Asking for feedback

[Ready to FIRE]

I am submitting my information and requesting feedback from the knowledgeable and experienced people on this board. From what I have read on this site, I feel like we have less in assets, and less pension to look forward to than many others who have ER’d, so it makes me question the viability of my plan.

I am 54 and DW is 60. She left her job about 2 years ago. I am a teacher, and pulling the plug in two weeks at the end of the school year. We’d like to think we can ER permanently, or at least go back to work in the future at something less stressful, albeit lower paying, if we are bored or need to slow the rate of cash drain.

Assets:
Our nest egg is $860,000 in mutual funds comprised of the usual mix of his and hers traditional IRA’s, Roth IRA’s, taxable brokerage accounts, and his rollover IRA. Our asset allocation is 35% large cap, 10% small and mid cap, 15% international, 35% short and intermediate term bond funds, and 5% cash. In addition to the $860,000, we have about $90,000 cash in our emergency fund.

Our only other significant investment asset is a single family rental property, valued at $200,000 and fully paid off. It produces $900/month in rent (after prop. Management fees) which nets us on average about $400/month after all other expenses.

Our condo is also fully paid off and is worth about $220,000.

Debt: We have no debt of any type.

Expenses in Retirement:
We track our expenses carefully and I’m estimating about $68,000/yr. The big drivers of our expenses are the fact that we live in a very high cost of living area (South Florida) and we own a hole in the water into which we shovel lots of money, aka a sailboat. We can easily see ourselves moving to a less expensive area in the next couple years. We also plan to cruise for a year or two or three on our boat, and then sell or trade down to a less expensive boat to lower our expenses. These two changes could lower our annual expenses by 15-20K. The expense calculation does take into account paying for health insurance out of pocket, although I am hopeful that we might qualify for an ACA subsidy.

Income in Retirement:
DW: Social Security in about a year and half of $18,200
Pensions: Two pensions totaling $ 12,000, fixed 2% cola
Me: Social Security in 2022 of $18,200 also
Pension in 2022: $14,200 with fixed 2% cola.
Rental Income: as mentioned above about $4,800 yr.
Total income once we’re both at least 62: $67,400 in today’s dollars

The calculators:
I’ve used many including FireCalc, Fidelity, Schwab, Flexible Retirement Planner, I-ORP, etc. All say we are good to go.

Clearly, we are spending down assets at a significant rate until all SS and pensions are kicked in. Once that happens, the withdrawal rates drops to a very low level. Are we missing anything?

 

[MichaelB]

These questions may help http://www.early-retirement.org/for...re-asking-can-i-retire-69999.html#post1399715

 

[daylatedollarshort]

I tend plan everything to the nth degree, so I would not have a plan with open items like not knowing if I could qualify for an ACA subsidy or not. I would make a detailed plan to figure out how to max out the subsidies and minimize taxes, as much as possible given your lifestyle needs, to age 65.

I would also run some number to see what happens if inflation takes off. The 2% COLAs would make the pensions worth much less if we ran at 10+% inflation again for some years, and a lot can happen to inflation rates over a period of several decades.

How well funded are your pensions? Public or private? Any worries about default over the next few decades?

Also I would make sure to include either LTC insurance or a reserve account for potential long term care, if this is not in your plan already.

 

[racy]

Hi Ready,
Are you missing anything? Possibly..... since most of your assets are in tax deferred, be sure to include taxes as an expense item in FireCALC. You're probably looking at near $10,000 as you withdraw from IRAs in the early years.
My only other thought: have you modeled FireCALC taking SS at 66 vs 62? It might be better.
Good luck!

 

[Fred123]

One other consideration: the COLA provisions for your pension may not kick in until you are eligible to begin collecting your pension. So if it's roughly 10 years until you can collect your pension and the inflation rate is 3%, then your pension in real dollars will (unfortunately) be about 35% less when you start cashing those checks.

In addition to the previously mentioned FIRECALC, you may want to give the Fidelity Retirement Income Planner a look as well.

 

[daylatedollarshort]

Hi Ready,
Are you missing anything? Possibly..... since most of your assets are in tax deferred, be sure to include taxes as an expense item in FireCALC. You're probably looking at near $10,000 as you withdraw from IRAs in the early years.
My only other thought: have you modeled FireCALC taking SS at 66 vs 62? It might be better.
Good luck!

