Suddenly Retired, do I have enough?

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Topic Author
rgs92
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Suddenly Retired, do I have enough?

Post by rgs92 »

Due to layoffs, my wife(almost age 58) and I (age 60), are now retired, most probably permanently.
My budget shows that we spend about $10,000/month (which includes a $3000/month mortgage payment with $2000 P+i, $1000 property tax + Insurance, only 4 years in to a 30 year mortgage, so basically forever.
The house is worth about $550,000, with about $360,000 left on the mortgage.)
We have:
[1] $1.25 Million in 401K and Traditional IRAs (very little in Roths, so basically all taxable). It's mostly in a 60% stock/40% fixed-income portfolio using very low cost index funds.
(A large portion of the fixed income is in stable value funds that pay about 3% a year, and seem to always pay a little above the 10-year Treasury rate with no risk to principal.)
[2] $100,000 / year in before-tax fixed (not-cost-of-living adjusted) lifetime income (from a mix of corporate pensions and single premium annuities I bought about 10 years ago, happily when interest rates were higher).
(After taxes, I seem to net about $7000 a month.)
[3] Anticipated Social Security which would be about $1600/month for each of us at age 62 if we decided to take it that early, so $3200 a month combined. (If deferred to full soc. sec. age about 4 years later, the combined about would be about $4000/month.)
[4] A Long Term Care insurance policy that costs $530 a month (with pretty generous benefits, but don't plan on opting for voluntary increases in the future, so this payment should stay fixed permanently).
[5] Retiree health insurance that costs $300/month total combined cost, included in my expenses.
[6] No debt other than the mortgage.

So, can this level of real net spending be maintained for, say, 30 years? Thanks.
Notes:
I am trying to keep this analysis simple, as I know there are all sorts of issues that can apply about joint vs. single life, other medical costs, legacy considerations, etc.,
but I want to ignore this as it just creates too many variables to get a reasonably clear forecast.
I am open to the idea of something like a reverse mortgage late in life if needed, say around age 80.
We were both in big telecom I.T., and the work of very large numbers of us was mostly outsourced to offshore services.
I am familiar with firecalc and the Vanguard calculators, but the combination of fixed income and lump sums seems to add some complexity, and I'd like to hear from the members here on our prospects.
For instance, one consideration is that my $2000 principal+interest on my mortgage and my $530 long-term care payment I would like to consider as fixed, not going up with inflation, so my expenses that need to keep up with inflation are about $7500/month.
Thanks in advance.
michaelsieg
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Re: Suddenly Retired, do I have enough?

Post by michaelsieg »

I am no expert in retirement planning and can't give you a quick answer, but one good thing I see is the relatively high income of 100k/yr in pensions/annuities. Are those with COLA?
A simple way to look at it is that you have about 7k (after taxes) fixed monthly income from pension/annuities. So you have to cover a "gap" of about 3k /month with your savings and your SS. With your savings that probably should not be a problem. 2 things to look into, where your strategy could make a big financial difference are:
- Check all scenarios/possibilities to delay your pensions/annuities (write the options you have down and calculate each "path") - if you can defer some of them now (and not have the income now in exchange for a higher/longer income later), you might have the option to convert a lot of your 401 k savings at a low tax rate into Roth accounts over the coming years- there are very good threads on this forum about this topic and you might be able to safe a lot in future taxes by doing this.
-Go through all scenarios about how and when you and your wife want to start SS, a complex issue and I would take the time to calculate different starting times - again, there are great threads about this on this forum.
Good luck
Michael
Lafder
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Re: Suddenly Retired, do I have enough?

Post by Lafder »

Any chance of decreasing your 7000$/month non mortgage expenses ? That sounds high.

I am sorry for the layoffs. Hopefully you can both turn this into opportunity!
lafder
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BL
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Re: Suddenly Retired, do I have enough?

Post by BL »

A big decision could be in delaying Social Security, especially delaying higher benefit person to age 70 and the various possibilities there. That COLA is so very important.

There is a small book written by a Boglehead which might help you with the possibilities:
Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Paperback – September 28, 2012
by Mike Piper

What is the interest rate on your home?
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

I have a 4%-fixed 30 year mortgage. Thanks.
As for expenses, I find that most people underestimate their expenses and then get into trouble.
You need to account for such things as house and car repairs and amortize them to get a realistic amount each month, or else you are deceiving yourself.
So I looked up bills over the years and tried to be brutally honest, and this I what I came up with.
So my question here is, can this be done using the figures given, as is?
Last edited by rgs92 on Fri Dec 05, 2014 12:00 am, edited 2 times in total.
absolutFinance
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Re: Suddenly Retired, do I have enough?

Post by absolutFinance »

Can you downsize into a cheaper residence without such a significant mortgage?
LongerPrimer
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Re: Suddenly Retired, do I have enough?

Post by LongerPrimer »

This is the one exception where I give advice. 8-)

Go to cash on both the equities and bonds ASAP. Hold cash, as you rearrange your life and determine your risk profile from this time forward. You may lose a few percentage points in the interim but you may save your assets in a black swan event. :annoyed
In the summer and fall of 2008, I was evaluating some scenarios. I hesitated and had to make a faster decision than I wanted to make. :oops:
GL :moneybag
Bfwolf
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Re: Suddenly Retired, do I have enough?

