Contemplating retiring in about a year: are we ready?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Diluted Waters
Posts: 4
Joined: Sun Sep 13, 2020 7:35 pm

Contemplating retiring in about a year: are we ready?

Post by Diluted Waters »

Greetings, Bogleheads,

I have been lurking on Bogleheads for 8 years or more. This is my first post.
I’ve made an effort to post with the standardized format, adjusted to fit
with unique aspects. I know this is a terribly long post which many will
find tedious to read. Thank you in advance to those who take the time to
read it, analyze the contents and offer an opinion.

I’m considering retiring January, 2021 at age 55 1/2. It looks feasible from
here, but I can’t be objective. I’d like an objective take on it. I’ve been
working at the same government owned-contractor operated facility in different
jobs since 1989. Contractor-employers have come and gone and benefits have
changed a bit but our original benefits, which were pretty amazing, were
mostly grandfathered in. My wife stopped working at the same facility a while
back.

The portfolio below looks somewhat like a mess between a Bolglehead and
a personal investment advisor because it is. My advisor was a family advisor until
he retired last year. I was loyal as he managed our family’s assets for over
forty years and generally did a good job under an AUM model. After
he retired I took over my portfolio using what I learned here.

I find the Boglehead approach is consistent with a rational view of the market,
but there’s a lot of momentum in the old portfolio that will take time to unwind.

Emergency funds: See discussion below.

Debt: No long term debt. Credit cards paid off in full each month.

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal (13.65% effective), 5% State

State of Residence: Western US (not CA, OR or WA)

Age: 54

Desired Asset allocation: 65% stocks / 25% bonds / 10% near-cash-equivalents
Desired International allocation: 0% of stocks

Current retirement assets Low seven figures not including his and
hers COLA pensions described in detail later. All percentages are of total
family investment marketable securities assets. House, cars etc. are not
included.

Taxable Percentages won’t quite add up to 100 due to rounding.

6.0% Vanguard Federal Money Market Fund (Emergency Fund + Liquidity)
1.5% Harris County Bonds Call 2022
5.5% Apple (APPL)
1.2% Abbvie (ABBV)
1.2% Abbott (ABT)
0.3% Alcon (ALC)
1.1% Boeing (BA)
3.1% Berkshire Hathaway B (BRK B)
0.9% Caterpillar (CAT)
0.9% Colgate (CL)
1.2% Eaton (ETN)
0.7% iShares High Dividend ETF (HDV)
1.4% Honeywell (HON)
3.0% Johnson & Johnson (JNJ)
1.2% Coca-Cola (KO)
2.4% Moody’s (MCO)
2.3% Novartis (NVS)
0.9% iShares S&P 100 ETF (OEF)
1.4% Prologis (PLD)
1.5% Invesco QQQ ETF (QQQ)
1.3% Royal Gold (RGLD)
0.8% Southside Bancshares (SBSI)
0.7% Tiffany & Co (TIF)
1.4% Union Pacific (UNP)
8.7% Vanguard Total Bond Market Admiral (VBTLX)
1.4% Vanguard Index 500 Admiral (VFIAX) [Bought when tax-loss harvesting VTSAX lots 3/2020]
7.1% Vanguard Total Stock Market Index Admiral (VTSAX)
2.2% Exxon-Mobil (XOM)

His 401k
7.5% S&P 500 Index (Ticker Unknown—managed by SSGI) (0.013%)
Company match? No.
7.5% Intermediate Core Bond Fund (Ticker Unknown—managed by SSGI) (0.02%)

His Roth IRA at Vanguard
0.2% Wellington Investor (VWELX) (0.25%)

Her Roth IRA at Vanguard
0.2% Wellington Investor (VWELX) (0.25%)

His Rollover IRA at Vanguard
8% Wellington Admiral (VWENX) (0.17%)

Her Rollover IRA at Vanguard
10% Wellington Admiral (VWENX) (0.17%)

His COLA Pension:

