Early retirement checkup for 38 year old

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ofcmetz
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Early retirement checkup for 38 year old

Post by ofcmetz » Sun Jun 18, 2017 2:10 pm

I find myself in a situation where I will only be working 2 to 5 more years at my current job. We are making more right now than I ever thought we would be making, but I realize that this will only continue for a few more years. We have two kids aged 9 and 11 who attend a moderately priced private school ($5,500 per kid per year). I plan on working 5 more years and maxing my pension, but there are some scenarios where I may leave early. I may end up in college finishing my bachelor's degree for the first few years after I leave my full time police career. I dropped out of college at age 19 for this job.

Questions:
1. Are we ready for early retirement in 5 years? It is likely that we both work reduced schedules with a lot less pay after I retire so that adds a bit of flexibility.

2. What are strategies for retiring early in one’s 40’s with a non-COLA pension and a portfolio? I’m thinking I could let the portfolio grow and live on the pension and part time jobs while taking some from the portfolio later in life as inflation eats into the pensions value.

3. Are we saving enough? I know we’ve had some lifestyle creep over the years despite my efforts to keep it down.

Emergency funds: $15,000 cash

Debt: Mortgage $106,000 15 year at 4.25%– 7 years left on current payment schedule
Auto Loan $23,000 at 0%

Total Family Income: $210,000
Him: Police $120,000 ($71,000 base pay, plus overtime and holiday pay est. $59,000)
Her: Nurse $90,000

Age: Him 38, Her 41

Home Value: $270,000

Asset allocation: 70% stocks/ 20% fixed income / 10% TIAA Real Estate
Desired International allocation: 40% of stocks

All Equity is invested in Total Market Index funds. Fixed income is split between Total Bond Market Index and stable value funds.

Total Portfolio $420,000 – Almost all invested in tax advantaged accounts.

ROTH IRA’s: $90,000
Her 401K: $125,000
Her Traditional IRA: $45,000
His 457B governmental: $68,000
His 403B: $87,000
Taxable: $5,000

New annual Contributions: About $52,500
$18,000 his 457B (no match)
$7,500 his 403b (no match)
$16,000 her 401K (plus 5% match)
$5,500 his Roth IRA
$5,500 her Roth IRA

Police Pension (not inflation adjusted):
Worth $45,000 a year if I leave today. If I leave in 2 years it will pay $60,000. If I leave in 5 years will be worth $70,000 a year. The pension will also let me participate in state health insurance with my payments being about the same as current state employees.

Total Annual Expenses: $72,000.
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RoadHouseFan
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Re: Early retirement checkup for 38 year old

Post by RoadHouseFan » Sun Jun 18, 2017 2:39 pm

You're in great shape. That pension is tremendous. Thanks for your service!

SleepKing
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Re: Early retirement checkup for 38 year old

Post by SleepKing » Sun Jun 18, 2017 3:30 pm

Thanks for your service. It is nice that your hard work and service will pay off.

Overall your situation seems positive for early retirement. Obviously, if you can make it 5 years, that seems like a great return for amount of additional service. I would have more of a emergency cushion, 15k when you live on a 210k income seems small. Would you be able to get insurance through wife's nursing job? Are you planning anything for kids college funding?

Two curious questions:
1) What financial benefit would completing your bachelor's provide? Is there a tuition reduction you are eligible for?
2) What will your second career be? We seem to have met many second career police and firemen who go into landscaping, contractor work, or teaching of some sort. Maybe you could use your expertise to consult on private security set up, system installations, etc...

best wishes,

Sleepy

retire57
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Re: Early retirement checkup for 38 year old

Post by retire57 » Sun Jun 18, 2017 3:58 pm

Very impressive! The rosy picture will be even rosier if you can manage to get rid of your mortgage in 5 years instead of 7. Ditto the car payment and, of course, avoiding any additional debt.

You can always work part-time if needed.

Thanks for your years of service.

delamer
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Re: Early retirement checkup for 38 year old

Post by delamer » Sun Jun 18, 2017 4:08 pm

This article is pretty old, but it gives an idea of what you need to consider in terms of maintaining your pension's lost purchasing power.

https://assetbuilder.com/knowledge-cent ... -inflation

PFInterest
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Re: Early retirement checkup for 38 year old

Post by PFInterest » Sun Jun 18, 2017 4:16 pm

Why are you not maxing out your wife's 401k?

