Contemplating The Big Move

[Donner]

Hello, and Merry Christmas to you all!. I have been lurking on this board for several months now and I feel well acquainted with many of the posters here. I find the posts quite informative and helpful as I contemplate the Big Move. As a group you are (with a few exceptions) experienced, wise, witty, amusing and a bit cranky on occasion. I have been sharing a few of the amusing bits with my wife lately and she has egged me on to communicate with you, so here I am.

Here is our basic situation. I am 56 and my wife is 59. Both of us will be eligible for a Federal retirement annuity in 2005. So, naturally, I am wondering if we are ready financially and/or otherwise to take on retirement. We are not exactly ER types more like regular R material. A little late for ER and a little early for R, if you know what I mean. My concerns at this stage are about 49 percent financial and 51 percent on the psychological and retirement lifestyle issues. As we draw nearer to the event I believe the financial issues will recede while the what in the heck are you going to do in retirement ? issues will come to the fore. Frankly, I dont think we are quite ready on either basis to take the plunge just yet. You can see why I find this Board a nice mix and a veritable font of practical information.

Some topics I hope we can discuss in the future:

1. Risk: I am the most risk averse investor that I know. Fact is, at this point, I am a saver, not an investor in equities. My asset allocation will appall just about every one of you. (I know inflation kills retirements - I know, I know.)

2. Volatility: You havent really explored this issue in much detail. Roller coasters make me sick. Personally, I have no stomach for it.

3. Retirement Budgets: I am amazed that so many of you can live with so little income in retirement. We exist on different planets.

4. Insurance/Health Care: My wife and I both have issues. A real potential retirement killer in our house. Younger posters here are in for a shock.

5. Economy: Whole country is living in la-la land state of denial. Day of reckoning is coming. How are ERs and Rs going to handle it?

6.FIRECalc/SWR: Kind of fun playing with it but past results are no guarantee of etc., etc. etc,

Enough for now. Hope to talk with you some more on some of the threads. Oh, a note on my web name: Donner. George Donner led 87 people into the Sierra Nevada mountains in October of 1846. He was unprepared and had little appreciation of the risks he was undertaking. 46 survivors came out of the mountains in April 1847. George was not one of them. While I only have 2 people to worry about, I do keep George in mind when contemplating retirement.

Quote:

As a group you are (with a few exceptions) experienced, wise, witty, amusing and a bit cranky on occasion.

I'm probably one of your exceptions, but I'll welcome you aboard anyway!

If you quit work, and stick with it for 3 years, I'll guarantee that you'll adjust with the psychological and retirement lifestyle issues. - It's human nature - Those wimps that can't hack it, eventually go back to work!

The financial concerns won't go away until you have a major health issue. (not if, when). You'll still be concerned about money, but it will be so small in comparison that it will seem like swatting mosquitoes.

[Donner]

Cut-Throat:

Thanks for the welcome. You are one of the posters I can count on for some common sense. I suspect we will have our differences re: the status of the equity markets in the U.S. But I look forward to the discussion. I am afraid you are right about health care. Many Americans are one major health event away from catastrophy. I fear that is true for many of the posters here, too.

[charlie]

Hi Donner and welcome to the forum. Most of us are
not so cranky now that the political season has past.
Every now and then someone grabs the cat by the
tail and tempers flare.

Having a federal pension, with COLA I presume, sounds
pretty nice to me. Will it cover your nominal expenses?
And, I expect that your health care insurance is covered
by the gov. Right? If so, what is the problem?

As for investment in equities, don't do it if you don't
need to take the risk ..... especially if you can't stand
the volatility. Don't stuff your extra cash in the mattress, however ....... put it in I-bonds and sleep
well!

Cheers,

Charlie

Hi Donner, and let me add my welcome.

Cut-Throat is a common sense guy and I agree with him a lot. Chuck-Lyn's post was smart also IMHO, esp.
his advice about equities.

I know the Donner story quite well. As I recall he
didn't take enough food/supplies and so they were reduced to
eating their traveling companions. Kind of a metaphor for the sort of troubles we all need to watch out for
vis-a-vis our portfolio.
Like Donner, we have a lot at steak and if we take the
wrong fork, we might not ketchup. Food for thought................

JG

[brewer12345]

Donner:

You haven't given us quite enough info to really give you much useful commentary. If you are inclined to open your kimono, info that would help would be:

- Pension payments versus expenses (i.e. can you live on the pension)
- Other assets and what they are invested in
- Is health insurance provided to you in retirement by your employer?

On risk and volatility: It is fine if you are risk averse and know it. Many people who thought they had an appetite for risk found out they didn't between 2000 and 2003. If you don't want to deal with volatility, just make sure that you invest in I-bonds or TIPS and save enough to make up for the fact that you are earning low returns.

On retirement budgets: being employed myself, I can't comment too much on this. However, I would encourage you to carefully track your expenditures if you haven't already and try to project what things would look like if you weren't working. I know that I would have some very significant expenses go away if I were not working.

