Crunching the numbers

[LKH]

Hi there!

I'm 47, and crunching the numbers to see whether I can retire sooner rather than later. I started a job with my State government shortly after I graduated from college, and recently I emptied my 401K to purchase 3 years' service credit, so I'll have 30 years when I turn 51. I will at that point be eligible to retire with 75% of my highest average salary, and I've been running the numbers to see whether that's enough.

Every year I work after that adds another 2.5% to the benefit, so if I can suck it up and work another 4 years, I'd go out at 85%. Since about 15% of my CURRENT salary is sucked up by contributions to PERA, 401K, parking, and other deductions that won't come out of my retirement check, that's basically the same take-home pay, so that's my definite "Go" date.

But to be honest, I'm bored stupid. And I had a run with cancer a few years ago, so I know that life can't be predicted. I'm really pretty anxious to get out and enjoy retirement while I still have my health. Add to which, I know that it's going to be a LOT easier to KEEP healthy when I have more time to cook healthy, work out, and get enough rest.

Anyway, I would dearly LOVE to cut and run in 4 years, but it looks like I'd come in at about $500 less a month for expenses than I currently need, and I don't see many areas where I'd like to cut down for the rest of my life, particularly since I can imagine some things I'd like to do that might offset any savings in work-related expenses.

Anybody have brilliant suggestions on ways to work around?

OH, and BTW, that firecalc thing doesn't work all that well for folks like me, since it's all about whether you've saved enough. Obviously, I haven't saved a lot, but my pension is a good one, and it's a lifetime income with 3.5% annual increases. Savings will just be gravy for folks like me, if we can be sure that our benefit will cover regular expenses.

Thanks!

Lisa

 

[Ed_The_Gypsy]

Hi, LKH, and welcome.

Would it be possible to work 4-day weeks? I find that long weekends reduce stress and allow for developing outside interests.

Cheers,

Gypsy

 

[LKH]

Hi, Gypsy!

I already have flextime, so I get every Friday afternoon off, but it seems like I use that "extra" time to run errands, and still end up tired at the end of the day. I really would like to quit working and focus on my real joy in life - writing. I'm a published novelist, but ever since my run with cancer, I find that fatigue after a long day at work really cuts my ability to write. I haven't really written and finished anything since my treatments ended.

I also considered quitting and working part time. I may well take a part-time job initially, just to make sure I get out of the house a couple days a week. But I don't want to need that income or HAVE to do that for the rest of my life, nor do I want to find myself pinched for money if the day came that I couldn't do that.

Lisa

 

[MooreBonds]

Hi, Gypsy!

I already have flextime, so I get every Friday afternoon off, but it seems like I use that "extra" time to run errands, and still end up tired at the end of the day. I really would like to quit working and focus on my real joy in life - writing. I'm a published novelist, but ever since my run with cancer, I find that fatigue after a long day at work really cuts my ability to write. I haven't really written and finished anything since my treatments ended.

I also considered quitting and working part time. I may well take a part-time job initially, just to make sure I get out of the house a couple days a week. But I don't want to need that income or HAVE to do that for the rest of my life, nor do I want to find myself pinched for money if the day came that I couldn't do that.

Lisa

Hello Lisa,

Since you say that that you might be interested in a part-time job just to get out of the house a few days a week, what about looking into the rules at your work about taking a 6-month sabbatical once a year for the next 2-3 years? Obviously, you won't tell anyone your plans, but see if you can take an unpaid "approved" leave of absence for quite a few months, come back to work a few months to pull down a little more income (although your pension wouldn't be higher since your total annual salary would be lower than when you're full-time). Then, see if you could take another extended leave of absence the following year. (if at first they don't bite, see if you can tell them that you need to spend time with a family member with the Family Medical Leave Act. Just tell them that your ______ (fill in the blank) needs some help and you're going to live with them for a while to help them.

 

[LKH]

Hi, Moorebonds,

That's not a bad idea, but I kind of doubt I could work it out. Our pension plan restricts how much you can continue working for the same agency and still draw the benefit, and our agency will need to either replace me or have me stay full-time, or they could lose the FTE.

One thing I've been looking for is some way that the State might offer a retirement incentive that might make it easier to retire early. Of course, it has to be something that works for the State, the pension plan, and the employee. The State benefits by moving people into retirement early because it can replace people who are at the high end of the pay scale with new hires, coming in often at 25% less. One thing I've thought of that could work is if the State used part of that savings to help employees purchase service credit - at full actuarial cost, so the pension doesn't take a hit. Another way would work for the youngest retirees - if they can offer to split the savings with them, that, combined with monies due for accrued leave, could purchase an annuity that might offset the difference between that 75% retirement benefit and 80%. But again, that would only work with the youngest retirees, since they'd have to be retired at that lower rate for a long time to offset the pension plan's initial cost for the early retirement.

