – that you can establish yourself, whether or not you participate in an employer retirement plan. These can be a Traditional pre-tax IRA (where you deduct your contribution from your income and pay no tax now) or a ROTH IRA* which is post- tax (you pay the tax on your contribution now, and pay no tax on any withdrawals later). There are also ROTH 401(k)s that may be established by an employer that work the same way.

Your adjusted gross income must be less than $153,000 for singles or $228,000 for married

filing jointly

Although 79% of American workers were eligible to enroll in a retirement plan, only 32% did so.


If you are already doing so, great, keep it up, and increase it as much as possible. If you have not – and I know that there are many of you who have not – start now! It doesn’t matter if you’re only 20 years old – being young is a great time to start due to the magic of compound interest.

If you don’t have retirement savings (or little savings) it’s because it’s low on your list of priorities, or it’s not even ON the list! There’s no monthly bill that arrives for a retirement contribution, so it’s easy to overlook or ignore. No matter what your situation is, it must be a top priority, and more so as you get older.

You need to acquire an attitude: I WILL save for my retirement.

Once you make it a priority, you WILL find a way to make contributions to your retirement. And

you have to make that contribution automatic. You can’t think “when I get some extra money I’ll put it away for my retirement”. Even if that does work, it will be too little, too late. Establish regular contributions to your retirement plan, 401(k), Roth IRA, etc. If you don’t have a retirement plan at work, you can arrange automatic monthly withdrawals from your bank account or credit union account to go to your IRA.



Review all your expenses over the past two years. Break down your expenses into categories: Food, Entertainment (movies, drinks), Restaurants, Utilities, Car expenses, loan repayments, credit card payments, lunch money, clothes, misc. – You may be shocked to see how much you’re spending in some of these categories. This knowledge will empower you to take steps to reduce those expenses where you can. Just the act of examining your spending habits will lead to better control over them.

Also break it down to your daily and weekly habits. Do you frequent Starbucks? Dunkin? Do you buy your lunch at a takeout restaurant or the cafeteria at work? How much do those seemingly “small” expenses cost you each week? Prepare to be shocked.

How often do you go out for entertainment, drinks, movies? Do you drive yourself to work? Do you smoke? Play the lottery?

TRADE-OFFS - What can you live without? Do you really need to spend on all those items you are accustomed to?

- Make you own lunch at home – instead of spending $5, $10 or more every day buying lunch

at work or at a restaurant, I made my own and saved $25-50 per week. Bring water too, and if

that’s too bland, bring a flavoring like MIO and add it to your water.

- Make you own coffee at home and bring it to work. Buy a nice big insulated container for

your homemade coffee– it will pay for itself that week, and the savings will never end.

- Do you need a new car every few years, or do you lease a car? Make do with your existing car

and save money on car loans and lost depreciation $$. On average, American cars are 12 years

old now.

Reduce your use of Take-Out Food and Restaurants – I know people who get take out food

nearly every night. Food delivery services like Door Dash have made easy and even more

common. It’s very expensive and if they added it all up, they would be shocked how much they are spending (and how unhealthy much of it is). We’re talking up to $500 or $600 per month for some people. Reduce the frequency of those takeouts, cook more meals at home, and don’t overlook the leftovers – you’ll save a lot.

- Review your cell phone plan. There are loads of good deals now. For example, check out low cost providers like TELLO – you can get unlimited data for $29 a month, and if you are mostly

using Wifi (as many people do)– you can get a lower data plan for only $10 per month.

- Raise your insurance deductibles on car, and home or apartment. Your premiums will be

reduced (how often do you have a homeowners policy claim anyway?

- If you have a spouse or partner, have them make the same review with you (and get their

agreement on cutting costs!)

- Going over all the items you spent money on during the 2 year period, and also drilling down

to your normal weekly expenses, you will see other things that are not “necessary”. Identify all

potential items to be eliminated. Going over that list, follow up by eliminating as many as

possible, even the ones that cost only a very small amount, they all add up. Nothing is too


Like they say, take care of the pennies and the dollars take care of themselves.

