Am I ready to pull the trigger?

[sickNtired]

I'm thrilled to have found this forum and all this great information! But I would sure like this groups' opinion on whether my idea of retiring now is premature.

I'm 56 and eligible for a $41K annual pension. I have $585K in a 401K, $40K in an IRA, $30K in a non-qualified account, and $20K cash with ING. Wife (who is not employed) and I own a $225K rental property ($55K equity) and a $375K home ($200K equity). Kids are out of the house we have no debt other than mortgages.

I plan to start SS at 62 and the estimator puts my benefit at $1820 per month.

My estimated essential monthly expenses including taxes are $5800. I'm thinking I need another $1200 monthly for Lifestyle & travel expenses.

I'm sick of my job and what's going on at my company. And I'd love to pursue other interests and leisure. Add to that the fact that my father and grandfather died young -- I'd love to pull the trigger on retirement now. Am I ready?

 

[GrayHare]

A pension that funds half your expenses is sweet, but my initial reaction is funding the other half is a problem. Looks to me like a few more years of earning and saving would help a bunch.

 

[pb4uski]

Check out firecalc.

You're may be close, but it is hard to tell. The glitch might be what to live on between 56 and SS.

What is the cash income from the rental? (rent - mortgage - expenses excluding depreciation)

When you say your expenses include taxes, are those income taxes or property taxes or both?

Do you expenses include one or both mortgages? what is the remaining term of each mortgage?

What will you do for health insurance between 56 and Medicare?

What are your wife's SS benefits? and when would they start?

 

[sickNtired]

Thank you for the feedback. Here's some clarification.

What is the cash income from the rental? (rent - mortgage - expenses excluding depreciation) -- The rent covers the mortgage, insurance, and all expenses with just a few $ income each month.

When you say your expenses include taxes, are those income taxes or property taxes or both? -- Federal and state income taxes.

Do you expenses include one or both mortgages? what is the remaining term of each mortgage? -- Expenses includes the mortgage on our primary residence. The rental income covers the other mortgage. Both have about 20 years remaining.

What will you do for health insurance between 56 and Medicare? -- Medical will be out of pocket. The cost is included in what I referred to as monthly expenses. I did not factor in the fact that when I retire I will leave with about $35K of employer provided funding that can be used (exclusively) to buy medical insurance.

What are your wife's SS benefits? and when would they start? -- Her benefit will be about $500 per month and will start 2 years after mine.

 

[MBAustin]

You definitely want to check out your health insurance options. Both Home | HealthCare.gov
and
Health Insurance - Find Affordable Health Insurance Plans and Buy Medical Coverage Online

are helpful in this regard. However if either you or your spouse have pre-existing conditions, you may be faced with much more limited and expensive options.

This is a major area to resolve before you pull the trigger.

Good luck!

 

[Lagniappe]

I had to make a lot of assumptions but can come up with several scenarios where this would work. Assumption 1 - you can withdraw penalty free from your 401K (since you are over 55). Assumption 2 - you pay off the mortgage on your primary house (Looks like you owe $175K, lets call it $220K with taxes on a withdrawal from the 401K), your expenses should go down to about $4200 per month (Assumption 3 - your mortgage was/is about $1600 per month). Your pension provides $3400, so you are short $800 per month or $9600 per year for essential monthly expenses. That's a 2.1% withdrawal rate from your nest egg, and should last. If you want to spend more (another $1200 per month or $14K per year) for travel and lifestyle), you'd be short another $14K per year until you take Social Security in six years. Setting aside $84K to cover this shortfall (14K per year for 6 years) leaves $371K, from which you can withdraw $9600 per year at a 2.6% withdrawal rate, which should satisfy all but the most conservative planners.

A couple of additional points - 1. That $35K toward health insurance from your employer will likely be used in three years or less, unless you and your family are exceptionally healthy. It's not clear how much of your budget is for health expenses. 2. Almost all of your assets are in tax deferred accounts, which means you'll be paying taxes as you withdraw the funds. You say that's accounted for in your budget, but taxes (and penalties) could be more than you expect.

 

[pb4uski]

Thank you for the feedback. Here's some clarification.

What is the cash income from the rental? (rent - mortgage - expenses excluding depreciation) -- The rent covers the mortgage, insurance, and all expenses with just a few $ income each month. Got it.

