‘We are not sure how prepared we are for retirement’ – we are 60 and 61, and don’t know how much longer we can work, have $360,000 in retirement savings and a pension – MarketWatch

I am a 61-year-old teacher in Missouri who plans to work 3-4 more years before retiring. Depending on what option my husband and I choose from the Public School Retirement System, we should get between $5,200 – $6,000 per month for the rest of our lives. My husband is 60 years old and has $250,000 in a combination of a Roth IRA, traditional IRA, and a pension while I have $80,000 in IRAs (I worked in the private sector prior to teaching), $30,000 in two 403(b) accounts, $18,000 in an investment account, and $65,000 in cash. My husband will get Social Security of up to $1,800 a month if he waits until 70 to take it. I will get about $1,200 a month based on my private sector work and accounting for the Windfall Provisions Act which reduces Social Security for teachers who get a public pension.  

We feel like our accounts are disorganized and, consequently, are not sure how prepared we are for retirement.  

We have three years left to pay off our home which is probably worth about $275,000. Our cars are paid off, but we will probably buy a newer one in the next two years and sell two of the three we currently have. Other things we need to consider are that my husband may not be able to work in his current job much longer due to health issues (his job requires lifting heavy patients). He most likely will need to retire before 65. We are trying to save and put more into our Roth IRAs now. He puts 15% into his pension; the PSRS takes 14.5% from my salary for my pension. We estimate that we will need about $45,000-50,000 per year for retirement. We do not live extravagantly, but we do want to leave our daughter an inheritance if we can (we have three fixed whole life insurance policies and term insurance until 65 and 70). My husband’s mom is in her 90s and so we have seen how longevity can require sizable savings for living expenses.

What do you think? Would you suggest any changes as we approach retirement? Thank you for your time.

See: I’m 41, and my partner is 50. We have $800,000 in retirement savings and make $250,000. We want to retire ASAP but know our money won’t last. What can we do?

Dear reader, 

I can understand the concern about your retirement security as you get closer to approaching it, but you have a secret tool so many Americans wish they had: a pension outside of Social Security. 

“In their case, they have income sources,” said Kevin Gahagan, a certified financial planner and principal of Private Ocean Wealth Management. “Having a pension is tremendously powerful. Social Security is tremendously powerful. They have meaningful advantages because a great deal of their retirement resources are pension-related, whether that’s Social Security or an actual pension.” 

You seem to be on track, said Robert Gilliland, managing director and senior wealth adviser at Concenture Wealth Management, but the next two to four years will be very important, he added.

There are three contributing factors that greatly affect one’s retirement security – longevity, because the longer you live, the longer you need your money to last; the return rate on your investments; and your spending, Gahagan said. You can’t really control the first two but you can take charge of the last one, and it will be a huge indication if you can live comfortably in retirement. 

For that reason, make sure you have gone over your spending and your estimated expenses again and again before you quit. List out every cost you think you’ll have in retirement, and pore over your current spending, such as analyzing your last few credit card statements. You’ve mentioned how much you think you will need annually in retirement, but does that include taxes? Or healthcare, which only gets more expensive the older you get? If it truly is $45,000-$50,000 a year you’ll need, that’s great, but be sure of that before entering retirement so you’re not spending so much time worrying about paying your bills. 

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You may also want to earmark some of your savings specifically for emergencies, as they tend to arise whether you’re retired or not. Over the next few years before you both retire, consider contributing to your retirement accounts as well as an emergency fund, and keep the latter in liquid assets so they’re easily accessible. 

Inflation is a hot topic these days, and you’ll need to account for it in the decades to come. Social Security has a cost-of-living adjustment, although not everyone agrees it is as well-aligned with inflation of the goods and services older Americans spend their money on, but it still counts for something. Check if your pension is inflation-adjusted, and if not, factor that into your spending needs when estimating your expenses for retirement every year. A financial adviser can help you with this. Not everyone wants to work on a monthly or annual basis with a financial adviser, but many professionals offer their services for a one-time or occasional financial checkup, and they can go over all of these concerns with you. 

There is no one right answer for when to claim Social Security, but I wanted to make sure you’ve considered all of your options. You mention your husband plans to wait until age 70, which is a fantastic goal, but if it had to be a bit sooner, that would be OK, too. Longevity plays a huge factor in Social Security claiming strategies – people who don’t live much longer past 70 don’t get to enjoy the benefits they paid into all this time. Others use Social Security as a way to avoid tapping into their retirement savings, so that the money can continue to grow in an investment portfolio. Americans get the full amount of the benefits they’re owed at Full Retirement Age, and plenty of couples talk through strategies so that they’re maximizing their benefits for their personal situations.

As far as Roth accounts, those are best if you’re in a lower tax bracket now than you anticipate you’ll be in at retirement, so be careful you’re not paying more in taxes for your retirement savings than need be. Traditional IRAs, as you probably know, are taxed at withdrawal, whereas Roth accounts are pretaxed. Don’t get me wrong – it’s a good idea to focus on Roth accounts – for starters, “we don’t know what tax rates will be in the future,” Gahagan said, and if you’re not getting a tax deduction for IRA contributions because of your employer-sponsored plans, a Roth account does make sense, Gilliland said.  

Still, try to estimate what you think your tax situation will be like in retirement versus now so you’re making the best decisions for yourself. Understand what taxable income you’ll have from your retirement income sources, which will help you decide if a Roth right now makes sense. Also, don’t put money in a Roth if you expect to take it out in a “relatively short period of time,” Gahagan said – you want those investments to have time to grow. 

Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column 

Whole life insurance policies are a great way to leave behind an inheritance for loved ones,. I’m not sure what premiums you’re paying or what the value of your policies are, but if you’re content with the amount a beneficiary would get from your whole life policies, then there’s nothing more to do, Gilliland said. Make sure your daughter is listed as the primary beneficiary for the whole life policies. 

You’ve mentioned longevity runs in the family, and that’s a blessing, so plan for it now. First, the financial aspects are crucial – nursing homes, assisted-living facilities or home health aides can easily drain a bank account. Long-term-care insurance policies may not make sense for you right now, but there are hybrid policies that mesh the long-term-care insurance with life insurance, and in that case, that’s one other way you can leave a legacy for your daughter. 

But also think of the physical and emotional aspects of estate planning for you and your family. Have important legal documents in place, like a will, a healthcare proxy and a power of attorney, and have open discussions with your daughter about what you both expect, and what she expects as well as far as caregiving may go. These are difficult discussions to have, no doubt, but getting them out of the way will be a relief for you and your loved ones when the time comes. 

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Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com