Story of to support your thought process

In the 1960s, there had been a period of severe drought, and Boston area communities were short of water. They proposed diverting a portion of the Connecticut River to Eastern Mass to increase the water supply. Of course there was opposition to this, but they studied it anyway. But first, they decided to do a thorough check of all the connections to all those communities, their pipelines, including the pipelines from the Quabbin Reservoir and several others – there were hundreds of connections. They discovered a large number of leaks and other conditions that caused water to be wasted. They fixed all those leaks and made sure that water was not wasted for any reason, and they increased the flow so much that they did not need to consider diverting water from the River. In later years, the drought ended, and that chapter was closed.

Think of your expenses as the leaks in your financial pipeline. There will be a range of them, from very small to very big. Plug up all those leaks, and watch the flow of your disposable income increase,

income that you can put to good use in a retirement program.

- STOP getting big tax refunds – if you are, it means you overpaid your taxes, gave Uncle Sam or the State of Connecticut a tax free loan, and could have used that money to fund your


- Make a Budget and stick to it – Don’t just pay the bills and anything else that you want, and

see if there is any money left over. Be proactive. Figure out how much you are willing to spend

in different categories, and don’t go over it.

- Entertainment – go out less frequently. Going out to the movies, and getting drinks and food

afterward adds up. Get Netflix for movies instead of going out, make popcorn and pop in a

frozen pizza later. Have your friends come over, or go to their houses, it’s just as fun and costs


Groceries - Visit the grocery store every 7 days, and get everything on your list (and nothing

that’s not on the list unless you forgot an essential item that you would have put on the list),

and don’t go back to the store for more, in between! For the really serious, shop every 8 or 9

days, instead of 7, forcing you to maximize the leftovers and be creative with what you have.

Less visits means less impulse buying too.


- If you have large credit card balances, pay them down first. They undoubtedly carry higher

interest rates than you will earn in a retirement or savings account, and it’s a losing situation.

(the only exception is if your employer offers a matching contribution in your retirement plan

Take advantage of that because you’d be doubling your money.)

Consider balance transfers to another credit card with a lower rate, and avoid cash advances

from credit cards like the plague – they carry a very high interest rate.

Arrange the cards in order of the interest rates they are charging on the balance – from high to

low. Make the minimum payments to all the cards on time, but start applying your extra

money to pay down the card with the highest rate, NOT the highest balance. Then move on to

the next highest rate as each one is paid off. Of course you will want to keep one or two, for

convenience or emergencies, but pay any balance each month before the payment is due.

Don’t cancel all the cards (it will affect your credit score), just cut up those you have paid off,

except for the one or two you want to have on hand, because a lower overall credit limit will

negatively affect your credit score, resulting in higher rates for loans, and car and homeowners insurance. The higher your credit score, the better the deals on loans and insurance payments.

And make sure you pay your bills on time – that’s probably the biggest item that affects your

credit score. Set up automatic payments if possible. Once your credit card balances are low or

eliminated, go to the next segment.

If you do NOT have large credit card balances and are enrolled in a 401(k) plan, maximize

your contributions - make contributions at least equal to the highest level that will be

matched by your employer. If you have additional money to contribute, open a ROTH IRA and

contribute up to the maximum each year if possible. Don’t forget that your spouse can also

open a ROTH IRA and contribute up to the maximum (if you file a joint tax return). And if you

still have additional money to invest, make additional contributions to the 401(k) plan up to

the maximum.

When you get a raise, the first thing to do is to increase your contribution to your 401(k) or

Roth IRA if you have not already maxed out. Every time I got a raise, I increased my

contributions - If you never received it, or never got used to it, you won’t miss it!

If you do NOT have large credit card balances and your employer does NOT offer a 401(k)

plan or other plan, open a ROTH IRA and have your spouse do the same. If you have additional money, open a savings account at a financial institution that offers a variety of investments,

stocks, bonds. Money Market, etc. If you would like to invest in stocks, I recommend stock

index funds to spread the risk. The S&P 500 Index fund is a worthwhile option to consider,

especially if you are many years away from retirement. The average return of the S & P 500 over its history is about 10%. (Unless you’re knowledgeable, get a Fiduciary investment advisor to counsel you).

If you are married, as long as ONE of you is working, both of you can set up an IRA and make

contributions to it, as long as the total contribution you both make does not exceed your income.

The IRAs are separate and belong exclusively to each person. Some of you will like having something that is all yours that no one can take away.

For 2023 - The maximum contribution for a 401(k) plan is $22,500 under age 50, and $30,000, age 50 or over.

