Nervously contemplating ER

[The Onceler]

Hi all! I found this site somewhat by accident. firecalc is so cool. And the posters seem to be incredibly helpful and insightful. Don't quite get how firecalc ignores tax effects and still is predictive but I'll learn to adjust. Not very financially savvy but have really tried to save while pretty much not being too frugal. I guess we have been LWYM. Come from very modest background with student loans etc. so can handle belt tightening.

So:

Married -- no children no debt. Own our planned retirement house in country and just recently sold our coop in city and now renting. Plan for now is RE at year end 2018. This is a brand new scary spooky plan -- 1 week old. Both of us are getting fully stressed at work and it seems to be affecting our basic outlook on life if not our health. I hope RE does not become too much of a surrogate stress point.

I work for mega mega corp for 28 years -- it is insane. But I knew it would be. DW works for state government agency for 30 years. Our details:

Both DW and I are 56.

DW stands to receive $103k pension w no cola starting 2019 (assuming ER) at age 57 -1/2 retirement. Been paid way way below market for 30 years but trade off was dbp. This number is 100% survivor.

I qualify for approx $93k variable dbp starting at 65 w some minor adjustments for actual returns. This is 100% survivor w no cola.

We could each add about $7k per year if we keep on grinding.

We have about $5.3m in savings of which about $3.8 is tax deferred (401k etc).

SS is probably $35k ish each at 65 assuming it is there.

We have a very bad handle on expenses. Not sure how to create a good baseline. Obviously taxes and insurance etc are part of it. Any recommendations on a good system for developing expense data would be gratefully received!

Oh yes-- DW qualifies us for paid healthcare during her lifetime only starting on retirement date. Once Medicare kicks in it is a supplement. I don't know anything about healthcare thank heavens but that could change tomorrow.

Stepping off the ledge must be tough because in our world there is no going back.

 

[street]

Well, you should get a number that you can live on and go from there. If it were me I would be gone tomorrow with your portfolio.

 

[W2R]

Don't quite get how firecalc ignores tax effects and still is predictive but I'll learn to adjust.

Hi, and welcome!

Firecalc considers tax payments to be part of your spending. So, it doesn't have to deal with them. Be sure to figure out a rough estimate of your taxes, and include that in your estimated expenditures if you use FIRECalc.

 

[Bamaman]

Sounds as if you are in California. Many places, the governors make less than the DW's pension. I Just hope tbe governmental agency has the financial resources to sustain such pensions and promised benefits for the long run.

Call the moving van and get out of there. In some high COL places, you are middle class. In many fine places to live, you can be living like a King.

 

[Sunset]

Welcome,

I know I could easily retire on your numbers, just the pensions alone would be gravy.... So you are totally set.

How to get a handle on expenses, write them down.

I used to guess how much I spent, not very accurate.

Then I had the great idea to look at my bank account for the past year, as I use 1 bank to pay all my bills and write checks, it was pretty accurate, but I couldn't tell you how much groceries were in a year.

Finally got a phone app, as it's with me all the time, and so it is convenient to enter in the value each day or right away, it has categories you assign to each purchase, like: grocery.
Now I know exactly how much I spend, I'm on my second year of using the app.

 

[BeachOrCity]

To get a handle on expenses I strongly suggest you use Mint or another aggregator like personal capital.
I use mint for all my checking and credit cards and monthly update the auto categorization it does. I then export the data yearly yearly to a spreadsheet and manually adjust what my retirement equivalent spend would be. Changes I make include eliminating all healthcare expenses and using a flat estimated number. Eliminating all auto expenses and using a flat average based on its rate for mileage.
Adding in a travel budget. Etc. adjust anything that changes. Travel. Restaurants etc.
I would do this now because I strongly believe you need a few years of expense history to know what you really spend.

 

[Foodie]

I get it why the idea of retirement can be spooky when it is one week old. Mine is 2 years old and I am much more at peace with it.

