57 YO and thinking it's time

[robertf57]

Been on the board for a brief time. Got motivated when one of my buddies had a large stroke while working his a$$ off. Believe we are FI and can RE; but will see what the sages of the board say

Age 57
Married and kids through college
RE 2015?
Net worth $4.1M (1.1M is primary home leaving $3M in financial assets)
No debt
$400K is in a state defined benefit pension which will pay out $63K/ year at 62 (no COLA but fund performance based increases are possible. None awarded in last 10 years)

Social Security says $42K at 70
Have $350K in TIAA real estate which has done very well
$100K in a non-traded REIT which is paying 6.5%,
200K in differed comp payable in January of year after separation. Additional $350K is in a TIAA traditional retirement account paying 4.6% which would currently annuitize at 5% if I chose that route.
These represent my " Cash/Bond" allocation of $1.4 M.
Also have a small business netting $20K/year to me as the absent owner.

The remaining $1.6 M is in equities.

Wife says we will be fine on $100K.

Seems like it should be doable to me....

 

[REWahoo]

Have you worked through these questions? http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[robertf57]

Have you worked through these questions? http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

Although my crystal ball is broken, I think I have. The expense are the unknown. We are healthy and have low cost retiree insurance available before Medicare, live in one version of paradise already with reasonable costs and have some guaranteed income that should form a base we can count on....

 

[REWahoo]

Wife says we will be fine on $100K.

Although my crystal ball is broken, I think I have.

Better try some superglue:

1. What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow.

The spending question is number one on the list for a reason. Having the best information you can possibly obtain on your spending is a key element of the retirement decision. Otherwise you're just winging it.

 

[robertf57]

Well, we have gone through last year's expenses and projected the changes next year if we pull the plug. We will be using this year to dry run setting aside 100K to live on. Just never know what will happen with expenses in a thirty year period.

 

[REWahoo]

Well, we have gone through last year's expenses and projected the changes next year if we pull the plug. We will be using this year to dry run setting aside 100K to live on. Just never know what will happen with expenses in a thirty year period.

True, none of us can know what we'll be spending 30 years from now. But we can have a very good idea of what we'll spend for the next few years IF we have a good understanding of where we're starting from.

I think your plan of a dry run is a good way to get that understanding.

 

[growing_older]

400K is in a state defined benefit pension which will pay out $63K/ year at 62 (no COLA but fund performance based increases are possible. None awarded in last 10 years)

First, paying out 63k annually on a 400k balance is a very very generous payout. Are you assured that it will continue, because the numbers alone don't support 15% SWR.

Second, if they haven't seen a performance bump based on the biggest bull market in recent memory, they aren't going to see one ever. Kind of pointless to say it "could" increase, because if current conditions don't warrant one, then it's unlikely any conditions ever will.

 

[pb4uski]

If your expenses are really ~$100k then you are fine. A couple ways to assess expenses. Top down, what was your take home pay less savings fo take home pay over the last year? Bottoms up, look through all you checks and credit card charges for the last year and what did you really spend?

 

[Midpack]

Got motivated when one of my buddies had a large stroke while working his a$$ off. Believe we are FI and can RE; but will see what the sages of the board say.

The others have commented on the $ aspects.

While having someone close suffer a life changing physical setback will certainly get your attention, it may not be a good reason to RE. Makes more sense to go with the odds, not exceptions (Age-adjusted prevalence of stroke was 2.7% in 2006 and 2.6% in 2010). Unfortunately lots of people are killed in automobile crashes, doesn't mean we should quit driving.

What do you plan to do in retirement? Just because you have the means isn't a reason in itself. It's not enough to retire from something, it's best to have something to retire to.

 

[robertf57]

First, paying out 63k annually on a 400k balance is a very very generous payout. Are you assured that it will continue, because the numbers alone don't support 15% SWR.

Second, if they haven't seen a performance bump based on the biggest bull market in recent memory, they aren't going to see one ever. Kind of pointless to say it "could" increase, because if current conditions don't warrant one, then it's unlikely any conditions ever will.

