Early Retirement Timing?

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northernboy
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Joined: Sun Mar 06, 2016 1:31 pm

Early Retirement Timing?

Post by northernboy »

I’ve been reading and absorbing the collective wisdom of this site for a few years now. I am continually impressed with the thoughtful advice that is provided across the financial spectrum. I am a first time poster and am looking for your opinions.

Here’s our situation:

Age: 50 (no health issues)
Spouse’s Age: 57 (no health issues)

- No kids, no debt, own home outright
- Combined Annual Income includes 245k salary, discretionary 30k bonus (which we don’t count on)
- Annually max out 401(k), HSA, Backdoor Roth IRA for each of us (includes catch-up) and contribute 50k to taxable savings
- Companies provide a 401(k) match (11k annually) and cash balance pension contribution (15k annually)
- Annual spending is approximately 45k excluding irregular expenses like roof/car replacement, etc.

Retirement assets are 2.6 million (50/50 stock/bond) primarily invested in broad-based/very low cost index funds broken out by following categories:

Pre-tax: 50%
Roth: 13%
Taxable: 36%
HSA: 1%

Both of us work at mega-corps in a fairly high stress profession/high COLA and are planning our exit strategy. My wife is looking to pull the plug ASAP – she’s had it. However, I’ve advised her to work 2 more years and I work 5 more years till age 55 (I have a higher tolerance for corporate BS/stress plus I am younger). We are saving a lot of money presently and that is hard to walk away from – I have concerns about longevity and having enough for future health care expenses. Since we have no kids to count on in our elder years, we will have to support ourselves till the end.

My question to you: with our current fiscal/personal situation when can my wife and I safely pull the plug?

Thank you for your thoughtful consideration!
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prudent
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Re: Early Retirement Timing?

Post by prudent »

How much will the pension income be and when will you start collecting?
livesoft
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Re: Early Retirement Timing?

Post by livesoft »

northernboy wrote:My question to you: with our current fiscal/personal situation when can my wife and I safely pull the plug?
You should see what calculators like http://www.firecalc.com and http://www.cfiresim.com tell you.

I don't see how annual spending is $45K is consistent with "Both of us work at mega-corps in a fairly high stress profession/high COLA" unless you are on the road all the time, do nothing but work, and refuse to take vacations.

Can you please confirm expenses?

I suggest you pull the plug today.
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jfave33
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Re: Early Retirement Timing?

Post by jfave33 »

You have more than enough. Maybe double. You can both pull the plug now. What is your SS at full retirement age? pensions?

Definitely let your wife stop working!
Ybsybs
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Re: Early Retirement Timing?

Post by Ybsybs »

northernboy wrote:- Annual spending is approximately 45k excluding irregular expenses like roof/car replacement, etc.

Retirement assets are 2.6 million (50/50 stock/bond) primarily invested in broad-based/very low cost index funds broken out by following categories:

Pre-tax: 50%
Roth: 13%
Taxable: 36%
HSA: 1%
You can both pull the plug today.

You have $936,000 in taxable (36% of $2.6M). Worst case tax scenario, every bit of that is a capital gain, but as long as you stay in the 15% tax bracket you'll pay 0%.

In three years until your spouse reaches age 60, let's say you have $50k in spending each year. Let's say your accounts only keep up with inflation. (Yes, these are extremely pessimistic assumptions to show how very safe you are.) I rounded up to $50k to accommodate irregular expenses you mentioned as not included in the $45k.

Spouse Age 57, 2016: $936,000 in taxable - $50,000 = $886,000
Spouse Age 58, 2017: $886,000 in taxable - $50,000 = $836,000
Spouse Age 59, 2018: $836,000 in taxable - $50,000 = $786,000

When your spouse is 60, at least some of the Roth and traditional retirement saving moneys will be available to withdraw without penalty. The $786,000 remaining in taxable will provide $31,440 annually if you withdraw 4%. You'd need another $18,560 from the Roth and pre-tax accounts each year, which would require a $464,000 nest egg in the spouse's retirement accounts.

In case there isn't that much money in spouse retirement accounts, here's the numbers with the same very pessimistic only keeping up with inflation return of investment assumptions where we wait until you (OP) turn 60 to touch any retirement account moneys.