On insurance & healthcare: As I read it, you are 8 years away from Medicare and your wife is 6 years away. What you really need is a strategy to bridge that gap, after which you will likely be OK with Medicare and a supplemental policy. If your employer doesn't take care of the problem, now is the time to start figuring out because you will be able to take advantage of the protections of HIPAA. Check out www.healthinsuranceinfo.net for lots of good info.

On the go-no go decision: Clearly you are a risk averse person, so make sure you are comfy with the idea. However, keep in mind that with health issues your time is even more precious. Every year you spend at work you will never get back.

[Brat]

I am a CSRS very early retiree so know a little about the issues. Donner should have access to their health plans, and he does have access to the sponsored LTC program (which may not be the cheapest but is well vetted). If he does both he has insured himself for the big financial killers of retirees.

There is one thing that bothers ME, that is the promises of employers -- including Uncle Sam -- that their pensions are adjusted to the COLA may not be true in the future. I have purchased IBonds, same concern. I am not a doom-sayer but the actions of current management give me pause.

Diversify!!

[Spanky]

Quote:

Both of us will be eligible for a Federal retirement annuity in 2005. 3. Retirement Budgets: I am amazed that so many of you can live with so little income in retirement. We exist on different planets. 4. Insurance/Health Care: My wife and I both have issues.

Item #3 - I assume that your expense is quite high in comparison to the retirement budgets disclosed in this board. I am under the impression that government employees receive lower salaries (compared to those of private sector) for a "comparable" job in exchange for attractive benefits (i.e., pension, health care).

Item #4 - Does the government provide free or low health care insurance after retirement?

[grumpy]

Donner,

I am a retired Fed under CSRS. Our retirement budget is equal to our pre-retirement expenses. It is considerably higher than the retirement budgets of many of the posters here. Before retirement we lived on $90K per year (including taxes). That amounted to about $60K after taxes. We expect to maintain our preretirement lifestyle with a similar $60K after taxes adjusted for inflation. Before retirement we lived well below our means and saved and invested between $50K and $70K of our total income.

Uncle Sam continues to cover 72% of our health insurance costs.

Don't be put off by the very low retirement budgets discussed here. Some on this board retired much earlier than you by living on a lot less and saving more.

Grumpy

Or, by living on a lot more and saving less
Pretty amazing isn't it?

JG

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I am afraid you are right about health care. Many Americans are one major health event away from catastrophy. I fear that is true for many of the posters here, too.

Donner,

You may have missed my point on this one! - I am not talking finances here at all. I'm talking about coming down with an illness that no amount of money can solve.

I have had this happen to a few friends of mine in the last couple of years. A catastrophy is a medical problem that cannot be corrected.

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Our unwritten rule is that you can die any day you choose to, but a funeral on Mon., Wed. or Fri. will lose you a lot of points with your fellow players

Funny! - Cruel, but funny

[Donner]

This will be the longest post I ever put up, I promise.

Thanks for the good observations and suggestions. You guys do have a way of getting to the down and dirty pretty quick As to the facts:

Yes, the Federal annuities will be partially COLAed. Basically, the annual adjustment will be 1 percent less than the CPI. A built in loss of purchasing power over time. But, the COLAs dont kick in until we hit 62, i.e., more loss of purchasing power. The FERS annuity is 1 percent of high 3 average for each year of service. If you notice, this is not a huge annuity.

Yes, we will be eligible for SS at age 62. And we will be getting a supplement to our annuity payments in an amount that approximates the SS benefit. This supplement will cease when we hit SS eligibility. My SS will be whacked by a couple of hundred bucks per month because of something called the Windfall Elimination Provision. Too complicated to discuss here.

Yes, we will have lifetime health coverage under the Federal Health Benefits Plan. We have Blue Cross coverage which is pretty good for hospitalizations and drug costs but not so good for Non-Preferred provider costs outside of the hospital. We will keep this coverage after Medicare kicks in for the drug coverage. We are experiencing hefty premium increases for the coverage. I expect higher premiums, higher copays and shrinking standards of payment coverage in the future. I dont expect cost shifting will be limited to the private sector for long. Trouble is, we like our Non Preferred health care providers

Yes, we do have LTC coverage through a new Federal program with group rates. Your Govt. does not contribute to the cost of this coverage.

Yes, we have group term Life Insurance policies through the Federal program. This program is good for younger employees with families to protect. But they do encourage older employees and retirees to get the heck out of it by jacking the cost of the insurance through the roof after you hit age 60. Continuing our current combined level of coverage into retirement will be too cost prohibitive and we will be dropping the really expensive portion of the wife’s coverage as she hits the 60 year old threshold. Will continue my coverage at a pretty hefty cost but diminish the coverage as wife gets older with fewer remaining years to protect.

Yes, we do have a 401(k) like plan called the Thrift Savings Plan. Wife and I both contribute the max which is 14,000 in 2005. We also contribute an additional over 50 catch up amount of 4,000. Govt matches up to 5 percent.

There it is. You got the whole Federal retirement package right there. It is a good plan but it is not the best. I dont believe it begins to compare with most Fortune 500 plans. And remember, we dont get any big annual bonuses, stock options or matching stock purchase plans. I will not engage in the yadda yadda yadda about how soft we Feds have it. Just wont go there. Life is too short.

