What am I overlooking?

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shouldIbeworried
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Joined: Sat Jun 23, 2018 7:51 am

What am I overlooking?

Post by shouldIbeworried » Sat Jun 23, 2018 8:11 am

Hi, I am new to forum. I am single, late fifties, two kids (jr in college, jr in high school). I have a defined benefit pension that will yield 65k in about five years, and about 350k in equity in my home. I live in a very stable real estate market, but property taxes continue to rise pretty significantly. I have a mortgage. I am thinking I can sell my home once my youngest child leaves for college in two years.

I have about 75k in an IRA with T.Rowe, but I do not contribute to it. I could collect social security at either 62 (20k per year) or at 67 (31k per year). I plan on working until I'm 67. My income is 150k and will probably increase a little over the next ten years. My health insurance is covered if/when I retire from the job I have now.

It seems like my pension, social security, and the money I would make when I sell my home would be enough for retirement, but I will still need a place to live and have some expenses associated with that. It is difficult to save anything significant right now because I am paying for college without taking any loans so far. I also have an older house that has required lots of repairs this year.

I have about 10k for household emergencies, but don't have 3 - 6 months saved as some advisors believe is best practice. I would welcome thoughts on what to do over the next five years, maybe ten. Thank you.

RadAudit
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Location: Second star on the right and straight on 'til morning

Re: What am I overlooking?

Post by RadAudit » Sat Jun 23, 2018 9:03 am

shouldIbeworried wrote:
Sat Jun 23, 2018 8:11 am
It is difficult to save anything significant right now because I am paying for college without taking any loans so far.
Are you paying for their college educations or are you paying for your college education? The kids are working summers to help with their education costs, right?

If you think you can pay for their college educations and save for retirement, too. Congrats.Very hard to do. (Note: We did it, too; but, it was a fight all the way.) Just a thought - around here some folks like to point out you can borrow your way through college but not through retirement. That leads to a lot of discussion with a definite split in opinions.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

dbr
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Re: What am I overlooking?

Post by dbr » Sat Jun 23, 2018 9:12 am

shouldIbeworried wrote:
Sat Jun 23, 2018 8:11 am
Hi, I am new to forum. I am single, late fifties, two kids (jr in college, jr in high school). I have a defined benefit pension that will yield 65k in about five years, and about 350k in equity in my home. I live in a very stable real estate market, but property taxes continue to rise pretty significantly. I have a mortgage. I am thinking I can sell my home once my youngest child leaves for college in two years.

I have about 75k in an IRA with T.Rowe, but I do not contribute to it. I could collect social security at either 62 (20k per year) or at 67 (31k per year). I plan on working until I'm 67. My income is 150k and will probably increase a little over the next ten years. My health insurance is covered if/when I retire from the job I have now.

It seems like my pension, social security, and the money I would make when I sell my home would be enough for retirement, but I will still need a place to live and have some expenses associated with that. It is difficult to save anything significant right now because I am paying for college without taking any loans so far. I also have an older house that has required lots of repairs this year.

If this is the basis for your retirement plan then it would seem a good idea to sit down and be more specific than just "seems." You will want to make more detailed estimates of what you want and need to spend and see how it comes out. The good news is most of your income seems to already be in place. You might have an additional $500,000 in liquid assets which could give you a another $20,000/year in income. So is that enough?

It is probably time to look at some planning models like FireCalc, CFireSim, the Vanguard or Fidelity planners, Retirement Optimizer, iORP to forecast your assets, your savings, and lump sum expenses and gains such as college and selling the house. At least that puts numbers on things for you to think about.


I have about 10k for household emergencies, but don't have 3 - 6 months saved as some advisors believe is best practice. I would welcome thoughts on what to do over the next five years, maybe ten. Thank you.

livesoft
Posts: 61944
Joined: Thu Mar 01, 2007 8:00 pm

Re: What am I overlooking?