OP Age 50, 2016: $936,000 in taxable - $50,000 = $886,000
OP Age 51, 2017: $886,000 in taxable - $50,000 = $836,000
OP Age 52, 2018: $836,000 in taxable - $50,000 = $786,000
OP Age 53, 2019: $786,000 in taxable - $50,000 = $736,000
OP Age 54, 2020: $736,000 in taxable - $50,000 = $686,000
OP Age 55, 2021: $686,000 in taxable - $50,000 = $636,000
OP Age 56, 2022: $636,000 in taxable - $50,000 = $586,000
OP Age 57, 2023: $586,000 in taxable - $50,000 = $536,000
OP Age 58, 2024: $536,000 in taxable - $50,000 = $486,000
OP Age 59, 2025: $486,000 in taxable - $50,000 = $436,000
OP Age 60, 2026: $436,000 in taxable - $50,000 = $386,000

The remaining $386,000 in taxable generates $15,440 per year. $34,560 per year is needed which would require $864,000 in retirement savings. You have $1,638,000 (not counting the health savings account) which would provide $65,520 per year.

You are in great shape. You really can both quit right now.
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Toons
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Re: Early Retirement Timing?

Post by Toons »

"My wife is looking to pull the plug ASAP – she’s had it"

Life is just way too short to spend your time doing something that makes you stressed or miserable.
The spouse needs to retire
No doubt.
:happy
Last edited by Toons on Sun Mar 06, 2016 3:27 pm, edited 1 time in total.
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basspond
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Re: Early Retirement Timing?

Post by basspond »

Is it fair that even if you worked five more years and your wife retired today she would be working 2 years past your retirement age? I would support her in retiring now and work until at least 55. Don't expect her to keep working until you decide to retire.
joebh
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Re: Early Retirement Timing?

Post by joebh »

- No kids, no debt, own home outright
- Combined Annual Income includes 245k salary, discretionary 30k bonus (which we don’t count on)
- Annually max out 401(k), HSA, Backdoor Roth IRA for each of us (includes catch-up) and contribute 50k to taxable savings
- Companies provide a 401(k) match (11k annually) and cash balance pension contribution (15k annually)
- Annual spending is approximately 45k excluding irregular expenses like roof/car replacement, etc.

Retirement assets are 2.6 million
$45k of annual expenses, and you already have $2.6M saved?

Unless you are anticipating some sort of mega health expenses or you have no real idea how to spend your time in anything other than work, you should have retired yesterday. You have won the game. You no longer need to play.

What are you waiting for?
Last edited by joebh on Sun Mar 06, 2016 3:54 pm, edited 1 time in total.
livesoft
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Re: Early Retirement Timing?

Post by livesoft »

I think they probably pay $10,000 a year in property taxes, $5,000 a year in home insurance and car insurance, $10,000 a year eating out and another $4,000 a year in utilities. If they retired now, they would pay about $15,000 a year in health insurance. That's starting to add up to near $45,000 with no budget for vacations, eating at home, gifts, entertainment, cell phones, gasoline, etc. Anyways, I throw this out there to re-expresss my concerns about the stated living expenses for these DINK in a high COLA.
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Cheese
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Re: Early Retirement Timing?

Post by Cheese »

northernboy wrote:
My wife is looking to pull the plug ASAP – she’s had it. However, I’ve advised her to work 2 more years and I work 5 more years till age 55 (I have a higher tolerance for corporate BS/stress plus I am younger).
Retire tomorrow. Each give your two weeks and be done. If you absolutely hate retirement (very small chance) you can go back to work while your wife stays retired.

I have asked hundreds of retired people if they ever miss work (from grocery store clerks to former big company CEOs) and so far 100% of the replies have been a resounding "no chance". Think about that - not one person has said "yes I miss work".

I think when people are working they're very scared of what retirement will hold. I say go for it - id hate to see you work another five years to pile up unnecessary money and regret that decision. To me, this is like the mortgage payoff question - if you can (payoff mtg or afford to retire), do it - you can always get another mortgage (job) if you hate it.