100% Joint and Contingent Annuity at 55.5 Years of Age $6,960/month (Min retirement age 50, pension max payout at 60)
Plus $68.79 Supplement paid monthly until 6/1/2031
2% COLA up to 2% CPI or CPI whichever is lower.
(Other contingencies available for annuity, but our choice will be 100%.)
Group health insurance through employer until Medicare for $356/mo (rises each year) then
medicare becomes primary and employer insurance becomes supplemental. Dental and vision
insurance available for minimal cost. Insurance not guaranteed to continue to be offered.
(Incredible deal grandfathered in to employees under former management. New employees
don’t get anything like this.)
He is still working now at 54 1/2. Payout shown above projected for 55 1/2 years of age.

Her COLA Pension:

100% Joint and Contingent Annuity at same time his is taken: $2,663/month (Min retirement age 50, pension max payout at 60)
Also includes an immaterial supplemental paid monthly until 8/1/2032
2% COLA up to 2% CPI or CPI whichever is lower.
(His insurance covers both.)
She is inactive in the pension plan at 53 but eligible to begin anytime at lower payout than shown above or wait
until 60 for higher payout. Plan is for us both to take pension at same time.

Total household pension income per month projected based on his 55 1/2 retirement age: $9,623

Other household income:

Inherited Charitable Remainder Trust:

Pays out $3,663/month. Expected to decline slowly as trust is depleted.

Social Security:

I’ve analyzed the arguments many ways, but favor my wife and I both
taking it at 62. Neither of our families were long-lived. I’d hate to
bet on us beating the not-so-good history so far, and failing to enjoy
life just to leave the money behind to the Gov’t. This would seem to
supplement what already seems like a pretty good situation.

My last Social Security benefits estimate run in January, 2020
estimated I would obtain a benefit of $2,189 if I continued
working until age 62, which I don’t plan on doing. I haven’t run
the calculations to figure what it would be if I took it at 62 but
retired at 55 1/2 and had no earnings between then and 62. I never
expected there would be anything left in Social Security for me to
draw so I didn’t plan on it; anything we get there is gravy. Let’s
call it $1,800/mo for myself. My wife has about 15 years of work
credits, so she’ll almost certainly be best off claiming against
my record. We haven’t run her benefit calculation at 62, but it’s
gravy too. We never expected the government to take care of us.
It might seem kind of ironic given I’m a government contractor, but
given what I’ve seen on this job, it’s not.
_______________________________________________________________

Contributions

New annual Contributions

$26,000 his 401k (no employer match because of participation in the
pension plan) $11,363 his after tax contributions to COLA pension;
non-taxable as paid out with pension or if paid out in full if pension
terminates. Termination of pension seems unlikely (105% +/- funded)
but if so would probably result in an annuity to replace it bought
by pension. Pension is PBGC insured; PBGC takeover very unlikely, but
would result in substantial reduction in benefits.
_______________________________________________________________

Total household expenses excluding most taxes was about $125,900 last year,
normalized to exclude unusual never-to-repeat expenses (like financial advisor
who retired.)

This is probably what we might expect going forward.

We have no debt; no mortgage—own house free and clear, property taxes are low;
we own cars free and clear and I do most routine maintenance myself and I tend
to keep cars a long time. We’ll probably eventually buy two more cars at least.
We tend to buy new cars. No college or other expected large future unavoidable
expenses coming up. No children. No long-term-care insurance, so that may be
a factor in the hopefully distant future. Long term care insurance doesn’t
seem to insure much risk from what I’ve read, so I’m not sure it’s benefit
is worth the cost. We don’t intend to leave any significant estate to anyone
although of course whomever is left behind after the first one of us dies
needs to be left with all the resources they need for the rest of their
lives.

We like to travel quite a lot, and hope to do so when the COVID situation is resolved,
especially in retirement.

The investments that the family advisor managed I inherited and left with him until he
retired and I took them over. Most of them have low basis values and would be a
capital-gains-tax challenge to liquidate to move toward a boglehead index fund
approach. Even so, I have done so slowly with a few of them, and will plan to do
so with some of the higher-basis ones next year.

