|
Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. There’s a pattern I keep seeing, and it’s become one of the more interesting things about this work. Someone comes in with a PERS 2 or TRS 2 or LEOFF 2 pension nearly locked in, a solid DCP account they’ve been building for years, Social Security waiting in the wings, and no debt. By every measurable standard, they’re in good shape. And then they mention they’ve been losing sleep over a market headline. Take someone like Diane, a hypothetical but very realistic example. She’s a school administrator with 27 years in, planning to retire at 58. Her pension will cover her core monthly expenses. Her DCP account has grown steadily. She has no mortgage left to worry about. And she’s still anxious. When I ask what’s bothering her, it almost always comes down to the same question: “Why doesn’t this feel like enough?” That gap between having enough and feeling like you have enough is one of the most underdiscussed problems in retirement planning. And recent research helps explain why it exists, and what actually closes it. It’s not just you The Global Financial Literacy Excellence Center found that roughly 60 percent of American adults report feeling financially anxious.1 And a notable share of those people aren’t struggling financially. They’re people who, by most measures, are doing fine. As a Wall Street Journal piece put it, even wealthy retirees fear outliving their money.2 The anxiety isn’t really about the account balance. It’s about something else. Fidelity’s 2026 State of Retirement Planning Study sheds some light on what that something else actually is. Among Americans surveyed, those who had a written financial plan were more than twice as likely to feel confident about retirement as those without one. 83 percent confident versus 38 percent.3 Same economy. Same Social Security rules. The plan was the differentiator. So what does that actually mean? I’d break it down into four things I consistently see in people who feel genuinely secure heading into retirement. Not one of the four is about the size of their account. Pillar 1: A real plan, written down This sounds almost too obvious. But there’s a reason it matters more than people expect. Retirement has a lot of moving parts. Pension income. DCP withdrawals and timing. Social Security decisions. The healthcare gap between early retirement and Medicare at 65. Tax brackets shifting year to year as income sources change. That’s a lot to carry around in your head. When all of it lives in your head, every market drop and every scary news article triggers a new wave of “what if.” There’s nothing to anchor to. A written plan does something your account balance can’t. It gives your brain a place to put the uncertainty. It pre-answers the questions: Where is income coming from? What changes if markets fall? What’s the healthcare plan from 58 until Medicare kicks in at 65? The Schwab Modern Wealth Survey found that only about 36 percent of Americans have a written financial plan. But among those who do, 96 percent say they feel confident they’ll reach their goals.4 Clarity is the antidote to anxiety. The plan creates the clarity. Pillar 2: Knowing your actual numbers Having a plan matters. But a plan without real numbers is just an outline. Research from the FINRA Investor Education Foundation found that fewer than half of pre-retirement workers have actually estimated how much monthly income they’ll need, how much to withdraw from their portfolio each year, or what their healthcare costs are likely to be.1 Fewer than half. Right before the most important financial transition of their lives. For Diane, this is where the real work happens. Her pension covers the baseline, but she needs to know the gap. What does her actual monthly spending look like? What does her DCP need to contribute? And what does healthcare cost from 58 until she qualifies for Medicare? Fidelity estimates that a 65-year-old retiring today can expect to spend an average of $172,000 on healthcare throughout retirement, and that doesn’t include long-term care.5 For someone like Diane who retires at 58 and bridges PEBB coverage for several years before Medicare, that number starts earlier and runs longer. In someone’s head, that blurs into one big source of dread. In a written plan with actual numbers attached, it becomes a series of solvable problems. Pillar 3: Knowing what you’re retiring to This is the one that tends to catch people off guard. A well-built plan can tell you whether the numbers work. It can show you how much you can spend, where income comes from, and what happens if markets or healthcare surprise you. What it can’t tell you is what your life will feel like when work is no longer at the center of it. I’ve seen this pattern enough times in my work with public employees that it’s become something I bring up proactively. Someone retires with a full pension, solid savings, and a farewell party. Everything looks fine on paper. But they hadn’t thought through what a regular Tuesday in January looks like. Not a vacation. An ordinary day. Who are you with? What are you working on? What gets you out of bed? For people who spent 25 or 30 years in public service, teaching, or law enforcement, the job is often bound up in their sense of purpose and community. The pension solves the income problem. It doesn’t solve the identity problem. Fidelity’s 2026 study found that 6 in 10 Americans now plan to transition gradually into retirement rather than stopping all at once.3 That path is worth designing intentionally. If the question “what am I retiring to?” feels hard to answer, that’s useful