Please look at my financial situation and give me your insights

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tc101
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Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 1:39 pm

Bogleheads please look at my financial situation and give me your insights.

My wife and I have been together 21 years but have remained 2 separate financial
entities because we disagreed so strongly on financial matters. I am your classic
low spending high saving boglehead. She is just the opposite. I am retired.
She is still practicing law part time from her home office. When she retires I will
largely support us both. Below are the details. My big question - when can she
safely retire?

Me
---
Age 67
Will collect SS at age 70. SS $1850/month
Savings $1.2M. 50/50 at Vanguard
Spending about $40K/yr
Retired. No income except from investments
No debts
House paid for. Value $300K. Big old house that we love, but requires above average maintenance and repairs


Wife
---
Age 63
Will collect SS at age 70. SS $2800/month
Savings $50K. 70/30 at Vanguard
Spending about $60K/yr
Income about $60K/yr, so she is about breaking even. Will not be saving any more.
No debts


Us in retirement
----------------
Spending probably about $100K/year, but we could go lower if we needed to.
No children
Both in pretty good health
No desire to travel. Fortunately I did lots of traveling when I was young. I've seen enough of the world.

Is there any important detail I have left out?

When can she safely retire?
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mega317
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Re: Please look at my financial situation and give me your insights

Post by mega317 » Mon Oct 09, 2017 2:04 pm

I see three phases here. Assuming 0% real returns as a baseline.

Now until 2020 (3 years)
You: spend 120k, will have 1.08M left.
Wife: Net even, will have 50k left.

2020 until 2024 (4 years)
You: spend 71k, will have ~1M left
Wife: Net even, will have 50k left

2024 and beyond: At that point your wife will start taking SS. Your expenses will be 100k minus 55,800 from SS, so 44k/year. You'll have not quite 25x expenses. So if you start with 4% withdrawal at that point you're probably fine.

You also potentially have some flexibility. You could cut spending or downsize the house and be even safer. If the market does well in the next few years she might be able to stop working a little earlier.

You should also run through scenarios if one of you significantly outlives the other.

Lars_2013
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Re: Please look at my financial situation and give me your insights

Post by Lars_2013 » Mon Oct 09, 2017 2:12 pm

You probably don't have enough money for your wife to retire yet. There's a three-year gap until you claim SS and seven years for her. That gap will eat up a lot of your portfolio, and even after you are both receiving SS you'll need portfolio withdrawals of about $44k/year. That results in a much higher than 4 percent withdrawal rate (between 4.7 and 8.7 percent depending on the year), and I think it's hard to assume that you'll have enough portfolio growth to cover that.

If she works for another 3 years (until you're 70 and start taking social security), and assuming 4 percent real return on investments (probably an aggressive assumption), you'll probably be fine. Working longer would protect against your investments returning less than 4 percent real.

Image

Also, what is your current health insurance situation and how will it change if/when your wife retires?
Last edited by Lars_2013 on Mon Oct 09, 2017 2:23 pm, edited 1 time in total.

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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 2:20 pm

Also, what is your current health insurance situation and how will it change if/when your wife retires?
I'm on medicare. She has coverage through the state from when she worked on a state court. It is something like COBRA but it goes on indefinitely. I don't know what it costs but it is part of her $60K/yr spending. When she hits medicare age that expense will go down.
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stan1
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Re: Please look at my financial situation and give me your insights

Post by stan1 » Mon Oct 09, 2017 2:25 pm

Hmmm, I'd start by getting more understanding on the spending requirement (for both of you, $100K/year is a lot compared to many retirees).

retiredjg
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Re: Please look at my financial situation and give me your insights

Post by retiredjg » Mon Oct 09, 2017 2:48 pm

Is this one of those cases where one person should take SS earlier than the other?

Not something I know anything about, just something I've heard people mention.

btenny
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Re: Please look at my financial situation and give me your insights

Post by btenny » Mon Oct 09, 2017 2:53 pm

No IMO your wife cannot retire yet. But she can take more time off work for the next few years and take more vacations with you. So all is not lost. The issue is she is a spender plain and simple. And since she has no SS income and high expenses and no savings to cover her expenses you will go nuts arguing about $$$. She will want to spend because that is what she does and not working will give her lots of time to find things to buy. It will just kill your nest egg covering all her expenses and fast. No way will you be able to stay at 4% to 5% spending. I bet her spending alone will go up to $100K or more due to more travel and more fun things to do and so forth. And with her wanting to do stuff due to not working I bet your spending also goes up. You will want to travel more and do stuff with her as well.

