Forced Early Retirement - Advice Sought

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JD58
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Joined: Sat Aug 05, 2017 6:08 pm

Forced Early Retirement - Advice Sought

Post by JD58 » Sun Aug 06, 2017 3:12 pm

Due to a company merger I've been told my IT position has 9 months until my position is no longer available. At 59 and spouse 62 we think this may be a good moment to determine if it is a good opportunity to consider early retirement. We will be 60 and 63 when the last day hits next year. Both are in great health, recently climbed Mt Rainier for the 5th time. Spouse runs half marathons.

I was hoping for 4 more years to pay off the RV/car, but having run through i-orp, my own spreadsheet to plan out budgets and income until 95/98, SSAnalyse, FRP and Vanguard tools we think we are in ok but not great shape. Are we crazy?

Would also appreciate some advice on two items:

- Split lump sum severance to pay off RV/Car or role entire lump sum/severance into new Vanguard tIRA?
- Should we consider Roth conversions from Vanguard 401k prior to 70?

Current Salary: $145K
Expected special merger bonus (paid out in Q1): $30K
Tax status: MFJ (spouse already retired)
2016 AGI: $145.7K
2016 Taxable Income (post deductions): $103.4K
Effective Tax rate: 11.95% per TurboTax
State Income tax: None so far (WA)
Severance Medical for 6 months (through 2018 - company pays COBRA at same % so we pay $146/m) then plan for $500/m company retiree medical-dental insurance until age 65 company covers rest.

Future Income
Planned start SS: 2026 (68/71): $52K
Previous Company Pension Payouts: $24K/y for first 7 yrs (thru age 68)
Dividends: $23K/y

Severance lump sum (Jun 2018 $328K - had planned to roll directly to new Vanguard tIRA but should we take some to pay off RV and reduce expenses by $7800/y through 2028 age 70 saving 6% interest?)

1 child starting community college: she has full tuition covered thru 529 plan
Debt (Home): Owe $249K Zillow value: $513K paid off age 69
Debt (RV): Owe $65K @6% (write off interest on taxes) auto pay at $650/m
Debt (car): Owe $27 @1.75% (just bought 2015) auto pay at $500/m

Current investments:
Vanguard pre-tax 401K
VWIAX: $278K
VFIAX: $129K
Previous company stock shares: $17K current yield 3.9%
Expected additions: $10K + company $4.5K (50% split into above funds no new stocks)

Vanguard Roth 401K (Offered since 2016)
VWIAX: $3K
VFIAX: $11K
Expected additions: $14K (50% split above funds)

Roth IRA
VDAIX: $30K
MSFT,PFE, XOM: $23.6K
Expected additions: $10K

Roth IRA
CVX, ED, BX: $26K
Expected additions $10K

Taxable Account
Emergency MM Fund: $21K
VWITX: $23K
T, MSFT, AAPL: $41K

HSA
Savings: $2500
Investments: T, ETP, APU - $12K
Expected additions: $7500

We feel that paying off RV is like a 6% return on $65K but are concerned on the tax impact taking that from the lump sum rather than direct roll over to tIRA. We do not like the idea of paying off the car as we think we will get a better return than the 1.75% interest rate. Are we wrong to approach it that way? Should we sell the taxable stocks to pay them off with the market high. Would have long term gains on ~$27K at 15%.

Also, reading a lot on this site about conversions of 401k to Roth to protect taxes from RMD. We were thinking that we would be living off of the 401K and lump sum tIRA so RMDs would not impact us greatly at age 70. Are we wrong to think that?

We would appreciate any wisdom offered. At least we have 9 months to work a plan even if it means the plan turns out to find a different job.

Thanks!!!!

123
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Re: Forced Early Retirement - Advice Sought

Post by 123 » Sun Aug 06, 2017 3:39 pm

Have you considered selling the RV? Depending on its size/mileage it may be the kind of thing that's okay to have around while you're working to pay it off but which you might not consider acquiring once you're retired. How long have you had it and how much have you used it?
The closest helping hand is at the end of your own arm.

tibbitts
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Re: Forced Early Retirement - Advice Sought

Post by tibbitts » Sun Aug 06, 2017 3:45 pm

123 wrote:Have you considered selling the RV? Depending on its size/mileage it may be the kind of thing that's okay to have around while you're working to pay it off but which you might not consider acquiring once you're retired. How long have you had it and how much have you used it?
Umm... the point of an RV is to have it once you retire. Before then you mostly don't have time to use it.

Dottie57
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Re: Forced Early Retirement - Advice Sought

Post by Dottie57 » Sun Aug 06, 2017 3:55 pm

What are your expenses? And what is your total in savings/investments. The answer to whether uou can retire requires this info. How about SS, wjen will you take it and how much will it be.

Frankly, to me it doesn't look like you have enough.

