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55 retired Navy and currently working aerospace
Old 07-03-2009, 08:44 PM   #1
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55 retired Navy and currently working aerospace

Hi All,

Wife and I both 55 ... live in northern Virginia and considering (early) retirement before company's basis for computation of lump sum (2/3 or time with one company that was bought by the second company which does not offer a lump sum) changes from 30 year Treasury to corporate bond rate.

Current planning from company is: 100% Treasury through end of 2009, then changes in 2010 to 40% Treasury/60% corporate bond rate, then changes in 2011 to 20 Treasury/80% corporate bond rate, then final change in 2012 to 100 corporate bond rate basis.

But, another option is to wait four years ... numbers below generally represent Dec 2009 and Jul 2014 dates.

Retirement income from:
1. Navy retirement ... $30K/$33K a year
2. Company lump sum ... $380K/$430K
3. Company based 401K ... $400K/$500K
4. Company based deferred income account ... about $200K/$400K
5. Company based retirement ... $20K/$30K a year
6. Mine and wife IRA .... $200K/$240K
7. Non-retirement based savings ... $500K/$550K

We owe $250K on two houses worth about $1.5M. Total purchase basis of the two houses is about $550K.

Several factors make the decision more complex than I had expected, especially the change in the basis for lump sum computation - the difference in basis appears to be about 1-1.5%. And, while I would like to take advantage of the lower percentage (higher basis) Treasury computation for the lump sum, I don't to do anything silly financially.

One child is 25 and self supporting and the other is in college through 2011 - we don't know where either will end up geographically. We have lived all over the place and don't really have a place we can call historic home any longer. We both like being on the water (duh ... Navy), but would prefer to have two small houses rather than a large one. Our tastes are pretty moderate, but we would like to travel some more.

We are spending about 25% or our time talking about what to do! Lots of research and I have spent significant time studying options and alternatives.

I appreciate all the comments I have seen on the site - some great, neutral advice from folks who have given retirement, especially early retirement some serious thought.

Thanks!
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Old 07-03-2009, 10:56 PM   #2
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Hello. There's a lot of info in your post. Did you have a question, or are you just wanting comments?

I'd be happy to offer an opinion, but I'm having a little trouble teasing through the various options you've got. I assume "2. Company lump sum" and " 5. Company-based retirement" are mutually exclusive, right?

As to when to "jump", a lot will depend on how much you need to spend every year. Today you've got $1.3 million in savings (approx annual withdrawal at 4% = $52K/yr) plus your COLA'd pension of $30K per year. To me, $82K per year is plenty of money and I wouldn't work four more years. But, many other people couldn't imagine "scraping by" (tee hee) on that amount and would want to squirrel away more dough.

Your future savings rate (if you continue to work) also enters into the picture. If you plan to take the lump sum option, then the changes in the computation formula will hurt you. If you are now saving (say) $500K per year from your pay, then you'd still have much more in your retirement account if you kept working for a few more years despite the changes in the benefit formula. If, on the other hand, you aren't puting anything into retirement savings, then working longer might not gain you very much, or could even cost you.

Two thoughts:
-- A lump sum offers a lot of security compared to virtually any corporate pension. As we've all seen, companies can get bought, fail to keep their promises, go out of business, etc. Once you've got the money in a lump sum you'll never have to worry about the company's health again.
-- Inflation: Many people think it is coming. With a non-COLA'd pension you can do nothing about your loss of purchasing power. If you've got a lump sum you can put it into TIPS, commodities, stock, real estate, or some other asset that you believe will keep up with a declining dollar.

Welcome.
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Old 07-04-2009, 08:23 AM   #3
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Looks like the difference is $440 between accounts listed, and $13 in retirement. Assuming 4% SWR that is about $30,000 difference in income. You also get son through college, five more years of medical, five more years of w*(k, and you would be two years from SS. Only you can answer the w*(k question.

I was faced with a similar question. Retired military, decent savings, but at the time I really enjoyed going to w&*k. I stayed until things changed and it was no longer fun.

You have the first par of FIRE. You are FI. We structured our retirement to have SS and Military Retirement cover all our expenses. Savings and non COLA retirement is for fun, play and emergencies. I would place you second home in the latter catigory. I would select a primary home on the water, and a secondary home where ever, with the knowledge that it is 'for fun' and if necessary long range could be sold.

I would think you biggest decission is where. Not because of the beauty of the place, but because of the Tax policy of the States. Two States for two houses or both in same state? State income tax in two states? Property Tax? I am not sure if I would not consider one home and rent the second location to avoid beind a resident in two states.

