Are we on track?

[DustyL]

New member looking to see how we are doing. 53 yr. old hoping to be retire in a few years or downsize to less stressful job.

$2.81M saved -- $1.94M taxable; 846K in IRAs/401Ks. 55%-45% stocks/bonds mix. Will receive another $200K (after taxes) in bonus and stock vesting in February, so $3M total.

Home valued at 900K with $146K mortgage (7 years left)

One pension of $700 per month at age 65

Second pension: Depends on when and how I take it. Can take as early as 55 ($188K lump sum or $1000 per month single life annuity). Increases by slightly more than $10K each year I wait to take it (i.e. $318K lump sum or $1985 per month at 65)

Social Security

Me: $1892 (at 62); $2702 (67); $3360 (70)
Spouse: $721 (62); $1025 (67); $1271 (70)

One child graduating college this year (no debt and with a good job).
Another in high school with about $110K saved for college.

Home: Valued at $900K with $145K mortgage ( 7 years left on 3.875% mortgage)

Expected expenses in retirement (assuming mortgage is paid off): $110K-$120K plus health care.

Thoughts? Advice?

 

[travelover]

When you plugged it into FireCalc, what did it say?

 

[DustyL]

I haven't done it. I have heard of but not very familiar with FireCalc. Where do I go to submit detailed information like that included in my post?

 

[TallTim]

Just go to: FIRECalc: A different kind of retirement calculator

You can use the tabs across the top of that page to input all the data, as well as the entry box on landing page for basic info (total portfolio $, annual expenses and number of yrs). FWIW, I (and I suspect others here) would recommend running a number of scenarios and different time periods to get a feel of what the projections tell you, etc.

 

[DustyL]

Thanks TallTim (and travelover). Will do.

 

[bingybear]

couple items... don't count your 200k until it is taxed ... need to the after tax amount.

how did you check your SS? I'm guessing you did them using the standard number. If so, these assume you work until the age that you take it. Rerun the SS numbers using 0 income from now until you want to take it. It's more real for retire now, little pessimistic for retire in a couple years.

look up health insurance rates on healthcare.gov... get an idea of what the type of plan you'd get would cost. Add that + some figure for what you'd pay out of pocket (your guess)

does your expenses include taxes (property, income, etc)?

I did my budget including healthcare assuming the insurance rate from healthcare.gov and paying the maximum out of pocket every year.... and it's about half of your noted spending without health insurance.

 

[younginvestor2013]

I don't see how you wouldn't be clear to pull the trigger.

Your $3m alone can support $120K with a 4% withdraw rate. That doesn't include any of your pension income. If you want to go a bit more conservative an withdraw 3.5%, your portfolio can support $105K a year, and it sounds like you might be able to bridge the gap with your pension income.

I think you're fine, unless you have some major healthcare concerns which might drive your healthcare costs high.

 

[DustyL]

Thanks Bingybear and young investor2013 for your thoughts/suggestions.

Couple of responses:
1. The $200K coming due in February is an approximation after tax.
2. I have already 35 years of earning income for SSN purposes so I am assuming, perhaps incorrectly -- I am obviously not a pro at this -- that my SSN numbers will not go down even if I only work a few more years. My spouse is currently not working and has not and will not reach 35 years so her numbers may be reduced.
3. I have included property taxes, which are quite steep where we live, in my $110K-$120K, but not income taxes. I need some help on how to figure them out.
4. I will go to healthcare.gov and check out the options. I hope the soon-to-be college grad will be able to pay for his own health insurance soon, reducing my costs in this area.
5. No major health issues right now (knock wood).
6. I will get a supplemental pension payout of about $45K (after taxes) later this year that I can use, if it makes sense, to pay down the mortgage somewhat and/or allocate for most of the third year of college expenses for my child in high school.
7. I am most concerned about bridging the healthcare costs until medicare and keeping my expenses down to stay within the annual spending limits I have referenced.

 

[heeyy_joe]

You'll be fine, health is the key.

 

[bingybear]

Run the SS estimates as I recommended for both you and your wife. They could be considerably different. It has to do with inflation adjusted monthly income. If the numbers came from where I expect, the data assumes you work from now to those retirement ages making the same amount as you do now and inflation does not change. If you have lower inflation adjusted income in the past, the benefit could drop if you don't keep making that amount of money. Check the numbers

Being healthy is good... but that can change in a heart beat. I was and still consider myself healthy... but 2 years ago got a pacemaker... a sudden electrical issue.. go figure. Have your health care in order.

