new - dirt cheap retirement?

[offroad]

So am a 52 year old, with a federal job. The thrift savings plan is sort of a 457k plan that government employees are offered, and I have much more than most, which is not saying much.

Given a goal of only $30,000 a year; and my pension might get me $12,000 a year in three years. What do I do to make the other $18,000 a year with investment income?

Some are saying to plan for 5% a year interest; so that would mean I would need $360,000 in the bank to earn 5% off of forever. But that is risky because some years many are hurting to make even 2%.

***
yes I realize that when I hit 65 I will get maybe $20k a year in social security, or maybe some means tested reduction to $10k per year because SS blew a gasket (is failing).


***


yes I know that many predict there will be mass starvation of seniors if you expect to live on $30,000 a year but I guess I do not see that.

 

[REWahoo]

Keep working...

 

[offroad]

Keep working...

likely what will happen. true enough. I am 3/4 of the way to my financial simple goal in so many ways.

 

[aja8888]

yes I know that many predict there will be mass starvation of seniors if you expect to live on $30,000 a year but I guess I do not see that.

I wouldn't be worried about starving to death, I'd be more worried about getting sick.

 

[MRG]

Welcome to the forum.

Are you currently tracking expenses? Might be good to do, 30k can be done is it just you or a partner? Makes a difference

Might want to read some threads here about SWR. Your calculations may be optimistic. Have you run filecalc? Best wishes.

 

[offroad]

I wouldn't be worried about starving to death, I'd be more worried about getting sick.

Oh yes. Too true about getting sick and having long term lingering walking death. Becoming a financial money pit zombie from Alzheimer's is a real personal concern for myself. And it's sad when that happens to a family.


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[highlow65]

I really don't think a 20 thousand dollar social security is going to be means tested, the wealthy may be in the future, but I think your real question could be Can you really afford to live on 30k? Maybe you can now but not necessarily in the future. I agree with earlier comment keep working. Your pension and social security will continue to rise and you can continue to improve your financial situation until you feel comfortable. Only you know when that is.

 

[pb4uski]

If your gap is $18k a year then you need more like $500k of savings rather than $360k. The reason that you need more is that your $30k of living expenses will increase with inflation so the $18k gap will grow with inflation as well.

If your rate of return is 5% and inflation is 3% you would need about $500k to provide for $18k a year from ages 55 to 100 where the $18k increases 3% each year for inflation. Or put another way, if you have $500k of savings and a 3.6% withdrawal rate then you could withdraw $18k a year and increase withdrawals each year for inflation.

However, I think it is unnecessary to assume that SS will not be there for you. I can see perhaps a 20% haircut to be conservative, but not more than that. If that is the case then you gap would be $18k from 55 to FRA and nil thereafter (assuming that your pension is COLAed) so you would need a lot less than $360k.

Spend some time with firecalc or Quicken Lifetime Planner and you can get a better handle on your situation and what you need to do.

 

[W2R]

So am a 52 year old, with a federal job. The thrift savings plan is sort of a 457k plan that government employees are offered, and I have much more than most, which is not saying much.

Given a goal of only $30,000 a year; and my pension might get me $12,000 a year in three years. What do I do to make the other $18,000 a year with investment income?

Some are saying to plan for 5% a year interest; so that would mean I would need $360,000 in the bank to earn 5% off of forever. But that is risky because some years many are hurting to make even 2%.

***
yes I realize that when I hit 65 I will get maybe $20k a year in social security, or maybe some means tested reduction to $10k per year because SS blew a gasket (is failing).


***


yes I know that many predict there will be mass starvation of seniors if you expect to live on $30,000 a year but I guess I do not see that.

Hi and welcome!

I am a former federal employee too, although I am older and now retired. I agree, it was surprising to hear how little my co-workers had in the TSP. What were they thinking? I just don't know. Maybe they had other assets. The TSP has been very helpful for me in retirement. Also you will have some income from other investments, I suppose, and hopefully Social Security.

Maybe you could live on $30,000/year right now, if possible, and save the rest for retirement in the TSP and in other investments.

I like your idea of aiming at at least $30,000 without Social Security, although some who have more confidence in SS might consider that to be aiming at $50,000. But thinking of it your way, any SS would be sort of like getting a huge bonus if/when you got it. That sounds like fun.

 

[Retirein2024]

I'm also in the federal system and 52, 53 next month. I plan on retiring in 9 years at age 62. At that time I'll collect the pension maybe SS and about 4% each year from the TSP. I've been contributing the max into the TSP for a long time now. Have you gone to the TSP site and used the calculators to see how much you will have at the different rates? I've always been aggressive in the TSP funds C, S. A lot of my co-workers just leave their money in the G fund which really doesn't do much.

 

[timo2]

Your location is very important. But to continue speaking in generalities, here are three things to consider. 1) Just today on Marketplace they had a story that the typical customer of payday lenders has an income of $30K per year. 2) the elder index shows the minimum income for old people to avoid requiring any form of government assistance. In Colorado and New Mexico, where I am interested in, that number was around $45K per year in 2010. Google on 'elder index' and it will pop right up. 3) make sure you work long enough to keep your FEHB coverage in retirement.

IMO, you should shoot for at least $50K per year for a financially independent dirt cheap retirement.

 

[W2R]

Your location is very important.

So true, so true! Excellent point. Also important is whether or not one is single without dependents, whether or not one's house is paid off, and what kind of lifestyle one is envisioning and pursuing for retirement. Older people seem to spend less than younger people although the reason for that is unclear.