For an IRA, it’s $6,500 under 50 and $7,500, 50 or over

A good reason for lower -income wage earners to make retirement contributions is to take

advantage of the SAVER’S CREDIT – The IRS allows you credits to your federal Income tax if you make retirement contributions– It’s not a tax deduction – its a tax credit worth up to $1000 ($2000 for married filing jointly) for lower income taxpayers who contribute to a retirement account. You may be eligible for up to 50% of the contribution depending on your adjusted gross income.

You are eligible, if your income is less than:

$36,500 for singles (max at $21,750 or less);

$54,750 for head of household (max at 32,625 or less), or

$73,000 for married filing jointly. (max at $43,500 or less)

You may have heard of MyCTSavings – it’s a state retirement savings option for private employer’s employees, where a company sets up a program to make it easy for you to create an ROTH IRA.

Employers with 5 or more employees are required to establish it, but only 50% or less have actually done so up to now. The Employer does not have to make a contribution - it just makes it easier for you to set up a ROTH IRA. However, if your Employer does not have such a program, you can always set up the IRA yourself.

If you have done nothing up to now, start with something, no matter how small, and that retirement seed will grow and grow in your mind, and in your account.

Feelings Discouraged and Overwhelmed

For those of you that even now still feel like you are dead broke and are thinking, this is impossible for me, I can’t even start to think about saving for retirement, I can’t afford enough food. Here’s what I want you to do. Take a few $1 bills (or just $1), put it in a jar or someplace out of the way so you don’t see it all the time. Each day, put another dollar or two in, or even just change if that’s all you have…when you get at least $20, open a ROTH IRA (you or your spouse must have working income to qualify). There are institutions that offer ROTH IRA accounts with no minimum amount, and there are no fees. If you have never saved for retirement before, this simple act of having special savings for retirement, and especially a 401(k) or Roth IRA account, will be a game changer for you.

You will say to yourself, it’s actually happening- I have a retirement account! That retirement seed will grow, and you will keep it in mind. As time goes by, you will find other ways to add to it, and take pride in your actions.


This is very subjective, it’s different for everyone, and it will change over the years, as your life style changes, and as your life events happen. You will save as much as possible, and along the way, measure if you are reaching your goal of how much you will need.


According to the Bureau of Labor Statistics, the median income in the U.S. for workers age 25 to 65 this year is $60,060. Just 5 years ago it was $45,800; that’s a big increase. If we only consider workers age 35 – 65, it’s about $63,500.

You will see many studies telling you that you need to save 7, 8, 9 or even 10 times your annual income to have enough to retire, but the real answer is that it’s different for everyone, and one important factor that is not taken into account is what monthly retirement income you will have from Social Security and other pensions.

Here are a couple of the measurements that have become popular with financial analysts:

THE RULE OF 25 – Figure how much income you need to draw from savings (it’s the difference

between your total monthly need in retirement, and your monthly income from SS and pensions)

and multiply that by 25 to see how big your lump sum savings in your 401(k), IRA or other savings should be. For example, If your retirement budget will need an extra $20,000 per year after taking SS and pensions into account, you’ll need a $500,000 nest egg. That assumes a roughly 4% per year withdrawal rate.

THE $1,000 PER MONTH RULE - says that you need to accumulate $240,000 for each additional $1,000 of monthly income that you need. That assumes a roughly 5% withdrawal rate. For this same example, that nest egg would need to be $400,000 ($1,666.66 per month X $240,000).

How much do you really need to save? These “rules of thumb” do not apply universally. They come from asset management institutions who are paid more, if you save more, so there’s a little bias there. Don’t be discouraged by their numbers, you may feel it’s impossible to come up with the sums they are talking about, and throw in the towel. They don’t know when you will take your Social Security, how much your Social Security will be, if you have any private pensions, or what your debt level is…so the people who tell you that you need to save X times your annual salary are not in touch with reality.

The point is – to get as big a nest egg as you can, even if it’s only 2, 3, or 4 times your current pay, it may be enough. For me, because I also have a private pension, I found that 3 times my pay would have been enough, although I saved more than that. Note that a Vanguard study revealed that the median average assets of 65-year-olds was about $65,000.

