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Check my numbers, i think i'm ready
Old 10-06-2016, 06:49 PM   #1
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Check my numbers, i think i'm ready

Married, 3 kids ... senior and junior in high school, 6th grader. I'm working full time, salary 180K, wife working full time for the first time ... school teacher. She had been 1/2 time ... this is a big win for her pension, since it's based on her highest 3 years of salary.

OK ... here we go.

Soc Sec - mine is estimated to be 34K per year, hers 14K.

Pension - Mine is 45k per year (assuming i leave in next year), non cola, i can get it at 65 years old, Hers is estimated to be 15k per year (assumes her working 2 more years full time and then a few years 1/2 time), cola, and she gets it starting at 60 years old.

401K - 767K, Roth IRAs 218K, Reg IRAs 33K,

Savings in brokerage account - 972K

Stock options vested ... will sell next year ... after taxes - $125K

Deferred Comp -- payable in equel payments for 10 years ... $625K, ($65K per year)

From a Firecalc standpoint ... $2.15MM portfolio, spending $140K (includes taxes). In the model, I'm retiring in 10 years. I'll have my deferred income and wifes salary. I'm showing that I will not add anything to the portfolio during that time. Success rate ... about 92%
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Spending is $120K per year but that includes roughly $32K in house payments and taxes ... house will be paid off in 10 years

So, the plan is that I have 10 years of deferred income and wife will work much of that time. Then from 55 to 59 1/2 ... draw down savings. 60 - 65 wifes pension and 401K. 65 - 67 ... both pensions and 401K. 67+ soc sec, pensions, 401Ks.

About 180K saved for college ... that pays for the first two and a little bit of the 3rd, in state public schools ... hoping for some growth but may have to contribute $50 - 70K over the next few years.

Thoughts? TIA!
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Old 10-06-2016, 07:52 PM   #2
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I'm a little confused by your post, What are your ages now? Are you considering immediate retirement or in 10 years (post says "I think I'm ready", but then you say the Firecalc model has you retiring in 10 years)? Have you run the Firecalc for the situation you're currently contemplating if it is immediate retirement? Is the deferred comp coming in for the next 10 years, the first 10 years after you retire, or for 10 years at some point in the future?
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Old 10-06-2016, 08:29 PM   #3
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...
Soc Sec - mine is estimated to be 34K per year, hers 14K.

...

Thoughts? TIA!
In addition to exnavynuke's comments....

Are the social numbers from the PIA calculator with appropriate zero years added, or just the statement estimates?
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Old 10-06-2016, 10:34 PM   #4
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OP - When calculating your wife's SS , are you considering she is a teacher and perhaps subject to WEP ?
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Old 10-07-2016, 06:18 AM   #5
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I'm a little confused by your post, What are your ages now? Are you considering immediate retirement or in 10 years (post says "I think I'm ready", but then you say the Firecalc model has you retiring in 10 years)? Have you run the Firecalc for the situation you're currently contemplating if it is immediate retirement? Is the deferred comp coming in for the next 10 years, the first 10 years after you retire, or for 10 years at some point in the future?
Thanks ... forgot some info! We're both 45.

Because I have the deferred income, I didn't include it in my "portfolio" knowing that I would draw that down over the next 10 years, beginning next year. Also, my wife will be bringing in a salary during most all of that time as well. Net / net, it should be about a wash during that time.
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Old 10-07-2016, 06:38 AM   #6
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Same question on SS. Your benefit seems high at 65 if you will not work between age 45 and 65.


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Old 10-07-2016, 06:40 AM   #7
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In addition to exnavynuke's comments....

Are the social numbers from the PIA calculator with appropriate zero years added, or just the statement estimates?
I just grabbed the statement estimates but I will be paying soc sec over the next 10 years through my deferred comp. Also, my wife will be doing the same as she works over the next few years.

Sunset - I had never heard of WEP ... I need to check into that for sure. After a quick google search, I can't determine how or if she's affected. More work to determine ... thanks!
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Old 10-07-2016, 06:47 AM   #8
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Thanks ... forgot some info! We're both 45.

Because I have the deferred income, I didn't include it in my "portfolio" knowing that I would draw that down over the next 10 years, beginning next year. Also, my wife will be bringing in a salary during most all of that time as well. Net / net, it should be about a wash during that time.
I'd like to address your potential income vs spending for the next decade and a half or so. If you're retiring next year, then your pensions and SS income will not be available for years. Similarly, I'm assuming you're not taking withdrawals from your 401k/IRA's etc (through there are ways to do so if you choose).

With those assumptions, you'll have the brokerage account, I'm assuming adding the options sales to that, and your drawdown (but only for 10 years).