Congratulations on winning the game and make sure you take your wife on a few week trip to somewhere nice to celebrate.
duckcalldan
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Re: Early Retirement Timing?

Post by duckcalldan »

GO FOR IT. I'll be right on your tail.

You might also have some tax bracket room to convert some of your IRA money into a rollover Roth, helping to minimize your RMDs without any additional federal tax.

I'm ERing a year from now and am hoping to convert 40-50K annually along with 30K of LTCG and some qualified dividends. Enough to live on and, if I can trust Taxcaster, my tax rate should be around 3%.
cherijoh
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Re: Early Retirement Timing?

Post by cherijoh »

northernboy wrote: Retirement assets are 2.6 million (50/50 stock/bond) primarily invested in broad-based/very low cost index funds broken out by following categories:

Pre-tax: 50%
Roth: 13%
Taxable: 36%
HSA: 1%

Both of us work at mega-corps in a fairly high stress profession/high COLA and are planning our exit strategy. My wife is looking to pull the plug ASAP – she’s had it. However, I’ve advised her to work 2 more years and I work 5 more years till age 55 (I have a higher tolerance for corporate BS/stress plus I am younger). We are saving a lot of money presently and that is hard to walk away from – I have concerns about longevity and having enough for future health care expenses. Since we have no kids to count on in our elder years, we will have to support ourselves till the end.

My question to you: with our current fiscal/personal situation when can my wife and I safely pull the plug?
If you want your wife to stay in good health, you should support her retiring ASAP. If you want to wait and retire until you are 55 that shouldn't be a problem. Although once she retires, I expect that you will have second thoughts about retiring yourself. :wink:

I think you guys are well set to both retire now unless you plan to explode your estimated spending in retirement. I speak as someone who is your wife's age and planning to retire within the next 2 years. But I still enjoy my job (most of the time :happy) - if I didn't I'd retire tomorrow.

I would suggest playing with Firecalc and i-Orp and seeing what that tells you. Also you don't mention social security- which is another source of income. If you are worried about longevity then wait until you are 70 to start your SS benefits.
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northernboy
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Re: Early Retirement Timing?

Post by northernboy »

To everybody who's replied thus far - thank you. You are helping us to consider the timing of our next steps.

I see that there are some questions and doubts about our expenses that have been posted so I will reply accordingly. Note that we purposefully forego some things that are considered ‘essentials’ by modern convention.

- Our 2015 expenses came to $45,177 (I track everything in Quicken). This includes about 10k in property taxes. We avoid recurring expenses like cell phones, pay television, magazine subscriptions, etc. and routinely bring our lunch to work as a way of controlling expenses. For recreation we enjoy gardening, hiking, occasional golf and regional vacations while allowing for an annual trip which may require flying somewhere in the US. We eat out about once every 6 – 8 weeks and treat that as a special occasion, not a routine occurrence as that’s how it was when I grew up. We purchase used cars and drive them till they are approximately 15 years old. We are frugal – no doubt.
- Our cash balance pensions can be taken as a lump sum or as a non-indexed annuity. For example, if I work till 55 and wait till 65 to collect an annuity, my payment will be $1,400/month with full survivorship. If my wife stopped working now and waited till 65, her payment will be $1,100/month with full survivorship.
- Social Security is difficult to calculate I’ve found. The annual statements provide amounts if one works till 62, full retirement age or 70 – none of which we are considering. I’ve downloaded the software from the Social Security Administration and found it to be unintuitive and am unsure of the result I got. For what it’s worth, our combined amount at age 62 comes to $3,636. This would need to be discounted to account for our early retirement date.

We are not the typical American couple – I get that. I’ve provided a picture of our finances and lifestyle choices. We’ve been very fortunate to be able to save this amount – no boasting here. This took effort and planning. Although we do have a very good amount saved I do have a concern on getting out of the rat race sooner than later – mainly due to our age and family longevity – hence my question.

Thanks again.
livesoft
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Re: Early Retirement Timing?

Post by livesoft »

Your spouse should have retired years ago. You can keep working if you like, but you don't need to.
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Ged
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Re: Early Retirement Timing?