(Stay tuned for more details on this in the Social Security section)

Confusing? – here’s what I think is the best measurement, and the one that I used to plan my own retirement:

PERCENTAGE OF INCOME – Plan to replace 70 % of your pre-retirement income. You will net out Social Security taxes (7.65%), your current retirement contribution to your 401(k), IRA or other plan, any other savings you are able to make, and other “working” deductions from that income amount in your calculation. Fed and State tax may be slightly less, also no advance FSA (Flexible Spending Account) health contributions, your health insurance premiums may be less, you won’t need as much gas per week because you’re not going to work), etc. Are you still paying a home mortgage?

Hopefully you have paid it off before you retire, and that won’t be income that you need to replace in retirement.

A study of actual retirement costs found that while spending in retirement ranges from 54-87% of pre-retirement income, most retirees use (need) only 70% or less of their former income. (from a Fifth Third Bank study). However, if you have been making little or no retirement contributions, to be conservative, increase that percentage to 75 or 80%, as the case may be.

You may have an initial surge in spending when you first retire, as some of you do the things you have always wanted – a special vacation trip, a nice new car, etc., but a Rand Corp. study found that after age 65, spending falls steadily at all wealth levels by about 2.4% per year for couples.

Except for spending on some special things that you may have dreamed of, your tastes, your

personal habits, and your financial values (and frugality) do not change. You will be the same person you have always been.


The average monthly cost of health insurance for a 40 year old in CT is about $640, and $1,240 for a couple (for a silver plan, the most common tier). In some states it’s almost $900 per person.

Medicare is $164.90/month this year – it’s a good deal. You join Medicare at age 65, whether you are retired or not. If you don’t, and you want to join later, you will have to pay an increased premium, the longer you wait, the higher it is. While you will be paying for Medicare, if you are in reasonably good health, you may not need to pay a premium for another plan.

There are many health insurance options available to you when you retire. There are a wide range of plans available, with a range of premiums including many ZERO premium plans. There are Medicare Advantage plans that wrap Medicare benefits into the plan’s coverage, but offer more than Medicare benefits. Typically, there is no monthly premium, you pay nothing to visit your PCP, but pay for a specialist visit, $35 to $40 depending on the plan. There is a range of fees for other services, but many find that if you are reasonably healthy without serious chronic issues, it’s a good deal.

You will find information about all these plans, and any costs, on the Medicare website


Go to that site and check out the plans, even if you are years away from retirement. When I checked the options for my County in CT (it’s broken down by County) recently, I found that 23 of the 37 plans that were offered had NO premium (and for the ones that did, 11 of the remaining 14 were under $100 per month). For me this resulted in a sizable reduction in my pre-retirement costs. Ten years ago, before I retired, I was paying $425 per month for my wife and I for health insurance. When I retired, our Medicare premium was $200 ($100

each) we chose a zero premium Medicare Advantage Plan. Of course Medicare has gone up since then, but so have my SS payments and I’m still not paying a premium for the Medicare Advantage plan, 10 years later. Definitely worth checking out. You really have to compare the plans closely to see what you’re getting, and the Medicare website allows you to do that.

After figuring out 70 % of your income, find out what you expect to receive as a monthly

income in retirement – Social Security, private pensions, other annuities, etc. – add it all up and see how it compares to the 70% figure (don’t forget to include your spouse if you’re married).

If you have a shortfall, you can reduce your expenses, to reduce that shortfall or even eliminate it.

Remember, spending levels generally fall over the years, and so should any shortfall.


If you are covered by a 401(k) or other retirement plan, there will be investment choices offered to you, with education available as to what each contain. In your younger years, equity investments (stocks) should be a major part of your investment portfolio. There will be tools for you to make this decision. If you are not sure, contact a qualified financial advisor – I recommend one who is a Fiduciary. A Fiduciary advisor is someone who is legally bound to act in your best interests, not their own. Non-Fiduciary financial advisors are not required to put your needs ahead of their own (earning commissions on having you invest in stocks, or steering you to particular stocks that is also in their interest.)

Stock market index funds are a good choice. The expenses are low and performance reflects the stock market in general. Usually index funds of one type or another are the only stock funds offered under the company plan, other than company stock and a fixed interest fund.

If you are in a ROTH IRA or traditional IRA, you may be given very different choices depending on where your IRA is invested, including a wide range of individual stocks and mutual funds

As you get closer to retirement age, you will need to be more conservative and have a higher

percentage in Bonds, and perhaps guaranteed interest funds or money market funds. It all depends on how much risk you are willing to take – again, if you are unsure what to do, you can seek the advice of a Fiduciary advisor.


