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53 yrs old- Megacorp- Accelerated pension option?
Old 03-25-2014, 02:04 PM   #1
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53 yrs old- Megacorp- Accelerated pension option?

Hello, sat down again with a FN planner to get additional input regarding ER. I have an option to accelerate my pension from age 55-62 until SS kicks in. Then at 62 it drops by $700 a month until I kick the bucket. Below is the analysis for retiring at age 55,56,57 (normal pension & accelerated pension).

pen_2014.PNG


Back of the envelope analysis says normal pension would be too sporty at age 55 but doable at 57. Accelerated could be doable at 55. Below is the other FN stuff. FP is advising accelerated is why I'm asking for your valuable feedback. A bit more about me:

* 53 years old and can take early retirement 55 (same company 29 years).

* $650K in a 401K (projection at pre-tax max with company match is ~ $775K at 55).

* Asset allocation currently at about 62% equities, 38% bonds and cash.

* 2013 return on the above portfolio was 16%.

* Retiree medical until I turn 65 at Medicare age ($20 a month- no kidding)

* $165K left on my mortgage (ouch). Home value is $415K, 4% 15 year
loan (refi in 2011), $1530 P&I, paying an extra $670 a month currently.

*Will increase as possible but paying if off in three years seems very unlikely (will still owe $120K).

*No credit card or other debt.

*own three cars...kind of a car guy (One muscle car, two drivers). Total value about $36K.

*my retirement income needed will be about $70K if I still have a mortgage...which I don't want to have...if that makes sense. Without my mortgage my "budget" says I can live on $50K a year.

*Net worth with home equity is about $1M. Not much in savings outside my 401K (maybe $15K).

*when I retire I'll have about $30K in sick leave and vacation as a payout.

*my pension will be frozen on Jan 1st 2016 to new accruals.

*I plan to take social security at 62 if that is still an option (~$1700 a month.

Cheers!
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Old 03-25-2014, 03:02 PM   #2
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Hi supernova72,
You are close. Have you put your numbers in FIRECalc to see what it says? I think if I were in your shoes, I would want to wait a couple more years just because I am on the conservative side and would want to build the next egg a little more and pay off more of the mortgage. On the other hand, the pension freezing might change my mind. You are not well allocated between taxable, tax deferred, and tax free accounts. That has proven to be a problem for me in trying to keep my taxable income down. With your health insurance, it may not be a big concern for you.
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Old 03-25-2014, 04:13 PM   #3
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Thanks Hermit.

Fircalc says 83% at 55 and a 70K income need. It goes up to 91% at 57 yrs old.

Accelerated is 91% at 55 and 94% at 57. It's amazing to reduce the income to $60K and things get a whole lot better. It's that mortgage balance that is a bid driver. Thanks again!
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Old 03-25-2014, 05:01 PM   #4
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Being in WA, with no state income taxes, do you do the std deduction on taxes? If so there may not be much tax benefit to the mortgage interest.

From what you have shown, it seems that 57 is a lot easier and safer. It also means working longer. If you can get expenses down, you can have more confidence in getting out at 55. The tough part is you can't just pay off the mortgage to get rid of it, as you do not have the after-tax savings to make that happen. Taking any amount out of your pre-tax 401k is not a good choice, the tax penalty will be too much.

You might be able to get that remaining mortgage down by aggressive paying it down starting now and have it low enough by 2-4 years that you can pay it off. then you seem to be good shape as expenses will lower considerably.
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Old 03-25-2014, 05:23 PM   #5
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I would not sleep well without something very close to 100% success in FIRECalc, but that's just me. If you are real serious and focused on FIRE, look at the Some Important Questions to Answer Before Asking - Can I Retire? thread in the Early Retirement FAQs forum. You can try living on a somewhat lower spend rate and see how it feels. A lot of people here have found that it doesn't hurt at all. Just a small difference in approach to spending. With a lower spending rate, you could get that mortgage paid off in short order.
Good Luck.
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Old 03-26-2014, 08:48 AM   #6
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what is the point of paying down a mortgage with such a cheap (4%) interest rate?
since your portfolio made 16% you are loosing 12% on every extra dollar spent on the mortgage. i would invest it into the market as the returns are much greater.
additionally, as you pay down the loan you loose out on interest deduction on your tax return.
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Old 03-26-2014, 09:00 AM   #7
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Quote:
Originally Posted by supernova72 View Post

* $650K in a 401K (projection at pre-tax max with company match is ~ $775K at 55).

...

Cheers!
Like others have said - run it through FIRECalc. Offhand, and based on other's inputs, you sound marginal with those numbers.

I also would not count on your $650K in the 401K growing to $775K, even with added contributions. We have had two years of gains, a pullback in the next two years would/should not be a surprise.

I also don't think paying off the mortgage will help you, but run the numbers. Sure, the payment is gone, but so is a portion of your portfolio (funny how people are so eager to ignore that!).

-ERD50
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Old 03-26-2014, 09:01 AM   #8
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Don't beat yourself up about the mortgage. It's at a historically low rate and it sounds like you have done well with your house and made some valuable capital gains on it. Have you considered taking the leap at 57 but working part time for much less pay for a couple of years at something else if you think you are close but not quite there? That retiree medical benefit is a nice one and could allow you to take home a lot more in any subsequent job.
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Old 03-26-2014, 09:58 AM   #9
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Originally Posted by 38Chevy454 View Post
Being in WA, with no state income taxes, do you do the std deduction on taxes? If so there may not be much tax benefit to the mortgage interest.

From what you have shown, it seems that 57 is a lot easier and safer. It also means working longer. If you can get expenses down, you can have more confidence in getting out at 55. The tough part is you can't just pay off the mortgage to get rid of it, as you do not have the after-tax savings to make that happen. Taking any amount out of your pre-tax 401k is not a good choice, the tax penalty will be too much.

You might be able to get that remaining mortgage down by aggressive paying it down starting now and have it low enough by 2-4 years that you can pay it off. then you seem to be good shape as expenses will lower considerably.
Thanks big block 38 chevy!

I can still itemize here in WA state with my mortgage and $3800 prop tax yes. I'm guessing in two yrs it will be std deduction however yes.

i'm paying extra on the mortgage trying not to kill myself ($670 a month). I realize hitting the ER button at 55 is a pipe dream but will keep that in my sites thinking that 57 is much more doable!! Thanks!
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Old 03-26-2014, 09:59 AM   #10
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Quote:
Originally Posted by knucklehead 61 View Post
what is the point of paying down a mortgage with such a cheap (4%) interest rate?
since your portfolio made 16% you are loosing 12% on every extra dollar spent on the mortgage. i would invest it into the market as the returns are much greater.
additionally, as you pay down the loan you loose out on interest deduction on your tax return.
For me paying down the mortgage is more of a peace of mind than a financial decision---should have mentioned that
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Old 03-26-2014, 10:04 AM   #11
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Like others have said - run it through FIRECalc. Offhand, and based on other's inputs, you sound marginal with those numbers.

I also would not count on your $650K in the 401K growing to $775K, even with added contributions. We have had two years of gains, a pullback in the next two years would/should not be a surprise.

I also don't think paying off the mortgage will help you, but run the numbers. Sure, the payment is gone, but so is a portion of your portfolio (funny how people are so eager to ignore that!).

-ERD50
Guess I'm actually at $660K but yea understand your point. With company match I'm at $23.5K annual savings and have 8.5% annual projection for my return so that is why I had $775K as a projection. Cheers.
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