Post by Ged »

Congratulations. Enjoy your retirement!
joebh
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Re: Early Retirement Timing?

Post by joebh »

northernboy wrote:Although we do have a very good amount saved I do have a concern on getting out of the rat race sooner than later – mainly due to our age and family longevity – hence my question.
If you take the amount of money you have already saved in your retirement accounts, and divide it by the amount of money you say you need annually, you'll come up with a number north of 57 years.

That is without any pension money at all, without any social security benefits at all, and with 0% returns on your investments.

I don't really understand your concerns.
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David Jay
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Re: Early Retirement Timing?

Post by David Jay »

Ged wrote:Congratulations. Enjoy your retirement!
Congratulations. Enjoy HER retirement (immediately)!
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derosa
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Re: Early Retirement Timing?

Post by derosa »

Begone! Both of you.

The worst day of your (soon to be) retirement is BETTER than the best day you ever thought you had at work!!!

Your habits guarantee that you will be fine.
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TxAg
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Re: Early Retirement Timing?

Post by TxAg »

All I have to add is Congratulations!
cherijoh
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Re: Early Retirement Timing?

Post by cherijoh »

northernboy wrote: Our cash balance pensions can be taken as a lump sum or as a non-indexed annuity. For example, if I work till 55 and wait till 65 to collect an annuity, my payment will be $1,400/month with full survivorship. If my wife stopped working now and waited till 65, her payment will be $1,100/month with full survivorship.

- Social Security is difficult to calculate I’ve found. The annual statements provide amounts if one works till 62, full retirement age or 70 – none of which we are considering. I’ve downloaded the software from the Social Security Administration and found it to be unintuitive and am unsure of the result I got. For what it’s worth, our combined amount at age 62 comes to $3,636. This would need to be discounted to account for our early retirement date.
You might be interested in this thread on early retirement and its impact on SS. As high income earners, I would expect early retirement to have very little impact on your SS benefits. I ended up creating my own Excel spreadsheet based on the example SSA calculations. I posted about it here.

I expect that it you continue to work until 55, wait until 65 to draw your pensions and until 70 to draw SS, you will have all expenses covered between the pension and SS - you might even have a surplus at that point!

The schedule would look like the following:
  • Wife retires now and you continue working - you didn't specify the split in salary, but I'd guess you could probably still cover all expenses, max out your 401k and both IRAs; you would lose her 401k contributions and most (if not all) of the extra savings in taxable
  • in 2021, you retire at age 55 and you both live off of your taxable accounts and/or 401ks
  • in 2024, your wife starts drawing her pension, which reduces your withdrawal rate from taxable and tax-advantaged accounts
  • in 2029, your wife starts drawing SS, which further reduces your withdrawal rate
  • in 2031, you start drawing your pension, which again reduces (if not eliminates) your withdrawals from taxable/tax-advantaged to cover expenses
  • in 2033, you hit your FRA for SS and can draw half of your wife's SS benefits without impacting your future benefit <-- I would verify this part since I'm single and may have it wrong
  • in 2036, you hit 70 and start drawing your own SS assuming it is > 50% of your wife's benefit.
Given the size of your nest egg, I can't see any reasonable circumstances where you'd run out of money. Ybsybs may not be aware of it, but any funds in a 401k can be withdrawn without an early penalty if you retire in the year you turn 55 or later. This means your wife could retire today and have full access to her 401k funds. If you retire at 55, you could do the same with yours.
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MikeWillRetire
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Re: Early Retirement Timing?

Post by MikeWillRetire »

Well done Northernboy, well done.
2Birds1Stone
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Re: Early Retirement Timing?

Post by 2Birds1Stone »

You should both pull the plug and start to really enjoy life.

What would you like to do while you are able bodied and healthy? You have 2X the assets you need to safely retire as it stands right now.

:sharebeer
Ybsybs
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Re: Early Retirement Timing?

Post by Ybsybs »

cherijoh wrote:Given the size of your nest egg, I can't see any reasonable circumstances where you'd run out of money. Ybsybs may not be aware of it, but any funds in a 401k can be withdrawn without an early penalty if you retire in the year you turn 55 or later. This means your wife could retire today and have full access to her 401k funds. If you retire at 55, you could do the same with yours.
Good point.
livesoft
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Re: Early Retirement Timing?

