Looking for direction as we make the leap

[SciGuy]

This forum where I should have been hanging out for the last few years!!!!!!!!

My DW and I have just submitted our retirement papers to the state retirement system and have received their confirmation of our direct deposit account numbers. We started teaching later in life so only had 22 years in the occupation and hence will be drawing a total of just over $41,000. between the two of us. This retirement begins to receive a COLA once we reach 62 but it is pegged at ½ of the cost of living increase and does not have a “catch up” for the years between now and 62. The good news is that our medical is subsidized at an 80% level until Medicaid time for my wife and even later for me. The calculators show each of us in line for ~ $14,000 ($28,000 total) in social security at age 62 with no additional work from now until then.

During our teaching years we both contributed to 403-Bs and the current values of those despite significant losses in 2008 totals over $310,000. We also have investments through Morgan Stanley a bit over $430,000. including a Roth IRA for each of us.

Our Morgan Stanley broker is hot for us to roll over our 403-Bs into an IRA through of course Morgan Stanley. After following his urgent advice to stay with our position throughout the whole 2008 debacle I have lost a significant amount of faith in his judgment. In retrospect, if we had followed the advice of the folks managing our 403-B we would be substantially ahead right now.

I’m really looking for advice in regards to ensuring a safe revenue stream from now both of us head out on the last great adventure. We have one child and we would love to pass on a nest egg to her. We currently have no debt, own our own home and a few acres in the country and live pretty frugally. (Probably need ~$55,000 per year to live well)

Hopefully it’s never too late to learn. At least that’s what I’ve been telling students for the last 22 years.

Thanks for any feedback.

Hugh

 

[yakers]

Welcome, DW retired from teaching 2 years ago, she is still active in occasional school work. Doesn't pay much but keeps her involved. Check out 403bwise.com for 403b advice, most of them, like DW's were horrible sounds like you might have one of the few good ones. I use Vanguard and would recommend them or a low cost supplier. Or you could use ETFs.
As to staying the course through 2008, some responsible people advocated that, no one knows exactly where the market will go. I did switch to more conservative funds (VG Wellesley for DW & a target retirement fund for me) from an all stock portfolio in 2007/8 but that was because I retired in 08 and got 'more conservative', not because I thought the market would tank.

 

[WB52]

SciGuy, Welcome to the forum. There are a lot of knowledgable folks here who will no doubt share their understanding and financial savy with you. From your post It looks as though you have a good handle on your costs ($55k/year to live well) as well as your near future income streams. It looks as if you are well positioned to meet your financial needs in the near future, as long as inflation does not eat up too much of your assets until you reach 62 and start to recieve SS. I could not tell how long it will be until you het that age. Have you tried performing an inflation sensitivity analysis by using FireCalc at various iflation levels? If not, it may give you some additional peace of mind.
Congratulations on your achievement! Please keep us informed about your experience as you enter the next phase of your lives and experience RE.

 

[SciGuy]

"SciGuy, I could not tell how long it will be until you hit that age."
I will be 56 this December while my DW will be 57 this October.

Have you tried performing an inflation sensitivity analysis by using FireCalc at various iflation levels? If not, it may give you some additional peace of mind.
I have played with Firecalc a bit but have not played with inflation yet. The prospect of high inflation does worry us a great deal.

How might one hedge inflation in the short as well as long term?

Thanks for the quick and positive reples!

SciGuy

 

[REWahoo]

SciGuy, welcome to the forum. Here is a current thread that will help you out when quoting other member's posts: http://www.early-retirement.org/forums/f32/having-trouble-with-quotes-44648.html

 

[Moemg]

Welcome to the forum !

 

[clifp]

Aloha SciGuy

Well let me move straight what we do best on the forum, hand out free advice that is worth a bit more than a more than you pay for it. First congrats on winning the retire in financial freedom game, after the last year not many folks are able to say that.

1. Given that your pension is close to your spending needs and Pension+SS exceeds them. All you need to do is bridge the gap of 5 or 6 years until you can collect SS. (If you actually should collect at 62 is separate question and worthy of lots of discussion, but you've got years to worry about that.) A safe recommendation is to set up a CD ladder of say 5 years. It seems to me around $15K is all that is missing from your pension 41K and spending $55K. So you look around for the best CD rates (Penfed.org is a board favorite and pleasure to do business with IMO) and get a 1,2,3,4 and 5 year CD. Rates obviously are way down now, so I would not be in huge hurry to do it, but worth adding to your do list.
2. Invest in your financial education. The great news is once you are retired you'll plenty of time to learn more about investing. Some people, like me, treat this as job that we enjoy doing it, others put in the cleaning the bathroom category necessary but unpleasant. Never the less I can practically guarantee that with almost $1 million in liquid assets the time you spend learning will pay more than any other single investment. By the way much of what you will learn is what not to do, what do is much harder.
3. Make you broker earn his commission. Tell Mr Broker that you are putting your money management services up for bid. One of the bidders is Vanguard's low cost index funds. If he does a good job he may get your 403B rollover, if he doesn't he loses everything. Now most brokers are reasonably happy to tell you what they will invest in the future and help develop a "comprehensive financial plan". What they generally aren't happy to do is review past performance and make a valid comparison. Since they generally don't look great. (By the way neither losing a bunch last year, not advising you to stay the course in 2008 is, in my opinion, necessarily bad.) Ask him to set up a couple two or three hour meeting with you and the wife. In the first one he will review the past performance over the last 5 or 10 years and compare it to appropriate vanguard index. So for instance if last year the 400K under his management was $40,000 in the Morgan Stanley money market, $100,000 in bonds, and $100K in MS large cap mutual fund, and the rest in various stocks and mutual funds. A reasonable comparison would be 10% Vanguard Money Market, 25% Vanguard Total Bond Index, 25% Vanguard S&P 500, and 40% total market index.
4. After you have these meeting you come back and tell us what happen. At which point the board gets to [-]rip into[/-] evaluate his past performance and his financial plan. Which we will be happy to do.

Now if the broker balks at doing this you fire his ass. Most will be happy to meet with you but will try pass of some generic report that isn't customized to your situation. MS is full service broker, you expect to have your windshields wiped, oil checked, tires inflated, not just the gas tank filled. A 430K account, which probably worth close $600K not too long ago, almost certainly generate $2500 a year for MS a large chunk goes the broker, it would not be at all surprising if the actual commissions are triple that much. If you move your 403B over we are talking more than $10k a year in fees. If he isn't willing to invest 20+ hours in the project you don't need him.