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57 – job eliminated – would LOVE to RE, but nervous that I can’t afford it….
Old 11-11-2012, 08:28 AM   #1
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57 – job eliminated – would LOVE to RE, but nervous that I can’t afford it….

Hi all – and thanks for a terrific forum! I have spent many MANY hours reading past posts, and it is so comforting (and informative) knowing there is this entire community of FIREs out there to emulate!. Essentially trying to reassure myself about my financial situation to see if I can RE a bit earlier than I would have said I would, not because I haven’t wanted to, but because I’m worried about whether I can do it from a financial perspective.

My anxiety about RE comes entirely from the fact that because I’m still so young and have a few years to go before either my pension or SS kick in (especially since I want to draw the maximum from both), I will have to ‘draw down’ on my assets in the early years at a higher rate than I would have liked. I have run the numbers in many retirement calculators, including FIRECalc, and they all say I should be okay for a lifespan of 95 years old or longer, even with an annual income need of $80,000 (even though I don’t need that much actually).

Apologies in advance for the long and detailed post, but I’ve noticed people can be most helpful with their advice when they know the full story behind a question.

Here is my situation:
57 years old; single; no kids. I’m a federal employee whose job was just unexpectedly eliminated ($152000+) and will be out of work as of March 2013!!! Curiously (or probably not for the FIRE audience! J), despite the shock and the nervousness about no income, I am in many respects relieved because I had been pretty burnt out for a long time and ready to get out of such a political environment and have a much lower stress lifestyle. I have zero anxiety about how I’ll spend my time in RE, etc. – this isn’t to say I have every next step planned out, but I know myself well enough to know that I will find very interesting and fulfilling ways to live, and am really looking forward to being healthier and more balanced than I have been able to be with a high stress job for so many years. My concerns are strictly on the affordability and FI aspects of FIRE, especially when I read the gloomy news about fiscal cliffs, Europe tanking, possibility of recession, etc. etc. etc.

My financials (all figures in today’s dollars, obviously):

Assets:
$360,000 Federal TSP (401k equivalent – non-Roth)
$180,000 Roth IRAs
$500,000 taxable accounts – mainly broad mutual funds but some individual stocks I was gifted by parents many years ago
$60K cash
TOTAL: $1,100,000

Overall asset allocation (including both retirement and non-retirement accounts):
Domestic Bonds: 11%
Large Cap: 45%
Small Cap: 25%
International: 12%
Cash: 7%
[NOTE: I recognize that this is probably too aggressive an AA for retirement, but the prospect of RE came on suddenly, so I haven’t adjusted anything yet…..]
Liabilities:
$140,000 remaining on mortgage for house worth $460,000 (10 more years @4.25%)
No other debt

Retirement income:
I will have about 16 years of federal service at the time I separate, which means that I will have a pension as well as Social Security coming to me eventually.
Now:
$13,000 annual tax-free gift from mother (ongoing, until her death)
Future:
$24,000 federal pension starting at 62
$36,000 SS starting at 70 (I don’t want to take it before then if I can help it!!)

Retirement expenditures:
(Note that I have been anally retentively keeping track of ALL living expenses every month since 1999, so I have an incredibly detailed and accurate sense of where my money goes, and what I’ll need going forward. The figures below are based on my most recent year’s expenditures, since those are the highest, adjusted very conservatively for a few things I won’t spend in retirement, and adding in the cost of individual health care coverage until Medicare).

Now until 2019 (age 64): $70,000 pre-tax (includes ongoing mortgage, and individual health care costs until Medicare kicks in)
(Note that I can continue federal coverage through COBRA until late 2014, then I’m on my own until 2017 (truly individual plan), and then I can purchase federal coverage again once my federal pension kicks in in 2017 until Medicare in 2020)
2020-2022 (age 65-67): $63,000 (ongoing mortgage, but Medicare kicks in)
2023-2050 (age 68-95): $45,000 (mortgage paid, Medicare kicks in)

Beyond all this, I probably will receive some inheritance from my parents’ estate upon the death of my 83 yr old mother (father died many years ago). However, just to be extremely conservative, I have NOT factored in this inheritance in any of my running of the retirement calculators, because you never know what might happen and whether my mom might need those resources herself at some point. (But FYI, the inheritance would probably be $500-$750K – equivalent amount going to my brother).

