Decisions, Decisions

Kristine Hayes

I’VE BEEN EMPLOYED fulltime for nearly three decades—and retirement is now on the horizon. That means I’m spending more time trying to figure out how best to generate retirement income.

One obstacle: I keep getting bogged down by the seemingly endless choices. Despite knowing how critical these decisions are, I often find myself throwing up my hands in frustration and opting to do nothing. My experience isn’t uncommon. Welcome to the paradox of choice: When faced with a host of options, often we simply avoid making any decision at all.

That brings me to my retirement plan. Fortunately, of the six key components, three come mostly choice-free:

Spousal income. My husband is already retired and receiving a pension, Social Security benefits and income from a rental property. The pension and Social Security are fixed monthly payments, while the rental income varies from month to month. These payments will continue for the rest of his life.

Health insurance. My spouse and I are covered by a plan through my current employer. Once I turn age 55, I can opt into an early retiree program allowing us to continue with the same coverage we have now until I reach age 65, when I’ll be eligible for Medicare. After that, we’ll receive a monthly benefit to cover the cost of a Medigap policy. This benefit will continue for both my husband and me for the rest of our lives.

Housing. When I retire, we’ll sell our current home and use the proceeds to pay down the mortgage on our retirement home. The only choice we’ll need to make at that point: Will we recast the mortgage and reduce our monthly payment or, instead, make one large payment toward the loan’s principal balance and keep our monthly payment the same?

The other three components of my retirement plan, meanwhile, come with a host of options:

Pension. I have a small pension from the first fulltime job I ever held. There are no choices for me to make regarding how my money is invested and I’m guaranteed to earn a 7.5% rate of return for as long as I have money in the account. What I need to decide is how and when to withdraw the money. I can take a lifetime monthly payment, a lump sum payout or a combination of the two.

The age at which I take the money out, and whether I opt for the lump sum, could be influenced by my health. If I were to die before taking any form of payment, my husband—as beneficiary—would only receive an amount equal to about 45% of the overall account value. As such, we’ve decided to prepare the paperwork for a lump-sum distribution option, but file it only if I find myself seriously ill. That would guarantee my husband would receive the account’s full value.

Social Security. Like most people, I’ll need to choose the age at which to begin Social Security benefits. This will partly hinge on what will trigger the biggest payout: I could receive benefits based on my own work record or, alternatively, I could get spousal benefits based on my husband’s earnings record. I would receive a larger monthly check based on my own earnings record if I delay benefits until age 70. But that’s not true of spousal benefits. They stop increasing as of your full Social Security retirement age—67 for me.

My 403(b). Within my current employer’s 403(b) plan, there are no fewer than 50 different managed funds that I can invest in. The accounts range from highly conservative to highly volatile and I can divvy up my money amongst them however I want. When I retire, I’ll need to decide whether to leave my money where it is or roll it over to an IRA. Each of those options comes with its own set of choices and tradeoffs.

If I leave my money where it’s at, I’ll have the option to invest a percentage of it in an annuity with a guaranteed rate of return. I can also access the funds if I leave my employer at age 55 or later, without incurring the usual 10% early withdrawal penalty. On the other hand, if I roll the money into an IRA, I’ll have the freedom to put it into a wider variety of investment options. I could also choose to convert some of the funds to a Roth IRA. I would, however, likely be forced to wait until age 59½ before I could access the money penalty-free.

Kristine Hayes is a departmental manager at a small, liberal arts college. Her previous articles include Day by DayDid It Myself and While at Home. Kristine enjoys competitive pistol shooting and hanging out with her husband and their dogs.

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