After almost 35 years of working at IBM, I decided to retire at the end of December 2023.

I am very grateful for my years and experiences at IBM. It was surprisingly more difficult than I had anticipated to make the decision to retire. More on this later.

Anyway, the reason for this post was driven by several request from colleagues to share what and how I prepared to retire from IBM.

Hopefully my tips below can help you prepare and reduce the fear/emotion that comes with making such a big decision. These are tips only and your situation is likely different.

I’ve organized this post into several parts. A summary that is a bullet list of the things I did or needed to consider prior to retiring, followed by the “lessons learned” that either surprised me, were challenging, or I thought were worth pointing out, and finally tools, resources, and references.

Disclaimers:

  • I am not a certified/licensed financial advisor or expert. The info below is not intended as advice, it is just the process and considerations I used to retire from IBM.
  • This info is rather specific to retiring from IBM
  • The date you started at IBM is relevant to the IBM benefits you are eligible for. IBM’s benefits have evolved over the years and continue to evolve.

Summary

Early/Mid-Career

The ability to retire means gaining Financial Independence from your employer. For most of us, this means saving & investing for decades.

  • Live below your means to maximize 401K, IRAs, and pre & after tax savings.
  • Start saving/investing very early in your career to maximize compound growth over time
  • Save/invest at least 10-15% of income
  • Prioritize saving/investing in ROTH 401K and ROTH IRA over traditional 401K and IRAs. Withdrawing from ROTH is tax free while traditional 401K/IRAs are subject to income tax and Required Minimum Distributions in your mid 70’s
  • Invest in your own financial literacy and fitness. You need to understand diversification, risk vs reward, active vs. passive investing, compound interest growth, asset allocation, rebalancing, the 4% withdraw rule, RMDs, sequence-of-returns risk, and more
  • Invest aggressively and don’t panic during market downturns
  • Leverage the IBM MoneySmart consultants for guidance in financial planning
  • Invest in your career - continuous learning, skills acquisition, to maximize income potential and employability

5 Years From Retiring

  • Likely your peak earning years and compound growth period - beware of making drastic changes to your portfolio without sound advice and planning
  • Stay out of debt
  • Initial draft of Retirement Policy Statement - a living document designed to clearly lay-out your retirement plans and strategies for 30 years
  • Make any big purchases while you have a paycheck (stay out of debt though)
  • Deeper understanding of your and your spouses employee retirement and other benefits. You need an integrated retirement plan if you have a spouse
  • Understand your and your spouses Social Security benefits, key dates, and spousal benefits
  • Identify all sources of income during retirement
  • If retiring before Medicare age, understand options for healthcare and how to pay
  • Settle on a target income amount needed during retirement to cover expenses
  • Start planning for a withdraw strategy during retirement - which accounts, investments, savings, etc. will the money come from over time? Big tax implications to consider
  • Learn how to manage sequence-of-returns risk in retirement
  • Work with IBM MoneySmart and/or a CFP to get a Retirement Plan model

1 Year From Retiring

  • Settle on a target exit date. At IBM, your last day needs to be at the end of a month
  • Contact an IBM Retirement Benefits Coordinator - you have to do this to retire. They are great resource that can help you navigate and make decisions around your IBM retirement benefits
  • Work with IBM MoneySmart or a for fee CFP to refine Retirement Plan model
  • Determine you essential vs discretionary expenses during retirement
  • Finalize your retirement income withdraw strategy
  • Understand tax implications of RMDs and consider ROTH conversions to lessen future tax burden if most investments are in traditional 401K or traditional IRA

Lessons Learned

Deciding to retire was harder than I thought it would be

Most of us dream of retiring some day. When you don’t have to work, deal with deadlines, meetings, the daily grind, the pressure to deliver, dreaded Mondays and can only imagine having the time to do what you want. That is the way I felt too.

However, as you get near being in a position financially to retire, you are likely at a different phase in your life and career. Your children are likely grown, on their own and out of the house. You are now an experienced and seasoned employee, hopefully bit wiser and more resilient. You are in your peak earning years and likely enjoy having both more time and money to do some of the things you want.

This phase of your career is far different when your children are younger. Those hectic school days of your children have likely passed. I really enjoyed my last 8 or so years of work. I had less family obligations, felt like I finally had enough valuable experience to contribute in a different way, mentor more, and lead more.

For me, deciding to walk away from work was difficult even though financially I didn’t have to work. My work gave me purpose, challenge, I was part of something bigger and part of an extended family and friends. It would have been so easy to “work just one more year” and I seriously considered it.

For me, knowing I didn’t have to work was a huge relief. I was now working because I wanted to. I could quit, retire, or get RAed not have to worry as much.