I’m in a moderate tax situation although I try to max out my
401(k) and healthcare reimbursement account to get that down as much as I
can. Unloading a lot of the low-basis shares doesn’t seem like it would help me
much in the tax situation until I retire and get my income down into a lower
bracket if possible. Unloading a lot of them in one year would probably be a
significant taxable event. Some of the trust income is taxable to me.

The Apple stock appreciated extremely rapidly and got out of hand.
The family advisor purchased it not very long ago and now it’s also a capital gains
tax problem. I sold 100 shares before the split (and before I knew there was a
split coming) because it was becoming a problem in terms of the fraction of the
portfolio. Last year, Exxon was in the same boat, but I asked the advisor to unload
enough of it to get it down below 20% (yes, it was that high last year) and I’m
glad I did. It of course fell off a cliff and now I don’t have that problem
anymore. It’s still way above basis.

Into retirement I hope to slowly unwind much of the individual stocks and the
bond should call and aim for a target allocation of 65% stock index,
35% bond index, 10% cash-like (federal money market fund) boglehead like
investment mix. The portfolios are still too heavy on stock, but even so
I still sleep fine even with the market decline due to COVID in the spring.
Didn’t bother me a bit, so the allocation as is must not be too far
over my comfort zone.

I understand it’s a bit unorthodox to keep the emergency fund mixed with the
Vanguard sweep fund, but that’s my cash-like account which I don’t intend to
invest below the level it is at now (about $200K) and I plan to keep this
fund proportional to the rest of the portfolio going forward. I also tend to
keep a pretty high checking account balance (~$5-10K) so I can pay for
anything that comes up in cash in a few days. I’m financially conservative
and always have been. I don’t worry about missing out on returns that cash isn’t
earning because I’m comfortable knowing I could pay cash for anything within
reason I might have to. It’s really a great feeling.

Many thanks to the Bogleheads web site and community. It’s been great to read all you’ve
had to offer over the years and to relate to so many who are so reasonable
about money and investing. I hope I might be able to repay you all when I have time
after leaving the corporate grind behind in the not too distant future.

-Diluted Waters
pkcrafter
Posts: 14336
Joined: Sun Mar 04, 2007 12:19 pm
Location: CA
Contact:

Re: Contemplating retiring in about a year: are we ready?

Post by pkcrafter »

Key points highlighted...
Diluted Waters wrote: Sun Sep 20, 2020 6:49 pm Greetings, Bogleheads,

I have been lurking on Bogleheads for 8 years or more. This is my first post.
I’ve made an effort to post with the standardized format, adjusted to fit
with unique aspects. I know this is a terribly long post which many will
find tedious to read. Thank you in advance to those who take the time to
read it, analyze the contents and offer an opinion.

I’m considering retiring January, 2021 at age 55 1/2. It looks feasible from
here, but I can’t be objective. I’d like an objective take on it. I’ve been
working at the same government owned-contractor operated facility in different
jobs since 1989. Contractor-employers have come and gone and benefits have
changed a bit but our original benefits, which were pretty amazing, were
mostly grandfathered in. My wife stopped working at the same facility a while
back.

The portfolio below looks somewhat like a mess between a Bolglehead and
a personal investment advisor because it is. My advisor was a family advisor until
he retired last year. I was loyal as he managed our family’s assets for over
forty years and generally did a good job under an AUM model. After
he retired I took over my portfolio using what I learned here.

I find the Boglehead approach is consistent with a rational view of the market,
but there’s a lot of momentum in the old portfolio that will take time to unwind.

Emergency funds: See discussion below.

Debt: No long term debt. Credit cards paid off in full each month.

Tax Filing Status: Married Filing Jointly

Tax Rate: 24% Federal (13.65% effective), 5% State

State of Residence: Western US (not CA, OR or WA)

Age: 54

Desired Asset allocation: 65% stocks / 25% bonds / 10% near-cash-equivalents
Desired International allocation: 0% of stocks

Current retirement assets Low seven figures not including his and
hers COLA pensions described in detail later.
All percentages are of total
family investment marketable securities assets. House, cars etc. are not
included.

