Retiring fairly young with a govt pension and trying to put together a plan

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guinessforlife
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Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Sun May 17, 2020 8:56 pm

Okay so I am planning on retiring in 3 years. It's getting close and I am trying to get a plan on what to do with my assets once I pull the trigger.

I'm a govt employee and I have a very good pension. I'll be making a little over $100k a year with the pension (pre-tax). In addition to that I have about $300k in a 457b that I am doing the 3 year catch up contributions right now. I have my money invested in 90% Vanguard Index Funds and 10% Bonds. When I retire I can cash out my leave time that will give me about $95k before taxes.

My wife has a traditional job in the private sector. She currently has about $350k in a traditional 401k and is maxing her contributions. She's planning on quitting when I retire so we can spend our time traveling. We will both be 50 yrs old when this happens.

Additional assets: we have $15k in a small IRA that I put $100 a month into, $20k in a joint saving account and $7k in my wife's HSA which she is also maxing.

We are making double payments on our mortgage and I should only have $10kish remaining on the note when I hit my retirement date. Both cars are paid off and we don't have any kids.

My plan so far:

1. Keep my 457b in Vanguard Funds and use that money if I have any emergency bills or want to make any big purchases since I can withdraw it without penalty (but of course I have to pay taxes).

2. Move my wife's 401k into a Vanguard managed account. Still trying to decide how aggressive we want it to be since we don't plan on touching it for a decade. She wants to put in somewhere "safe" so we are kind of at odds on this.

3. Use my leave cash out check to pay off my mortgage.

4. I'm thinking of taking the remainder of that (maybe $60k?) and do a CD ladder with it so that we have some "safe" assets that we can access if needed.

5. Basically just live off my pension. I've run my monthly expenses. After taxes, HOA fees, health insurance and all expenses minus groceries we will still have about $40k to live on.

I guess I am brainstorming here wondering if anyone has any recommendations or advice that I am not thinking of? I'd considering calling a Vanguard Financial Planner and having consultation with them as I get closer. Ideally I'd like to live off my pension check and just use those other accounts as a cushion and to account for inevitable inflation. My pension never gets cost of living increases.

Most retirement plans I come across don't take a solid pension into account since those things are so rare now.

JakeyLee
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by JakeyLee » Sun May 17, 2020 9:13 pm

OP, I'm going to guess that you are a public safety employee . Congrats on getting close to that finish line. I had/have very similar thoughts as you. I would take this time to knock out needless debt before you pull that trigger. I'm assuming your pension will cover your living expenses. Maybe now is a great time to start doing Roth conversions. Or at least put together a plan on lowering your tax liability in retirement. With the ballast of a govt pension, you can probably afford to be heavy in equities (sounds like you are). I will leave you with this thought: You still have the ability to continue working if this black swan (covid related recession) reemerges in a real bad way. So stay flexible...

beernutz
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by beernutz » Sun May 17, 2020 9:18 pm

You and your wife are both planning on living primarily on your $100k pension? What are your incomes now?

I would be concerned about having enough income to cover expenses, particularly health care/health insurance. You are a long way from Medicare or SS.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Sun May 17, 2020 9:33 pm

beernutz wrote:
Sun May 17, 2020 9:18 pm
You and your wife are both planning on living primarily on your $100k pension? What are your incomes now?

I would be concerned about having enough income to cover expenses, particularly health care/health insurance. You are a long way from Medicare or SS.
Right now our combined income is about $210k. But we aren't really living on that much. My employer automatically deducts 15% of my paycheck for my pension. And I am contributing $3k a month to my 457b as part of the three year catch-up plus about $200 a month into an extra IRA. My wife is maxing her 401k and her HSA. In addition to that, our mortgage is only about $1500 a month but we are paying an extra $1300 a month in principal in an attempt to get it paid off by the time we retire. And both our cars are paid off. I can carry my wife on my health care once I retire and that comes out to about $700 a month. It's a pretty decent PPO plan.