The taxable accounts combine next year to ~$1.097M. A SWR of 4% of that gives you an investment income of ~$44k/year. Add in the $65k in deferred comp and you've got $109k/year for the first ten years plus whatever income your wife earns "for a few years". After that, you're down to $44k/year.

Based on that, and your estimated spending of $140k/year, you'll be required to take money from your 401k/IRA/etc in order to meet spending estimates. Is that your plan?
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Old 10-07-2016, 06:58 AM   #9
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I ran the Firecalc for retiring now and assuming you'll use all of your investments and not limit yourself to non-tax advantaged accounts before your 60's, not including your $65k drawdown as I didn't see how to properly include it and got a 54% success rate.

I then just put the $65k in as a full pension without COLA (which calculates assuming it will stay forever I believe) and assuming retiring now and got a success rate of ~96%, though that is overly optimistic since that is actually only for 10 years and thus actually represents a much smaller amount than if it was forever.

These were with default investment settings (75% equities).

Putting that you'll retire in 10 years will make the calculator show no withdrawals from anywhere and investments instead grow that whole time, which if you're planning on actually retiring now and withdrawing money is not the case.
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Old 10-07-2016, 07:42 AM   #10
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I'd like to address your potential income vs spending for the next decade and a half or so. If you're retiring next year, then your pensions and SS income will not be available for years. Similarly, I'm assuming you're not taking withdrawals from your 401k/IRA's etc (through there are ways to do so if you choose).

With those assumptions, you'll have the brokerage account, I'm assuming adding the options sales to that, and your drawdown (but only for 10 years).

The taxable accounts combine next year to ~$1.097M. A SWR of 4% of that gives you an investment income of ~$44k/year. Add in the $65k in deferred comp and you've got $109k/year for the first ten years plus whatever income your wife earns "for a few years". After that, you're down to $44k/year.

Based on that, and your estimated spending of $140k/year, you'll be required to take money from your 401k/IRA/etc in order to meet spending estimates. Is that your plan?
I probably haven't focused enough on my next 14 years or so . Also, my actual spending is $120K yearly ... I'm using $140K to include any taxes on pre tax money ... like my deferred comp and my wife's salary.

So, let me walk through that in some detail and perhaps you can look for errors. My deferred comp is invested in low risk, govt. instruments ... 10 yr t bills, short term cp, etc. It draws about 2% per year in this low interest rate climate. I really think i'll be drawing around $67 or $68K per year. But, let's use $65k.

Next 10 years ... 45 - 54. Deferred comp is $65K, Wife's salary $55-15K (difference being full time and free benefits vs. 1/2 time and paying for benefits). Savings in brokerage account, let's call it $1.05MM (current+stock options cash in, and few bucks here and there). I'm assuming a 5.5% growth and I'm subtracting $35K for withdraws as my wife works full time, 3 years. When she goes part time, I'm pulling out $65K per year. After 10 years, my account is sitting at $1.05 still.

From ages 55 - 59, I'm using that $1.05MM savings and still assuming a 5.5% appreciation but I'm pulling $150K out each year. I'm assuming she's not working, and I'm paying for health insurance. Keep in mind, my house is now paid off ... so I'm thinking I'm being conservative. After those 5 years ... I'm still sitting at 500K in savings and ready to pull out my retirement savings, 401K, IRAs.
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Old 10-07-2016, 08:12 AM   #11
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If you get 5.5% growth, it looks doable. If you get 2.5% growth, it looks tight, but probably doable as well. Of course, that also assumes that you don't increase your spending with inflation.

AgeSpending Growth 5.5%Growth 2.5%Deferred CompWife IncomeBalance 5.5%Balance 2.5%
45     $1,050,000.00$1,050,000.00
46$140,000.00$57,750.00$26,250.00$65,000.00$55,000.00$1,087,750.00$1,056,250.00
47$140,000.00$59,826.25$27,193.75$65,000.00$55,000.00$1,127,576.25$1,063,443.75
48$140,000.00$62,016.69$28,189.41$65,000.00$15,000.00$1,129,592.94$1,031,633.16
49$140,000.00$62,127.61$28,239.82$65,000.00$15,000.00$1,131,720.56$999,872.98
50$140,000.00$62,244.63$28,293.01$65,000.00$15,000.00$1,133,965.19$968,165.99
51$140,000.00$62,368.09$28,349.13$65,000.00$15,000.00$1,136,333.27$936,515.12
52$140,000.00$62,498.33$28,408.33$65,000.00 $1,123,831.60$889,923.46
53$140,000.00$61,810.74$28,095.79$65,000.00 $1,110,642.34$843,019.25
54$140,000.00$61,085.33$27,766.06$65,000.00 $1,096,727.67$795,785.30
55$140,000.00$60,320.02$27,418.19$65,000.00 $1,082,047.69$748,203.50
56$140,000.00$59,512.62$27,051.19  $1,001,560.31$635,254.69
57$140,000.00$55,085.82$25,039.01  $916,646.13$520,293.70
58$140,000.00$50,415.54$22,916.15  $827,061.67$403,209.85
59$140,000.00$45,488.39$20,676.54  $732,550.06$283,886.39
60$140,000.00$40,290.25$18,313.75  $632,840.31$162,200.14
61$140,000.00$34,806.22$15,821.01  $527,646.53$38,021.15
62$140,000.00$29,020.56$13,191.16  $416,667.09-$88,787.69
63$140,000.00$22,916.69$10,416.68  $299,583.78-$218,371.01
64$140,000.00$16,477.11$7,489.59  $176,060.89-$350,881.42
65$140,000.00$9,683.35$4,401.52  $45,744.23-$486,479.89

