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54 and effectively ER'ed
Old 12-08-2010, 02:04 AM   #1
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54 and effectively ER'ed

Hi everyone!

Long time lurker and fan of this site. After 28 years with Mega-HealthCorp, I was outsourced with several hundred other IT workers last year. Until recently, have been on UI, but have decided not to "re-up," as employment opportunities are dim and frankly, the thought of returning to the zoo is fast becoming unbearable. Fortunately, DW and I have lived below our means and I've been working on my retirement spreadsheet for years.

My plan:
  1. Current living expenses: use liquid accounts (GNMA, tax-exempt muni-bond fund, CD's, MM, etc.), which total about $700K until I'm 60 (yes, I have been very conservative - the dot-com bust of 2000 and subsequent market drops are still burned into my brain)
  2. Postpone my pension (currently would pay out $35K/year) until I'm 60, when it would pay out about $52K/year (non-COLA).
  3. At 60+, access my retirement IRA accounts as needed. Currently $850K: 50/50 stocks/bonds (Wellington and Total Bond Market Index, as well as a little bit in Fidelity Growth&Income).
  4. SS kicks in at 66 and four months for me at nearly $28K/year; DW kicks in seven year later at $8K/year.
My assumptions:
  1. Starting bare minimum living expenses - $40K/year (house is paid off, no debt, healthcare provided by Mega-HealthCorp)
  2. Inflation rate - 3% (living expenses increase by this percent every year)
  3. Return on liquid accounts - 1.5%
  4. Return on IRA accounts - 3%
  5. DW works PT, but everything she makes she spends, so her numbers are a wash

Results:
  1. With my spreadsheet, I can vary any of the above assumptions. Using the $40K bare living expenses assumption, the portfolio increases, so success!
  2. Using a $60K/year expense assumption, it's basically a steady state. So, it would seem I have a $20K buffer of disposable income each year (subject to actual market returns). So we should be able to spend to actually enjoy life and not just pay the bills!

Questions:
  1. Sanity check on my assumptions and spreadsheet results. Are my assumptions reasonable and do my projected results sound right?
  2. Recommendations (given my bias towards security versus maximizing returns). I know I currently have a lot in liquid accounts, but am afraid of riskier investments, since I need to live off of these accounts until I access my pension. A little worried about what will happen with bonds when inflation finally kicks in.
  3. SS projection-I calculated that from the SS website, accounting for stopping work at age 53, since the annual SS report assumes working until normal retirement age. The SS website also provides an inflation-adjusted projection, which boosts my $28K/year figure to $41K/year, which matches a 3% inflation rate. Does anyone have experience with this? Obviously, the $41K figure makes things even better, but am interpreting this correctly?

Any feedback appreciated. I've already learned a lot here and it's nice not feeling like I'm going through this alone.
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Old 12-08-2010, 02:17 AM   #2
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Hello 4merKPer

Welcome to the forum.
  1. Sanity check - in my opinion your assumptions are reasonable
  2. my recommendation is "stay the course" (like you I am afraid of riskier investments)
  3. SS projection-I do not have experience with this (yet)
Quote:
Originally Posted by 4merKPer View Post
Hi everyone!



Questions:
  1. Sanity check on my assumptions and spreadsheet results. Are my assumptions reasonable and do my projected results sound right?
  2. Recommendations (given my bias towards security versus maximizing returns). I know I currently have a lot in liquid accounts, but am afraid of riskier investments, since I need to live off of these accounts until I access my pension. A little worried about what will happen with bonds when inflation finally kicks in.
  3. SS projection-I calculated that from the SS website, accounting for stopping work at age 53, since the annual SS report assumes working until normal retirement age. The SS website also provides an inflation-adjusted projection, which boosts my $28K/year figure to $41K/year, which matches a 3% inflation rate. Does anyone have experience with this? Obviously, the $41K figure makes things even better, but am interpreting this correctly?
Any feedback appreciated. I've already learned a lot here and it's nice not feeling like I'm going through this alone.
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Old 12-08-2010, 06:21 AM   #3
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Your numbers look sustainable to me. For another test, run them thru Otar's Retirement calculator -> otar retirement calculator
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Old 12-08-2010, 07:49 AM   #4
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Congrats on doing a wonderful job saving! I can't tell from your post if you are already living at $40k per year or if that is a goal. If you are already there expense-wise then it seems like you should have smooth sailing.

good luck.
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54 and ER
Old 12-08-2010, 07:54 AM   #5
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54 and ER

I'm also 54, and am considering similar avenues. Your plan looks good to me. We're all wondering what impact on SS will be in future years, but even if your estimate is 10 or 20% high, it seems that your math works out.