Miriam2
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Re: Early retirement checkup for 38 year old

Post by Miriam2 » Sun Jun 18, 2017 4:29 pm

ofcmetz wrote:Police Pension (not inflation adjusted):
Worth $45,000 a year if I leave today. If I leave in 2 years it will pay $60,000. If I leave in 5 years will be worth $70,000 a year.
That's almost double in 5 years. Something to think about. Almost doubling your guaranteed liquid income in retirement for life. Especially since it's not inflation adjusted, seems like the more the better, less retirement worry.

Does "not inflation adjusted" mean not COLA'd, cost of living adjusted?
ofcmetz wrote:The pension will also let me participate in state health insurance with my payments being about the same as current state employees.
We're in a different state, but I cannot stress enough - don't discount state retiree health insurance, especially if it's the same price and benefits as current state employees, and especially if it includes state pharmacy/drug benefits. Our state retiree health insurance, which includes drug benefits, is in my opinion superior to other secondary or supplemental insurance on the market.

Also factor in the risk that your wife's health insurance may not always be available for you.

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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Sun Jun 18, 2017 10:13 pm

SleepKing wrote:Thanks for your service. It is nice that your hard work and service will pay off.

Overall your situation seems positive for early retirement. Obviously, if you can make it 5 years, that seems like a great return for amount of additional service. I would have more of a emergency cushion, 15k when you live on a 210k income seems small. Would you be able to get insurance through wife's nursing job? Are you planning anything for kids college funding?

Two curious questions:
1) What financial benefit would completing your bachelor's provide? Is there a tuition reduction you are eligible for?
2) What will your second career be? We seem to have met many second career police and firemen who go into landscaping, contractor work, or teaching of some sort. Maybe you could use your expertise to consult on private security set up, system installations, etc...

best wishes,

Sleepy
Thanks for the comments.

You are right. The emergency fund took a few hits lately. I agree it's a bit low and I'm working to increase it.

I wouldn't get insurance through my wife's job as I can buy higher quality plans it in retirement from the state than what her private company offers.

We plan on funding their college through our incomes with money that is freed up by having the house paid off and not having the private school tuition. I haven't ever used all my tax advantaged retirement space so I didn't fund the 529 plans. (Learned this from Livesoft).

Getting my bachelors is as much about finishing something I started a long time ago as it would be about getting a new job.

Since my bachelors will be in business and I have an interest in finance, I may go the route of a CFA. We will see but I'll be very employable in my field at other agencies as I'm an instructor in several things. Side note: being a police instructor is a lot like being a school teacher in many ways.
Last edited by ofcmetz on Sun Jun 18, 2017 10:23 pm, edited 1 time in total.
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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Sun Jun 18, 2017 10:15 pm

retire57 wrote:Very impressive! The rosy picture will be even rosier if you can manage to get rid of your mortgage in 5 years instead of 7. Ditto the car payment and, of course, avoiding any additional debt.

You can always work part-time if needed.

Thanks for your years of service.

I've thought about this but figured that until I use up all the tax advantages space there was no reason to accelerate payments. I could always take it from my 457B on separation from employment.

Thanks for the comments
Never underestimate the power of the force of low cost index funds.

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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Sun Jun 18, 2017 10:17 pm

PFInterest wrote:Why are you not maxing out your wife's 401k?
Just because it is set as a percentage and because I wasn't maxing my 403B yet either. We are saving about 25% of gross. Would you advise we increase it?
Never underestimate the power of the force of low cost index funds.

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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Sun Jun 18, 2017 10:20 pm

Miriam2 wrote:
ofcmetz wrote:Police Pension (not inflation adjusted):
Worth $45,000 a year if I leave today. If I leave in 2 years it will pay $60,000. If I leave in 5 years will be worth $70,000 a year.
That's almost double in 5 years. Something to think about. Almost doubling your guaranteed liquid income in retirement for life. Especially since it's not inflation adjusted, seems like the more the better, less retirement worry.