So she needs to stay working until she can draw Medicare and maybe even start SS at the same time. This will give her her $$ and allow you to put a hard limit on her spending. I know this is harsh but I see this as the best solution for your road ahead.

Good Luck.

aristotelian
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Re: Please look at my financial situation and give me your insights

Post by aristotelian » Mon Oct 09, 2017 3:18 pm

It seems like you worked too long and she has not worked long enough, or at least she has not saved. If you merge your finances you are probably fine to both retire. If you are separate, you can retire and let her worry about herself.

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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 7:30 pm

So she needs to stay working until she can draw Medicare and maybe even start SS at the same time. This will give her her $$ and allow you to put a hard limit on her spending. I know this is harsh but I see this as the best solution for your road ahead.
It is not harsh. It is a simple statement of the facts as you see them. Thanks for your input.
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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 7:46 pm

Thanks everyone for your input. Now lets look at it another way.

In 25 years
The probability that I will be alive is 13%.
The probability that the wife will be alive is 44%.
The probability that we will both be alive is 6%.
The probability that one of us will be alive is 51%.

In 30 years
The probability that I will be alive is 3%.
The probability that the wife will be alive is 23%.
The probability that we will both be alive is 0.7%.
The probability that one of us will be alive is 25%.

I got those numbers here:
http://www.vanguard.com/us/insights/ret ... ement-tool
Tell me if my math is wrong for the both and either calculations.

So it is not important to me that we have a 90% probability of maintaining our lifestyle for 30 years when there is only a 51% probability we will still be alive in 25 years. I would rather risk going broke in 25 years than risk her doing something she is sick of doing for another 6 years and then dying soon after.

I definitely don't care about having more money in 30 years than we have today like in the spreadsheet posted by Lars_2013.

What happens if we run the spreadsheet posted by Lars_2013, and assume she retires today?
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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 7:50 pm

Lars, could you post the code for the macro in that spreadsheet so I can play with it.
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billfromct
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Re: Please look at my financial situation and give me your insights

Post by billfromct » Mon Oct 09, 2017 7:55 pm

If she "worked on a state court", won't she get a state pension?

bill

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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 7:59 pm

If she "worked on a state court", won't she get a state pension?
Yes but it is not very much. She wasn't there long enough.
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Watty
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Re: Please look at my financial situation and give me your insights

Post by Watty » Mon Oct 09, 2017 8:38 pm

tc101 wrote:
Mon Oct 09, 2017 1:39 pm
Spending probably about $100K/year, but we could go lower if we needed to.
It was not clear if if that included taxes or not. If are spending $100K a year after taxes then you will need a lot more income than that to have $100K left after paying taxes.

You also need to consider what you income needs will be at different ages. I have seen relatives naturally slow down by the time they reached their mid 70's even though they were in relatively good health. At that point their spending went down a lot.

Since your finances are separate there is no obligation to give your wife excessive amounts of money in retirement and you could even put your money into a trust that would amply provide for her needs if she survives you but not let her spend excessively and quickly spend down the inheritance.

Dottie57
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Re: Please look at my financial situation and give me your insights

Post by Dottie57 » Mon Oct 09, 2017 8:58 pm

btenny wrote:
Mon Oct 09, 2017 2:53 pm
No IMO your wife cannot retire yet. But she can take more time off work for the next few years and take more vacations with you. So all is not lost. The issue is she is a spender plain and simple. And since she has no SS income and high expenses and no savings to cover her expenses you will go nuts arguing about $$$. She will want to spend because that is what she does and not working will give her lots of time to find things to buy. It will just kill your nest egg covering all her expenses and fast. No way will you be able to stay at 4% to 5% spending. I bet her spending alone will go up to $100K or more due to more travel and more fun things to do and so forth. And with her wanting to do stuff due to not working I bet your spending also goes up. You will want to travel more and do stuff with her as well.

So she needs to stay working until she can draw Medicare and maybe even start SS at the same time. This will give her her $$ and allow you to put a hard limit on her spending. I know this is harsh but I see this as the best solution for your road ahead.

Good Luck.
I have to say I agree with this. Your wife needs to take SS and have medicare before she retires. It is the harsh payment for not saving.