Taxable Percentages won’t quite add up to 100 due to rounding.

6.0% Vanguard Federal Money Market Fund (Emergency Fund + Liquidity)
1.5% Harris County Bonds Call 2022
5.5% Apple (APPL)
1.2% Abbvie (ABBV)
1.2% Abbott (ABT)
0.3% Alcon (ALC)
1.1% Boeing (BA)
3.1% Berkshire Hathaway B (BRK B)
0.9% Caterpillar (CAT)
0.9% Colgate (CL)
1.2% Eaton (ETN)
0.7% iShares High Dividend ETF (HDV)
1.4% Honeywell (HON)
3.0% Johnson & Johnson (JNJ)
1.2% Coca-Cola (KO)
2.4% Moody’s (MCO)
2.3% Novartis (NVS)
0.9% iShares S&P 100 ETF (OEF)
1.4% Prologis (PLD)
1.5% Invesco QQQ ETF (QQQ)
1.3% Royal Gold (RGLD)
0.8% Southside Bancshares (SBSI)
0.7% Tiffany & Co (TIF)
1.4% Union Pacific (UNP)
8.7% Vanguard Total Bond Market Admiral (VBTLX)
1.4% Vanguard Index 500 Admiral (VFIAX) [Bought when tax-loss harvesting VTSAX lots 3/2020]
7.1% Vanguard Total Stock Market Index Admiral (VTSAX)
2.2% Exxon-Mobil (XOM)

His 401k
7.5% S&P 500 Index (Ticker Unknown—managed by SSGI) (0.013%)
Company match? No.
7.5% Intermediate Core Bond Fund (Ticker Unknown—managed by SSGI) (0.02%)

His Roth IRA at Vanguard
0.2% Wellington Investor (VWELX) (0.25%)

Her Roth IRA at Vanguard
0.2% Wellington Investor (VWELX) (0.25%)

His Rollover IRA at Vanguard
8% Wellington Admiral (VWENX) (0.17%)

Her Rollover IRA at Vanguard
10% Wellington Admiral (VWENX) (0.17%)

His COLA Pension:

100% Joint and Contingent Annuity at 55.5 Years of Age $6,960/month (Min retirement age 50, pension max payout at 60)
Plus $68.79 Supplement paid monthly until 6/1/2031
2% COLA up to 2% CPI or CPI whichever is lower.
(Other contingencies available for annuity, but our choice will be 100%.)
Group health insurance through employer until Medicare for $356/mo (rises each year) then
medicare becomes primary and employer insurance becomes supplemental. Dental and vision
insurance available for minimal cost. Insurance not guaranteed to continue to be offered.
(Incredible deal grandfathered in to employees under former management. New employees
don’t get anything like this.)
He is still working now at 54 1/2. Payout shown above projected for 55 1/2 years of age.

Her COLA Pension:

100% Joint and Contingent Annuity at same time his is taken: $2,663/month (Min retirement age 50, pension max payout at 60)
Also includes an immaterial supplemental paid monthly until 8/1/2032
2% COLA up to 2% CPI or CPI whichever is lower.
(His insurance covers both.)
She is inactive in the pension plan at 53 but eligible to begin anytime at lower payout than shown above or wait
until 60 for higher payout. Plan is for us both to take pension at same time.

Total household pension income per month projected based on his 55 1/2 retirement age: $9,623

Other household income:

Inherited Charitable Remainder Trust:

Pays out $3,663/month.
Expected to decline slowly as trust is depleted.

Social Security:

I’ve analyzed the arguments many ways, but favor my wife and I both
taking it at 62. Neither of our families were long-lived. I’d hate to
bet on us beating the not-so-good history so far, and failing to enjoy
life just to leave the money behind to the Gov’t. This would seem to
supplement what already seems like a pretty good situation.