Albert Einstein once said that compound interest was the 8 th wonder of the world. He went on to say that those who understand it, earn it, and those who don’t will pay it. It’s when the interest you earn on a principal balance is reinvested and generates additional interest over time.

Suze Orman, the financial advisor, once gave a great example of Compound interest as follows:

Example 1: You invest $300 every month from age 25 to age 40 – 15 years in total, and earns

an average of 8% each year. At age 40 it will be worth $104,500. Let’s assume you never make

another contribution. You keep that $104,500 invested and it continues to earn an average

return of 8%. When you turn 70 years old, it will be worth $1.05 million. You invested a total of

$54,000 and you now have over a $1 million.

Example 2: Instead of starting your investing at 25, you wait until you’re 40. When you realize

you need to get serious about retirement. Like before, you invest $300 per month, but now

you do it for 30 years, all the way to age 70, earning the same 8% interest. How much do you

think you’ll have, if you invest the same amount, but do it for twice as long? The answer is


Yes, even though you put in twice as much money ($108,000 instead of $54,000), you’ll have

less than half as much in your account. That’s because your money has only 30 years to

compound, instead of the 45 years it had from age 25. The amount of time was twice as

important as the amount of money you invested.

Amazing, isn’t it? To do your own calculations and projections of what compound Interest

could do for you at different contribution levels, different periods and different ages, visit the

Compound Interest Calculator, on the U.S. Securities and Exchange Commission’s website:

INVESTOR.GOV (Click on Financial Tools and Calculators, then Compound Interest Calculator).

It will educate you and be fun in the process.

Start making your contributions as early as possible and watch the magic happen!



Some say Social Security won’t be around when you retire. Not true. As long as there is a politician who wants to be reelected, there will always be a SS payment. On average it replaces about 40% of pre-retirement income. SS was established to primarily benefit lower wage earners, and the SS benefit formula is skewed to reward lower income levels. So, workers with lower pay levels will receive a greater percentage of their working pay than higher paid workers.

To qualify for retirement benefits you need to have accumulated at least 40 quarters of coverage – meaning 40 quarters in SS covered employment (SS contributions were made) during which you earned at least a minimum amount set by SSA. Currently that’s $1,640 per quarter. To maximize your benefit you need to work at least 35 years in SS covered employment.

To calculate your benefit, they add up your total pay for all those years (after adjusting each year for inflation to make it equitable with the current year). For example, say you made $20,000 in 1995 – they apply an indexing factor to that to make it a higher amount, say $50,000, for purposes of calculating the average. They divide the total pay by the number of years you worked – they only count the highest 35 years. They divide that number by 12 to get your Average Indexed Monthly Earnings (AIME). If you worked less than 35 years, they put ZEROS in for those years in calculating the average. It’s not quite as severe as that, since they also have an adjusting factor that mitigates that a little. So, working at least 35 years is important for your SS benefit.

After determining your AIME, they put it through a formula using what they call “Bend Points”. The current Bend Points are 90%, 32% and 15%. Your Social Security Benefit would be:

(1) 90% of the first $1,115 of your AIME, plus

(2) 32% of your AIME between $1,115 and $6,721, plus

(3) 15% of your AIME over $6,721 (up to $13,350, the maximum)

You can see how Social Security gives the largest percentage of AIME to lower income workers.

Let’s do an example: You have reached your full retirement age, and your current pay is the national average - $63, 500 ($5,292/month). Assume your AIME is 90% of that - $4,763/month.

Now we apply your $4,763 AIME to the Bend Points.

You monthly Social Security benefit would be calculated as follows:

1) 90% of the first $1,115 of your AIME = $1,003, plus

2) 32% of the next $3,648 = $1,167

So, your SS benefit would be $2,170 ($1,003 + $1,167)

If you have a spouse, the spouse would receive an additional $1,085, for a total of $3,255 ($39,060 per year). If your spouse also worked, she would be entitled to the greater of $1,085 and the amount calculated under his or her own work record.

If you need to replace 70% of your income, that total would be $44,450. Reduce that by your

$39,060 combined SS income, and (assuming you have no other retirement income) the shortfall is $5,390 per year.

The Rule of 25 (4% annual withdrawals) says you need a lump sum of $134,750 to handle that


The $1,000 per month Rule (up to 5% annual withdrawals) says you only need $107,760.

While that takes care of your normal living expenses, it would be smart to have more in reserve if you needed a new car or some other major purchase.

