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Here's our story.....
Old 06-18-2012, 10:03 PM   #1
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Here's our story.....

Well, recent newbie to the board. Lots to learn, trying to absorb.
Background first:
Two of us, no kids, pretty worthless neices/nephews, could easily die broke, if there is a remainder would go to local college for scholarships.
Both worked in prof jobs all our lives since late 70's, in our early 50's, wife in public sector, me the private. Let's just say her retirement is 2x mine, even with maxing out my 401k's, etc. Both fairly conservative, moderate risk adverse investors. I've had health issues at 45 heart condition. her folks passed away in mid 60's. My Dad at 72 with 15 years of tough medical issues, my mom still kicking at 80 and doing well.
have $1.2M in taxable accounts, 6 months expenses in cash, $200k in cars, other saleable assets and $300k+ equity in realestate (primary home), saving $50k/year.
DW pension is worth $2100/mo at 30 years (3 years from now) and that's her target retirement date. I have a small pension; worthabout $100k lump sum ($500/mo) at 65. Can take these early if needed.

Our jobs blow. i mean they really suck, mines been in manuf, and most of you know what happened there over the past 20 years. Work 50+ hours on a short week. DW the same, maybe crazier due to a insane workaholic boss. We really need out as soon as we think we can afford it. However, we dont want to stress about money, either.
Questions:
1. Understand the 4% SWR recommended. In our situation can we pull 4-5 years at a higher rate, say 6-7% until SS kicks in? We get another $3300/mo then at 62. We would then return to a 4% or less SWR.
2. I've read about bucket theory, die broke theory, asset allocation, and several other methods of withdrawl, any additonal that others can recommend? Want something not too complicated, KISS principle applies.
3. Really don't want to have to worry about money, so may consider annutization at some point. heard that at about 60 years of age SPIA's outrank bonds (especially when interest rates are going to rise) and better than the equity market at age 75 or so do to the survivorship credit. Any comments on that?
Thanks and love the forum, glad I found you guys. Cheers.
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Old 06-18-2012, 10:14 PM   #2
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welcome to the forum...

I hear many questions like yours, and I always wonder to myself..... Why aren't you willing to live on less to "guarantee" you don't run out of money? If the jobs are that bad, you could be out tmoro with your portfolio.

It all depends on how badly you want to stop working. It's not a sacrifice if you want it badly enough. lower your lifestyle a bit and quit the jobs.

just my humble thoughts
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Old 06-18-2012, 10:43 PM   #3
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Thanks for the response, I think we're used to a lifestyle and I'm sure we can cutback some from it. Though, just being the conservatives we are, want to make sure, worst case. Most say 70-80% of pre-retirement income, we're saying 100% of our current spending. Our jobs are bad, I think, however, they can't send me back to middleeast either. So, you are suggesting a lifestyle cutback to make up the differance. I agree, though, I don't want to leave a bunch of money on the table for politicians, lawyers or doctors to snap up. now that would make me really unhappy, I just want the DW to have a reasonable lifestyle in her later years if I hit the lonesome trail first. More than likely, btw. Thanks again, jime444
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Old 06-18-2012, 10:47 PM   #4
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Most say 70-80% of pre-retirement income, we're saying 100% of our current spending.
The best way to answer that question is to track your own spending for a few months (most are surprised by what they learn) and then developing your own retirement budget.

Once you decide what you don't enjoy spending money on, you may be closer to ER than you think.
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Old 06-18-2012, 10:55 PM   #5
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As far as asking about drawing 6-7% for a couple of years, the easiest way to rough it out is figure out what SS is going to be ($3300/mo), and take $3300x12monthsx(years before SS kicks in) out of your portfolio, and draw 4% off the remainder. If that result is above what you will spend, you will be ok. If not, you need to adjust your actions to fit your resources.
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Old 06-19-2012, 02:38 AM   #6
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As Nords wrote: first, collect the facts about your spending style. Track expenses in great detail and look into them with DW at least monthly.
Then try to cut back for some months to your assumed "post retirement budget + job related expenses".

In our own case: DH will retire at 61 in 2013 with a pension. My pension will kick in in 8 years. Till then we will live off his pension + our savings. As we have been tracking expenses for ages we "know" how much of the savings will be gone by then.
Economy and prices provide some risk, but such is life. We have worked in some belts and suspenders but the main point is that we do not want to sacrifice the next years for the sake of "even more money at 95".
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Old 06-19-2012, 03:22 AM   #7
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I don't want to leave a bunch of money on the table for politicians, lawyers or doctors to snap up. now that would make me really unhappy
I would take a long look at that statement and check that the philosophy behind it isn't holding you back. You can only live your own life. Getting older and retiring successfully are about letting go of a lot of things, and one of those is unhappiness at how well other people are doing when, from one's own perspective, they don't deserve it.