JD58
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Re: Forced Early Retirement - Advice Sought

Post by JD58 » Sun Aug 06, 2017 4:05 pm

tibbitts wrote:
123 wrote:Have you considered selling the RV? Depending on its size/mileage it may be the kind of thing that's okay to have around while you're working to pay it off but which you might not consider acquiring once you're retired. How long have you had it and how much have you used it?
Umm... the point of an RV is to have it once you retire. Before then you mostly don't have time to use it.
Yes, we have considered it and that option is on the table. Selling it now would cover the loan and sales tax. But with grandchildren Montana and Canada, our feeling is that this will make it easier to see them. We have had it since 2011 and have not had time to use it as much as we had originally planned.

delamer
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Re: Forced Early Retirement - Advice Sought

Post by delamer » Sun Aug 06, 2017 4:07 pm

The lump sum/severance -- is it a severance payment or a lump sum pension payout? Or a combination? Because the tax situation is completely different; you can't rollover severance into an IRA.

It doesn't make sense to delay Social Security until age 71; your benefit does not increase after age 70. You could consider having your spouse claim at 62, if you were the higher earner, while you delay.

What are your total monthly expenses, both before and after the mortgage is paid off? Is your daughter's tuition paid for all 4 (or 2) years that she'll be in school?

You asked a couple questions, but those questions can't be answered outside the context of understanding your overall financial situation.

Based on my experience with some friends and also what I've read on this forum, at your age and salary level it would be best to assume that will not be employed again and plan accordingly. Since it is likely to be difficult to get a new job -- especially at you current salary -- figure on the "worst case scenario" that you won't get one. Better to be pleasantly surprised if you do than unprepared if you don't.

JD58
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Re: Forced Early Retirement - Advice Sought

Post by JD58 » Sun Aug 06, 2017 4:44 pm

Dottie57 wrote:What are your expenses? And what is your total in savings/investments. The answer to whether uou can retire requires this info. How about SS, wjen will you take it and how much will it be.

Frankly, to me it doesn't look like you have enough.
Thank you, I appreciate the honest feedback.

Our expenses without the debt is budgeted at $41K annually.

Plan is for SS to kick in 2026 when we will have a combined $52K annual PIA. This is the year before the $24K annual pension payments ends.

So for years 61-69
Budget: $54K including projected taxes
Debt Home/RV/car: $23K
Total Expenses: $77K
Income: $47K ($24K pension + $23K dividends)
Cover $30K shortage by tIRA/taxable withdrawals

Current investments: At last day $952K
pre-tax: $424 (+ $12K prior to last day) plan on also rolling in $328K severance payout
Roths/HSA: $105K (+ $27.5K prior to last day)
Taxable: $83K

70+
Budget: $85K+
Debt: 0
Total Expenses: $85K+
Income: $67K ($52K SSA + $15K dividends)
Cover $18K shortage from tIRA/Roth

We expect the RMD to be minimal due to the ~$30K/y draw down for 9 years. We feel this is a realistic budget for us as we've lived it for the past 4 years paying off all other debt (3 other children thru universities) & starting Roths/taxable investment accounts).

JD58
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Re: Forced Early Retirement - Advice Sought

Post by JD58 » Sun Aug 06, 2017 4:58 pm

delamer wrote:The lump sum/severance -- is it a severance payment or a lump sum pension payout? Or a combination? Because the tax situation is completely different; you can't rollover severance into an IRA. It is a pension payout that I must take at severance. So was planning on direct rollover from Vanguard to Vanguard tIRA. Unless we payoff RV, then that amount would be reduced. I'd cover taxes on the payoff from the taxable account.

It doesn't make sense to delay Social Security until age 71; your benefit does not increase after age 70. You could consider having your spouse claim at 62, if you were the higher earner, while you delay. My SSA would start at 68 but since my wife is 3 years older and her earned is so much less than mine, was under the impression she has to wait until I took mine.

What are your total monthly expenses, both before and after the mortgage is paid off? Is your daughter's tuition paid for all 4 (or 2) years that she'll be in school? Yes, she has a full scholarship & enough in 529 plan to cover in state university if she wishes to go. She thought community college would be better until she determines her future career.

You asked a couple questions, but those questions can't be answered outside the context of understanding your overall financial situation. Hopefully provided a little clarity in previous response to Dottie57.

Based on my experience with some friends and also what I've read on this forum, at your age and salary level it would be best to assume that will not be employed again and plan accordingly. Since it is likely to be difficult to get a new job -- especially at you current salary -- figure on the "worst case scenario" that you won't get one. Better to be pleasantly surprised if you do than unprepared if you don't. That was our thinking also. Plan no work or start consulting/contract work.
Thanks for the last paragraph. That is how we were approaching it. We have 2 co-workers that were in the same position earlier this year but only had 60 days warning. One of them has 25+ years to build up for retirement. The other in 51 and found a temp position for 6 months and is still looking. At least I have a greeater window to make changes plus get the extra $30K merger bonus...

Ostentatious
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Re: Forced Early Retirement - Advice Sought

Post by Ostentatious » Sun Aug 06, 2017 5:49 pm

Try to look for another job right now while still employed. You may get a job regardless of your age. Your experience might help you. What I don't understand though is that with your salary, it appears as if your savings rate was low over the years. Or it may be due to some other reasons. In your situation, though not dire, try to work for as long as you can. Hope you find another job soonest.

