Did I make a good decision to retire July 2017 instead of July 2018?

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sil2017
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Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 10:20 am

I guess it's too late now since I have already turned in my resignation letter. I am supposed to be retiring July 1, 2017.
Upon retirement , I will have $4700 monthly pension with simple cost of living adjustment of 2% yearly with 85% income protection PLUS $500 monthly for 10 years with no COLA.

If I retire July 2018 instead, my monthly pension would be $5150 per month rather than $4700 per month. The $500 monthly for 10 years will remain the same. I actually like my job.

No Social Security payment.

I am wondering if I made a wise decision to retire this year as I will be losing out an extra $450 per month should I retire one year later.

Here are the numbers for retiring this year:

56 years old, single , no kids

School District will pay $500 per month for 5 years towards my health benefit. I would have to pay the difference. This will amount to $100 or so per month for 2017-2018. Not sure what the premium will be after 2018. Then at age 61 1/2 ( 5 years later) I will have to pay the Full health benefit premium on my own. I can remain on the School District health plan. If I cannot afford medical at 61 1/2 to 65 , I can always relocate to Canada. I have dual citizenship.

I have a total of 570k in Vanguard and TIAA for 403B and 457B ( asset allocation at 55 percent stock, 45 percent bond)

I have 34k left on my mortgage at 4.375 15 year fix rate ( house worth 900k to 950k)

I have heloc debt of 12k

Am I good to go financially?
Should I take money from my TIAA Traditional (GSRA) 457B plan to pay off my heloc and mortgage upon retirement?
Last edited by sil2017 on Thu Apr 20, 2017 10:35 am, edited 2 times in total.

Da5id
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Da5id » Thu Apr 20, 2017 10:27 am

sil2017 wrote:If I retire July 2018 instead, my monthly pension would be $5150 per month rather than $4700 per month. The $500 monthly for 10 years will remain the same. I actually like my job.

I am wondering if I made a wise decision to retire this year as I will be losing out an extra $450 per month should I retire one year later.


Things you don't mention:

1) what are your expenses, and are they covered
2) what are you retiring to? Given that you like your job, you must have some alternative activities in mind you think are better (I hope!)

The first one seems the most important for the financial decision. Of course, more money is always great, there will be ways to spend it. But if you will have enough for your foreseeable expenses retiring this year, and have things you want to be doing, sounds good.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 10:32 am

#2- more time to travel, learn new language, fitness activities, spending time with family in Canada, healthy cooking
#1 - not sure as I will have to pay health premium on own at 61 1/2
Last edited by sil2017 on Thu Apr 20, 2017 10:34 am, edited 1 time in total.

gouverneur
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby gouverneur » Thu Apr 20, 2017 10:33 am

The key missing piece of info is your monthly or annual expenses, which is the most important determinant of whether you have too much or not enough.

You have a pension and presumably will add social security when the time comes (whether that's at 62, 67, or 70, depending on how long you want to wait).

You're subsidized on health insurance for 5 years, which gets you to 61. Then you need to bridge about 4 years worth of expenses on your own before you're Medicare eligible. That Canadian thing is a cool wrinkle, which also provides you some additional options there that most Americans don't have.

I'm struck by the huge amount of home equity you have relative to investments. Having a home worth 1.5-2x all investments is a little unusual, and a 950k home seems like a ton for a person who is single and will be living on 60k a year or so. Property taxes alone would be a huge payment, right?

Some basic suggestions:

1 - Let us know how much you spend on a monthly basis. If your total expenditures (including those property taxes) are under your pension amount, then you're fine. It doesn't matter that you gave up a higher pension.

2 - If you think you will spend or might want to spend more, then I'd suggest thinking about ways to change up your housing situation. A 900-950k house is a massive amount of equity. Would you be willing to or want to move to a lower COLA? Imagine you get a house that costs 250k and put another 600-630k in investments. Then you have a portfolio of $1.2M, still have a place to live, pay less in property taxes, etc.

3 - Taking a 3.5% withdrawal rate (going a little lower than the standard 4% since you're retiring earlier), you can take out about $20k per year from your current savings. That would go up to $42k a year if you downgrade the house. Voila, that's $100k per year between your pension and your drawdown of investments.

4 - Asset allocation of your funds looks fine.

5 - What are the interest rates on the debt? May want to pay those down if they are higher than you expect to earn from your investments.

6 - In the unlikely event you choose to change course on your retirement, is there any way to take back that resignation letter or speak to your boss/superiors/school to see whether you could stay on another year? In many areas, I imagine a school would be happy to keep you for another year, particularly if you love your job. People who love their jobs tend to be doing a good job at them, and it's not exactly like we have a surplus of good educators in this country.

