Getting My Ducks In A Row....Advice Welcomed!

[SunnyOne]

Hi there,

I'm Sunny and I'm really looking forward to retirement. I read the FAQs at the top of the forum, so hopefully I have this covered and would really appreciate any feedback.

I'm 55 and live and work in a high cost of living area (DC). I'm divorced and my only child is in college and those expenses are pre-paid.

My annual expenses run between $45K-$50K, with the biggest chunk going toward rent. I've sold my home in anticipation of moving to a lower cost of living area. These expenses are after my max contributions to my 401k (TSP) and IRA and HSA. I expect to spend less after retirement in living costs, but more in vacation costs.

If I wait 3 more more years to retire, I can continue my employee health care in retirement, with my premiums remaining the same as any regular federal employee. If I leave early, I think I would purchase insurance through the ACA. I checked up a typical Bronze plan (my first time ever on the site). It looks like $200/month with a $7K deductible. Knock on wood, I am healthy so far.

I think this is the key point...trying to mentally stick it out for 3 more years for healthcare, since I really want to retire sooner.

I am not concerned about leaving money behind for my child after I pass. She has already been taken care financially through money set aside for her by other family members.

As mentioned, I sold my home here, so my home maintenance expenses are zero. I hope to travel for the first few years of retirement through a combination of house sitting and apartment stays and then when I tire of it - rent in a lower cost area, perhaps Florida...while looking for a home purchase - that would hopefully be my final home.

I do not plan any major lifestyle changes beyond that. Being mobile after so many years of being chained to this area due to my job, is a big enough change. I plan to stay in different places, some that are very low cost, balanced out by time spent in some areas that may be more expensive. I am a creative person who uses miles and points and travel rewards to cover many expenses.

Retirement Income Sources:

Two pensions, Social Security & Withdrawals from accounts. One pension has a COLA.
I have gotten pension estimates for retirement scenarios in 2017 and 2019. One pension (from an earlier employer) is an amount that is now escalating for each month that I wait to start taking it...it will max out at age 65, so I plan to start taking it before then. There is no COLA on that pension. The second pension is my federal pension. The earliest I can take it is age 62. If I take it sooner, there is a 5% deduction per year.

Social Security calculates my monthly payment, beginning at age 62, as roughly $2,000. if I stop working before then, obviously that amount will be reduced.
As of now, I have 34 years of creditable service for Social Security.

I'm a bit fuzzy on what my tax scenario in retirement will be - obviously my income taxes will go way down. I won't own property for awhile. I am currently reviewing different withdrawal scenarios to investigate tax implications.

My nest egg is approximately $1.5M, inclusive of the present value of the two pensions - but does not include any calculation for the value of Social Security.

I am confused by FIRECalc. I ran the numbers and it came up wtih something like out of 116 scenarios, the chance of my nestegg lasting 30 years is 0%. Considering that my nestegg is approximately 30X my expenses, I am missing something. I ran it twice to make sure - so obviously there might be a user error? Anyway, I am excited to be here and discuss all these topics to get ready for my release on good behavior LOL. yahoo!

 

[NgineER]

Welcome to the forum!

Don't know why firecalc failed... Seems odd, probably one input that is wrong somewhere.

What are your monthly pensions?
What is your nest egg bridging until collection of pension and SS?
Do your expenses include taxes?


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[Philliefan33]

You will have a federal pension; will your SS payout be reduced by WEP? If so, the $2000/month estimate is probably too high.

 

[robertf57]

You will have a federal pension; will your SS payout be reduced by WEP? If so, the $2000/month estimate is probably too high.

My recollection is that if you have 30 or more years of Social Security covered employment, WEP is not an issue. Doesn't apply to me, so I might be wrong about the particulars; but, pretty sure that is correct

 

[SunnyOne]

Hi thank you for the replies...I realize looking back over my first post, that the information was buried in lots of verbiage.

Anyway, I checked my calculations again.

I did not include taxes in the expenses number, but I did accidentally include my IRA contribution, so the annual number is closer to $40-42K/per year - *exclusive of taxes* - I think my tax expense will depend on withdrawal strategy, right?

Pension Income:

Pension # 1 - if payments start in 2017: $750/month.
if payments start in 2019: $1K/month

Pension #2 - if I retire in 2017 and start payments at age 62: +/- $1.1K/month
if I retire in 2019 and start payments in 2019: +/- $900/month (reduced due to early retirement)

I would bridge income until SS and possibly pensions, by withdrawing from my taxable accounts and possible non-taxable portfolio accounts?

RE: Reduced Social Security due to being a federal employee - I have only been a federal employee for 7 years, so my Social Security status did not change when I moved from private sector to public sector. (that I am aware of - what is WEP?)

Thanks again!

 

[robertf57]

Hi thank you for the replies...I realize looking back over my first post, that the information was buried in lots of verbiage.