I was worried about living on a reduced income but when I look at all the deductions we make for our various retirement plans plus paying off the house by the time I retire, I THINK we should be okay with the monthly pension. My pension is supposed to be 80% of my paycheck at that point but minus all the deductions, I expect to see an increase in takehome pay.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Sun May 17, 2020 9:34 pm

JakeyLee wrote:
Sun May 17, 2020 9:13 pm
OP, I'm going to guess that you are a public safety employee . Congrats on getting close to that finish line.
Thanks! Yeah I am glad to almost be done with it. I really don't want to work again for awhile but I'm keeping my options open in case I need to change my plans. I could easily keep working at my agency for an additional 5 years or so if I needed to.

finite_difference
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by finite_difference » Sun May 17, 2020 9:45 pm

You should also be able to max Roth IRA, $6k each/year?

Seems like currently you are spending more than $100k/year even after deductions + mortgage? May want to double-check that.

Approximate expenses = $210k - $36k (457) - $18k (401k) - $34k (mortgage) - $15k (pension) - $7.1k (HSA) = $99.9k.

Looks like you are right on the dot, but will want to check taxes? If you can also do 2x max Roth IRA then you should be in good shape I think.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Sun May 17, 2020 10:03 pm

finite_difference wrote:
Sun May 17, 2020 9:45 pm
You should also be able to max Roth IRA, $6k each/year?

Seems like currently you are spending more than $100k/year even after deductions + mortgage? May want to double-check that.

Approximate expenses = $210k - $36k (457) - $18k (401k) - $34k (mortgage) - $15k (pension) - $7.1k (HSA) = $99.9k.

Looks like you are right on the dot, but will want to check taxes? If you can also do 2x max Roth IRA then you should be in good shape I think.
I think our income is too much for a Roth isn't it? I was maxing my traditional IRA until I started doing the 457b catch-up. I'm slowly adding a little bit more back to the IRA contributions every month but I hope to be back to maxing it soon.

DeadLoad
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by DeadLoad » Mon May 18, 2020 5:39 am

guinessforlife wrote:
Sun May 17, 2020 10:03 pm
finite_difference wrote:
Sun May 17, 2020 9:45 pm
You should also be able to max Roth IRA, $6k each/year?

Seems like currently you are spending more than $100k/year even after deductions + mortgage? May want to double-check that.

Approximate expenses = $210k - $36k (457) - $18k (401k) - $34k (mortgage) - $15k (pension) - $7.1k (HSA) = $99.9k.

Looks like you are right on the dot, but will want to check taxes? If you can also do 2x max Roth IRA then you should be in good shape I think.
I think our income is too much for a Roth isn't it? I was maxing my traditional IRA until I started doing the 457b catch-up. I'm slowly adding a little bit more back to the IRA contributions every month but I hope to be back to maxing it soon.
You do not make too much for Roth IRAs. Income restrictions are based on AGI and your current AGI is lower than the MFJ tax bracket. Even if you were above the AGI, you can still “back door” Roth. Are your 457b contributions Roth or traditional?

Congratulations on soon making it to retirement. I am also in your similar situation except I have 25 more years to go lol.

finite_difference
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by finite_difference » Mon May 18, 2020 9:04 am

DeadLoad wrote:
Mon May 18, 2020 5:39 am
guinessforlife wrote:
Sun May 17, 2020 10:03 pm
finite_difference wrote:
Sun May 17, 2020 9:45 pm
You should also be able to max Roth IRA, $6k each/year?

Seems like currently you are spending more than $100k/year even after deductions + mortgage? May want to double-check that.

Approximate expenses = $210k - $36k (457) - $18k (401k) - $34k (mortgage) - $15k (pension) - $7.1k (HSA) = $99.9k.

Looks like you are right on the dot, but will want to check taxes? If you can also do 2x max Roth IRA then you should be in good shape I think.
I think our income is too much for a Roth isn't it? I was maxing my traditional IRA until I started doing the 457b catch-up. I'm slowly adding a little bit more back to the IRA contributions every month but I hope to be back to maxing it soon.
You do not make too much for Roth IRAs. Income restrictions are based on AGI and your current AGI is lower than the MFJ tax bracket. Even if you were above the AGI, you can still “back door” Roth. Are your 457b contributions Roth or traditional?

Congratulations on soon making it to retirement. I am also in your similar situation except I have 25 more years to go lol.
+1.