Post by livesoft »

The "withdraw-401k-at-55" thing is subject to some caveats. For instance, while the IRS allows it, I think one's employer 401(k) sponsor may not allow partial withdrawals or partial rollovers. One needs to look into the rules that would apply to one's own situation.

But 401(k)/IRA withdrawals do not appear to be necessary if I read this thread right.
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desiderium
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Re: Early Retirement Timing?

Post by desiderium »

The difficulty with estimating health care costs pre-Medicare age is the trend toward higher out of pocket deductibles. It is pretty routine now for health plans to have these set at over 10,000. So, if you are unfortunate enough to suffer from a chronic illness that requires expensive medications, you will pay the deductible annually in addition to your premium.

This is a variable that should be included in calculating early retirement scenarios.

In addition to your savings, you are at the peak of your human capital. Maintaining this asset well into your 60's can serve as a hedge against market downturns and health setbacks. Considering how you might do this, for example consulting part time, is an important consideration for early retirement, IMO.
jfave33
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Re: Early Retirement Timing?

Post by jfave33 »

With the wife being 57 early withdrawal is not necessary in any case as in 2-3 years she can tap her 401k/ira if necessary (unlikely with that taxable balance).

If the OP and his wife cannot retire I think very few people in the world could! Large balance, pensions, probably max or close to it social security, low expenses. I'd be surprised if they didn't leave millions to heirs/charity at the end.
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greg24
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Re: Early Retirement Timing?

Post by greg24 »

Congrats on winning the game. Your wife should retire today. You can take your time, research the ramifications of retiring, etc., before pulling the trigger.
cusetownusa
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Re: Early Retirement Timing?

Post by cusetownusa »

I agree with everyone...you have more than enough for both to retire today. If you want to continue working at least let your wife retire. Why make her work one more day for no reason?

If I had that much saved up I would retire today and I am only 36.
dave_k
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Re: Early Retirement Timing?

Post by dave_k »

It was a pain to figure out, but I calculated that if my wife and I keep working at roughly our current income level for 6 more years until I'm 50 and she's 52 and then retire, our combined SS benefits if we delay until 70 should be around 60k/yr in present dollars. Our ages at retirement would be similar, and if our income histories are similar (and it sounds like they are based on your age 62 estimated amount) there's a good chance that SS will completely cover your living expenses from 70 on if you keep your current standard of living, especially if you move to a lower COL area. Even the pensions would be gravy. You only need to make it 20 years with 2.6M - not even since the pensions and your wife's SS will kick in sooner.

I figured that my wife and I could safely retire now at 44/46 with higher expenses and less money than you have, but we'll keep working for a few more years to increase what we can spend and boost the safety margin. Plus I just don't feel like I'm ready to retire yet. I'm expecting our assets will be a similar size at your age (about 2.6M at 50), and that we could start out spending at least 100k/yr and dropping gradually over time, adjusting our spending somewhat if the market drops (or increases) significantly and be pretty safe, and that's with no pensions. Perhaps you feel like I do in not being ready to retire, but it sounds like your wife is ready, and you have an enormous safety margin by comparison with such low expenses. Plenty extra for health care, etc.

Congratulations!

PS - a note about the SS calculators: they tend to show the benefit starting at 62 if you tell them you're retiring before then. If your normal retirement age is 67 and you wait until 70 to claim, you can multiply the age 62 amount by 1.77 to get the age 70 amount.
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Watty
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Re: Early Retirement Timing?

Post by Watty »

You also need to consider that your health might not hold up and there is a risk that one of you will die sooner rather than later.

This is a very simplistic life expectancy calculator but you put your ages in here and see the chances one of you not living another ten years.

https://personal.vanguard.com/us/insigh ... ement-tool

I retired last summer even though I was not in a high stress job I have been getting a lot more exercise and eating a lot better so I have lost a lot of weight. In all likelihood I have improved my odds of either having more years or better quality years or both.

