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Hi, 40 yr old retiring in 10 yrs
Old 11-24-2018, 08:55 AM   #1
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Hi, 40 yr old retiring in 10 yrs

Hi,

I am a government employee with 18 years of service (12 to go) in a very stressful work environment. My retirment is tax based/funded and as long as I live until 50, I will collect 82% of my income for life. I am currently earning $125,000 yr ( this includes overtime so the next number wont mathmatically work), and the current estimate provided by my retirement plan estimated 2% cola until February 2030 with a monthly check of 11,150. That is plenty of money for my small family, wife and daughter. Daughter will be college age at that time, but we are investing hard in her now with school work, study habits, etc and hoping our work now will pay off later. A lot of people in my shoes retire and then get another job “double dipping.” They substantially increase their income for five-ish years and then pay off all debt retiring permanently. I will make that decision then, but am planning on only doing this once.


We will not receive any social security benefits. My wife will receive approximately $2,000 when I am 53.

I have been investing in our deferred compensation (on/off) but mostly on for the entire time. I made a huge mistake in 08, got scared, put money in fixed account, and the rest is history. Have been contributing $10,000 a year and plan to increase that each year until I retire. Current balance is $215,000. Here is my question. I currently have my allocations as...

Small/mid/specialty %31
Large cap value %28
Large cap growth %15
Global/international %13
Bonds %12
Stability of principal %1

I really have no idea what any of the above means. A quick meet with the Vanguard advisor, and this is where things were put. The person helping really didnt seem to know much, and I made selections off of risk and ten year histories. I am not sure if this was the correct way or proper selection/s. I believe keeping things high risk at this point would provide the most benefit. Any advice....? It seems to me most financial advisors wont be interested in someone like me because of the retirement system I am in.

Are compounding interest calculators accurate. I am receiving estimates of $550,000 on the $215,000 in 12 years. Seems high to me.

I will have about $75,000 in a mortgage left on a house that is currently valued at $550,000. We are not planning to move, dont travel much, and will have no CC debit/car payments.

I have read through a ton of these posts and greatly appreciate the sharing of info and suggestions everyone makes.

Take care
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Old 11-24-2018, 12:58 PM   #2
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Welcome.

For your deferred compensation, I would have them split about 80% stock / 20% bonds in index fund if you have them available.
In other words, Vanguard Total Stock Market Index and Vanguard Total Bond Mark Index.

What happens if you don't live until 50 ?
Does your spouse get anything?
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Old 11-24-2018, 01:25 PM   #3
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Quote:
Originally Posted by Eztroller View Post
Hi,

I am a government employee with 18 years of service (12 to go) in a very stressful work environment. My retirment is tax based/funded and as long as I live until 50, I will collect 82% of my income for life. I am currently earning $125,000 yr ( this includes overtime so the next number wont mathmatically work), and the current estimate provided by my retirement plan estimated 2% cola until February 2030 with a monthly check of 11,150. That is plenty of money for my small family, wife and daughter. Daughter will be college age at that time, but we are investing hard in her now with school work, study habits, etc and hoping our work now will pay off later. A lot of people in my shoes retire and then get another job “double dipping.” They substantially increase their income for five-ish years and then pay off all debt retiring permanently. I will make that decision then, but am planning on only doing this once.


We will not receive any social security benefits. My wife will receive approximately $2,000 when I am 53.

I have been investing in our deferred compensation (on/off) but mostly on for the entire time. I made a huge mistake in 08, got scared, put money in fixed account, and the rest is history. Have been contributing $10,000 a year and plan to increase that each year until I retire. Current balance is $215,000. Here is my question. I currently have my allocations as...

Small/mid/specialty %31
Large cap value %28
Large cap growth %15
Global/international %13
Bonds %12
Stability of principal %1

I really have no idea what any of the above means. A quick meet with the Vanguard advisor, and this is where things were put. The person helping really didnt seem to know much, and I made selections off of risk and ten year histories. I am not sure if this was the correct way or proper selection/s. I believe keeping things high risk at this point would provide the most benefit. Any advice....? It seems to me most financial advisors wont be interested in someone like me because of the retirement system I am in.

Are compounding interest calculators accurate. I am receiving estimates of $550,000 on the $215,000 in 12 years. Seems high to me.

I will have about $75,000 in a mortgage left on a house that is currently valued at $550,000. We are not planning to move, dont travel much, and will have no CC debit/car payments.

I have read through a ton of these posts and greatly appreciate the sharing of info and suggestions everyone makes.

Take care

Your pension is great. Is there a reason why you have so little in assets, or do have other savings in addition to the deferred comp?
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Hi, 40 yr old retiring in 10 yrs
Old 11-24-2018, 01:36 PM   #4
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Hi, 40 yr old retiring in 10 yrs

A deferred compensation plan is a great option to have, if available and you contribute. I was also a governmental employee. Before some time in the early 2000s (I think), the contribution limit to the def comp and other plans were combined. Later that was lifted, so you could max each.

I’d been starting to dream about ER at that point and one advantage of the def comp was that you could withdraw without penalty at any age (after a brief period of separation). No 59-1/2 restriction. I never did, but thought of it as a safety net if needed.

[ADDED] The def comp (457) plan was/is my only access to a stable value fund, which I think is a plus.

The compounding interest result you mention does seem high if based on the $215K amount with no further additions. The basic calculation is pretty simple, so you can double-check “by hand”
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Old 11-24-2018, 02:59 PM   #5
Confused about dryer sheets
 
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Ok thanks for the help. I have $650,000 in life insurance. My wife does not know anything specific about our finances. I dont mean that in a bad way, she just leaves all of it to me. As far as the pension, its gone if I die before 50 (encouraging her to “weekend at Bernie’s”) for as long as possible...