Also, your mortgage is $1500, which is low, and you’re paying it off soon (next 3 years), but depending on your current interest rate a no-cost refinance might save you a couple thousand dollars to fund those Roth IRAs over the next few years. I just mention it because interest rates are currently at historic lows.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

PoppyA
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by PoppyA » Mon May 18, 2020 9:19 am

You can live on your pension easily. You will be surprised how easy it will be.

With your leave pay, Pay off the house, buy a corvette, and travel the country.

terran
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by terran » Mon May 18, 2020 9:19 am

Sounds good (I'll second the recommendation to take a hard look at your expenses as you approach retirement -- maybe started tracking your spending for the next few years). You might consider slowly converting your retirement accounts to Roth so you don't have a large income spike in a year you need to make a large withdrawal. Your goal should be to keep your income as even as possible throughout retirement as spikes that push you into a higher bracket one year will mean a larger overall amount paid in taxes.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by retiredjg » Mon May 18, 2020 11:02 am

guinessforlife wrote:
Sun May 17, 2020 8:56 pm
My pension never gets cost of living increases.
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later.

my name
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by my name » Mon May 18, 2020 1:44 pm

Your $100,000 pension looks great at age 50. It won't at age 70. The $60,000 in annual fixed expenses will increase each year. And the pension will never increase. Assume in 20 years your annual expenses almost double growing to $108.367. This is based on a small 3% rate of inflation. But the costs you list often increase more than that. You don't know the future, and you have less to pay expenses with each passing year. You may sicken or otherwise no longer be able to work should you need income.

Your back-up investments are roughly $800,000. If we get mired down in a long recession, that may stagnate or decrease in value for a while. Who knows. I remember not too long ago when the stock market went from 14,000, I think, down to 6800. Scary stuff.

I also think of lost opportunity. To retire at age 50, you give up 15 years of income generation and investment growth by contributions. If you reach age 62 and need money, you can start social security or its equivalent, but that locks in the lowest monthly check for life. I think of SS as insurance and waited until age 70 to collect, and am very happy to have "maxed out" SS.

If you are a safety officer, I know some who did retire but then work by contract. And make a whole lot of money, can name the days they work and plan for long time off. I guarantee you that the wonders of travel and free time will fade pretty soon. May be easier to not totally retire, but work and play on a schedule that is balanced in a way that gets you to where you want to go, without totally cutting the cord.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by sergeant » Mon May 18, 2020 2:46 pm

Retired PSO here but with a 2% COLA. I also did the 3 year catch-up and regret not directing it to Roth as that is an option in our 457b plan. I think you're doing just about everything right. It is nice to retire and actually have your take home pay increase. I would look into the backdoor Roth for your IRA's. Is it possible to defer your leave balance payout? My agency had an option to defer it into a Retiree Health Savings account. It goes in tax free, earns tax free, and withdrawals are tax free for medical expenses. Having a six figure account dedicated towards healthcare is a good thing.

I would definitely transfer the DW's account to Vanguard when she retires. I would keep it simple and put it into something simple like a TD fund with her desired conservative AA. I would research Roth conversions which probably make sense once you both retire.

What is the survivor benefit? If a poor survivor benefit do you have life insurance to provide for DW?
Lincoln 3 EOW! AA 40/60.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 2:53 am

PoppyA wrote:
Mon May 18, 2020 9:19 am
You can live on your pension easily. You will be surprised how easy it will be.

With your leave pay, Pay off the house, buy a corvette, and travel the country.
I like this idea.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 2:55 am

This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later
Yes, this is something that I lose sleep over. I'm hoping that if I don't touch my other investments, they will grow enough to help me offset that inflation. I might start looking at some part time work down the road once I start getting restless but if I do, I'm hoping that I can just keep adding to the nestegg.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 3:01 am

sergeant wrote:
Mon May 18, 2020 2:46 pm
Retired PSO here but with a 2% COLA. I also did the 3 year catch-up and regret not directing it to Roth as that is an option in our 457b plan. I think you're doing just about everything right. It is nice to retire and actually have your take home pay increase. I would look into the backdoor Roth for your IRA's. Is it possible to defer your leave balance payout? My agency had an option to defer it into a Retiree Health Savings account. It goes in tax free, earns tax free, and withdrawals are tax free for medical expenses. Having a six figure account dedicated towards healthcare is a good thing.