With 3% inflation in spending, it would get a lot tighter.

AgeSpending + 3% inflationGrowth 5.5%Growth 2.5%Deferred CompWife IncomeBalance 5.5%Balance 2.5%
45     $1,050,000.00$1,050,000.00
46$140,000.00$57,750.00$26,250.00$65,000.00$55,000.00$1,087,750.00$1,056,250.00
47$144,200.00$59,826.25$27,193.75$65,000.00$55,000.00$1,123,376.25$1,059,243.75
48$148,526.00$61,785.69$28,084.41$65,000.00$15,000.00$1,116,635.94$1,018,802.16
49$152,981.78$61,414.98$27,915.90$65,000.00$15,000.00$1,105,069.14$973,736.27
50$157,571.23$60,778.80$27,626.73$65,000.00$15,000.00$1,088,276.71$923,791.77
51$162,298.37$59,855.22$27,206.92$65,000.00$15,000.00$1,065,833.56$868,700.32
52$167,167.32$58,620.85$26,645.84$65,000.00 $1,022,287.08$793,178.83
53$172,182.34$56,225.79$25,557.18$65,000.00 $971,330.53$711,553.67
54$177,347.81$53,423.18$24,283.26$65,000.00 $912,405.90$623,489.12
55$182,668.25$50,182.32$22,810.15$65,000.00 $844,919.98$528,631.02
56$188,148.29$46,470.60$21,123.00  $703,242.28$361,605.73
57$193,792.74$38,678.33$17,581.06  $548,127.87$185,394.05
58$199,606.52$30,147.03$13,703.20  $378,668.38-$509.28
59$205,594.72$20,826.76$9,466.71  $193,900.42-$196,637.29
60$211,762.56$10,664.52$4,847.51  -$7,197.62-$403,552.34
61$218,115.44-$395.87-$179.94  -$225,708.93-$621,847.72
62$224,658.90-$12,413.99-$5,642.72  -$462,781.82-$852,149.35
63$231,398.67-$25,453.00-$11,569.55  -$719,633.49-$1,095,117.56
64$238,340.63-$39,579.84-$17,990.84  -$997,553.96-$1,351,449.03
65$245,490.85-$54,865.47-$24,938.85  -$1,297,910.28-$1,621,878.72

Assuming your spending is estimated high to be conservative (based on what you've posted), I'd say you're in a good position (even if you get reduced growth, you still have plenty in tax deferred accounts that will continue to grow and will be available to supplement your taxable accounts if needed.
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Old 10-07-2016, 08:30 AM   #12
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You didn't say, and perhaps it goes without saying, but why do you want to retire so young? Sounds like you have a pretty good job? Do you really hate it that much?
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Old 10-07-2016, 08:40 AM   #13
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I'd keep going to 50 to help get the two oldest through college.
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Old 10-07-2016, 08:43 AM   #14
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You should check into SS... $34k exceeds the maximum benefit for someone age 67 so that number looks suspect.... OTOH, your wife would receive more in that she will get what she would get based on her own work record or 50% of your SS whichever is higher (hers would get discounted if she starts benefits before her FRA and at most would be 50% of your FRA benefit).

On taxes, do a practice tax return as if you were retired with TurboTax or Taxcaster to get a good idea how your taxes will change in retirement.

If Firecalc, did you include your mortgage in your $140k spending? If so, then it is overbaked since Firecalc increases spending for inflation each year and your mortgage payments are fixed and in firecalc the payments never end. Best practice is to put the mortgage in as off-chart spending and then offset it in 10 years with an pension of the same amount but that won't work for you because Firecalc only provides 3 inputs... so your best bet would be to have spending exclude your mortgage payments and then reduce your assets by the amount of your mortgage (as if you paid off the mortgage just before starting retirement).

You have enough moving parts that something like Quicken Lifetime Planner may be helpful in doing your deterministic projections. Then use Firecalc to stress test it for sequence of returns risk.
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Old 10-07-2016, 09:17 AM   #15
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You didn't say, and perhaps it goes without saying, but why do you want to retire so young? Sounds like you have a pretty good job? Do you really hate it that much?