+1 on taxes. The Fidelity RIP has tax estimates added in on their cash flow detail list.

Taxes and ACA subsidies combined may make a $25K difference in your annual expenses, so year by year future tax planning in detail now can have a very high ROI on your time.

 

[Ready to FIRE]

Thanks Daylate and Racy,
I've used FRIP many times. With expenses set at 70K (the planner calculates taxes for you over and above your expenses) and no COLA to our pensions, we get the "Well Done" message with an estimated $1.8M at the end of the plan (me 90/DW 94). We have definitely considered and will take advantage of any available ACA subsidies. Our 68K expense estimate assumes no ACA subsidy, so we are trying to be a little conservative in this area.

 

[papadad111]

What's the boat worth ? Any other significant assets - cars or other toys?
Agree with others comments on really getting detailed on ACA subsidy cost and taxes as those have a wide variability.

Your asset allocation is 60/40 - fairly conservative - you might consider 75/25 - drop your bond and cash percentages a bit.

Keep in mind population on here are in the top tier of retirement savers most likely - you having solid inflation cola'd pensions, SS, and a cool million++ in assets leads me to believe you will be ok.

You could try your plan for 6-12 months and adjust - while you are still young enough to enjoy sailing but also young enough to go back to $&@" if your plan is too aggressively consuming assets.

 

[Ready to FIRE]

One other consideration: the COLA provisions for your pension may not kick in until you are eligible to begin collecting your pension. So if it's roughly 10 years until you can collect your pension and the inflation rate is 3%, then your pension in real dollars will (unfortunately) be about 35% less when you start cashing those checks.

In addition to the previously mentioned FIRECALC, you may want to give the Fidelity Retirement Income Planner a look as well.

Good point and true of our pensions. DW's pension of 12K starts in about a year and a half, so inflation is less of a concern there. Mine starts in 8 years so inflation is more of a factor. Using Fidelity RIP, and assuming no COLA at all with either pension, we get the green light on our plan with spending set at 70K in today's dollars. Since we anticipate spending less than 70K, and our pensions will increase at 2% once they kick in, we feel good about these results.

 

[pb4uski]

Do your expenses include a provision for periodic car replacements, major home repairs (new furnace, roof or whatever)?

Also, rather than plan to claim SS at 62, I would view that once you get to 62 that you retain the option to claim SS if your investments decline to a point where you are uncomfortable. Delaying would increase you benefit for the rest of your life and reduce RMDs later on.

Also, you may want to have socialsecuritysolutions.com or some other provider do an analysis as to your optimal claiming strategy.

 

[Ready to FIRE]

What's the boat worth ? Any other significant assets - cars or other toys?
Agree with others comments on really getting detailed on ACA subsidy cost and taxes as those have a wide variability.

Your asset allocation is 60/40 - fairly conservative - you might consider 75/25 - drop your bond and cash percentages a bit.

Keep in mind population on here are in the top tier of retirement savers most likely - you having solid inflation cola'd pensions, SS, and a cool million++ in assets leads me to believe you will be ok.

You could try your plan for 6-12 months and adjust - while you are still young enough to enjoy sailing but also young enough to go back to $&@" if your plan is too aggressively consuming assets.

Our thoughts exactly. I'd be happy to go back to work at something less stressful than teaching high school if the need is there.

The boat might be worth 35K, but I don't even include it as an asset since it is such a cash drain. Between dockage, insurance, and maintenance, we spend about 15K each year on it. The sun and salt environment in South Florida really takes its toll on a boat - we are replacing and redoing constantly. That's why we look forward to cruising for a couple years - to get some payoff for the investment.

As far as the asset allocation is concerned, we were considerably more aggressive until 2008/09. We are comfortable with this allocation now and not sure the added slightly higher average return is worth the additional risk and loss of sleep. For example, according to Vanguard, a 60/40 portfolio has averaged 8.9% over the past 90 years or so, whereas an 80/20 portfolio averaged 9.6%.

 

[Ready to FIRE]

I tend plan everything to the nth degree, so I would not have a plan with open items like not knowing if I could qualify for an ACA subsidy or not. I would make a detailed plan to figure out how to max out the subsidies and minimize taxes, as much as possible given your lifestyle needs, to age 65.

