A financial life: Jack and Diane rethink retirement
In my previous post, I asked how Jack and Diane should handle a dilemma that many mid-career investors may face: how to prioritize savings when you’ve got kids in college and aging parents to support.
Here’s how you voted in the poll, as of October 30, 2019:
73.6%: Keep up with their current retirement contributions, explaining to their son Evan and Diane’s mom that additional funds might not be available.
15.1%: Prioritize college and nursing home bills for now, with a plan to make up the difference in retirement savings after Evan graduates.
6.6%: Scale down their retirement contributions and funnel the extra money to the other expenses.
It’s clear that most of you would prefer that Jack and Diane not reduce their retirement contributions. On the surface, I’d say most financial advisors would agree with this thought.
It’s hard to argue with this viewpoint. You can’t take a loan for retirement, but you can for other expenses, like college tuition. Juggling multiple financial goals can be tricky, so use our prioritization scale to create an action plan.
It may not be that simple. If Jack and Diane were my clients, I’d get to know them while we’re building their financial plans. During our conversations, for example, Jack and Diane might say they feel strongly about making sure Evan graduates from college with as little student debt as possible. And since Diane told me she’s an only child, she feels obligated to help her mom as much as possible.
I’d have to take into account their wishes and beliefs in my recommended course of action. Of course, if Jack and Diane want to pause their retirement savings to help pay these expenses, I’d have to remind them they may have to work longer to meet their retirement goals and eventually buy the vacation home by the lake.
Jack and Diane decide to reduce their retirement contributions
They ultimately decide to help with Evan’s tuition and the assisted-living bills for Diane’s mom. Years later, Evan has graduated from college and Diane’s mom has passed away, so they’re no longer facing the same financial obligations as they had when we last encountered them.
However, that doesn’t mean they’re not at another crossroad.
Diane faces a big decision
It’s now 8 years after Evan’s graduation, and he has a family of his own—twin 2-year-old girls! Jack recently retired from teaching to watch his granddaughters a couple days a week. He’s collecting his pension and, while he loved teaching, he’s happy in his new phase of life.
Diane loves her job too. But she sees how happy Jack is in retirement and she’s starting to wonder if it’s time to join him. They’re still too young for Social Security, but if Diane officially retires from her company, as long as she pays the premiums, she and Jack can stay on her company’s medical plan until they’re eligible for Medicare.
With Jack’s pension and their retirement savings, they might have just enough to retire now, though it could be tight if they both live another 20 years or more. And they definitely aren’t ready to buy that lake house yet.
What do you think?
That leads us to our poll question: Should Diane officially retire from her company?
Feel free to leave a comment below, especially if you’re familiar with this dilemma.
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Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.