Like a lot of other baby boomers turning 65 this year, Claudia Hamblin still works full time and says she’s not ready for retirement anytime soon, emotionally or practically.
“I probably won’t ever retire totally,” said Hamblin, a school nurse. “There are a million avenues open and lots of ways to work and still have plenty of free time for vacation.”
Such a positive outlook may run counter to recent surveys that found many boomers depressed and worried about their financial futures.
And to be sure, Hamblin and her husband, Bruce, 67, have some concerns.
They have only one small, traditional pension between them. Further, their Social Security income will be lower than they planned because Claudia’s pension from her public-sector employment with the school where she has worked for seven years will alter the formula used to calculate her Social Security benefits.
She has been contributing to a workplace savings plan, but it totals less than two years’ pay, far lower than what most financial advisers recommend for retirement.
The housing slump and recession have slowed Bruce’s remodeling business, compounding their worries.
The good news, said financial planner Jim Blankenship: Their combined Social Security benefits and the small pension should still get them fairly close to covering their basic monthly expenses, and they have assets, including a vacation home in northern Wisconsin that they could sell or rent out.
Blankenship, founder of Blankenship Financial Planning, said baby boomers, particularly those who will rely on Social Security for a major chunk of retirement expenses, need to maximize those benefits rather than grabbing them before full retirement age. For the oldest boomers like Claudia, that’s age 66.
He told her to consider waiting until 66 and then claim spousal benefits based on Bruce’s work record, allowing her own benefits to be deferred and grow, at 8 percent per year, until she reaches age 70. (Your own situation could be different depending on the difference between your own benefits and your spouse’s.)
Her reduction in benefits due to her school pension, called the windfall elimination provision, will probably mean about $300 less in monthly income than she originally planned, Blankenship said.
“That’s a big disappointment,” Claudia said after learning how much lower her monthly benefits will be.
The provision recalculates the Social Security benefits of workers who also earn pensions from jobs where they didn’t pay into Social Security. Before becoming a school nurse, Claudia worked in private-sector nursing jobs, which made her eligible for Social Security benefits because she had paid into the system.
Most states have brought their government payrolls onto the Social Security system, eliminating the need for the windfall elimination provision, said Jeffrey Brown, a University of Illinois finance professor who has written about the issue.
The American Federation of State, County and Municipal Employees says on its website that the provision “affects only those public pensioners who were not covered by Social Security as public employees. In the federal sector, this includes current retirees and most employees hired before 1983, when all new hires were required to join Social Security.” About 25 percent of state and local government employees and retirees are in non-Social Security jurisdictions, the organization says.
Social Security uses a progressive formula to calculate benefits. Workers with relatively low lifetime earnings will have a higher wage-replacement rate than highly paid workers, meaning their monthly government benefits will account for a higher percentage of their former salaries. Without the windfall provision, private-sector workers who appeared to earn low lifetime wages but then also worked in government jobs not covered by Social Security would qualify for those higher wage-replacement rates. The windfall provision aims to bring the calculation more in line with replacement rates that correspond to others with similar total earnings.
Beyond learning about the windfall elimination provision, Claudia Hamblin needs to start paying closer attention to her workplace retirement plan, Blankenship said. With the recent run-up in stock prices, he said, her account may be tilting too strongly toward stocks.
Given her age and that her workplace plan is really her only source of retirement assets other than her monthly benefits and real estate, she should aim for having no more than 60 percent, perhaps even half, of her portfolio in stocks, Blankenship said.
As for the softer retirement dreams, Claudia hopes to eventually cut back her work hours and devote time to her photography hobby, travel and volunteer with hospice facilities.
“I just hope to stay active and healthy so I can do all that,” she said.
Turning 65 in 2011? Tell us how you view the milestone, what questions you have about retirement and what you hope to accomplish. Send a brief e-mail to yourmoney@tribune.com, and we may contact you for future profiles of baby boomers reaching 65.