I would also run some number to see what happens if inflation takes off. The 2% COLAs would make the pensions worth much less if we ran at 10+% inflation again for some years, and a lot can happen to inflation rates over a period of several decades.

How well funded are your pensions? Public or private? Any worries about default over the next few decades?

Also I would make sure to include either LTC insurance or a reserve account for potential long term care, if this is not in your plan already.

Good questions Daylate. I should say that we will qualify for ACA subsidies as long as they last. I sometimes find it hard to believe that we can qualify for a subsidy despite having more assets than many, and wonder if that will change? But assuming no changes, our healthcare insurance costs should be less than I have budgeted.

With respect to inflation and COLA's, I agree that our fixed cola's are a problem, especially in a high inflation environment. On FireCalc, if I assume no cola's at all on the pensions, set the inflation rate at 5% for the entire 35 year plan, I get a 95% success rate spending 71.6K per year. We do have a small cola, and I hope we don't average 5% inflation.

The pensions are public - Florida's FRS state retirement system. I don't know if I should have worries about that or not.

Have not planned for LTC other than to pay out of our assets if the need arises. I do realize this is a potential blind spot.

 

[Ready to FIRE]

Do your expenses include a provision for periodic car replacements, major home repairs (new furnace, roof or whatever)?

Also, rather than plan to claim SS at 62, I would view that once you get to 62 that you retain the option to claim SS if your investments decline to a point where you are uncomfortable. Delaying would increase you benefit for the rest of your life and reduce RMDs later on.

Also, you may want to have socialsecuritysolutions.com or some other provider do an analysis as to your optimal claiming strategy.

Yes and no. We are condo dwellers so most major repairs are covered by our monthly maintenance fee. Both cars are 12 years old (and paid for) and in good shape. But, we will have to replace at least one of them in the future. Will have to build that in to the budget.

I agree about SS. We will continue to analyze as we age, and only claim if we need to. We are a little atypical with our age difference, and the fact that our PIA's are nearly identical. Also, both of us have a mixed bag of longevity in our families, as in mothers both passing in their 60's and fathers living into their 80's which adds to the uncertainty. I am not familiar with sssolutions but will check them out.

 

[Fishingmn]

The return on your rental property is pretty low.

4800/200000 = 2.4% annual return.

Seems like a possible option to sell which would provide you with some after tax funds that would allow you to push off claiming SS so early.

 

[daylatedollarshort]

The pensions are public - Florida's FRS state retirement system. I don't know if I should have worries about that or not.

I don't know anything specifically about Florida's pensions plan, but state pensions in general are underfunded, and that is even assuming the "rate of return is about 8%, a fantastical figure given the current low rates on cash and bonds." -

Public-sector pensions: Burning fast | The Economist

I don't have any specific advice on how to plan for this, except that I would be cautious about spending down too much of a portfolio you have 100% control over and can invest in assets that at least track inflation, for pensions that might lag inflation and/or have reduced benefits at some future point, as is happening in Detroit now -

Detroit pension cuts hit civilian workers hardest - Apr. 17, 2014

Many here also assume less than 100% in Social Security benefits as well -

Trustees Report Summary

Overall, compared to most retirees you are in great shape. Good work. I don't mean to be a Debbie Downer. I just like to hope for the best but plan for the worst.

 

[pb4uski]

The return on your rental property is pretty low.

4800/200000 = 2.4% annual return.

Seems like a possible option to sell which would provide you with some after tax funds that would allow you to push off claiming SS so early.

I was thinking the same thing. OP could put that same $200k to work invested at 60/40 at a 3.5% WR and get $7k a year (COLAd) out of it.

 

[38Chevy454]

I agree that the cost of healthcare is the big unknown we are facing as early retirees. Being a teacher, can you get health insurance through your employer? Is that not part of the pension program to include some kind of healthcare?

Overall it seems you are close to making it with your current expenses and projected future income streams.

Unless you really have a reason to hold onto the rental property, I would consider selling it and then use it to supplement income. May or may not give the same return on money, but certainly lower risk and no worries about big repair expenses which enables you to sleep better.

 

[FIGuy]

I was thinking the same thing. OP could put that same $200k to work invested at 60/40 at a 3.5% WR and get $7k a year (COLAd) out of it.

+1 for selling the rental property. I invest in rentals and 900 gross rent on a ~200k wouldn't be worth the hassle in my opinion.