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I’M IN NO HURRY TO retire—but I am making sure I’m prepared. I’m age 56, and I plan to work full-time until 70 and part-time until 75. I’m an English professor, and I enjoy teaching, service and scholarship. I also enjoy having three weeks off at Christmas and two months in the summer.
I received a fairly large inheritance, which has been growing over the years and which will allow me to do some special things in the years to come. But my core retirement income will be the fruits of my own labor. What’s my plan for generating that income? As you’ll see, I put a premium on safety.
I’m aiming to construct a traditional three-legged retirement stool. The first leg is Social Security. The account I created on the Social Security website tells me that I should receive some $39,000 a year if I delay benefits until age 70.
My stool’s second leg consists of a fairly small Kansas Public Employees Retirement System (KPERS) pension. In 2014, Kansas elected to offer cash-balance plans rather than a traditional “high-five” pension, where your pension payment was based on your five highest-earning years.
The new Kansas cash-balance plans aren’t as generous as those offered before 2014 and don’t feature cost-of-living adjustments. Still, I’m not looking a gift horse in the mouth. At age 70, I’ll receive about $23,000 a year. I’m grateful because I know that, using the 4% rule, I’d need roughly $600,000 in savings to generate that income.
The third leg was crafted from 2007 to 2010. During those years, immediately after completing my PhD, I couldn’t find a full-time academic job to save my life. The Great Recession upended most of the job searches I’d set my sights on.
Instead, I found myself teaching a full course load, but as an adjunct instructor, in Minnesota’s community college system. Once I passed a certain credit threshold each semester, money was deposited into a TIAA-CREF Lifecycle 2035 Retirement Fund (symbol: TCLRX) for me. I walked away with some $28,000. When I turn 70, this account will be worth about $217,000, assuming a 7% annual return. I’ll then buy an annuity producing about $19,000 annually.
On top of my three legged-stool, I’ll place part-time teaching work until age 75. I plan on taking on two or three classes a year until full retirement. Each course can pay $3,000 to $6,000, depending on the market.
Thus, my core retirement income will be about $90,000 a year. While my plan—with its ample guaranteed lifetime income—helps fend off sequence-of-return and longevity risk, I also need to protect against inflation and prepare for possible long-term-care costs.
Let’s tackle inflation first. From 2012 to 2016, I worked at a for-profit film school in Orlando. In 2014, I became eligible to contribute to a 401(k). I put in about $20,000 over two years. That money, which I converted to a TIAA IRA and invested in a 2040 lifecycle (TCLOX) account, will be worth about $157,000 when I’m 75. The annuity I’ll then buy will produce about $15,000 a year. I’ll be basically replacing my part-time teaching money and giving myself a small raise.
In addition, when I came to Overland Park in 2020, I started investing $300 a month in Calvert Community Investment Notes. Every year, I’ve increased the contribution by $50 a month. When I reach 70, the account will be worth approximately $195,000. I’ll stop contributing then, and I’ll allow the money to grow at about 4% a year. Depending on how much inflation is pinching my lifestyle, I can take the interest only or I could start drawing down principal.
Finally, there’s the risk of long-term care, which is very real, as I can attest. In 2004, my mother developed vascular dementia after a stroke. In 2006, I assumed guardianship and had her placed in a nursing home with a memory care unit. The cost of that placement was about $72,000 a year, and that was more than a decade ago.
I’ll make some assumptions here. First, I’ll stay at home and have workers come to me. Second, care will be very, very expensive. I’m going to budget $200,000 a year to be conservative. Third, based on a 2022 Forbes article, I’m going to assume that any long-term-care need will likely come after 75 and last no longer than three years. The upshot: I’ll need at least $600,000.
Fortunately, as you might guess, I have a plan. In 2017, I began a tenure-line job at Eastern New Mexico University-Roswell. Because I wasn’t sure I wanted to spend the rest of my professional life in the desert, I took an alternative retirement plan. The State of New Mexico contributed 10% of my salary into a TIAA account, and I contributed 10%.