Astute observation on the payout. The payout is large because I am valuing the asset at what I would get if I liquidated the plan (that's the valuation the plan clearly reports). That would leave the employer's contributions and the interest and 1/2 the accumulated interest on my contributions behind. it also assumes 1 more year of contributions and 4 years of earnings. Still a quite generous plan.

We do have some plans about our life in retirement. We plan on continuing some teaching activity and expanding our civic and volunteer service while spending some time with the grand-kids. (3 under 2 years). Also have been planning 2 months of foreign language immersion.

 

[Live And Learn]

3mm x 0.03 (3% WR) = 90k spend supported from assets + 20k from the business or SSI or whatever else and I'd say that you can support 110k / year in spending.

Enjoy your additional time with the grandkids !

 

[robertf57]

So we are continuing to follow our expenses closely (have found a bunch of frivolous spending we are curtailing) and I am planning to transition my asset allocation to an appropriate pre-retirement distribution (i.e. 60:35:5). This isn't as easy at it seems at first glance.

How do you handle the pension. Do you just exclude it from the portfolio as you allocate assets? (That doesn't seem appropriate). And the statement value of the pension clearly doesn't reflect the NPV of the cash flows. Do you work up the PV of the annuity and call it a bond? I previously lumped my REIT and TIAA traditional annuity assets and called them my "bond equivalents". Now I am not so sure that is how they should be viewed. If I just ignore them in the portfolio for allocation purposes, I will be lighter in equities and purchase more bonds.

How have others handled this scenario?

 

[chris2008]

We do not include pensions into the allocation scheme as we have no influence on them, other than waiting for them and then spending them.
All other assets are roughly distributed in equities 30%/ bonds 60% / liquid assets 10%.

 

[pb4uski]

+1 I view our pension and SS as offsets to expenses to compute withdrawals rather including the PV as a bond/fixed income investment. This seems to be the more prevalent approach by a wide margin.

So what happens in our case is that our initial WR is a little higher and then our projected WR drops when our pension starts and then drops again when SS starts. I focus on the ultimate WR in assessing our portfolio survivability.

That is where firecalc or Quicken Lifetime Planner come in handy in including those future cash flows and then looking at the ultimate WR rate.

I am curious though as to why the transition of AA isn't easy.

 

[bingybear]

I would not include your home in the assets unless you plan on selling it. It benefits you in dropping your expenses (assuming it is paid off). pensions I would count as as just an income flow, same with SS. Use these to project your annual spending money. These may make numbers look better... take your pension... the return on the potential cash is to goo to really take a distribution.

You asked how others handle pension/SS. Personally I ignore them. I ignore my house other than in calculating my expenses.

I did a detailed spending analysis of expenses in 2013 which included a 7 day cruise, 2.5 weeks in England and France, and a $2.5k out of the ordinary expense. I added $10k for a HSA compatible insurance and $10k more to pay the max OOP expenses. I figured this was a conservative estimate. But honestly I left out car replacement and the like. However, since this was well below the 4% WR, I figured I was OK. I even ignored the SS that will happen one day... maybe.

 

[robertf57]

Coming up on 1 year following the initial post. We have a much better handle on our expenses by doing a dry run this year. Although there are some expenses that will drop with cessation of work, we are living on 100k for our current lifestyle. I expect to add ~ 20k per year of recreational travel when we finally pull the plug.

Cash flows and investments are now
68K Pension estimate for a Jan’16 retirement
36K TIAA retirement annuity estimate for Jan’16
So 104k “guaranteed”
20K from business

41K social security for me at 70
15K social security for the Mrs at 67

2M of investments ($600K after tax and 1.4M in retirement accounts 80% equities right now)
House free and clear and the kids all out and on their own.

Very confident we will reduce expenses by 15K after we stop work.

Plan on tracking expenses through the fall and if everything remains the same, 2016 should be it.