Post by Bfwolf »

Have you used something like firecalc to model the cash flows? Don't forget your pension is going to be taxable as will part of your Social Security.
countmein
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Re: Suddenly Retired, do I have enough?

Post by countmein »

Seems like you have enough, but close enough to warrant some detailed inflation-adjusted projections. Shouldn't you pay off the mortgage since it's 4% while your FI is 3% ?
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

Thanks for the suggestions. As far as paying off the 4% mortgage, if rates go up, my stable value funds will also yield more, and the principal will not go down, so I'm thinking I will keep the mortgage.
If this were a bond fund, it would be a different story.
sandramjet
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Re: Suddenly Retired, do I have enough?

Post by sandramjet »

I would suggest you check out the Retiree Portfolio Model (you can find a link to it on the wiki) and plug in your numbers to see if you will have enough to last.

Just quickly sticking in your numbers I think it looks like you should have enough, so don't get scared into immediately thinking you have have to downsize or cut your expenses. Of course, what I think doesn't really matter ... get the model and play with various scenarios and make your own judgements based on your knowledge of your situation. I've found that spreadsheet to be invaluable, and you seem like you have a good handle on your expenses and inputs, so you are in the best position to make the call.

And while it may not be what you expected...don't get discouraged, but instead enjoy all the things you can do in retirement!
Morik
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Re: Suddenly Retired, do I have enough?

Post by Morik »

Well, how about a little math. I'll be super conservative.

Lets say you need 45 years of income, just to be on the safe side. Note that I failed to account for your mortgage ending in the below, and included its cost in the inflation calculations (i.e., assuming you are paying more for your mortgage each year, and paying for it for all 45 years).
So the situation is even better than I laid out below. (Further, you could get a reverse mortgage if necessary and have a bit more money later on.)

You have $7k locked down, but no COLA, right? (Is that 7k a month net to you on paper after withholding, or net to you at the end of the year when you see if you owe more taxes/get a refund?)

I'm unfamiliar with social security stuff. but lets say you defer it and get $4k a month starting in 6 years (66 for full benefits if you were born in 1954, according to the social security website).

Lets assume annual inflation of 4% for kicks.

So for the first 7 years, you need about $950k (thats for 2014 through 2021)
In those years, you get $588k (post-tax) from your fixed $84,000 per year (after taxes).
A shortfall of about $51k a year.

If your investments return 4%, and you are withdrawing $51k a year (it would actually work out better since you need less in the first few years more later with inflation), then you are left with $1,226,000 or so after those 7 years in your taxable accounts.

For the other 38 years, you get $4k more per month (pre-tax? I'll assume so.) Lets say $3000 after taxes (a bit more than the rate on your $100k/year you are getting now, a 25% effective rate instead of a 16% effective rate).
So now you get $120,000 per year. Lets say no COLA (I don't know if SS benefits have COLA or not, but if they do, then this is even more conservative).

For those 38 years, you need $13,575,731 to cover your $10k per month (assuming 4% inflation again).
You get $4,560,000 from fixed income.

You run out after 17 years or so (24 total).

With cheerier numbers (2.5% inflation and 6% rate of return), you have 1.425 million after the first 7 years (it grows faster than you are withdrawing), and after the next 37 still have a little over $2.6 million in your brokerage account.
Note that that assumes constant 6% per year growth--if stocks do really well for a while, you'll do better. If they do really poorly for a while, you will do worse or possibly even run out of money (even with a 6% cumulative return, since you have to draw out of it regularly).
This is pretty important, and could make a huge difference. E.g., if the market falls for the next decade or so, you would have some issues. I didn't model this; see my final comments though.

You can play with the numbers more...
EDIT: Or just use the already-existing tools the previous poster mentioned... :-D


I just wrote some quick python for these calculations, shared below.

For first 7 years:
Taxable account:

Code: Select all

def withdraw(start, years, draw, rate): 
   left=start 
   for i in range(years): 
     left = (left - draw)*rate 
   print left
E.g., for those first 7 (6% return per year):
withdraw(1250000,7,51000,1.06)
--> 1425766.96039

Calculating how much money you'll need taking inflation into account:

Code: Select all

def inflation(start, years, inflation): 
   total=0 
   for i in range(years): 
     total += start * (inflation**i) 
E.g., you need $120,000 a year starting out, so with 4% inflation, for 7 years total you need
inflation(120000, 7, 1.04)
--> 947795.337708

And for the other 37 years

Code: Select all

def calc(startCost, fixedIncome, inflation, startBank, rate, years): 
   for i in range(years): 
     costThisYear = startCost * (inflation**i) 
     startBank -= costThisYear + fixedIncome 
     startBank *= rate 
     print "Next" 
     print i 
     print costThisYear 
     print startBank 
Prints out how much stuff costs that year and how much you have left in your brokerage account.
startCost is the cost per year (after the first 7 years, the starting cost is going to be (120,000 * inflation^6). For 4% inflation that is 151838.28
For 2.5% inflation its 139163.2102

(Assuming no inflation for 2014, and cost is just 120,000; starts going up every year after that.)
E.g.,
calc(139163.2102, 120000, 1.025, 1425766.96, 1.06, 37)
(I won't paste the results as they are printed for each year.)

