51 and ER must happen!

[Cliffhanger]

Hello all. I've been impressed with the comments on this site for several months, and would like any advice on my situation. I'm nervous about the steps I'm taking over the next few weeks and would love to hear any feedback.

I was pushed out of a megacorp at 51 earlier this year. I'm a single male in good health. From a quality of life standpoint, leaving the job was a blessing. The job had a huge negative impact on my ability to enjoy life. So as my subject line states, I have a strong incentive to stay out of a job like I just left. My general goal is to live within my income, which may require frugal steps until I reach the age that other income streams can activate. I plan to look for some type of "work" that I enjoy, most likely part time, but I don't want to count on that income if possible.

The "numbas"
Fortunately megacorp left me with a pension of 33k annually before taxes. This will reduce to 30k at 63. I also have good retiree healthcare at 200/mo. (excluding dental and vision).

Deferred annuity - 223k annuity that matures when I am 63 and pays set amount for life. Aggressive stock portfolio, so if market produces historical returns over the next 10 years it should produce about 25k annually. But it's fixed with no increases.

Term annuity - 105k in a 7 year annuity (IRA) that matures in 5 years with no strings attached (other than age requirements for IRA). It's semi-protected from market downturns and semi-indexed to the S&P, should be worth 100k to 115k at maturity.

Roth - 47k in an 80% stock/20% fixed portfolio.

Social security - 1552/mo. at age 63, 2205 at age 67 (plan to start at 67 or later).

Non retirement funds

- 49k in cash
- 14.5k in dividend stocks
- 125k being liquidated to cash as I write this

Debt - none

I'm staying with a friend rent-free but I pay all other costs (food, bills, etc). My plan is to buy a house using the 125k to eliminate a monthly housing payment. This should allow me live off the 33k pension. I've been coasting down to that income over the last several months and I've been doing well. Other than some car repairs I've been able to live within this income.

I plan to pay 100k or less for a small house. I also need to make a vehicle change, the net should be a 10k hit to my savings but will leave me in good shape vehicle wise.

At the end of the changes, my non retirement savings will go from almost 175k to 65k, but I am confident (I think!) I can live on 33k annually without a mortgage or rent payment. And at 63 additional income will begin. My rational comes from the ease I've had with reducing my cost of living so far, I'm single with no kids or other financial obligations, without a full time job I have time to squeeze savings on living expenses.

That's it. Sorry for the length and complexity! I would appreciate any feedback or advice on the plan for the rest of my life.


Cliffhanger


Sent from my iPad using Early Retirement Forum

 

[Totoro]

Is your pension COLA adjusted?

If not, it seems you'll likely have a gap to cross in your late fifties / early sixties.

 

[Cliffhanger]

Hi Totoro and thanks for the reply. Unfortunately, the pension does not have COLA. If I have gaps later, I'll need to cover with withdrawals, or I may have some work income that can assist.


Sent from my iPad using Early Retirement Forum

 

[In-control]

Being 52 and semi-retired(reduced work schedule) I understand your motivation.

A word of caution

I have lived in two houses over 30 yrs and have budgeted ~ $2k/yr for maintenance minimum. You may not need it this year but a new roof may cost you $10k - a new furnace - $5k. New washer $300. It starts to add up in big chunks. Homeowners insurance plus an umbrella policy - 10 x renters insurance.

We are going to sell in three years and then rent a modest home. This will keep the cost manageable and allow the asset (cash) to grow at a higher rate. We have doubled our $ because we waited for a downturn in the market - many are not so lucky. If you want to buy its a good idea to wait for the market to tumble - when housing prices drop and its a buyers market make crazy offers - you may be surprised.

Just my personal experience

 

[Totoro]

Let me try and take a stab, then.

The period from now until 63 is 12 years. If you do moderate inflation you'll lose 4% per year from your 33k, meaning that by 63 you'll have 20k left in real terms, dropping to 18k. You can cover most of that gap with remaining savings (of 65k).

After 63 you'll have 18k a year in income from SS. So you need to cover 33k - 18k = 15k per annum from other sources after that. Your pension (worth 18k per annum by then) can handle that for a few years.

After that, you'll have about 375k (annuity x2 + roth) to help you out. Don't know the fiscal implications of those though. 15k per annum is 4% of 375k. or put differently: you can live 25 years on that with zero real return (until 88 years old). That's assuming your annuity manages to keep pace with inflation in the mean time.

So at first glance I'd say: if you can really stick to the 30k you have a good chance of making it worry-free, especially since healthcare is covered.

Depending on the fiscal situation and specifics of the annuity though you don't have a large safety margin.

It's not a no-brainer, and you are exposed to inflation risk. If you stay flexible in the coming five years and manage to find some side income, that could make a big difference though.

Hope this helps a bit.

 

[W2R]

It looks possible to me (maybe?) if you can just make it to age 63 when several of your income streams become available to you.

But, if you marry and divorce during that time, all bets are off.

Some things to think about:

HOUSING: I like the idea of buying a cheap house, which may lower your costs even though it won't be free. If you decide to do that, be *sure* to buy a small house that has been kept up and that is in good repair (hopefully with a newer roof and newer HVAC). Don't buy a fixer-upper unless you feel you can live with it as is, for the long term. The objective in choosing your house will be to minimize the maintenance and repair costs as well as the initial purchase price.

