Out of all the clients we have worked with over the years, a lot of them have been Harley-Davidson employees.
This has enabled us to specialize in planning around the retirement packages offered by Harley-Davidson. With its headquarters based in Milwaukee, we expect a lot of future retirees in the community who are dealing with similar retirement benefits.
Read below for a list of 3 simple steps that Harley-Davidson employees can use as a guide while planning for their retirement. You don’t even have to wait until you’re close to retirement to implement these steps, you can even start well ahead of time!
This list can also be used by employees from other companies just as well! Although the pension plans and other retirement benefits vary for every company, the core principles for efficient retirement planning are the same.
So, even if some of the tools mentioned in this blog don’t directly apply to you, you can still search for similar tools at your own company and apply the concepts you’ll learn in this blog.
Read on to discover 3 easy-to-follow steps that can help you achieve your ideal retirement!
First, Get All the Information You Need
Before we begin with our 3-step retirement planning process, it’s important to gather all the necessary information to help you make better, informed decisions.
What we’ve seen with many companies is that oftentimes, they don’t provide you with all the information until you actually decide to retire. How can you prepare for your retirement ahead of time if you don’t have access to the information until after you choose your retirement date? You can’t!
But, don’t worry. You can always ask for this information by contacting them directly, no matter which company you work at.
If you’re a Harley-Davidson employee, send an email to HD-TotalCompensation@harley-davidson.com and ask for the “2021 Salaried HDMC Q & A Reference Document.” It contains vital information related to your pension, health and life insurance plan, your 401(k) investments, and much more.
Additionally, you can also visit Your Mobile Benefit Contacts to find more detailed information specific to an employee or a particular benefit.
In the rare occasion where a company refuses to share the information regarding its retirement benefits, you can try and connect with someone who has recently retired from the same company. They will likely have access to the resources you’ll need as they have already retired.
Apart from the retirement benefits offered by your company, you’re also entitled to Social Security. To get an estimate of your monthly Social Security benefit, visit The United States Social Security Administration website. Through this website, you can get your own personalized benefit estimate for free! Use it to run different scenarios and study its impact on your Social Security estimate.
When it comes to pensions, a lot of people are concerned about the company defaulting on pension payments. Visit Pension Benefit Guaranty Corporation to confirm the funding level for your company, whether it’s a covered plan in the first place, and the proportion of your pension that is guaranteed.
Thankfully for Harley-Davidson, it’s over 100% funded! However, the general thought is that anything above 80% funding is good.
Once you’ve collected all of the above information, you’re good to commence your retirement planning process!
Step 1: Identify the Ideal Start Dates for Different Income Sources
Retirees today have 3 major sources of retirement income – Social Security, pension, and withdrawals from investments.
One thing that most retirees fail to understand is that the start dates for each of the above benefits can vary. You don’t need to take them all right after you retire.
Let’s dive into each of the sources in more detail:
You can often start taking your pension between the ages of 55 to 65 years. Sometimes, you can go even further than that. For instance, some employees at WE Energies have pensions that can start up to the age of 69 years and 11 months.
For every individual, their pension maximizes at different ages. For Harley-Davidson, we’ve seen pensions increase by 4-10% annually when employees delay their pension payout. Within some companies, it can even grow by 16% per year! You’ll know what works best for you only after charting out all the different scenarios.
Another critical decision relating to pension is the choice between a monthly payment and a lump sum payment. To ensure a fair comparison between the two, you must convert the monthly payout to an equivalent lump sum amount.
From our experience in working with numerous clients, we’ve found the monthly payment option to be more favorable in most cases. But that doesn’t mean you don’t run the numbers. ALWAYS do the math before making any key decision.
Sometimes, you’re better off taking the monthly payout even if it does not significantly differ from the lump sum. The main reason is that you’ll need to hire an advisor, pay management and transaction fees, and bear certain risk while investing the proceeds from your lump sum pension payout.
These costs can be mitigated if your funds are managed by your employer. Plus, you’ll also have a guaranteed pension payment every month. For example, Harley-Davidson’s pension essentially involves a portfolio of 60% stock and 40% bonds, through which it manages your money and guarantees a fixed monthly payment. This way, you never have to worry about running out of money during retirement.
A key thing to keep in mind about pension plans is that they can be wildly different for employees even within the same company. Something that has worked for someone else in the past might not work the same way for you. They may have a different start date, or be under a different union-negotiated plan. You should rely on your numbers unique to you, and not hearsay.