She will get %50 if i die beyond 50 yrs of age.
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Old 11-24-2018, 03:04 PM   #6
Confused about dryer sheets
 
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@steelyman

Thanks. I have a friend who has a financial background tell me to be high risk with my deferred comp. he explained I already have a stable conservative investment-pension. Made sense at the time, but am just now getting around to trying to figure it out.

The compounding interest question should have been more clear. I expect to contribute 10-15 grand a year for the next ten years. How do u calculate that? I have just been using a google search for calculators. All of them seem to say the same thing.
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Old 11-24-2018, 03:23 PM   #7
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You will have a massive pension. No need to worry much about investing. I would keep it simple: 80% in Vanguard Total Stock Index and 20% in Total Bond Index. Make sure to have some cash outside of retirement accounts for emergencies. Other than that I would just make your life as comfortable as possible so you can coast to that pension.
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Old 11-24-2018, 07:57 PM   #8
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You will have a massive pension. No need to worry much about investing. I would keep it simple: 80% in Vanguard Total Stock Index and 20% in Total Bond Index. Make sure to have some cash outside of retirement accounts for emergencies. Other than that I would just make your life as comfortable as possible so you can coast to that pension.
If he dies before 50, his wife has the $650K life insurance and value of deferred compensation at death which while very nice is only equal to about 10 years of his pension.

I am interested why so little is saved with a $125K annual income.

.
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Old 11-24-2018, 08:10 PM   #9
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If he dies before 50, his wife has the $650K life insurance and value of deferred compensation at death which while very nice is only equal to about 10 years of his pension.

I am interested why so little is saved with a $125K annual income.

.
Sounds like he sold equities at the bottom of the Great Recession and didn't get to enjoy the ride back up. If he has $215,000 with none of it being gains then that's not bad for a 40 year old. Not great by FIRE standards but not bad in general.
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Old 11-24-2018, 08:54 PM   #10
Confused about dryer sheets
 
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I havent always made 125. There have been step and pay increases along the way. Yes, the i sold low and waited too long after 2008 before deciding I wanted to start back in the stock market. As mentioned previously, it was a huge financial mistake. 215 grand isnt what most have here whom are commenting, but I still have a lot of time (ten plus years) before it even matters-probably a lot more. I appreciate the advice regarding asset allowcation into the future.
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Old 11-25-2018, 07:29 AM   #11
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Originally Posted by Eztroller View Post
@steelyman

Thanks. I have a friend who has a financial background tell me to be high risk with my deferred comp. he explained I already have a stable conservative investment-pension. Made sense at the time, but am just now getting around to trying to figure it out.

The compounding interest question should have been more clear. I expect to contribute 10-15 grand a year for the next ten years. How do u calculate that? I have just been using a google search for calculators. All of them seem to say the same thing.
You're welcome. Also, welcome to e-r.org!

The differences in what you are getting from calculators on websites probably arise from assumptions they make, for example the additions you expect to contribute (the 10-15 grand), when they are made (beginning/end of year, each pay period, etc). But they give you a useful "ball park" estimate. You might want to test various things out yourself using a spreadsheet, 12 years aren't too many rows to set up and you can enter you actual results as you go along.

One calculation that approximates what I think you're after has the following inputs:

P = initial principal ($215,000 in your case)
A = additional investments ($10-15K for you)
r = rate of return (unclear what you expect, although you mention 2% COLA which would be .02)
Y = number of years

You want to compute the final value F, here's one suggestion. I'm using the notation "^" to denote an exponent, that is "x^y" means "x raised to the power y":

F = (P + A/r) * (r + 1)^Y - A/r

I tried to minimize the number of parentheses there, corrections are welcome. I'm no math wiz and I'm sure other members are way better than me.

The projected rate of return is a tricky part and relies on what investments you choose (e.g. the mutual funds you select). Unless it's a rock-solid interest rate like you'd get from a CD or Treasury you're at the mercy of the market.

The end result may seem pretty large but it's important to remember that your investments are not only the initial $215K but your further additions over time. They do add up!
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Old 11-27-2018, 08:57 PM   #12
Confused about dryer sheets
 
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Originally Posted by aaronc879 View Post
You will have a massive pension. No need to worry much about investing. I would keep it simple: 80% in Vanguard Total Stock Index and 20% in Total Bond Index. Make sure to have some cash outside of retirement accounts for emergencies. Other than that I would just make your life as comfortable as possible so you can coast to that pension.

I cant tell if your are serious? I trust the pension about 99%, but there is still room for error.
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Old 11-28-2018, 02:15 AM   #13
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I cant tell if your are serious? I trust the pension about 99%, but there is still room for error.
Your pension will give you over $100K income for life starting at 50. That is a massive pension and as secure as pensions get. That is a lot of money for no work. I work very hard for under half that money. You are extremely fortunate. You don't need to save like most people on here do in order to retire at 50. Your pension is the equivalent of several million $.
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Old 11-28-2018, 03:31 AM   #14
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Are you setting funds aside to help your daughter with college costs? It seemed in your OP that you are planning on her having the grades to get 100% scholarships. That may or may not happen and may only cover tuition and books but not room and board.


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Old 11-29-2018, 04:57 PM   #15
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Just curious. Is this a state or local government retirement? That blows away my federal retirement, although I will get SS.
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Old 12-15-2018, 07:39 AM   #16
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Its a local government retirement. They stopped new participants from entering it about ten years ago. The new folks were forced into the states retirement system. Still good, but not nearly as good as ours. They do an excellent job of forecasting values and I dont forsee any issues with it lasting until im gone.
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