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The keys to retirement satisfaction: Prep + positive attitude

Fall 2012 your$ magazineFor Carol Gautsch, the decision to retire was an easy one. Her mother who suffers from dementia was deteriorating. “The doctor called us in and said we would see significant and rapid changes in Mom.” Wanting no regrets, Carol retired in 2007 at the age of 58.

Like most Wisconsin public school employees, Carol’s retirement income sources are the Wisconsin Retirement System pension, Social Security benefit, and personal savings. She also received a district retirement package (which included a health insurance benefit), making her decision to retire easier.

According to Michelle Slawny, CFP®, Sr. Financial Planner at WEA Member Benefits, one of the greatest financial concerns today for those retiring early is covering the cost of health care during the gap years before Medicare starts. The average annual cost for a single health insurance policy is about $8,000 depending on the plan. Those retiring early without a health insurance benefit from their employer or coverage from a spouse need to be prepared to pay out of pocket.

Without the health insurance benefit, Carol would have needed about $56,000 to fill the gap.

Even after Medicare kicks in there will likely be medical expenses. Retirees are often surprised to learn that Medicare does not cover everything. Dental, eye care, or long-term care services you might need fall into the “not covered” column. Supplemental insurance policies are available. Plan to spend some time doing research as policy pricing and coverages vary widely.

“I wouldn’t advise anyone to just go for it. You have to do some planning and you have to figure out what is right for your life. But once you make a decision, move on and don’t look back,” says Carol.

“Retirement is a new chapter in my life. Right now my primary focus is to be there for my mom. My dad died when I was 17 and she has been an excellent role model for picking yourself up and moving forward. She also made me understand that money truly does not buy happiness. She would give any one of her six children the last dollar she had because her philosophy was, ‘I’ve got plenty.’”

Saving on your own

Carol also saved for retirement with a 403(b). “I started in 1978 after I got my master’s degree. It’s amazing how fast it accumulated even though I started with a small amount. It’s difficult because sometimes money is tight and you live paycheck to paycheck, but most people won’t miss $25 or $50 a paycheck once they start.”

Michelle has completed more than 500 retirement plans for Wisconsin public school employees over the last five years. “With the changes in employee benefits—including retirement benefits—stemming from Act 10, it’s imperative that public school employees understand the need to start personal savings. Whatever they can build up in their IRA and 403(b) accounts is going to play an even greater role in their ability to retire when and how they want.”

“Once I made the decision, everything moved very quickly. I sold my house in eight days and moved to Holmen to be near mom,” says Carol. “I have absolutely no regrets. I was able to spend one wonderful year with my mom before her dementia got worse. She’ll be 99 this year, so I don’t know what I expect.”

Spending in retirement

Carol Gautsch and her momA pleasant surprise for Carol was a reduction in expenses. She lowered her housing costs by selling her home in Madison and moving to Holmen. Plus, she spends less on clothes and no longer needs to buy school supplies. “As a teacher, you just stop and pick up what you need for your classroom and you don’t get reimbursed. I don’t have that expense anymore.” On average, teachers spend nearly $600 per year of their own money to help supply their classroom, according to the National School Supply and Equipment Association.

Some of the overlooked expenses in retirement can also be the most costly,” says Michelle. Financial planners typically say you need about 80% of your before-retirement income but actual needs can vary considerably. In addition to assessing your retirement income and assets, you need to answer questions like: What kind of lifestyle do you plan to have and will your retirement income support it? Have you accounted for inflation and taxes? Are your investments positioned to deal with turbulent markets? These details are crucial to retirement planning, but many take the leap without a clear understanding of their financial future. Until you answer these questions in some detail, you won’t be able to put a price tag on it. 

“One way to reduce your expenses in retirement is to take a serious look at your greatest expenses like where you live. A bigger house means a bigger house payment, higher maintenance costs, and higher taxes. Downsizing and/or relocating to a city with a lower cost of living will improve your finances,” suggests Michelle.

Working in retirement

Carol took a part-time job at the local credit union. It gives her a social outlet, a little extra cash, and opportunities to get involved in the community. “Do I have to work? No, but I need to be around people. And, every day I find a way to use my teaching skills in my job. Do I need the money? I could live without it if I chose to, but I have some special charities and people that I like to help out. The extra money allows for that.”

If you decide to work in retirement and you are receiving a Social Security benefit, be aware that if you exceed the earning limit of $14,640 (2012), your benefit will be reduced. For every $2 you go over the earning limit, you give up $1 of benefit.

On the subject of Social Security, Michelle adds, “Many retirees don’t realize that up to 85% of Social Security benefits are taxable, and the income threshold that triggers Social Security income taxation is low—$32,000 for a married couple.”

You’ll also pay taxes on retirement income from Wisconsin Retirement System and any other pre-tax retirement savings, such as a Traditional IRA, 403(b), or 401k. No taxes are taken out on the front end when contributions are made, but withdrawals in retirement are taxed as ordinary income. 

On the other hand, if you made Roth contributions, you paid the taxes up front so you owe nothing on qualified withdrawals. Roth savings help diversify your tax liability in retirement, which could provide you with thousands of dollars in extra disposable income per year. For those still working, consider directing some or all of your retirement savings contributions into a Roth IRA or Roth 403(b) to help manage your tax bill in retirement.

“There will always be worries about finances. But I don’t let it consume me. I’m fortunate that I started contributing to my 403(b) early on. You do have to start planning early. You just have to start with whatever you can because you have to have something that’s yours. I’m partial to WEA. Other companies offer savings programs but they are in it to make money. It’s the same reason I love the credit union. We’re members,” says Carol.

Carol GautschCarol Gautsch has quite a resume. Her 35-year teaching career took her from Hillsboro to Washburn and ended in Verona. She also spent five years in Eau Claire at the Indianhead Federated Library System. She has a BS in Secondary Education and English and a Master’s Degree in Audio Visual Media.

But, that’s the previous chapter in her life. Carol has moved on. After retiring at age 58, Carol moved to Holmen to be near her mother who suffers from dementia, “Taking care of Mom is my primary job,” says Carol. “I spend a lot of time hanging out with her—looking at cook books and taking walks.”

She works part-time at a credit union and takes advantage of opportunities to get involved in community events such as Easter egg hunts, parades, and the Oktoberfest breakfast.

Carol is embracing retirement and has had many pleasant surprises. “Reconnecting with family and friends, particularly my nieces and nephews, has been especially rewarding,” she says.