Plan Your Kaiser Retirement | Pension & 401k Planning for California Healthcare Workers

Bereket Kelile (00:00.738)
Having seven hundred and fifty thousand dollars in your four one K looks great on paper, so why does it still feel risky to retire? We go hide away in daylight. We go undercover weight of the sun. Got a secret side and play inside. With the streets are empty, that's where we run. Every day people do everyday things, but I can't be one of them.

You hear me now, we are a different kind. We can do anything. We could be here. In this episode, I want to walk through a case study that involves a 56-year-old Kaiser employee who's married, has $750,000 saved, has a pension in play, but cash flow is tight from family support and debt. And the question is: can you retire in the next one to two years?

And the goal in this episode will be to show you how to turn a strong balance sheet into a spendable retirement paycheck and how to decide on the right pen pension option for you. Now, if you are new to the podcast, my name is Barricett Kalilli. I am a Sacramento-based financial planner who specializes in helping Kaiser employees plan their retirement. And I want to walk you through this particular conversation that I had with a Kaiser employee and walk you through some of the details.

show you how I worked with him and the specific questions and concerns he raised and then walk through kind of the tentative plan that we came up with based on what he discussed in his numbers to give him a an action plan over the next couple of years. And you can take this and also kind of transpose it or extrapolate that into your numbers. But I'm gonna show you how you can also get some help with your particular situation, especially if

These details kind of resonate with your particular circumstances. Now, in his case, he was less motivated by maximizing wealth and more motivated by stability, simplicity, and peace of mind. He specifically prioritized not becoming a burden, maintaining flexibility, and having enough to live comfortably, to travel, and to possibly retire in a lower.

Bereket Kelile (02:26.288)
cost of living location outside of the U.S. And so the key kind of emotional tension in this case was even though retirement assets are meaningful, he didn't feel like he was financially free because there was too much current cash flow being absorbed by debt and family support. And so the real question is not simply, hey, can I retire with $750,000, but can someone with a solid Nest egg retire confidently when

Family obligations, debt, taxes, and timing are all pulling in seemingly different directions. So let's start with just a quick snapshot of the key relevant details. He's age fifty six, he's married, his four hundred one K has about seven hundred and fifty thousand dollars. His contributions from his paycheck were cut back to five percent from twenty percent. And just as a quick side note, by the way.

Because I remember he mentioned that he wasn't too sure if he was doing well with his four one K. Fidelity did a study showing that two point four percent of their four one K accounts had over a million dollars. If you drop that down to five hundred thousand, I think it went up to about seven percent, but don't quote me on that, with at at least five hundred thousand or more. Vanguard from their twenty twenty-four data on their four one K accounts said that sixteen percent had at least two hundred and fifty thousand dollars.

16% of their 401k accounts. And so hopefully that should give you some useful context to kind of measure your progress in terms of how much you have saved in your 401k and is it a lot? Is it little? Are you behind? Are you doing okay? But going back to his quick case snapshot, family support that that was involved at the moment, the main thing was supporting his daughter who is going through school and now it's costing about a thousand dollars a month. He's also supporting parents to the tune of about five hundred dollars a month.

Terms of debt that he had, the main one was the mortgage which had four hundred eighty thousand dollars left on it. Then there was about fifty-two thousand dollars of consumer debt. So this included a four one loan, personal loan, and a car loan. And then when it comes to the pension, if he took it today, it was going to be about twenty five hundred dollars a month. If he waited another year, that would bump up to about thirty two hundred dollars a month.

Bereket Kelile (04:49.029)
His spouse, who had a state job with the state of California, had is already retired and her pension is going to be about twenty five hundred dollars a month. When it came to the lump sum estimate, he was looking at about five hundred and fifty thousand dollars today or within a year, and combine that with the four hundred one, and you're talking about one point two to one point three million dollars. So strong assets, but strained cash flow and competing decisions on things like retirement timing.

pension election option, Social Security, and other issues. So I want to talk through, given the those details, talk through a few key topics that came up and the tentative approach that we came up with each of those subjects that we discussed. So to give you a roadmap of where we're going, there are five topics that

I'm going cover here. The first one had to do with retirement timing and how debt related to then or affected that. The second topic was about how his family obligations were affecting or potentially could affect his retirement timing and income. Then we talked about the third topic area around his pension decision, monthly paycheck or lump sum. Then the fourth topic was Social Security timing. When should he take

Social Security at what age? And then lastly, we talked about the fifth topic, which was what to do over the next 12 to 18 months. So let's jump into topic number one, which is really the question here is how do I retire while still carrying this much debt? Earlier I mentioned the debt that I'm going to call him Bob that was carrying, including the mortgage, the 401k loan, personal loan, and the car loan.

These monthly obligations, when added together, were putting pressure on his current cash flow. And so it raised concerns about his retirement timing. And I also want to again take just a quick detour here and just highlight how important this point is in particular when it comes to the 401k loan. If 'cause you might have one yourself. And if you're coming up on retirement, if you're looking to do that in the next, you know, say two to three years and you have an active 401k loan, you want to have a plan to knock that out by the time you retire.