The Wizard
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby The Wizard » Thu Apr 20, 2017 10:37 am

Working One More Year is always the best way!
Just kidding...
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msk
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby msk » Thu Apr 20, 2017 10:40 am

You are getting an extra year of vacation time. Enjoy it.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 10:41 am

'I'm struck by the huge amount of home equity you have relative to investments. Having a home worth 1.5-2x all investments is a little unusual, and a 950k home seems like a ton for a person who is single and will be living on 60k a year or so. Property taxes alone would be a huge payment, right?'"

My highest income was 103k several years ago.
This year income is 91k. I am living off my salary and heloc this year.

Property tax is 7200 per year.

I didn't realize it is unusual to have a home 1.5 to 2 times all investment.

I could have sold my house for 950k in October 2016 but chose not to.

No social security at any age. Only the 2 pensions mentioned.
Last edited by sil2017 on Thu Apr 20, 2017 10:49 am, edited 1 time in total.

bloom2708
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby bloom2708 » Thu Apr 20, 2017 10:46 am

+1 for retiring this year. That is a nice pension.

Consider downsizing the house. With the taxable from downsizing you can not touch your other investments for years.

I would not fall into the "one more year" trap. Good luck!
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gouverneur
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby gouverneur » Thu Apr 20, 2017 10:47 am

sil2017 wrote:'I'm struck by the huge amount of home equity you have relative to investments. Having a home worth 1.5-2x all investments is a little unusual, and a 950k home seems like a ton for a person who is single and will be living on 60k a year or so. Property taxes alone would be a huge payment, right?'"

My highest income was 103k several years ago.
This year income is 91k. I am living off my salary and heloc this year.

Property tax is 7200 per year.

I didn't realize it is unusual to have a home 1.5 to 2 times all investment.

I could have sold my house for 950k in October 2016 but chose not to.

No social security at any age. Only the 2 pensions mentioned.


Got it, what is your actual spending vs. saving of that income? Are you spending all of your income after taxes? Or is part of that going into savings?

If you're living off salary + HELOC and not saving, then it sounds like you're actually going to need to downgrade your lifestyle because your pension amount is significantly lower than that.

That property tax amount does not seem too bad (but I live in Florida, with no state income tax, so you'd pay $7,200 in tax on a property worth $350k down here).

My next question/suggestion would be to try to track your monthly expenses to get a better sense of how much you are actually spending. Do you put the majority of your spending on a credit card or cards? I would suggest using a platform like Personal Capital, link your cards or bank accounts to it, and then use their expense/budget tracker.

I have that set up for my family's accounts so I know down to the dollar how much we spend each month, without "balancing the checkbook" or much work on my part. That means I have a fair sense that I spend $X per month or $Y per year.

If you need more liquidity or investments that could generate income for you, I'd still consider selling the house and moving to a lower COLA. Presumably the number one thing tying you to your current place is your work, which you'll no longer need to be close to.

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greg24
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby greg24 » Thu Apr 20, 2017 10:50 am

Working another would, of course, result in better finances.

But, you appear to be very safe with what you currently have.

Are you sure you won't get any SS? Did you have any jobs as a young person? You could also work part time in retirement to (slightly) build up SS payouts.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 10:54 am

No social security at all.

Not even a dime.

Forgot about working as a young person.......I may possibly have minimal old age pension in Canada as I worked part time for 5 years and full time for one year....not sure and not counting the income.

Just concern about whether I can afford the high expense of health care I would need to pay in 5 years should I reside in the US.

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FrugalInvestor
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby FrugalInvestor » Thu Apr 20, 2017 11:00 am

It doesn't matter if it was a good (or the best) decision or not at this point. It's done, similar to sunk costs. In addition, only you can put a value on the psychological benefits on one year of additional retirement so money is not the only determinant.

What you should be spending your energies on now is properly balancing your resources and spending, unless of course you're entertaining the idea of going back to work, and if that's the case doing the former will help determine if you should do the latter.
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby jlcnuke » Thu Apr 20, 2017 11:03 am

Without knowing your expenses, there's no way to determine if you're financially set to retire. If your annual spending is $100k/year, then you're likely in trouble. If your annual spending is $30k/year, then you're likely able to increase your lifestyle in retirement. I'm guessing you're actually somewhere in-between there though.

Regarding your net worth vs home value, it is unusual for early retirees to have most of their net worth tied up in their primary residence. However, the "average" person's net worth is primarily equity in their primary residence.