information. It tells you where there’s more planning to do. Pillar 4: A second set of eyes I’ll be upfront: this one is awkward to write, because I’m a financial advisor making the case that people should work with a financial advisor. Make of that what you will. But Fidelity’s research found that people who work regularly with a financial professional report meaningfully lower worry in retirement.3 And the reason isn’t investment selection or tax strategy. It’s that when markets fall and the headlines turn ugly, you’re not alone with the question of what it means for your specific situation. Schroders’ 2025 retirement survey found that 62 percent of already-retired Americans had no idea how long their savings would last.6 They crossed the finish line and were still flying blind. Meanwhile, 90 percent of Americans say planning is still necessary after you retire.3 Yet most retirees are doing it without one. The second set of eyes matters most not when things are going well, but when something changes and you need to know what it actually means for you. Where this leaves Diane Back to our hypothetical school administrator. Her pension is a genuine advantage. It’s the income floor that most Americans don’t have. It creates flexibility and stability that changes the whole picture. But the pension alone doesn’t close the gap between having enough and feeling like you have enough. What closes that gap is being able to see the whole picture. Income, taxes, healthcare, spending, and the life she’s retiring into, all in one place, modeled out and updated as things change. The anxiety lives in the gap between what you have and what you can see. A plan is how you close it. Sources 1. FINRA Investor Education Foundation. “Financial Anxiety and Stress Among U.S. Adults.” Global Financial Literacy Excellence Center. https://gflec.org/wp-content/uploads/2021/09/Financial-Anxiety-and-Stress-Issue-Brief-1.pdf 2. The Wall Street Journal. “Even Rich Retirees Fear Outliving Their Money.” https://www.wsj.com/personal-finance/retirement/retirement-spending-longer-life-savings-4b511053 3. Fidelity Investments. “Fidelity Investments Study: 72% of Americans Say They Will Retire on Their Own Terms as They Embrace New Approaches to Retirement Planning.” 2026. https://newsroom.fidelity.com/pressreleases/fidelity-investments--study--72--of-americans-say-they-will-retire-on-their-own-terms-as-they-embrac/s/609fbcb7-3ea5-4773-a300-0659da881d2a 4. Charles Schwab. “Modern Wealth Survey 2025.” https://content.schwab.com/web/retail/public/about-schwab/schwab-modern-wealth-survey-2025-wave2-findings.pdf 5. Fidelity Investments. “Fidelity Investments Releases 2025 Retiree Health Care Cost Estimate.” https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2025-retiree-health-care-cost-estimate--a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e 6. Schroders. “Schroders Retirement Study Finds Inflation Taking Toll on Retirees.” 2025. https://www.schroders.com/en-us/us/intermediary/media-center/schroders-retirement-study-finds-inflation-taking-toll-on-retirees/ -Seth Deal
0 Comments
Note: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees.
I’ve noticed a pattern with the clients I work with. When the Social Security question comes up, most people have already made up their mind before we even start talking. They’ve heard the advice. Wait until 70. Get the biggest check possible. End of story. And honestly, the math behind that advice is real. Claim at 62 and your benefit gets reduced. Wait until 70 and it can be roughly 77% higher than if you had claimed at 62.1 That’s not nothing. But here’s what I’ve started to notice. That number, the size of the monthly check, is only one piece of the puzzle. And for a lot of Washington State public employees, it may not even be the most important piece. The question most people aren’t askingLet me walk through a hypothetical that captures what I’ve seen in practice. Imagine someone like Karen. She’s 62, wrapping up a 28-year career as a budget analyst with a state agency, and she’s enrolled in PERS 2. Her pension is going to replace a meaningful portion of her income, but she’s also built up a solid DCP account (the 457(b) plan available to many Washington public employees2). She’s been told to wait until 70 for Social Security. And on the surface, that sounds right. But when we sit down and actually look at her full picture, a different question starts to matter more. Not “which age gives me the biggest check?” but “which claiming age gives me the best after-tax outcome for my entire retirement?” Those are not the same questions. Where the math gets more interestingHere’s the part most people don’t think about. Every dollar Karen pulls from her DCP or traditional IRA is taxed as ordinary income at the federal level.3 If she’s not drawing Social Security yet, she’s relying entirely on those accounts to fund her life in the early years of retirement. That’s fine, but those are fully taxable dollars going out the door every month. Social Security is taxed differently. Up to 85% of the benefit may be subject to federal income tax, depending on total income.4 But a minimum of 15% is always federally tax-free, regardless of how much other income you have.4 That’s a real difference. The same dollar of living expenses, funded from Social Security instead of her DCP, carries a lower federal tax cost. And over several years of early retirement, that adds up. The Roth conversion windowThis is the part of the conversation that most people miss entirely. Karen has a window of time between when she retires and when required minimum distributions kick in around