My last Social Security benefits estimate run in January, 2020
estimated I would obtain a benefit of $2,189 if I continued
working until age 62, which I don’t plan on doing.
I haven’t run
the calculations to figure what it would be if I took it at 62 but
retired at 55 1/2 and had no earnings between then and 62. I never
expected there would be anything left in Social Security for me to
draw so I didn’t plan on it; anything we get there is gravy. Let’s
call it $1,800/mo for myself.
My wife has about 15 years of work
credits, so she’ll almost certainly be best off claiming against
my record. We haven’t run her benefit calculation at 62, but it’s
gravy too. We never expected the government to take care of us.
It might seem kind of ironic given I’m a government contractor, but
given what I’ve seen on this job, it’s not.
_______________________________________________________________

Contributions

New annual Contributions

$26,000 his 401k (no employer match because of participation in the
pension plan) $11,363 his after tax contributions to COLA pension;
non-taxable as paid out with pension or if paid out in full if pension
terminates. Termination of pension seems unlikely (105% +/- funded)
but if so would probably result in an annuity to replace it bought
by pension. Pension is PBGC insured; PBGC takeover very unlikely, but
would result in substantial reduction in benefits.
_______________________________________________________________

Total household expenses excluding most taxes was about $125,900 last year,
normalized to exclude unusual never-to-repeat expenses (like financial advisor
who retired.)

This is probably what we might expect going forward.

We have no debt; no mortgage—own house free and clear, property taxes are low;
we own cars free and clear and I do most routine maintenance myself and I tend
to keep cars a long time. We’ll probably eventually buy two more cars at least.
We tend to buy new cars. No college or other expected large future unavoidable
expenses coming up. No children. No long-term-care insurance, so that may be
a factor in the hopefully distant future. Long term care insurance doesn’t
seem to insure much risk from what I’ve read, so I’m not sure it’s benefit
is worth the cost. We don’t intend to leave any significant estate to anyone
although of course whomever is left behind after the first one of us dies
needs to be left with all the resources they need for the rest of their
lives.

We like to travel quite a lot, and hope to do so when the COVID situation is resolved,
especially in retirement.

The investments that the family advisor managed I inherited and left with him until he
retired and I took them over. Most of them have low basis values and would be a
capital-gains-tax challenge to liquidate to move toward a boglehead index fund
approach. Even so, I have done so slowly with a few of them, and will plan to do
so with some of the higher-basis ones next year.

I’m in a moderate tax situation although I try to max out my
401(k) and healthcare reimbursement account to get that down as much as I
can. Unloading a lot of the low-basis shares doesn’t seem like it would help me
much in the tax situation until I retire and get my income down into a lower
bracket if possible. Unloading a lot of them in one year would probably be a
significant taxable event. Some of the trust income is taxable to me.

The Apple stock appreciated extremely rapidly and got out of hand.
The family advisor purchased it not very long ago and now it’s also a capital gains
tax problem. I sold 100 shares before the split (and before I knew there was a
split coming) because it was becoming a problem in terms of the fraction of the
portfolio. Last year, Exxon was in the same boat, but I asked the advisor to unload
enough of it to get it down below 20% (yes, it was that high last year) and I’m
glad I did. It of course fell off a cliff and now I don’t have that problem
anymore. It’s still way above basis.

Into retirement I hope to slowly unwind much of the individual stocks and the
bond should call and aim for a target allocation of 65% stock index,
35% bond index, 10% cash-like (federal money market fund) boglehead like
investment mix. The portfolios are still too heavy on stock, but even so
I still sleep fine even with the market decline due to COVID in the spring.
Didn’t bother me a bit, so the allocation as is must not be too far
over my comfort zone.

I understand it’s a bit unorthodox to keep the emergency fund mixed with the
Vanguard sweep fund, but that’s my cash-like account which I don’t intend to
invest below the level it is at now (about $200K) and I plan to keep this
fund proportional to the rest of the portfolio going forward. I also tend to
keep a pretty high checking account balance (~$5-10K) so I can pay for
anything that comes up in cash in a few days. I’m financially conservative
and always have been. I don’t worry about missing out on returns that cash isn’t
earning because I’m comfortable knowing I could pay cash for anything within
reason I might have to. It’s really a great feeling.

