18 Months Until Retirement? Can I do This?

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Topic Author
cdc
Posts: 61
Joined: Fri Jun 02, 2017 1:05 pm

18 Months Until Retirement? Can I do This?

Post by cdc » Fri Jan 03, 2020 9:56 pm

I turn 60 in July 2021, and am hoping to retire at that time. Please let me know your thoughts on our situation and plan.

Me: 58, excellent health
DW: 54, excellent health
We have two kids in college, which we’re paying for through a combination of 529 savings and cash flow. The older kid graduates ‘21, younger one in ’23.

Emergency funds: yes
House: Worth $925,000 (Zillow), mortgage balance $210,000, 3.875%, monthly payment $2,005 (PITI); loan matures 2039
Other debt: Car loan, $9,000 balance, 0.9%, monthly payment $285; loan matures 2022

I’m a federal employee, and will be retiring with a FERS annuity and retiree health.

Pensions:
FERS annuity at age 60: $33,500 (50% survivor benefit), inflation protected

SS supplement available age 60-62: $15,500

2nd pension from prior employer at age 65: $6,500 (100% survivor benefit), no inflation adjustment

Social Security:
Open Social Security suggests I claim at age 70 and DW claims at age 62:
· Me: $42,000
· DW: $17,500

Retirement Accounts (all in tax deferred accounts):
Desired allocation: 60 equity, 40 fixed; international equity allocation is a work in progress.

Retirement assets (total): $1.79 million

Me: $1.26 million
TSP: $678,000 (currently maxing out contributions, including over 50 catch up)
o C fund: 50
o S fund: 10
o F fund: 20
o G fund: 20
tIRA (rolled from prior 401K): $585,000
o VTSAX: 50
o VTIAX: 10
o VBTLX: 40

DW: $524,000
tIRA (including rollover from prior 401Ks): $524,000
o VTSAX: 50
o VTIAX: 10
o VBTLX: 40
401K: $0 (She recently started a new job and is only now able to contribute; she’ll contribute about $21,000 this year (includes company match)

Expenses:
I’ve been tracking these, and taking out the most obvious expenses we won’t Incurring in retirement (notably kid’s college). I’m modeling spending $12,000/month, which includes everything—income taxes and healthcare. Yes, the number is high, and it can be cut, but it’s the number I’m using, recognizing that there will be some expenses that will go away and others (travel) that will increase.

The Plan:
I retire at age 60; DW keeps working for two more years, until younger child graduates college

Sources of income:

Age 60-62
DW’s salary ($120,000)
My FERS annuity ($33,500)
My SS supplement ($15,500)
Anything else I might need from my retirement accounts (no more than 2% withdrawal rate)

Age 62-65—retirement income is $66,000+50,000+$33,500=$149,500
I carve off a portion of my IRA ($480,000) and invest it very conservatively (VMMXX?) and use this as a bridge to get me to age 65 for Pension 2, me to age 70 for SS, DW to age 62 for SS; $6,500+$42,000+17,500=$66,000/year for these 3 years

My best guess is we’ll have about $1.6 million in our retirement accounts at that point (after carving off $480,000 to fund the bridge), and we’ll apply a 3.25% withdrawal rate on this for $50,000 in income

MY FERS annuity $33,500 (before inflation adjustment)

Age 65
Same as above, except that the bridge income is adjusted down since I’m now collecting pension 2

Age 66
Same as above, except that the bridge income is adjusted down since DW is now collecting SS

Age 70
The bridge is gone, and I’m now collecting SS

I know it’s a lot, but what do you think? Firecalc says we should be okay.

bloom2708
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Re: 18 Months Until Retirement? Can I do This?

Post by bloom2708 » Fri Jan 03, 2020 10:06 pm

You've done your homework.

How will you feel when you are retired and you wife is still working for 3 more years? I would want to do it together.

I would try to get spending down. $144k plus taxes/lumpy spending on top seems high on your savings.

Less house? I would figure it out or work 1 more year so you can retire at the same time. That's just me.

Good luck! I'm sure others will chime in.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

Topic Author
cdc
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Re: 18 Months Until Retirement? Can I do This?

Post by cdc » Fri Jan 03, 2020 10:14 pm

“$144k plus taxes/lumpy spending on top seems high on your savings.”

$144k includes taxes and lumpy expenses. (We spent $14,000 on a car last year and that expenditure is loaded into the expenses.) having said that, yes,I can get by on $10,000 per month (again, includes taxes). Expenses can be cut, but I’m modeling $12,000/ month.

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Watty
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Re: 18 Months Until Retirement? Can I do This?

