Financial Planning

What better way to think about retirement than by first looking to see if one can afford it?  I understand that a good way to look at the stability of any plan is to visualize what it takes for something to stand on its own.  An example I heard of early on was to simply visualize a three-legged stool.  While a one or two-legged stool might work with a good sense of balance, that third leg gives more security and confidence to sit down and relax.  That's what I wanted in retirement...to relax and be as secure as possible.  So I have three legs to my financial plan:  Pension Benefits, Social Security, and Savings.  My initial goal is to fix any 'wobbles' and stabilize each leg for just the right balance to be comfortable.  I understand that when such a plan is in place it will require regular maintenance.  I don't want to find myself on my ass because I didn't check if each leg was supportive!

The first part of my plan was in place the day I started working for the State of Missouri August 1, 1984. The State offered a non-contributing pension plan that pays based on a formula that includes the three highest consecutive salary years and the total years worked.  I was 30 years old at the time and was attracted to the "80 and out" concept.  Simply put, age is added to years earning a state salary to equal 80 and that is the earliest retirement date with full benefits.  So at age 55 with 25 years on state salary, I could retire: 55 + 25 = 80.  There is also an option to buy specific public service work and that can be added to the formula to add 'time worked.'  I purchased time that I worked for my county which moved up my retirement date 17 months.  I will be retiring on December 1, 2011.  I will be 58 years old 17 days later.

An added benefit is the "backdrop" concept.  Basically, for every year past retirement date (up to five years), additional benefits are calculated because the government gets to keep your retirement money longer to invest.  The longer one stays (up to five years), the more cash will be paid out at retirement in a lump sum.  I chose to work 3 years and 9 months past my official retirement date (adjusted because I purchased time).  This lump sum payment goes directly into a deferred compensation account I can begin to withdraw with no penalty at age 59 1/2.  I have been saving to this account since 1996.

Now that leads to the second leg of my stool.  Savings are managed in this deferred compensation account by ING.  I have been and will continue to be involved in my investments.  When this 'backdrop' amount is deposited, I will take a more active role.  This will be the 'high maintenence' part of the plan and I will likely seek help from professionals in making my decisions about where to best invest, tax issues, and just how much I can pull out and enjoy.  I am fortunate to have a son that is educated in that field and I have begun to seek his advice.  Both my son and my daughter have expertise in insurance and have advised me where I have gaps in my present coverage which I will fix by my retirement date. 

The final leg would be Social Security.  I will be receiving a temporary amount added to my monthly pension when I retire that is about as much as my social security payment would be at age 62.  I will receive this amount for about 4 years and then it stops when I reach 62.  It stops because I would be eligible for social security at 62, if I should elect to collect.  The longer I wait to collect, the larger the amount up to age 70 1/2. 

My challenge is to not collect social security for as long as I can so as to get the highest payment. Right now my pension is 74% of my current income.  That will drop when I reach 62 if I do not collect social security.  If I can live below my means, that can work.  I am currently living less than 50% of my means now using the larger amount of my paycheck to clean up credit charges.  I will be debt-free in January 2012.  My challenge will also be to keep enough money in savings to make money.  Also, to keep the money I make and not pay any more taxes than I have too.  Most of all, I want to live a long life and I do not want to outlive my money.