I retired from my 38-year career as an electrical engineer with the country’s largest operator of nuclear power plants on September 5, 2023. I’d often dreamed about having an enjoyable encore career, and a week after retirement I began working part-time as a Chief Engineer in a consulting firm with a few hundred employees. The job has largely been true to my dream. In the roughly 16 months since I retired from full-time work, my wife Lisa and I have undergone many changes related to our financial lives. Here are 10:
- Emptied our TreasuryDirect accounts. Given the current mediocre returns on savings bonds, along with a desire to simplify our finances, we cashed in all our on-line savings bond holdings, zeroing out our TreasuryDirect accounts.
- Cashed in paper U.S. Savings Bonds. The process of dealing with the Federal Government bureaucracy to redeem savings bonds seems clunky and slow. Many banks are no longer redeeming bonds, even for longtime customers. My bank still provides that service, so I’ve been cashing them in there. I’ve worked through all the highest denomination bonds. This has had tax implications as our interest/dividend income has been much higher than normal. I’ve adjusted my pension and earnings withholdings accordingly.
- Went on Medicare. Well, at least Lisa did. It was a very smooth process, all successfully completed online. I didn’t even feel the need to purchase ‘Medicare for Dummies’ to help navigate through the decision making. Plenty of good information was available here on HumbleDollar. And no, she is not enrolled in a Medicare Advantage plan.
- Spent 50% more on eating out. My son Dan and I meet almost every Thursday for lunch. Dan is a software engineer who works from home and lives about a half hour away from me. My wife, daughter and daughter-in-law get together monthly for a Cutler girls’ meal. Having lots of flexibility in my schedule, I regularly meet for meals with a variety of friends. So does Lisa. And there are date nights, of course.
- Replaced our gas heating system. When a major part in our 23-year-old gas heater broke, I didn’t hesitate to replace the entire unit rather than getting it repaired. Furthermore, I didn’t spend any time agonizing before selecting the more expensive but higher efficiency replacement option.
- Cut the cord on cable TV. The addition of basic TV to our cable internet package was costing us about an extra $70 a month. Most of our TV viewing involves YouTube or Amazon Prime. Occasionally we watch our local TV channel, which comes in very clearly with an antenna. In fact, we can pick up about 11 channels over the air. Given our viewing habits, there was absolutely no reason to continue paying for cable TV.
- Funded Roth IRAs in retirement. Since I still have a modest earned income, we can fully fund Roth IRAs for both me and Lisa. I look at the Roth IRAs as our last line of financial defense. They are in essence our long-term care insurance policies, to be used only when all other resources have been exhausted. We hope to be able to transfer these policies intact to our heirs.
- Began modest withdrawals from my 401(k). About two-thirds of our financial wealth is in my 401(k). I realized that although our asset allocation is satisfactory to me, our asset location profile is not. It’s time to start slowly chipping away at the ticking tax bomb before the RMD grenade explodes in 13 years. I’m taking a baby step by starting withdrawals at an amount roughly equivalent to what a financial planner might charge me in fees.
- Increased focus on estate planning. Lisa and I are not getting any younger. At our ages, things can change quickly. My current focus on asset location is partly a nod to estate planning. We plan to update our wills this year. I continue to add more details to my ‘sudden death’ instructions letter for Lisa.
- Fixed a date to begin taking Social Security. Based on results from Michael Piper’s Open Social Security calculator, Lisa and I should both start taking our benefits at her full retirement age. That’s what we’re planning to do.
As you can see, a lot can happen financially in a little over a year. I doubt that things will settle down in 2025. I may have a part-time job, but retirement is a full-time endeavor.
Don’t exit Treaury Direct just yet. You can invest in Treasury Bills for most any length you want. Mkt Place interest and no State Tax either.
Fidelity is a much easier place to buy T-bills.
Agree! I recently renewed a treasury bill. But, it depends on a person’s specific financial situation.
The best item on your list, something you probably couldn’t do when working full time, is a regular lunch with your son.
Patrick, you are absolutely right on both counts. I’m blessed to have such a fine son and to be able to regularly spend quality time with him.