Any other ideas?

Thanks!

 

[nuisance]

It doesn't sound like you want any work at all, but I just thought I'd throw this out there...
If you quit today, and then take a job that somehow gets you $12k in income, that covers the $500 per month, and additionally you can save $500 per month. After 16 years you'll have saved up (at 7% after inflation) $150k (in today's dollars) which you can then start drawing $500 per month from for the rest of your life. Making $12k shouldn't be terribly hard and you can probably get away with working just one or two weeks per month, or only in the tourist season, or whatever. If you can make $18k, you can save $1000 per month and you'll reach the $150k goal in 11 years.
Sticking with your current job for 4 more years is still the solution that would result in you working the least amount for the rest of your life, but you may be able to cut down your hours a lot and find a job that doesn't feel as much as work.

Tim

 

[FinallyRetired]

I was in a roughly similar situation, trying to decide whether to jump ship a little earlier than the numbers were telling me. I had the good fortune to be able to cut back my hours, initially with fewer days in the office, later with working out of the home. I realize not many companies have that choice, but I wonder if you can leave State and find a part time consulting job that allowed you to work out of the home and made up the $500 difference.

How about downsizing your home to free up $6000 per year. In my case I moved from a high priced DC area to less expensive suburbs and not only saved money but had a much nicer lifestyle while still being able to run into the city if I wanted to. Also, I don't know if you are SS eligible, but if you are that is a future income stream to consider.

One thing I would be concerned with in your case are future medical costs, I assume you've got that priced into your income needs.

About Firecalc and pensions, that's one of the many factors that have to be creatively adjusted when running calculators with constrained options. I really don't understand why you need a calculator at all, since your pension is fixed, has CPI, and you know how much you need. These calculators are good for estimating whether you will outlive your savings with the variability of the market and inflation. In my case I have a flow of income from several sources, one of which is a military pension. Some calcuators allow me to put in the pension, and for others I have to treat that as part time work. With Firecalc, I subtracted the pension from my income needs, so it essentially ignored my pension. That wouldn't work in your case, since all of your income is from pensions. Another calculator you might want to use is the one that comes with Quicken, and the latest one I've used is one from costar, you can find it on the web.

 

[LKH]

Hi, guys!

Thanks for your ideas - great help!

I can't do anything right now - I won't be eligible to draw pension until I'm 51. But I have to make my plans now, as 3 years before you go, you should move all your pre-tax deductions to post-tax in order to raise your HAS (highest average salary - they average your salary from the three highest years) for your pension, and we can only make those adjustments once a year during "open enrollment" the year before (ah, bureaucracy!). So that's why I'm looking ahead 4 years.

Once I retire, taking on a part-time job outside the state might be a good idea. I had in mind I would do that anyway, just to make sure I stayed active and engaged outside the home. I write for "fun," and it would be awfully easy to get isolated if I don't make myself go out a few days a week. Anyway, yes, good idea to find something that would, if nothing else, cover any "unexpected" expenses I might encounter in retirement, as well as give me a little "play" money for all that extra free time. I had thought I'd just plan to put every other month's paycheck into savings, so that I would have set aside some of that income by the time I decide to retire completely from working life.

Cutting my hours, the more I think of it, won't work. I need to work full-time up to retirement, so that my HAS is the highest salary I've earned to date.

And yes, thanks - Downsizing home is a great idea. I bought a house a bit larger than I need, because my elderly parents may need to live with me. If they do move in, they will probably pitch in and that will reduce my payments. But if they haven't moved in by the time I retire, it would be good to move, anyway - I'd like to live a bit farther out, away from the traffic and pollution, and that should be quite a bit cheaper all around. And if t seems unlikely at that point that they will move in, I could also downsize, so that would cut my COL (I might could use my equity to purchase something outright by then). For now, though, it's best to stay put. I live close to work, and my mortgage isn't that bad. I sank my equity from previous home - about $100k - into this, so the mortgage is about what you'd pay for a 2 bdrm apartment.

Ultimately, all great ideas. I can't plan too much around any of them, since I won't know until the time comes how much a part time job would bring in, or how much a new home would drop my expenses, but those certainly give me some sense that I COULD jump ship in 4 years and manage even with the reduced take home pay. Any other thoughts like that would be greatly appreciated!