I decided to retire as I knew the number of years where I am healthy and physically capable of doing the things I wanted to do were limited and I would likely regret not doing those things if I didn’t. One or two more years of work would not have a huge impact on my financial future and be at the expense of dwindling physical years left.

I found this quote a few years ago and it stuck.

The most dangerous risk of all is the risk of spending your life not doing what you want, on the bet that you can buy yourself the freedom to do it later…” - Randy Komisar

You may decide to keep working even when you don’t have to and that is just fine. There is no right or wrong answer - do what you feel is best for you.

Retirement Policy Statement

I had never heard of a Retirement Policy Statement (RPS), until the last year or so. I wish I had known about it sooner.

An RPS is a document designed to clearly lay-out your retirement plans, strategies, and the tools which will help you over the next 30 years. It is designed to be a living document which will need to be reviewed and revised regularly.

An RPS can force you to learn, think about, and discover things you likely don’t know much about when planning for retirement.

When eligible (key dates) for Social Security, Medicare, health care cost, estate planning, a clear picture of employer retirement benefits for myself and my wife, expenses, and more. Until recently, these had all been topics for older people which I am now at least age wise.

Getting these topics understood in detail is essential to retirement planning. These topics won’t just fall into place without some thought and decision making.

Ensure you know, in detail, what your employer’s retirement benefits are for you and your spouse. You may be surprised what you find out.

For instance, we found out that my wife was eligible for retirement health care benefits at a very reasonable rate and could even retire earlier than expected. Wow. This greatly affected our retirement planning and was a relief. Health care cost before Medicare age (65) can be huge and often why many people don’t retire before 65.

Having a withdraw strategy during retirement is how to gain confidence in spending

I have always been more of a saver than a spender. I had to make a mind-shift about spending to make the leap into retirement.

Most of us (hopefully) are saving and investing for many years for our financial future so that we can eventually be financially independent. When you retire and are not working, you are not likely saving, you are now spending or drawing down that nest-egg and it somehow needs to last for 30+ years.

Saving for retirement is far less complicated then spending it down. When saving, you can put it on cruise-control and watch it grow over the years. When you have a work paycheck coming in, you can deal with the years the market is down.

Figuring out how to make that nest-egg last in a very uncertain future is complicated and critical. This is the most important part of retirement planning and you likely should get professional financial help with your withdraw strategy. There is no cruise-control during retirement (unless you are extremely wealthy) - many things out of your control will affect your plans.

There are so many factors to consider; tax efficiency, when to take Social Security, health care and Medicare, unexpected expenses, asset allocation of your portfolio that can withstand bear markets and yet also grow over time, which accounts or funds to draw from first and over time, and more. Get help. Making the wrong, uninformed decision can be huge.

I have been a DIY saver & investor but I realize I too need professional help with a withdraw strategy.

Taxes during retirement

Unless the majority of your investments are in some type of ROTH retirement plan or after-tax investment, you will likely need to worry about income taxes and manage your income tax brackets to optimize your tax situation.

If most of your retirement savings are in a traditional 401K or traditional IRAs (like I am), any withdraws will be taxed as ordinary income. You will likely be in a lower income tax bracket when you retire which is good.

However, this may not be the case when you reach your Required Minimum Distribution (RMD) age which is typically in your mid 70s. This is the age when you must withdraw a certain amount even if you don’t need or want to and will likely push you into a higher tax bracket.

Depending on your 401K/IRA balance, this can be hundreds of thousand of dollars or more as you age - a very large percentage will be paid in income tax. So while you may have an impressive amount in your traditional 401k beware that a sizable chunk is money you don’t really have.

Fortunately, there are strategies to reduce your future tax burden to avoid the bite of RMDs. ROTH conversions may be appropriate or spending down from 401K/IRAs sooner than later may help. Also be aware that Social Security is subject to income tax as well depending on your retirement income.

This again points to the importance of a retirement drawdown strategy that considers taxes over time. This is a complicated topic and getting help from a financial professional such as a CPA or CFP is worth it.

Health insurance pre-Medicare age

If you are going to be in a position to retire before Medicare age (65), then you need health insurance for you and your spouse and maybe others. This can be costly over a number of years and is often why some people work until age 65.

I am retiring before Medicare age so I am dealing with this.

I mentioned above the importance of understanding your employer’s retiree benefits in detail for you and your spouse - they may have some type of retiree benefit that can help.

My wife’s retiree benefits did include health insurance at a very reasonable rate. I too could have gotten on her plan as well. It would cost more but, still reasonable. I decided to go with the IBM retiree health insurance.

Fortunately, my IBM retiree benefits include a Future Health Account (FHA). I suspect I have this benefit as I started at IBM a long time ago and when they ended their defined benefit pension plan this FHA benefit was introduced. I don’t know when or if they stopped offering this FHA retiree benefit to everyone so you need to find out.