age 73.5 That window is valuable. It’s a chance to convert pre-tax money from her DCP or IRA into a Roth account, paying tax now at a potentially lower rate, so future withdrawals are tax-free.5 But here’s the challenge. Every dollar she pulls from her DCP for living expenses takes up tax bracket space. And every dollar she wants to convert to Roth also takes up that same space. They’re competing. If Karen takes Social Security at 62, even at the reduced amount, she needs less from her DCP each year to cover her expenses. That frees up room in her bracket. And that room can go toward Roth conversions instead. The goal isn’t to convert as much as possible as fast as possible. The goal is to convert strategically, filling each tax bracket thoughtfully over several years. That means knowing in advance where the guardrails are. As conversion amounts increase, total income rises with them. That can push into Medicare’s IRMAA thresholds, which trigger higher Part B and Part D premiums.6 Those thresholds change annually, so this is something to model each year, not just once. A good plan accounts for this from the start and builds around it rather than getting caught off guard. Social Security, when timed as part of this broader picture, doesn’t compete with Roth conversions. It actually creates more room to do them well. A pension changes the whole pictureHere’s something I think about a lot folks who have a pension. Karen’s pension is already going to provide a base of income in retirement. It’s not optional, it’s not market-dependent, it just shows up every month.2 That changes what she needs her portfolio to do. She doesn’t need her DCP and IRA to replace her entire paycheck. The pension handles the foundation. That means the DCP has a different job: flexibility, tax management, and long-term growth. When someone has a pension as their income floor, the case for draining that account aggressively in early retirement just to delay Social Security gets weaker. The math changes. So when does waiting until 70 still make sense?It does sometimes. I want to be honest about that. If Karen has serious reasons to expect a long life, or if she’s the higher-earning spouse and survivor benefit planning is a priority, waiting can absolutely be the right call. The break-even analysis is legitimate. It usually works out somewhere in the early 80s/late 70s, meaning if she lives past that point, the larger check tends to win mathematically.1 But those calculations assume static years with no taxes, no cash flow considerations, and no effect on the rest of the plan. That’s not how retirement actually works. What I’d suggest insteadRun the actual projections for your specific situation. Not a general rule, not a calculator that only looks at one number. A real analysis that accounts for your pension income, your DCP balance, your Roth conversion goals, and what taxes are going to look like across the next 10 to 15 years. The answer for Karen might be 62. It might be 65. It might still be 70. But whatever the answer is, it should come from her specific numbers. Not from a default. Social Security timing is one of those decisions that quietly connects to everything else in retirement: your tax brackets, your Roth conversions, your future RMDs, your Medicare premiums. It all flows together. Getting it right is worth the time to actually look at it. Sources1. Social Security Administration. "Retirement Benefits: When to Start Receiving Retirement Benefits." https://www.ssa.gov/pubs/EN-05-10147.pdf 2. Washington State Department of Retirement Systems. "Deferred Compensation Program." https://www.drs.wa.gov/plan/dcp/ 3. Internal Revenue Service. "Publication 590-B: Distributions from Individual Retirement Arrangements." https://www.irs.gov/publications/p590b 4. Social Security Administration. "Income Taxes and Your Social Security Benefit." https://www.ssa.gov/planners/taxes.html 5. Internal Revenue Service. "Retirement Topics: Required Minimum Distributions." https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds 6. Centers for Medicare and Medicaid Services. "Medicare Costs." https://www.medicare.gov/basics/costs/medicare-costs The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. I read something this past year that has stuck with me. It was a research paper by David Blanchett and Michael Finke. The title is dry. “Retirees Spend Lifetime Income, Not Savings.” But what they found is the kind of thing that quietly changes how you think about retirement. They looked at how actual retirees use their money in real life, and what they noticed was striking. Retirees spend roughly 80% of their lifetime income each year. That includes Social Security, pension benefits, and annuity payments. But they only spend about half of what they could safely take from their savings.1 Half. It shows up across every age group and every income level they studied. The “license to spend” Blanchett and Finke have a phrase for this. They call lifetime income a “license to spend.”1 When money lands in your bank account every month, you spend it. When you have to log into a brokerage account and pull the money out yourself, something different happens. You hesitate. There’s a moment where you wonder if it’s the wrong time, or whether you should wait until the market settles, or whether $40,000 is too much. That hesitation has a real cost in retirement. It shows up as smaller vacations and the trip to see the grandkids that you keep postponing. The research found that married households with $500,000 to $1 million saved often only withdraw about 2% per year.1 That’s roughly half of what the Guyton-Klinger