Anyway, those are all the details. My ideal situation would be not to have to work at all for money EVER AGAIN, but really want the critical and realistic eye of experienced FIREs to give me your unvarnished opinions and advice. Thanks for your patience in reading all of this, and for sharing your wisdom.
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Old 11-11-2012, 08:56 AM   #2
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Sounds like you are set. Congratulations.
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Old 11-11-2012, 09:17 AM   #3
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Quote:
Originally Posted by smurray5991 View Post
My anxiety about RE comes entirely from the fact that because I’m still so young and have a few years to go before either my pension or SS kick in (especially since I want to draw the maximum from both), I will have to ‘draw down’ on my assets in the early years at a higher rate than I would have liked. I have run the numbers in many retirement calculators, including FIRECalc, and they all say I should be okay for a lifespan of 95 years old or longer, even with an annual income need of $80,000 (even though I don’t need that much actually).
Based on my personal experience of having retired at age 58 (I'm soon to be 66) with similar assets, NO pension, and roughly equal expense requirements, I have to wonder why the anxiety. Looks to me like you have a very nice cushion and the only thing standing in the way of an enjoyable retirement is the stuff between your ears.
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Old 11-11-2012, 09:36 AM   #4
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Everybody has anxiety about the decision but it looks like you are good to go !
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Old 11-11-2012, 09:56 AM   #5
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Originally Posted by smurray5991 View Post

(Note that I can continue federal coverage through COBRA until late 2014, then I’m on my own until 2017 (truly individual plan), and then I can purchase federal coverage again once my federal pension kicks in in 2017 until Medicare in 2020)
Have you looked into taking an immediate retirement benefit and keeping your health insurance from the Federal Government? Here’s a link explaining when you can keep your health insurance:
http://www.opm.gov/retire/faq/pre/faq9.asp#keep
Looks to me like you would qualify since you have reached the minimum retirement age as explained here:
http://www.opm.gov/retire/faq/pre/faq11.asp#fers
Your annuity would be reduced, but it may be worth it to keep the health insurance. Also, I'm not aware of the option to purchase federal coverage when your pension kicks in. I think once you drop coverage, you can't get it back. If this is not the case, please let us know.
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Old 11-11-2012, 10:28 AM   #6
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Thanks so much for the reassurance, and also the very good clarifications and questions re: health insurance. You are indeed correct about the federal health insurance, it looks like I cannot buy back in once leaving if I postpone taking my pension (I am only just starting to read the fine print on all these retirement benefits, and having even met with a benefits counselor yet -- so THANKS for the correction).

Re: taking my pension now and keeping the federal health insurance, this sounds like an option I should definitely consider. The 'hit' for taking an immediate annuity is 5%/year, meaning my annual pension would be reduced by about $4500/yr, however (a) as you point out, I get continued excellent federal health plan coverage, at much lower cost, and (b) I collect the $19,500 for an additional 4+ years, which means drawing down on the nest egg more slowly.
So I will definitely re-run the numbers to look at this option more closely -- on the face of it it seems like it might be the way to go!
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Old 11-11-2012, 10:51 AM   #7
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Glad to help! Once in a blue moon I post something more useful than cute cat pictures. Speaking of cat pics.....
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Old 11-11-2012, 10:58 AM   #8
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Funny you should mention cats.... one of the first comments made by all my friends and family when I told them of imminent retirement is: "Now you can get a cat!" (I traveled so much with my job this was never possible before, even though all know I am a secretly aspiring cat lady!).
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Old 11-11-2012, 11:01 AM   #9
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Re: taking my pension now and keeping the federal health insurance, this sounds like an option I should definitely consider. The 'hit' for taking an immediate annuity is 5%/year, meaning my annual pension would be reduced by about $4500/yr, however (a) as you point out, I get continued excellent federal health plan coverage, at much lower cost, and (b) I collect the $19,500 for an additional 4+ years, which means drawing down on the nest egg more slowly.
So I will definitely re-run the numbers to look at this option more closely -- on the face of it it seems like it might be the way to go!
A lower cost health care benefit in exchange for a lower pension annuity also means less taxable income. Another reason to consider this approach.
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Old 11-11-2012, 11:28 AM   #10
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Welcome to the forum! Just 2 quick observations on items you've posted:
Quote:
Originally Posted by smurray5991 View Post
Assets:
$500,000 taxable accounts – mainly broad mutual funds but some individual stocks I was gifted by parents many years ago