Post by Watty » Fri Jan 03, 2020 10:26 pm

What are your future plans for the house? Many people will downsize once the kids are out on their own.

cdc wrote:
Fri Jan 03, 2020 9:56 pm
Expenses:
I’ve been tracking these, and taking out the most obvious expenses we won’t Incurring in retirement (notably kid’s college). I’m modeling spending $12,000/month, which includes everything—income taxes and healthcare. Yes, the number is high, and it can be cut, but it’s the number I’m using, recognizing that there will be some expenses that will go away and others (travel) that will increase.
Your expenses will be different at different ages and your mortage will eventually be paid off.

Everyone is different but I have seen relatives get to be in about their mid 70s and naturally slow down even though they were in relatively good health. At that point there spending went way down and since they had a paid off house there were often months when they did not even spend their Social Security checks.

If only one of you is surviving when a nursing home is needed then your expenses might even go down then.

The worst case seems to be if only one of you is surviving and your only income was the pensions and one Social Security check. I didn't follow your pension numbers but that would be something like $60K which might not be the retirement you were planning but that would not be anywhere near a dire situation.

Having a safety net like that really takes the risk out of figuring out your withdrawal rate.
cdc wrote:
Fri Jan 03, 2020 9:56 pm
FERS annuity at age 60: $33,500 (50% survivor benefit), inflation protected

SS supplement available age 60-62: $15,500
Could you take a 100% survivor benefit option? If so what would the reduced amount be?

You have ample other assets so there is not a lot of need for the extra income now and your wife will likely outlive you by a long time if she is in average health now.

GeoMetry
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Re: 18 Months Until Retirement? Can I do This?

Post by GeoMetry » Sat Jan 04, 2020 4:30 am

cdc wrote:
Fri Jan 03, 2020 9:56 pm
My best guess is we’ll have about $1.6 million in our retirement accounts at that point (after carving off $480,000 to fund the bridge), and we’ll apply a 3.25% withdrawal rate on this for $50,000 in income
If your $1.6M comes true, your RMDs will force you to take more than $50K. 85% of your social security is going to be taxed. You have FEHB but I assume you will sign up for Medicare also. You will probably get hit with IRMAA. I recommend that you look into doing some Roth conversions. You have a tax planning window from now till you take social security. You even have five years before you need to worry about IRMAA. Tax rates are at historical lows right now and under current law they are scheduled to go up in 2028. If I was in your position I would be converting as much of my tax deferred savings to Roth as I could, up to the top of the 24% tax bracket.
cdc wrote:
Fri Jan 03, 2020 9:56 pm
401K: $0 (She recently started a new job and is only now able to contribute; she’ll contribute about $21,000 this year (includes company match)
I recommend that you max out your wife's qualified accounts first because her RMDs will come later.

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JoeRetire
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Re: 18 Months Until Retirement? Can I do This?

Post by JoeRetire » Sat Jan 04, 2020 5:51 am

cdc wrote:
Fri Jan 03, 2020 9:56 pm
SS supplement available age 60-62: $15,500
What is this SS supplement?
Why is it only available for 2 years?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

ZMonet
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Re: 18 Months Until Retirement? Can I do This?

Post by ZMonet » Sat Jan 04, 2020 6:15 am

The SS Supplement is for federal employees who retire before they can collect social security. It roughly mirrors what one would be able to collect from SS if it was available to them. The idea was to give Feds a bridge until they could collect SS, which is why it expires at 62. This has been on the chopping block every year and I would have thought it would have been removed by now -- and likely will be one of the first Fed benefits to go -- but somehow it has survived. Not sure OP can 100% count on it, but since OP is so close in age to collect, and any changes would likely have at least some minimal grandfathering, there is likely a high chance OP will get it.

ZMonet
Posts: 31
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Re: 18 Months Until Retirement? Can I do This?

Post by ZMonet » Sat Jan 04, 2020 6:47 am

You've set yourself and family up amazingly well. I think you're more than fine. Roughly, at 70 you'll have $100k in pensions/SS and need to fill the gap in spending (approx. $44k) with the $1.4 million in investments at a 3.25% WR. You've accounted for the 60-70 years with a combo of pensions/SS and conservative investments. If things went awry, you could easily lower spending if you start feeling insecure, but with a safety net of $100k inflation-protected you wouldn't have to cut much at all. As others have said, as you get deeper into your 70s your spending will likely go down anyway.

I'm 10 years out from where you are, but your plan is instructive so thanks!

Topic Author
cdc
Posts: 61
Joined: Fri Jun 02, 2017 1:05 pm

Re: 18 Months Until Retirement? Can I do This?

Post by cdc » Sat Jan 04, 2020 2:47 pm

Could you take a 100% survivor benefit option? If so what would the reduced amount be?
Unfortunately, the best I can do under FERS is a 50% survivor option. I agree, it’s a risk in that DW stands to lose $34,000 in annual income between SS and pension if I predecease her, but, short of paying for prohibitively expensive life insurance, the best I can do is utilize a conservative 3.25% withdrawal rate and hope that the balance in our savings at the time of my death will allow for an adjustment up.

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