Hey Ken,
I’m just curious. I have been accumulating I-bonds for years also and have been thinking about beginning to cash them in over time. How was the federal tax hit when you emptied your account?
Tim
Tim, I haven’t done my 2024 taxes yet, but my liability will be elevated since all the interest on the cashed-in I-bonds is taxable as ordinary income. Nothing was withheld over the years. For the old paper bonds, the interest alone was typically higher than the bond face value.
Ken, you do get a break on your state taxes. Income from Savings bonds are not taxable at the state level.
Good point, Marjorie.
Hi Ken,
I like your list of ten actions that you have taken. A couple of comments from my experiences –
#5 – Replaced our gas heating system – Our old natural gas central system heating failed in late 2008 and we also replaced with a more expensive but higher efficiency replacement option – a hybrid heat pump and gas system. The utility bill savings by themself over the next decade paid the cost for our new efficient system. Bonus for us was the unit qualified for a federal tax credit. Our unit manufacture (Trane) maintains a web site which advises if a credit is available for the model I purchased. I would expect most manufactures have a similar website. Doing a search for your model may be time well spent if a tax credit is available for your HVAC purchase.
#7 – Funded Roth IRAs in retirement – I stopped full time work in 2022 at age 72 and a year after stopping full time work began working a seasonal part time job at a local CPA firm. As I continue to have earned income like you I am eligible to make make IRA contributions (either traditional or Roth) after year end for my wife and/or myself to hit my taxable income target after everything else is known. Also, some part time work may allow you to be in a company plan where you could make an elective 401(k) Roth contribution to the company plan which could effectively allow you to stash up to twice your earned income between the Roth 401(k) and/or IRA Roths.
#10 – Fixed a date to begin taking Social Security – Our personal factors in deciding when to claim are about the opposite of each other. My wife is about 3 and 1/2 years younger than me, she had her own lower earning record and the traditional decision for the higher earning spouse to wait until 70 to claim made financial sense for us. As I was born in 1950 we had some restrictive SS claiming options that are now longer available to you. Your preliminary decision to claim at your wife’s FRA appears to be a well considered one based on current SSA laws and rules. To me that is the rub given the TCJA tax law currently expires at the end of 2025 and there are incoming administration proposals that propose making SS benefits not taxable. My crystal ball on future tax rules has been broken for decades but given the current tax uncertainty I think if I were planning a 2026 SS claiming decision I would delay executing my final claiming decision until I had greater certainty of the future tax impacts of the decision. You currently have the option to make your claiming decision retroactive 6 months and the even after the six month window I would expect the difference in optimal lifetime benefits by delaying additional months may be nominal.
Best, Bill
Thanks for reading and commenting, Bill. I didn’t mention it, but we did get a $500 credit on the new heater from the local gas utility. If I am still happily working in mid-2026, I could see possibly deferring our SS until January 2027 for simplicity. At that point our average age would be almost 66.
Sorry for any confusion. I am referring to using the costs as an itemized deduction. Of course this would require income from other sources to utilize
I would look to my tax deferred accounts for any long term care costs instead of Roth account. The deductability of long term care costs is more attractive
Wouldn’t deductibility of LTC costs be a constant regardless of where the money you paid them with came from?
I’ve heard LTC premiums can be paid from an IRA without paying tax on the amount, but is the same true of paying for the care itself?
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Charles may be talking about itemizing deductions to offset the income from traditional retirement account distributions.
Right, but wouldn’t the itemized deductions would be available regardless of what account the money to pay the costs came from?
Yes, but there would need to be enough income to subtract the deductions from.
Ah. I get it now. Thanks.
“I know LTC premiums can be paid from an IRA without paying tax on the amount,…”
Assuming you are referring to a traditional IRA, that’s news to me. Can you provide a source for that?
I am aware you can use an annuity tax-free transfer to pay for LTCI premiums.
I cannot. That’s been my understanding but then again I’ve never seriously considered a LTC policy. In a quick search to try to source the info I see you can pay premiums without a penalty for early withdrawals, but I don’t see anything about tax. So my understanding may be wrong. One of those times when I shouldn’t have said I “know” something.
