Can we slow down then retire?

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Cleverusername
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Joined: Sat Aug 12, 2017 2:33 pm

Can we slow down then retire?

Post by Cleverusername » Sat Aug 12, 2017 5:09 pm

Long time lurker and We have been waiting to post this as our financial situation has recently changed considerably.

Due to somewhat unfortunate circumstances we have inherited about $300k that made our assets jump considerably and I now wonder if we can retire sooner than later.

Our numbers are as follows:

**Couple ages 53 and 47(wife)
*Income annually: $75,000 and $40,000
*Children: 2 -1 in college on full ride 2nd age 10
*$26,000 left on mortgage
*Home equity of $300k
*Total portfolio of $2.64M
*Most of portfolio is in Vanguard 2030 target and s&p 500 index
*Allocation is 75/25
*529 plan has $87k


We are both considering working part time and dropping our income to a combined $75k
We would likely invest about $20k annually in a combination of a simple IRA and Roth IRA's

1. Can we make the move down in income and still retire completely in 5 years and live on $85K per year?
2. Have others transitioned into retirement working part time to bridge the gap to Medicare and SS and had good or bad experiences they can share?
3. We are thinking about a 10 year certain annuity with an initial investment of $350k and assume a $3400/month annuity from 58-68 when we would start getting social security. Would like thoughts on this. Essentially much of the recent inheritance would go into the annuity.
4. How are we positioned overall for retirement?

Grateful for insights
Last edited by Cleverusername on Sun Aug 13, 2017 10:08 am, edited 1 time in total.

The Wizard
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Re: Retirement after surprising inheritance?

Post by The Wizard » Sat Aug 12, 2017 5:17 pm

Let me just say that a ten year certain annuity is not a really good idea.
There are no mortality credits and I'd be surprised if you can get enough of a payout bonus to make it worthwhile.

Also, becoming FI earlier than expected is great, but doesn't mean you need to retire immediately...
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BL
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Re: Possibilities after surprise inheritance?

Post by BL » Sat Aug 12, 2017 5:26 pm

Seriously consider health insurance for that many years. If you can't get it from employer, it may be very costly.

Ideally, the higher income person should wait until age 70 for maximum COLAd lifetime income as long as one of them lives.

If you haven't worked 35 years under SS, there would be zeroes in your average. Get on the SS website and figure it out. The default calculator assumes you are working and adding to SS until you start drawing. There should be another calculator that lets you input 0 earnings.

Don't make any quick decisions; take your time. Search the Wiki here for Windfalls for more ideas.

Consider what you will do when the market crashes.

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celia
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Re: Possibilities after surprise inheritance?

Post by celia » Sat Aug 12, 2017 5:50 pm

Cleverusername wrote:*Total portfolio of $2.64M
How is this allocated between taxable, tax-deferred, and Roth? Are you planning on paying taxes on the tax-deferred using taxable money? Do you plan on doing Roth conversions soon after you retire in order to keep your taxes from spiking when SS starts?
1. Can we make the move down in income and still retire completely in 5 years and live on $85K per year?
$300,000 / $85,000 = 3.5 years of retirement completely funded by the inheritance. Were you planning on retiring 3.5 years from now anyway? Have you actually lived on exactly $85K a year (while saving all the other dollars)?

mhalley
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Re: Possibilities after surprise inheritance?

Post by mhalley » Sat Aug 12, 2017 6:01 pm

Generally spia are the only annuities bogleheads like, and given your young ages plus very low interest rates you should wait, probably at least to 65-70. I would imagine someone is trying to sell you this annuity. Don't do it, invest it as per your desired aa.
The numbers are probably doable, but I would not go part time yet, all it takes is a good bear to disrupt your plans. 2.6 million at 3.5% gives a 91k a year income.
So I would say your plan would work if everything goes perfectly, but not if you hit a bad sequence of returns. Overall I would say you are in a great position for regular retirement and good position for early retirement.
Healthcare still remains the sticky wicket. Just as an example, my wife and I pay 24k plus for a high deductable plan at age 63. Wife being younger helps some there.

Cleverusername
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Re: Can we slow down then retire?

Post by Cleverusername » Sun Aug 13, 2017 10:10 am

Hoping for additional feedback.

freebeer
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Re: Can we slow down then retire?

Post by freebeer » Sun Aug 13, 2017 10:23 am

Is your total portfolio of $2.64M inclusive of home equity?

What are your already earned social security benefit amounts (PIA)? Note this is different than estimate based on continued working.

Is your annual spending $85K without including saving or taxes?

These answers will fine-tune the situation analysis but I think that regardless you are certainly good to go to part time and perhaps good to stop working entirely.