If you have carefully examined your expenses, and cut out the money wasting habits that many have, you may not have a shortfall at all – you may already be living on less than 70% of your gross income.

And strongly consider delaying your retirement. Assuming your full retirement was at age 67, if you wait 2 more years and retire at age 69, it would give you an additional $6,240 per year, wiping out that shortfall!

Go to the SS website - SSA.GOV and sign up for an account. Use the retirement estimator on the SSA website. You can check your projected monthly retirement amount, and get any other information you would like. You can also check your pay history to see if anything looks wrong.

Last March, the National Bureau of Economic Research found that 50 and 60 year-olds

underestimated their SS benefit by 11.5%.

When you approach retirement age, you’ll need to decide when you will retire and take your SS

payments. Don’t think it must be exactly in the month of an age “milestone” – like 66, or 67 or you think you will miss out on some feature or benefit. You SS payment increases incrementally each month that you wait. You can input the dates that you may retire and get those numbers. You don’t “miss the boat” if you don’t retire exactly on a benchmark year of age or your full SS retirement date.


1954 AND EARLIER = 66

1955 – 66 ; 2 MONTHS

1956 – 66 ; 4 MONTHS

1957 – 66 ; 6 MONTHS

1958 – 66 ; 8 MONTHS

1959 – 66 ; 10 MONTHS

1960 AND LATER – 67

Early retirement benefits at age 62 are about 30% lower than your benefit at full Retirement Date.

You add about 8% to your benefit for each year you defer your retirement after your full retirement date, up to age 70. Benefits must begin by age 70.

Here’s another way of looking at this:

At age 62, you would receive 70% of your age 67 amount

At age 70, you would receive 124% of your age 67 amount

At age 70, You would receive 177% of your age 62 amount

And your spouse gets at least half of those increased amounts

40% of retirees live on SS alone



WORKING WHILE RECEIVING SS – If under your full retirement age, you can earn up to $21, 240 with no change in your SS benefit. If you earn over $21,240, they hold back $1 of every $2 of SS. In the year that you reach full retirement age, you can earn up to $56,520, and over that they hold back $1 of every $3 of SS (just for that year, they track this on a monthly basis). At full retirement age, there is no limit to what you can earn.

Note that you do not lose those held back SS dollars forever. When you reach full retirement age, your SS payment is recalculated (increased) to take into account the SS dollars that were held back before your full retirement age.


From 401(k) Plans

After age 59½, withdrawals are allowed without penalty, if provided in the 401(k) plan.

Withdrawals prior to age 59½ trigger a 10% penalty, except for hardship withdrawals, due to quote. immediate and heavy financial need."

You may qualify for a hardship distribution if you use the money to pay for:

Medical care expenses

Costs related to buying a home

Educational expenses

Costs to avoid eviction

Funeral expenses

Certain expenses to repair damage to your primary home

From an IRA

If you take an early withdrawal from a traditional or Roth IRA, you may be subject to a 10%

penalty—but not if one of these exceptions applies:

You are totally and permanently disabled.

You're the beneficiary of a deceased IRA owner.

You use the distribution to buy, build or rebuild a home (a $10,000-lifetime limit applies).

You have unreimbursed medical expenses greater than 7.5% of your Adjusted Gross Income


You’re paying medical insurance premiums after losing your job (and the distribution isn't

more than the cost of the insurance).

You're taking the distribution to pay for qualified education expenses.

Additional requirement for a ROTH IRA

Withdrawals are tax free and penalty free if taken at least 5 years after the tax year in which you

made the first Roth contribution, and you are at least age 59½.

If a withdrawal is made prior to meeting those requirements, you would need to take a prorated

portion of your investment gain as part of your withdrawal, and that portion would be subject to a

10% penalty and income tax, unless you qualify for a hardship withdrawal.


If you were born between 1951 and 1959, Required Minimum Distributions from your 401(k) plan or non-ROTH IRA, must begin at age 73. If you were born in 1960 or after, RMDs begin at age 75.

For all those pre-tax contributions that were made by you and your employer, the tax man is finally coming.

You can delay the withdrawal until April 1 of the following year, but then you’d have to take two

withdrawals that year – the one you delayed from the previous year, plus the one that will be due the following year. Each year thereafter, withdrawals are due by December 31. If you do not make the necessary withdrawal, there’s a penalty equal to 25% of the amount you needed to withdraw.