Post by livesoft » Sat Jun 23, 2018 9:15 am

Are you taking advantage of all your possible tax benefits for retirement and education?
See IRS Publications 970 and 590A. Reading and understanding these publications helped save us more than $10,000 a year when our kids were in college.
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Sandtrap
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Re: What am I overlooking?

Post by Sandtrap » Sat Jun 23, 2018 9:35 am

shouldIbeworried wrote:
Sat Jun 23, 2018 8:11 am
Hi, I am new to forum. I am single, late fifties, two kids (jr in college, jr in high school). I have a defined benefit pension that will yield 65k in about five years, and about 350k in equity in my home. I live in a very stable real estate market, but property taxes continue to rise pretty significantly. I have a mortgage. I am thinking I can sell my home once my youngest child leaves for college in two years.

I have about 75k in an IRA with T.Rowe, but I do not contribute to it. I could collect social security at either 62 (20k per year) or at 67 (31k per year). I plan on working until I'm 67. My income is 150k and will probably increase a little over the next ten years. My health insurance is covered if/when I retire from the job I have now.

It seems like my pension, social security, and the money I would make when I sell my home would be enough for retirement, but I will still need a place to live and have some expenses associated with that. It is difficult to save anything significant right now because I am paying for college without taking any loans so far. I also have an older house that has required lots of repairs this year.

I have about 10k for household emergencies, but don't have 3 - 6 months saved as some advisors believe is best practice. I would welcome thoughts on what to do over the next five years, maybe ten. Thank you.
Welcome.

1 Please edit your original post in this format with the additional information to get more comprehensive suggestions. (use pencil icon)
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

2 Use these tools to find out how long your money will last. You need to estimate what your annual expenses will be in retirement (how much you will need).
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
http://www.morningstar.com/portfolio.ht ... Entry.aspx
Optimal Retirement Planner (I-ORP)
https://www.i-orp.com/paper/index.html

3 So far you will have approx. $ 96/k per year at age 67 with health care premiums covered.. . future mortgage/rent?/housing expense unknown. . expenses unknown. . . total college loan expenses unknown at that time . . .

4 You will have $350/k net from the sale of your home. How will you apply that going forward? Pay down debt? Rent? Downsize? Relocate?

5 How much of your $150 k annual income can you contribute toward non-taxable space ?? How much can you apply toward that college debt?

6 What "livesoft" said. Explore that.

7 Is the older second home a cash drag? Consider selling it with only the expenses to make it presentable for sale.

8 In general. . . the order of investment goes like this:
Funding Priority (what do I do first?)
https://www.bogleheads.org/wiki/Priori ... vestments
Tax Efficient Fund Placement
https://www.bogleheads.org/wiki/Tax-ef ... _placement

Start reading and learning as a first step:

Suggested Reading List
https://www.bogleheads.org/RecommendedReading.php
Forum Library of Investing Advice with links
https://www.bogleheads.org/wiki/Main_Page

GETTING STARTED
https://www.bogleheads.org/wiki/Getting_started

aloha
j :D
Last edited by Sandtrap on Sat Jun 23, 2018 9:42 am, edited 3 times in total.

Sidney
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Re: What am I overlooking?

Post by Sidney » Sat Jun 23, 2018 9:37 am

If your pension does not have COLA then you need to understand the impact inflation is going to have on the value of that benefit.
I always wanted to be a procrastinator.

Dottie57
Posts: 3909
Joined: Thu May 19, 2016 5:43 pm

Re: What am I overlooking?

Post by Dottie57 » Sat Jun 23, 2018 9:53 am

1. Seriously - figure out current expenses.
2. Figure out how you can determine spending for last couple of years.
3. Determine what spending you can eliminate in order to start investing. Needs versus wants.

Good luck.

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ruralavalon
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Location: Illinois

Re: What am I overlooking?