Does "not inflation adjusted" mean not COLA'd, cost of living adjusted?
ofcmetz wrote:The pension will also let me participate in state health insurance with my payments being about the same as current state employees.
We're in a different state, but I cannot stress enough - don't discount state retiree health insurance, especially if it's the same price and benefits as current state employees, and especially if it includes state pharmacy/drug benefits. Our state retiree health insurance, which includes drug benefits, is in my opinion superior to other secondary or supplemental insurance on the market.

Also factor in the risk that your wife's health insurance may not always be available for you.
I can still get health insurance for my wife in retirement with our rules and she would get 75% of the pension if I croak.

Not inflation adjusted is my way of saying not COLA'd. There is a way to take less and have it COLA'd once I turn 60 but I'm still learning about that.

Thanks
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MoonOrb
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Re: Early retirement checkup for 38 year old

Post by MoonOrb » Sun Jun 18, 2017 10:45 pm

A big question I have is about social security and what you'll be able to receive given you're retiring well short of FRA.

I'm not super confident about this calculation, but I think if you'd assume 2.5% inflation, a $70k pension will be worth in the neighborhood of $38k or so after 24 years (the difference between your age at retirement and social security FRA). If between the two of you, you'll pull in $32k from SS then on in, then you just have to bridge the gap for the years of shortfall. it will be $2k in the beginning and get wider every year as your expenses increase with inflation and your income remains the same.

If you'd assume that your investments will be worth about $850k upon retirement, you could withdraw about $30k/year at a 3.5% withdrawal rate, and presumably you wouldn't be withdrawing much at all in your first few years. Combined with your willingness/ability to pull in some additional money from part-time work and the mortgage coming off the books, you seem to be in good shape.

I do wonder, though: $210k combined income, $52500 in investments, but only $72k in expenses? Or is the $72k expense figure a proposed figure for retirement years that doesn't account for additional spending that you're doing right now?

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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Mon Jun 19, 2017 7:33 am

MoonOrb wrote:A big question I have is about social security and what you'll be able to receive given you're retiring well short of FRA.


I do wonder, though: $210k combined income, $52500 in investments, but only $72k in expenses? Or is the $72k expense figure a proposed figure for retirement years that doesn't account for additional spending that you're doing right now?
Right now I don't contribute to or participate in social security due to my state job having a pension. My wife does contribute and will get something in her 60's or 70's depending on rules in 20ish years from now. I tend to forget about social security or completely discount it in my planning as like a lot of people my age it seems so uncertain.

The 72K number is current expenses right now and it includes mortgage, car payments, insurance, utilities, cell phone, private school etc., food, and small monthly increase to the emergency fund. It does not include the travel and charitable giving that we are doing right now which makes up a significant portion of the difference between what we earn after savings and the 72K. I'm trying to spend some of the increase in income from what we have gone up in the last 17 years being married on experiences as apposed to possessions. I think in retirement once the house is paid off the 72K number will include room for plenty of travel.
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TSWNY
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Re: Early retirement checkup for 38 year old

Post by TSWNY » Mon Jun 19, 2017 9:51 am

Why are you retiring from LE so young? I'm in the same profession, so I'm sure I'll understand your thought process. Can you work longer and increase your pension or do you max out after 24 years? I personally would need more of a cushion to pull the plug. I would strongly suggest you max out all your tax advantaged space. It's a tough field and I certainly understand the burnout factor. I'm hoping to only work patrol/SWAT 5 more years then hopefully move to Accident Investigation or Detective. Once I retire i'm done. I just don't think I could retire and work another job and have to deal with normal people. I'm a little too conditioned to dealing with people who are mentally ill or want to kill me......Maybe I should retire hahah

BigLaw Survivor
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Re: Early retirement checkup for 38 year old

Post by BigLaw Survivor » Mon Jun 19, 2017 10:07 am

I have two siblings who retired in their 40s from law enforcement, one who waited for the pension to max out and the other who didn't. One regrets the decision, the other does not. Guess which one has regrets?

No matter how you slice it, you will be retiring much earlier than most Americans. But once you retire you are going to have a family that is still very young and is going to require years of support. Yes, you've done very well for yourself and you're guaranteed to never have to live under a bridge. But a lot can happen unexpectedly in life and you're not exactly a rich man.

I would never counsel a LE officer as close to you are to maxing your pension to retire early and take a lifetime hit unless there are truly extraordinary circumstances, which in your case there don't appear to be.

Good luck with your decision.

