My Pre-Retirement Checklist: 3 Months To Go

by: Retired Investor

How's my Social Security look?

How big will my pension be?

What's up with medicare?

I also go over some recent investment strategy changes.

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I am moving from 'Nearly Done' to 'Retired Investor' this July. Along with reviewing my investments and planning adjustments based on that status check, I am determining how new income and expense streams might affect how I invest. This article will lay the groundwork for a forthcoming series that will take a deeper drive into how an average, college-trained person is retiring with a portfolio worth $3.5 million.

New Contributor Profile - Investment Strategy Statement:

I am retiring after working for the same company for 39 years, the last 30 as a data-quality analyst for a major company's pension investment group. My educational background consists of two college degrees in finance (BS - Virginia Tech; MBA - U of GA). I got interested in investing when my dad gave me 15 shares of American Tobacco for my 10th birthday. My serious investing started in 1981 when I became eligible for my company's savings plan (now a 401k). Then, and for the next 10 years or so, the Stable Value choice was paying between 10-17% - barely above inflation. I think this has influenced my equity ratio never rising above 60% (it is currently around 40%). To offset that ratio, I allocate my equities towards smaller-cap stocks and international stocks, including exposure to emerging and frontier countries. On the fixed-income side (outside of a large percent in CDs for the cash flow), I am heavily into preferred stocks, BDCs, and TERM assets to generate income in my tax-free/tax-deferred accounts.

Many of those fixed-income assets resulted from reading SA articles! Due to company policy, I cannot currently buy options, and I must pre-clear any stock trades; but that is not the case for ETF/CEF/MF trades, so my holdings are almost exclusively in those asset types. CEFs and MFs are mostly in the TF/TD accounts in order to avoid taxes, and the ETFs are in my taxable accounts. As I believe most people cannot beat the market in the long run, the ETFs are almost all index-based, but most of the CEFs and MFs are not.

I have never bought on margin, nor do I ever plan to do so. I look forward to writing cash-covered naked puts in my IRA and Roth accounts once I retire. I don't swing for the fences and I try to avoid striking out; lots a singles and doubles are fine with me. I have dabbled in investment ideas I learned about on SA: I estimate that SA suggestions account for 30% of my holdings in accounts I can pick investments for. I view my accounts as five parts of an investment pie - IRAs, Roths, taxable accounts, 401k, and Donor Advised Fund - and I invest in each group somewhat differently. As I mention in my conclusion, key right now is not triggering higher Medicare premiums by earning too much. After I start collecting my Social Security checks and my needs change regarding cash flow generated from my investments, I will raise my equity ratio and worry less about a few "strike three" calls!

This is how I am invested now:

Account Type (#) EQ ratio FI ratio CASH ratio Value Main Goal
Taxable accounts (4) 33% 12% 55% $914,000 avoid taxes - cash flow
IRAs (4) 54% 37% 9% $455,000 cash flow to cover RMDs
Roths (2) 37% 55% 8% $407,000 long-term growth
Work401k (1) 39% 0% 61% $1,564,000 SWAN assets-some growth
Donor Advised Fund (1) 38% 0% 62% $150,000 post-retirement charity giving

I plan on doing a deeper drive into these accounts and how they fit into my overall investment strategy, including what I hold in each of the groupings, in future articles.

Let's take a brief look at three items that will affect my retirement investment strategy.

How's my Social Security look?

My FRA won't be until July of 2021, and since my starting early would also reduce my wife's spousal benefit, I plan on starting my Social Security when I reach that date. The U.S. Social Security website currently estimates my check should equal about 20% of my current salary and my wife's benefit will increase 50% when she switches to her share of my Social Security account.

Note: Even if you are not ready to draw on your Social Security account, you should set up your online account to protect yourself from someone else doing that and drawing off your SS account!

How big will my pension be?

The main reason I chose to retire this year is that my company froze my pension late last year. I will draw a pension equal to about 33% of my salary. I do not have the option of taking a lump sum; nor does it have a COLA clause. I decided to buy $250,000 20-year TERM insurance policy "just in case" I die early. Having over 50% of my retirement income guaranteed (pension plus two SS checks) will definitely effect my investments going forward.

What's up with Medicare?

Medicare rules already have affected how I invest as we need to keep our Modified AGI (AGI + TF income + state tax refunds) below $170,000. Otherwise our Part B premiums jump $54 per month for both of us! (Part D would also.) To avoid that, in 2016 I started "moving" all my high dividend/interest-earning assets to my IRA and Roth accounts from my taxable accounts. I just filed my 2018 taxes, and we went over by a few dollars. But luckily there is form you can file with Social Security (that's correct) in order to be exempted from the Medicare premium bump if you have had a life-changing event - such as retirement (another reason I am retiring this year) - as the income overage is based on a two-year lag.

Recent investment-strategy changes

In the last 18 months, I have made the following changes in how I am invested as I move into retirement and in order to keep my income below the Medicare limit:

• I started using the pre-tax option in my 401k plan at work. This directly reduces my MAGI without the need to change my asset allocation direction. My preference is using the Roth option, as I believe my marginal tax rate will be higher once my RMDs start (pre-tax has RMDs; Roths don't).

• I either sold my income-generating assets in my taxable accounts (if at a loss) or transferred many of them to my Donor Advised Fund. I then bought equivalent assets in my tax-deferred accounts.

• I made sure that my tax loss for the year allowed me to claim the full $3,000 you are entitled to.

• I stopped buying CEFs for my taxable accounts. They are now only in my tax-free ones so I can avoid their year-end capital-gains distribution.

• I used CDs maturing - and paying interest only at maturity - in 2020 in order to push interest income into next year, when I will be retired for the full year versus only half of this year.


For my first two years of retirement, my taxable income will drop 50% until I start collecting Social Security. This is one reason my current equity ratio is 40% - my need for liquid assets. I'm going to take advantage of my reduced income in 2019 and 2020 and convert part of my 401k into the Roth option to reduce my expected RMD come 2025. Upcoming articles will discuss what changes I have decided to make in all those accounts (and why so many) as I get a clearer picture of where I am financially. Most of my accounts are at Fidelity and they have a wonderful estimator tool on whether your funds will outlast you. So far, so good.

At first glance, this article appears geared to those near retirement, but most of the points, except for Medicare, can apply to you regardless of where you are on the timeline to retirement. Advice from someone entering retirement is to start early, learn all you can, and save at least 15% of your income. Never let bear markets scare, you as every one has been followed by a bull market. I look forward to sharing details on my accounts soon. Happy investing to you all!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.