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celia
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Re: Forced Early Retirement - Advice Sought

Post by celia » Sun Aug 06, 2017 6:26 pm

(I started working on this before your post responding to Dottie57)
JD58 wrote:I was hoping for 4 more years to pay off the RV/car,...
1 child starting community college: she has full tuition covered thru 529 plan [unknown to us if this covers 4 years of college]
Debt (Home): Owe $249K Zillow value: $513K paid off age 69
Debt (RV): Owe $65K @6% (write off interest on taxes) auto pay at $650/m
Debt (car): Owe $27 @1.75% (just bought 2015) auto pay at $500/m
This is a lot of "debt" to have when entering retirement. If all of this was already paid for, you would be set, but it's not. You owe $341K plus likely some more college costs. What are your monthly debt payments for the next 4 years?
Expected special merger bonus (paid out in Q1): $30K
Severance lump sum (Jun 2018 $328K....
Are these two separate payments? Are you sure the severance is tax-deferred? (I believe it's like regular pay that you have to pay taxes on.) Please check with your company. One way to look at that generous severance is that it is over 2 years of pay. If it is all taxed next year, that is like paying taxes on almost 3 years of salary. See if your company can defer some of it, if it will be taxed next year.

Just to help wing it, I'm going to say all this one-time money can wipe out your debts, except for college expenses.

2016 Taxable Income (post deductions): $103.4K
Tax bracket. Line 43 on your 1040 is a critical number. This says you are currently in the midst of the 25% tax bracket.
Severance Medical for 6 months (through 2018 - company pays COBRA at same % so we pay $146/m) then plan for $500/m company retiree medical-dental insurance until age 65 company covers rest.
Medical. I believe COBRA will only last for 18 months, and that may include the 6 months the company is paying for it. But retiree medical can last longer. Assuming this is from your employer and you are the younger spouse, you need to find out what happens when your spouse starts Medicare at 65. Even if he/she can still be covered and the coverage becomes secondary to Medicare (since you are no longer employed), you need to know that it is not a Medicare plan. Your spouse can pick up a Medicare Advantage (HMO) plan, which is inexpensive (or free) at any time. But guaranteed enrollment in Medicare plus a Medicare Supplemental (PPO) plan is best done at age 65. If your spouse waits past 65, there will be health underwriting questions to answer and your spouse may not be accepted into a supplemental plan. Your premiums to the employer plan will likely drop in half when your spouse starts Medicare and comes off your plan, but a Medicare Supplemental plan can cost $200/mo. So for financial planning, assume the same premium costs will continue.
Future Income
Planned start SS: 2026 (68/71): $52K
Previous Company Pension Payouts: $24K/y for first 7 yrs (thru age 68)
Dividends: $23K/y
Short Term Income. This looks like you will have $47K of income until SS starts. If you can keep your expenses below that (including taxes, college, and medical premiums), you about have it made but it will be tight until SS starts. Will the previous pension continue paying for more than 7 years?

If you keep your line 43 Taxable Income at $75,900 or less, the Qualified Dividends will be taxed at 0%. The rest of the room to the top of that bracket can be used for Roth conversions at 15%. (I recommend only converting if you can do it in the 15% bracket and it doesn't push any Qualified dividends or LT Capital Gains into the next bracket. If the Qualified Dividends or LTC gains go above that amount, they are taxed at 15%, making it the same as an equal amount of Roth conversions are being taxed at 30%, while the Qualified Dividends are at 0%.)

Social Security. How did you estimate your SS? There are many ways you can start it. If you worked above the maximum SS threshold for most of your career, your maximum SS benefit at age 70 would be about $45,000 in 10 years or so. It is recommended that the higher wage earner wait the longest, since after one of you dies, the survivor will be able to collect only one benefit and will need to rely on the higher one. Once you start collecting and are past Full Retirement Age (67), your spouse will be able to collect half of your FRA benefit, which I estimate will be half of $33,600 or 16,800 per year. Until that happens, if your spouse's SS benefit is lower, he/she can start collecting their own. (Note that my estimates are based on the highest wage earner having at least 35 years of wages and being near or above the SS threshold for most of those years.)
We would appreciate any wisdom offered. At least we have 9 months to work a plan even if it means the plan turns out to find a different job.
You are luckier than most people in that you have time in this tax year and the upcoming years to be able to make changes. If you can bring your living expenses down some more and get rid of that debt, you should be able to make it. If you decide to get another job, it should start after your current one ends, so you don't lose that generous severance (2+ years pay is great).

Note that I did not acknowledge any of your taxable, tax-deferred, or Roth assets (which surprises even me :happy ). If the stock market tanks, how does that impact you? Since your short-term incomes are a pension and dividends, be aware that some dividends could be lowered/ended. But that won't be anywhere as bad as the price of the stock going down. Social Security won't be impacted. It is just the value of those unmentioned accounts that will be hit. But as long as you refrain from selling, you should be fine. And the depths of a market downturn is a great opportunity to do Roth conversions. :D
Last edited by celia on Sun Aug 06, 2017 6:35 pm, edited 1 time in total.

delamer
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Re: Forced Early Retirement - Advice Sought

Post by delamer » Sun Aug 06, 2017 6:35 pm

JD58 wrote:
delamer wrote:The lump sum/severance -- is it a severance payment or a lump sum pension payout? Or a combination? Because the tax situation is completely different; you can't rollover severance into an IRA. It is a pension payout that I must take at severance. So was planning on direct rollover from Vanguard to Vanguard tIRA. Unless we payoff RV, then that amount would be reduced. I'd cover taxes on the payoff from the taxable account.