Bereket Kelile (07:09.448)
The thing is if you don't, the worst case scenario there is that you know you're looking at spending thousands of dollars in taxes if you end up leaving Kaiser and you have a loan that's still act active. And so you want to have a plan that to pay it off or and or know what your options are when it does come time to retire. Do you can you still keep that there or do we have to take a a distribution? But if you can't pay it off, maybe you also have to think about, you know, other alternatives.

So have a plan to pay it off, know and or know what you're gonna do when that time comes. But getting back to his discussion though, the tentative approach that w we discussed was to make the debt reduction the top priority, especially once the support for his daughter drops off next year. She's going through school and so the main priority, I think, at this point is going to be continue that $1,000 a month going to his daughter to get her through graduation.

And w maintain what you're doing with your other debts. Once that situation has changed and her daughter's done with school, that's going to free up more cash flow to redirect. So the discussion leaned towards a kind of maintain now, accelerate later plan. Maintain the obligations, all the debt obligations and the family support right now, avoid adding new debt. And then once the daughter s graduates from school.

use that cash flow to accelerate the debt the debt payoff. The broad idea was that cash flow improvement, not chasing returns, is what's is what's going to create the next phase of flexibility. And, you know, I think a key takeaway from here is that you can have a meaningful NSD and still feel trapped if too much cash flow is already being spoken for. So the second topic that we discussed had to do with the family obligations that he had and how that affected his retirement

timing and the question of when can he retire. family support, based on my experience in many cases like this, seeing this, talking with a lot of people, it adds a layer of emotional and practical complexity. On the one hand, in this case, Bob and his wife are supporting their daughter through school. And on the other side, they're supporting aging parents. And they are a perfect example of the so-called sandwich generation and the kind of challenge that they have to take on

Bereket Kelile (09:37.139)
while trying to also plan for their own retirement, their own financial future. A lot of people who are in their 50s are having to to deal with this, and it's a real challenge. Now, our tentative approach around this was, hey, the converse we treated the conversation treated family support as a fixed reality, not something to criticize or try to eliminate immediately. the practical approach was, hey, we're going to continue the unavoidable support that we have to provide.

And we're going recognize that this is one reason retirement's not quite ready yet, but there's room to for flexibility. Things are going to change. Things aren't always going stay the way they are today. And of course, we can revisit the plan once daughter-related support ends. And so one of the kind of key conclusions was that the retirement timeline is closely tied to when these obligations ease. And

you know, as that changes and as that redirects cash flow, then that will obviously not only create progress, but also help us to reevaluate timing. Now let's move on to the third topic, which has to do with the pension. Should you take the pen monthly pension paycheck or the lump sum? This is probably one of the top questions that I get from Kaiser Boys. His pension, again, just going back over the numbers

One more time, about $2,500 a month now, or $3,200 a month if he waits, which is likely the case. And the lump sum option, though, was $550,000. So he could potentially looking at $3,200 a month versus having a portfolio of about $1.2 to $1.3 million. And he was thinking through the trade-off between taking that monthly pension income or

Taking the lump sum, letting it grow, and potentially relying more on Social Security later. Now, the tentative approach here, there was no final decision that made because we really don't have to make a decision just yet, but the conversation lead more towards seriously exploring that lump sum option and understanding it vis a the monthly paycheck option. Why did we consider the lump sum option? Because you know, it can increase investable assets materially.

Bereket Kelile (11:56.455)
It could create more room for Roth conversions. it could pair well with delaying social security. At the same time, though, he did repeatedly emphasize that he values that peace of mind over squeezing out every extra return. So while we didn't decide anything yet, we this is something that will continue to just reevaluate this lump sum versus paycheck in the context of his also his spouse's income, which we also have to factor in her pension and her.

Her Social Security, the retirement timing for him, taxes, his comfort level, and whether he prefers the guaranteed income or whether the flexibility matters more. Now, related to this, topic number four is going to be Social Security timing, which and the question here is should I take Social Security at say age 62 at the earliest or at 67, which might be your ret full retirement age, especially if you were born after 1960?

or a delay till age seventy when your benefit caps out. And he specifically asked whether he should take it at 62 or 67. Hi his estimate for his benefit was $2,400 at age sixty two if he took it early. And his wife's benefit was going to be about the same as that. And he didn't give me numbers for later years though. But he understood that the decision was

Part of a broader income strategy that wasn't isolated to just this decision alone. Now, what the tentative approach that we discussed was delay Social Security as long as possible unless it's needed earlier. And the reasoning for that, kind of similar to the pension, is delaying Social Security increases guaranteed lifetime income. And that the reason why that's beneficial is because hey, what if you live until your 90s? You want to make sure that you have enough.

that money that's gonna last you through retirement. but the other benefit f of waiting is that it preserves more room for Roth conversions. Not only does it, you know, it gives you a bigger Roth conversion range from year to year, but it also widens the window of time that you have to take advantage of those Roth conversions until the IRS starts to make you take money out of your pre-tax accounts, what are called required minimum distributions or R and D's. So

Bereket Kelile (14:19.955)
Taking Social Security too early can reduce some tax planning flexibility. And so a practical framework we discussed was to compare three main claiming ages. Age sixty two, which is your earliest age, age sixty-seven, your full retirement age, and then age seventy when your max benefit your benefit reaches its maximum amount. And the direction was let's not rush the claim at sixty-two, especially if the pension other resources can carry the plan before that.