Many thanks to the Bogleheads web site and community. It’s been great to read all you’ve
had to offer over the years and to relate to so many who are so reasonable
about money and investing. I hope I might be able to repay you all when I have time
after leaving the corporate grind behind in the not too distant future.

-Diluted Waters
Waters, I was going to take some time to address some of your questions, but now have to leave, so I just highlighted a few items to make it easier for others to find.

I may have missed it, but how much are you planning to withdraw each year?

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
btenny
Posts: 5419
Joined: Sun Oct 07, 2007 6:47 pm

Re: Contemplating retiring in about a year: are we ready?

Post by btenny »

I am not sure I understand your plan.

Are you going to need to spend $125K (or more with travel) per year in retirement? This seems really high. Why? Mortgage?

You quote some great big $$ for you and your wife's pensions. Are these amounts available if you work till 60? Retire at 55? Do not draw on it until 60? You mention she only has 15 years work record.
Is her pension really this good if she waits to draw it. I need to understand these better.

What spending money will you need and where are you going to get it from before you take your pensions? Same issue but with Social Security?
User avatar
David Jay
Posts: 9411
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Contemplating retiring in about a year: are we ready?

Post by David Jay »

Simple answer: YES.

You will have over $13,000 (6.9K + 2.6K + 3.6K) a month coming in with pensions COLA adjusted. The C.R.T. is dropping but SS kicks in after 7 years, almost the same as the trust if you include spousal.

And you have a million some in retirement assets for "contingencies".
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
ExitStageLeft
Posts: 1938
Joined: Sat Jan 20, 2018 4:02 pm

Re: Contemplating retiring in about a year: are we ready?

Post by ExitStageLeft »

You look to be pretty well set. Using FIRECalc and a 40 year retirement, you could spend over $140k per year based on pensions and savings. Add in the trust and social security and you are ready to have a most excellent retirement.

I would fine-tune the estimated expenses, particularly health care costs for the years before Medicare.

And welcome to the forum as an un-lurker! :happy
random_walker_77
Posts: 1183
Joined: Tue May 21, 2013 8:49 pm

Re: Contemplating retiring in about a year: are we ready?

Post by random_walker_77 »

You're good to go. Between the pensions, trust payout, and dividends on your "low 7 figure" investments, you're good. The health insurance is a sweetheart deal, and even if it goes away, you're in good shape.

You can use https://ssa.tools/ to get a better estimate on social security.
ralph124cf
Posts: 2596
Joined: Tue Apr 01, 2014 11:41 am

Re: Contemplating retiring in about a year: are we ready?

Post by ralph124cf »

How much would the age 60 pension be for the higher earner if you stop work at 55 1/2?

It is frequently recommended that the lower earner take the pension early, as a single life annuity, with no contingent annuitant, and then after somewhat delaying the higher earner pension to increase the pension, which would be a joint and 100% pension. You have enough money to maintain your desired spending level while delaying the higher pension. One caveat with this approach is that some pension funds would automatically award your spouse a 50% contingent pension if you die before starting payments. If this is what your pension fund would do, then term life insurance until you start the higher pension would be appropriate.

Also, you mention a low basis on the inherited stocks. Have you factored in the stepped up basis on inherited items?

Ralph
User avatar
Watty
Posts: 20709
Joined: Wed Oct 10, 2007 3:55 pm

Re: Contemplating retiring in about a year: are we ready?

Post by Watty »

Diluted Waters wrote: Sun Sep 20, 2020 6:49 pm No long-term-care insurance, so that may be
a factor in the hopefully distant future. Long term care insurance doesn’t
seem to insure much risk from what I’ve read, so I’m not sure it’s benefit
is worth the cost.
You can get an idea of what it will cost in your area on this web site.

https://www.genworth.com/aging-and-you/ ... -care.html

Something to keep in mind is that if LTC is needed when only one of you is surviving then most of their other costs will stop so you mainly need to be concerned about the gap between your normal retirement budget and the LTC costs. If you are in a lower cost of living area your costs could actually go down if LTC is needed for just one person, especially for the lower cost assisted living and not a full nursing home.