(If you make the withdrawal by the end of the tax year following the miss, the penalty will be

reduced to 10%). Your financial institution will usually remind you to take the distribution in time,

and many will make the required distribution automatically in December if you don’t take any




This is true even if those assets had been invested in the stock or bond market.

Withdrawals from ROTH IRAs will NOT be taxed and withdrawals are not required at any time. You could leave your account to your beneficiary

Social Security Tax


IF ABOVE $44,000, ANYWHERE FROM 50% TO 85% OF SS MAY BE TAXED. So, the higher your income, the more likely you SS will be taxed.

STATE SS TAX – 12 States tax Social Security – Connecticut is one of them, also Rhode Island and Vermont in New England. This makes states like Florida and Texas attractive to retirees since not only is there no Social Security tax, but they have no state income tax at all. That’s one of the reasons their populations have increased so much.

Shifts in spending from early retirement to later in retirement

Your spending will be higher in the first two or three years of retirement. As I said earlier, spending typically is reduced each year after 65 by 2.4 % or so.

According to a study by J.P. Morgan Asset Management, in the two years before, and the three years after retirement, household expenses tend to peak. The most significant expense is housing. Many have just paid off their mortgage prior to retirement. If you have not, it’s strongly recommended that you pay off the mortgage before you retire.


During your working career you should have purchased some form of life insurance police to protect your loved ones, whether whole life or term insurance. I recommend term insurance – it carries the lowest cost. It does not have a cash value other than the face amount of the policy, but you would pay substantially more for a whole life policy, including increased expenses, and frequently you would be better off saving and investing the difference in cost between the whole life policy and the term policy. Nearing retirement, that issue should have been addressed years ago.

I see many ads on TV, promoting plans for let’s say $10 per month, no medical examination required, with an elderly, sometimes bedridden person, telling their family that they just purchased the “$10” plan, and all will be taken care of. Insurance companies are not fools, they know these people want insurance now because they are elderly, sometimes in poor health, and may not live long. Trying to get insurance when you are in poor health, possibly close to death, is called “anti-selection”. If the only people who took insurance were those close to death, the insurance companies would soon go under. The cost is of course spread among the healthy and sick of all ages, and the premium pricing takes many factors into account. Plans like the “$10” plan may confuse you. There seems to be an assumption that the payout for the “$10” plan is $6,000 or even $10,000, but note that they never say in the ad. It’s neither. The amount of insurance that would be supported by $10 per month is different for persons of all ages, more if you are younger, less if you are older. For example, a person at age 65 who paid only $10 per month in one of these plans, would get about $900 upon his death

(a female would get about $1,250). And no benefit is payable for the first two years. If he wanted a policy of $10,000, the cost would be about $112 per month.

For a male age 75, the payout for $10 per month is $549, and the cost for a $10,000 policy is $182 per month. At that rate, he would have accumulated the full payout if he had instead deposited the same amount each month in the bank, after just 4 ½ years. And the payout gets worse as the age increases. Check the Better Business Bureau reviews for any Company you are considering going with. Don’t be swayed by just the rating - many times they are rated A+ and the average reviews give them only 1 out of 5 stars.


What to do if you have little or no savings, and don’t have a big private pension waiting for you in addition to Social Security.

1) Start increasing your retirement contributions NOW, instead of waiting till later. Let compound

interest work its magic for you.

2) Work beyond your Social Security full retirement age. You’ll get an additional 8% for each full

year you wait until age 70. Especially do this if you have not worked the full 35 years.

3) The extra years you wait not only add 8% per year to your Social Security payment, but it

should increase it beyond the 8% increase, assuming you are at a pay level now that’s higher

than your 35 year average, so your average will increase also. And you’ll have a few more

years to put money away for retirement.

4) Contribute as much as possible to whatever retirement vehicles are available to you – a

401(k), a ROTH IRA, etc.

5) Pay off your mortgage before you retire. Don’t go into retirement with that mortgage or other

large debts.

6) If you are not currently a homeowner, don’t buy your first house with your retirement assets.

It may have been your dream all your life, but it’s too late now. That house will burden you

with expenses you had not anticipated and may pit you in the red in retirement. I know several

people who have done this.

That’s the end of my presentation, I hope you have all found that helpful.

Email any specific questions to me at

32 views0 comments


bottom of page