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Re: Early retirement checkup for 38 year old

Post by aristotelian » Mon Jun 19, 2017 10:20 am

I like your situation a lot better if you can last the 5 years. With only your wife's SS, the pension number does not look as good. 5 years would max the pension plus give you another 5x $52,000 annual savings.

You mention your wife's job, so just to confirm is she planning to work until full retirement age, or will you have some bridge years to cover?

I would like for you to model out your expected withdrawals (pre-59.5, 59.5 to wife's Social Security, and post-SS to end of life) just to make sure your numbers work, especially if you hang it up closer to 2 years.

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HomerJ
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Re: Early retirement checkup for 38 year old

Post by HomerJ » Mon Jun 19, 2017 10:47 am

Make sure to set a retirement date, then surprise everyone by actually retiring a week earlier.

I've seen too many cop movies where the senior partner gets shot one day before retirement. :)

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Re: Early retirement checkup for 38 year old

Post by dabretty » Mon Jun 19, 2017 12:44 pm

HomerJ wrote:I've seen too many cop movies where the senior partner gets shot one day before retirement. :)
I'm pretty sure you won the Internet today, with this comment!

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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Mon Jun 19, 2017 1:24 pm

TSWNY wrote:Why are you retiring from LE so young? I'm in the same profession, so I'm sure I'll understand your thought process. Can you work longer and increase your pension or do you max out after 24 years? I personally would need more of a cushion to pull the plug. I would strongly suggest you max out all your tax advantaged space. It's a tough field and I certainly understand the burnout factor. I'm hoping to only work patrol/SWAT 5 more years then hopefully move to Accident Investigation or Detective. Once I retire i'm done. I just don't think I could retire and work another job and have to deal with normal people. I'm a little too conditioned to dealing with people who are mentally ill or want to kill me......Maybe I should retire hahah
I'm much more likely to wait until it's maxed than to leave early. I do have a health issue that could cause me to leave sooner which is why I'm planning for either scenario. My department is smaller (70 commissioned) so most work revolves around patrol. I'm lucky to be on mountain bikes and also get to instruct that. I understand the mindset this job puts on us and certainly can see how integrating into normal work could be hard.
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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Mon Jun 19, 2017 1:26 pm

BigLaw Survivor wrote:I have two siblings who retired in their 40s from law enforcement, one who waited for the pension to max out and the other who didn't. One regrets the decision, the other does not. Guess which one has regrets?

No matter how you slice it, you will be retiring much earlier than most Americans. But once you retire you are going to have a family that is still very young and is going to require years of support. Yes, you've done very well for yourself and you're guaranteed to never have to live under a bridge. But a lot can happen unexpectedly in life and you're not exactly a rich man.

I would never counsel a LE officer as close to you are to maxing your pension to retire early and take a lifetime hit unless there are truly extraordinary circumstances, which in your case there don't appear to be.

Good luck with your decision.
You are correct and it's good advice. My goal is to max it if my health holds up. I was thinking more about this issue lately because our chief just lost his job and there is a lot of uncertainty as to how the next guy will be.
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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Mon Jun 19, 2017 1:29 pm

aristotelian wrote:I like your situation a lot better if you can last the 5 years. With only your wife's SS, the pension number does not look as good. 5 years would max the pension plus give you another 5x $52,000 annual savings.

You mention your wife's job, so just to confirm is she planning to work until full retirement age, or will you have some bridge years to cover?

I would like for you to model out your expected withdrawals (pre-59.5, 59.5 to wife's Social Security, and post-SS to end of life) just to make sure your numbers work, especially if you hang it up closer to 2 years.

I think I could avoid most pre 59.5 withdrawals if I stay the 5 years and she works part time. She would most likely continue full time until age 50 or so. When we talk about it she says that she likes what she does still and wouldn't mind working while I went back to school.
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ofcmetz
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Re: Early retirement checkup for 38 year old

Post by ofcmetz » Mon Jun 19, 2017 1:30 pm

HomerJ wrote:Make sure to set a retirement date, then surprise everyone by actually retiring a week earlier.

I've seen too many cop movies where the senior partner gets shot one day before retirement. :)
This is a very good idea. Lol. I've also seen the same movies. It's never a good idea to come to work on your last day. Especially if you are the nice cop that everyone in the department likes.
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