It doesn't make sense to delay Social Security until age 71; your benefit does not increase after age 70. You could consider having your spouse claim at 62, if you were the higher earner, while you delay. My SSA would start at 68 but since my wife is 3 years older and her earned is so much less than mine, was under the impression she has to wait until I took mine.

What are your total monthly expenses, both before and after the mortgage is paid off? Is your daughter's tuition paid for all 4 (or 2) years that she'll be in school? Yes, she has a full scholarship & enough in 529 plan to cover in state university if she wishes to go. She thought community college would be better until she determines her future career.

You asked a couple questions, but those questions can't be answered outside the context of understanding your overall financial situation. Hopefully provided a little clarity in previous response to Dottie57.

Based on my experience with some friends and also what I've read on this forum, at your age and salary level it would be best to assume that will not be employed again and plan accordingly. Since it is likely to be difficult to get a new job -- especially at you current salary -- figure on the "worst case scenario" that you won't get one. Better to be pleasantly surprised if you do than unprepared if you don't. That was our thinking also. Plan no work or start consulting/contract work.
Thanks for the last paragraph. That is how we were approaching it. We have 2 co-workers that were in the same position earlier this year but only had 60 days warning. One of them has 25+ years to build up for retirement. The other in 51 and found a temp position for 6 months and is still looking. At least I have a greeater window to make changes plus get the extra $30K merger bonus...
Thanks for clarifying. You probably want to do some research on your Social Security options. First, your wife can claim at 62 based on her own earnings whether you've claimed or not. What you need to find out is if her benefit based on her own earnings is larger than a spousal benefit based on your earnings at full retirement age (50%). How her own benefit compares to her spousal benefit is crucial. There are several free online Social Security calculators that will estimate your optimal claiming strategy based on your benefits at different ages and your life expectancies. The general rule is the higher earner should claim at 70 and the lower earner at 62, but try one of calculators.

Your RMDs will depend on how the market does in the intervening years, but I would not suppose they'd be minimal. If you are assuming $15,000 in dividends, then that is about $750,000 in assets -- most of which are in tax-deferred accounts. So the RMD would be somewhat more than the dividends. And, of course, as you draw down the assets your dividends may decline (depending on the market).

ychuck46
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Re: Forced Early Retirement - Advice Sought

Post by ychuck46 » Sun Aug 06, 2017 6:46 pm

Like others have stated, I think it is important to look at it as much from the expenses standpoint, perhaps even moreso than the assets. Most will tell you that 25x your expenses in savings/investments would be very doable. Personally we are closer to 60x after subtracting out our SS that we started early, but that is just our comfort level (we have a great life in a low cost state with tons of travel, and don't need to spend more than we already are).

I would hold onto any low or virtually no interest loans. I still have one in retirement and the only issue is struggling to not pay it off early since I generally abhor debt. The monies saved can be invested and used for asset generation.

SpaceCowboy
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Re: Forced Early Retirement - Advice Sought

Post by SpaceCowboy » Sun Aug 06, 2017 6:55 pm

It's not clear where the $23k in dividends are coming from. To the extent that they are from holdings in your 401k and tIRA they are taxable at ordinary income rates upon withdrawal. The portion from your taxable investments would be considered qualified and taxed at more favorable rates. In any event, IMHO, it's more appropriate to look at these as part of your withdrawal from the accounts than as an income stream. You pension payout is an income stream, but no the dividends.

Bacchus01
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Re: Forced Early Retirement - Advice Sought

Post by Bacchus01 » Sun Aug 06, 2017 7:11 pm

I'm a little confused as I don't know if I saw all the details.

What are you getting for severance? What are you getting as a stay bonus? It looks like that is just $30K? That seems very light at your salary and experience if it is both. I would expect severance AND a stay bonus.

Based on your age, you have a lot of room to negotiate.

Otherwise, look for a job if you want to keep working.

cherijoh
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Re: Forced Early Retirement - Advice Sought

Post by cherijoh » Sun Aug 06, 2017 7:50 pm

JD58 wrote:Would also appreciate some advice on two items:

- Split lump sum severance to pay off RV/Car or role entire lump sum/severance into new Vanguard tIRA?
- Should we consider Roth conversions from Vanguard 401k prior to 70?

Severance lump sum (Jun 2018 $328K - had planned to roll directly to new Vanguard tIRA but should we take some to pay off RV and reduce expenses by $7800/y through 2028 age 70 saving 6% interest?)
Why are you assuming that severance pay is eligible to be rolled over into an IRA? Pension lump sums are eligible for IRA rollovers, but as far as I know severance pay is not. If you have earned income for the year you could use severance pay towards your normal IRA contribution, but then the amount wouldn't make much of a dent in a car + RV loan.