From the last Census Bureau study on the subject the following information was pulled:
Image

fposte
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby fposte » Thu Apr 20, 2017 11:08 am

greg24 wrote:you sure you won't get any SS? Did you have any jobs as a young person? You could also work part time in retirement to (slightly) build up SS payouts.


It would likely be subject to the Windfall Elimination Provision even if he did have SS, so that would considerably reduce its value.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby The Wizard » Thu Apr 20, 2017 11:10 am

Not unusual for long-term teachers to have zero SS upon retirement. My GF is in same situation.

This also means no Medicare, unless married to a person covered by SS. So allow $1000/month for health insurance in your 60s and beyond...
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delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 11:12 am

Check out your state's "Obamacare" health insurance exchange to see what the current premiums are for a 61 year old. Obviously they will go up in the next few years, but at least you'll have some idea of how much to expect to pay when the time comes. You might also have the option of staying on your current plan for 18 months under the COBRA legislation once your subsidy runs out, but you'd pay full price for the insurance. You should be able to find out from your benefits' office.

Only you know whether you can cover your expenses with your pension and withdrawals at a reasonable rate (3%-4%) from your savings. As others have mentioned, reducing your housing expenses by moving to a smaller home or lower cost area would worth exploring. I live in a HCOL area, and just moving 5 miles further out from the core city can make a significant difference in housing costs.

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 11:23 am

jlcnuke wrote:Without knowing your expenses, there's no way to determine if you're financially set to retire. If your annual spending is $100k/year, then you're likely in trouble. If your annual spending is $30k/year, then you're likely able to increase your lifestyle in retirement. I'm guessing you're actually somewhere in-between there though.

Regarding your net worth vs home value, it is unusual for early retirees to have most of their net worth tied up in their primary residence. However, the "average" person's net worth is primarily equity in their primary residence.

From the last Census Bureau study on the subject the following information was pulled:
Image


I do not see how you draw your conclusion. According to the chart, people that are in the age bracket of early retirees have most of their net worth tied up in their homes. On that we agree. While it is likely that people in that age bracket who have retired have more liquid assets than those who have not, that doesn't mean that the retirees' liquid assets are a majority of their net worth. And you can't prove that from the chart, in any case. Also, lots of early retirees have traditional pensions from government jobs that allow them to retire without a large nest egg.

Remember that Bogleheads are not typical. Most on this forum would not retire early without a substantial nest egg, but that doesn't mean that the average early retiree has a large net worth outside of their home equity.

jlcnuke
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby jlcnuke » Thu Apr 20, 2017 11:36 am

delamer wrote:
jlcnuke wrote:Without knowing your expenses, there's no way to determine if you're financially set to retire. If your annual spending is $100k/year, then you're likely in trouble. If your annual spending is $30k/year, then you're likely able to increase your lifestyle in retirement. I'm guessing you're actually somewhere in-between there though.

Regarding your net worth vs home value, it is unusual for early retirees to have most of their net worth tied up in their primary residence. However, the "average" person's net worth is primarily equity in their primary residence.

From the last Census Bureau study on the subject the following information was pulled:
Image


I do not see how you draw your conclusion. According to the chart, people that are in the age bracket of early retirees have most of their net worth tied up in their homes. On that we agree. While it is likely that people in that age bracket who have retired have more liquid assets than those who have not, that doesn't mean that the retirees' liquid assets are a majority of their net worth. And you can't prove that from the chart, in any case. Also, lots of early retirees have traditional pensions from government jobs that allow them to retire without a large nest egg.

Remember that Bogleheads are not typical. Most on this forum would not retire early without a substantial nest egg, but that doesn't mean that the average early retiree has a large net worth outside of their home equity.


I didn't say the chart supported both conclusions I made. Also, "retiring early" is not typical. In fact, in order to retire early you just about always need to have a liquid net worth higher than the chart shows (exceptions being exceptionally cheap lifestyle or significant pension etc income). Even those with pensions, however, generally must supplement that with significant amounts from a nest egg in order to retire early (i.e. pre-SS etc). Myself and over 1/2 my friends have military pensions and/or disability payments, but none can retire currently because of insufficient investments. If you pop over to http://www.early-retirement.org/forums/ you'll see that even though a large percentage of people there have pensions, they also have significant investments that supplement those pensions to allow them the freedom to retire early. Few manage to retire on a pension alone before eligible for SS retirement income. Some do, but they seem to be in the minority of those who retire early from my observations of various communities dedicated to such things (here, ER.org, etc).