So we're going to make that decision about when to take Social Security alongside of which pension option are we gonna take. Because say, for example, you have one scenario where maybe you take the the pension paycheck and so you have some income coming in, and maybe that allows you to delay so taking the Social Security till later. Or maybe you wanna take the lump sum and draw on that until you can get the Social Security to at least a level that you want to

Hit maybe at 67 or even before that, maybe at 65. But you're gonna make these decisions kind of as a pair in coordination with each other. And so you'll see that there's a kind of a simple trade-off to make between those two decisions. So with those four decisions or four topics, that is, the final topic that we discussed was okay, having discussed all this, practically speaking, what should we be focusing on the next couple of years?

Wha what should he be doing over the next twelve to eighteen months? And from that discussion, I remember he repeatedly mentioned that he can't do anything aggressive now and that his main goal for twenty twenty-six was to maintain progress, avoid losing money, avoid taking on more debt, and get through this period until next year. And he emphasized that after next year, once his daughter finishes school, that he expects things should become much easier.

And so the practical focus was basically maintain the current plan, keep working, continue the required family support, avoid new financial mistakes, keep the debt under control, and then revisit retirement decisions once cash flow improves. And then along the way, we're going to review tax returns each year, review withholdings, review investment allocation in the 401k so that it's aligned with

Bereket Kelile (16:43.291)
his goals and what will best serve him and make changes as needed as time moves on. And then and then of course revisit this with the spouse's involvement in the p a planning process. And just that's just speaking to the fact that me and him sat down and met and his wife was out of town, but the we'll need to have that conversation again in the future with the three of us talking through concerns, priorities and challenges.

So basically kind of a a wrap up is that this is not the season for a major change. This is a season for stabilizing, preparing, and getting ready for the next phase. Now, a couple of lessons that I can pulled out of this conversation after reflecting on it is that one, a strong four hundred one K balance does not automatically mean that retirement readiness. You can have a lot of money in the four one K and still not really feel like you're ready to retire.

Debt and family support can delay retirement even when your savings are meaningful. And this is certainly going to play into the retirement timing decision for you. Third, pension decisions should be evaluated in the context of the full plan. And the same thing with Social Security. So we're not making these decisions separately, but we're going to make the pension decision with Social Security in mind and vice versa. And then lastly, peace of mind is not irrational. It it is part of the plan.

And the great thing about your goals is that you can't get them right or you can't get them wrong because they're your goals. And there's no rule book that says what they should be. And so as long as you're clear on what your goals are and what your priorities are, then make the plan that's going to be best aligned with that. Now, this podcast is all about results. And in order to get the right results, you have to take the right action. So I wanna close out by giving you a couple of action items to take.

Let's say you're thinking about when to retire, like age sixty five or age sixty seven, or you're wondering if when you put together the pension, the social security, and your four one K, do you have enough to cover what you need when you want to retire? If that's the case, you want to check out the Kaiser retirement calculator because this is where you're gonna be able to plug in those numbers and your target retirement age, your spending, and then get an idea of what your retirement income will look like at that point and then

Bereket Kelile (19:06.867)
Find out if, hey, am I on track or am I behind or am I doing okay? Next action item is since we talked about the pension in this episode as a major factor in this case study, and that is one of the top questions that I hear from Kaiser employees, you'll probably want to check out the Kaiser pension decision checklist as well. And that's a resource in the guide to help you think through what's the right decision for you. How should you decide?

which pension election is going to be best for you. Lastly, if you're looking for good quality advice, which means it has to be personalized, then you'll probably want to schedule a brief 20-minute call with me where you and I can talk through your questions and look at your specific numbers and help you come up with a game plan for you. All of these links to these resources are going to be in the show notes, so feel free to just take a look there and tap on those links. And look forward to hearing from you.

By the way, just one thing I want to throw out there too that I've been working on lately is we're do an office hour style live QA call on Zoom. It's gonna be every month, first Wednesday of the month. We're recording this in at the end of May. The next one that's gonna be coming up is gonna be June third, and that's gonna be at noon Pacific time. If you have any questions that you wanna get live answers to, come on in. It'd be great to see you there.

Bring your questions. If you don't have any questions, just hang out, listen to the conversation. It's not recorded. We just jump on there for an hour, ask whatever questions you have, and feel free to bounce whenever you have to to go. So I look forward to seeing you there. But that's going to be a monthly recurring meeting. Again, first Wednesday of the month, noon Pacific time. And I look forward to seeing you there. Thanks.

Bereket Kelile (21:10.387)
Rehobo Financial Planning Incorporated is not affiliated, associated, authorized, endorsed by, or in any way officially connected with Kaiser Permanente or TPMG, the Permanente Medical Group. Rehobo Financial Planning Incorporated is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and

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