Post by ruralavalon » Sat Jun 23, 2018 9:54 am

Welcome to the forum :) .

shouldIbeworried wrote:
Sat Jun 23, 2018 8:11 am
Hi, I am new to forum. I am single, late fifties, two kids (jr in college, jr in high school). I have a defined benefit pension that will yield 65k in about five years, and about 350k in equity in my home. I live in a very stable real estate market, but property taxes continue to rise pretty significantly. I have a mortgage. I am thinking I can sell my home once my youngest child leaves for college in two years.

I have about 75k in an IRA with T.Rowe, but I do not contribute to it. I could collect social security at either 62 (20k per year) or at 67 (31k per year). I plan on working until I'm 67. My income is 150k and will probably increase a little over the next ten years. My health insurance is covered if/when I retire from the job I have now.

It seems like my pension, social security, and the money I would make when I sell my home would be enough for retirement, but I will still need a place to live and have some expenses associated with that. It is difficult to save anything significant right now because I am paying for college without taking any loans so far. I also have an older house that has required lots of repairs this year.

I have about 10k for household emergencies, but don't have 3 - 6 months saved as some advisors believe is best practice. I would welcome thoughts on what to do over the next five years, maybe ten. Thank you.
Is there a work-based plan at your employer (such as a 401k, 403b, 457, SIMPLE IRA, or TSP)? If so is there an employer match offered, and what is the employer match? Are you currently contributing to that plan and if so how much?

What is the balance and interest rate on your home mortgage?

Do you have any other debt? If so what types, amounts and interest rates?

What is your tax bracket, both federal and state?

Do you have a good solid estimate of what your living expenses in retirement might be? (Start with your actual expenses during the last couple of years, based on actual spending not estimates, looking at your check register and credit card statements or other records of spending, and adjust for what will probably end [like college expenses] or decrease or increase by the time of your retirement.)

Does your pension have a Cost of Living escalation?

If you sell the house, do you intend living in the same general locality?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

. . . . .

1) I suggest continuing to fund college educations without student debt as a priority.

2) Once your youngest is out of college, re-start or increase contributions to a tax-advantaged retirement account.

3) If there is an work-based plan with an employer match, as a top priority contribute enough to get the full employer match every year (slashing your current living expenses if necessary to do that)

4) If the mortgage interest rate is not low, consider refinancing or recasting the mortgage debt.
Last edited by ruralavalon on Sat Jun 23, 2018 10:21 am, edited 13 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Jack FFR1846
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Re: What am I overlooking?

Post by Jack FFR1846 » Sat Jun 23, 2018 10:01 am

Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
Bogle: Smart Beta is stupid

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: What am I overlooking?

Post by delamer » Sat Jun 23, 2018 2:49 pm

Is the $75K in the IRA your only savings for retirement?

If so, as others have suggested, you need to get good handle on what your expenses will be once your kids are through college and whether you’ll be able to significantly contribute to your retirement accounts then.

Because barring a huge increase in savings while working, you basically are going to have to cover your retirement expenses with your pension and SS.

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: What am I overlooking?

Post by Dottie57 » Sat Jun 23, 2018 2:57 pm

Jack FFR1846 wrote:
Sat Jun 23, 2018 10:01 am
Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
+1

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ruralavalon
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Location: Illinois

Re: What am I overlooking?

Post by ruralavalon » Sat Jun 23, 2018 4:50 pm

Dottie57 wrote:
Sat Jun 23, 2018 2:57 pm
Jack FFR1846 wrote:
Sat Jun 23, 2018 10:01 am
Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
+1
"just can't get past"?

We have no idea what shouldIbeworried's basic living expenses are per month, so $10k might cover a couple of months. An emergency fund is for possible future problems, which may never actually occur.

I see what might be more serious and pressing issues (like getting an employer match, clearing any current high interest debt, getting a low mortgage interest rate, financing college for 2 children, starting to save for retirement) than the size of an emergency fund.