Edit: Though my conclusion is largely based on anecdotal evidence, common sense supports the thought that paying bills and affording a life without SS or an income beyond a potential pension (most of which are below previous earning levels) generally would require some sort of investments to fund that and those investments would likely have to be significant.

gouverneur
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby gouverneur » Thu Apr 20, 2017 12:48 pm

The Wizard wrote:Not unusual for long-term teachers to have zero SS upon retirement. My GF is in same situation.

This also means no Medicare, unless married to a person covered by SS. So allow $1000/month for health insurance in your 60s and beyond...


This is very interesting, I had no idea this was the case (but now see from Google the reasons for it).

It sounds like the OP's primary concern is about the 4 year period before Medicare where he will need to pay for his own health care expenses. Unfortunately on this front, none of us have any superior predictive power than others, and the board in any event doesn't allow discussions of future or potential legislation, which obviously is the biggest variable on this front.

I second the suggestion to get a sense for what the plans cost on the current health care exchanges, and would suggest calculators or summaries online of how much insurance prices might change in the future (http://kff.org/interactive/tax-credits- ... ctive-map/). Apologies if that touches on future or potential legislation, just trying to direct our friend to a potential resource without any political discussion!

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BL
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby BL » Thu Apr 20, 2017 12:53 pm

It only makes sense to ponder this if you still can undo your resignation.

If not, the point is, what do you need to live on, and what can you do to make it possible if current circumstance is not acceptable.

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Will do good
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Will do good » Thu Apr 20, 2017 12:56 pm

Without knowing your expenses it's hard to tell if you made the right decision.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 1:07 pm

From 61 to 65, I am able to keep the School District's health plan. However, i will no longer have the $500 per month subsidy.

$1000 per month for medicare seems extremely high. Is this an estimate for future expenses?

What is the Medicare tax of 1.45% deducted from my salary for?

According to CALPERS (3rd party administrator for School District) if i were on Kaiser senior adv, it would cost $300 per month for myself.

Is this supposed to be the going rate for Medicare people?


https://www.calpers.ca.gov/docs/2017-he ... uthern.pdf

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 1:21 pm

sil2017 wrote:From 61 to 65, I am able to keep the School District's health plan. However, i will no longer have the $500 per month subsidy.

$1000 per month for medicare seems extremely high. Is this an estimate for future expenses?

What is the Medicare tax of 1.45% deducted from my salary for?

According to CALPERS (3rd party administrator for School District) if i were on Kaiser senior adv, it would cost $300 per month for myself.

Is this supposed to be the going rate for Medicare people?


https://www.calpers.ca.gov/docs/2017-he ... uthern.pdf


Once you are eligible for Medicare, which costs about $130/month for Part B (no cost for Part A), then you'd pay $300/month to supplement Medicare with Kaiser. Sounds like a pretty good deal. (Assuming current prices.)

From 61 to 64, the full Kaiser premium, unsubsidized, will be $600/month which is also a pretty good deal. Now your costs are $100/month. So basically, your cost will go up to $600/month once you lose your subsidy from 61-64, then will go down to $430/month once you are Medicare eligible.

The previous reference to $1000/month was if you had to buy unsubsidized insurance on the open market and were not eligible for Medicare. Which you obviously are if they are withholding 1.45% from your paycheck.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby The Wizard » Thu Apr 20, 2017 1:25 pm

sil2017 wrote:From 61 to 65, I am able to keep the School District's health plan. However, i will no longer have the $500 per month subsidy.

$1000 per month for medicare seems extremely high. Is this an estimate for future expenses?

What is the Medicare tax of 1.45% deducted from my salary for?

According to CALPERS (3rd party administrator for School District) if i were on Kaiser senior adv, it would cost $300 per month for myself.

Is this supposed to be the going rate for Medicare people?


https://www.calpers.ca.gov/docs/2017-he ... uthern.pdf

Hmm, interesting.
My GF taught in RI, so different situation.
The $1000/month roughly is what she pays for a better ACA healthcare plan in the absence of Medicare.

But sounds like CA opted out of SS for teachers but opted into Medicare coverage. Wasn't aware that this was an option. Sorry for the false alarm...
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delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 1:32 pm

The Wizard wrote:
sil2017 wrote:From 61 to 65, I am able to keep the School District's health plan. However, i will no longer have the $500 per month subsidy.

$1000 per month for medicare seems extremely high. Is this an estimate for future expenses?

What is the Medicare tax of 1.45% deducted from my salary for?

According to CALPERS (3rd party administrator for School District) if i were on Kaiser senior adv, it would cost $300 per month for myself.