guardrails research considers sustainable for a 65-year-old couple with a balanced portfolio.2 So the question becomes interesting. What kind of retirement do you actually want to live, and what would let you live it? Where the DRS pension comes in Washington State public employees walk into retirement with a head start most Americans don’t have. If you have a PERS, TRS, SERS, or LEOFF pension, that monthly check is doing exactly the kind of work the research describes. It anchors your retirement income. It’s already doing some of what guaranteed income is supposed to do. But here’s the thing. For a lot of the public employees I sit down with, the pension by itself doesn’t quite cover the lifestyle they want. There’s still a gap between what the pension pays and what they want to spend. That gap typically gets filled some combination of the following three options. Personal savings (DCP, IRAs, Roth accounts), part-time work, and Social Security. So when it comes time to claim Social Security, the question is bigger than “what’s my biggest check?” It’s also a question about how much of your monthly income you want coming from a guaranteed source, and when you want it. A hypothetical Take a hypothetical PERS 2 member. Call her Linda. She’s 62 and has $700,000 saved across her DCP and a Roth IRA. The textbook answer says delay Social Security to 70 to maximize her benefit. But Linda’s pension is around $40,000 a year, and her spending need is closer to $80,000. To bridge that gap from 62 to 70, she’d need to pull about $40,000 a year from her savings. That’s a 5 to 6% withdrawal rate. The Guyton-Klinger research suggests that’s on the higher end of what’s sustainable, even with all four of their decision rules in place to manage withdrawals during good and bad markets.2 Linda’s other option is to claim Social Security somewhere between 62 and 70. Her check is smaller, but it covers more of that gap, which means she pulls less from savings while she waits. Is that the optimal answer in a spreadsheet? Probably not. But the research suggests a retiree in Linda’s position is more likely to actually spend her money if the gap between her guaranteed income and her lifestyle is smaller. She might be winning on paper while underspending in real life. What I think this changes I’m not trying to talk anyone out of delaying Social Security. There are good reasons to wait. Longevity is the big one. The surviving spouse benefit matters too. And for some folks, claiming early would actually reduce their flexibility to do Roth conversions in their 60s. But the math-only version of this decision misses what the research is telling us about how retirees actually behave. For Washington State public employees, the DRS pension is already carrying part of that load. The Social Security question is partly about the size of the check and partly about how comfortable you’ll feel spending what you’ve saved. A few things worth doing If you’re sitting in this seat right now, a few practical thoughts. Start with running the numbers in dollar terms instead of percentages. A “95% probability of success” doesn’t tell you much. Knowing your portfolio can sustainably support an extra $1,500 a month tells you something real. It’s also worth looking at how much of your essential spending is covered by your guaranteed income (pension plus Social Security). When that covers most of your needs, the portfolio gets to be the part that funds the fun stuff. Then there’s the Roth conversion piece. Social Security and IRA/DCP distributions are taxed differently at the federal level, and the order you turn each one on can matter more than people realize. And finally, pay attention to how you actually feel about spending from your savings. If pulling money from your IRA/DCP makes you uncomfortable in a way that pension income doesn’t, that’s worth weighing in the decision. It’s information, not a flaw. The textbook answer is a useful starting point. It’s just usually not where the conversation ends. Sources 1. Blanchett, D., & Finke, M. “Retirees Spend Lifetime Income, Not Savings.” Working Paper, December 30, 2024. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5076626 2. Guyton, J. T., & Klinger, W. J. “Decision Rules and Maximum Initial Withdrawal Rates.” Journal of Financial Planning, March 2006. https://www.financialplanningassociation.org/ -Seth DealNote: The examples and case studies in this article are hypothetical but represent real situations I have encountered in my practice working with Washington State public employees. Most retirement conversations start the same way. When should I take Social Security? How much can I withdraw each year? Should I do Roth conversions? Those are all real questions worth answering. But there's a conversation that almost never comes up until it's too late. Where are you going to live when you're in your 80s? And who's going to take care of you if your health changes? I've started thinking about this more carefully lately, not because it's an exciting topic, but because I've seen what happens when people don't think about it at all. "We'll Just Stay in the House" Take a hypothetical couple I'll call Karen and Tom. Karen is a PERS 2 member with the county, 27 years of service, planning to retire at 58. Tom is a few years older and already retired. They've done everything right. Good pension. Solid DCP balance. Low debt. Their plan for later life? "We'll just stay in the house." That's not a plan. That's an assumption. The house doesn't adapt when Karen can't manage the stairs. It doesn't provide memory care if Tom's cognition declines. It doesn't coordinate