You can type these definitions into the command prompt here:
http://repl.it/languages/Python/

And then type the calls in with different numbers if you want to play with it.

E.g., try
calc(139163.2102, 120000, 1.025, 1425766.96, 1.06, 37)
and
calc(151838.28, 120000, 1.04, 1225000.96, 1.04, 37)

for the cheery (first) and grim (second) assumptions.

Regarding bad markets for a while:
you could do something like:
calc(151838.28, 120000, 1.04, 1225000.96, 0.7, 3)
to model the market falling by 30% for the first 3 years.
Take the printed outputs of the last year (cost is first, then your brokerage account balance), and plug them into the next bit:
calc(<cost-from-last-printed-year>, 120000, <inflation>, <brokerage-balance-from-last-printed-year>, <investment-return-annual>, 33)
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

My own back-of-the-envelope calculation on my own situation is that, if we go for social security at 62, we will have about $3200 a month ($38,400/year) in real terms permanently.
In 20 years, let's say my $100,000/year cut in half in purchasing power, so $50,000/year in real terms. That gives me $88,400 a year when I'm 80.
And if I'm drawing about $40,000/year from my $1.25 Million (less than 4%) and increasing that for inflation each year, That gives me $128,000 a year in real terms when I'm 80.
By then, I've got a paid-off house, so I would have less expenses, and I'm basically OK.
Yeah, this is less than I wanted when I'm that old, but not too much less, and I think my assumptions are pretty conservative.
Please correct me if you feel I'm wrong or way off base.
Thanks in advance for any help.
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

Hey, thank you Morik for all that food for thought and all that work you did! I need to digest it. Best to you!!
chrisj
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Re: Suddenly Retired, do I have enough?

Post by chrisj »

Hey rgs92,

I put together a rough spreadsheet that may be easier to digest.

Here it is: https://docs.google.com/spreadsheets/d/ ... NQfAIqcd98

Your solvency hinges on the 401k balance. Therefore, the key is figuring out by how much you are depleting your 401k each year.

If you wish to edit any of the "Inputs", click on the tab that says "Editable" in the bottom left. Keep in mind anyone can edit the "Editable" sheet at the same time, so make a personal copy if you want your changes to stick around.

Please note this is VERY rough and completely ignores variance in annual return on your 401k. This is a huge factor not accounted for and can completely change the outcome. For example, if you see -10% returns in the first 2 years of retirement, things will obviously not be as rosy. One way to fake this with the spreadsheet is to change your starting balance from, say, $1,250,000 to $1,000,000 which would roughly mirror an immediate 20% drop.

In other words, use this to get a sense of worst case outcomes to make sure you're in the right ballpark.

-

Long story short, your situation looks quite manageable with a high likelihood of being able to maintain your spending level. Even given an extended period of poor market performance, you would just have to temporarily adjust spending down (say from 10k -> 8k per month) so you're not drawing 10% of your 401k.

-

Good luck!
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

ChrisJ, Thanks a million for this. It's a great tool I can work with now. Best to you. Again, thanks so much for the effort you put into this.
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Watty
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Re: Suddenly Retired, do I have enough?

Post by Watty »

rgs92 wrote:My budget shows that we spend about $10,000/month (which includes a $3000/month mortgage payment with $2000 P+i, $1000 property tax + Insurance, only 4 years in to a 30 year mortgage, so basically forever.
That is $120,000 a year after taxes so I would guess that you might need $180,000 a year in income to be able to have that amount after paying taxes on it.

You also need to look at what happens to the pensions and social security if one of your survives the other.

That is a large mortgage to be taking into retirement. You should really consider if you could move to a less expensive house. In my area people pay a large premium for houses in good school districts that have a short commute. If you don't still have kids in school then if your area is like mine you might be able to get an even nicer house for a LOT less money by just moving five or ten miles farther out.
dbr
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Re: Suddenly Retired, do I have enough?

Post by dbr »

Bfwolf wrote:Have you used something like firecalc to model the cash flows? Don't forget your pension is going to be taxable as will part of your Social Security.
You need to run through some of the retirment models that take into account chances of market fluctations, inflation, COLAd and non-COlAd income streams, etc. There are a bunch here:

https://www.bogleheads.org/wiki/Retirem ... d_spending

Firecalc is a start. A lot of people like the Fidelity model or the Vanguard one, and there is one at http://www.retirementoptimizer.com/ which also includes a helpful but long book on the subject.

Unfortunately when one is most likely pushing the edge on whether or not one has the resources to sustain retirement (which you might be) the answer is not simple.

In using models it is necessary to explore alternatives. Since retirement success is affected more than anything else by spending one needs to play with spending level and also one needs to stress test the model for unexpected expenses. Another thing to consider is how helpful investing in additional annuities might be (though not the first choice when one already has annuity income.
lululu
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Re: Suddenly Retired, do I have enough?

Post by lululu »

self deleted
Last edited by lululu on Fri Dec 05, 2014 9:26 am, edited 1 time in total.
Stonebr
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Re: Suddenly Retired, do I have enough?