It appears that tax-qualified LTC premiums, subject to age-based limits, can be included as medical expenses for those who itemize. This would only be a tax deductible benefit if medical expenses exceed 7.5% of AGI.
Eligible Long-Term Care Premium Limits
For 2024, the maximum amount of qualified long-term care premiums includible as medical expenses has increased. Qualified long-term care premiums up to the amounts shown below can be included as medical expenses on Schedule A (Form 1040), Itemized Deductions, or in calculating the self-employed health insurance deduction.
https://apps.irs.gov/app/vita/content/00/00_25_005.jsp
Yes, I am aware of that as I use that for one of my “above the line” business expenses. But I was questioning the accuracy of Michael1’s statement inferring that you could take a distribution from your traditional IRA to use to pay your LTCI premium and not have to pay income taxes on that distribution.
My comment was intended to support your position that it isn’t possible that you can’t avoid taxes by by paying your LTCI premium with an IRA distribution.
Charles, you make a good point. We would be drawing down our tax-deferred funds completely to pay LTC costs prior to accessing any Roth funds. Looking at the Roth IRAs as last-resort LTC insurance is really just a mental accounting trick on my part.
As they say, “Any plan is generally better than no plan”. I went into phased (partial retirement) in my 70s. I used the downloadable social security benefit calculator to play “what if” games. As noted, excessive earnings can reduce SS benefits. I continued to work and save via a Roth-IRA. The partial retirement allowed me to do things I couldn’t previously because I had an intense career. It also gave me an opportunity to slowly decompress. We began RVing in 2013, for example. I do maintain a cash stash, mainly to avoid selling stock in a down market. With current interest rates, MM funds are attractive compared to bonds. However, my i-Bonds delay taxes. Excess income from my RMD is saved and re-invested. A loophole allows me to gift charitably from my retirement accounts before calculating the annual RMD if I am so inclined. We do have LTC insurance. It has taken a few years, but G and I are both comfortable with our life as retirees. I run my numbers about once a year, using several different calculators, including Firecalc.com. Good luck and enjoy!
Thanks Norman. Glad things are working out well for you after your late re-start.
Ken, it sounds like you’re doing well with your semi-retirement. Like Rick, I do have a question about your Social Security benefits. Assuming you’re the higher earner, it would be optimal if you could wait until age 70 to start your Social Security which would maximize your benefits and leave Lisa with a higher survivor benefit.
Normally that approach would be better, but the wild card here is that Lisa is older than me and has no earned SS benefit of her own. Modeling indicates we would get further behind the longer we waited past her FRA to claim.
I get that. How old will you be when you start?
About 64.
I would pay the money and run this through Maximize my Social Security. You or Lisa could be stuck with this reduced benefit for 20-30 years.
Just curious, when the talk is maximizing social security, are there a set of assumptions that must be achieved for that work? What is being maximized, the monthly income or aggregate benefits received?
Ideally both! 🙂
I can understand there are circumstances to maximize monthly benefits, but no idea why maximizing aggregate benefit means anything especially given we have no control over most critical factor.
I started SS at FRA in 2008 as did my wife on my earnings. Within seven years we had collected benefits that exceeded all the taxes I and my employers paid since 1959 – but who cares?
Do you have concerns about Mike Piper’s Open Social Security calculator?
Honestly, I’ve never used it but I have used the one I recommended. It’s up to you really. It’s a critical decision so I thought that a “second opinion” wouldn’t hurt. If you decide to use Maximize My Social Security, put your current plan in as the “What if?” and then see how it compares to what they recommend.
Thanks for the advice. I see it costs only $49, so I might give it a whirl when we get closer to pulling the trigger.
Good luck! I think it’s money well spent!
Glad to see you post again, Ken. Always enjoy your thoughts. Chris
Thanks Chris. Somehow I’ve become ‘Ken Cutler’ instead of ‘Nuke Ken’. Not sure how that happened since I believe I signed in using the same email address.
