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The biggest surprises I found in retirement

Consider building wiggle room into your budget

Remember to pace yourself, physically and financially.


What’s the biggest surprise about retirement?

I get that question a lot. I retired in September 2015 after 33 years with The Wall Street Journal, the final decade of which I spent editing, and writing for, Encore, the Journal’s guide to retirement planning and living. As such, I didn’t expect many, if any, surprises in my first year outside the office.

So much for expectations.

• Expenses: The importance of drafting a retirement budget is a theme that pops up regularly in these pages. And I did just that. But my wife and I have been hit with a number of bills that we simply didn’t anticipate.

Like the emergency-room visit for my wife’s knee, and the subsequent physical therapy (about $1,000). And the help that our granddaughter needed when she moved to a new town (another $1,000). And the two plumbing emergencies last spring ($700). The list goes on.

My advice: Build more wiggle room into your budget than you think will be necessary.

• Pace: My wife retired from her job as a teacher several years before me. So when I finally joined her, we entered our new life at a gallop. In particular, we hit the road. We traveled to France, New York, Washington, Arizona, the Caribbean, Virginia, New England and the beach (several times), all in the first 12 months.

In retrospect, it was too much, too quickly. Yes, we’ve had a wonderful time. But we need to do a better job of pacing ourselves—physically and financially.

• Work: My plan, upon entering retirement, was simple: I would take a year off, travel and spend more time volunteering. After that…perhaps I would try writing—and working—again.

But, as you can see, I’m already working. In fact, I started writing this column only about five months after leaving the office. Needless to say, a big surprise.

Of course, this is something that varies with each individual. In my case, I recognized, fairly quickly, that I missed writing and sharing insights with readers.

So I’m back at it, part time. I enjoy this. I keep my hand “in the game,” and still have a great deal of freedom. And I know it’s good for my neurons.

Should I consider pensions as bonds in my portfolio?

In response to a recent question about asset allocation in retirement, you didn’t mention how pensions or Social Security fit in the mix. Can I treat these, effectively, as bonds in my portfolio? And if so, can I invest a greater proportion of my 401(k) in riskier investments, like stocks?

In theory, pensions and Social Security can be viewed as an “asset” — in particular, as part of the bond mix — on your balance sheet. You can’t see or touch such assets, but they clearly produce a predictable stream of income, much like the interest payments on bonds. In fact, we can calculate a lump-sum value for these income streams (using a “present value” calculator, several of which can be found online).

For instance, a new retiree who gets $1,342 a month from Social Security (the average monthly payout for all retired workers) has an “asset” worth about $300,000, depending on life expectancy and other factors. If we include that figure in the bond portion of the retiree’s savings — and if the nest egg, as a result, is “bond heavy” — that would argue (as the questions above indicate) for reallocating this portfolio and adding more stocks.

But again, all this is “in theory.” In the real world, counting pensions and Social Security as assets can lead to some scary outcomes.

Let’s take a married couple whose combined Social Security payouts have a lump-sum value of $400,000. And let’s say this same pair has $800,000 in “real” assets (401(k)s and individual retirement accounts). If their preferred asset allocation as they enter retirement is 50% stocks and 50% bonds, the Social Security “asset” will cover the bulk of the bond allocation — and most (75%) of this couple’s “real” assets will need to be invested in stocks.

Needless to say, a nasty bear market could seriously damage a retirement portfolio in which three-quarters of actual savings are sitting in equities.

Your best bet: Think of pensions and Social Security simply as sources of income and not as assets. It might sound good to have an “extra” $300,000 or so of bonds in your nest egg. But that won’t provide much comfort if your real investments are taking a beating.

How are Social Security benefits taxed?

I’m confused about how my Social Security benefits are taxed. It looks like I could lose as much as 85% of my annual benefits to taxes. Is that correct?

That figure, 85%, is part of the math involving Social Security and taxes. But it doesn’t mean that 85% of your benefits will go up in smoke. Some background:

About 40% of beneficiaries pay taxes on their benefits, according to the Social Security Administration. Whether your benefits are subject to tax depends largely on whether you have additional income, say, from wages or a 401(k).

To be specific: If you file a joint federal tax return, and if you and your spouse have a combined income below $32,000, none of your Social Security benefits are taxable. If your combined income totals between $32,000 and $44,000, as much as 50% of your benefits are subject to taxes, and if your combined income exceeds $44,000, as much as 85% of your benefits are subject to taxes. (The thresholds are lower for people filing as individuals.)

The key phrase is “subject to taxes.” If you’re a high earner, as much as 85% of your benefits will be included as taxable income when you calculate your total tax bill for the year. But you won’t lose 85% of your benefits to taxes. For instance, a retiree in the 28% tax bracket could expect to see 85% of his benefits taxed at a rate of 28%.

(Note: “Combined income,” also known as “provisional income,” is defined as the sum of three items: your adjusted gross income, nontaxable interest, and one-half of your Social Security benefits.)

If you want an idea of how much of your benefits will, in fact, be subject to tax, check out Publication 915 from the Internal Revenue Service, “Social Security and Equivalent Railroad Retirement Benefits.” Page 4 has a work sheet that can take you through the math.

The larger point: Social Security and taxes get complicated quickly. Fortunately, there are strategies—converting a portion of a traditional IRA to a Roth IRA, and tapping different types of retirement accounts for income, among others—that can ease the pain. This is an instance where a good financial planner and/or accountant can be a great help.

Glenn Ruffenach is a former reporter and editor for The Wall Street Journal, and co-author of “The Wall Street Journal Complete Retirement Guidebook.” His column examines financial issues for those thinking about, planning and living their retirement. Send your questions and comments to

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