2. 401(k) or IRA withdrawals
Most people aren’t aware that if they leave a company after age 55, they can withdraw from that companies 401(k) without a penalty. They typically are well aware of 59 ½ as the date for penalty-free IRA withdrawals and think it applies to their 401(k), too.
If you want less risk while simultaneously creating a better tax situation, consider 401(k) or IRA withdrawals before taking your Social Security or pension.
Before you rollover your 401(k) to an IRA consider the advantages and disadvantage. One advantage of the 401(k), besides the extra flexibility from 55-59 ½ is that you typically aren’t paying fees or commissions to an advisor when you keep the money in your 401(k).
Most 401(k) plans also have an exclusive feature known as the stable value fund, where the interest rates work a little differently, or are even locked in long ago from the ‘80s or ‘90s. These interest rates can sometimes reach nearly 2-3% - which is significantly high compared to the rates today.
On the other hand, IRAs offer more investment options. You have more freedom over how you invest your funds. During the process, you can also hire a fiduciary advisor who can help you reach your life goals by managing your IRA money effectively.
3. Social Security
For Social Security, you have the flexibility of opting for the benefit at any age from 62 (60 if you’re widowed) to 70 years, giving you an option period of nearly eight years.
As the topic of Social Security is huge, we have dedicated separate blogs and podcasts to discuss it thoroughly.
Because we’ve written extensively on it previously we chose to link to several of our resources, below, but please know this: Your benefit could be 76% higher depending on if you start it at 62, or 70. Your decision on when you file and how you file could make or lose you $10’s of thousands if not $100’s of thousands of dollars over your lifetime - don’t take your Social Security without running the numbers first!
To learn more about how to optimize your Social Security benefits, check out Retirement Revealed Episode 28 - Five Ways You Can Make the Best Social Security Decisions for You.
If you’re worried about Social Security running out of funds in the future, read our Blog: Is Social Security Going Broke?
The way you utilize the above benefits has a tremendous impact on your tax situation and the monthly income throughout your retirement – with potentially only one chance to get it right! So it’s extremely important that you gather all the information and make an informed decision.
Step 2: Determine Where You Will Get Your Health Insurance From
There are four places to get your health insurance plan from.
First, the Consolidated Omnibus Budget Reconciliation Act (COBRA), allows you to continue your existing healthcare plan for about 18 months with the company that you worked with. If you feel that COBRA is expensive, it’s only because your company no longer subsidizes your healthcare costs. COBRA is convenient in the sense that you can continue using your existing health plan.
The second place is through the Affordable Care Act, popularly known as Obamacare. One of its biggest advantages is that there are federal subsidies available to help you pay for your costs! To explore the various healthcare plans, visit HealthCare.gov.
Next, you have the option to get your healthcare plan through another employer that you join after leaving your old company. If you’re married, your spouse can put you on their existing health plan as well.
Lastly, one of the most popular healthcare plans - Medicare. After the age of 65, you don’t have to worry about your health insurance anymore when you’re covered by Medicare.
There are two things that most people don’t know about Medicare. First, you can’t make contributions to your health savings account. Additionally, Medicare isn’t completely free. There are costs associated with it. Currently, it’s $148.50 per month, which is subject to increase if your income is too high. You’ll also need to notify the authorities regarding any major life event affecting your income, so that your costs are adjusted accordingly.
Learn more about health insurance for retirees by streaming Retirement Revealed Episode 14 - How To Protect Yourself With Insurance: Part 2.
Step 3: Review the Tax Consequences
The third and final step is to review the tax consequences of every major retirement decision.
You have a lot more control over your taxes during retirement than you’d expect. By taking control and paying most of your taxes during lower tax rate years, you can minimize the effective tax rate over your lifetime. We’ve seen people reduce their projected overall taxes by up to 50% only because they decided to take control of their taxes.
While computing your estimated taxes, don’t forget to account for a future potential increase in tax rates. Also, different sources of retirement income are taxed differently. Factoring in all these things can help you be more efficient in your tax planning.
To learn more about tax planning for retirement, listen to Retirement Revealed Episode 30 - The Importance of Tax Planning for Retirement.
It’s even better if you walk through the above 3 steps with a retirement-focused advisor by your side. Find an advisor who has already worked with employees from your company, or dealt with similar retirement benefits.
Through our years of experience in retirement-focused planning, we can help you achieve your ideal retirement. If you have any questions, feel free to contact us!