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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Mon Oct 09, 2017 9:54 pm

It was not clear if if that included taxes or not. If are spending $100K a year after taxes then you will need a lot more income than that to have $100K left after paying taxes.
Good point. Some of the money is in a Roth IRA, but more is in taxable stock funds, and a regular IRA that will be taxable. I live in Georgia and will pay no state income tax because of my age. I don't think I'll pay taxes on social security.
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Mlm
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Re: Please look at my financial situation and give me your insights

Post by Mlm » Mon Oct 09, 2017 10:21 pm

With 100K in expenses I don't think spouse can retire anytime soon. Can you cut the expense budget? Hopefully you have the details of where the money is going and adjust accordingly. Discipline and trade-offs can make anything

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Watty
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Re: Please look at my financial situation and give me your insights

Post by Watty » Mon Oct 09, 2017 10:43 pm

tc101 wrote:
Mon Oct 09, 2017 9:54 pm
It was not clear if if that included taxes or not. If are spending $100K a year after taxes then you will need a lot more income than that to have $100K left after paying taxes.
Good point. Some of the money is in a Roth IRA, but more is in taxable stock funds, and a regular IRA that will be taxable. I live in Georgia and will pay no state income tax because of my age. I don't think I'll pay taxes on social security.
I'm also in Georgia. I would also think that you won't pay Georgia state income tax as on the taxable income or the Social Security but I you will very likely have to pay federal income taxes on the Social Security.

https://www.bogleheads.org/wiki/Social_ ... calculator

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

It would be good to do dummy tax returns to find out the details of how much you will pay in taxes.

You might also consider if doing Roth conversions up to the top of the 15% tax bracket before you start Social Security would help save you taxes later.

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djpeteski
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Re: Please look at my financial situation and give me your insights

Post by djpeteski » Tue Oct 10, 2017 5:56 am

I think a necessary component of your retirement plan is for your wife and you to learn to work together on finances. Having one person with out of control spending (as the other sees it) leaves the "saver" nervous, afraid, and resentful. She spender would see the saver as over bearing, and be resentful of the saver when forced to live on a budget.

Coming together is far more important then the amount of money you have. Until that happens, you don't have a large enough nest egg.

stevekozak2
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Re: Please look at my financial situation and give me your insights

Post by stevekozak2 » Tue Oct 10, 2017 6:34 am

djpeteski wrote:
Tue Oct 10, 2017 5:56 am
I think a necessary component of your retirement plan is for your wife and you to learn to work together on finances. Having one person with out of control spending (as the other sees it) leaves the "saver" nervous, afraid, and resentful. She spender would see the saver as over bearing, and be resentful of the saver when forced to live on a budget.

Coming together is far more important then the amount of money you have. Until that happens, you don't have a large enough nest egg.
I think this post is the most valuable pist in this thread!

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tc101
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Re: Please look at my financial situation and give me your insights

Post by tc101 » Tue Oct 10, 2017 8:25 am

stevekozak2 wrote:
Tue Oct 10, 2017 6:34 am
djpeteski wrote:
Tue Oct 10, 2017 5:56 am
I think a necessary component of your retirement plan is for your wife and you to learn to work together on finances. Having one person with out of control spending (as the other sees it) leaves the "saver" nervous, afraid, and resentful. She spender would see the saver as over bearing, and be resentful of the saver when forced to live on a budget.

Coming together is far more important then the amount of money you have. Until that happens, you don't have a large enough nest egg.
I think this post is the most valuable pist in this thread!
I agree. We have been working on this for most of the marriage and I am not optimistic that we will ever work it out. It is not a perfect marriage. I don't know if perfect marriages exist.
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Pajamas
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Re: Please look at my financial situation and give me your insights

Post by Pajamas » Tue Oct 10, 2017 10:28 am

It seems to me that that there are several possible outcomes, depending on whether or not she changes her financial behavior sufficiently and whether or not you continue to keep your finances separate.

If she does not change her financial behavior sufficiently and your finances remain separate, her retirement will fail financially and your retirement may be successful.
If she does not change her financial behavior sufficiently and she becomes your partial dependent, both of your retirements will fail financially.
If she changes her financial behavior sufficiently and your finances remain separate, both retirements may be successful.
If she changes her financial behavior sufficiently and she becomes your partial dependent, both of your retirements may be successful.

Ultimately, as long as you remain in the relationship together, the only choice you have is whether or not to continue to keep your finances separate or to have her become your partial dependent. You can also try to influence her to change her financial behavior sufficiently before making that decision, or not.

Her only choice is to change her financial behavior successfully or not.

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