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CyclingDuo
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Re: Forced Early Retirement - Advice Sought

Post by CyclingDuo » Mon Aug 07, 2017 7:53 am

JD58 wrote:1 child starting community college: she has full tuition covered thru 529 plan
Debt (Home): Owe $249K Zillow value: $513K paid off age 69
Debt (RV): Owe $65K @6% (write off interest on taxes) auto pay at $650/m
Debt (car): Owe $27 @1.75% (just bought 2015) auto pay at $500/m
Outside of the unfortunate news you have received with regard to the merger and loss of job with your current company, the concern that jumps off the page is your debt going into a potential forced retirement in 9 months.

Have you done any sort of financial analysis on the RV alone in terms of annual average costs vs. annual average overnights in it? If so, what is your per night charge to stay in it right now (including all park fees, camp fees, fuel, insurance, taxes/registration, price of RV, interest, maintenance/repairs, etc...). How many nights and years will you have to sleep in it to make it more cost effective than staying in a motel/hotel/Airbnb/B&B's...

You can stay in a lot of motels/hotels/Airbnb's/B&B's for 20+ years that could work out to be less expensive than the RV (base price, interest paid, insurance, tax/title/license fees, poor fuel efficiency, camping fees, park fees, etc...) depending on how much it actually would get used. Not to mention if the RV is already 6 years old at this point, what is the projected longevity of such a vehicle?

We would argue for an immediate batten down the hatches alert to prepare. In our view, the RV should go. Car loan paid off as well to remove the $500 a month payment.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

Traveller
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Re: Forced Early Retirement - Advice Sought

Post by Traveller » Mon Aug 07, 2017 8:37 am

First, its great that you have several months to develop your plan. It appears you are in a better place than many (most?) people would be.

Personally, I am stuck on the debt load as a limiting factor, especially the RV (the car loan bugs me too).
JD58 wrote:But with grandchildren Montana and Canada, our feeling is that this will make it easier to see them. We have had it since 2011 and have not had time to use it as much as we had originally planned.
They almost never get used as much as planned. I'd sell that albatross now. If you lost your job today and didnt have the RV, would you run out and buy it now? I suspect you could visit both Montana and Canada often for a lot less than the $650/month RV payment + fuel + insurance + maintenance + depreciation...

-OR-

You could sell the house and most of your stuff, live in the RV, see the grand kiddos as much as you like, and visit all the national parks along the way. Then in a few years, sell the RV and move into a condo someplace warm. Only you know if your marriage can handle this option!

carolinaman
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Re: Forced Early Retirement - Advice Sought

Post by carolinaman » Mon Aug 07, 2017 8:53 am

I would encourage you to look for another position. Many people with an IT background at your age should be able to find another position, although it may be at a much lower salary. If you do not feel your skills are current, you have time to take classes to update your skills before your current job ends.

Working a few more years, even at a much lower salary, greatly improves your retirement finances and gives you more time to pay down your debt.

I have never been a fan of RVs and friends who own them have described them as "moneypits", with high maintenance costs, in addition to high fuel costs. Given your financial situation, you may want to seriously consider selling the RV and getting rid of that debt. As another poster stated, it may be a lot cheaper to stay in motels and travel by car when traveling. I know you view this differently, but it is a major issue for your retirement plans.

Best wishes.

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Cyclesafe
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Re: Forced Early Retirement - Advice Sought

Post by Cyclesafe » Mon Aug 07, 2017 9:42 am

If I add things up correctly, you have roughly half as much as you need to retire comfortably - defined as 25X income (at retirement age). If you think you can get a job, you might want to model working until age 70, then take SS. If you think you can't get a job, then you should do some serious retrenchment - now.

You're lucky that you still have your health. Confirm that your "retiree plan" will adequately cover you until Medicare takes over. Medical insurance from 60 to 65 for a couple is about $18k/yr if not subsidized by the ACA. Not including threatened major interim increases.

OTOH. If you stay healthy, hate your current job/career, have a well-planned retirement that happens to not cost much, and are happy to do away with the big? house, the RV, and the new car, you can probably do well enough.

I just think that you are taking a big chance by expecting to finesse your current situation.

bloom2708
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Re: Forced Early Retirement - Advice Sought

Post by bloom2708 » Mon Aug 07, 2017 9:48 am

Cyclesafe wrote:If I add things up correctly, you have roughly half as much as you need to retire comfortably - defined as 25X income (at retirement age). If you think you can get a job, you might want to model working until age 70, then take SS. If you think you can't get a job, then you should do some serious retrenchment - now.

You're lucky that you still have your health. Confirm that your "retiree plan" will adequately cover you until Medicare takes over. Medical insurance from 60 to 65 for a couple is about $18k/yr if not subsidized by the ACA. Not including threatened major interim increases.

OTOH. If you stay healthy, hate your current job/career, have a well-planned retirement that happens to not cost much, and are happy to do away with the big? house, the RV, and the new car, you can probably do well enough.