However, dude, you are GOLDEN.... having $5.3 M and using the 4% rule as a starting point means that you can spend about $212,000 / year. Then add on top of that more than $200,000 / year (2 pensions and SS) that will soon kick in.... we are looking at a budget of $412,000 / year.

I live with a tenth of that. The user "street" stated that with that portfolio he would be gone tomorrow. Heck, with that portfolio I would be gone yesterday.

I use Quicken to track my expenses. Got data of every penny spent since 1997.

Unless your expenses are truly stratospheric, you are so ready financially. Enjoy it. You built it. You should be proud of your accomplishment.

 

[SonofCohoes]

You shouldn't be nervous, you should be cleaning out your desks!!!!!!

 

[Amethyst]

Honestly, it sounds like you two will be in the 1%...in retirement.

 

[brucethebroker]

Onceler-welcome, and congrats.
Move to the Midwest where we live. I can refer to you as my "rich uncle". From where I sit, you have it "made in the shade!"

 

[pj.mask]

Yea, 3.75% SWR for 35 years and 200k in pension?
For expenses: what is your current income - savings? If that number is less than 400k you should be fine. Taxes will be lower

 

[Mdlerth]

Smell those truffula trees

Echoing the consensus, the only task you face is to track your expenses more diligently.

Your numbers look fine for an ordinary ~1%er household. However, for all we know you could be used to maintaining a celebrity* lifestyle (0.1%er). In that case, you might still need to stack some more $$. If you collect 400k but spend 2000k, you're in trouble.

Good luck, and good work amassing a comfy pile.


* Or perhaps you want a supervillain lifestyle (0.01%er). You'll need more.

​

Sharks wielding laser beams don't come cheap!

 

[mystang52]

Re: tracking expenses This is not theoretical. Take a look at your real-world spending in the last year. Simply write them down. It shoudn't be hard to determine your fixed expenses: rent, property taxes, utilities, insurance, income taxes etc. Vacation expenses should likewise be somewhat easy to determine.
For the next 2 weeks track EVERY dollar you spend. From that figure you can extrapolate your annual discretionary spending. It won't be 100% accurate, but it'll at least give you a figure you can wrap your arms around.

 

[38Chevy454]

As the rest said, all you need to do is understand your expenses. Seriously, with your pensions, insurance coverage, SS and savings, you have more than 99% of retirees. So you are questioning if you can do it?

As demonstrated, you have capability to spend $400K per year and still have the sustainable savings to worry about leaving behind.

 

[HarveyS]

You've got it made. With your asset base you don't need to worry about expenses, you need to think about spending. Don't sweat getting annual expenses in dozens of categories, each to the nearest dollar. I track spending as 1) utilities (all as one, including cell phone) 2) mortgage 3) insurance (home, auto) 4) property tax 5) estimated tax payments (income) 6) Cash out (ATM visits) 7) visa/Master card 8) charity 9) other.
I don't really care where the cash out goes, or what visa/MC is spent on. I LBYM so where it goes is controlled by my nature. You can look back 3 years and get a handle on your spending at this level of accuracy in less than two hours. My guess is it will be $150K +/- $25k per year. With your savings and pension (as others mentioned, you are all set). For a budget, I take the spending and add $25K for premiums and max out-of-pocket medical costs. I also add $10k for home maintenance - both expected and unexpected. Then I track against my budget quarterly. If I overspend one quarter, I usually make it up next quarter by throttling back the visa charges. Join us in ER as soon as you can....you are not getting any younger!

 

[Rianne]

Welcome and your numbers look excellent. The spending is the question. You have many safety nets, healthcare and pensions and $70K in SS at FRA? What is your net worth?

I always think about debt. I've kept track of exact spending for the last 5 years. Do you rent or own? If you own, how many? Credit Cards keep good records of spending and organize the spending into categories. We have one CC and we do most of our spending on it. I take Life Insurance and property taxes and spread them over 12 months. After that, everything that goes out is accounted for on a month by month basis. End of month totals are key. Some months 6K, other months 4K, then add up months and base average on 12 months.