Do you have large taxable gains on the stocks you were gifted? Could be some tax jockeying around to be doing if you have $80,000 in taxable gains in those old stocks versus just $8,000...


Quote:
Originally Posted by smurray5991 View Post
Liabilities:
$140,000 remaining on mortgage for house worth $460,000 (10 more years @4.25%)
If you were going to keep that mortgage, might I recommend PenFed's 5 year Home Equity loan, which has a rate of just 1.99% fixed for the 5 year life of the loan, with zero closing costs/fees. Or you can get a 10 year Home Equity Loan for 3.74%. Just a one-time $20 membership fee to a military organization gets you qualified to join PenFed.
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Old 11-11-2012, 11:32 AM   #11
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Excellent point re: tax liability as well.

The other benefit of taking the pension now is that I get 50% for all my 900+ hours of accumulated sick leave. This probably only adds a few hundred dollars a year to the pension amount, but it adds up... and hate to leave that on the table as well which I would have to do if I postpone taking the annuity.

The more I am doing the math on this, the more it makes sense. Over a 95 year lifespan, it probably does end up resulting in a little bit less net worth in the end, but the prospect of a lifetime of secure and high quality/low(er) cost health insurance (one of the biggest 'scary' factors for me about RE), and the security of more fixed income in those early pre-SS years to help smooth out any dramatic shifts in the larger economy and in my portfolio value (the other huge dread I had), has diminished my initial RE anxiety tremendously. And as REWahoo notes -- RE is mainly about grappling with my head and what it takes to help me sleep at night. Don't know why I was so fixated on maxxing out the pension by postponing -- thanks so much for pointing out the advantages of taking the immediate annuity as a way to address the psychological as well as practical financial realities!
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Old 11-11-2012, 11:36 AM   #12
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Funny you should mention cats.... one of the first comments made by all my friends and family when I told them of imminent retirement is: "Now you can get a cat!" (I traveled so much with my job this was never possible before, even though all know I am a secretly aspiring cat lady!).
Another cat lady

Here's a good place to look for your new best friend: Pet adoption: Want a dog or cat? Adopt a pet on Petfinder
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Old 11-11-2012, 11:42 AM   #13
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Thanks MooreBonds. I actually had been thinking about getting a five year ARM at rock bottom interest and paying the loan off in five years as you suggest. I had refinanced a few years ago for a 15 year mortgage, and have been paying an extra $1000/month in principal that would get the mortage paid off another five years, but planned to suspend the extra principal payments post retirement because of lower income coming in, and also to keep the mortgage write off for a few more years (meaning I have 10 years left to pay). Although I'm sure I could get a lower interest rate now, the closing costs didn't seem worth it, so I will definitely look into the PenFed option you suggest as that could definitely be doable.

