Enough or too close?

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rich126
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Enough or too close?

Post by rich126 »

The numbers aren't exact (I don't like to put exact numbers online) but I think pretty representative. I've run firecalc and other tools and it seems like I could retire now although my original plan was to do another 18 months but various reasons, including family health, are causing me to rethink things.

Question: Based on the numbers below do you think a retirement of 35 years with an after tax spending of $70K a year is reasonably safe?

Debt: Zero

Housing: Currently living in a paid off small home but we will buy something for cash and I removed that amount from the savings below and any money from the house sale would be included in the purchase of the next home.

Assume current age: 58.5.

Pensions:
60: $26,000 with COLA (starts in 18 months)
65: $10,000 no COLA
65: $ 5,000 no COLA

Health Insurance:
18 months of COBRA at $1,400 month for two of us (solid insurance)
At 60: Federal Health Insurance

Savings:
Taxable: $450,000
401K: $900,000 (this is some roth money but nothing substantial included here, maybe $50K)

HSA:
$10,000

CDs/MYGAs (bridge to social security):
I put this here separately since they come due in 18-24 months and are meant to help bridge to social security.
$200,000: Figuring on using this as needed but probably ~ $20,000 - $40,000 so 5-10 years.

Social Security:

This was the online calculator tool idea numbers to max things out.
(might be on the low side since I'm doing this from memory and rather underestimate things)

We'd shoot for the time frame below (66/70)
Spouse: 66: $24K per year
Me: 70: $48K per year

At 62 our numbers would be: 16K and 26K.
At 67 it would be 21,600 and 36,000.


Expenses:
This is a tough one to figure. I've tried looking at spending and now that I'm newly married factoring that in as well. Fortunately neither of us has issues with spending and my wife never had much money so living on a budget (even a tight one) isn't an issue with her.

On the low end I'd say $50K after taxes but have been using $75-80,000 in most calculators to give me a decent buffer and probably $70K is a safe number to use.

I can work another 18+ months (actually have a job lined up now to start next month) and using the numbers above, I don't see any issue with retiring at 60. I'm tempted to quit now although that would cost me around ~$120K or so since I'd be spending down my money earlier, not maxing out my 401K savings, missing out on some matching money and spending an extra $10K+ on health insurance.

There are other considerations as well but no guarantees so I've left them out from numbers above (maybe an inheritance, and possibly finding a job I can do from home since I don't mind working/thinking but not sure I want to relocate for that stuff anymore).
Last edited by rich126 on Wed Jul 21, 2021 1:48 pm, edited 1 time in total.
bearwithbear
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Re: Enough or too close?

Post by bearwithbear »

rich126,

how much will you receive from Social Security?

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iceport
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Re: Enough or too close?

Post by iceport »

rich126,

I ran some rough numbers through cFIREsim, and was actually surprised that they look fairly reassuring.

However, there is considerable fuzziness to your situation and numbers.

— When are you planning to claim SS? And how much would that be?

— Have you estimated your tax rate in retirement? You are careful to specify your spending in after-tax dollars, but analyses like FIRECalc and cFIREsim work with gross numbers that include taxes and investing expenses. Do you have an estimate of what your gross income needs to be to support your after-tax spending needs?

— Estimating your spending needs is probably complicated a bit by your recent marriage, introducing some uncertainty there. Additionally, have you tried to account for large, infrequent spending needs, like new cars, major car repairs, major home repairs/improvements, family emergencies, etc.? Though some of these are difficult to quantify, they could be a significant part of your long term spending needs.

— Would retiring now affect any survivor benefits for your spouse with respect to pension or health care benefits? Is there a minimum time being married for your spouse to be eligible for survivor benefits?

These are important factors, I think.

The last point I'll make is that your plan to spend down your savings at a higher initial rate until your pensions and SS kick in is very common, but it could also increase sequence of return risk if the early years see poor market conditions, as does your 35-year time horizon.

I guess I see your situation, tentatively, as having enough, but without much of a factor of safety.
"Discipline matters more than allocation.” ─William Bernstein
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JoeRetire
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Re: Enough or too close?