 

[Golden sunsets]

Robert; you look to be golden. In fact once SS kicks in you will likely be spending less than your income stream from pensions/annuities/SS. And that maximum income will hit just as you reach RMD age for your 401k's. That's your biggest problem and a nice one to have. We have a similar problem. You will be in a 25 percent tax bracket from your retirement in 2016, so Roth conversions would be at the 25-28 percent rate if you attempt to convert pre 70.5. Have you calculated if or when you would be kicked into higher tax brackets due to RMD's down the road vs Roth conversions pre 70.5 with the attendant higher taxes? That's our dilemma.

 

[audreyh1]

Coming up on 1 year following the initial post. We have a much better handle on our expenses by doing a dry run this year. Although there are some expenses that will drop with cessation of work, we are living on 100k for our current lifestyle. I expect to add ~ 20k per year of recreational travel when we finally pull the plug.

Cash flows and investments are now
68K Pension estimate for a Jan’16 retirement
36K TIAA retirement annuity estimate for Jan’16
So 104k “guaranteed”
20K from business

41K social security for me at 70
15K social security for the Mrs at 67

2M of investments ($600K after tax and 1.4M in retirement accounts 80% equities right now)
House free and clear and the kids all out and on their own.

Very confident we will reduce expenses by 15K after we stop work.

Plan on tracking expenses through the fall and if everything remains the same, 2016 should be it.

Won't the Mrs qualify for half your SS benefit if that is larger than hers? Seems like it would be more like $16K assuming the difference between your FRA benefit and amount at 70 is 128%.

Looks like you have belt and suspenders! Good to go - congrats!!!

At this point, once retired, you'll mostly be managing the tax consequences of a large tax-deferred retirement fund!

 

[Spanky]

Coming up on 1 year following the initial post. We have a much better handle on our expenses by doing a dry run this year. Although there are some expenses that will drop with cessation of work, we are living on 100k for our current lifestyle. I expect to add ~ 20k per year of recreational travel when we finally pull the plug.

Cash flows and investments are now
68K Pension estimate for a Jan’16 retirement
36K TIAA retirement annuity estimate for Jan’16
So 104k “guaranteed”
20K from business

41K social security for me at 70
15K social security for the Mrs at 67

2M of investments ($600K after tax and 1.4M in retirement accounts 80% equities right now)
House free and clear and the kids all out and on their own.

Very confident we will reduce expenses by 15K after we stop work.

Plan on tracking expenses through the fall and if everything remains the same, 2016 should be it.

Financially - a no brainer!

 

[robertf57]

Robert; you look to be golden. In fact once SS kicks in you will likely be spending less than your income stream from pensions/annuities/SS. And that maximum income will hit just as you reach RMD age for your 401k's. That's your biggest problem and a nice one to have. We have a similar problem. You will be in a 25 percent tax bracket from your retirement in 2016, so Roth conversions would be at the 25-28 percent rate if you attempt to convert pre 70.5. Have you calculated if or when you would be kicked into higher tax brackets due to RMD's down the road vs Roth conversions pre 70.5 with the attendant higher taxes? That's our dilemma.

I have used the i-orp tool which actually has me do substantial Roth conversions beginning next year and delaying the TIAA-annuity a couple years to allow more conversions increases the total value of the portfolio.... Kind of a good problem to have, but not obvious at first glance. This forum has helped wake me up to issues like this.
.

 

[robertf57]

Put in the notice. Retiring on Jan 22nd, 2016.

 

[Bamaman]

It's easy to bat the income subject around--over analyzing every account. You're in great position to retire, so go ahead and enjoy your retirement.

My only suggestion is don't work too hard in your sideline business. That can quickly turn into a job.

Watching Let's Make a Deal and Price is Right are very positive starts to a great day. It also helps to have good hobbies that you enjoy.

 

[pb4uski]

Congratulations on pulling the trigger!!! Wow!

 

[kimcdougc]

Congrats on setting the date! You will enjoy the rest of your life!

 

[StuckinCT]

I give you a check mark for yes, you can retire on 100k, probably more like 162k, depending on portfolio yield. I am not a huge fan of non traded rents tho...