I would definitely transfer the DW's account to Vanguard when she retires. I would keep it simple and put it into something simple like a TD fund with her desired conservative AA. I would research Roth conversions which probably make sense once you both retire.

What is the survivor benefit? If a poor survivor benefit do you have life insurance to provide for DW?
Hmmm, we do have the Roth option in my 457b but I was doing it as traditional to lower my taxes right now. I have a low mortgage with no kids so I don't get much in the way of tax breaks right now.

I don't believe I can defer my leave payout but I am going to check into that HSA option. That would be great but I haven't heard of anyone doing that at this point.

Survivor benefits we were thinking of choosing would give my wife about 66% of my pension for the rest of her life if I die first. There are several other options that would increase or decrease it by a few hundred a month.

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LilyFleur
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by LilyFleur » Wed May 20, 2020 3:06 am

retiredjg wrote:
Mon May 18, 2020 11:02 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
My pension never gets cost of living increases.
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later.
Will either of you be getting social security? That could be considered as an inflation hedge somewhat. Does your wife have a pension?

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 3:09 am

LilyFleur wrote:
Wed May 20, 2020 3:06 am
retiredjg wrote:
Mon May 18, 2020 11:02 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
My pension never gets cost of living increases.
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later.
Will either of you be getting social security? That could be considered as an inflation hedge somewhat. Does your wife have a pension?
Well we pay into social security right now so I assume we will get something down the road. If we both stop working at age 50 I doubt it will be much. My wife doesn't have a pension. She has a 403b that she is maxing out and a HSA but that is it. We are planning on her working for one year after I retire. We will do a trial run and put all of her salary into investments and savings and not touch it for that year. It will be a test run to see if we can live just off my pension. If not, then she will either have to keep working or I will need to find some part time job.

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celia
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by celia » Wed May 20, 2020 3:25 am

guinessforlife wrote:
Sun May 17, 2020 8:56 pm
1. Keep my 457b in Vanguard Funds and use that money if I have any emergency bills or want to make any big purchases since I can withdraw it without penalty (but of course I have to pay taxes).

2. Move my wife's 401k into a Vanguard managed account. Still trying to decide how aggressive we want it to be since we don't plan on touching it for a decade. She wants to put in somewhere "safe" so we are kind of at odds on this.
For your information, you need to find out the early withdrawal rules on a 457b and 401k. Since they are like a TIRA, they may have 10% penalties on withdrawals before age 59.5.

You also need to find out when RMDs start and how they are calculated.

Please consider Roth conversions right after retiring so you have some accounts that you can withdraw from in the future without incurring taxes on the withdrawal.

desiderium
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by desiderium » Wed May 20, 2020 3:34 am

guinessforlife wrote:
Wed May 20, 2020 3:09 am
LilyFleur wrote:
Wed May 20, 2020 3:06 am
retiredjg wrote:
Mon May 18, 2020 11:02 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
My pension never gets cost of living increases.
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later.
Will either of you be getting social security? That could be considered as an inflation hedge somewhat. Does your wife have a pension?
Well we pay into social security right now so I assume we will get something down the road. If we both stop working at age 50 I doubt it will be much. My wife doesn't have a pension. She has a 403b that she is maxing out and a HSA but that is it. We are planning on her working for one year after I retire. We will do a trial run and put all of her salary into investments and savings and not touch it for that year. It will be a test run to see if we can live just off my pension. If not, then she will either have to keep working or I will need to find some part time job.
You can and should calculate your expected social security and use this to assist your planning. Go to SSA.gov and open an online account. You can find all your data there and calculate your benefit. Your wife can do the same.
I like your plan to pay off the house and save the rest of your leave payout in cash/CD. Having this buffer for home repairs or to replace and ailing car may come in handy
I also second the thought expressed above that at age 50, you and your wife retain significant human capital. After you travel for awhile, work on setting something up that is interesting, flexible and meaningful to you. You are financially independent, so you can take your time and it doesn't have to hurt. Stay relevant to preserve an income option and make a dent in covering your spend. You can compensate for the effects of inflation on your pension and build more resilience in the event of challenging market, health or other unexpected circumstances.
Good luck!