Post by Stonebr »

rgs92 wrote: if rates go up, my stable value funds will also yield more, and the principal will not go down,
Not necessarily. Stable value funds are backed by bonds, and bonds lose value when rates go up. In order to maintain stable value, the fund manager may have to keep rates the same or even drop them to make up for capital losses. What happens is the "old money" that's already invested will continue to earn what it's earning (that's why they call it "fixed income") and meanwhile drops in capital value, while new deposits made by other plan participants will be invested at new, higher rates. The overall rate on the fund as a whole will depend on the net cash flow into the stable value pool -- deposits net of withdrawals -- and how big the old money pool is. If the net cash flow is huge in relation to both existing assets and withdrawals, then you would be correct -- the rate will go up. Most plans don't have huge new cash flow unless they are very new plans.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear
dbr
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Re: Suddenly Retired, do I have enough?

Post by dbr »

Stonebr wrote:
rgs92 wrote: if rates go up, my stable value funds will also yield more, and the principal will not go down,
Not necessarily. Stable value funds are backed by bonds, and bonds lose value when rates go up. In order to maintain stable value, the fund manager may have to keep rates the same or even drop them to make up for capital losses. What happens is the "old money" that's already invested will continue to earn what it's earning (that's why they call it "fixed income") and meanwhile drops in capital value, while new deposits made by other plan participants will be invested at new, higher rates. The overall rate on the fund as a whole will depend on the net cash flow into the stable value pool -- deposits net of withdrawals -- and how big the old money pool is. If the net cash flow is huge in relation to both existing assets and withdrawals, then you would be correct -- the rate will go up. Most plans don't have huge new cash flow unless they are very new plans.

Right, SV funds will lag the current trend in interest rates on a scale of a year or two. Many people have seen how that has worked when interest rates were going down.
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HomerJ
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Re: Suddenly Retired, do I have enough?

Post by HomerJ »

You people are crazy... If the OP can't retire, 99% of Americans can't retire...

Pensions and SS will cover all their expenses... He may have to spend $100k-$200k to bridge the gap to Social Security (they should probably wait as long as they can).

$1 million+ left over, untouched, to handle inflation and emergencies.

Sheesh.

OP, enjoy your new life.
staythecourse
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Re: Suddenly Retired, do I have enough?

Post by staythecourse »

Now that you are not working any reason not to move to a lower cost option OR to a lower cost state?

That is the EASIEST way not to change anything else and lower a very large and long mortgage commitment.

Good luck.

p.s. Don't mean to rub it in, but hope others reading this as a reason not to put on more debt toward the end of your working life as no one knows if you retire at 65 (like you plan) or a lot earlier.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
randomguy
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Re: Suddenly Retired, do I have enough?

Post by randomguy »

HomerJ wrote:You people are crazy... If the OP can't retire, 99% of Americans can't retire...

Pensions and SS will cover all their expenses... He may have to spend $100k-$200k to bridge the gap to Social Security (they should probably wait as long as they can).

$1 million+ left over, untouched, to handle inflation and emergencies.

Sheesh.

OP, enjoy your new life.
Pretty much my thoughts. Yeah if the great depression (well actually 1966) starts tomorrow you might need to cut back a bit but the odds are really against that type of event. The big random things is that your expenses in retirement are not the same as when you were working. How they change is hard to say. I wouldn't move (I assume you like you house and I have no clue if it is 1 bedroom condo or 8k sq ft mansion) under the assumption you like your house and the area you are living. Moving from someplace your happy to save a few bucks just isn't worth it.

The people that worry about debt have an unnatural adversion to it rather than a mathematical reason. Having 800k in your IRA (hard to figure out the exact number as it will depend on when you would have done the payoff) and no mortgage doesn't put you in a better spot going forward.

If you really worried about your budget, go through it and figure out what is mandatory and what is discrentionary. Maybe if the market is down you choose to put off that 10k in travel for another year.
hexagon
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Re: Suddenly Retired, do I have enough?

Post by hexagon »

michaelsieg wrote: -Go through all scenarios about how and when you and your wife want to start SS, a complex issue and I would take the time to calculate different starting times - again, there are great threads about this on this forum.
BL wrote:A big decision could be in delaying Social Security, especially delaying higher benefit person to age 70 and the various possibilities there. That COLA is so very important.

There is a small book written by a Boglehead which might help you with the possibilities:
Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Paperback – September 28, 2012
by Mike Piper
+1 Sorting out your plan for SS together with determining how much expenses can be reduced in the event of a serious downturn would be top priorities in my planning since it seems to me that while in most scenarios you are likely to do very well, the main two risks for you are: (1) early retirement "series of unfortunate events" risk and (2) inflation risk since a large part of your portfolio (i.e., pensions and annuities) are not inflation adjusted.

Sorry about the involuntary retirement, but this might just be a great opportunity!
Topic Author
rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

HomerJ wrote:You people are crazy... If the OP can't retire, 99% of Americans can't retire...

Pensions and SS will cover all their expenses... He may have to spend $100k-$200k to bridge the gap to Social Security (they should probably wait as long as they can).

$1 million+ left over, untouched, to handle inflation and emergencies.

Sheesh.