If LTC is needed while both of you are still surviving then you may not be spending a lot on things like travel and you have lots of ways to pay for it.

I would not worry about LTC insurance especially since the policies being sold today are not nearly as good as the ones they sold in the past.
Topic Author
Diluted Waters
Posts: 4
Joined: Sun Sep 13, 2020 7:35 pm

Re: Contemplating retiring in about a year: are we ready?

Post by Diluted Waters »

Hi Everyone,

Thank you all for your replies and the time you have invested in my question. I wanted to respond before too many days went by without a word back from me. I didn't want it to appear that I'd made this long post and then vanished. I am grateful for your effort and responses. I'm working this week with long days, so it will probably be the weekend before I can respond to your replies and provide additional detail that some of you have asked for.

I have been thinking about the question about our expenses. The raw number doesn't clearly articulate our situation. I track *everything* in Quick Books, including every expense and deduction taken out from my pay, so coming back with more detail will take a little time to aggregate and present in a format appropriate for this forum. That said, we're not frugal, and we're not spendthrifts. We live within our means and avoid wasteful spending, but we enjoy the fruits of our labor over the years and intend to continue to do so into retirement.

Thank you again!

-Diluted Waters
Topic Author
Diluted Waters
Posts: 4
Joined: Sun Sep 13, 2020 7:35 pm

Re: Contemplating retiring in about a year: are we ready?

Post by Diluted Waters »

Ok, here we go:
pkcrafter
I may have missed it, but how much are you planning to withdraw each year?

Paul
Paul, I've run a notional endowment spending model for each retirement year which would use a starting value of 3.5% of the portfolio value, and in subsequent years use 75% of the prior year's portfolio withdrawal and 25% of 3.5% of the current year's portfolio value and withdraw that each year. So this is essentially a variable-percentage withdrawal model that smooths market advances and declines so spending isn't radically changed from one year to the next while adjusting for portfolio value along the way. I based this on a really nice paper on the subject I got off the Thornburg Investements website "Road to Retirement" series. I think Thornburg took that series down some time ago, but I still have copies saved. Whether I really do this or not remains to be seen, but it was a good exercise in thinking.
btenny
Are you going to need to spend $125K (or more with travel) per year in retirement? This seems really high. Why? Mortgage?

You quote some great big $$ for you and your wife's pensions. Are these amounts available if you work till 60? Retire at 55? Do not draw on it until 60? You mention she only has 15 years work record.
Is her pension really this good if she waits to draw it. I need to understand these better.

What spending money will you need and where are you going to get it from before you take your pensions? Same issue but with Social Security?
btenny,

Here's is better detail on expenses:

Household expenses in 2019 were about $65,000, which included donations, entertainment, utilities, home, auto and umbrella insurance, some vacation expenses, property tax, home maintenance, veterinary, property tax, and similar.

Personal expenses in 2019 were the balance, which included unreimbursed medical expenses (HCRA), accounting and tax prep, my personal vehicle maintenance, my investment management expenses which are now gone since the family advisor retired and I took that over to Vanguard and do it myself, commuting by public park and ride, cash support payments to my wife (she doesn't work--this is her personal spending money), the number I originally quoted didn't include state or federal taxes, but this does include medical insurance through work ($4K) and other insurances, and more vacation expenses I paid out of investments that were from an inheritance.

We don't have a mortgage. The house is paid for. We could spend probably a lot less, down toward the $65,000 end if we live like we live now during COVID, or more $125K or more if we travel, like we did twice last year. We have room to maneuver within this range.

The pension amounts are what we get if we retire when I'm 55 1/2 next year. Indeed, it's pretty generous. It's a product of a generous pension plan that started out as a public-sector pension plan due to our first contract being under a public institution from another state and all the largess such plans ended up with, usually as the result of pretty questionable judgement by state governments. When our contract was taken to the private sector, our pension went private, but was maintained pretty much as it was before but closed to new entrants.