Is this supposed to be the going rate for Medicare people?


https://www.calpers.ca.gov/docs/2017-he ... uthern.pdf

Hmm, interesting.
My GF taught in RI, so different situation.
The $1000/month roughly is what she pays for a better ACA healthcare plan in the absence of Medicare.

But sounds like CA opted out of SS for teachers but opted into Medicare coverage. Wasn't aware that this was an option. Sorry for the false alarm...


Same for those under the "old" federal pension program -- CSRS. They did not contribute to Social Security, but contributed the 1.45% for Medicare eligibility effective in 1984.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 1:36 pm

Delamer and Wizard-

Thanks for the clarification. My uneasiness is the 4 years health care premium out of my pocket. I can live with $300 per month (today's rate)

I think the best thing to do is to pay off my mortgage and heloc with my 457B funds upon retirement. I will feel better psychologically even though it may or may not be a financial strategy.

Thus no debt.

The $2400 per month for mortgage is a killer.


Everyone-
Thanks for your contribution. I seem to 2nd guess...

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 2:06 pm

sil2017 wrote:Delamer and Wizard-

Thanks for the clarification. My uneasiness is the 4 years health care premium out of my pocket. I can live with $300 per month (today's rate)

I think the best thing to do is to pay off my mortgage and heloc with my 457B funds upon retirement. I will feel better psychologically even though it may or may not be a financial strategy.

Thus no debt.

The $2400 per month for mortgage is a killer.


Everyone-
Thanks for your contribution. I seem to 2nd guess...


You could consider setting aside now the equivalent of 4 years premiums at the $600/month rate in a separate money market or short-term bond fund within your retirement account to give you more confidence that you'll have the money available when needed. Maybe adjust it for expected inflation -- like $35,000 total.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sergeant » Thu Apr 20, 2017 2:37 pm

If you're part of PERS health through your past employer, PEMCHA says you must continue to receive the Employer Paid Min. Contribution. I think that's about $125 a month. Check with your HR. It is codified in the Ca. Gov. code.

For those saying downsize, he may already be in an appropriate sized home. 950k in many areas of California is a humble residence. :shock:
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby HomerJ » Thu Apr 20, 2017 2:40 pm

sil2017 wrote:This year income is 91k. I am living off my salary and heloc this year.


What are your actual expenses?

You may have a salary of 91k, but what is your take-home? Are you spending it all? Are you spending MORE than your take-home? (Since it sounds like you are withdrawing money from your heloc).

You have to start with your expenses.

If are spending $6000 a month, pension brings home $4700, then you need make up $1300 from your investments.

If you pull 4% from your investments each year, you can get $1900 a month. So that's good.

If you are spending $7000 a month, then you'll need $2300 from your investments. So that's bad.

If you pay off the mortgage, you may only spend $5000 a month, and you'll only need to pull $300 a month from your investments. So that's real good.

You have to get a good number of what you need each month. Without that, you have nothing.

Expenses. Expenses. Expenses. That's the absolute FIRST calculation when deciding if you have enough to retire. None of the information you gave us means anything without knowing how much you spend each month.


All that said, you have a nice safety net in that house. You can always downsize and free up a lot of money for retirement.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 3:52 pm

Instead of figuring what my monthly expenses are, I wanted to know how much i can spend monthly without depleting my money so I can adjust my retirement lifestyle.

Based on my information given in post one, what am I able to spend monthly?

I have not seen a retirement calculator with the simple interest of 2% adjustment and income protection of 85% so hard to tell what i can spend monthly. Best is a calculator with COLA (compounded I believe)

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 3:58 pm

How does the income protection work?

You can probably take about $1500/month from your savings. So $6200 a month before taxes. This also ignores the extra $500/month for 10 years.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby bloom2708 » Thu Apr 20, 2017 4:04 pm

sergeant wrote:If you're part of PERS health through your past employer, PEMCHA says you must continue to receive the Employer Paid Min. Contribution. I think that's about $125 a month. Check with your HR. It is codified in the Ca. Gov. code.

For those saying downsize, he may already be in an appropriate sized home. 950k in many areas of California is a humble residence. :shock:


True. Maybe that is an area to ponder on. $350k will buy you a pretty darn nice house with a pool in the Phoenix/Scottsdale/Anthem areas (not all I know). Or maybe a $350k condo in the same general area. $350k house/condo and $550k in taxable with no mortgage certainly changes the spending picture.
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sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 4:21 pm

delamer

Income protection (purchasing power protection)from Calstrs


"The purchasing power protection program is a supplemental benefit paid quarterly if the value of the initial pension amount falls below 85 percent of value, as measured by the California Consumer Price Index once the 2 percent annual benefit adjustment is added to the member’s pension. The purchasing power protection program is funded almost entirely from a state General Fund contribution to a special account, called the Supplemental Benefit Maintenance Account (SBMA)"

I start with $4700 (actually it is 4680 but i rounded it off) monthly. Every year, 2 percent annual benefit so my 2nd year would be $4700 plus $94 for total of $4794. 3rd year would be $4700 plus $94 plus $94.