RE: Reduced Social Security due to being a federal employee - I have only been a federal employee for 7 years, so my Social Security status did not change when I moved from private sector to public sector. (that I am aware of - what is WEP?)

Thanks again!

Ohmmm, no...... WEP is a concern if you have a pension from employment where you didn't pay social security, irrespective of how long you were employed in that pursuit. I went ahead and looked up the particulars:

The WEP is applied to certain beneficiaries who are receiving RIB or DIB and who also:[2]

1) The beneficiary becomes entitled to the benefits after 1985

2) The beneficiary also first becomes eligible, after 1985, for a pension based in any way upon earnings from employment that was not covered by social security

3) The beneficiary's entitlement to this pension has not yet ended (even if not yet claimed)

4) The beneficiary is still alive

5) The beneficiary has not obtained 30 Years of Coverage (YOCs) at the age of 62 years.

You should be fine if you have 30 or more years of social security wages. (Note, these need to be meaningful years of employment

 

[SunnyOne]

Thank you...I've always had SS deductions taken from my wages...never a break in that action... and yes, 34 years so far in the saddle, very meaningful,

thank you again!

 

[W2R]

Hi SunnyOne, and welcome!

You have got some great feedback so far and I can't think of much to add. One thing to check with FIRECalc is whether you put monthly or yearly amounts in, for pension and social security. It wants the entire annual amount.

Anyway, I found this cute photo and it reminded me of your post.

 

[Golden sunsets]

Sunny one; Welcome. You mentioned that your nest egg is 1.5 million inclusive of the present value of your pensions. That is probably where the problem lies. What is the value of your nest egg exclusive of your pensions? That is the meaningful number. Also you can get a good estimate of your social security by using the SS calculator on the SS website. Better yet download the Any PIA calculator to your computer and play around with the various retirement scenarios to see the impact on your final number. Regarding health insurance, the health exchange number is pretty low but the bronze plan is nowhere as good as the government insurance you presently have. It wouldn't be a total deal breaker for me but I'd think long and hard about leaving that behind.

 

[Philliefan33]

OP, if you you are covered under FERS and have been paying SS all along, I don't think you are subject to WEP. If you have any federal service under CSRS, WEP might get you.

 

[SunnyOne]

1) Thanks for the Firecalc tips.

2) Yes, looks like WEP does not apply to me

3) Yes, that federal retiree health plan appears increasingly attractive the more I learn of the alternatives. Also, as a wannabe perpetual traveller in the early years, I understand that federal retiree coverage includes international locations.

Thanks again....really appreciate any comments.

In addition to looking at calculators, is there some place I can learn more about X annual expenses? The numbers I see run from 25 on the low end to about 40 on the high end...curious where they pull those yardsticks from. Also, backing out the present value of my pensions, my remaining nest egg is about $1.25M

Thanks

 

[Golden sunsets]

1) Also, backing out the present value of my pensions, my remaining nest egg is about $1.25M

Thanks

Sunny; If 1.25M is net of present value of pensions than that is the number that you need to focus on regarding size of your nest egg at retirement. The 4% rule as a safe withdrawal rate is a good starting point, although many will suggest that in this investment environment, 3% or 3.5% is a likely better withdrawal rate. So if you have 1.25 at retirement, 1.25M x 3% is $37,500 that you could safely withdraw from your retirement funds in the first year of retirement and increase it by the rate of inflation annually. However many withdraw more initially, then drop it back as various income streams come on line such as SS or pensions that don't start immediately. So if your expenses are $50,000 (including taxes), and you have another $9,000 in pensions that start immediately, you are already at $46,500 ($37,500 + 9,000). Then of course you would have the second pension and SS kicking in later. Assuming your nest egg is invested in an age appropriate mix of equities and fixed income you should be good to go. One thing you mentioned though is the purchase later on of of a home. That cost I would presume would come out of investments. You should model that so that you would be able to anticipate what the drop in your investment portfolio and thus your safe withdrawals would be, after factoring in your second pension and social security, as well as any increase in expenses due to the home ownership vs your current rent.

 

[REWahoo]

Other FIRECalc tips:

- Be sure you go through each FIRECalc tab

• Start Here
• Other Income/Spending
• Not Retired?
• Spending Models
• Your Portfolio
• Portfolio Changes
• Investigate

- Input only current year or future year dates. Using any year prior to 2016 will result in an error.

 

[pb4uski]

You're facing a touch dilemma... three years of freedom vs the retiree health benefits compared to ACA for 10 years and Medicare. I guess it depends on how bad things are at work.

However, it is nice to know that if things get really bad at any time you can FIRE.

 

[SunnyOne]

Yes, I think this summarizes the situation. I think looking at 3 years may be easier if I step up the amount of time off I take....no need to hoard vacation time...I need time more than money at this point.

Also, I accrue sick leave. When I retire, they will factor the value of any unused sick leave into my pension calculation, but given that I am not a long term employee, I think I will use this time to have any elective surgery as I don't see it adding much value to an already reduced pension.