If I waited to retire until I was 60, when the pension formula maxes out, I would get about $11,714.31 per month for a 100% joint and contingent annuity. My wife's pension would scale similarly as it's based on the same formula. The point, though, of retiring early is to retire while we're still young and well enough to enjoy life with what we've got, not maximize money at the expense of time. This payout is pretty high because I would have a lot of years in the pension (I joined the plan in 1994) and I'm fairly highly compensated now at about $180K/year. My take-home is about $7,193/mo after all the deductions and maxing my 401(K), so we're living on just a little more than my pension alone would pay without what my wife's pension would pay nor what regular withdrawals from our investments would cover outside of the trust which we must take. My wife's pension is this good after fifteen years of work because when she went inactive (left her job), her highest-annual-plan-compensation (base-pay) that will be used for calculating her pension has been incremented by 2% per year automatically. So, to the pension, she got better raises after she quit than she got while she was working. That was a contributing factor to her quitting. New people were coming in higher than her pay, with lower degrees and expertise, and getting better raises. Why keep working?

The spending money is available today in the taxable portfolios, but also our pensions have an early retirement provision. I could have retired anytime after 50, and so could my wife. I've kept working to reach a better pay level and a better pension payout. The pension payout builds at an increasing rate between 50 and 60, so we will be leaving quite a bit of money on the table between 55 1/2 and 60, but again, family longevity and health are a factor too and money isn't everything. We know we have a good deal and we don't need as much as we could get out of the pension due to other resources we have. Thanks for the good questions.
David Jay
Thanks for the reassurance.
ExitStageLeft


Thank you. I do need to re-work my endowment spending model and the expenses inputs. I haven't done so in a few years and a lot has changed. I have an inflation escalation term in but not a special one for healthcare. I might need one.

Neil Peart got robbed. Another example of why retiring early isn't a bad thing to consider.
random_walker_77
Thanks! I have had thoughts about the sstools to get a better handle on the impact of the gap years on social security payouts, but some anecdotes from this and other forums suggests it isn't very significant. I sometimes wonder if the time is worth the information given my situation. Maybe if I do pull the trigger next year, I'll have the time without a real job to do it and see!
ralph124cf
If I retired at 60 I'd get about $11,714.31 for a 100% joint and contingent pension, assuming my salary grew at 2% and inflation grew at 2%.

I suggested to my wife she take her pension with a lower or no contingency and she wasn't interested. Her attitude is whoever survives should squeeze all the money out of the pension fund for the both of us. It may not be the highest-efficiency approach, but it's her money, so ok. I have a $500,000 life insurance policy through work in case the park and ride bus (or illness) kills me before I retire, plus there's a generous and outrageously cheap AD&D policy from work that would pay out as well in case of an accident, so I've got that covered. I have to look at what my pension would automatically pay out if I died before I retired. I think the 50% sounds familiar. Thanks for bringing that up, but the insurance and the taxable investments, paid-for house should take care of her for the rest of her life, never mind the IRAs, 401(k)s etc. that she can access at 59 1/2, which is only 5 years away for her. Dad died 25 years ago, so the low basis *is* the stepped-up value and it's already baked in, unfortunately. When mom died, she set up the trust with the 1/6 of the other half of the estate I inherited, so that's not a basis-issue. It a charitable remainder trust, so the shares can be bought and sold without incurring capital gains tax, though, so that's a plus. I take over as trustee soon, so I can take the investments in a Boglehead direction in due course. Thanks for the thoughtful suggestions. I'm glad to be here for real now. We're investigating a solar-electric installation, and I plan a post series on that experience including the return on capital considerations and the overall experience as it plays out. Stay tuned. I hope to continue contributing here in my retirement. I really enjoy this community.
Watty
Thank you for the link on long term care. I never thought about it until I started thinking about retirement. Without kids or family nearby, I began to wonder what we'd do if we need help in the future. That's a longer-term planning project. I have sisters on the west coast of the continent, so there is somewhere to go perhaps. But it's got complications that's not relevant here. I'll investigate the link you furnished. Thanks!
Post Reply