I can't explain the income protection so I copied and pasted it.

Just Calstrs, no other pension company nor Pers health plan
Last edited by sil2017 on Thu Apr 20, 2017 4:24 pm, edited 1 time in total.

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Mlm
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Mlm » Thu Apr 20, 2017 4:24 pm

sil2017 wrote:Based on my information given in post one, what am I able to spend monthly?


If you have $570K and pay off the mortgage and HELOC that leave about $525K to draw from unless you pull equity from the house. At 56 I would assume a 35 to 40 year draw down. Look for a success rate of at least 95%
You can take a look at the Vanguard Retirement Net Egg calculator. https://retirementplans.vanguard.com/VG ... ggCalc.jsf and plug in different scenarios depending on your desired asset allocation and if you want to spend down to zero.

Delemers $6200 before taxes looks like a very good number to start with. (edited)
Reality has a way of catching up with you

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 4:28 pm

sil2017 wrote:delamer

Income protection (purchasing power protection)from Calstrs


"The purchasing power protection program is a supplemental benefit paid quarterly if the value of the initial pension amount falls below 85 percent of value, as measured by the California Consumer Price Index once the 2 percent annual benefit adjustment is added to the member’s pension. The purchasing power protection program is funded almost entirely from a state General Fund contribution to a special account, called the Supplemental Benefit Maintenance Account (SBMA)"

I start with $4700 (actually it is 4680 but i rounded it off) monthly. Every year, simple interest of 2 % so 2nd year would be $4700 plus $94 for total of $4794. 3rd year would be $4700 plus $94 plus $94.

I can't explain the income protection so I copied and pasted it.


Just Calstrs, no other pension company nor Pers health plan


So it basically protects you from losing more than 15% of your pension's initial purchasing power in real terms if the 2% annual adjustment does not keep up with inflation.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 4:31 pm

thanks Mim-

I assume 40 years of withdrawal. Used the calculator for 60% stock ad 40% bond. Not able to get exactly 525k only 500k. So i can withdraw 16k per year with 95% survival rate.

How would I calculate the pension?

I rounded off to $4700 but really it is $4680 per month, annual adjustment of 2% (simple interest) and 85% purchasing power protection. So I do have COLA but not the compounded one. I also will have $500 per month for 10 years, NO Cola at all.

Delamer-

"So it basically protects you from losing more than 15% of your pension's initial purchasing power in real terms if the 2% annual adjustment does not keep up with inflation"

Is this good or not? Cola something like social security is the best, correct? But how does mine compare to SS?

HomerJ-

thanks for the calculations

bloom2708-
no interest in Arizona. I like to stay put in Southern CA for the weather.
Not sure if 350k can buy anything near the beach.

seargeant-

Yep, can't downsize much . 900k to 950k and i live in a modest house, about 1350 square feet, 3 bedrooms, 2 baths.


gouverneur-
no 3rd party such as personal capital for me. I am concern about fraud
Last edited by sil2017 on Thu Apr 20, 2017 4:46 pm, edited 2 times in total.

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Mlm
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Mlm » Thu Apr 20, 2017 4:43 pm

sil2017 wrote: How would I calculate the pension?


If it were me I would use the pension in today's dollars. The 2% should keep up with inflation over time.

Best wishes on your retirement. Enjoy
Reality has a way of catching up with you

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 5:47 pm

Yes, your 2% simple interest is similar to the COLA on Social Security. The SS annual inflation adjustment is compounded, which is more generous than your pension. Your 2% interest is more generous when inflation as measured by the CPI is below 2% and stingier when inflation is greater than 2%.

You also will know that exact amount of your increase each year, which has some advantages for planning purposes. (Ignoring the 85% guarantee, but that would only increase your pension so it inky has an upside.)

delamer
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby delamer » Thu Apr 20, 2017 6:10 pm

Mlm wrote:
sil2017 wrote: How would I calculate the pension?


If it were me I would use the pension in today's dollars. The 2% should keep up with inflation over time.

Best wishes on your retirement. Enjoy


Clearly, you were not around or don't remember the plus-10% inflation of the late '70s and early '80s. I believe the historic average is around 3%.