OP, enjoy your new life.
---------------------------------------------
Thanks HomerJ. I am thinking along those lines, especially since most of my colleagues seem to have little saved (and took lump sums in lieu of pensions 10 years or so ago, which backfired when interest rates went down, the market turned volatile, and they turned their savings over to "financial advisors.") By following Bogleheads, retirement savings went from $200,000 in 1994 all the way to the $1.25 million PLUS $560,000 that I used to buy the fixed annuities on a combined income of about $150K. So thanks to Bogleheads. (I just have an older 3 BR house on an acre in NJ, nothing special.)
I also had a habit of doing serial refinancing of my house in the 90s and 2000s as the value went up, taking cash out, and using the proceeds to keep plowing money into the stock market (index funds mainly).
That and my job loss some time back is the reason for my big mortgage balance, but in retrospect, it seems to have worked out I think.
Last edited by rgs92 on Fri Dec 05, 2014 10:48 am, edited 1 time in total.
jstrazzere
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Re: Suddenly Retired, do I have enough?

Post by jstrazzere »

Let's see...

Your expenses are about $10,000/month.

You have fixed income of around $8300/month
You anticipate social security of $3200/month at age 62
You have $1.25M of 401k and IRAs which could likely throw off $4000/month indefinitely.

Sounds like, if your numbers are accurate, you are in great, completely sustainable shape to me. Congratulations!
cherijoh
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Re: Suddenly Retired, do I have enough?

Post by cherijoh »

Watty wrote:
rgs92 wrote:My budget shows that we spend about $10,000/month (which includes a $3000/month mortgage payment with $2000 P+i, $1000 property tax + Insurance, only 4 years in to a 30 year mortgage, so basically forever.
That is $120,000 a year after taxes so I would guess that you might need $180,000 a year in income to be able to have that amount after paying taxes on it.

You also need to look at what happens to the pensions and social security if one of your survives the other.

That is a large mortgage to be taking into retirement. You should really consider if you could move to a less expensive house. In my area people pay a large premium for houses in good school districts that have a short commute. If you don't still have kids in school then if your area is like mine you might be able to get an even nicer house for a LOT less money by just moving five or ten miles farther out.
+1 Could the surviving spouse even afford the mortgage payments?

You mention the possibility of a reverse mortgage at ~80, but you will still be making mortgage payments then! Reverse mortgages have high fees - the lender is taking a risk on whether you will outlive the actuarial tables. Also, I'm reasonably sure you would be forced to pay off the remaining mortgage balance out of the take from the reverse mortgage - which would further increase your cost of funds.

rgs92 wrote:[3] Anticipated Social Security which would be about $1600/month for each of us at age 62 if we decided to take it that early, so $3200 a month combined. (If deferred to full soc. sec. age about 4 years later, the combined about would be about $4000/month.)

With so much of your retirement funds not indexed for inflation, you should seriously consider delaying SS at least until you reach FRA. If you aren't already familiar with it I would look in the Wiki for file and suspend strategies with SS. I think you have to be at least at your retirement age to do this.
rgs92 wrote:[4] A Long Term Care insurance policy that costs $530 a month (with pretty generous benefits, but don't plan on opting for voluntary increases in the future, so this payment should stay fixed permanently).
[5] Retiree health insurance that costs $300/month total combined cost, included in my expenses.
Do you know how much of the retiree health insurance is paid by the company currently? I stay in touch with some former coworkers from a previous job. When they retired it was a 70/30 company/ retiree split. In addition to the expected annual premium increases, the company also reduced the portion of the company portion of the premium to 30% before discontinuing retiree medical altogether. So I would not anticipate keeping those low health insurance premiums until you each reach 65 and are Medicare eligible. As an illustration - if your $300/month premium represented 30% of the total cost and the plan had a 10% premium increase next year AND your portion increased to 40% of the total, your premium would jump from $300 to $440 dollars (40% of next year's $1100 premium). That is a 47% increase in the amount you would have to pay. Think of this happening several years in a row :annoyed
randomguy
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Re: Suddenly Retired, do I have enough?

Post by randomguy »

Watty wrote:
rgs92 wrote:My budget shows that we spend about $10,000/month (which includes a $3000/month mortgage payment with $2000 P+i, $1000 property tax + Insurance, only 4 years in to a 30 year mortgage, so basically forever.
That is $120,000 a year after taxes so I would guess that you might need $180,000 a year in income to be able to have that amount after paying taxes on it.

You also need to look at what happens to the pensions and social security if one of your survives the other.

That is a large mortgage to be taking into retirement. You should really consider if you could move to a less expensive house. In my area people pay a large premium for houses in good school districts that have a short commute. If you don't still have kids in school then if your area is like mine you might be able to get an even nicer house for a LOT less money by just moving five or ten miles farther out.
There is some hand waving but with 12k in interest, 12k in taxes and lets say 5k in NJ state tax your looking at 16k of federal taxes. That is about 140k of income. Note this is about the worst case tax case. Having any of your spending as return of capital, LTGC, QD, or heck even SS drops your tax bill quite a bit.

He can definitely move somewhere cheaper. But there is no need to do it for financial reasons. Do it because you want a different lifestyle. And yes I think the wife will be able to pay a more or less fixed 3k/month housing bill given that she will have 1.2 million in an IRA and 100k of fixed income. Maintaining the house (in either case) is a much bigger issue but that has little to do with house cost.
vested1
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Re: Suddenly Retired, do I have enough?