Best of luck!

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Old 12-08-2010, 11:04 AM   #6
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Your SS is 28K and your wifes is 8K? Why can't she draw half yours at 14K.
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Old 12-08-2010, 11:11 AM   #7
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Your SS is 28K and your wifes is 8K? Why can't she draw half yours at 14K.
Yes exactly. Spouse is eligible for either his/her normal working entitlement or 50% of spouse's entitlement, whichever is higher.
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Confused about SS for spouse
Old 12-08-2010, 02:02 PM   #8
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Confused about SS for spouse

Quote:
Originally Posted by Lazarus View Post
Your SS is 28K and your wifes is 8K? Why can't she draw half yours at 14K.
Not sure I understand the last two questions about SS. Perhaps I don't understand SS benefits completely. My 28K is at normal retirement age and based upon my lifetime earnings. The 8K is at normal retirement age for DW and is based upon her lifetime earnings. It sounds like you're both saying (Lazarus and observer) that DW is entitled to half my benefit are her retirement age? Doesn't she get that only if I'm dead?
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Old 12-08-2010, 02:06 PM   #9
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Originally Posted by zedd View Post
Your numbers look sustainable to me. For another test, run them thru Otar's Retirement calculator -> otar retirement calculator
Thanks! I tried it out and while I haven't gone deeply into the trial version it seems to confirm success. I've also done firecalc with similar results. Good to have multiple methods to analyze.
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Old 12-08-2010, 02:12 PM   #10
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Originally Posted by 4merKPer View Post
It sounds like you're both saying (Lazarus and observer) that DW is entitled to half my benefit are her retirement age? Doesn't she get that only if I'm dead?
From the SS FAQ's : Benefit for a spouse
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Old 12-08-2010, 02:29 PM   #11
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The lower earning spouse gets either their ss based on their earnings or half the higher earning spouse ss. Whichever is higher The spouse could collect half even if they never worked.

Lower earning spouse will get the full SS of the higher earning spouse when the higher earning spouse passes away. They then lose their half. So the surviving spouse gets the SS of the highest earner only.

Got more coming than you thought. Good news!
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Old 12-08-2010, 02:31 PM   #12
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Originally Posted by 4merKPer View Post
Not sure I understand the last two questions about SS. Perhaps I don't understand SS benefits completely. My 28K is at normal retirement age and based upon my lifetime earnings. The 8K is at normal retirement age for DW and is based upon her lifetime earnings. It sounds like you're both saying (Lazarus and observer) that DW is entitled to half my benefit are her retirement age? Doesn't she get that only if I'm dead?
Yes, that's right 4mer. Per link provided by RE, DW would be entitled to one half of your benefit at her full retirement age (reduced if she retired earlier such as 62, but still better than 8K I believe). And she would get that when you're both around and still enjoying retirement :-).
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Old 12-08-2010, 02:32 PM   #13
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Originally Posted by JBmadera View Post
Congrats on doing a wonderful job saving! I can't tell from your post if you are already living at $40k per year or if that is a goal. If you are already there expense-wise then it seems like you should have smooth sailing.

good luck.
The 40k living is kind of a goal. I've used Quicken to track my expenses for years, so I grouped my categories into "bare" expenses (utilities, property tax, food, etc.) and created an annual expense report for the last five years, which is how I came up with the 40k estimate. We haven't actually been living at 40k/year, because son just finished college and daughter has two years to go (but these expenses are accounted for in my spreadsheet and are excluded from my bare expenses report).
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Old 12-08-2010, 02:36 PM   #14
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Originally Posted by observer View Post
Yes, that's right 4mer. Per link provided by RE, DW would be entitled to one half of your benefit at her full retirement age (reduced if she retired earlier such as 62, but still better than 8K I believe). And she would get that when you're both around and still enjoying retirement :-).
Thanks folks! That's really good and unexpected news. Feeling better and better about this.
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Old 12-08-2010, 02:40 PM   #15
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I would look very hard at why you are delaying taking your pension. Even with 0% return, if you take it now at 35K you will have 210K extra in the bank after 6 years, so that it would take you until age 72.5 to "catch up" at 17K/year. With 4% annualised return you would have 235K extra in 6 years, generating 9.5K/year; it will take the 52K pension over 25 years to catch up with that. So if you live to 90 you will have "failed" by about 40K, if your goal is "to get as much out of my former employer's pension fund as possible", but you may not care too much then. On the other hand, taking it today, you have the bird in the hand, both in terms of being able to spend it, and also quite likely in terms of being an existing beneficiary if anything happens to the pension fund.