doctor visits or medication management. And when something goes wrong, it typically falls on one spouse, then adult children, to scramble for answers under pressure. This is one of the most common patterns I observe working with public employees in retirement. The financial side is often well thought out. The housing and care side is often not thought out at all. The Four Main Options Most people don't realize how many choices actually exist. When you start looking at later-life housing, four main paths emerge. The first is aging in place, staying in your current home with modifications and outside support as needed. This works well for some people, but it requires a lot of coordination and can become costly as care needs grow. The second is moving in with family. For some, this is meaningful and works beautifully. For others, it places a significant burden on adult children and carries real risks if the family situation changes. The third is moving to an assisted living facility or a standalone memory care community when needs arise. The challenge here is that these moves often happen reactively, in a moment of crisis, which limits your options and your control. The fourth, and the one most people haven't fully considered, is a Continuing Care Retirement Community, or CCRC. These are also called Life Plan Communities. There are roughly 1,900 of them across the country, including several here in Washington State.¹ What Makes a CCRC Different The basic idea is that you move in while you're still healthy and independent. The community then provides care across a continuum, from independent living to assisted living to skilled nursing to memory care, all on the same campus. You don't have to move every time your needs change. That's the defining advantage.¹ CCRCs typically require an entrance fee and a monthly fee. The fees vary significantly by community, contract type, and location. This is one of the more complex financial decisions in retirement planning, which is why starting the research early matters. Some of the better communities have waiting lists measured in years.³ The Four Risks You're Actually Managing When I think about later-life housing, I think about four categories of risk. The first is care risk. If your health changes, will you have access to the care you need, when you need it? The second is financial risk. Long-term care is expensive. Around 70% of people who reach age 65 will need some form of it during their lifetime.⁴ The costs have been rising steadily across all care settings.⁴ The third is coordination risk. When someone moves into a crisis, managing care across multiple providers, facilities, and family members is enormously hard. Communities that handle care transitions internally reduce this burden significantly. The fourth is emotional risk. Decisions made in a hospital hallway at 2 a.m. are rarely the decisions you would have made with time and clarity. Planning now gives you and your family that clarity. The Tax Angle Most People Miss If you move into a CCRC, a portion of both the entrance fee and the ongoing monthly fees may be deductible as a medical expense on your federal income tax return. The IRS has addressed this in several rulings going back decades.⁵ The basic principle is that if the CCRC can demonstrate what portion of your fees goes toward providing medical care, that portion qualifies as a deductible medical expense under Section 213 of the tax code. For most people, the medical expense deduction threshold is hard to clear. But CCRC fees can be large enough that it becomes relevant, especially in the year you enter. This is worth discussing with a CPA or financial advisor before you sign anything. If a refund of the entrance fee is later received, a portion of that refund may need to be reported as income.⁵ The mechanics matter, and they're not always explained clearly by the community's sales team. When to Start Thinking About This Most financial planners treat this as a problem for your late 70s. I'd push back on that. The research, waitlists, and financial planning associated with a CCRC can take years.³ And your health status at the time of application will matter. The sooner you start learning, the more options you'll have. For Washington State public employees nearing retirement, this isn't an immediate action item. But it belongs in the retirement planning conversation now, not as an afterthought a decade later. The pension provides a reliable income floor, which is actually a meaningful advantage when it comes to CCRC financial planning. Many communities conduct a financial review as part of the admission process. Having a predictable monthly income alongside portfolio assets is exactly the kind of stability they're looking for. A Few Starting Points If this is a conversation you want to have, here's where I'd suggest beginning. Start by discussing it with your spouse or partner, separately from any financial pressure. What does each of you actually want? What are you afraid of? Write it down. Then do some general research. Resources like myLifeSite³ offer educational tools specifically for people navigating CCRC decisions. Newsweek also publishes an annual ranking of top communities.² And if you're a PERS, TRS, or LEOFF member working through retirement income planning, bring this topic into those conversations. Your pension, DCP balance, and portfolio together tell the full picture of what's financially realistic. Because "we'll stay in the house" deserves more than a passing nod. It deserves an actual plan. Sources
-Seth Deal |
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
June 2026
Categories |
