Thinking about Early Retirement?

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1 Oct Newsletter Thinking about Early Retirement? What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow. Ok, no more scolding. 2. Are you sure those are your expected expenses in retirement? How will you pay for health care? And how much will you pay? Have you gotten any quotes? If you're accustomed to group health insurance through your employer, prepare to be shocked. 3. No, really, did you account for giving money to your children or grandchildren for college or a home or something like that? Or supporting your elderly parents? How about repainting the house, replacing the furnace or roof, buying a new car? If you live long enough, you'll likely do all of these things. 4. Do you plan on any major lifestyle changes? For instance, will you buy a vacation condo on Maui or take up Formula 1 racing? How will this affect your spending? 5. What are your sources of income in retirement? No, the real, honest-to-god actual sources of guaranteed money (or as close as it gets), not a vague idea that you'll pick up a little part time income on the side. 6. Do you know what your pension really will be or are you just guessing? Have you taken into account any discount for retiring before some specified age? Will you have a survivor provision, and how much will that reduce your pension? 7. Have you gone to the Social Security Administration website to calculate how much you will get from social security? 8. Have you included taxes in your retirement income calculation? Be sure you understand how your state of residence and the IRS will 'reach out and touch you' once you give up your paycheck for an IRA withdrawal, SS, pension or other source of retirement income.

2 9. What is your nest egg? And by nest egg, I mean real measurable dollars in some account that you can value on a daily basis and liquidate bit by bit as you need money. Lets get started on some of what you need to know. PENSIONS, SAVINGS, 401K, IRAS AND DEBT *DEBT. Lets start with the least attractive in this group. What do you owe on house, cars and trucks, toys, boats, loans, utilities and any other miscellaneous bills? You may handle these now with a good job but what happens when the payroll check stops. It s good to do a spread sheet so you see where you stand. See what s coming in vs what s going out. Another loan you may not think about, have you borrowed against your 401K? *PENSIONS. As things go, a majority of those reading this may have 2 pensions to draw from. You don t know how lucky you are. These are a thing of the past. The distressed Pension held by the PBGC and the well run IAM National Pension as per the contract where you receive a contribution on an hourly basis at work up to 40 hours per week. If you haven t done it yet, get on line and register and follow what you have and what you will have coming to you at different ages going forward. Unless you are going to draw your Social Security at age 62 with penalties, this will be your main source of income excluding any withdrawals from your 401 and any IRAs you might have. The PIT union office can help you with phone numbers and web sites. *401K Unbelievable but there is a portion, over 50% of the workforce that never did contribute to the 401K. Beside your normal contribution from your weekly paycheck up to a certain percentage, you can also make additional contributions on a taxed basis. The plan that American has put in place utilizes law changes put in place a while back. If you are not investment savvy, utilize the Fidelity program that will do some or all of your investments for you. Contact Fidelity for more information. Also, keep in mind that there are investments that you can make to purchase mutual funds and stocks away from the menu that they provide. Look into the Brokerage Link that lets you make your own choices in investments

3 from many sources. Stocks, bonds and mutual funds from any company into a self directed account that you manage.. SOCIAL SECURITY BENEFITS Full retirement age is the age at which you may draw your normal maximum payout from Social Security. You may draw at a later date, and receive more pay out up to age 70. If You Were Born Between 1943 And 1954 Your full retirement age is 66 years old. If you elect to take your SS benefit at age 62, your payment is reduced to 75%. If you were born from 1960 or later, Your full retirement age is 67 years old. If you elect to take your SS benefit at age 62, your payment is reduced to 75%. *Remember, the earliest a person can start receiving Social Security retirement benefits will remain age 62. You must contact the Social Security office or look for your statement informing you of your benefit amount. There are advantages and disadvantages to taking your benefit before your full retirement age. The advantage is that you collect benefits for a longer period of time. The disadvantage is your benefit is reduced. Each person's situation is different, so remember that, if you delay your benefits until after full retirement age, you may be eligible for delayed retirement credits that would increase your monthly benefit; keep in mind that there are other things to consider when making the correct decision about your retirement benefits. contact Social Security before you decide when to retire.

4 keep in mind that there are other things to consider when making the correct decision about your retirement benefits. contact Social Security before you decide when to retire. MEDICARE BENEFITS What's Medicare? Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities may also qualify. The different parts of Medicare help cover specific services: When will my coverage start? Your coverage starts the first day of the month you turn 65, unless your birthday is on the first day of the month. What are the different parts of Medicare? Medicare Part A (Hospital Insurance) Part A covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. Medicare Part B (Medical Insurance) Part B covers certain doctors' services, outpatient care, medical supplies, and preventive services. Medicare Part C (Medicare Advantage Plans) A type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, If you re enrolled in a Medicare Advantage Plan, most Medicare services are covered through the plan and aren t paid for under Original Medicare. Most Medicare Advantage Plans offer prescription drug coverage. Medicare Part D (prescription drug coverage)

5 Part D adds prescription drug coverage to Original Medicare, These plans are offered by insurance companies and other private companies approved by Medicare. Medicare Advantage Plans may also offer prescription drug coverage that follows the same rules as Medicare Prescription Drug Plans. ALERT If you decide to delay your benefits until after age 65, you should still apply for Medicare benefits within three months of your 65th birthday. If you wait longer, your Medicare medical insurance (Part B) and prescription drug coverage (Part D) may cost you more money. HCTC Coverage What health insurance is available for someone under 65 taking early retirement. Let s start with (HCTC), Health Coverage Tax Credit. The IRS also has a toll free number for assistance on HCTC dial HCTC is an IRS tax credit for health care insurance premiums, which may apply to certain individuals who are years of age and are receiving benefits from PBGC. The Health Coverage Tax Credit is a tax credit that pays 72.5 percent of qualified health insurance premiums for eligible individuals and their families. The HCTC acts as partial reimbursement for premiums paid for qualified health insurance coverage and can now be claimed for qualified coverage through The HCTC program does not provide health insurance coverage. You will need to have or obtain qualified health insurance coverage from a qualified source. All plans that were qualified for the HCTC in 2013 qualify for the HCTC through This includes COBRA or spousal coverage if the employer, or former employer, did not pay 50 percent or more of the cost of coverage. Individual (private and non-group) health

6 insurance that you purchase for yourself or your family from an insurance company, agent, or broker are also included. Besides the HCTC, which is generally your best bet, there are what s known as Street Plans from insurance brokers.. Insurance Plans other than the HCTC Unfortunately here the news is not good. I pulled down the lowest rates on health insurance in the Pittsburgh area for Currently, UPMC is the lowest with High Mark a close second. So rates per person before the age of 65 are as follows: UPMC Gold Plan at age 59 is $ at age 65 it is $867. UPMC Silver Plan at age 59 is $606 up to $698 at 65 These plans are priced per person per month. Children's Health Insurance Program (CHIP) This is a program you may not need, depending on your kids ages, but it is there for the asking in many states including PA.. CHIP provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid. Call Under 19 years of age A U.S. citizen, U.S. national or lawfully present immigrant A resident of Pennsylvania Uninsured and not eligible for Medical Assistance In conclusion, I hope this has opened your eyes to leaving early. It s not for everyone, but there are some of our members that will take the plunge. Good luck! A reminder, when you do retire, early or not, come join the retiree club. Bill Hollowood Retiree Club President

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