Sounds like you have things well under control. Savings bonds didn’t feature on my “things to do ” list, but I believe I may have some very old UK bonds around somewhere. I suspect they are so few and so old it wouldn’t be worth the hassle of trying to redeem them.
Nice article Ken. You seem very well organized – I would expect nothing less. I had a question about your SS claiming strategy. You planned to claim at your wife’s Full Retirement Age. (FRA).. I assume you are younger and that means you will be claiming before your FRA. In your response to Edmund below you said:
“Once Lisa and I start taking Social Security in 2026, I’ll try to make sure I don’t exceed the earned income limit ($23,400 this year). “
If you still have meaningful, remunerative work, would you consider postponing your claiming until you reach FRA? I think I remember a previous article where you explained that you had a unique SS claiming strategy recommended by Open SS.
This reminded me of a situation at work. I had a physicist with a unique specialty in atmospheric scintillation and its impact on RF communication from space. he retired well before FRA, but wanted to continue to consult. He calculated to the penny the hourly wage he wanted, above his pre-retirement salary, to make up for lost SS benefits due to the earnings limitation. It was an interesting negotiation and a challenge to deal with HR and finance to get them to approve an “off-nominal” wage for a unique skill.
Thanks Rick, and good question. I think the previous article you are referring to is: https://humbledollar.com/forum/working-for-free-by-ken-cutler/
If I postpone claiming SS until my FRA, we are basically forfeiting Lisa’s pretty decent spousal benefit for several years. That doesn’t seem wise to me. Her benefit will not increase after she reaches her FRA. So right now I don’t see a scenario where I would feel good about postponing our SS past her FRA. Closer to pulling the trigger, maybe I’ll feel differently.
Ken, we are in the same boat as you with the SS claiming strategy. Chris
That’s the one! Good luck and I hope you can negotiate a “SS Earnings Test Salary offset”.
Rick, maybe you can find (or derive) the details of that calculation and share it with me!
One great thing about retirement, even with a part-time job (paid or unpaid – depending on the extent of one’s volunteering), is that you have more time to deal with these time-consuming and sometimes “clunky” financial details. Thanks to Humble Dollar and my husband’s succinct sudden death instructions, I have gradually worked my way through most of your items, Ken. A note about estate planning and cashing in paper savings bonds: I was left with a bunch of paper savings bonds with high interest rates that had recently reached their 30-year maturity. A few of them had as co-owners people who were both deceased. The estate attorney I hired to re-do my will offered what seemed like an unnecessary and costly ($1500) plan to help me cash them in. I was pretty sure that I could do it on my own with the directions on treasurydirect.com., so I declined the offer. It took some time and phone calls, but the mission was accomplished. I still have some paper bonds that don’t mature for another few years but converting them to e-bonds is on my to-do list. And I probably won’t be recommending that attorney. P.S. When my Medicare Advantage plan was recently discontinued, I was able to switch to Original Medicare and a Plan G Supplement. I almost forgot about a drug plan but just got that done within the grace period. Still debating about whether I need dental and vision insurance (I wear contacts). My expenses are currently pretty low, so I’m trying to decide between paying out-of-pocket, buying insurance or joining a discount plan for $175/year.
Linda, I wanted to mention that in our case, we don’t have dental and vision insurance and pay those expenses from our HSA. Idk if you have one, but a suggestion. And, we were pleasantly surprised that when we went for our vision visits, that most of them were covered by our Medicare. Only the glasses part of the exam was not covered. Chris
Thanks for the suggestions, Chris and Kathy. I do have an HSA. Only about $3K left at this point but my heirs will have to pay taxes on it if I don’t use it, so I might as well! That was good news about eye exams being covered. I’ll see what happens when I go next month, and will also check out the VSP insurance recommended by Kathy – that’s even less than the discount plan I was considering (and for us HD readers, we consider $168 vs. $175).
It is really confounding that Medicare will pay for hearing and vision tests, but not for any recommended hearing aids and glasses!
I have given up on dental insurance, but I recommend VSP for vision insurance if you need glasses. It costs me $14/month although I don’t know whether that’s standard – I’ve been paying the same premium for years.