Post by vested1 »

If you provided the PIA (FRA) amount for both yourself and your wife you would probably get some valuable suggestions on SS filing strategies without both of you having to wait until 70 to file. Either way you should be fine but why not hedge your bets by increasing the amount of COLA'd income which is also tax advantaged? Few here will advise you to both file at age 62 since you can afford not to.

For example, since your wife is two years younger than you and assuming she made less, she could file at 64 and you could file at 66, claiming a restricted application and receiving half of her PIA amount while allowing yours to increase by 32% at age 70.
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rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

Thanks again for that. I will see if I can find that data. We are toying with the idea of moving to the Atlanta suburbs where we know some people.

An earlier poster says I should reduce my stock holdings. But this is a WWJD (what would Jack do?) question. Jack Bogle says to consider fixed income as part of the bond holdings.
Since my $100K/year is equivalent to about $1.7 million, with my $1.25 Million portfolio, isn't my current $730,000 (approx.) in stocks actually a conservative amount for the equivalent of $3 million?

Thanks for the suggestions about Social Security strategies. I should look at this but it makes my head spin a bit. My wife and I made similar incomes, so I didn't think the file+suspend approach was too beneficial.
Of course, when to take it is important, I know.
dbr
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Re: Suddenly Retired, do I have enough?

Post by dbr »

rgs92 wrote:Thanks again for that. I will see if I can find that data. We are toying with the idea of moving to the Atlanta suburbs where we know some people.

An earlier poster says I should reduce my stock holdings. But this is a WWJD (what would Jack do?) question. Jack Bogle says to consider fixed income as part of the bond holdings.
Since my $100K/year is equivalent to about $1.7 million, with my $1.25 Million portfolio, isn't my current $730,000 (approx.) in stocks actually a conservative amount for the equivalent of $3 million?

It is a very general result that at reasonable withdrawal rates for reasonable times stock/bond allocation has little effect on chances of running out of money too soon except possibly at very low stock allocations, so I would not worry too much. This has nothing to do with thinking income is a bond. It also means you have nothing to gain by holding more than you need in stocks unless you are taking a risky strategy on maximizing how much you can give to heirs or other beneficiaries. It is important that you don't panic and make bad decisions if you lose 50% or more of that stock allocation at some point. Larry Swedroe has often commented that a deciding factor in your situation is that the marginal utility of wealth is diminishing and that risk is often underestimated.

One note if you do want to follow Jack's advice is that income as bonds goes with age in bonds so you should be 40% stock right now out of $2.95 million or $1.18 million in stock out of your portfolio of $1.25 million. Do you really believe that? And if your portfolio dropped to $1.1 million you would have to start leveraging your investments past 100% stocks to follow the rule.


Thanks for the suggestions about Social Security strategies. I should look at this but it makes my head spin a bit. My wife and I made similar incomes, so I didn't think the file+suspend approach was too beneficial.
Of course, when to take it is important, I know.
vested1
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Re: Suddenly Retired, do I have enough?

Post by vested1 »

rgs92 wrote:Thanks again for that. I will see if I can find that data. We are toying with the idea of moving to the Atlanta suburbs where we know some people.

An earlier poster says I should reduce my stock holdings. But this is a WWJD (what would Jack do?) question. Jack Bogle says to consider fixed income as part of the bond holdings.
Since my $100K/year is equivalent to about $1.7 million, with my $1.25 Million portfolio, isn't my current $730,000 (approx.) in stocks actually a conservative amount for the equivalent of $3 million?

Thanks for the suggestions about Social Security strategies. I should look at this but it makes my head spin a bit. My wife and I made similar incomes, so I didn't think the file+suspend approach was too beneficial.
Of course, when to take it is important, I know.
It's actually more beneficial if you are closer in income and have a small age difference, as you do. As an example I'll give my general amounts and strategy. I'll offer these without the 1.7% COLA set to take effect next year and won't factor in any future estimated COLA amount.

My wife's PIA is $2,065 and mine is $2,419. We retire next year at 62.5 (her) and 63.5 (me). I am currently delaying. She will file at 62.5 and receive around $1,600 a month or $19,200 a year. 2.5 years later I'll file a restricted application and get half of her PIA amount, even though she filed early, $1,032 a month until age 70. Combined SS at my age 66 will be $31,584.

At 70 I'll file for my own benefit of $3,193 for a combined benefit of $57,516 a year. If I die any time after age 70 my wife reverts to the $3,193 a month or $38,316 a year rather than her own $19,200 a year, which is pretty cheap "insurance". Bottom line, if we both filed at 62 our combined SS would be $40,332 with a 25% reduction from the PIA amount, compared to what will be over $17,000 a year more at my age 70.

The benefit would be much higher if my wife waited to file until age 65 (me at 66 with the restricted application). In that case her benefit would be $1,926 for a combined benefit of $35,496 at my age 66 and a combined benefit at my age 70 of $61,428 a year. A side note is that we are exactly a year apart and our families have a long history of longevity.

Your numbers sound even more promising.
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Re: Suddenly Retired, do I have enough?

Post by cherijoh »

rgs92 wrote:Thanks again for that. I will see if I can find that data. We are toying with the idea of moving to the Atlanta suburbs where we know some people.

