13.5 Integrated Case Study: Retirement Planning — Participant Goals & Strategic Results

Integrated Case Study: Retirement Planning — Participant Goals & Strategic Results

Quick Answer: Retirement planning has two customers in the same case. The participant needs a readiness gap closed through savings capacity, claiming strategy, and sequencing. The sponsor needs an orderly workforce transition — because employees who cannot afford to retire stay, and an aging active population raises medical claims cost while blocking succession. A good RPA 1 answer serves both.

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1. The Scenario

Rebecca Alvarez is 61, an engineering manager at Sentinel Controls (1,400 employees, 401(k) only, safe harbor match of 100% on the first 4%). Her situation as of 2026:

Sentinel's HR director has a parallel problem: 22% of the engineering group is retirement-eligible within four years, and the company has no phased-retirement or knowledge-transfer program.

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2. The Readiness Gap

Step 1 — Set the replacement target. Rebecca's household needs an estimated 75% of pre-retirement gross income, reflecting the end of payroll taxes and retirement saving but continued mortgage payments and pre-Medicare health costs. Target income: $186,000 × 0.75 = $139,500 per year.

Step 2 — Fill from guaranteed sources. If Rebecca retires at 64 but delays Social Security to her full retirement age of 67 (she was born in 1965, so FRA is 67), her benefit is the full $3,410 per month, or $40,920 annually. Her spouse's spousal benefit at his FRA adds up to 50% of her PIA, roughly $20,460, subject to his own claiming age. Combined guaranteed income at 67: approximately $61,380.

Step 3 — Compute the gap. $139,500 − $61,380 = $78,120 per year that must come from portfolio assets — and for the three years from 64 to 67, the entire $139,500 must come from the portfolio.

Step 4 — Test the portfolio against the gap. Projected assets at 64 (at a 6% assumed return, with three more years of maximum deferrals) are roughly $1.19 million across the 401(k), IRA, and brokerage. At a 4% initial withdrawal rate that supports about $47,600 — well short of $78,120.

The gap is real, and it is about $30,000 per year. Everything that follows is an attempt to close it.

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3. Closing the Gap: The Levers

Lever 1 — Maximize Deferrals Using the 2026 Super Catch-Up

Rebecca is 61, which places her in the age 60 through 63 window. For 2026 she may defer $24,500 plus a $11,250 super catch-up — $35,750 total, versus the $8,000 standard catch-up available at 50. Because her prior-year FICA wages exceeded $150,000, her catch-up contributions must be made as designated Roth contributions. That is not a penalty: it builds a tax-free bucket that will be extremely useful for managing the age-64-to-67 bridge and later Medicare IRMAA thresholds.

Lever 2 — Work Two More Years

Retiring at 66 instead of 64 does four things at once: adds two years of contributions and growth, removes two years of withdrawals, shortens the bridge period from three years to one, and — because Social Security is computed on the highest 35 years of indexed earnings — may replace two low-earning years in her record. This is almost always the highest-impact single lever, and it is also the lever that aligns with Sentinel's interest.

Lever 3 — Claiming Strategy

Delaying from 67 to 70 buys an inflation-adjusted, longevity-insured $9,821 per year for life, and it raises the survivor benefit — a material consideration because Rebecca is the higher earner and her spouse would step into her benefit amount. The cost is three additional years of portfolio drawdown. For a higher-earning spouse in reasonable health, delaying is usually the stronger answer.

Lever 4 — Sequencing and the Bridge

From 64 to 67 Rebecca draws entirely from assets. Drawing first from the taxable brokerage (already-taxed basis, capital-gain rates), then from traditional balances up to the top of a target bracket, and preserving Roth for later, keeps taxable income low during the bridge years — which matters because Medicare IRMAA surcharges are set from the tax return filed two years prior, so income at 63 drives premiums at 65.

Lever 5 — The HSA

The $41,000 HSA is the most tax-efficient asset she owns and should be preserved for retiree medical costs, not spent currently.

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4. The Medicare, HSA & Part B Coordination Traps

This is the highest-yield technical content in the case, and it is where candidates most often lose points.

1. HSA contributions must stop before Medicare. Enrollment in any part of Medicare — including premium-free Part A — ends HSA contribution eligibility. Because Part A enrollment is retroactive up to six months (but never before age 65) when an individual enrolls after full retirement age, and because claiming Social Security automatically enrolls the individual in Part A, HSA contributions must cease six months before Medicare enrollment or Social Security claiming. An employee who claims Social Security at 66 and contributed to an HSA through that month has made excess contributions for six months.
2. Part B late enrollment penalty and the working-aged exception. Sentinel has 1,400 employees, so under the Medicare Secondary Payer rules (Section 10.1) its group health plan is primary for active employees 65 and older, and Rebecca may delay Part B without penalty while covered by that active-employment group plan. The Special Enrollment Period runs for eight months after employment or coverage ends, whichever is first. COBRA and retiree coverage do not count as active-employment coverage for this purpose — a retiree who relies on COBRA past the Part B window incurs a lifetime late-enrollment penalty of 10% for each full 12-month period of delay.
3. Required minimum distributions. Rebecca was born in 1965, so her required beginning age is 75 under SECURE 2.0. A participant born from 1951 through 1959 has an RMD age of 73. Roth 401(k) accounts no longer require pre-death RMDs.

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5. The Employer's Side: Strategic Results

The same facts read differently from Sentinel's chair.

Phased retirement design cautions. A phased program cannot allow in-service distributions from a pension plan before the earliest permissible age, must avoid reducing hours below the plan's eligibility threshold in a way that inadvertently terminates health coverage, and must be applied under objective criteria to avoid age-discrimination exposure. Where the phase-down includes a paid transition, the arrangement must be tested against §409A if payments extend beyond the short-term deferral period.

The synthesis the case is asking for: Rebecca's optimal answer — work to 66, maximize the super catch-up as Roth, delay Social Security, bridge from taxable and preserve the HSA — is also Sentinel's optimal answer, because it produces a planned, mentored, forecastable departure rather than an abrupt one. Retirement readiness is not solely an employee benefit; it is workforce planning infrastructure.