At any rate, there are about 95% of the population that wish they had your problems. Good luck.
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Old 07-04-2009, 09:49 AM   #4
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Welcome to the board, Stephenson.
Quote:
Originally Posted by stephenson View Post
... considering (early) retirement before company's basis for computation of lump sum (2/3 or time with one company that was bought by the second company which does not offer a lump sum) changes from 30 year Treasury to corporate bond rate.
But, another option is to wait four years ... numbers below generally represent Dec 2009 and Jul 2014 dates.
And, while I would like to take advantage of the lower percentage (higher basis) Treasury computation for the lump sum, I don't to do anything silly financially.
I'm reading two issues here:
"I could retire right now, but I don't want to make a mistake that I might not be able to recover from", and
"I could retire later with more money and less possibility of a mistake".

You haven't said anything about your expenses, but if you're financially independent now then you'd have to figure out what keeps you commuting to work each morning. Why are you still working? Do you enjoy the job or do you not care? Do you want another $$$ for an extra safety margin or a higher quality of life? Are you stressing your mental & physical health by working for another four years? What's your spouse's opinion?

If you retired right now and a mistake popped up, could you recover with part-time work or a consulting contract over the next 5-10 years?

Quote:
Originally Posted by stephenson View Post
Several factors make the decision more complex than I had expected, especially the change in the basis for lump sum computation - the difference in basis appears to be about 1-1.5%.
I'm confused by terminology. When you use the word "basis", do you mean "cost basis" or do you mean "the formulae used to calculate the lump sum"?

What's the significance of "1-1.5%"? Is the change too small to make a difference, or does it seem too big, or does it make you wonder if the calculation is correct?

You may have a spreadsheet with columns labeled "Dec 2009 value" and "Value in July 2014 if I keep working until July 2014". Maybe you should add a column labeled "Value in 2014 if I retire in Dec 2009". Then you could see how much more money you'd have if you kept working as opposed to if you retired in 2009, and you could divide that difference by the number of hours you'd be working between those dates. Add in a hassle factor to that hourly wage and maybe the resulting numbers will help with the decision.

Quote:
Originally Posted by stephenson View Post
1. Navy retirement ... $30K/$33K a year
Several factors make the decision more complex than I had expected...
Let me add to that complexity. Your COLA pension will give you a lot of inflation protection, and you'll want to consider that in your calculations.

Have you added Social Security (with its CPI COLA) into your analysis? Conventional wisdom may be to have spouse start hers at age 62 (depending on your individual earnings records & longevity expectations) with you starting yours at age 70. Or both of you could hold off until age 70. If that income covers your expenses then your net worth might be less relevant.

The vast majority of your medical expenses are probably covered by Tricare (and will be covered by Tricare For Life). Your company's healthcare coverage and the media's scary forecasts of future medical expenses hypothetically won't be a part of your decision. You may also decide that your net worth is high enough to self-insure for long-term care.

In other words, the differences in the company lump-sum payment may not be significant compared to your current income streams and net worth. That would imply it's not financially worth your time or effort to keep working. Of course there may be emotional or other non-financial satisfiers that motivate you to tap-dance into the office every workday. And if you're smirking at that "tap-dance" characterization then FI may have you closer to RE than you realize.

Quote:
Originally Posted by stephenson View Post
One child is 25 and self supporting and the other is in college through 2011 - we don't know where either will end up geographically. We have lived all over the place and don't really have a place we can call historic home any longer. We both like being on the water (duh ... Navy), but would prefer to have two small houses rather than a large one. Our tastes are pretty moderate, but we would like to travel some more.
I think it's risky to base your location on the kids' locations. What if you spend your time & effort to move, and then they decide to move somewhere else for careers or their spouse's families? What if the kids/grandkids don't make the time for you? No easy answer to this one. It may be far cheaper to just buy plane tickets and rent a condo for a few weeks while spending the rest of the year somewhere you really enjoy living. Of course this decision is also affected by whether you want to afford your kids the support of full-time drop-off grandchildcare. But sounds horribly challenging to retire, move, and start a retirement centered on being around family. Maybe it's easier to tackle one at a time over the space of a few years.

It may be easiest for you to retire where you are, travel for a few years, and let the "where to live" decision sort itself out. It's hard to figure out where to live when you still have to figure out what your retirement lifestyle will be like. You may decide you prefer NoVA or your travels may help you find the ideal location.

In the hundreds of thousands of posts on this board, no one has ever said "Thank goodness I put those travel plans on hold and kept working for a few more years!" (Not even Rich_In_Tampa!) But we've seen many many posts about "Do it now. Don't save travel for when you're older."
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Old 07-04-2009, 10:15 AM   #5
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Thanks very much for your comments and thoughts - I appreciate the input - kinda in category of "trying to decide" and appreciate any advice or thoughts. Guess that was the purpose of laying out so much in an initial post :-) Didn't want to take up some much time and space, but this is a hard decision!