An earlier poster says I should reduce my stock holdings. But this is a WWJD (what would Jack do?) question. Jack Bogle says to consider fixed income as part of the bond holdings.
Since my $100K/year is equivalent to about $1.7 million, with my $1.25 Million portfolio, isn't my current $730,000 (approx.) in stocks actually a conservative amount for the equivalent of $3 million?

Thanks for the suggestions about Social Security strategies. I should look at this but it makes my head spin a bit. My wife and I made similar incomes, so I didn't think the file+suspend approach was too beneficial.
Of course, when to take it is important, I know.
I'm not married, so I haven't paid all that much attention to SS strategies for married couples, but I would at least take a cursory look to see if it benefits you.

Your main risk regarding stocks is that the stock market which has been going like gangbusters for the past few years, takes a big hit just as you are starting your draw-down. Are you eligible to start taking all your pensions/annuities now or do you have to wait for some to kick in? If you are only pulling out $20K per year to make up the difference between expenses and your payments, I wouldn't be too concerned. But if you have to wait until 60 or 65 for these funds and will be making major withdrawals from your 401k, then you should consider if you are over-extended in stocks IMO. At 60% in stocks in your 401-k, a 30% pull back in stocks would result in an 18% drop in this portfolio - to about $1M. If you are pulling $10K/month out of a dropping portfolio that could be a serious problem that could have long-term consequences on your portfolio health.

Remember, you can't rebalance in your 401k with your annuity payments so be very careful about thinking you have the equivalent of $1.7 MM more in bond funds than you actually do.
livesoft
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Re: Suddenly Retired, do I have enough?

Post by livesoft »

Watty wrote:That is $120,000 a year after taxes so I would guess that you might need $180,000 a year in income to be able to have that amount after paying taxes on it.
Why do you write that? An effective tax rate of 33%? That's totally outrageous, don't you think? I will come up with a better number in a moment just using taxcaster.

Taxcaster suggests that $100,000 miscellaneous income plus $35,000 a year of IRA withdrawal along with about $35,000 of itemized deductions (probably a low amount) would have taxes of about $15,000 a year that leaves $120,000 for expenses. So income of $135,000 to have spending of $120,000 a year. Yes, make some adjustments for state income taxes if there are any.

The OP should have not problem when SS comes along. I suggest also looking at the calculator at http://www.i-orp.com and also the Fidelity Retirement Income Planner.

Anyways, I see plenty of time (years) to do a more detailed analysis and figure things out without worrying about having enough. And plenty of time to move to a lower cost of living situation if needed (less expensive dwelling, lower state income taxes).
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Watty
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Re: Suddenly Retired, do I have enough?

Post by Watty »

livesoft wrote:Why do you write that? An effective tax rate of 33%? That's totally outrageous, don't you think?
Yep, you shoot from the hip and you will occasionally shoot yourself in the foot. :oops:
rgs92 wrote:We are toying with the idea of moving to the Atlanta suburbs where we know some people.
Hi, I'm in Atlanta so just a few comments.

The traffic is as bad as they say but if you are retired you may rarely need to drive during the rush hour. In most areas having a car is a must which can be an issue as you age and might eventually need to give up driving.

Some of the information on Georgia taxes on the internet is out of date and inaccurate. A few years ago they were going to give an unlimited retirement income exclusion so that no retirees would pay any state taxes. They backed off that and it is now a still ample $65K per person ($130K for a couple) and includes almost every type income except for working wages. This means all except the most well off retirees will not pay any Georgia state income tax.

The property taxes vary greatly by county so pay a lot of attention to that if you look for a house here. There are a LOT of counties in Georgia and over 20 counties in the Atlanta metropolitan area. I live in a northern suburb that is one of the few ones that exempts people over 62 from paying school property taxes without any sort of income qualification. I live in an averaged priced house where my property taxes were an already modest $1,700 a year but once we qualified for the senior exemption it dropped to about $650 a year (that is not a typo). There are other property tax homestead exemptions that are a fixed amount so the way that it works is that a house that is twice as expensive as mine would have a lot more than double the property taxes. Send me a PM is you want to know the name of this county.
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rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

Just fyi to the questions here about possible panic selling and income status:

My view of stocks is this in a nutshell: if I want to buy food 20 years from now, a $100 worth of food stocks will buy the same current $100 worth of food it does now. So the whole market represents everything I need to buy over the long term.

As far as risk tolerance, I've been investing in the market since 1977, clearly remember 1987, 1990, 1998, 2001, 2003, and 2009 and pretty much shrugged it all off, just making a few adjustments around the edges
with about 5% of my portfolio just to maintain some stability. So I've trained myself not to panic.

The pensions/annuities are current; we have been getting the full pension+annuity payment for some time now.
My annuities were immediate an purchased over time starting from 2001 with a $300K one that yields $1800 a month, and the others from 2004-2007.
The pensions started back in 2009-10.

As for gross taxable income currently desired, I estimate that something between $150K and $155K a year is more than enough here in NJ (using turbotax).

My personal economic view is that inflation will remain low because inflation is a wage-price spiral, and I think it will be a cold day in you-know-where before companies start paying much more or the labor supply gets tight.
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patriciamgr2
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Re: Suddenly Retired, do I have enough?

Post by patriciamgr2 »

To increase your comfort level, you might run scenarios such as the following.