Re: taxable gains - yes, most of the old stocks and some of my early mutual funds have considerable gains, but this all represents at most 15% of the whole portfolio -- at my much reduced income post retirement it wouldn't be that big a deal in terms of what I would need to sell to supplement income. The bigger issue is figuring out how to rebalance portfolio to a more conservative AA with minimal tax consequences since I'm so heavily in stock funds.
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Old 11-11-2012, 11:44 AM   #14
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Sorry MooreBonds - just reread and saw you were suggesting getting a home equity loan, not a refi -- something I was also thinking of trying to get 'just in case' before I become unemployed/retired. Would you suggest this just for the security of having a low interest 'cushion' in case investments weren't doing so well for a given period? Other pros and cons?
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Old 11-11-2012, 03:58 PM   #15
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Sorry MooreBonds - just reread and saw you were suggesting getting a home equity loan, not a refi -- something I was also thinking of trying to get 'just in case' before I become unemployed/retired. Would you suggest this just for the security of having a low interest 'cushion' in case investments weren't doing so well for a given period? Other pros and cons?
I was suggesting you get a Home Equity Loan, not a Line of Credit. I'm in the process of closing on the 5 year HE Loan w/Pen Fed to pay off my 3.375% 5/5 ARM that I took out in 2011 w/ Pen Fed.

It doesn't matter if you use the money to pay off an existing mortgage or for whatever - as long as you meet the LTV % and $ amounts, it's all good. You can call it a "refi" if it helps you sleep better.
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Old 11-11-2012, 03:59 PM   #16
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Also, I'm not aware of the option to purchase federal coverage when your pension kicks in. I think once you drop coverage, you can't get it back. If this is not the case, please let us know.
Hi all --

I looked further into the federal retiree health insurance issue discussed above, and it seems like the discussion re: reinstatement of federal health insurance may be conflating or confusing "deferred" retirement annuity/pension with "postponed" retirement. Under the FERS system, if I "defer" retirement, I would indeed lose access to future health insurance. However, apparently I can "postpone" my pension until 62 and receive the full amount then (without the 5% annual penalty), and at that time also resume federal health insurance that I had before retiring. So I'm now reconsidering the equation and what makes most sense. I could decide not to take my pension right away, aiming to wait until 62 to get the maximum annuity. But at any time between now and age 62 I could opt to apply for my pension and go back into the FEHB system. I could do this if the private insurance gets too expensive, or I am concerned about the coverage and would prefer the excellent federal plan vs. what I can afford on the open market, or simply if I am concerned about drawing down on my assets too soon. For everyone's reference, here's a quote from a FERS manual on this topic:
"Health Benefits and Life Insurance Coverage
If you separated from Federal service after reaching the Minimum Retirement Age with at least 10 years of service, but postponed the commencing date of your annuity to reduce or avoid the age reduction, you are eligible to reenroll in the Federal Employees Health Benefits Program (FEHB) and the Federal Employees’ Group Life Insurance Program, if you participated in the program for the 5 years of service immediately before you separated from Federal service or continually from your earliest opportunity.

If you separated from Federal service with at least 10 years of service before reaching the Minimum Retirement Age or if you separated from Federal service with at least 5, but less than 10 years of service, and are now applying for a deferred annuity, you are not eligible to continue any health benefits or life insurance coverage you had while employed."
And from the OPM website:
"Health Insurance
If you postpone the beginning date of your annuity, you will be eligible to temporarily continue your health benefits coverage for 18 months from the date of separation from your employing agency; however, you must contact your agency within 60 days and pay the total premium, plus a 2% administrative charge. When your annuity payments begin, you will again have the opportunity to enroll in a health benefits plan under the regular Federal Employees Health Benefits Program, and OPM will pay the Government share of the premium."
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Old 11-11-2012, 04:24 PM   #17
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Great info smurray5991! It's good to do your own research on these matters. I worked for the Fed Guvmint and found the "experts" in HR usually didn't understand the rules. Better to research it yourself and confirm directly with OPM before making a decision that could impact your retirement benefits and health insurance coverage for many years. Please share any other information you discover as there are lots of retired and soon to be retired feds around here. Oh, and by the way, I forgot to say welcome. So welcome!
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Old 11-11-2012, 04:33 PM   #18
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Thanks for the clarification MooreBonds and for the tip on the PenFed loan options, which seem really great. Don't know if I could swing the 5 year 1.99% loan payments given my inclination to be conservative on drawing out from the nest egg in these early years, but even the 5/5 refinance loan they offer or the 10 year/3.47% home equity loan products seem great and would both lower my payments from what I have now. Amazing that they don't charge closing costs, etc.!!!!!
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