JamesJonesJrJr
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by JamesJonesJrJr » Wed May 20, 2020 7:16 am

guinessforlife wrote:
Wed May 20, 2020 2:55 am
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later
Yes, this is something that I lose sleep over. I'm hoping that if I don't touch my other investments, they will grow enough to help me offset that inflation. I might start looking at some part time work down the road once I start getting restless but if I do, I'm hoping that I can just keep adding to the nestegg.
I ran an analysis of the effects inflation will have on your pension. Just to be on the safe side, I made the conservative assumption that you'll retire in 3 years with the assets you have as of today. In reality, your assets will likely grow in 3 years time as you contribute to them and the market does its thing.

Here's a link to the results of my analysis assuming 2% inflation. When you retire, I think you can safely start withdrawing $14k from your investments. You said plan is to let your assets grow and strictly live off of your pension. I think this puts you on great footing for your retirement later on.

I ran another analysis for 3% inflation. In this case, you may want to bank a little of your pension in your first couple years into retirement. About $6k in your first year of retirement, $1k the year after.

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LilyFleur
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by LilyFleur » Wed May 20, 2020 4:34 pm

desiderium wrote:
Wed May 20, 2020 3:34 am
guinessforlife wrote:
Wed May 20, 2020 3:09 am
LilyFleur wrote:
Wed May 20, 2020 3:06 am
retiredjg wrote:
Mon May 18, 2020 11:02 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
My pension never gets cost of living increases.
This could be a real problem 20 or 30 or 40 years from now. Living on that pension should be relatively easy early on. I think you will need supplemental income after awhile. You are going to need a sizable nest egg to provide that once you are older. I'm not trying to say you don't have enough. I'm trying to say you need to conserve it till later.
Will either of you be getting social security? That could be considered as an inflation hedge somewhat. Does your wife have a pension?
Well we pay into social security right now so I assume we will get something down the road. If we both stop working at age 50 I doubt it will be much. My wife doesn't have a pension. She has a 403b that she is maxing out and a HSA but that is it. We are planning on her working for one year after I retire. We will do a trial run and put all of her salary into investments and savings and not touch it for that year. It will be a test run to see if we can live just off my pension. If not, then she will either have to keep working or I will need to find some part time job.
You can and should calculate your expected social security and use this to assist your planning. Go to SSA.gov and open an online account. You can find all your data there and calculate your benefit. Your wife can do the same.
I like your plan to pay off the house and save the rest of your leave payout in cash/CD. Having this buffer for home repairs or to replace and ailing car may come in handy
I also second the thought expressed above that at age 50, you and your wife retain significant human capital. After you travel for awhile, work on setting something up that is interesting, flexible and meaningful to you. You are financially independent, so you can take your time and it doesn't have to hurt. Stay relevant to preserve an income option and make a dent in covering your spend. You can compensate for the effects of inflation on your pension and build more resilience in the event of challenging market, health or other unexpected circumstances.
Good luck!
It's a little tricky estimating your social security if you are a government employee. There are provisions that may reduce social security if you have a government pension. I went through all of this a few years ago. Hopefully your wife does not have a government job and will receive social security, and hers will not be reduced by your government pension. After lots of research, I was told by a SS manager that was at a state pension seminar that my social security would not be reduced due to my receiving part of a government pension in a divorce, since I was not the actual government employee. This was after I called SS, and the person told me on the phone that I would not receive SS. The manager I met said NEVER to go by what they tell you on the phone but to go in person and get the estimate in writing. I still don't really count on my SS in my financial planning as I think it will be $10,000 a year or less but it will definitely help! I mostly think about it when I am strategizing for Roth conversions and doing them in the most tax-wise fashion.
https://www.ssa.gov/planners/retire/gpo-wep.html

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sergeant
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by sergeant » Wed May 20, 2020 6:40 pm

guinessforlife wrote:
Wed May 20, 2020 3:01 am
sergeant wrote:
Mon May 18, 2020 2:46 pm
Retired PSO here but with a 2% COLA. I also did the 3 year catch-up and regret not directing it to Roth as that is an option in our 457b plan. I think you're doing just about everything right. It is nice to retire and actually have your take home pay increase. I would look into the backdoor Roth for your IRA's. Is it possible to defer your leave balance payout? My agency had an option to defer it into a Retiree Health Savings account. It goes in tax free, earns tax free, and withdrawals are tax free for medical expenses. Having a six figure account dedicated towards healthcare is a good thing.