I just think that you are taking a big chance by expecting to finesse your current situation.
+1

With the debt you have, I think you will feel a hard/real transition from a $145k salary.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

CurlyDave
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Re: Forced Early Retirement - Advice Sought

Post by CurlyDave » Mon Aug 07, 2017 9:55 am

Traveller wrote:...-OR-

You could sell the house and most of your stuff, live in the RV, see the grand kiddos as much as you like, and visit all the national parks along the way. Then in a few years, sell the RV and move into a condo someplace warm. Only you know if your marriage can handle this option!
I would be very seriously considering this option.

Think long and hard about what ties you to your current home.

Several years before retirement DW and I bought an RV. We really had nothing holding us to our home in a HCOL area once we thought it through. We used the RV to look for retirement locations. I beats the heck out of traveling by car -- no packing/unpacking, nothing left behind, and we could take our dogs with us. We towed a car behind the RV. We ended up buying land to build a retirement house. Lived in the RV while the house was being built. It wasn't an albatross, it was a great asset. And, when we sold it, it didn't have that many miles on it, even though we had spent a lot of time living in it.

Depending on your wants, you could think about selling/renting out your house and living full time in the RV for a few years. Montana and Canada are great summer locations, but Florida/Arizona/Southern California are nicer winter locations.

Sooner or later a permanent home is going to be a requirement but while you are still young enough to enjoy it you might as well use that RV. Put the money from selling the home into your investments and look at places to permanently retire during your travels in the RV. Only sell it when your are done with it.

* * * * * * * * * * * *

You are not being forced into early retirement -- you have been given an opportunity for the adventure of a lifetime.

We have found that the cost of living in rural areas is a lot lower than urban locations, and not being tied to a job we don't need the same kinds of locations that working people do. A lot of our retired friends have found that there are excellent and inexpensive medical facilities in the Mexican border cities. Not good for emergencies if you happen to be in Montana, but they do pretty well scheduling elective treatments and dental work for the winter months. And, you can set up legal residence in a zero tax state to eliminate that expense.
Last edited by CurlyDave on Mon Aug 07, 2017 10:09 am, edited 1 time in total.

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djpeteski
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Re: Forced Early Retirement - Advice Sought

Post by djpeteski » Mon Aug 07, 2017 10:06 am

For my own self, I would not retire with any debt. However, not everyone agrees.

I think the RV loan is kind of a bad deal. I would seek to have it paid off in the next 9 months, sell it, or take a job until the thing is paid off. That one feels non-negotiable for me.

Keep in mind you can also do kind of a test retirement. Retire, for a bit, say 3-6 months and then evaluate. Your skills will not wane, and your skills will still probably be in very high demand. You will have medical mostly paid until then, but I would "pay" $500/month to myself to give you a sense of the actual budget. Since you don't plan on taking SS until later, I see no real harm in doing a trial retirement.

Frisco Kid
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Re: Forced Early Retirement - Advice Sought

Post by Frisco Kid » Mon Aug 07, 2017 10:34 am

At 60/63 you have many years of medical insurance premiums ahead. Add your projected $500 for medical to the $650 RV payment and the $500 car payment and you have $1650 in expense. I suspect you are only considering early retirement due to your job being terminated? Put another way otherwise you were not considering retiring in the near future? I would keep working until your debt levels and timeline to Medicare are reduced. Congrats on you fitness level, I tip my hat to you!

Katietsu
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Re: Forced Early Retirement - Advice Sought

Post by Katietsu » Mon Aug 07, 2017 11:23 am

I agree with your original analysis that you can retire now just without a nice margin of comfort that many aim for on this forum.

Some comments:
1) Roll over the pension payout to a traditional IRA to start with. You can then withdraw at will if you decide to use it to pay off debt.
2) Seek professional advice. At minimum, I would speak with someone about tax implications. You have money you can draw on with a variety of tax implications. There are a lot of many moving parts... traditional IRA vs Roth vs taxable, partial year wage income, Roth conversion, social security claiming strategies, large withdrawal to pay off debt. I think there is a real risk of paying much more in taxes than needed if you do not work through this with someone who is good at this type of forward tax planning.

3) It is unlikely that the best plan will be a single withdrawal to pay off all your debt. I suspect that it will be best to withdraw after your income falls spread out over a few years to pay off the RV. But this is one of the items to address in #2.

4) I hear the push to get rid of the RV. I would have wished you had purchased a less expensive RV. But now that you have already eaten a big depreciation, it might not make sense to replace it. As far as whether or not you want to keep it, two things come to mind. How would you be using it? I have a cousin that uses hers to visit grandkids. They live in it 7 months of the year and balance that by owning a relatively inexpensive house. This makes sense to me. On the other hand, if you plan to visit at each location for just a couple weeks a year, then I think an extended stay type hotel room would make a whole lot more sense. The second way to look at it involves a time as money thought process. If you get a new job at a somewhat reduced wage and then consider taxes, you might need to apply all your wages from a year's work to pay off the RV. Is the RV worth a year less of retirement? Only you and your wife can decide that.
5) Get help with social security claiming strategies. There are some free calculators. But for your situation, from what I have heard, Otis better to go with a more comprehensive calaculation. I have heard good reviews about maximizemysocialsecurity.com

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Watty
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Re: Forced Early Retirement - Advice Sought

Post by Watty » Mon Aug 07, 2017 11:28 am

Just a couple of things to add.