Don't underestimate the non-monetary costs of continuing to work.
northernboy wrote:– none of which we are considering. I’ve downloaded the software from the Social Security Administration and found it to be unintuitive and am unsure of the result I got. For what it’s worth, our combined amount at age 62 comes to $3,636. This would need to be discounted to account for our early retirement date.
I was just using the SS web site this morning to get my latest numbers and it was pretty easy to use. Once I entered my information and wages to verify my identity I could add a number like 63 years old with earnings with zero for earnings to find out my benefit at different ages.
Stormbringer
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Re: Early Retirement Timing?

Post by Stormbringer »

northernboy wrote:My question to you: with our current fiscal/personal situation when can my wife and I safely pull the plug?
Financially, yes.

I think the more important question is how are you going to fill the huge hole that early retirement will leave in your lives? You don't have kids or grandkids to spend time with. Chances are your friends are still working. You don't seem to be world travelers.

I remember my grandfather took an early retirement package from the phone company when he was in his early 50's. His retirement party was Saturday night, and by Tuesday morning he was bored, sitting on the couch trying to find something on TV. For many years after that he said taking an early retirement was the worst decision he ever made.

I'm not saying you need to stay at Megacorp for 10 more years, but you should put some serious thought into what comes next.

Best of luck to you!
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
jane1
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Re: Early Retirement Timing?

Post by jane1 »

Retire now. You have more than enough. Enjoy life while you still can.
Also check out firecalc and post your situation on Early Retirement forum. Lot of others in situations similar to yours with advice on healthcare, withdrawal strategies during early years, etc.
http://www.early-retirement.org/
cusetownusa
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Re: Early Retirement Timing?

Post by cusetownusa »

dave_k wrote:It was a pain to figure out, but I calculated that if my wife and I keep working at roughly our current income level for 6 more years until I'm 50 and she's 52 and then retire, our combined SS benefits if we delay until 70 should be around 60k/yr in present dollars. Our ages at retirement would be similar, and if our income histories are similar (and it sounds like they are based on your age 62 estimated amount) there's a good chance that SS will completely cover your living expenses from 70 on if you keep your current standard of living, especially if you move to a lower COL area. Even the pensions would be gravy. You only need to make it 20 years with 2.6M - not even since the pensions and your wife's SS will kick in sooner.
This is something that I have been thinking about lately that a lot of people seem to overlook. For my wife and I our SS and her small pension would be more than enough to live a good life 70+ at the very minimum. Which means, at the very minimum we would only need our savings to last until age 70. So even an early retirement at age 50 you are talking about only needing your nest egg to last for 20 years. IMO, at least for my situation, a 4% withdrawal rate be very conservative even with an age 50 retirement.

However, after reading this forum and threads like this i always get the feeling I am under saving and will never have enough...not sure if people here are just very conservative or if I am missing something.
Tamahome
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Re: Early Retirement Timing?

Post by Tamahome »

One important thing to note is that Social Security rules may change between now and when you can file. For that reason, it is not prudent for an early retiree to count on Social Security benefits, but to think of them as a safety net. Of course, with your assets and pensions, you would be fine even without Social Security.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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HomerJ
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Re: Early Retirement Timing?

Post by HomerJ »

northernboy wrote:Both of us work at mega-corps in a fairly high stress profession/high COLA and are planning our exit strategy. My wife is looking to pull the plug ASAP – she’s had it. However, I’ve advised her to work 2 more years and I work 5 more years till age 55 (I have a higher tolerance for corporate BS/stress plus I am younger).
You should let her quit today.

Start tracking your spending to get an exact figure of your expenses. But $2.6 million, even at 3% withdrawal (which is super-conservative, but you are young) will generate $78,000 a year. And that doesn't even count Social Security, which will be large, since you guys are high earners.

So really both of you could quit today... But if you're nervous, maybe just let her quit first, and you can work a couple more years while you guys make plans and firm up how much you really need.

Congrats on winning the game.
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HomerJ
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Re: Early Retirement Timing?

Post by HomerJ »

northernboy wrote:Our 2015 expenses came to $45,177 (I track everything in Quicken).
Ah, You already have a handle on your expenses... You could quit today. But I can tell you are nervous. So work a year or two more and think about it some more.

But definitely let your wife quit immediately.
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