If your reason for considering a period certain annuity is to reduce volatility until SS starts then why not just increase your fixed income allocation? Avoids commission and expense-loaded insurance product.

Why not plan to start SS at 70 (him)?

livesoft
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Re: Can we slow down then retire?

Post by livesoft » Sun Aug 13, 2017 10:24 am

I went to half-time work at age 50. I don't see any problems with what you want to do. What are the problems that you are worried about?

See also:
viewtopic.php?t=87471

I don't see any reason to have an annuity in your situation.
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Watty
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Re: Can we slow down then retire?

Post by Watty » Sun Aug 13, 2017 10:40 am

You will get better responses if you post in this suggested format. You can modify it as needed so it more of a guideline than a required format.

viewtopic.php?f=1&t=6212

The big question is what to do for healthcare.
Cleverusername wrote:
Sat Aug 12, 2017 5:09 pm
3. We are thinking about a 10 year certain annuity with an initial investment of $350k and assume a $3400/month annuity from 58-68 when we would start getting social security. Would like thoughts on this. Essentially much of the recent inheritance would go into the annuity.
That is probably a bad idea since the annuity would pay little more than your could get with a fixed income investment but you would have a huge amount of inflation risk.

Paying off the mortgage would be an easy choice and help reduce your monthly expenses.

delamer
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Re: Can we slow down then retire?

Post by delamer » Sun Aug 13, 2017 10:53 am

Have you explored your options for part-time work?

If one of you is a RN, for example, it should be easy enough to find a job where you can work 15 hours per week. But other fields don't lend themselves to part-time work. If you are making about $35/hour and can't work in your current field, do you really see yourself as a barista making $10 plus tips?

My observation is that some people have unrealistic expectations about the type of part-time work that's available.

Although I agree with others that you are too young for an annuity, you are on the right track with setting aside funds to cover the pre-Social Security part of your retirement. I'd redo your numbers to see how a big lump sum you need for that period, assuming no part-time work. It probably isn't doable. But it may be doable if you continue to work full-time for a few more years, save some more, and don't spend down your current nest egg. Then maybe you can quit without the fall back of needing part-time work.

tibbitts
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Re: Can we slow down then retire?

Post by tibbitts » Sun Aug 13, 2017 11:17 am

delamer wrote:
Sun Aug 13, 2017 10:53 am
Have you explored your options for part-time work?

If one of you is a RN, for example, it should be easy enough to find a job where you can work 15 hours per week. But other fields don't lend themselves to part-time work. If you are making about $35/hour and can't work in your current field, do you really see yourself as a barista making $10 plus tips?

My observation is that some people have unrealistic expectations about the type of part-time work that's available.

Although I agree with others that you are too young for an annuity, you are on the right track with setting aside funds to cover the pre-Social Security part of your retirement. I'd redo your numbers to see how a big lump sum you need for that period, assuming no part-time work. It probably isn't doable. But it may be doable if you continue to work full-time for a few more years, save some more, and don't spend down your current nest egg. Then maybe you can quit without the fall back of needing part-time work.
This is an important point. Only a tiny percentage of people can work in a job they would want part-time. In most jobs people become dramatically less productive as they take more time off. The value of most employees is tied to them always "being there."

And realistically healthcare is likely to be the biggest tie most employees have to the workplace and that would almost always go away with less-than-fulltime employment.

rgs92
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Re: Can we slow down then retire?

Post by rgs92 » Sun Aug 13, 2017 12:39 pm

Nah, you don't need to work anymore. And I think you could even happily take 5% out of your $2.6 Million until, say, FRA for social security at 67 with a 50/50 constant asset allocation and then reduce your portfolio draw at that time.

But I feel your 75/25 current asset allocation is way too high. 60/40 tops. This is true I think no matter what you do, continue working, slow down, or retire completely.

Cleverusername
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Re: Can we slow down then retire?

Post by Cleverusername » Sun Aug 13, 2017 3:29 pm

Interesting regarding health care.

I am now wondering how many possible employers would consider a part timer and offering full health benefits as a perk? Is that out of the norm?

livesoft
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Re: Can we slow down then retire?

Post by livesoft » Sun Aug 13, 2017 3:31 pm

Cleverusername wrote:
Sun Aug 13, 2017 3:29 pm
Interesting regarding health care.

I am now wondering how many possible employers would consider a part timer and offering full health benefits as a perk? Is that out of the norm?
I don't think one needs to care about the norm. One only needs to know about their own personal situation. For instance, my employer found my contributions valuable enough that I remained in the 401(k) and the health insurance. In other words, everything is negotiable no matter what the rules are.
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delamer
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Re: Can we slow down then retire?

Post by delamer » Sun Aug 13, 2017 3:48 pm

Cleverusername wrote:
Sun Aug 13, 2017 3:29 pm
Interesting regarding health care.