Even if you normally don't do your own taxes getting tax software is worthwhile since you can do dummy tax returns to pay "what if" scenarios to see how different changes will affect your plans. If the severance is really a taxable lump sum payment then you need to be prepared for how much you will pay in taxes in 2018.

Nine months is a long time to get notice about being laid off. I would suspect that in the fine print it also says something to the effect that it could be sooner or later depending on how the merger goes. It would be good to consider that it might not happen in exactly nine months.

Having a mortgage makes it more difficult to retire. It is likely that you picked your current house because of the commute, good schools, and space for kids and those are no longer an issue for you. As other have said moving to a less expensive area is an option but if you want to stay in the same area then moving 30 minutes farther out could make a dramatic difference in what a home costs. Now would be a good time to find a home what will work well when you are in your 80's and might have more difficulty with stairs.

I am still confused about just what the severance is. It sounds like it might actually be some sort of pension plan lump sum that you would have gotten even if you left on your own. If so you should also take a look at taking the pension instead to see if that is a better choice for you.

I looked at buying an RV when I retired and I could not make the numbers work so I would consider it to be a discretionary purchase. There is inherently nothing wrong with that but be careful about also spending a lot on other things like other vacations, expensive cars, or other luxuries. If you still owe $27K on a car you bought in 2015 that sounds like a pretty expensive car. If you want to keep the RV then you might consider selling the car and buying a much less expensive car. Without a commute you may not have a lot of need for an expensive car if you are traveling in the RV a lot. If it is something like a big truck or SUV then you might consider if it would be able to tow a trailer. If so you could sell the RV and buy a less expensive trailer instead.

delamer
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Re: Forced Early Retirement - Advice Sought

Post by delamer » Mon Aug 07, 2017 12:58 pm

An option regarding the RV -- we had neighbors who rented one for a month for a tour of western national parks.

Like a second home, it just may make more economic sense to rent rather than own.

WhiteMaxima
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Re: Forced Early Retirement - Advice Sought

Post by WhiteMaxima » Mon Aug 07, 2017 1:03 pm

Rent. Don't buy RV.

JD58
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Re: Forced Early Retirement - Advice Sought

Post by JD58 » Tue Aug 08, 2017 12:54 pm

We want to thank everyone for some great, honest feedback! That is what we've appreciated lurking here the past few months.

We had quite a bit to process much quicker than planned. With a lot of considerations and input from the responses have led to the following preliminary plan:

1. Direct roll over the $328K pension lump sum pay out I must take on my termination to a Vanguard tIRA. Therefore avoids tax implications.

2. Sell the RV based on some current books values. Should be able to not only pay off loan amount but cover state sales tax. This would remove the debt. This was the most helpful the way many of you phrase the considerations of RV vs. hotels/actual use was great. Also rent vs. own. We had not thought of it that way. It helped frame the question in a manner that made it a non-emotional decision. I have backpacked and tent camped for multiple decades. My wife has not enjoyed that as much the past decade. So the compromise was the RV. A big thank you!

3. Through discussions with our HR the pay out of the 7 years pension of $24K/annually starts January following termination. There is another option to have it paid out over 3 years. No option to roll over into the tIRA. Paid by check minus taxes. We are working through the tax implications for both to determine which pay out method to select.

4. 401k will roll over in the tIRA. But to handle the company stock shares our plan is to exchange into the VWIAX before the roll over.

Our plan has always been to sell the home and downsize prior to 70. So will keep that as current plan.

We are thinking through paying off the car with the retainer bonus of $30K. But wonder if we can do better investing the money at a greater risk reasonable return than the 1.75% interest rate on the car.

Finally, I do have a potential position at a friend's company who is willing to work a timeline aligned to my termination. It will reduce the salary to ~100K or back to where I was 2 years ago. That works for us and is slated to last 2-3 years depending on implementation schedules. Not contract so will get benefits paid.

Again, thanks for helping us frame the decision making process.

Fishing50
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Re: Forced Early Retirement - Advice Sought

Post by Fishing50 » Wed Aug 09, 2017 2:29 am

JD58 wrote: We are thinking through paying off the car with the retainer bonus of $30K. But wonder if we can do better investing the money at a greater risk reasonable return than the 1.75% interest rate on the car.
:shock: Increased market risk is the last thing you need. Pay off the debt.

What is your target asset allocation across all accounts?
Wait to sell the individual stocks early in retirement for 0% capital gains tax to the top of the 15% tax bracket. Put your bond allocation in 401k. If needed due to market volatility, you can tap 401k for income.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

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Tamarind
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Re: Forced Early Retirement - Advice Sought

Post by Tamarind » Wed Aug 09, 2017 6:31 am

Yep, sell the RV now and get ready to downsize soon. Consider downsizing to a rental rather than buying a smaller place. You need to reduce debt but need to do it without burning assets paying it off, which leaves selling. If you reduce your obligations this way and free up your home equity you should have enough.

You can do this even if you find a new job through your friend for a few years as it will give you peace of mind and maximize your ability to increase your savings.

I would recommend a visit to a SS specialist who can help you establish a plan (or bring us more detailed info about your expected benefits, but I understand if you don't want to).