Post by JoeRetire »

rich126 wrote: Wed Jul 21, 2021 11:30 am Question: Based on the numbers below do you think a retirement of 35 years with an after tax spending of $70K a year is reasonably safe?

Expenses:
This is a tough one to figure. I've tried looking at spending and now that I'm newly married factoring that in as well. Fortunately neither of us has issues with spending and my wife never had much money so living on a budget (even a tight one) isn't an issue with her.

On the low end I'd say $50K after taxes but have been using $75-80,000 in most calculators to give me a decent buffer and probably $70K is a safe number to use.
You haven't indicated what you expect to receive for social security benefits.

I would nail down the expenses part before trying to come to any real conclusion. It doesn't seem like you newlyweds have that quite figured out yet.
You'll probably be okay. But without a real feel for expenses, anything is possible.

BTW - congratulations!
Just remember: it's not a lie if you believe it.
sapocanhoto
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Re: Enough or too close?

Post by sapocanhoto »

I think you are probably fine as long as you don't have expensive tastes, which it sounds like that's not your problem.

I would look at your expenses to see if that lines up with you expected income. I ran the numbers and when you take out all the savings I only spend about $35-40k per year. I think I would have the same target of $70k just as added buffer. With the pension plus 401k you are right about there. If you have social security on top then you are even safer.

Personally, I would wait just a little bit longer to eliminate the rest of the risk, but it is pretty low and I think you are probably fine with your plan.
surfstar
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Re: Enough or too close?

Post by surfstar »

I vote enough
Topic Author
rich126
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Re: Enough or too close?

Post by rich126 »

Sorry about the social security numbers. Figures I'd leave something out.

Ideally we would do the following:
(I might be low on these numbers.)

This was the online calculator tool idea numbers to max things out.
Spouse: 66: $24K per year
Me: 70: $48K per year

At 62 our numbers would be: 16K and 26K.
At 67 it would be 21,600 and 36,000.
02nz
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Re: Enough or too close?

Post by 02nz »

How much you and spouse will receive from SS is a key question. (ETA: Looking at the numbers you added, you should have enough.)

Check to see if your 401k plan allows "rule of 55" withdrawals, where you can withdraw from that plan without penalty if retiring from that employer at 55 or later. That would allow you to retire now and start withdrawals this year. Otherwise, it seems like you'd have to wait until next year (when you'll be 59.5) to start withdrawing without penalty. It's not a long wait - you can start Jan 1 of the year in which you turn 59.5.

Generally speaking, you'll want to:

1) Defer SS as long as possible, at least for the higher-earning spouse; if the other spouse qualifies for SS benefits on their own, it likely makes sense to start drawing at 62. Check this site: opensocialsecurity.com

2) Use the years before Social Security and RMDs to withdraw from, or do Roth conversions on, your tax-deferred accounts. A married couple can withdraw/convert more than $100K a year at an average of about 9% federal income tax. This will also reduce future RMDs, reduce the amount of future SS benefits subject to taxation, and also mitigate the scenario in which one of you has to file single and faces higher tax rates.

3) Consider deferring the pension, to make room for #2. Also, are you sure the pension numbers you gave are right? They look way off (you get less at 65 than at 60?!).

4) If by "federal health care" you mean the ACA, you'll want to keep taxable income in check. Recent legislation eliminated the "cliff" that used to exist at 400% of the federal poverty level (= around $70K for two people), but only for '21 and '22.

5) Roll out the Roth portion of the 401k into a Roth IRA. In the 401k that money is subject to RMDs, once rolled into a Roth IRA it will not be.
Last edited by 02nz on Wed Jul 21, 2021 1:56 pm, edited 3 times in total.
Topic Author
rich126
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Re: Enough or too close?

Post by rich126 »

sapocanhoto wrote: Wed Jul 21, 2021 1:44 pm I think you are probably fine as long as you don't have expensive tastes, which it sounds like that's not your problem.

I would look at your expenses to see if that lines up with you expected income. I ran the numbers and when you take out all the savings I only spend about $35-40k per year. I think I would have the same target of $70k just as added buffer. With the pension plus 401k you are right about there. If you have social security on top then you are even safer.