I am now wondering how many possible employers would consider a part timer and offering full health benefits as a perk? Is that out of the norm?
In the federal government, if you are a permanent GS employee and working at least 16 hours/week, then you are eligible for health insurance.

I'd think you'd have the most luck with an arrangement for HI with part-time from a current employer where you are highly valued. Some professsional associations with a lot of self-employed workers also offer HI.

But part-time service/retail sector jobs generally aren't going to offer HI. I believe Starbucks is an exception.

Cleverusername
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Re: Can we slow down then retire?

Post by Cleverusername » Mon Aug 14, 2017 8:13 pm

freebeer wrote:
Sun Aug 13, 2017 10:23 am
Is your total portfolio of $2.64M inclusive of home equity?

What are your already earned social security benefit amounts (PIA)? Note this is different than estimate based on continued working.

Is your annual spending $85K without including saving or taxes?

These answers will fine-tune the situation analysis but I think that regardless you are certainly good to go to part time and perhaps good to stop working entirely.

If your reason for considering a period certain annuity is to reduce volatility until SS starts then why not just increase your fixed income allocation? Avoids commission and expense-loaded insurance product.

Why not plan to start SS at 70 (him)?
Great feedback regarding the annuity, thank you. As for the home it is not included in our net worth. We owe a bit more than $25k on the mortgage but the home is worth about $325k.

Actually the more I look into the idea of annuities since getting some feedback the worse I feel about it. In fact I feel worse about annuities as a whole and that may be unfair.

bigred77
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Re: Can we slow down then retire?

Post by bigred77 » Mon Aug 14, 2017 8:39 pm

I think annuities (SPIA) are an underutilized tool but I don't think they make as much sense for your situation because your so young. The mortality credits won't be favorable to you, plus interest rates are lower than the historical norms (not that I'm recommending timing the interest rate cycle but hey, it's reality). Plus I assume you'd be looking for a joint policy with survivor benefits and a 47 year old is SO young you may not even get a quote from every provider (or at least I wouldn't be surprised if it was a less competitive marketplace).

I do think you have enough to retire now and live on 85k real for life. If you want to work part time for a while all the better, you'll just end up richer for it. I think you'll be in a favorable tax situation with a lot of opportunity for Roth conversions. The big question mark is paying for health insurance and if that is accurately reflected in your 85k of expenses.

Edit to add: I agree you may want to consider a more conservative AA if you do retire and begin making withdrawals.

J295
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Re: Can we slow down then retire?

Post by J295 » Mon Aug 14, 2017 9:09 pm

You should be able to go part time

Check out Kaiser website and calculator for ACA premium assistance.

BarbK
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Re: Can we slow down then retire?

Post by BarbK » Mon Aug 14, 2017 9:35 pm

I think you accumulated a lot of $ based on your salaries and withdrawing 85K is < 3.3%. Assuming you started SS at 67, you have 14 years to bridge the gap. That would be $890K (after the inheritance) excluding growth and inflation.

Depending where this money is allocated (deferred vs already taxed), your taxes could be very minimal.

We retired early and just bit the bullet paying for insurance. No fun.

I recently got an online quote for SPIA insurance and couldn't believe how crappy the return was. It would take 19 years to exhaust the premium; yours should even be worse b/c you are younger.

Dottie57
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Re: Can we slow down then retire?

Post by Dottie57 » Mon Aug 14, 2017 9:53 pm

Cleverusername wrote:
Sun Aug 13, 2017 3:29 pm
Interesting regarding health care.

I am now wondering how many possible employers would consider a part timer and offering full health benefits as a perk? Is that out of the norm?
10-20 years ago some employers gave health benefits to part timers. (Target, carbou coffee), but I doubt it now.

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TinkerPDX
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Re: Can we slow down then retire?

Post by TinkerPDX » Mon Aug 14, 2017 10:30 pm

Cleverusername wrote:
Sat Aug 12, 2017 5:09 pm
Long time lurker and We have been waiting to post this as our financial situation has recently changed considerably.

Due to somewhat unfortunate circumstances we have inherited about $300k that made our assets jump considerably and I now wonder if we can retire sooner than later.

Our numbers are as follows:

**Couple ages 53 and 47(wife)
*Income annually: $75,000 and $40,000
*Children: 2 -1 in college on full ride 2nd age 10
*$26,000 left on mortgage
*Home equity of $300k
*Total portfolio of $2.64M
*Most of portfolio is in Vanguard 2030 target and s&p 500 index
*Allocation is 75/25
*529 plan has $87k


We are both considering working part time and dropping our income to a combined $75k
We would likely invest about $20k annually in a combination of a simple IRA and Roth IRA's

1. Can we make the move down in income and still retire completely in 5 years and live on $85K per year?
2. Have others transitioned into retirement working part time to bridge the gap to Medicare and SS and had good or bad experiences they can share?
3. We are thinking about a 10 year certain annuity with an initial investment of $350k and assume a $3400/month annuity from 58-68 when we would start getting social security. Would like thoughts on this. Essentially much of the recent inheritance would go into the annuity.
4. How are we positioned overall for retirement?

