If the Typicals take that route, when he's 66 and she's 62, they'll get $2,847 in Social Security per month, plus $750 in pension for a total of $3,597 a month or $43,164 a year at the age when they'd prefer to retire. When Mary reaches age 70, between their Social Security and his pension, they'd get $4,276 per month or $51,312 per year in guaranteed income.
Scalese estimates that the Typicals' real yearly income requirement -- since they don't have a house payment or other debt -- is closer to $60,000. "If they were still carrying a $300,000 mortgage with a $2,000 monthly payment, I'd feel differently. That alone can eat up 40 percent of their income needs," Scalese says.
Without those obligations, "Most retired couples at their income level are only going to need 50 percent to 60 percent of their pre-retirement income," Scalese says.
Income from their 401(k)s and Harry's inheritance will augment their fixed income. If they were much younger, Scalese says he would urge them to switch to Roth 401(k)s so they would have no tax obligations, but since they are close to retirement age, he thinks it's unlikely that conversion is affordable. Even with their money in regular 401(k)s and considering that Harry will have to meet IRS minimum distribution requirements when he turns 70½, Scalese doesn't think their federal tax liability will be much greater than 15 percent.
Scalese says he would urge the couple to put Harry's inheritance into an annuity that matured when Harry turned 85, the age at which Social Security actuaries expect him to live to. At that point, Mary's income would drop dramatically, since Harry's Social Security check would stop coming and the pension benefit would be halved. The maturing annuity, also known as longevity insurance, would compensate.