Personally, I would wait just a little bit longer to eliminate the rest of the risk, but it is pretty low and I think you are probably fine with your plan.
I've admittedly never use a budget so that hurts in this case. I tend to go with my after tax/deductions income figuring if that is enough now, it should be enough later. And like most people doing these things, you tend to estimate things on the high side since you don't want to come up short. My pretty generous (for us anyhow) Excel estimate is 70,560 per year expenses but it has a lot of "fluff" in it such as pretty high medical expenses, entertainment, etc.
Topic Author
rich126
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Re: Enough or too close?

Post by rich126 »

02nz wrote: Wed Jul 21, 2021 1:51 pm How much you and spouse will receive from SS is a key question.

Check to see if your 401k plan allows "rule of 55" withdrawals, where you can withdraw from that plan without penalty if retiring from that employer at 55 or later. That would allow you to retire now and start withdrawals this year. Otherwise, it seems like you'd have to wait until next year (when you'll be 59.5) to start withdrawing without penalty. It's not a long wait - you can start Jan 1 of the year in which you turn 59.5.

Generally speaking, you'll want to:

1) Defer SS as long as possible, at least for the higher-earning spouse; if the other spouse qualifies for SS benefits on their own, it likely makes sense to start drawing at 62. Check this site: opensocialsecurity.com

2) Use the years before Social Security and RMDs to withdraw from, or do Roth conversions on, your tax-deferred accounts. A married couple can withdraw/convert more than $100K a year at an average of about 9% federal income tax. This will also reduce future RMDs, reduce the amount of future SS benefits subject to taxation, and also mitigate the scenario in which one of you has to file single and faces higher tax rates.

3) Consider deferring the pension, to make room for #2.

4) If by "federal health care" you mean the ACA, you'll want to keep taxable income in check. Recent legislation eliminated the "cliff" that used to exist at 400% of the federal poverty level (= around $70K for two people), but only for '21 and '22.
No. I qualify for federal health insurance as a retired federal employee (technically as a postponed retiree but that is a different topic) so ACA isn't an issue for me (I'm fortunate).
bearwithbear
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Re: Enough or too close?

Post by bearwithbear »

rich126,

With the Social Security numbers should be good. Instead of using the "bridge" money to get you to Social Security, take money out of your 401K.
Do some income tax estimating. Figure what you would pay in tax now taking the money out of your 401k versus what you will pay when you take your rmd at 72 (?). You got this. Nice work!

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JoeRetire
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Re: Enough or too close?

Post by JoeRetire »

rich126 wrote: Wed Jul 21, 2021 1:53 pmI tend to go with my after tax/deductions income figuring if that is enough now, it should be enough later.
True, if you intend to live the same lifestyle in retirement that you did when working. For many, that wouldn't be the case.

Think about where you wish to live in retirement.
Think about what you will be doing with all those extra free hours, besides not working.
Think about the kind of legacy (if any) you wish to leave to your heirs.
Just remember: it's not a lie if you believe it.
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Wiggums
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Re: Enough or too close?

Post by Wiggums »

First of all, congratulations!

I’d encourage you to understand your retirement expenses better. We have detailed records in Quicken, and I still increased our budget for unknowns. (Taxes, medicare, dental, vision, hearing).

We have retiree medical and they continue to increase the cost and cut the coverage. They even cut the life insurance by 2/3rds. We are doing Roth conversions so funds are needed for taxes.We had home maintenance projects that occurred after retirement. E.g., HVAC and A/C times two!, hot water hear, washer/dryer. New fence and roof next year. Nothing unexpected, but it pays to think beyond annual expenses. E.g., home maintenance, replacement cars, etc

As a newly married couple, I wouldn’t want a tight budget or she might send you back to work :-). I personally wouldn’t quit until the age 60 pension starts. Especially if your DW will still be working.

We created a spreadsheet just to visualize our sources of income, annual expenses and Roth conversions. You will see you other pensions and SS kick in at certain ages.

I don’t see any big red flags so far.
Last edited by Wiggums on Wed Jul 21, 2021 3:16 pm, edited 3 times in total.
bearwithbear
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Re: Enough or too close?