Until recently (when the UK inheritance tax thresholds changed, putting them out of her range), my mother used to obsess about Not Paying Any Inheritance Tax At All. She took this to the point of selling performing assets so that her total net worth would not go over the threshold. She just decided that Not One Penny Of Her Money Must Go To The Government on her death. Our (DS/DD) arguments that we'd rather inherit 480K out of 500K compared to 400K out of 400K, cut no ice. In effect, she had decided to spend substantial amounts of money on a new hobby called Stopping The Tax People From Getting Their Hands On Any Money From Me.

So, while none of us wants to leave money on the table, make sure that your motive is "because I want to use that money for purpose X" - after all, you can always give it away to the church or some other cause - and not "to keep it out of someone else's hands". You're going to be spending quite a lot of it on medical bills anyway, and I don't think that politicians are going to give up taxing you any time soon.
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Old 06-19-2012, 04:40 AM   #8
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@BigNick
"Saving taxes" causes people to do things they never would to without the tax argument. And spending 1000$ to pay 500$ less in taxes has not yet made anybody rich, just like buying a useless item because the price was 50% reduced.
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Old 06-19-2012, 12:19 PM   #9
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Welcome to the forum.

As Nords suggests - first you need to figure out your expenses. Remember, you will not be paying into the 401k/SStax bucket - so that's a chunk that you don't need when figuring expenses.

I'm conservative when it comes to budgeting, like you. But I was able to quickly realize that 401k contributions (for me, currently at $22.5k/year) are not needed. I also realized that my SS taxes would not be deducted from my retirement income. And in my case - no more need for after school programs/summer camps for the kids. That brought my expenses down a lot.

Then I started tracking what we're actually spending - and tallying up what we'd need in retirement. No need for work clothes... t-shirts and jeans will do just fine. Fewer miles driven on the cars will save on maintenance and insurance, plus gas.... I was surprised at how many expenses are directly attributable to working.
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Old 06-19-2012, 02:10 PM   #10
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I'm also a newbie here, but thought I'd chime in anyway.

I'd wait until your early 70's before looking into the SPIA if possible. By then as you point out, payout out rates are much higher due to shorter life expectancies. Plus with interest rates at historical lows, now is the worst time in decades to buy a SPIA unless you absolutely have to.

As for your SWR, I be very hesitant to pull out 6% to 7%. Frankly, even 4% is aggressive if someone is in their early 60s in my opinion.

The problem with SWR's is all the simulation analysis that supports them doesn't recognize that investment markets have more severe, more frequent and more clustered negative outcomes then assumed in your typical Monte Carlo type analysis.

You might consider part-time work to hold you over if your job gets unbearable.
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Old 06-19-2012, 05:55 PM   #11
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Have you run your numbers through Firecalc or any of the other tools? What is you annual spending target?
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Old 06-19-2012, 08:52 PM   #12
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Wow. You sound a lot like my husband and I a few years ago. Jobs that suck big time, crazy bosses and the whole enchilada. Seems to me like you're close if not already there. Crunch the numbers and look at this whole thing from every angle - cash flow, expenses, health insurance, and all the other usual stuff. You'll find lots of good info on this forum but it's something you both need to noodle through before you cut the cord.

Wish you both the best. Hope you hear more from you guys.
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Old 06-19-2012, 11:06 PM   #13
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When you say you need to replace 100%, keep in mind that you may be currently saving a percentage, that you can reduce. For example, if you are saving 20%, you may only need to replace 80%.

Welcome, it seems like lots of people's jobs really are miserable these days, I know ours have become that way.
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Old 06-20-2012, 03:51 PM   #14
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When you say you need to replace 100%, keep in mind that you may be currently saving a percentage, that you can reduce. For example, if you are saving 20%, you may only need to replace 80%.

Welcome, it seems like lots of people's jobs really are miserable these days, I know ours have become that way.
+1 Assuming that all your "saving" is done through deductions from your paycheck, you only need to replace your take-home pay. Your tax rate might be lower was well so you should crunch the numbers on that.