I would definitely transfer the DW's account to Vanguard when she retires. I would keep it simple and put it into something simple like a TD fund with her desired conservative AA. I would research Roth conversions which probably make sense once you both retire.

What is the survivor benefit? If a poor survivor benefit do you have life insurance to provide for DW?
Hmmm, we do have the Roth option in my 457b but I was doing it as traditional to lower my taxes right now. I have a low mortgage with no kids so I don't get much in the way of tax breaks right now.

I don't believe I can defer my leave payout but I am going to check into that HSA option. That would be great but I haven't heard of anyone doing that at this point.

Survivor benefits we were thinking of choosing would give my wife about 66% of my pension for the rest of her life if I die first. There are several other options that would increase or decrease it by a few hundred a month.
66% is better than the 50% that many of my fellow workers went with. A few have died and I'm sure some of the widows wished they had gone with a higher survivor benefit. I went with a 75% survivor benefit. It costs me about $500 a month in decreased pension warrant but I SWAN.

If you run the numbers I think that you will see a clear benefit in doing the Roth contributions over the next 3 years. This will be a long term benefit and will pay off when RMD's kick in when you hit 72 years old. It might hurt right now paying the tax but you have to think about the long game.

You said you will have an extra 20-40k every year when you first retire. You could invest part of that in taxable the first decade or two of retirement and then tap it as inflation eats into the value of your pension.
Lincoln 3 EOW! AA 40/60.

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Sandtrap
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by Sandtrap » Wed May 20, 2020 6:53 pm

FYI
Here is a convenient income dollar calculator that projects the decreased value over time because of inflation.
And, how much would be required to make up for that.
https://www.buyupside.com/calculators/i ... njan08.htm
Today's Amount ($): 100,000
Annual Inflation Rate (%): 3
Number of Years: 30
Reduced Amount 41,198.68
Required Amount 242,726.25

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lakja
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by lakja » Wed May 20, 2020 7:07 pm

I find it laughable that people are saying you can’t live on your pension alone. $100k/yr in perpetuity is worth over $2.5M in a portfolio value. If you compare it to the current rate environment, it’s probably closer to $7-8M. Also, you’ve close to $1M in separate accounts with the ability to draw social security. If you keep that $1M invested and don’t touch it, it can probably double 2-2.5 times before you need to start withdrawing.

I wouldn’t worry about it. You can always cut your spending or get another job. Enjoy your retirement.

Edit: If you’d rather worry, I’d be concerned on how financially stable your state and how well-funded your pension are. Maybe your pension becomes at risk for a haircut sometime in the future.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 9:56 pm

JamesJonesJrJr wrote:
Wed May 20, 2020 7:16 am
I ran an analysis of the effects inflation will have on your pension. Just to be on the safe side, I made the conservative assumption that you'll retire in 3 years with the assets you have as of today. In reality, your assets will likely grow in 3 years time as you contribute to them and the market does its thing.

Here's a link to the results of my analysis assuming 2% inflation. When you retire, I think you can safely start withdrawing $14k from your investments. You said plan is to let your assets grow and strictly live off of your pension. I think this puts you on great footing for your retirement later on.

I ran another analysis for 3% inflation. In this case, you may want to bank a little of your pension in your first couple years into retirement. About $6k in your first year of retirement, $1k the year after.
Wow this is useful! Thanks for doing that. I'm hoping to be able to bank some of it but I'm going to do another analysis of expenses to see if that's possible.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Wed May 20, 2020 10:00 pm

celia wrote:
Wed May 20, 2020 3:25 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
1. Keep my 457b in Vanguard Funds and use that money if I have any emergency bills or want to make any big purchases since I can withdraw it without penalty (but of course I have to pay taxes).