1. stocks take a tumble & stay low for several years (eg Japan). [You have described your excellent "stay the course" record. Personally, however, my risk tolerance decreased when I was withdrawing funds (an ever-increasing % of the decreased "nest egg") vs. when I was working (when I was 100% in equities & shrugged off market declines as buying opportunities). I keep a few years' spending in cash in order to avoid selling stocks or bonds at a loss.

2. one spouse enters a nursing home; other would like to remain in home. one spouse dies: what social security, annuity, J&S pension benefits does the survivor receive; is it enough to keep current standard of living?

3. company cancels retiree health coverage (actually happened to me)--what would your ACA premiums & out-of-pocket maximums look like?

Just running numbers for these scenarios will help you assess how ready you are. I agree with other posters that you should explore spousal SS claiming strategies. Claiming as a spouse brings in current cash while allowing one's own age 70 benefit to grow. SS has a COLA which is important given that your other fixed income sources aren't indexed.

The more you can flex your spending, the more you can weather unexpected events. FWIW, except for rising medical insurance premiums (despite my great health), I've spent a lot less than I expected to largely because I have simplified my life for non-financial reasons.

I retired earlier than you folks & it was the best decision of my life. Good Luck.
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tractorguy
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Re: Suddenly Retired, do I have enough?

Post by tractorguy »

If I understand your numbers right, you're expecting to spend about $120K/year with an aftertax income of about 84K/year from your annuities and pensions. This leaves a shortfall of about $36K/year that will have to be made up from investments. On a $1.25M portfolio, this is about 2.9% which is much less than the traditional safe withdrawal rate of 4%. On the negative side, I'd plan on at least one of you living for 40 years. In addition, your withdrawal from your investments is going to go up about 3 1/3 times inflation. (120/36). On the plus side, this back of the envelope calculation doesn't figure in SS which will go a long way towards making up the gap between expenses and your pension income.

Based on this analysis, I'd be comfortable in your situation. However, I'd use firecalc to nail down the numbers a bit better and also run some what if scenarios as others have suggested. You may get stuck with higher medical expenses or your real estate taxes may go up faster than inflation for example.

I'd also do the analysis with income taxes broken out as an expense item. They may change in retirement and will almost certainly change if you decide to move out of NJ. Firecalc will allow you to put in your pension and SS starting dates and also the date you retire your mortgage. You just have to dig a bit deeper into some of the tabs to find the right areas to enter these numbers.

After I did the analysis in firecalc, I'd put together a simple yearly income and expense budget and then plan on spending the time to compare your actual results against the forecast once a year or so. This is needed to verify that you are actually following or beating the plan.

When I was working, it was easy to tell if I was saving money because I knew what my income was and I knew what I was putting into savings. Now that I'm retired, I have to work at it a bit more because money comes in from several sources (pension, some part time work, & investments) and goes out a lot of ways as well. I have to add up all of the incomes and all of the expenses to find out how much I've actually pulled out of investments every year. Looking at account balances doesn't help because the market volatility is masking the small changes I'm making as I withdraw funds to meet expenses.
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AJyooper
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Re: Suddenly Retired, do I have enough?

Post by AJyooper »

I think timing your Social Security makes great sense for you and your wife. This will really help you (and doesn't cost anything) and It is also a way of preserving a higher income for a surviving spouse. Since we each have pensions, my wife and I also purchased 15 year term insurance policies to smooth out loss of a pension.

Overall, I think you will be fine. But, if you delay your SSR payments, you will need to draw more from your tax deferred accounts so a strategy is needed there.
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rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

OK, this is just to really say thanks to everyone for taking the time for all this good advice. Best to all of you. 'back to lurking here for me.
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DR
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Re: Suddenly Retired, do I have enough?

Post by DR »

I'm a little late to the discussion here, but someone mentioned Firecalc, so I thought I'd mention ESPlanner. I am an expert using this dynamic planning calculator. There's really not enough information here to get a reliable report, but there is enough to get a sense of the cash flow issues I think you might see.

The bottom line is, yes, you have enough, but there will likely be some liquidity restraint early on which will require you to withdraw more heavily from your IRA until Social Security kicks in. If you are willing to postpone SS until age 70, you can substantially raise your lifetime discretionary spending. Substantially. But this requires that you draw more heavily on that 1.25M until age 70 and then lower, smooth withdrawals after that.

I don't know what state you live in--which makes a difference--so I used the state taxes in Michigan.

I don't know whether there is a survivor benefit on the pension, so I don't know about term insurance recommendations without that piece of information--that could make a difference since it's a large amount.

Your taxes don't drop during your retirement years--indeed, they will actually go up from your current net taxes (this could change depending on the state you live in).

I assumed no COLA on the pension. I see a total spending (including housing and Medicare Part B) of over 113K in the first six years or so then above 130K after that for most of life). This is all in today's dollars. All the expenses you mentioned need to come out of that except the taxes and housing. I assumed 6% nominal return on the 1.25M but perhaps that's too high.

In short, it does seem you can do it. But I'd be getting a dynamic planning calculator like ESPlanner and run the numbers myself--and more precisely--if I were you. :)
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rgs92
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Re: Suddenly Retired, do I have enough?

Post by rgs92 »

Thanks DR, I will look at ESPLanner. I'm in NJ. Any other comments from anyone are welcome. Thanks in advance.
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