If there are issues in those areas, then those emergencies are already present and actual rather than mere future possibilities. Dealing with those issues could be far more important than settling aside $100k for some future catastrophe that might never happen (there is no indication of job instability, and there is a probable future increase in salary).
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Dottie57
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Joined: Thu May 19, 2016 5:43 pm

Re: What am I overlooking?

Post by Dottie57 » Sat Jun 23, 2018 6:42 pm

ruralavalon wrote:
Sat Jun 23, 2018 4:50 pm
Dottie57 wrote:
Sat Jun 23, 2018 2:57 pm
Jack FFR1846 wrote:
Sat Jun 23, 2018 10:01 am
Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
+1
"just can't get past"?

We have no idea what shouldIbeworried's basic living expenses are per month, so $10k might cover a couple of months. An emergency fund is for possible future problems, which may never actually occur.

I see what might be more serious and pressing issues (like getting an employer match, clearing any current high interest debt, getting a low mortgage interest rate, financing college for 2 children, starting to save for retirement) than the size of an emergency fund.

If there are issues in those areas, then those emergencies are already present and actual rather than mere future possibilities. Dealing with those issues could be far more important than settling aside $100k for some future catastrophe that might never happen (there is no indication of job instability, and there is a probable future increase in salary).
He makes 150k a year and has responsibilities for 2 kids. Not contributing to retirement accounts. Gross monthly is 12500.
I have no idea about taxes. But between college and other expenses op is chewing up the whole $12500 a month - since no retirement. So yes I think 10k is very light. 30k should cover 3 months. Didn’t suggest 100k.

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ruralavalon
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Location: Illinois

Re: What am I overlooking?

Post by ruralavalon » Sat Jun 23, 2018 7:04 pm

Dottie57 wrote:
Sat Jun 23, 2018 6:42 pm
ruralavalon wrote:
Sat Jun 23, 2018 4:50 pm
Dottie57 wrote:
Sat Jun 23, 2018 2:57 pm
Jack FFR1846 wrote:
Sat Jun 23, 2018 10:01 am
Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
+1
"just can't get past"?

We have no idea what shouldIbeworried's basic living expenses are per month, so $10k might cover a couple of months. An emergency fund is for possible future problems, which may never actually occur.

I see what might be more serious and pressing issues (like getting an employer match, clearing any current high interest debt, getting a low mortgage interest rate, financing college for 2 children, starting to save for retirement) than the size of an emergency fund.

If there are issues in those areas, then those emergencies are already present and actual rather than mere future possibilities. Dealing with those issues could be far more important than settling aside $100k for some future catastrophe that might never happen (there is no indication of job instability, and there is a probable future increase in salary).
He makes 150k a year and has responsibilities for 2 kids. Not contributing to retirement accounts. Gross monthly is 12500.
I have no idea about taxes. But between college and other expenses op is chewing up the whole $12500 a month - since no retirement. So yes I think 10k is very light. 30k should cover 3 months. Didn’t suggest 100k
Jack FFR1846 did suggest $100k for an emergency fund. I agree that more for an emergency fund, like $20k, might be better, and it seems as if we agree on the importance of finding a way for OP to resume contributions to retirement savings.

"chewing up the whole $12500 a month"?

If shouldIbeworried is self-employed as I was, he/she is paying about 15% in self-employment tax (Social Security and Medicare) or about $22.5k/yr, plus around $20-25k/yr for health insurance, plus perhaps $15-20k/year for college expenses.

That's around $62k/yr, or around $5k/month, leaving about $88k/yr or about $7k/month before subtracting for income taxes. The most common income tax brackets have been the 15% bracket and the 10% bracket.

We have no idea if OP lives in a high cost of living area, or not.