The fact you have been paying the same premium for years indicates the overall value of the plan is less than at least 85% of the premium.
Over everyone in the pool, maybe. Any year I bought glasses, or at least new lenses, which at one time was every year, I made out. My vision, after six surgeries (covered by Medicare), is now more stable, but I still buy new lenses often enough I find the insurance worthwhile.
Ken, it’s good to read an update from you. And to hear part-time work is turning out well. Are you working on a discreet project with an end date, or is it ongoing work? Do you have a date in mind for full retirement?
Ed, my work situation is more complex than my opening paragraph might imply. My main job is the Chief Engineer position, which involves ongoing work supporting a variety of projects all over the country. Additionally, several groups from my old employer reached out to me late last year to solicit my help on a temporary basis for particular needs. Long story short, I am juggling three part-time jobs currently. Once Lisa and I start taking Social Security in 2026, I’ll try to make sure I don’t exceed the earned income limit ($23,400 this year). I’ll keep working as long as I mostly enjoy it and feel like I’m making a meaningful contribution. So far those criteria have been met. Thanks for asking!
Hi Ken, looks like you’ve taken some good steps and made some plans, with a good eye towards your goal of full retirement.
You still have lots to think about such as Roth conversions, Tax planning, Considering long-term care insurance, telling heirs about your estate plan and so forth. I made a check list of everything I could think of, and reviewed it often.
i also think it’s a good idea to go into retirement without an expectation of major purchases in the next few years. My husband bought a new car for me just before he retired—I still have it, although truth be told we really only need one car at this point.
Your part-time job is good to have. As long as you’re working, you can still fund those IRAs. I think part-time work is great. It helps keep you “in the loop” Along with having the benefit of extra cash.
Good luck to you and your wife, Ken, and don’t forget to keep it simple.
Marjorie, we are down to 1 car also and so far it is working out ok. Chris
Thanks Marjorie, and thanks for reaching out to Jonathan about me. In a way, you should get credit for this post, which probably wouldn’t have happened without your inquiry. To adapt a phrase from my industry, I like to keep my finances “as simple as reasonably achievable” (ASARA). The pension is great in that regard. Even so, there is a good deal of necessary complexity in retiree finances for many of us, mainly due to our tax codes.
”My husband bought a new car for me just before he retired—I still have it, although truth be told we really only need one car at this point.”
Five years into retirement we now have a five year old Toyota Tacoma (replaced a 18 yo stripped down 2WD, standard bed Tacoma which cost 13K) with 40K miles on it. It has all the safety bells and whistles available at the time of purchase. We bit the bullet in December and bought a new Toyota Crown Signia also with all the newest safety features to replace our balky 11 year old Subaru Forrester.
These were bought with money inherited from my parents. Some might say it’s not smart to spend on a depreciating asset. My counter argument is we now have two new very reliable cars that because they are Toyotas will depreciate slower than most makes/models. Both are quite energy efficient for their vehicle class. Because of our driving habits these may be the last vehicles we purchase, if not then most likely we will sell both in 10-15-20 years and will buy one more vehicle to share.
We will both be safer drivers due to the safety features of these new vehicles. Our insurance company seems to think so as our insurance premium went down $70 annually for the new Signia.
Oh yeah, and purchasing these cars will have absolutely no effect on our financial security in retirement!
No pension Ken? Where do you invest those 401k withdrawals.
While I would rather not have them, RMDs are not a major problem. We use the RMD to gift our children and for QCDs and reinvest net balance. I also take extra withholding from RMD near year end to cover taxes on interest, dividends and capital gains. So far at least, the funds have grown to replace the RMDs taken each year for the last nine years.
Dick, I suppose I could have added ‘commenced my pension’ to the list, but not much to say there except that the first day of each month is a little more interesting in retirement. I set up automatic monthly withdrawals from the 401(k) and my first is scheduled for the end of this month. We clump our charitable contributions, itemizing our taxes every other year. 2025 is a planned high giving year. Any withdrawal that doesn’t go into the contribution pot or get used to cover an unexpected expense will end up in our brokerage account, I imagine.