Yeah - I recognize our circumstances have worked out well, but I did put a lot of time into the planning and "staying with it" over two a long period of time (when there were so many times I wanted to just walk away) - plus, we put a LOT of work into buying beat up properties and fixing them up for sale as we moved 18 times over the years - some luck involved, too.

Yes, the lump sum is separate from the company retirement - the lump sum portion was grandfathered by the selling agreement from company that was purchased; 15 years total with 10 years (lump sum) from sold company, and 5 years (payable quarterly) from purchasing company. In reality, it was a pretty benign acquisition by the second company - I suspect if it were done now, things would not be so kind.

Interesting thought on buying in one area and renting in another ... I am researching the various tax laws as we look and would take into account the advantages and disadvantages. I don't think properties would be in same state since our major reason for two would be to deal with uncomfortable temperatures - we enjoy being outside (some play, but lots of gardening, auto hobby, etc). I know it might make financial sense to rent, but I don't relish the idea of being subject to others' decisions.

The great thing about fora like these is the sharing of information and of experiences - many folks have been through this same situation (sometimes the exact same situation) and we all certainly benefit from their knowledge. Any thoughts from the analytically and financially astute, and/or those with life lessons would be really, really appreciated!!
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Old 07-04-2009, 04:02 PM   #6
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I haven't done a detailed analysis of your finances, but it looks like you're in pretty good shape. I'm retired Navy and worked for several BB's in the DC/MD area after I retired but probably not as long as you have been working and certainly not with the same company for any long period of time. I ended up retiring for good at 58. I really wanted to make sure I wasn't making any mistakes but finally couldn't stand it any more. My experience in the 6 years since then has been that:
- Our cost of living has been much lower than I had planned on. (Working has costs that you don't incur in retirement.)
- We could have retired for good maybe 3 years earlier.
- Even though we live reasonably modestly day-to-day, we never hurt for the splurges we want (such as dinners out, a 2-week cruise to celebrate our 40th anniversary, a planned Ireland trip with college friends next month.)
- Having cheap medical coverage via TRICARE and an inflation-adjusted pension (plus SS) affords a helluva lot of security most people would kill for.

I note that you live in NoVa. We found that when we moved to a more rural, laid-back area (Vermont) we also left behind a lot of subliminal "keep up with the Joneses" stuff like driving glitzy cars, having a bigger house, etc. Even though we didn't fall victim to those things very much, I found that when I was making the big BB bucks + getting my Navy pension, I was starting to get seduced a bit by BMWs, the thought of a bigger house, etc. Thank God I snapped out of it!
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Old 07-04-2009, 05:28 PM   #7
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Nords,

Great points - especially the ones on not basing decisions on kids' locations, etc.

- I sort of enjoy what I do and there is clearly a need with my team for someone to do it (at least I think so :-) ... however, I am getting the itch to changes companies, types of jobs, avoid the Washington, DC traffic, etc ... these are all probably normal ...
- the 1-1.5% is approximately the difference between the 30 yr treasury rate and the "corporate bond curve" (rate) ... they are used as basis for computation of the lump sum for 2/3 of the retirement computation. This is a huge difference - so much so, if I don't get out by Dec 09 it appears to take until 2012 or so for the lump sum total (then based entirely on the corporate bond curve)to grow back to the same point as in 2009.
- yes, I did mean cost basis
- spouse has been great about all of the discussion, but clearly wants me to continue to earn till second son is out of college (it's an expensive one) and she has grown to really like northern Virginia and has many friends here; this said, she too is interested in being dual location for the weather

Friar,

Great point on expenses being lower than when working ... while I do have a Mercedes, it's more in the category of "weird" (1991 diesel) :-) ... next newest car is 2002. I do get the point and, seems like the biggest difference would be the cost of living decrease from getting out of the big house - we do have one of those and, without need to be in great school district, we could probably cut housing costs in half in the same area.

Which part of Vermont did you choose? We lived in Brunswick, Maine for several years and visited friends in Northfield while he was an ROTC instructor at Norwich - don't know much more about the various areas, though. After the Maine flying experience, don't know that we would want to do the winters, though ....

I would happy to snap out of it tomorrow and do some consulting for government or industry on the side - especially if I get to choose the where and for what reason.