Ron Ronnerson
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Ron Ronnerson » Thu Apr 20, 2017 6:14 pm

These are my approximations of your pension at various ages (please correct me if I've estimated incorrectly).
56: $4680
57: $5160
58: $5660
59: $6170
60: $6700
61: $7200
62: $7400
63: $7600

To me, it seems like the answer to your question depends on your expenses as well as the lifestyle you'd like to lead.

The way I see it, if you don't need the extra money at all, maybe it's fine to walk away now. However, if you're debating whether or not it will be too close for comfort, I'd look at it this way: You've put in 30 years and contributed part of your salary for all those years and your district and state has put in a bunch as well. Each extra year you work (and you'll be relatively young retiring just shy of age 57), increases your pension a pretty nice amount up until age 61. If it were me, I'd really consider working a tad longer - especially since you said "I actually like my job."

However, it's definitely a personal decision and if you feel like you'll have enough and are ready to move on, go for it. If you're unsure, I'd slow down in making this important decision.

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Watty » Thu Apr 20, 2017 7:03 pm

sil2017 wrote:
I am wondering if I made a wise decision to retire this year as I will be losing out an extra $450 per month should I retire one year later.


That $450K is before you pay taxes on it. Being single in a high tax state I would guess that it is probably less than $300 a month after taxes. Very roughly that is around $10 a day.

But

You would also have 12 more months of pension payments at $4700, or $56,400 a year. At $450 a month $56,400/$450=125.3 months or over ten years until the "break even" point. That is grossly oversimplified since it does not take taxes and investment income into account.

Just from a financial standpoint the 12 extra months of pension payments make the choice pretty much a wash where you would have to look closely to determine if one is really better or not.

sil2017 wrote:I guess it's too late now since I have already turned in my resignation letter. I am supposed to be retiring July 1, 2017.


If you change your mind you can always ask the management if it is possible to work another year. The worst they can say is that they have already hired your replacement so it is not possible.

sil2017 wrote:#2- more time to travel, learn new language, fitness activities, spending time with family in Canada, healthy cooking


If you want to travel then one option would be to become a tour guide. Some of the best tour guides I have ever had were retired teachers or teachers that were working as tour guides during the summer. It might not pay a lot but it might be similar to many of the things that you liked about teaching.

Even a few thousand dollars a year from some part time "fun" job will help your numbers and make your elegible to make Roth or IRA contributions.

gouverneur wrote:I'm struck by the huge amount of home equity you have relative to investments. Having a home worth 1.5-2x all investments is a little unusual, and a 950k home seems like a ton for a person who is single and will be living on 60k a year or so. Property taxes alone would be a huge payment, right?


+1

In addition to the high cost of maintenance and property taxes you have a risk that the housing value could drop 30% or more like in some areas in the last housing bust in 2008. That could wipe out a large percentage of your net worth.

Part of the reason that you bought that house was likely the location relative to you job and commute but now that is not an issues you could likely save a lot by moving 30 minutes farther out of town if you did not want to move to a lower cost of living area.

In 80% of the country you can buy a very nice house for around $250K and often much less. Here in the suburbs of Atlanta $950K will get you an estate home on acreage with a horse barn like this one.

http://www.realtor.com/realestateandhom ... 5021-38849

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Thu Apr 20, 2017 7:54 pm

Ron-
I like my job . However my mind is set for retirement.
I have not been taking care of myself as much in the last 2 years. The extra time from not working will allow me to be physically and mentally fit again.
I am still concern about the health premium in the upcoming years.

Watty-
I had thought about living in another State but I am not sure where.
The link to the house is gorgeous.

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FrugalInvestor
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby FrugalInvestor » Thu Apr 20, 2017 11:05 pm

sil2017 wrote:I am still concern about the health premium in the upcoming years.


It's wise to be concerned about the health insurance premium and healthcare costs in general. There is zero certainty right now with regard to premium costs, coverage, deductibles, etc. for anyone depending on a private policy. In my opinion, about all you can do is have a good handle on your minimum living costs without insurance and be prepared to ratchet down to that level and utilize the balance for healthcare if necessary.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby J295 » Fri Apr 21, 2017 7:10 am

You might have a bit of "buyer's remorse" and "OMY Syndrome" (one more year syndrome) hitting you.

If it were me, I'd have a latte and a good book or netflix show and let these pass. Others might try a glass of wine or something stronger with their book/show.

Enjoy your decision and do what you need to so it works out fantastic for you. Best of luck.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Fri Apr 21, 2017 7:23 am

J295-

Yes, definitely the "buyer's remorse" and OMY syndrome hitting me.

I've been through many emotions since February. It really "hit" me when I received the HRS termination paper. Reason : Retirement with pension.