Post by bearwithbear »

rich126,

Upon further review, use your "bridge" money to get to Social Security and convert money from your 401K to your Roth.

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rich126
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Re: Enough or too close?

Post by rich126 »

JoeRetire wrote: Wed Jul 21, 2021 2:34 pm
rich126 wrote: Wed Jul 21, 2021 1:53 pmI tend to go with my after tax/deductions income figuring if that is enough now, it should be enough later.
True, if you intend to live the same lifestyle in retirement that you did when working. For many, that wouldn't be the case.

Think about where you wish to live in retirement.
Think about what you will be doing with all those extra free hours, besides not working.
Think about the kind of legacy (if any) you wish to leave to your heirs.
Thanks. Most likely end up in AZ due to my wife having a bunch of family and friends living there and I don't dislike it. As you age I think it helps greatly to have a support group.

No kids so heirs aren't too important. If we have excess money it will go to charities or to nieces/nephews that can use money for school or medical stuff. I'm a person happy with my computer, games, streaming, eating out some, and talking with friends. I'll set up a small gym at home with a bike and some weights and will make that a priority. It may not sound like a lot but fortunately I've done most of my bucket stuff and really don't have a lot of needs anymore.
BernardShakey
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Re: Enough or too close?

Post by BernardShakey »

rich126 wrote: Wed Jul 21, 2021 1:46 pm Sorry about the social security numbers. Figures I'd leave something out.

Ideally we would do the following:
(I might be low on these numbers.)

This was the online calculator tool idea numbers to max things out.
Spouse: 66: $24K per year
Me: 70: $48K per year

At 62 our numbers would be: 16K and 26K.
At 67 it would be 21,600 and 36,000.
Are your stated pension numbers correct ? Looks odd. You get more, with COLA, at 60...and less at 65 ?
An important key to investing is having a well-calibrated sense of your future regret.
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Watty
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Re: Enough or too close?

Post by Watty »

rich126 wrote: Wed Jul 21, 2021 11:30 am Pensions:
60: $26,000 with COLA (starts in 18 months)
65: $10,000 no COLA
65: $ 5,000 no COLA
........
Social Security:
.....
Spouse: 66: $24K per year
Me: 70: $48K per year
Am I missing something or at 70 would you have a total of $98K in the pension with COLA and SS income plus $15k in non-COLA pension income without even touching your nest egg.

:oops:

A couple of things;

1) You should you run your numbers three ways, as a couple and as if one of your survives the other.

2) Unless I missed it you did not say what your current house is worth and how much it might cost to buy a house if you move.
rich126 wrote: Wed Jul 21, 2021 11:30 am 18 months of COBRA at $1,400 month for two of us (solid insurance)
3) If you move to Arizona then you need to check to see if your health plan will have any in-network medical providers where you move to. Even if it is something like a Blue-Cross plan and they have Blue-Cross where you move to your network may not include those doctors.

4) There is a lot you can do to manage your income so that you may be able to qualify for a large affordable care act subsidy but that might not matter if you can get the federal health insurance when you are 60.

I didn't crunch the numbers but it looks very solid to me since you only have about 11 years until all the pensions and Social Security start.
HootingSloth
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Re: Enough or too close?

Post by HootingSloth »

Even if you both claimed SS at 62, you would already have $68k per year, all with a COLA. It seems like your main challenge will be figuring out what to spend your extra money on.
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Topic Author
rich126
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Re: Enough or too close?

Post by rich126 »

BernardShakey wrote: Wed Jul 21, 2021 9:01 pm
rich126 wrote: Wed Jul 21, 2021 1:46 pm Sorry about the social security numbers. Figures I'd leave something out.

Ideally we would do the following:
(I might be low on these numbers.)

This was the online calculator tool idea numbers to max things out.
Spouse: 66: $24K per year
Me: 70: $48K per year

At 62 our numbers would be: 16K and 26K.
At 67 it would be 21,600 and 36,000.
Are your stated pension numbers correct ? Looks odd. You get more, with COLA, at 60...and less at 65 ?
Three different pensions. Two for me at 60 and 65 and one for my spouse at 65.
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