Grateful for insights
Sounds to me like you've won, and you shouldn't work any more than you really want to.

1. Yes
2. Can't opine
3. *an* annuity for that period may make sense given specific purpose - if thats the best rate for the amount you need to lock in to smooth potential volatility of portfolio, then yes
4. Pretty darned well as long as you can bridge the gap to Medicare somehow. Congrats, well done!

Cleverusername
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Joined: Sat Aug 12, 2017 2:33 pm

Re: Can we slow down then retire?

Post by Cleverusername » Tue Aug 15, 2017 4:42 am

The more I do the math I realize:

1) one of us should collect ss early and one late
2) annuities give a dreadful return
3) one of us likely needs to keep working for health insurance reasons, which is a little depressing.

GmanJeff
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Re: Can we slow down then retire?

Post by GmanJeff » Tue Aug 15, 2017 9:02 am

You ask whether you can generate $85k/yr, which the math suggests is possible, but perhaps the larger non-mathematical question is whether that amount of income will be "enough" in view of your vision for your retirement. You'll have to be comfortable with a materially reduced level of income in perpetuity as compared to what you live on now. As others have noted, once you stop working your expenses for health care may rise, further reducing the amount of remaining income you can allocate to living expenses, recreation, entertainment, medical expenses not covered by health insurance, long-term care, travel, philanthropy, your youngest child's potential college/grad school expenses, etc.

Once you go part-time, or stop working, your future employment potential will probably drop significantly, giving you little opportunity to reverse your decision should unforeseen circumstances arise where you need more income.

So I see this more as a lifestyle question - will you be happy going forward on the amount of income your portfolio is likely to be able to provide?

Nectarineman
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Re: Can we slow down then retire?

Post by Nectarineman » Tue Aug 15, 2017 5:39 pm

livesoft wrote:
Sun Aug 13, 2017 10:24 am
I went to half-time work at age 50. I don't see any problems with what you want to do. What are the problems that you are worried about?

See also:
viewtopic.php?t=87471

I don't see any reason to have an annuity in your situation.

I too like the idea of working part time. The sentiment on this board seems to be that bridging the gap to medicare for health insurance is a wildcard in any "early" retirement. More so if it is in the mid 50's.

I have looked into annuities quite a bit through this website and others and found the bogleheads advice to be very good. It seems like often times annuities are not a good idea, but there are certain situations where the guaranteed income may provide valuable whether it be financial solely, emotionally, or both.

Jay6821
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Joined: Tue Oct 20, 2015 8:17 pm

Re: Can we slow down then retire?

Post by Jay6821 » Tue Aug 15, 2017 7:08 pm

Your financials look good, but that's just part of the retirement equation.

There are also psychological and emotional aspects involved with leaving the work force. What are you going to do with your time? At your ages, you could be looking at 40 - 45 years of retirement.

onthecusp
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Re: Can we slow down then retire?

Post by onthecusp » Tue Aug 15, 2017 10:24 pm

Cleverusername wrote:
Tue Aug 15, 2017 4:42 am
The more I do the math I realize:

1) one of us should collect ss early and one late
2) annuities give a dreadful return
3) one of us likely needs to keep working for health insurance reasons, which is a little depressing.
1) That is often the conclusion. I like http://www.bedrockcapital.com/ssanalyze/ as a calculator for playing with and seeing the impact of options. Just remember that their "optimal" solution is the one that maximizes expected payments over a lifetime. That's good if it works for you but sometimes the less optimal choices are not that different and provide smoother cash flow earlier. I believe in the basic rule that the higher payout should wait till 70 if they can, but moving the lower earner from full retirement age to 62 makes a much smaller difference in my experience.
2) Yeah, agree, but there seems to be a general consensus that buying one in the early 70's can be a good plan. SPIA with choices of survivor payouts.
3) If a good proportion of your income needs will come from a taxable account before you qualify for medicare, your taxable income for purposes of calculating ACA insurance discounts might be pretty low with corresponding high discount. Of course working a while until that is worked out might be prudent.

When I do the math for my situation the results are highly dependent on fairly small changes in assumptions. Working part time for a few years makes a huge difference and it looks like it would make all the difference in your case as well. But you have to do the math and health insurance is one of the hardest things to pin down. Take the time to do it right and don't just assume a huge number on top of your other spending requirements.

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