For instance, our total months spending at the end of Sept. is $46227.45/9 = 5136K average per month for the year so far.

5136 x 12 = 61,636K average for 12 months. My goal is to stay under $75K for year. I budget that way, month by month. Utilities, you never know. We had a cool Sept., kept windows open most of time. Winter could be warm this year as globe warms. We had one big snow last year, highly unusual. Home maintenance, difficult to predict. Heavy rains, roof leak and there you go. Who knew? All it takes is the checkbook and CC. How else do you spend money? We have a standard 3 year cash reserve. Transfer $X from that account to checking and work from there. Easy Peasy.

 

[Katiek]

Welcome! I agree that it would be helpful to have an understanding of your expenses, but unless you inherited $10 million that is now worth $5 million, my guess is your expenses aren't too extravagant if you have been able to save that much.

I think your retirement is all set, now start planning how you want to enjoy it.

 

[The Onceler]

Many thanks guys I really appreciate the input and positive thoughts. We have lived within our means but due to fortunate circumstances that has meant a pretty easy path, finance-wise. Always have maxed out 401ks, never ever paid interest on cc debt and paid off student loans and mortgages as soon as possible. Weaknesses have been dining out, occasional leisure travel and golf club dues ($$). No superhero cars, bottles of wine or jewels etc. And clothing has been a bit excessive. Having just moved and downsized our city place from modest to more modest we appreciate how much unused stuff we had accumulated. Many boxes of donations and hand me downs later I think we see a new path forward. Maybe. Some data gathering is in order. I think the "must-haves" except in case of dire times will be golf club membership (great way to spend time and not too expensive under the circumstances) and a little bit of decent travel. We look for bargains and fly budget unless we can use miles to upgrade but that perk of working will disappear after RE.

 

[Doc0]

I use mint to track expenses. I charge virtually everything on a fidelity cc for cash back. You are in good financial shape but in retirement you're gonna get killed in taxes once you hit 70. I would get some professional advice while you still have some time to plan. There are things you can do to mitigate this. Go read about required minimum distribution. Between that pensions and ss half your dough will go to taxes.

 

[The Onceler]

Thanks Doc0 -- I'll research it. Have you studied §72(t)(2)(A)(v) withdrawals as a bridge to ameliorate tax exposure to rmds? Just starting to think about it.

 

[Doc0]

I'm not sure what that is but would like to find out

 

[Aerides]

You are on the high end in terms of assets of most everyone here. Congrats. Just get a clue on those expenses in case they are crazy (doubtful) but other than that, you should both be giving notice when you go to the office on Monday.

 

[Doc0]

I did look up §72(t)(2)(A)(v) and it might help the taxes some. It's mostly about avoiding early withdrawal. One of the methods to remove money penalty free is to use the RMD method. Whatever you do, if you go this route make sure all the i's are dotted and t's crossed.

I used the schwab RMD calculator and it looks like your required RMD will be almost $300K per year for a 45 year annuity at 6% rate of return. with your wife's $103K per year that would put you just below 465K for the top 1%. Your pension will put you over top 1%.

At this level my advice would be to seek professional help to limit your tax bite throughout your retirement. To Uncle Sam you are a fine ripe plumb waiting to be plucked. With this kind of money at stake, I would not be looking to an internet forum for advice.

I have a similar (but not as profound) problem with too much pre tax money so I took out enough cash to live on for 5 years and I am aggressively doing Roth conversions to try and clear out some IRA money before RMD kicks in. Living on the cash means my income is zero and I can within a given tax bracket, maximally convert from IRA to Roth during this period. This probably wouldn't work for you because of the pension incomes, but at 56 you have some time to make your best plan.

Congratulations on your success. You have nothing to fear.

 

[The Onceler]

Thanks again. Will definitely seek pro advice. Just noodling here -- I've always found that a semi knowledgeable state is better than ignorant when seeking advice. That way you can probe the advice suggested before accepting it. Roth could be an option -- will look into it.

 

[cnocmmz]

Your biggest challenge will be taxes, taxes, taxes and more taxes.....