When you say your expenses include taxes, are those income taxes or property taxes or both? -- Federal and state income taxes. I would suggest that you do a projected tax return assuming no earnings but including your investment income, any 401k withdrawals that you plan on, etc. For many of us our taxes drop significantly after retirement, particularly if we are tapping taxable investments but probably less so in your case since most of your assets are tax deferred, but it would be good to get a more refined estimate.

Do you expenses include one or both mortgages? what is the remaining term of each mortgage? -- Expenses includes the mortgage on our primary residence. The rental income covers the other mortgage. Both have about 20 years remaining.

What will you do for health insurance between 56 and Medicare? -- Medical will be out of pocket. The cost is included in what I referred to as monthly expenses. I did not factor in the fact that when I retire I will leave with about $35K of employer provided funding that can be used (exclusively) to buy medical insurance. Suggest that you price out health insurance. You want health insurance to protect your nestegg from a calamity and to get access to negotiated rates for medical services that you do need and insurance can vary a lot between states and based on your health.

What are your wife's SS benefits? and when would they start? -- Her benefit will be about $500 per month and will start 2 years after mine. You should check into your wife's benefits more because in many cases your spouse would get 50% of what you get which would be a lot more than $500 per month.

And check out firecalc, OMP and some of the other calculators out there. If you use Quicken, the lifetime planner is a very easy to use tool that will do retirement projections based on assumptions that you provide.

 

[militaryman]

You seem very close to being able to pull the trigger to me ...

I guess the deciding factor for me would be exactly how "sickntired" I was continuing to work and how much continuing work in the existing environment would effect my health -- which could have a direct negative effect if I DID continue to work --

I think there are some cases where working that "few more years" could actually make things MORE expensive for you in retirement vs. getting out while the getting is good and adjusting your lifestyle some to fit the funds you have ---

As is I think you will not need to make any major adjustments if you walked now and given your family history ......

 

[aida2003]

If you were me who's (sadly) too conservative with retirement planning, I'd try to work 2-3 years longer and do some/all of the following planning:

1. Live as if retired in order to determine your potential monthly expense budget in the retirement. Any expenses to trim if needed?
2. Start exploring/investigating health (and dental?) insurance options for both of you in case nothing is offered in that regard by your employer.
3. Save as much cash as you can in CD's or taxable investments, so you can delay withdrawals from the tax-deferred accounts.
4. Make lists what you'd like to do in your retirement. I'm not too knowledgeable in this area yet (I'm still young age wise compared to other folks here), but I read that this part is very imperative for retirement planning to keep yourself active and in good relationship with your spouse).
5. Other planning as suggested by others: SS for your spouse, playing with tax returns, etc.

Other random thoughts:
- How confident are you that the current tenant will stay in your rental property and how hard would it be to find a new one or sell the property in case it's vacated unexpectedly? How would such scenario change your cash flow?
- You don't mention how healthy both of you are and your spouse's age.

 

[sickNtired]

Again, thanks to this group for the great feedback.

The comments pretty much confirm my suspicions that financially I'm borderline ready to pull the trigger. I think it would be key to make my lifestyle fit the budget. And working another couple of years would help.

Special thanks to Lagniappe. I like the way you modeled the numbers. I will use your approach to refine my planning spreadsheet.

 

[Midpack]

Welcome to ER.org.

Looks problematic in FIRECALC based on past market history from 1871 to present. Retiring now with $730K nest egg (assets plus rental equity), $41K/yr pension now (assumed non COLA), SS at 62, $7000/mo living expenses , default portfolio/returns/inflation to age 95. If the assumptions are wrong, try it yourself FIRECalc: A different kind of retirement calculator it takes about 60 seconds.

If you're so sickNtired you decide to retire now, you might want a plan B, C, D, etc...or reduce living expenses to about $64K/yr for a 96% prob of success.

FIRECalc looked at the 102 possible 39 year periods in the available data, starting with a portfolio of $730,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 102 cycles. The lowest and highest portfolio balance throughout your retirement was $-3,656,585 to $9,655,781, with an average of $709,221. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 39 years. FIRECalc found that 50 cycles failed, for a success rate of 51.0%.

 

[BigNick]

I'd be inclined to look at ways to knock those $7K/mo of expenses down to $6K. If there's $1600 of tax and $1600 mortgage which are "incompressible", that means reducing $3800 to $2800. Where are your top three outgoings? Can they be reduced? Can they be reduced if the reward is freedom?

 

[ivinsfan]

How attached are you to the home you live in?
Downsizing the house and using the equity to lower your monthly housing cost might be an option. Your current mortgage consumes a lot of cash flow.