When my children were in college I had to cut way back on retirement savings. The true problem in my opinion is how to help shouldIbeworried find a way to resume contributions to retirement savings. This is a current actual problem, rather than a future hypothetical catastrophe which might never actually happen.

shoudIbeworried needs to carefully examine both current actual spending and possible retirement spending as a starting point. Then nobody has to just assume what the facts may be.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Dottie57
Posts: 3909
Joined: Thu May 19, 2016 5:43 pm

Re: What am I overlooking?

Post by Dottie57 » Sat Jun 23, 2018 8:10 pm

ruralavalon wrote:
Sat Jun 23, 2018 7:04 pm
Dottie57 wrote:
Sat Jun 23, 2018 6:42 pm
ruralavalon wrote:
Sat Jun 23, 2018 4:50 pm
Dottie57 wrote:
Sat Jun 23, 2018 2:57 pm
Jack FFR1846 wrote:
Sat Jun 23, 2018 10:01 am
Sorry, I just can't get past having only $10k in an emergency fund. $100k would be fine. Lose your job and you barely cover a month
+1
"just can't get past"?

We have no idea what shouldIbeworried's basic living expenses are per month, so $10k might cover a couple of months. An emergency fund is for possible future problems, which may never actually occur.

I see what might be more serious and pressing issues (like getting an employer match, clearing any current high interest debt, getting a low mortgage interest rate, financing college for 2 children, starting to save for retirement) than the size of an emergency fund.

If there are issues in those areas, then those emergencies are already present and actual rather than mere future possibilities. Dealing with those issues could be far more important than settling aside $100k for some future catastrophe that might never happen (there is no indication of job instability, and there is a probable future increase in salary).
He makes 150k a year and has responsibilities for 2 kids. Not contributing to retirement accounts. Gross monthly is 12500.
I have no idea about taxes. But between college and other expenses op is chewing up the whole $12500 a month - since no retirement. So yes I think 10k is very light. 30k should cover 3 months. Didn’t suggest 100k
Jack FFR1846 did suggest $100k for an emergency fund. I agree that more for an emergency fund, like $20k, might be better, and it seems as if we agree on the importance of finding a way for OP to resume contributions to retirement savings.

"chewing up the whole $12500 a month"?

If shouldIbeworried is self-employed as I was, he/she is paying about 15% in self-employment tax (Social Security and Medicare) or about $22.5k/yr, plus around $20-25k/yr for health insurance, plus perhaps $15-20k/year for college expenses.

That's around $62k/yr, or around $5k/month, leaving about $88k/yr or about $7k/month before subtracting for income taxes. The most common income tax brackets have been the 15% bracket and the 10% bracket.

We have no idea if OP lives in a high cost of living area, or not.

When my children were in college I had to cut way back on retirement savings. The true problem in my opinion is how to help shouldIbeworried find a way to resume contributions to retirement savings. This is a current actual problem, rather than a future hypothetical catastrophe which might never actually happen.

shoudIbeworried needs to carefully examine both current actual spending and possible retirement spending as a starting point. Then nobody has to just assume what the facts may be.
I think we pretty much agree, retirement accounts really need contributions. I think college loans are probably in order. That is not to say OP can’t help pay them off.

shouldIbeworried
Posts: 2
Joined: Sat Jun 23, 2018 7:51 am

Re: What am I overlooking?

Post by shouldIbeworried » Sat Jun 23, 2018 11:05 pm

Thanks to everyone for the feedback. I have much to think about and realize I probably should be a little more worried!

Appreciate all the good advice. Thank you.

FOGU
Posts: 112
Joined: Tue Apr 24, 2018 9:41 pm

Re: What am I overlooking?

Post by FOGU » Sat Jun 23, 2018 11:49 pm

shouldIbeworried wrote:
Sat Jun 23, 2018 11:05 pm
Thanks to everyone for the feedback. I have much to think about and realize I probably should be a little more worried!

Appreciate all the good advice. Thank you.
Hope you will dispense with the worry and spend that energy and effort on analysis and planning.
~ Don't just do something. Sit there. ~

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