The FHA benefit is a decent sum of money that can only be spent on the IBM retiree health insurance before age 65 or on Medicare premium/out-of-pocket expenses once you reach 65. You don’t have to take this benefit before at 65 if you don’t want to.

I also don’t know if the IBM retiree health insurance is available to everyone who retires from IBM or not. The FHA benefit is not the same thing as the IBM retiree health insurance.

I elected to go with the IBM retiree health insurance because I have this FHA benefit and it is enough to bridge me to Medicare age. This health insurance appears to be the same as the regular IBM employee health insurance except I have to pay for all of it out of pocket. There are a number of major medical plans to select from as well as dental and vision coverage. You can also cover your spouse, at an additional cost of course.

Once you contact the IBM Retirement Benefits Coordinators, they will model and provide you with your IBM retiree health insurance plans and costs. For me and the plan I selected, it was around $1000 per month which, fortunately, the IBM FHA benefit covers. It would cost near twice that amount if I had also covered my spouse.

I have no idea how this IBM retiree health insurance cost compares to other options like the Affordable Care Act (aka Obamacare), I didn’t even look.

I know I am very fortunate - IBM has been good to me.

Saving and investing less in the last few years of work

That seems counter intuitive, shouldn’t we save more and spend less? It depends of course on your situation.

Within five years of retiring, we decided to save less and spend more on big ticket items while we had paychecks. We made quite a few of long overdue home improvements and I got a newer car.

It would have been much more difficult financially and emotionally to spend that kind of money during retirement. Also, the longer we waited, the more expensive it would have probably cost. For us doing it sooner than later made sense.

I trimmed the amount of after-tax saving/investing to pay for these expenses.

Automatic distributions from your IBM 401K

Once you retire you need some source of income for your expenses. You will likely or hopefully have more than one source of income to draw from. The IBM 401k, spouses 401k, IRAs, savings, and so on.

You can setup automatic periodic transfers from your IBM 401K to your checking or savings account. I am pretty sure other non-IBM investment accounts have something similar.

One of the things I learned about automatic periodic withdraws/transfers from the IBM 401k is that they are pro-rata withdraw from all the funds in the 401k. For example and for simplicity sake, if your desired automatic withdraw amount is $1000 and your 401k only has two funds, say 60% in a stock fund and 40% in a bond fund, then $600 would be withdrawn from the stock fund and $400 from the bond fund.

This makes sense as this automatic withdraw strategy maintains the asset allocation percentages of your portfolio funds in the 401K. This is a good default strategy. Note that you cannot change this withdraw strategy when doing automatic periodic withdraws. This lack of control of which fund and the percentage to take for automatic periodic withdraws may not work for you.

For instance, depending on your drawdown strategy and a bear vs a bull stock market, you may want or need more control over which fund the withdraw comes from. There are pros & cons to be made about more control vs automatic rebalancing.

Perhaps I am geeking out but I thought it was worth pointing out how automatic periodic withdraws work from your 401K.

You can also elect to withdraw any amount at any time - you can do both automatic periodic or on demand withdraws. You can also setup/control how much income tax will be automatically withheld.

Tools, resources, and references

My retirement planning “tech-stack”

  • Empower Personal Dashboard - free on-line tool that can help with investment, net worth tracking and more. I used to use spreadsheets but, this has replaced them.

  • NewRetirement - retirement planning tool - free 2 week trial. $120 a year for PlannerPlus which I find worth it. It is easy to get started but, there is a bit of a learning curve. This tool can help model your retirement, things like project income, projected savings balances, projected expenses, projected taxes, gross taxable income by source, taxable income by tax bracket, withdraw strategies, model Roth conversions. All the tools and modelers are integrated and reflect any changes you make in other areas. They also for-fee professional advice. No more spreadsheets to model retirement planning and options.

  • Portfolio Visualizer - free. Portfolio Visualizer is an online software platform for portfolio and investment analytics to help you make informed decisions when comparing and analyzing portfolios and investment products.

  • Excel spreadsheets. I still use Excel for quite a few things but, the NewRetirement and Empower Dashboard tools have replaced most of what I used to use Excel for.

Online resources

Narrowed down to my favorites:

  • Bogleheads.org Investing - The main ideas come from the investing philosophy of Vanguard’s founder, John Bogle.

  • CFP James Cole at Root Financial - YouTube, very clear explanations of complex topics, great content. Highly recommended, great learning resource for retirement planning.

  • Rob Berger, Money Investing and Financial Freedom, YouTube

  • Retirement Policy Statement example

Books

I’ve read a lot of books, these are the two that influenced by saving and investing behavior the most: