Retire Early

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getoutearly
Posts: 12
Joined: Tue Aug 24, 2010 11:30 am

Retire Early

Post by getoutearly » Tue Aug 24, 2010 11:36 am

Emergency funds = one year of expenses

Debt: None

Tax Filing Status: Married filing Jointly

Tax Rate: 25% Federal 3% State Pennsylvania

Age: 55

Desired Asset allocation: Current 60/40 Next year 44/56

Intl allocation: 40% of stocks

Current portfolio:
49,000 emergency fund cash
116,000 rollover IRA 60/40
241,000 401K 60/40
14,000 Roth IRA 60/40
720,000 lump sum coming in 10 months
1,141,745 total

Have been lurking here for a couple of years but this is my first post. I would like to retire several months from now. I will only be 56 and I realize I could build a bigger portfolio by working longer but life is short. Currently I am invested more aggressively than someone my age would be but given the fact that I will be receiving a lump sum pension I kind of view that as a “fixed” investment allowing me to feel comfortable with 60% in stock currently. Upon retirement I plan to change my allocation to my age in bonds. I plan to start taking social security at age 62. So if I take 4% adjusted for inflation each year I should have more than enough income after age 62 but I am falling short for the 5 years before I reach 62. At retirement time I should have 1,140,000 in my portfolio. And I plan to just keep it simple by investing the 1,140,000 in Vanguard ETF’s. To make some extra income for the first 5 years I was considering either withdrawing a little more than 4% the first 5 years or buying a 5 year annuity with 100,000 of my portfolio to give me more income the first 5 years.

So my two questions are

Question 1:
Should I take more than 4% the first 5 years possibly reducing my principle OR reduce my principal right away by spending 100,000 on a 5 year annuity.

Question 2:
Is putting my entire portfolio into a few Vanguard ETF’s with bonds = my age for simplicity ok? Figure why strain my brain with 50 funds if I don’t need to?

thanks i value your opinion :D

letsgobobby
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Post by letsgobobby » Tue Aug 24, 2010 11:42 am

what if you took 5-6% for the next five years, then only 3% after age 62? Would the 3% plus DBP plus SS be enough to meet your income needs?

RobG
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Location: Bozeman, MT

Post by RobG » Tue Aug 24, 2010 11:55 am

is the $720k after taxes?

getoutearly
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Post by getoutearly » Tue Aug 24, 2010 12:33 pm

thanks for replies so far!


letsgobobby - - -
that would work and i suppose if the market would for some reason boom those 5 years i might not lose any principle

robg - - -
figured it would roll into an IRA so it would be a non taxable event?

superthan34
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Post by superthan34 » Tue Aug 24, 2010 12:57 pm

A few additional questions that I wanted to ask for follow up. Is your spouse still working, and if so, when are they planning on retiring? Also, do you have any children that you have to support? Do you own your own home? Are you planning on relocating in retirement?

Thanks,

livesoft
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Post by livesoft » Tue Aug 24, 2010 12:59 pm

What do the www.firecalc.com www.retirementoptimizer and www.i-orp.com calculators tell you about the success rate of your dreams?

getoutearly
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Post by getoutearly » Tue Aug 24, 2010 1:08 pm

livesoft - -

i have looked at these calculators and from them i understand if i take 4% adjusted for inflation my odds are 90% not to run out of money. and i can do that if i start with a smaller amount by placing aside some money to give me some extra income for the first 5 years

dbr
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Post by dbr » Tue Aug 24, 2010 1:13 pm

getoutearly wrote:livesoft - -

i have looked at these calculators and from them i understand if i take 4% adjusted for inflation my odds are 90% not to run out of money. and i can do that if i start with a smaller amount by placing aside some money to give me some extra income for the first 5 years
I think some of those calculators allow you to enter into the model that extra rates of expenditure or of income are added or removed at particular times.

pkh01l
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Post by pkh01l » Tue Aug 24, 2010 1:16 pm

On the models I have run for myself, it shows I can quit working when I get to $1.2 million, really regardless of age, so I am guessing you should be fine. (I am single though)

Of course one big factor is you haven't indicated what your estimated yearly expenses will be in retirement? (I guess your assuming you will manage your expense to equal the withdrawal rate your proposing)

DSInvestor
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Post by DSInvestor » Tue Aug 24, 2010 1:21 pm

Will you have retiree health benefits for you and your spouse? Medical insurance premiums for two people can get very expensive from age 56 to 65 until you're eligible for medicare.

livesoft
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Post by livesoft » Tue Aug 24, 2010 1:44 pm

getoutearly wrote:livesoft - -

i have looked at these calculators and from them i understand if i take 4% adjusted for inflation my odds are 90% not to run out of money. and i can do that if i start with a smaller amount by placing aside some money to give me some extra income for the first 5 years
OK, 90%. That's a 10% chance of failure. What's your Plan B?

kenbrumy
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Post by kenbrumy » Tue Aug 24, 2010 1:44 pm

You are in a similar situation as I am. There's no reason you can't do something like my plan.

I have a "sinking fund" in my portfolio that will be used to bridge my gap until Medicare and social security. This is a fixed dollar amount in bonds and it will be gone when I start social security. This provides a minimum retirement spending equal to my pension and eventual social security check.

I then have a reserve which will be used to provide a higher retirement lifestyle (but still basic) and for LTC if needed. Lifestyle would be reduced to avoid depleting this fund.

The remaining portfolio is intended to cover travel and luxuries. If the markets tank, this could go away and I accept that.

Right now I'm 60% bonds/40% equities. If my plan went forward without change, I'd have about 45% bonds/55% equities when I start SS but I plan to rebalance as needed so that it never goes beyond 50/50.

I've run calculators to death. They really can't guarantee anything but they do give a historical perspective. I've decided to do the different "accounts" to give me as much certainty as I can get for a basic retirement and to be able to take advantage of a good stock market for lifestyle enhancement.

getoutearly
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Joined: Tue Aug 24, 2010 11:30 am

Post by getoutearly » Tue Aug 24, 2010 2:02 pm

superthan34 - - -
my spouse has not worked for a number of years. one kid who is self sufficient. own my house. and no current plans of relocating.

livesoft - - -
as for plan b? running the car with the garage door closed? ;-) i guess i am willing to accept a 10% chance of failure no guarantees in life

pkh01l - -
yes i think i can get by on 4% i am lucky to have no debt and no expensive hobbies. healthcare of course is the biggie.

DSInvestor - -
unfortunately i will have to buy my own health insurance. i can buy some from my former employer but funny it is more expensive that what i have found shopping around. to cover my wife any myself should be about $700 a month unfortunately but what can you do

kenbrumy - -
thank you for sharing this with me i like this plan and will study this further

kenbrumy
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Joined: Sat Feb 28, 2009 5:13 pm

Post by kenbrumy » Tue Aug 24, 2010 2:41 pm

getoutearly wrote:unfortunately i will have to buy my own health insurance. i can buy some from my former employer but funny it is more expensive that what i have found shopping around. to cover my wife any myself should be about $700 a month unfortunately but what can you do
Don't bad mouth your employer's plan too soon. There are very few people over 50 that will qualify for the low rates you can get quoted for private insurance. Before you get it, you have to get through the medical underwriting. I've not known of anyone in Texas to get private insurance despite several not having anything resembling a preexisting condition except being over 50. Everyone has been forced into the Texas high risk pool. A high deductible plan can easily run $15,000 per year for a couple.

RobG
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Post by RobG » Tue Aug 24, 2010 2:58 pm

getoutearly wrote: robg - - -
figured [the lump sum] would roll into an IRA so it would be a non taxable event?
I've never been fortunate enough to have to know how to do this. I guess it depends on how you are getting the lump sum to know if you can roll it into an IRA.

Ron
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Post by Ron » Tue Aug 24, 2010 3:17 pm

RobG wrote:
getoutearly wrote: robg - - -
figured [the lump sum] would roll into an IRA so it would be a non taxable event?
I've never been fortunate enough to have to know how to do this. I guess it depends on how you are getting the lump sum to know if you can roll it into an IRA.
I retired with a lump sum and simply rolled it into a TIRA.

Unless you contributed to the balance with taxable funds during working years (not normal), all distributions will be taxable as you withdraw them. You don't have to pay tax at retirement if it is a direct conduit transfer (e.g. you did not take possession of the funds).

Once you get it to the TIRA, you have other options on how you wish to invest, even taking a portion of it to purchase an SPIA (that's all I'll say on that subject).

One thing to remember is that since it is part of a TIRA, you will have to consider RMD's at age 70.5 and think about the possibility of converting it to a Roth IRA, if you wish (of course, you will be paying taxes on converted funds, at that time; again not part of this discussion).

- Ron

getoutearly
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Post by getoutearly » Tue Aug 24, 2010 4:08 pm

kenbrumy wrote:
getoutearly wrote:unfortunately i will have to buy my own health insurance. i can buy some from my former employer but funny it is more expensive that what i have found shopping around. to cover my wife any myself should be about $700 a month unfortunately but what can you do
Don't bad mouth your employer's plan too soon. There are very few people over 50 that will qualify for the low rates you can get quoted for private insurance. Before you get it, you have to get through the medical underwriting. I've not known of anyone in Texas to get private insurance despite several not having anything resembling a preexisting condition except being over 50. Everyone has been forced into the Texas high risk pool. A high deductible plan can easily run $15,000 per year for a couple.
ooo yeah good point...just because the $ amount comes up on the website of the health insurance company doesn't mean they will insure me. my company offers a year for 10 grand to retirees.

ResNullius
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Post by ResNullius » Tue Aug 24, 2010 4:32 pm

I would not purchase the annuity, as you should be able to do better by investing the money yourself. I would not take a larger distribution in the early years, because the future is far too uncertain. In fact, I would consider dropping the withdrawal rate to 3.5 just to be safe. You're quite young, so you need to be cautious. As for health insurance, whatever you've read about the costs, you probable need to increase the cost by 50% until you reach Medicare. Beware of rising costs for private insurance. Consider the possibility of doing just a little part-time work, as in a half-day two or three days a week, something to bring in a little more running money. Better yet, let your wife do it. These are strange times, so the watchword is "beware." The politicians are out to destroy people like you.

vnatale
Posts: 90
Joined: Sat Jul 31, 2010 8:50 pm

Re: Retire Early

Post by vnatale » Tue Aug 24, 2010 9:17 pm

getoutearly wrote:Emergency funds = one year of expenses

Debt: None

Tax Filing Status: Married filing Jointly

Tax Rate: 25% Federal 3% State Pennsylvania

Age: 55

Desired Asset allocation: Current 60/40 Next year 44/56

Intl allocation: 40% of stocks

Current portfolio:
49,000 emergency fund cash
116,000 rollover IRA 60/40
241,000 401K 60/40
14,000 Roth IRA 60/40
720,000 lump sum coming in 10 months
1,141,745 total

Have been lurking here for a couple of years but this is my first post. I would like to retire several months from now. I will only be 56 and I realize I could build a bigger portfolio by working longer but life is short. Currently I am invested more aggressively than someone my age would be but given the fact that I will be receiving a lump sum pension I kind of view that as a “fixed” investment allowing me to feel comfortable with 60% in stock currently. Upon retirement I plan to change my allocation to my age in bonds. I plan to start taking social security at age 62. So if I take 4% adjusted for inflation each year I should have more than enough income after age 62 but I am falling short for the 5 years before I reach 62. At retirement time I should have 1,140,000 in my portfolio. And I plan to just keep it simple by investing the 1,140,000 in Vanguard ETF’s. To make some extra income for the first 5 years I was considering either withdrawing a little more than 4% the first 5 years or buying a 5 year annuity with 100,000 of my portfolio to give me more income the first 5 years.

So my two questions are

Question 1:
Should I take more than 4% the first 5 years possibly reducing my principle OR reduce my principal right away by spending 100,000 on a 5 year annuity.

Question 2:
Is putting my entire portfolio into a few Vanguard ETF’s with bonds = my age for simplicity ok? Figure why strain my brain with 50 funds if I don’t need to?

thanks i value your opinion :D
Do yourself a big-time favor and go here...

http://www.retirementoptimizer.com/

and buy the Green Edition, $5.99 PDF version of his book and read it...

It will widen your eyes to what can happen to your savings after you retire.

You owe it to yourself to go into this with eyes wide open.

Good luck!

Vinny

rai
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Post by rai » Tue Aug 24, 2010 9:39 pm

IMO 90% is not good enough it's hard to go back once you realize you don't have enough. I understand wanting to retire early, but I would not do it myself unless I was 97% likely to meet my projections.

Also, you are putting a lot of faith in social security as well as future inflation/costs. Better safe than sorry (etc.), you can never have too much. But the risks and pitfalls are great and it's easy to cut it too close and miss, young age makes the timeframe longer than a typical person who will collect social security soon after they retire plus you wish to collect the soonest social security (reduced) because you will not have enough without it.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

royal4
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Joined: Sat Aug 25, 2007 5:49 pm

enjoy

Post by royal4 » Tue Aug 24, 2010 10:11 pm

$700 a month for health care for 2 people -- WHERE??? I pay $1250 a month for 2 people -- I retired at 53 in 2007 and health care will be my biggest expense until medicare (and then I don't expect it to go down too much)

Once retired you might get very risk adverse, I know I did -- I went from 80/20 to 30/70 luckily before 2008/2009.

I had about the same $$ as you, maybe a little less and live on about 55k a year which will drop about 8-10k next year (last year of college expenses YEA!!!!!)

Good luck!! Nothing beats waking up every morning and having to do ABSOLUTELY NOTHING unless you want too.

Mitchell777
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Post by Mitchell777 » Wed Aug 25, 2010 6:27 am

I think much of it boils down to health care. I've seen a few people have access to affordable healthcare in the pre-65 years, only to have it end for one reason or another or go so high in price it was tough to afford. One friend struggled greatly moving from one policy to another due to cost. Healthcare is the issue that mostly keeps me working but I know I will have to deal with it as my job is not going to last until 65. I am hoping the healthcare changes in 2014, if implemented, will help with pre existing illness concerns. If I can get within 18 months of that, I can use Cobra until that time.

getoutearly
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Post by getoutearly » Wed Aug 25, 2010 7:00 am

ok i will drop the bombshell that i didn't mention before. if i work another 20 months after my DESIRED retirement date, my lump sum goes up by 200K. my salary is large and i get a ton of vacation. so now everyone can tell me i would be a fool not to work the extra 20 months. :D

Mitchell777
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Post by Mitchell777 » Wed Aug 25, 2010 7:11 am

You can't be a fool in these situations. It is a very personal decision. It depends on what those 20 months will be like. Will they be agony every day? Also depends on chance. A lot can happen in 20 months. One of the things that has me thinking of retirement, that I did not before, has been the recent, premature deaths of a number of people that I used to work with

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Igglesman
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Post by Igglesman » Wed Aug 25, 2010 7:12 am

" if i work another 20 months after my DESIRED retirement date, my lump sum goes up by 200K. "

What if interest rates rise in the next 20 months?
Your lump sum can actually be less than it is today.

Ron
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Re: enjoy

Post by Ron » Wed Aug 25, 2010 7:25 am

royal4 wrote:$700 a month for health care for 2 people -- WHERE???
It depends on your company retirement health plan.

I'm retired and pay my former company a "contribution" each month for my wife/me to maintain our coverage (actually, as a retiree, it's a bit better since they lowered some co-pays).

Our price? Currently $475/month for both of us. Over the last three years (since I've been retired) rates have gone up just a few dollars; last year it didn't go up at all (although I expect it to this year because of "you know what" :wink: ).

- Ron

royal4
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Re: enjoy

Post by royal4 » Wed Aug 25, 2010 7:56 am

Ron wrote:
royal4 wrote:$700 a month for health care for 2 people -- WHERE???
It depends on your company retirement health plan.

I'm retired and pay my former company a "contribution" each month for my wife/me to maintain our coverage (actually, as a retiree, it's a bit better since they lowered some co-pays).

Our price? Currently $475/month for both of us. Over the last three years (since I've been retired) rates have gone up just a few dollars; last year it didn't go up at all (although I expect it to this year because of "you know what" :wink: ).

- Ron


yeah, if you're still eligible for company coverage it's a piece of cake ( I was for 2 years at around $300/month) but the OP said they had to get their own coverage and was looking at $700/month -- unless you're in perfect health and/or it's a limited policy, I don't think so.

rai
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Post by rai » Wed Aug 25, 2010 8:00 am

getoutearly wrote:if i work another 20 months after my DESIRED retirement date, my lump sum goes up by 200K. my salary is large and i get a ton of vacation. so now everyone can tell me i would be a fool not to work the extra 20 months. :D
you are a fool

work 20 months, have more money when you retire and less time in retirement (without healthcare etc..) less time taking money out of your savings.

It's the no brainer of all time.

I would not say this if you were flush with cash, if you had $3M or so, but you sound like you are cutting it close with the first scenario.

Plus your social security payments go up when you work at high salary. It averages your highest 35 years. Any more you work, will be replacing lower years (or years counted at zero if you did not work a full 35 years).

I don't know how much it would mean in your situation, but it could be $50/mo (or more) indexed for inflation for the 20+ years. ALso you may have enough extra money with the additional $200K plus whatever you can manage to save on your own, to push back taking social security so that you don't get such a reduced payment.

http://www.fairmark.com/retirement/socs ... year-1.htm
Replacing Years of Zero Earnings
As you can see from the examples above, you get an increase in your social security retirement benefit only if your additional year of earnings replaces a year when the earnings were smaller. You can be sure this is the case if your prior history includes fewer than 35 years of earnings, because that means your additional year of earnings will replace a year of zero earnings.

Example: Looking at the annual statement you receive from the Social Security Administration, you see that you have fewer than 35 years with earnings that count toward your retirement benefit. You are considering working an additional year when you expect to earn $42,000.

With fewer than 35 years of earnings, the benefit calculation will include some years of zero earnings. Working the additional year will increase your total by $42,000. Divide by 420 (the number of months in 35 years) to determine that your average indexed monthly earnings will increase by $100.
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

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soaring
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Re: enjoy

Post by soaring » Wed Aug 25, 2010 8:22 am

royal4 wrote:$700 a month for health care for 2 people -- WHERE??? I pay $1250 a month for 2 people -- I retired at 53 in 2007 and health care will be my biggest expense until medicare (and then I don't expect it to go down too much)
I guess it depends how much coverage you want / need. Until a few months ago when I began medicare we had a Blue Cross health policy since 2003, when I quit working, that was a "surgery" only policy, $5k deductible, with 6 mil ea max. We self insured routine doctor visits but we are both healthy and take no meds.

The cost of that policy for both of us was $240 monthly in 2010. Maybe your health requires more coverage.

I found this policy by searching BCBS web site reviewing all their policies myself. You should not need anyone to do it for you. It is all spelled out for each policy in chart form...at least it was.
During that 7-8 years I applied in two separate states when we moved (policies are not transferable) and rates were consistent with both BC companies in different states. Do not let your coverage expire more than 60? days or insuring becomes much more of a hassle. I had requested coverage and completed paperwork 60 days before quitting in 2003 or moving in 2007 and it took that long to get all the ducks in a row...but necessary so there is always coverage.
Desiderata

getoutearly
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Post by getoutearly » Wed Aug 25, 2010 9:40 am

if you people are going to insist i work the 20 extra months, i am going to buy myself some expensive toy each of those 20 months :wink:

YDNAL
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Re: Retire Early

Post by YDNAL » Wed Aug 25, 2010 9:58 am

getoutearly wrote:Current portfolio:
49,000 emergency fund cash
116,000 rollover IRA 60/40
241,000 401K 60/40
14,000 Roth IRA 60/40
720,000 lump sum coming in 10 months
1,141,745 total

Have been lurking here for a couple of years but this is my first post. I would like to retire several months from now. I will only be 56 and I realize I could build a bigger portfolio by working longer but life is short.....
getoutearly wrote:ok i will drop the bombshell that i didn't mention before. if i work another 20 months after my DESIRED retirement date, my lump sum goes up by 200K. my salary is large and i get a ton of vacation. so now everyone can tell me i would be a fool not to work the extra 20 months. :D
Lets see... work less than 2 more years and receive near 130% in lumpsum from today.

Retiring early at 56yo is a personal choice where sometimes there are special circumstances that influence the decision.

That said, to leave that type of cash on the table - especially when the lumpsum is a HUGE piece of total assets - those must be some *very special* circumstances.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

Ron
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Re: Retire Early

Post by Ron » Wed Aug 25, 2010 10:10 am

YDNAL wrote:Lets see... work less than 2 more years and receive near 130% in lumpsum from today.
Don't forget to add in the additional 20 months of net salary.

- Ron

Spirit Rider
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Post by Spirit Rider » Wed Aug 25, 2010 2:19 pm

One other thing to consider when retiring early. Your Social Security benefits are based on an average of your 35 highest "wage adjusted" years.

Look at your most recent social security earnings statement. This should have a record of all your earnings. Compare it to the following list of the 35 most recent ss maximum taxable earnings

1976=15,300, 1977=16,500, 1978=17,700, 1979=22,900, 1980=25,900, 1981=29,700, 1982=32,400, 1983=35,700, 1984=37,800, 1985=39,600, 1986=42,000, 1987=43,800, 1988=45,000, 1989=48,000, 1990=51,300, 1991=53,400, 1992=55,500, 1993=57,600, 1994=60,600, 1995=61,200, 1996=62,700, 1997=65,400, 1998=68,400, 1999=72,600, 2000=76,200, 2001=80,400, 2002=84,900, 2003=87,000, 2004=87,900, 2005=90,000, 2006=94,200, 2007=97,500, 2008=102,000, 2009=106,800, 2010=106,800

For each year you are significantly below the maximum, woriking an additional year at or above the maximum will increase your benefits. Especially for very low percentage years or years with zero.

In my case I have 26 years with an earnings average of 97% of maximum. Then I have 9 years with an earnings average of 38% of maximum. So I would increase my benefit basis by working another nine years (at or above the max).

Now one thing to note, while SS taxes are flat up to the maximum earning point, the benefits are progressive. So while low and median wage earners get a significant percentage of their SS earnings, Higher wage earners get an increasingly smaller percentage of their SS earnings.

However, if you have lower or median wage earnings AND have several of your 35 years well below "your" average, you can significantly reduce your benefit by retiring early.

KyleAAA
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Post by KyleAAA » Wed Aug 25, 2010 2:22 pm

Is working part-time out of the question? Or perhaps moving to a cheaper area? Also, what's your plan for healthcare? I'd work the extra 20 months, personally. You've already worked 30-something years. What's an extra 20 months?

rai
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Post by rai » Wed Aug 25, 2010 2:47 pm

KyleAAA wrote:I'd work the extra 20 months, personally. You've already worked 30-something years. What's an extra 20 months?
this gets to the heart of the question.

You worked ~30 years, you will be retired ~30 years (who can say?) but lets say that for an argument.

you have saved up or were forced to contribute to a retirement plan that may have to last 30 years. It's far better to save extra than to run out don't you think?
"Life is what happens to you while you're busy making other plans" - John Lennon. | | "You say that money, isn't everything | But I'd like to see you live without it." - Silverchair

KyleAAA
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Post by KyleAAA » Wed Aug 25, 2010 3:02 pm

rai wrote: It's far better to save extra than to run out don't you think?
That depends on the situation. If I absolutely hated my job, I'd retire early in a heartbeat. If I didn't mind it but didn't love it, I'd work the extra 20 months.

ensign_lee
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Post by ensign_lee » Wed Aug 25, 2010 3:07 pm

getoutearly wrote:if you people are going to insist i work the 20 extra months, i am going to buy myself some expensive toy each of those 20 months :wink:
Haha well as long as each toy is < $10,000 , you'll still be ahead. :D

MP173
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Post by MP173 » Wed Aug 25, 2010 4:51 pm

Are you secure in receiving the lump sum? In other words is the employer financially sound?

Do you enjoy working? Do you enjoy your job?

From a $ & cents standpoint, it appears to be a no brainer....however, there are always other things to consider.

I am your age and cannot think of not working. Hope to be at it 10 years from now.

Ed

royal4
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Post by royal4 » Wed Aug 25, 2010 5:05 pm

I'd work the 20 xtra months and max out vacation and sick time, maybe some paid/non-paid time off??? - That 200k will buy some nice toys.

getoutearly
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Post by getoutearly » Thu Aug 26, 2010 2:14 pm

MP173 wrote:Are you secure in receiving the lump sum? In other words is the employer financially sound?

Do you enjoy working? Do you enjoy your job?

From a $ & cents standpoint, it appears to be a no brainer....however, there are always other things to consider.

I am your age and cannot think of not working. Hope to be at it 10 years from now.

Ed
yeah the lump sum is pretty secure although it goes up and down with the pbgc rate. right now the rate is low so the lump is high. if i wait and the rate goes up my lump goes down. but i would still be way ahead by working 20 more months. my job is not bad i can't complain. just have always thought about getting out early.

getoutearly
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Post by getoutearly » Thu Aug 26, 2010 2:15 pm

Spirit Rider wrote:One other thing to consider when retiring early. Your Social Security benefits are based on an average of your 35 highest "wage adjusted" years.

Look at your most recent social security earnings statement. This should have a record of all your earnings. Compare it to the following list of the 35 most recent ss maximum taxable earnings

1976=15,300, 1977=16,500, 1978=17,700, 1979=22,900, 1980=25,900, 1981=29,700, 1982=32,400, 1983=35,700, 1984=37,800, 1985=39,600, 1986=42,000, 1987=43,800, 1988=45,000, 1989=48,000, 1990=51,300, 1991=53,400, 1992=55,500, 1993=57,600, 1994=60,600, 1995=61,200, 1996=62,700, 1997=65,400, 1998=68,400, 1999=72,600, 2000=76,200, 2001=80,400, 2002=84,900, 2003=87,000, 2004=87,900, 2005=90,000, 2006=94,200, 2007=97,500, 2008=102,000, 2009=106,800, 2010=106,800

For each year you are significantly below the maximum, woriking an additional year at or above the maximum will increase your benefits. Especially for very low percentage years or years with zero.

In my case I have 26 years with an earnings average of 97% of maximum. Then I have 9 years with an earnings average of 38% of maximum. So I would increase my benefit basis by working another nine years (at or above the max).

Now one thing to note, while SS taxes are flat up to the maximum earning point, the benefits are progressive. So while low and median wage earners get a significant percentage of their SS earnings, Higher wage earners get an increasingly smaller percentage of their SS earnings.

However, if you have lower or median wage earnings AND have several of your 35 years well below "your" average, you can significantly reduce your benefit by retiring early.

very good point i had not thought of. seems it is best to work 35 years but i hope i don't do that. i am pretty close to those numbers for 30 years but way low prior to that

getoutearly
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Post by getoutearly » Thu Aug 26, 2010 2:18 pm

vinny - - -

got the book and started reading thanks!!!

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Peter Foley
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Post by Peter Foley » Thu Aug 26, 2010 9:10 pm

Some of the early answers hint at an approach that might work for you, i.e., withdraw at a higher percentage for the first few years. The 4% solution is The Trinity study guideline for a specific pattern of withdrawals. There are many other approaches that allow for a slightly higher safe withdrawal. Many of them are described in the Wiki or linked from the Wiki. I have summarized two of them below and have a slight preference for the first option which uses a Stein & DeMuth Monte Carlo Simulation for the first three safe withdrawal estimates.

5 Year Plan - In this method, the retirement is broken into five-year periods. Independently separate withdrawal rates can be assigned to each five-year period. In the first year of each period, the withdrawal amount is calculated by multiplying the total amount remaining in the portfolio by the withdrawal rate assigned to that five-year period. Then in years two through five of each five-year period, the withdrawal amount is increased by the previous year’s inflation rate.
However, in the event that the returns during first five years are poor, whereby the total portfolio declines by 10% or more, the withdrawal amount gets reset. The new withdrawal amount is obtained by multiplying the value of the now-reduced portfolio by 4%. The withdrawal amount is then increased by the previous year’s inflation rate for the remainder of the first five-year period. There is no “4% reset” in subsequent five-year periods.
Number of Years
Remaining
Safe 100% Safe 99% Safe95% Safe Historical 100% safe
30 3.5% 5.3% 6.2% 4.0%
25 3.7% 5.6% 6.6% 4.3%
20 4.1% 6.4% 7.5% 4.9%
15 5.6% 7.9% 8.9% 6.0%
10 8.6% 10.9% 12.2% 8.1%

6% Strategy/ Decision Rules with Guardrails - Jonathan Guyton - Withdrawals increase with inflation. But if inflation exceeds 6%, the increase is capped at 6%. However, there is no increase following a year where the portfolio’s total return is negative and when that year’s withdrawal rate (based on the portfolio’s current total value) would be greater than the initial withdrawal rate. In other words, under those conditions, the withdrawal amount would be frozen.
The strategy of increasing withdrawals along with inflation works fine, provided the markets and inflation are moderately well behaved. But if you get hit with either rapid inflation or a devastating market crash, you can rapidly run out of money, as you make larger and larger withdrawals from an ever-shrinking portfolio. An 80% stock portfolio could support a 6.2% initial withdrawal rate, while the 65% stock portfolio could start at 5.8%. But if you adopt those lofty withdrawal rates and you want to be sure your money lasts 40 years, Mr. Guyton says you need to follow three rules.
• If your portfolio loses money during the year, you can't give yourself a raise the following year. In other words, if you add up your portfolio's year-end value and the money withdrawn during the prior 12 months and this sum is less than your portfolio's beginning-of-year value, you can't increase your next year's withdrawal to compensate for inflation.
• No matter how high inflation gets, your maximum annual increase is 6%.
• You have to avoid selling hard-hit stock funds. Instead, each year, start by lightening up on winning stock funds.

Spirit Rider
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Post by Spirit Rider » Thu Aug 26, 2010 9:40 pm

getoutearly wrote:very good point i had not thought of. seems it is best to work 35 years but i hope i don't do that. i am pretty close to those numbers for 30 years but way low prior to that
I think in your case there would not be that much benefit to get the 35 years. This is because there is a diminishing return with SS.

My reason for bringing this up was, if you didn't have 35 years of good earnings then there would be extra reasons to work those extra 20 months.

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