For me, taxes (SS, FWT, SWT) are gonzo, I'm not saving for retirement anymore but health insurance is higher since it is on me rather than employer subsidized.
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Old 06-20-2012, 11:06 PM   #15
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Thanks everyone for your outstanding responses, I truly appreciate each and every one of your thoughts.
I'm still very conservative and accordingly, a bit concerned with our plan. Our living expenses, worst case, are approximately 8k/mo. A significant portion of this 35% is a small mortgage and health insurance premiums, Unfortunately, I'm high risk, high premium. even catastrophic coverage is very expensive. However, I'm assuming we can pare this down a bit with some effort. Pretty sure the DW will retire first, and I'll work for a couple of years. Just to see how our cash flows really go. Then, when I'm late 50's we'll re-evaluate. I've used FIREcalc and it shows we'd be pretty close, then. We both might work a bit, if it's available and we want to do it.
As another question, do you see a downward trend (in real dollars) in retirement after 65 or somewhat later? Personally, I've seen my parents spending decrease steadily during their early seventies; now by my mom's 80th birthday, her discretionary spending is very low.
Thanks again for all of your input. Jime444
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Old 06-21-2012, 08:40 AM   #16
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Originally Posted by jime444
Thanks everyone for your outstanding responses, I truly appreciate each and every one of your thoughts.
I'm still very conservative and accordingly, a bit concerned with our plan. Our living expenses, worst case, are approximately 8k/mo. A significant portion of this 35% is a small mortgage and health insurance premiums, Unfortunately, I'm high risk, high premium. even catastrophic coverage is very expensive. However, I'm assuming we can pare this down a bit with some effort. Pretty sure the DW will retire first, and I'll work for a couple of years. Just to see how our cash flows really go. Then, when I'm late 50's we'll re-evaluate. I've used FIREcalc and it shows we'd be pretty close, then. We both might work a bit, if it's available and we want to do it.
As another question, do you see a downward trend (in real dollars) in retirement after 65 or somewhat later? Personally, I've seen my parents spending decrease steadily during their early seventies; now by my mom's 80th birthday, her discretionary spending is very low.
Thanks again for all of your input. Jime444
You have my sympathy for your monthly carrying costs of health insurance. Im assuming since you said your mortgage payment is small, it is under $1000 a month, that would mean we are talking around $2000 a month for health insurance, that is a horrible expense to bear all the way to 65. My monthly retirement income is about $5000 (I am single) and mortgage and health insurance represent only 17% of my income. I would not be able to be retired paying that. It is a shame someone like yourself who has saved well, and has good assets has to be held captive by health insurance costs. Concerning older spending, my parents are in their mid 70s and they have slowed down a lot. Health wise, they are pretty good, but they just don't like to leave home now. They will complain about gas prices, all the time, but I bet they don't use 2 tanks a month between the 2 vehicles. It sure seems older people who are homebodies don't spend much when they are older, but of course that is an individual decision.
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Old 06-21-2012, 10:36 AM   #17
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As another question, do you see a downward trend (in real dollars) in retirement after 65 or somewhat later? Personally, I've seen my parents spending decrease steadily during their early seventies; now by my mom's 80th birthday, her discretionary spending is very low.
Thanks again for all of your input. Jime444
Firecalc has a spending model that accounts for that - Bernicke's model.
It suggests that spending starts being reduced at age 56, and drops till you reach age 76 where it plateaus at this lower level.

Here's a discussion of the Bernicke model.
Bernicke's Reality Retirement Plan
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Old 06-21-2012, 02:12 PM   #18
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Looking at retired people that I know, I think there is a fall off in expenses as one ages and may be less active. Just anecdotal though.
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Old 06-22-2012, 09:19 AM   #19
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The best way to answer that question is to track your own spending for a few months (most are surprised by what they learn) and then developing your own retirement budget.
+1.

Take a look at the book "Your Money or Your Life", by Joe Dominguez and Vicki Robin. You should be able to find it at the local public library, or if not any decent book store will have it.
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Thanks again and ....an update
Old 06-27-2012, 10:22 PM   #20
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Thanks again and ....an update

Thanks again everyone for your kind words and responses. Just got back from a last minute, extended business trip demanded by my insane, workaholic boss's boss. He puts in 80+ hours per week, regularly. We got bought out by a mega MegaCorp and indoctrination is the word of the day. The meeting was to strategize and deploy a substantial reduction in pay and benefits to all of the employees including me. Actually, they basically just told us, "here it comes, enjoy it boys and girls". Oh, by the way, the so-called senior management pay and benefits were not discussed. You shall be assimilated...... As a footnote, we have had record profits the last three years, last year was the best in the companies history. They felt generous to give us a 2% performance increase!! The buyout was very leveraged and as you can imagine, most of the old hands around here have packed their bags and already are heading for the door.

Found I made a slight miscalculation in my original FIREcalc, nice program by the way. Put in monthly pension amount not annual. Makes a bit of difference!! According to it, we're now just about 3 years away from FIRE at a very conservative assumption set. That is, 35 years, constant spending/inflation indexed, 50% stock only, current living expenses used (i.e. no reduction). We've been monitoring these for about a year, and the number is pretty consistent month to month. If you can imagine, we're both ecstatic, pretty sure you wouldn't be able to wipe the grins off our faces. However, I'm sure the new megaMegaCorp will try, at least for me. It appears that the new hosers are going to give us about a 12% paycut, equally distributed in bonus removal to middle management and lower, 401k matching decrease and timeoff reductions; holiday pay, floaters, etc. Not quite public knowledge, yet, but once it is, even in this market, the general sentiment will be outright indignation, then mutiny. Being a middle type manager, guess who gets the responsibility to deliver the "news" and "rally" the troops? Good guess. So, even though it's three years to FIRE, it's time to polish up that resume and see what's available out there. With that level of salary reduction, pretty sure there will be some very competitive places to evaluate for my skill set. May even trade some time for a better environment, i find that means quite a bit to me nowadays. I'm just becoming very sensitive to the pain with only a couple of years to go. Wish me luck and thanks again for your responses. I'll continue to lurk and learn, thanks again and you just gotta love the internet. Cheers.
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