 

[Ready]

Your savings and ages are very similar to ours. You will likely find that Firecalc says you are fine, but if you need $120K on a $3M portfolio, you are withdrawing 4% per year. Whether that is a "safe" thing to do is open to much debate on this and many other web forums.

For us, we chose to continue part time work, since we are both a ways away from Medicare and didn't want to be burdened with high health care costs. And every year we save gives us a little more cushion to get that 4% down to hopefully more like 3%.

Not saying you shouldn't pull the plug...everyone's risk tolerance is different. You have to figure out what works for both of you.

 

[Sunset]

I think you are on track nicely.

Be sure the taxable money is in investments that are tax friendly (ex: etfs, index etfs) instead of mutual funds.

When planning, keep in mind there are ways to optimize SS.
One example (assuming spouse is about your age) is for the higher income earner at full retirement age, to sign up for SS and immediately suspend it. Then the lower income earner at full retirement age can collect 1/2 of what higher income earner would. (which is more than she would get).
At higher income earner turning 70 turn back on the SS (it will have increased 8% per year so will be the highest it could be). You don't lose anything.
Plus, should you die, the spouse gets choice of a better deceased benefit SS or their own.

 

[papadad111]

you're doing just fine as far as I can see.... always depends on your spending but sounds like between SS and a couple of pensions, and maybe selling the house some day, I'll bet that your basic needs will be met... the savings will be gravy to the lifestyle....

 

[DustyL]

Thanks for all of the responses.

Selling the house one day makes economic sense for multiple reasons (cash generated, decrease property taxes) but my spouse is close to her family (mother, brother), who live in the area, so that might not happen anytime soon.

I am trying to decide whether to move more of my investments away from equities and into bonds (munis etc.). I know that it doesn't make sense to follow the day-to-day ups and downs of the stock market but I have difficulty stomaching a day like yesterday (Dow down 300+).

 

[rodi]

Some thoughts:
- Are the pensions cola'd?

But -assuming your spending numbers include taxes (income taxes, not just property taxes) you're good with the pensions, SS, and a 3%ish withdrawal rate.)

Just a note - since you're new to firecalc... Here are some nuances:
- Annual spending on the first page - needs to be GROSS spending - so make sure you include fed and state income tax in that figure.
- On the SS/Pension tab - make sure you properly reflect if the pensions have a cost-of-living adjustment.
- your housing expenses should drop when you pay off the mortgage in 7 years... be sure to account for that. If you're a registered donor to firecalc you open up the possiblility to change your spending year by year - that could be useful to model that.

 

[MooreBonds]

Second pension: Depends on when and how I take it. Can take as early as 55 ($188K lump sum or $1000 per month single life annuity). Increases by slightly more than $10K each year I wait to take it (i.e. $318K lump sum or $1985 per month at 65)

Are your $188k @ 55 / $318k @ 65 lump sum values a constant that will NEVER change, or just the current roll-over quote if you were aged 55 or 65 and took the cash-out now? Be aware that today's insanely low interest rates work in favor of lump-sum withdrawals for pensions: the lower the interest rate, the higher the cash-value of a given monthly pension. So, if you retire in 3-5 years from now and interest rates rise, your cash value roll-over may be substantially less.

3. I have included property taxes, which are quite steep where we live, in my $110K-$120K, but not income taxes. I need some help on how to figure them out.

You will need to look at what your investment portfolio will look like when retired, and the only way to really get a good feel for your income taxes is to simply do a fake return assuming you were retired, with what income you expect (pension, interest, dividends, capital gains, etc.). Each state taxes pensions differently, as well as 401k/IRA withdrawals. Your total tax liability could vary widely depending on which state/locality you live in, as well as your mix of qualified dividends, etc. In general, you should put all qualified dividend payers in your taxable accounts, and put all non-qualified dividend payers and interest bearing funds/securities in your IRAs since they will get taxed the same.

With qualified dividends/capital gains taxed at 15% vs possibly much higher for interest/non-qualified, it could easily be a $5k swing in your income taxes due each year by not optimizing your portfolios.

 

[2B]

Welcome

Run FireCalc and ORP. I'm pretty sure both will give you good numbers for immediate retirement with your expenses.

The IRS has issued tax tables for 2015 for quarterly filers. You could use this to estimate your taxes. Look at where your income comes from to see if it should be included in the gross income.