Quote:

I dont believe it begins to compare with most Fortune 500 plans.

I don't think it can compare, because most of them do not have any plans at all.

[Donner]

That is the extent of the good side of the equation. I think most folks would look at our combined expected retirement income and say: whats the problem, you have it made in the shade. My best guesstimate is that if we retired in 2005 our combined annuity income would amount to about 69K and our combined SS supplement would be about 25K for a total of 94K, before taxes .

What’ my problem? My problem is the same as George Donner in 1846. I am going to have to haul a heavy wagon across the plains and up the mountain of retirement. I dont know how you guys out West in the boonies do it on 24K, but back here in the East, we got bills. Lots of em. Try these on for size:

Sorry about format. Its a devil.

Payment Annual Cost
MUST HAVES
mort: PI $1,639 $19,667
:escrow $515 $6,175
Food 200 10,400
car 500 6,000
Gasoline 25 1,300
Car Inse 80 960
Gas Heat 100 1,200
Electric 75 900
Telehone 200 2,400
Co. Utili 142 568
Life Ins 6175 6,175
L T Care 396 4,752
Health In 245 2,940
Cash HC 10,000
Maint 125 1,500
Church s 33 1,716
Subtotal, 76,653

NICE TO HAVES
Housekeeper 160 1,920
AOL-ISP 22 264
cable 130 1,560
Clothing 100 1,200
Dry Clean 20 1,040
Barber/Hairdresser 115 1,380
Subsns 500 500
Donner cash 100 5,200
Mrs Donner cash 100 5,200
Subtotal, 18,264

LIFES LITTLE LUXURIES
Garden 3000 3,000
Bird feed 50 2,600
Christmas 1500 1,500
Vacation 6500 6,500
Subtotal, LLL 13,600

GRAND TOTAL CASH OUTFLOW 108,517

Please try not to judge. It is what it is. Its a standard of living here in the DC suburbs.
We can talk about ways this retirement budget can be whacked. I know you all have got plenty of suggestions. Lets dismiss with a few. Option 1: Move. We like it here, ok?
Option 2: Get into an HMO right away. We like our docs, ok? Option 3: Drive a clunker. Ok but need to have a replacement reserve anyway. Option 4: So who gets to have a housekeeper anyway? We may need help, trust me, ok? Option 5: What phone co. is sticking you up? A daughter far, far away, DSL, and two cell phones, ok? Option 6: Are you kidding with the flowers and the birds? Nope, we kill a lot of plants annually and service the East Coast flyway, ok? Option 7: Why dont you and Mrs Donner knock off the Starbucks habit? Ok, but we still like to have a little walking around money in our pockets, ok?

Lets pretend your job is not to critique my projected retirement budget but to give me a few suggestions on how I can hit this targeted annual outflow and maintain this (extravagant, overindulgent, bloated, crazy) lifestyle through 30 years of retirement.

Now I bet you have noticed that my before tax secure income source is 94K while my projected cash flow requirement is 108K. The TSP and other savings will have to make up the difference. Right now we have about 800K liquid, mostly in the TSP. Our itemized deductions are about 34K and exemptions about 6K. My working assumption is all the income thrown off will be taxed at say a 25 % income tax rate. State taxes at 5.75 %. The taxes and SWR considerations are going to cut this deal real close.

Go to it boys and girls. For what its worth, I think Im a little short in the TSP and we will need to grow it to about 1 mil to bulletproof this retirement

[Zipper]

Kill the mortgage!

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I dont know how you guys out West in the boonies do it on 24K, but back here in the East, we got bills. Lots of em. Try these on for size:

Easy we don't have any debts and that usually includes the mortage.

10,000 for food ! - This is for 2 people! - I thought we were extravagant with $6K per year! - If you are a few pounds overweight, this might be good for your health also.

$2400 on telephone! - We have 2 lines - 1 for computer and 1 for talking. Less than $600 per year.

This is just a start on your budget. You could whack this down a lot if you are interested!

[retire@40]

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GRAND TOTAL CASH OUTFLOW * * * * * 108,517 Lets pretend your job is not to critique *my projected retirement budget but to give me a few suggestions on how I can hit this targeted annual outflow and maintain this (extravagant, overindulgent, *bloated, crazy) lifestyle through 30 years of retirement. Right now we have about 800K liquid, mostly in the TSP. * *For what its worth, I think Im a little short in the TSP and we will need to grow it to about 1 mil to bulletproof this retirement

I don't care if you want to have a $500K yearly budget, but don't think you can RE with $1mil and draw out $108K a year for 30 years.

You are going to need about $2.7mil to make your dream happen.

[haha]

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* * * MUST HAVES * * * * * * * * * Food * * ** * * * * *10,400

First, I want you to know that I feel your pain.

But I have thought of something. You could cut that bloated food bill almost to naught by emulating he whose name you have chosen. Just eat your friends!

Mikey

[wabmester]

Mikey, I regretfully must decline your invitation to dinner. In advance. For the forseeable future.