When I came to Kansas, I rolled the money over into my school’s 403(b), also with TIAA. My employer contributes 8%. Four years ago, I started contributing an additional 2% and am increasing that amount by one percentage point a year.
When I’m 70, that account—which is 95% invested in stocks—will be worth approximately $650,000. I’ll let that money sit until 75, when I must begin required minimum distributions (RMDs). By that point, the account should be worth a little under $1 million. I’ll take RMDs, but I’ll let the rest continue to grow. If I need to tap the account for long-term-care expenses, there’ll be taxes owed. But at least part of those expenses should be deductible, offsetting the tax cost of drawing down the account.
Is my plan foolproof? Of course not. As the German field marshal Helmuth von Moltke said, “No plan of operations extends with certainty beyond the first encounter with the enemy’s main strength.” But as another person from Kansas, Dwight Eisenhower, opined, “In preparing for battle I have always found that plans are useless, but planning is indispensable.”
Douglas W. Texter is an associate professor of English at Johnson County Community College in Overland Park, Kansas. Doug teaches a composition I course that focuses on personal finance. His essays and fiction have appeared in venues such as the Chronicle of Higher Education, Utopian Studies, New English Review and The Writers of the Future Anthology. Doug’s previous articles were My Best Experiences and Follow Those Values.
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Doug, Appreciate reading your story and plan for your retirement years. The financial inheritance was certainly good fortune, but a more valuable blessing is inheriting your parents’ life and financial values. These values have served you well and will certainly continue throughout your remaining career and retirement. Having that $700K “safety net” does make things a bit easier, but very admirable that you have plans to apply that safety net in a charitable way down the road — your parents and grandparents are surely proud.
Thank you for the timely article and appreciate the detail. We also had a three-legged stool of social security, pension, and an annuity. However, back in 2020, I decided to add a dividend portfolio of aristocrat & king stocks. For the last 3 years, I’ve reinvested the dividends since I was working and it currently generates 15K/year. I call it my fun money and it will fund some bucket list items until I have to start RMDs. (My husband is already taking RMDs). Once I start RMDs, I’ll use the dividends to help pay the taxes on the RMDs.
Douglas,
If your core retirement income will be $90K and long term care is $200K/year, don’t you need to draw only $110K from your $1 million 403(b) per year?
Interesting question. So, my assumption is that I will stay at home and have all the expenses I did before needing help. I plan on buying a condo for retirement. I could pay for it in cash, but I’ll probably take a mortgage. So, the 200k is on top of normal expenses. If I actually do have to go into a nursing home, your assumption would be right. Thanks for the comment.
Doug, thanks for your post. I will add to my reading list:
I read Ms. Olen’s Pound Foolish a few years ago, so, time to reconsider.
I will be surprised if my children, ages 39 and 36 will need $3+MM in order to stop working and retire – and live comfortably. My understanding is that there are about 8MM Americans with financial assets of $1+MM – a number that more than doubled over the last 15 years. Assuming each has 30 years to go before they retire, that number should double twice again to 16MM and then 32MM – or about 1 in 10 American adults. The percentage with $3MM will be less than 1 in 5 of those with $1MM.
However, I have long been in agreement with your efforts – given that almost all Americans who are planning for retirement will need to use many different sources of retirement income – not limited to the basic 3 legged stool.
See: https://www.psca.org/news/blog/other-retirement-planning-model-first-series
Thanks again, Jack
Thanks, Jack, for the comment. Here’s one of my sources for the three million dollar retirement for Gen Z: https://finance.yahoo.com/news/thanks-inflation-gen-z-millennials-110023737.html.
I agree that that amount seems staggering.
Thanks, again.
Doug, do you have both a KPERS cash balance pension and a KBOR 403b plan? At my Kansas university, staff are in KPERS and faculty are in KBOR. I didn’t get an option to do KPERS, just a choice of which 403b vendor gets the university’s 8% contribution. I picked TIAA, too, since I already had money there from working in another state.