2. Move my wife's 401k into a Vanguard managed account. Still trying to decide how aggressive we want it to be since we don't plan on touching it for a decade. She wants to put in somewhere "safe" so we are kind of at odds on this.
For your information, you need to find out the early withdrawal rules on a 457b and 401k. Since they are like a TIRA, they may have 10% penalties on withdrawals before age 59.5.

You also need to find out when RMDs start and how they are calculated.

Please consider Roth conversions right after retiring so you have some accounts that you can withdraw from in the future without incurring taxes on the withdrawal.
From what I understand, there is no penalty for early withdrawal on 457bs. At least that is what my employer's website says.

I have never really considered Roth conversions before because I am not educated on it. But I've seen it mentioned here a lot so I will certainly look into it.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by retiredjg » Thu May 21, 2020 6:08 am

lakja wrote:
Wed May 20, 2020 7:07 pm
I find it laughable that people are saying you can’t live on your pension alone.
I think what people are saying is if living expenses (including taxes) are $100k and the pension is $100k, the $100k will not buy much after a few decades of inflation. (The pension apparently has no cost of living increases.) Retiring at 50 means they have many decades to consider.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by MikeWillRetire » Thu May 21, 2020 8:39 am

I ran Firecalc with the following numbers:
100,000 pension, no cola
40 year retirement
100,000 annual spending
AA=40/60

Firecalc gives 95% success if you have 1.45 million.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by sergeant » Thu May 21, 2020 10:31 am

guinessforlife wrote:
Wed May 20, 2020 10:00 pm
celia wrote:
Wed May 20, 2020 3:25 am
guinessforlife wrote:
Sun May 17, 2020 8:56 pm
1. Keep my 457b in Vanguard Funds and use that money if I have any emergency bills or want to make any big purchases since I can withdraw it without penalty (but of course I have to pay taxes).

2. Move my wife's 401k into a Vanguard managed account. Still trying to decide how aggressive we want it to be since we don't plan on touching it for a decade. She wants to put in somewhere "safe" so we are kind of at odds on this.
For your information, you need to find out the early withdrawal rules on a 457b and 401k. Since they are like a TIRA, they may have 10% penalties on withdrawals before age 59.5.

You also need to find out when RMDs start and how they are calculated.

Please consider Roth conversions right after retiring so you have some accounts that you can withdraw from in the future without incurring taxes on the withdrawal.
From what I understand, there is no penalty for early withdrawal on 457bs. At least that is what my employer's website says.

I have never really considered Roth conversions before because I am not educated on it. But I've seen it mentioned here a lot so I will certainly look into it.
There are no penalties for withdrawals once you leave employment with your 457b. RMD's start at 72 years of age.
Lincoln 3 EOW! AA 40/60.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Fri May 22, 2020 3:06 am

sergeant wrote:
Thu May 21, 2020 10:31 am



There are no penalties for withdrawals once you leave employment with your 457b. RMD's start at 72 years of age.
So after reading over this thread I contacted my 457b folks and directed my three year catch up contributions to be put in as Roth contributions. When I first started at my agency, a roth option wasn't available. I guess it became an option about 10 years ago but I never bothered to go that route, mostly out of ignorance. When I started reading up on it, I decided to keep it traditional because I wanted to avoid taxes when possible. I've only been doing the catch up for since January so I still have 2 1/2 years to pump money into it.

Thanks for the advice.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by retiredjg » Fri May 22, 2020 6:18 am

Just a note about your Roth 457 contributions.

Early on, distributions from the Roth 457 portion will contain both a taxable part and a non-taxable part. This is because the earnings that occur in Roth 457 are not tax free until you reach age 59.5 and they cannot give you just the already taxed portion from that sub-account.

This is not a problem unless they require any distribution from the 457 to contain both Roth and traditional money. If they do that, making the Roth contributions may not be worth it. But if they allow you to take your distributions from just the traditional 457 sub-account there is no problem.

On the other hand, if they will allow you to roll just the Roth 457 sub-account out to Roth IRA, then Roth IRA rules will apply and you could tap into just the already taxed portion alone.

Just be sure you know now how they will let you take distributions in between 50 and 59.5. Plans vary.

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guinessforlife
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by guinessforlife » Thu May 28, 2020 12:17 am

retiredjg wrote:
Fri May 22, 2020 6:18 am
Just a note about your Roth 457 contributions.