This kind of calculation often turns out in favour of taking the pension now, and it's often especially good for non-COLA pensions (COLA can skew the numbers back in favour of deferring, especially if you expect high inflation).
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Old 12-08-2010, 03:50 PM   #16
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I would look very hard at why you are delaying taking your pension. Even with 0% return, if you take it now at 35K you will have 210K extra in the bank after 6 years, so that it would take you until age 72.5 to "catch up" at 17K/year. With 4% annualised return you would have 235K extra in 6 years, generating 9.5K/year; it will take the 52K pension over 25 years to catch up with that. So if you live to 90 you will have "failed" by about 40K, if your goal is "to get as much out of my former employer's pension fund as possible", but you may not care too much then.
Most of my thoughts about delaying my pension is having a larger "guaranteed" amount paid out. This would reduce my withdrawal requirements from my savings/IRA accounts. I may need to re-validate my spreadsheet, but my calculation for early pension payout results in lower net funds by age 90. I also ran run some FV comparisons. I might be doing something wrong, but I get a +200K, comparing 30 years @ 52k versus 36 years @ 35k (see attached fv.jpg). I do get the break-even point of around 26 years (see attached fv-breakeven.jpg)

Quote:
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On the other hand, taking it today, you have the bird in the hand, both in terms of being able to spend it, and also quite likely in terms of being an existing beneficiary if anything happens to the pension fund.
I have been concerned about changes to the pension plan and/or the continued viability of Mega-HealthCorp to be able to pay out the pension. Mega-HealthCorp is healthy (no pun intended), but we've seen large institutions fail.

Your statement seems to imply that once I start receiving payouts, subsequent pension changes wouldn't affect me. Is that the case? I also have the option of getting a lump sum. Would it make better sense to purchase a fixed annuity to protect against the possible demise of Mega-HealthCorp (but of course, shift the risk to the the annuity payor)?

In any case, thanks for the discussion!
Attached Images
File Type: jpg fv.JPG (33.4 KB, 3 views)
File Type: jpg fv-breakeven.JPG (34.7 KB, 2 views)
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Old 12-08-2010, 05:55 PM   #17
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Originally Posted by 4merKPer View Post
Inflation rate - 3% (living expenses increase by this percent every year.

Since this outcome is extremely unlikely, it's a bad assumption. Inflation may in fact average near the 3% figure (or it may not) but the chronological order of the inflation data is key. Historically, it's never been 3% year after year after year. More typically it has varied all over the spectrum and the decades go by.

High inflation in the first decade of your retirement followed by lower inflation in later decades might result in average of about 3%. But, that would be a much harsher survival scenario than low inflation at the beginning followed by high inflation at the end also resulting in an average inflation rate of about 3%.

Try not to use averages.
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Old 12-08-2010, 08:48 PM   #18
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Welcome to the board.

Did you analyze what happens to DW's finances if you pass away before her? Before you start your pension, after, before/after SS?

Check out a program called ESPlanner. There is a basic version available for free on the web. I find it great to check out various scenarios.

All the best to you.
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Old 12-08-2010, 09:56 PM   #19
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Welcome to the board.

Did you analyze what happens to DW's finances if you pass away before her? Before you start your pension, after, before/after SS?

Check out a program called ESPlanner. There is a basic version available for free on the web. I find it great to check out various scenarios.

All the best to you.
If I pass before starting my pension, she gets half of its value. When the pension starts, I plan on taking the option that guarantees payout for 20 years, then pays out until my death. Of course, the cash and IRA would go directly to her. Haven't really played out the SS scenarios.

I'll check out ESPlanner, thanks for the tip!
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