Thanks, again, for all the thoughtful and thought provoking comments!
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Old 07-04-2009, 07:48 PM   #8
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Quote:
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I note that you live in NoVa. We found that when we moved to a more rural, laid-back area (Vermont) we also left behind a lot of subliminal "keep up with the Joneses" stuff like driving glitzy cars, having a bigger house, etc. Even though we didn't fall victim to those things very much, I found that when I was making the big BB bucks + getting my Navy pension, I was starting to get seduced a bit by BMWs, the thought of a bigger house, etc. Thank God I snapped out of it!
Very good point. We visited friends in Fairfax County last month and whole neighborhoods looked like Mount Vernon or Tara. Homes were over twice our square footage with 4-5 bedrooms, basements, three-car garages, backyard pools, 50-foot trees, brick everywhere...
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Old 07-04-2009, 08:01 PM   #9
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Accckk ...

Nords, sounds like you visited our area, all right ... when we moved here 15 years ago, I too was amazed at the sizes and asked many builders what was up with that (our home in Brunswick, ME was 1500 SF) and they told me "people wanted 'em" ... then, I checked with new folks I met and they told me, "it is what they are building."

I think the "system" just gets going sometimes and weird things happen ... the "nice neighborhoods" that are well cared for and in good school districts seem to be big houses. Also, lots of folks are so fed up with traffic and the rat race in WDC and close in VA and MD office areas, they seek the solace of being further out and bigger is what's there. And, a big issue is that many are looking for max SF so they can make more money when they transient out ... kinda bit a lot of folks in the butts this time, though.
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Old 07-04-2009, 08:53 PM   #10
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I haven't done the research, but my informal opinion of the last five years of posters is that the ones from the large metropolitan areas (DC, Boston, LA, NYC) find it very difficult to comprehend how the rest of us could ER on less than six figures and 4000 sq ft.

Once those areas are left behind, ER gets a lot easier...
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Old 07-05-2009, 08:20 PM   #11
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Which part of Vermont did you choose? We lived in Brunswick, Maine for several years and visited friends in Northfield while he was an ROTC instructor at Norwich - don't know much more about the various areas, though. After the Maine flying experience, don't know that we would want to do the winters, though ....
We're in Addison County, about halfway between Burlington and Middlebury.

I was in Maine from '89 - '92, but much further Down East than Brunswick. I was at NSGA Winter Harbor which is near Bar Harbor (as the crow - or seagull - flies) but about an hour and a half on the road. I had a detachment at Brunswick and used to visit every quarter or so. I really liked Brunswick (and ME in general) and could have happily retired there. Portland is a probably a slightly neater place than Burlington.
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Old 07-05-2009, 10:15 PM   #12
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You're making me homesick for Brunswick in the summer! Loved the downtown square, the nice (but reserved people), and proximity to interesting places like Freeport - but, that was the area I recall in 1977 when I arrived the first time. The second time in 1986-1988 was a lot different, and when I toured through last summer I was pretty aghast at the combination of new shopping malls, unhampered tourism, and what has "befallen" the quaint town of Freeport - on the other hand, the downtown area of Brunswick has not been struck, but is a bit more run down in some areas. Since 1977 was in my young adulthood, I guess "you can't go back." On my second tour, I recall having a key to the back gate at the base to make commuting easier for those 0200 preflights - imagine that now!

But, the winter .... the long walks to the airplane in the morning over ice that was 6 inches thick on the ramp, digging the airplane out by hand to the props didn't hit, pulling the airplanes inside the hangar to heat the oil in the engines enough to be able to start them without blowing seals, etc .... brrrrr..... it did keep the visiting population down in the winter, though.

I do like Portland - the city fathers did a very nice job of converting the waterfront and downtown area - well done to them!

Appreciate what you and your folks did at WH!

I looked at the Vermont tax situation - doesn't look like there is much relief for mil retired pay or pensions ... nice place to live. Anything I missed in the tax situation for retired?
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Old 07-06-2009, 03:16 PM   #13
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I looked at the Vermont tax situation - doesn't look like there is much relief for mil retired pay or pensions ... nice place to live. Anything I missed in the tax situation for retired?
Nope; no breaks for retired military pay. There has been a bill kicking around in the state legislature for several years to exempt retired military pay from state income tax, but it has never made it out of committee. As you may know, VT is fairly left leaning politically (although the current governor is a moderate Republican) and I suspect the bill will never get enough traction to move forward. VT taxes are actually quite high (as are all the New England states) and this would not be the place to move to if low taxes were at the top of your list of important criteria. We pay a bit more property tax on our house here than we did in Baltimore Cty., MD. The value of the house here is about $150K less and we receive fewer services for that tax money. (VT has a weird way of funding schools where the state sets equivalent property tax rates to ensure that rich towns and poor towns get roughly the same amount of money. The towns collect the taxes, send them to the state and the state sends them back to the towns - some towns get more than they sent; others get less. If you're below certain income levels - I'm not - you get breaks on the rates.)
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