Early on, distributions from the Roth 457 portion will contain both a taxable part and a non-taxable part. This is because the earnings that occur in Roth 457 are not tax free until you reach age 59.5 and they cannot give you just the already taxed portion from that sub-account.

This is not a problem unless they require any distribution from the 457 to contain both Roth and traditional money. If they do that, making the Roth contributions may not be worth it. But if they allow you to take your distributions from just the traditional 457 sub-account there is no problem.

On the other hand, if they will allow you to roll just the Roth 457 sub-account out to Roth IRA, then Roth IRA rules will apply and you could tap into just the already taxed portion alone.

Just be sure you know now how they will let you take distributions in between 50 and 59.5. Plans vary.
Thank you. I had no idea this might even be a concern. I will check with my plan adminstrators.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by phxjcc » Thu May 28, 2020 12:53 am

lakja wrote:
Wed May 20, 2020 7:07 pm
I find it laughable that people are saying you can’t live on your pension alone. $100k/yr in perpetuity is worth over $2.5M in a portfolio value. If you compare it to the current rate environment, it’s probably closer to $7-8M. Also, you’ve close to $1M in separate accounts with the ability to draw social security. If you keep that $1M invested and don’t touch it, it can probably double 2-2.5 times before you need to start withdrawing.

I wouldn’t worry about it. You can always cut your spending or get another job. Enjoy your retirement.

Edit: If you’d rather worry, I’d be concerned on how financially stable your state and how well-funded your pension are. Maybe your pension becomes at risk for a haircut sometime in the future.
This.

I am constantly astounded by this site.
10 years ago I was living on $800/month; hoping that I would have enough to make it until FRA, or when some mysterious clerk would grant my disability INSUARANCE claim.
You have any idea of what the MAX SSA benefit is?
Please, enjoy your retirement--you will be fine.

phxjcc
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by phxjcc » Thu May 28, 2020 12:53 am

lakja wrote:
Wed May 20, 2020 7:07 pm
I find it laughable that people are saying you can’t live on your pension alone. $100k/yr in perpetuity is worth over $2.5M in a portfolio value. If you compare it to the current rate environment, it’s probably closer to $7-8M. Also, you’ve close to $1M in separate accounts with the ability to draw social security. If you keep that $1M invested and don’t touch it, it can probably double 2-2.5 times before you need to start withdrawing.

I wouldn’t worry about it. You can always cut your spending or get another job. Enjoy your retirement.

Edit: If you’d rather worry, I’d be concerned on how financially stable your state and how well-funded your pension are. Maybe your pension becomes at risk for a haircut sometime in the future.
This.

I am constantly astounded by this site.
10 years ago I was living on $800/month; hoping that I would have enough to make it until FRA, or when some mysterious clerk would grant my disability INSUARANCE claim.
You have any idea of what the MAX SSA benefit is?
Please, enjoy your retirement--you will be fine.

Olemiss540
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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by Olemiss540 » Thu May 28, 2020 6:48 am

OP,

Yes, it appears you COULD be perfectly fine retiring in 3 years. Many around here would feel like they were living in a tent (even with a paid off house) eating rice and beans with a six figure income.

A few real concerns of mine reading through your post.

1.) I get the feeling from reading your posts that your are not REALLY comfortable with your current level of expenses. I would invest in a budgeting tool like YNAB for the next few years and USE it. This will give you much more comfort that you can jump off the diving board into retirement.

2.) Medical expenses. I have not seen what approach you are planning for this item. Do you have any retirement benefits that include access to medical insurance? Have you researched the approximate cost of this if you have to cover the full burden (including yearly OOP costs)?

3.) Tax strategies. You need to learn the ins and outs of how your tax rate is going to fluctuate as you get older and begin to receive SS and be forced to take RMDs. Get comfortable with Roth conversion strategies. Why are you putting money in a non-deductible IRA? All of these things you can read about around here. Read the wiki. Read forum posts for the next 3-6 months. Do your own taxes. Ask questions here before executing your strategy to get a final signoff.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

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Re: Retiring fairly young with a govt pension and trying to put together a plan

Post by Sandtrap » Thu May 28, 2020 8:08 am

Are you planning on working after you leave these jobs?

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