Coffee for now. Wine later. :happy

Last day of Spring Vacation so this is my "dry run" for retirement. So far, I have enjoyed every moment.

Stretching exercises , 24 hour fitness, brunch with friend, shopping , NBA playoff watching, reading, and cooking.

Also, completing the planning of our 6 weeks summer trip to Africa and Asia.

Frugalinvestor-

Yes, I am very concern about the price of health premium especially the bridge to Medicare. At least I would pay less health premium as I will still have the option to remain in my District Health Plan as opposed to an individual plan.

I will leave money aside for this.

Everyone -

Thanks all for your valuable time and expert advice .

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby Watty » Fri Apr 21, 2017 8:56 am

sil2017 wrote:Last day of Spring Vacation so this is my "dry run" for retirement. So far, I have enjoyed every moment.


Spring break and big vacations are a lot different than retirement since a lot about retirement is not about the big trips, a lot of it is about being able to set your own pace. I stopped wearing a wristwatch after I retired.

I have always done a lot of the work around my house which usually meant rushing to get it done on a Saturday. Now I can wait for a nice day and work on the project for a few hours at a time when I want to. Things like cooking and grocery shopping are not something that you have to rush through after work.

In retirement there will be an occasional slow days or some issue to deal with. At first that concerned me and made me wonder if I should have retired but then I realized that there were a lot more "off" days when I was working.

sil2017 wrote:Watty-
I had thought about living in another State but I am not sure where.
The link to the house is gorgeous.


For a third or half the price you can get a house here that is a smaller version of that that house.

I relocated for work and assumed that we would retire somewhere else. One of the things I was looking at was college towns. They usually have a lot going on, often have reasonable house, a decent economy if you want a to work some, and a public transportation system which will be important if you have to give up driving as you age. The also "feel younger" than some Florida retirement community. As it turns out we will likely stay where we are since my son is married and bought a house here in Atlanta.

https://en.wikipedia.org/wiki/List_of_c ... ted_States

There are several college town here in Georgia and Athens is the biggest one. Here is an example of a nice house you could get in Athens for a bit over $300K. (Looking at this one I am tempted myself!)

http://www.realtor.com/realestateandhom ... 78#photo20

A lot of states have no state income tax or have good retirement income exclusions so you can save a lot in state income taxes. I live in Georgia now and it has pros and cons but it has really good retirement taxes laws. Social Security is not taxed and there is a $65K exclusion($130K for a couple) for retirement income once you are 65. Property taxes are usually reasonable especially for an average home.

I am in a bit of unusual situation since I live in one of the few counties that exempts seniors from paying school property taxes so the property taxes on a pretty average home were $610 this year (That not a typo). In most counties the property taxes might be more like two or three thousand dollars a year for a nice home.

Once we are both 65 with will not pay any state income tax either. Along with a paid off house that makes it pretty easy to cover our retirement budget.

There are a surprising number of people that decide to retire in Georgia, along with North Carolina. There is a nickname for them, "half-backs" since typically they move from the Northeast to Florida and decide that they don't like it there so they move "halfway back".

There are pros and cons to the Southeast but that is what I am the most familiar with. If you are interested in relocating you might plan some trips to different parts of the country to check them out. Even if you decide you want to stay where you are that might help your feel confident that the choice is right for you.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Fri Apr 21, 2017 9:13 am

Watty-

Gosh , I can't believe the Athens house for $324k.

I will check out Athens a bit more.

UncleBen
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby UncleBen » Fri Apr 21, 2017 9:55 am

How do you have a $2400/month mortgage payment on $34k?

Your pension provides $62,400 the first year. A 3% withdrawal on $570k gives you $17,000 so you could spend $79,400. A 4% withdrawal would bump you up to $85,200 but most people wouldn't recommend 4% for someone 56. Only you can say if that will support your lifestyle.

sil2017
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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby sil2017 » Fri Apr 21, 2017 10:15 am

Uncle Ben-

is it a typo and you are referring to the Athens house for 324k?

The 2400 month is the mortgage for my current house.

If the 34k is referring to my mortgage, where did you get the number from?

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Re: Did I make a good decision to retire July 2017 instead of July 2018?

Postby bloom2708 » Fri Apr 21, 2017 10:45 am

sil2017 wrote:Uncle Ben-

is it a typo and you are referring to the Athens house for 324k?

The 2400 month is the mortgage for my current house.

If the 34k is referring to my mortgage, where did you get the number from?


In your original post:

"I have 34k left on my mortgage at 4.375 15 year fix rate ( house worth 900k to 950k)"
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