L

 

[Texas Proud]

LKH...

It seems strange that they would use after deductions for you HAS.. the people I know that are on these pensions used gross salary... so moving your deductioins or contributions made no difference...

However, if you are a teacher you can work a summer job and make more, do so other 'jobs' etc to increase that HAS...

If police or fire, that extra OT work... do some extra weekends or holidays when others want off and just think that you get paid for the rest of your life for the extra hours... a few years after 9-11, NY lost a lot of police and fire as there was not way they could get their salary that high ever again..

 

[LKH]

Hi, Texas Proud,

I thought that was odd as well, but I guess HAS is our TAXABLE income by the rules here. And unfortunately, I'm not a teacher, so can't take summer work, and we're not permitted to do OT. The only thing that can bump my HAS, really, is raises, which are tough to get around here. I'm as high up in the agency as I could get without being a supervisor, and the supervisor in my section is due to retire same year as me, so I probably won't be getting his job. Our sections are too specialized to bother asking about any promotions in other sections.

So, either I have to figure a way that it might work for the State to pay people off to retire early, or I have to figure a way to live a bit cheaper than I do now, if I want to go in 4 years. I think I could suck it up and wait 2 more years if I have to, and that would make it a bit easier on the budget. But at the moment, I'm getting pretty tired of the job, and 4 years seems an awfully long time to wait, let alone 6!

Lisa

 

[DangerMouse]

Tough situation, with not that many options. If it was me, I would hang out for the 4 years and hope that some time in that period they would offer an early out. I would not go beyond the 4 years. Not sure what your skill set is, but would it be possible to do some temp work once you have left your current position? I know I would rather accept a temporary position for 3 months full time rather than having to make myself available for 2 days a week for 52 weeks of the year.

 

[LKH]

Hi, Dangermouse,

I couldn't come back HERE to work for 3 months, if that's what you were thinking. My agency doesn't usually do that. They are only budgeted for X number of full-time FTE's, so when I go, they'll have to hire another full-timer to replace me, and they don't bring in temps part time.

But I could easily find work elsewhere. I'd probably have to work for less per hour - I'd only qualify for entry-level positions, mostly. What I do now is specialized enough that it won't transfer well to other positions. One thing I did consider is possibly taking some freelance copywriting work, as I could probably charge $50 an hour for that. And I might do that, but I don't want to spend too much time writing for money and then also try to write my novels, as I would get burned out on writing. I'd rather write the FUN stuff - that's why I'm retiring. LOL. So I might just accept any old job that gets me outside the home a few days a week. That'd be the main reason I wanted to work, anyway, just to get myself out and about.

The main thing that will make the decision when I go is whether I can live comfortably on my benefit. If I can't, I don't want to have to work for the rest of my life part time, or squeeze pennies to make ends meet. I'll stick around another 2-4 years, if I have to, to make sure the income is enough to live on without any other support. My goal would be to have the pension be enough for general expenses, and keep my 401k and savings for unusual expenses, e.g. health issues, major repairs, replacing the car when the time comes, etc.

My mom retired on disability at 50. At the time, she figured her $1200 a month pension would be plenty to live on. That was 1982. She's lucky my grandpa left a bunch of stocks in trust. He meant for her to just use the income and pass the stocks to me when she died, but she's actually going to blow through the stocks by the time she's done. She and my stepdad are having to draw out almost $1k a month just to cover expenses. I don't want to end up in that situation, because I probably won't have anything like the trust to bail me out. So I'll need to be sure what I get from pension is enough.

L

 

[DangerMouse]

Sounds like it is not an easy decision for you. Maybe you can set yourself a budget based on what your expected benefits will be in 4 yours and trial it for an extended period to see if it is doable. If not, well it may be easiest for you if you stay another year or two where you are.

 

[LKH]

Might be. Looking at the way health insurance rates are soaring, I'm almost afraid to try to guess what they will cost in the future. We just got our new insurance rates for next year, and my premiums jumped 31% - and that's with a bump to the employer contribution!

L

 

[DangerMouse]

Will company sponsored health care be part of your retirement package or will it be 100% self funded?

 

[LKH]

Yes. The benefits plan kicks in $11.50 for every year of service up to $230. Of course, most of the benefits plans are 2-3 times that, so the retiree still gets to pay a big chunk, and I worry that they'll change the rules as more and more of us go to retirement, especially with the rates going up like they are.

I wish I knew why medical care was SO much more expensive in the US. It's ridiculous, when you can buy the same prescription or have the same procedure elsewhere for half the price. Somebody somewhere is gouging.

L