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WoodSpinner
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Re: Forced Early Retirement - Advice Sought

Post by WoodSpinner » Wed Aug 09, 2017 6:55 am

JD58 wrote:
tibbitts wrote:
123 wrote:Have you considered selling the RV? Depending on its size/mileage it may be the kind of thing that's okay to have around while you're working to pay it off but which you might not consider acquiring once you're retired. How long have you had it and how much have you used it?
Umm... the point of an RV is to have it once you retire. Before then you mostly don't have time to use it.
Yes, we have considered it and that option is on the table. Selling it now would cover the loan and sales tax. But with grandchildren Montana and Canada, our feeling is that this will make it easier to see them. We have had it since 2011 and have not had time to use it as much as we had originally planned.
One additional thought on the company stock is to look at your cost basis and see if you might be a good candidate for using an NUA.

Good luck, it's a big decision 8-)

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JPH
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Re: Forced Early Retirement - Advice Sought

Post by JPH » Wed Aug 09, 2017 7:30 am

Losing one's job does not equal "forced early retirement." I have been there, and I know that the prospect of looking for another job at your age is intimidating. Your most likely chance of a successful retirement is provided by one that YOU have planned, not one that you feel was forced upon you. If you had a plan, then try to stick to it. Good luck.
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

supersharpie
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Re: Forced Early Retirement - Advice Sought

Post by supersharpie » Wed Aug 09, 2017 8:07 am

JD58 wrote:Due to a company merger I've been told my IT position has 9 months until my position is no longer available. At 59 and spouse 62 we think this may be a good moment to determine if it is a good opportunity to consider early retirement. We will be 60 and 63 when the last day hits next year. Both are in great health, recently climbed Mt Rainier for the 5th time. Spouse runs half marathons.

I was hoping for 4 more years to pay off the RV/car, but having run through i-orp, my own spreadsheet to plan out budgets and income until 95/98, SSAnalyse, FRP and Vanguard tools we think we are in ok but not great shape. Are we crazy?

Would also appreciate some advice on two items:

- Split lump sum severance to pay off RV/Car or role entire lump sum/severance into new Vanguard tIRA?
- Should we consider Roth conversions from Vanguard 401k prior to 70?

Current Salary: $145K
Expected special merger bonus (paid out in Q1): $30K
Tax status: MFJ (spouse already retired)
2016 AGI: $145.7K
2016 Taxable Income (post deductions): $103.4K
Effective Tax rate: 11.95% per TurboTax
State Income tax: None so far (WA)
Severance Medical for 6 months (through 2018 - company pays COBRA at same % so we pay $146/m) then plan for $500/m company retiree medical-dental insurance until age 65 company covers rest.

Future Income
Planned start SS: 2026 (68/71): $52K
Previous Company Pension Payouts: $24K/y for first 7 yrs (thru age 68)
Dividends: $23K/y

Severance lump sum (Jun 2018 $328K - had planned to roll directly to new Vanguard tIRA but should we take some to pay off RV and reduce expenses by $7800/y through 2028 age 70 saving 6% interest?)

1 child starting community college: she has full tuition covered thru 529 plan
Debt (Home): Owe $249K Zillow value: $513K paid off age 69
Debt (RV): Owe $65K @6% (write off interest on taxes) auto pay at $650/m
Debt (car): Owe $27 @1.75% (just bought 2015) auto pay at $500/m

Current investments:
Vanguard pre-tax 401K
VWIAX: $278K
VFIAX: $129K
Previous company stock shares: $17K current yield 3.9%
Expected additions: $10K + company $4.5K (50% split into above funds no new stocks)

Vanguard Roth 401K (Offered since 2016)
VWIAX: $3K
VFIAX: $11K
Expected additions: $14K (50% split above funds)

Roth IRA
VDAIX: $30K
MSFT,PFE, XOM: $23.6K
Expected additions: $10K

Roth IRA
CVX, ED, BX: $26K
Expected additions $10K

Taxable Account
Emergency MM Fund: $21K
VWITX: $23K
T, MSFT, AAPL: $41K

HSA
Savings: $2500
Investments: T, ETP, APU - $12K
Expected additions: $7500

We feel that paying off RV is like a 6% return on $65K but are concerned on the tax impact taking that from the lump sum rather than direct roll over to tIRA. We do not like the idea of paying off the car as we think we will get a better return than the 1.75% interest rate. Are we wrong to approach it that way? Should we sell the taxable stocks to pay them off with the market high. Would have long term gains on ~$27K at 15%.

Also, reading a lot on this site about conversions of 401k to Roth to protect taxes from RMD. We were thinking that we would be living off of the 401K and lump sum tIRA so RMDs would not impact us greatly at age 70. Are we wrong to think that?

We would appreciate any wisdom offered. At least we have 9 months to work a plan even if it means the plan turns out to find a different job.

Thanks!!!!
Is your wife's PIA, which is her benefit rate at full retirement age (FRA), less than 50% of your PIA?

If so, she should definitely file for her Social Security benefits once she reaches FRA (66 if she was born in 1954, 66 + 2 months if she was born in 1955). Otherwise she is leaving money on the table.

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