Bartender: My father is retiring. He’s really worried about not having enough money. He keeps asking me and I don’t know what to tell him, so maybe you guys can help me out.
Jean Chatzky: How old is your dad?
Bartender: He’s actually 63.
Jean Chatzky: People don’t realize that they’re not old at 63 — that this could go on for 30 more years.
Greg McBride: Boy, I like the idea of working longer, even if it’s just another couple of years. Because what you’re doing is sort of burning the candle at both ends in a sense that you’re giving yourself a couple more years where you’re putting money away, but it’s also a couple more years that your asset base is growing.
Jean Chatzky: Yeah, and the deal with Social Security, too, is for every year you wait, from 62 to 70, your monthly check grows by about 8%. Although, if he has to pull money out of his retirement accounts in order to put off taking Social Security, that’s probably the right call, don’t you think?
Greg McBride: So many people, they end up getting to age 70 1/2 and they’ve put off the Social Security, but now they have this tax time bomb of having to take minimum distribution. So, what I like better, you know, is tapping his tax-deferred account and then depending on where he is in his tax bracket, he can actually roll over some of that into a Roth. So, what he’s doing is getting the money that he needs now, and then maximizing the amount of money he’s got on the tax-free basis that he can tap later and minimizing the tax hit that he’s going to take at age 70 1/2 when he has to start taking the money.
Jean Chatzky: Is your mom in the picture?
Bartender: No, unfortunately, she is not.
Jean Chatzky: It’s a big issue for men, but it is a bigger issue for women.
Bartender: Why is it more difficult for women?
Jean Chatzky: Well, women live longer — an average of about 7 years longer — and we’re the ones who typically take breaks from the workforce during our careers. So, when we get to retirement we’ve got less money than men do and we have to make it last longer.
Bartender: So, it sounds like there are no tricks once you’re retired. You have to do all of your work on the front end.
Jean Chatzky: There are 2 sides to the equation, right? There’s the income side and there’s the expense side. And it’s always been easier to control the expense side than the income side. But after you actually retire, it’s the only side of the equation that you can control. So, you really have to look at how you’re spending.