 

[BrianB]

re: the Firecalc question. Be sure to enter pensions, other income, etc. as annual totals - not monthly amounts. I've made that mistake and it sure affects the results in a bad way!

 

[Terryjm51]

re: the Firecalc question. Be sure to enter pensions, other income, etc. as annual totals - not monthly amounts. I've made that mistake and it sure affects the results in a bad way!

+1. Yes has happened to me first few times I used it. Or not not selecting it after entering numbers


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[Markola]

SunnyOne, congrats on creating so many options for yourself. My DW is in a somewhat similar situation with 5.5 years of federal service at age 53. She is planning to tough it out the 4.5 years remaining until her Minimum Retirement Age + 10 so that we can buy into the healthcare plan in the manner you indicated. DW has health issues so it is a fundamental motivation for us. For you, I wonder if you've considered working the final 3 years to get healthcare and build nest egg but do it by transferring to a more desirable location and federal job in a lower COL area? DW's experience is that good federal employees with good work reputations have tremendous transfer opportunities due to various constraints on hiring civilians who are non-veterans, etc.

 

[SunnyOne]

Hi Markola,

I'm actually trying to maneuver that so that my final year is in a better location. There are government wide shortages in my series, so there should be opportunities (politics notwithstanding). On the other hand, my corner of the government is somewhat niche in nature, so we'll see what comes up..

It's great to hear that your DW sees tremendous opportunities in her area.

I'll soon have a high level clearance, so that may help as well.

 

[pb4uski]

Yes, I think this summarizes the situation. I think looking at 3 years may be easier if I step up the amount of time off I take....no need to hoard vacation time...I need time more than money at this point.

Also, I accrue sick leave. When I retire, they will factor the value of any unused sick leave into my pension calculation, but given that I am not a long term employee, I think I will use this time to have any elective surgery as I don't see it adding much value to an already reduced pension.

Would you still qualify for the retiree medical benefits if you downshifted to part-time? Is downshifting to part-time possible? I know for a lot of plans benefits are based on more than 1,040 hours a year so a year or 50% or better part-time work counts the same as a year of full-time work.

If it is possible and would get you your benefits it might be a great way to ease into retirement.

 

[Packman]

Hi Sunny, might want to re-check the ACA health rates. I have a hard time believing you will find a policy for $200/month, unless that includes a large subsidy. The least expensive policy I found was double that. It may only make a difference of a few thousand a year, but you would want to have that number known. Your out of pocket health costs will also go up with a bronze plan, unless you never see a doc (what about dental?).

Good luck in your planning.

 

[nubill]

I think this is the key point...trying to mentally stick it out for 3 more years for healthcare, since I really want to retire sooner.

Hi Sunny One and welcome to this forum. I had to wait until I turned 62 to retire and get the retirement health benefits. My Fed Employee's BC/BS Basic (Self+1) is $356/mo. Yours will be much less.

I worked part time federal employee from my home starting at age 55. Are there part time possibilities available that would make the 3 years more bearable?

Did you have any military service time? I was able to buy mine (very inexpensively) back based on service time from 1973 to 1975. If so, you can buy back at any time before retirement. The sooner the better. May take 2-3 months.

Do you participate in the TSP Roth 401K? If so, convert to Roth IRA. They force RMD's at age 70 1/2.

Do you have access to Financial Engines or any other monte carlo simulator to compare with FireCalc? I use it just for a second opinion.

Congrats on the savings and planning that you have done.

 

[ABQ2015]

Would you still qualify for the retiree medical benefits if you downshifted to part-time? Is downshifting to part-time possible? I know for a lot of plans benefits are based on more than 1,040 hours a year so a year or 50% or better part-time work counts the same as a year of full-time work.

If it is possible and would get you your benefits it might be a great way to ease into retirement.

There is a provision in the federal government to allow employees to take up to 50% leave without pay (LWOP) for up to 2 years without it impacting their years of credited service or base pay calculations for retirement. It is up to the federal agency as to whether they allow it. My agency allows this in hardship cases or where the employee has special skills or qualifications and the agency wants to allow LWOP in order to retain them. Of course annual leave and sick leave will be prorated, TSP contributions and health insurance premiums may be prorated, etc. but it does not impact the pension and you retain your benefits although at some cost.

 

[pb4uski]

So if the OP's agency was cooperative she could work for another year full-time, then downshift to as low as 50% time for two years and still get her retiree medical benefits. Sounds like a win-win to me.

 

[MRG]

Hi SunnyOne, and welcome!

You have got some great feedback so far and I can't think of much to add. One thing to check with FIRECalc is whether you put monthly or yearly amounts in, for pension and social security. It wants the entire annual amount.

Anyway, I found this cute photo and it reminded me of your post.

I can't add to the discussion other than welcome.

A question related to the pic. When you get your ducks in a row are they side by side(as in the photo) or beak to tail? I've always wanted to know.