The job is so so ... easy enough job for me but a terrible boss. All in all, I don't work that much. (probably average 30 hrs per week). A few days here and there really suck though with 12 hr days. I do think those days take a toll on my health ... my blood pressure rises well into the pre-hypertension levels. With that said, I'm pretty healthy and in good shape so I feel like I'm absorbing the stress fairly well.

Rumors of big cuts are out there and I'm in a job that can easily be cut or be replaced with a much lower salary. So, if that happens I would get a nice severance package ... 9 months of salary (no bonus). If I keep working and just quit 9 months or two years from now, that seems like a missed opportunity. I have an opportunity to paint the picture that I can be replaced as well if my boss doesn't recognize it.

For many years, early retirement was my dream.
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Old 10-07-2016, 09:23 AM   #16
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I'd keep going to 50 to help get the two oldest through college.
I've thought about that and I'm still thinking about that ... that could really build up the nest egg and watch the oldest get through at least a couple years would be helpful. I could be in a position to have a great retirement without having to watch the spending too much. But, I'm probably like many of you ... I'll still continue to get good value out of purchases and in the last 5 years I've started buying some toys ...a boat, an extra car to fool around in. I still watch our expenses though.
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Old 10-07-2016, 09:32 AM   #17
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Thanks exnavynuke for the sensitivity analysis! Appreciate you doing that ...
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Old 10-07-2016, 12:31 PM   #18
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You should check into SS... $34k exceeds the maximum benefit for someone age 67 so that number looks suspect.... OTOH, your wife would receive more in that she will get what she would get based on her own work record or 50% of your SS whichever is higher (hers would get discounted if she starts benefits before her FRA and at most would be 50% of your FRA benefit).

On taxes, do a practice tax return as if you were retired with TurboTax or Taxcaster to get a good idea how your taxes will change in retirement.

If Firecalc, did you include your mortgage in your $140k spending? If so, then it is overbaked since Firecalc increases spending for inflation each year and your mortgage payments are fixed and in firecalc the payments never end. Best practice is to put the mortgage in as off-chart spending and then offset it in 10 years with an pension of the same amount but that won't work for you because Firecalc only provides 3 inputs... so your best bet would be to have spending exclude your mortgage payments and then reduce your assets by the amount of your mortgage (as if you paid off the mortgage just before starting retirement).

You have enough moving parts that something like Quicken Lifetime Planner may be helpful in doing your deterministic projections. Then use Firecalc to stress test it for sequence of returns risk.
Thanks and good recommendation on the tax return! Yes, I did overbake the mortgage ... thanks for the workaround.
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Old 10-07-2016, 01:11 PM   #19
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You seem to have too many variables for FIRECalc. I just ran your numbers through cFIREsim and got a success rate of 83%. Your max initial spending for 95% is $119K. $130K gets you to 92%. I made a lot of assumptions based on what you've written, so you should probably run it yourself. I included the mortgage pay off in 10 years, an additional $60K for college in a few years, wife working FT for 2 years, then PT for 4, etc.

A lot of discussion about withdrawal strategy, which is fine. But I'd be focusing as much or more on expense planning. I think you are probably overestimating taxes on the deferred comp and wife's salary, especially after she's back to part time. As pb4uski suggested, you need to run a couple detailed post-ER tax scenarios. I suspect you'll be pleasantly surprised.

Also, you might consider running a cFIREsim scenario with either paying off the mortgage or refinancing to spread it out some, and then decide later. The next 10 years seem to be pretty critical in your case and the house payment is quite large.

I would also suggest some research and planning about how your actual expenses will likely change over time. You seem to be base-lining off your current burn rate, which may be the high-water mark. I know it was for me at 45 with the kids in high school.

After ER we increased spending on travel, discretionary, and health insurance. But overall spending is down due to kids moving out and later graduating, work-related expenses like commuting that naturally went away, and reductions in stuff like cable and insurance that we never had time to pay attention to when working. I also model a flattening profile in later years, which is pretty typical. So just starting with $140K and adjusting for inflation may be too conservative.

I'd say you are probably good to go, but I'd do some more homework on taxes and other expenses.
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Old 10-07-2016, 02:19 PM   #20
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The job is so so ... easy enough job for me but a terrible boss. All in all, I don't work that much. (probably average 30 hrs per week). A few days here and there really suck though with 12 hr days. I do think those days take a toll on my health ... my blood pressure rises well into the pre-hypertension levels. With that said, I'm pretty healthy and in good shape so I feel like I'm absorbing the stress fairly well.
Once again the law of: "It is immediate supervisors rather than organizations that cause most voluntarily quits/retires" holds true.

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