TOTAL SPENDING: Don't forget taxes and health insurance when figuring your total cost of living; it's easy to forget these two since they are usually deducted from one's paycheck at work. Taxes will be much less but they still need to be paid. Also, be sure to add some "wiggle room" for unexpected big expenses. Then there are the expected irregular big expenses such as property tax and insurance, and car insurance; these plus medical insurance/Medicare and income tax can amount to nearly half one's spending in retirement, and there needs to be wiggle room for the unexpected in the other half.

AGE DISCRIMINATION: Keep in mind that there really IS such a thing as age discrimination in some lines of work. It may be much, much more difficult for you to find work in your chosen field after age 55 or so than it is now (especially as your skills get rustier and rustier). Of course this depends on so many factors but it is a possibility. You could work at something that pays less, but it could turn out to be hard to find as well and it might be just as onerous in the long run. A job is a job is a job, sometimes. My point is that you need to feel absolutely certain that you can make this work before you even think of closing doors of opportunity.

 

[Amethyst]

Good luck! You sound like you have a good attitude and are willing to buckle down and "do without" as necessary. I don't have any financial advice, but do take steps to take care of your health so it has a good chance of lasting through your hopefully long, happy retirement.

Amethyst

 

[ivinsfan]

This won't help you now, but this is a good reason not to tie up too much money in an annuity, you have 325K tied up when you really need it for living expenses.So, this fact alone might necessitate your continued employment.

Once you hit that 5 year mark and have access to the smaller annuity things should improve.

Have you owned a home before so that you have a good idea of the "hidden" costs of home ownership?

 

[MBAustin]

Welcome, Cliffhanger!

It sounds like you are dealing with the unexpected / involuntary ER status pretty well. You've got some good advice above already.

There is a lot of excellent information here on the boards about finding PT work (either in your field or otherwise), but your geographic location has a huge impact on how easy/hard it will be to find it.

Tracking your expenses very closely for the first several years will be key to figuring out whether going back to w*rk is necessary.

In the meantime, don't forget to smell the roses now that you have the opportunity!

 

[Cliffhanger]

Thanks all. I have a lot to think about! It's good timing, I'm going to look at a house tomorrow. It will need some work, but I will not accept any problems with the core parts of the house (unless the price is negotiated to account for repairs). I will accept cosmetic problems that I can fix myself.
After I find a house and settle in, the next task will be to quit smoking. The health benefit is obvious, but in my case the cost of cigarettes will cover my health insurance premiums if I quit!!!
I'm realizing inflation between now and age 63 is a big threat.


Sent from my iPad using Early Retirement Forum

 

[38Chevy454]

Biggest challenge is to get from your age now to 62/63. You can get SS if needed at 62 and then your bigger annuity kicks in at 63. Without a lot of cash available, you will be cutting it close and have to watch expenses. So looking for some alternate work for a while now may be wise. It will give you the extra cash to increase savings and avoid withdrawals.

Did you also get, or going to get unemployment? Make sure to take advantage of that if available, free money you should be able to qualify for. Don't be too proud to take it.

Having the medical for pretty low cost is a huge help to be able to live on your lower pension lifestyle for now. Just be aware of those unexpected expenses for house repairs, car or other that could hit your savings hard.

Instead of buying the house outright, could you finance and use the low current interest rates to allow a bigger pot of savings to ensure less risk between now and early 60's?

 

[Cliffhanger]

Good points 38chevy454. I need to reconsider a mortgage. I just really liked the idea of no debt, but with rates so low it may be the safer play to borrow and keep capital.


Sent from my iPad using Early Retirement Forum

 

[Milton]

Not sure that purchasing a house is such a great use of your limited capital. As In-control pointed out, ownership is not free even if you own outright: taxes, insurance, minor regular maintenance all add up, and occasional large costs can occur (especially in a fixer-upper).

Renting a small apartment might make more sense.

I agree with the previous posters that you don't have much margin for error. You are wise to look for (another type of) work, as adding an additional - say - $15,000 annual income for the next five years would be very helpful.

While you might be able to scrape by without employment, don't let that cause you to take the job hunt less than seriously. Rather, do your honest best to find something before too much more time passes … W2R is quite correct that your work options will narrow as you age and the 'gap' in paid employment lengthens.

 

[Turboslacker]

Being 52 and semi-retired(reduced work schedule) I understand your motivation.

A word of caution

I have lived in two houses over 30 yrs and have budgeted ~ $2k/yr for maintenance minimum. You may not need it this year but a new roof may cost you $10k - a new furnace - $5k. New washer $300. It starts to add up in big chunks. Homeowners insurance plus an umbrella policy - 10 x renters insurance.

We are going to sell in three years and then rent a modest home. This will keep the cost manageable and allow the asset (cash) to grow at a higher rate. We have doubled our $ because we waited for a downturn in the market - many are not so lucky. If you want to buy its a good idea to wait for the market to tumble - when housing prices drop and its a buyers market make crazy offers - you may be surprised.

Just my personal experience

I second the idea of renting rather than purchasing since you don't currently own. Nothin wrong with that and likely $ ahead over the remaining lifetime.


Sent from my iPad using Early Retirement Forum