IMO, you should shoot for at least $50K per year for a financially independent dirt cheap retirement.

The OP is only 52, but for those over 65, less may be needed. According to U.S. Department of Health and Human Services, Administration on Aging, which defines "older persons" as those over 65,

The median income of older persons in 2010 was $25,704 for males and $15,072 for females. [...] Households containing families headed by persons 65+ reported a median income in 2010 of $45,763.

http://www.aoa.gov/Aging_Statistics/Profile/2011/docs/2011profile.pdf

That seems pretty low to me, but something I have learned here at the Early Retirement Forum, is that the "sweet spot" for income is very different for different people in different circumstances.

 

[timo2]

The OP is only 52, but for those over 65, less may be needed. According to U.S. Department of Health and Human Services, Administration on Aging, which defines "older persons" as those over 65,http://www.aoa.gov/Aging_Statistics/Profile/2011/docs/2011profile.pdf

That seems pretty low to me, but something I have learned here at the Early Retirement Forum, is that the "sweet spot" for income is very different for different people in different circumstances.

I can see those numbers being low, because they include people in poverty in retirement, as opposed to an estimated income needed to be FI in retirement, which necessarily would be higher. (depending upon the location of course.)

I had assumed the OP would retire at their minimum retirement age, which is probably 56 or 57, so they can keep their federal employee health benefits in retirement. That may not be a correct assumption, as we recently had a person retire just under 2 years short of being able to carry their health insurance int retirement. As you said, every situation is different.

 

[daylatedollarshort]

yes I know that many predict there will be mass starvation of seniors if you expect to live on $30,000 a year but I guess I do not see that.

I have retired friends with mortgage free homes and Medicare for health insurance that are quite happy living on that amount.

 

[offroad]

I have retired friends with mortgage free homes and Medicare for health insurance that are quite happy living on that amount.

This is a fact that drives me crazy. It's completely true. Yet many think this couple are nieve. If one or the other gets a long term medical illness Medicare will not be enough for nursing home intense care level.


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[growing_older]

The beauty of a dirt cheap retirement is the ability to adapt and live on very little allows some people to retire early and enjoy their work free years sooner. The danger of a dirt cheap retirement is that any miscalculation or unexpected expense or disappointing investment return can derail the plan because there is so little margin of safety.

FIRECalc is a good tool to assess if an early retirement plan is sound and how likely it is to succeed financially. Taking 18,000 from a 360,000 portfolio looks dangerous to me. I'd want a much bigger starting position to feel confident of being able to stay retired. How confident are you about living on $30k? Have you tracked expenses for a significant length of time?

 

[kcowan]

I hope you budget for heath care.

Also you should consider relocation to fly over states to get your COL as low as possible.

 

[Surewhitey]

Mom and spouse live cheaply enough to not spend her SS ($600/mo). Spouse only gets about $1k/mo...living in AR, paid for home and 2 cars. They're 67 & 70. Have lived their lives there 30 years & are content/happy. She's a veteran, so both seem taken care of regarding health care. As simple as it gets, IMO.

We also live simple, sorta. All in, $34k last year. This has US health insurance and 3 months travel (frugally). Places visited last year are LA, Yosemite National Park, Hot Springs & Blanchard Springs AR, Dallas twice, Belize, and 3-4 trips to Cozumel (scuba) & Isla Mujeres MX. We are 44 & 50...using Mint to track spending.

My point is both extremes of frugal living are enjoyable and done on the cheap. Just depends on priorities.

 

[daylatedollarshort]

The cost of attendance at UCLA, subtracting out tuition and school related costs and adding in an extra 25% for summer, comes to $24,221. And that includes rent.

So I believe my single, retired friends in coastal California who say they live well on ~$30K with mortgage free homes they fixed up prior to retirement, paid for cars they don't put a lot of miles on any more, Prop 13 tax bases and Medicare. They live where they grew up so they spend a lot of time with friends, family and spoiling grandkids for fun.

Then there is solar cabin guy -

College student lifestyle in a pricey urban area, mortgage free / Prop 13 retirees on Medicare or solar cabin guy in a rural area - there are many ways to live that wouldn't cost a lot and still cover all the necessities of life.

 

[Music Lover]

How confident are you about living on $30k?

I know plenty of people who live quite comfortably on that or less than that. My take home pay is about $35k and I will be retiring next year with a 70% pension...which will really be closer to 85% due to fewer deductions. My house is paid off and the lack of a large monthly medical insurance premium certainly helps....I have Canadian health care and the option for extended benefits (eye, dental, travel, etc.) for about $30 a month.

I don't travel a lot, and my hobbies are inexpensive and sometimes even pay for themselves (gig pay from bands).

 

[razztazz]

I know plenty of people who live quite comfortably on that or less than that. My take home pay is about $35k and I will be retiring next year with a 70% pension...which will really be closer to 85% due to fewer deductions. My house is paid off and the lack of a large monthly medical insurance premium certainly helps....I have Canadian health care and the option for extended benefits (eye, dental, travel, etc.) for about $30 a month.

I don't travel a lot, and my hobbies are inexpensive and sometimes even pay for themselves (gig pay from bands).

Hear hear! I've been living under 30 grand per for years. Yes, I'm single.

 

[Music Lover]

Hear hear! I've been living under 30 grand per for years. Yes, I'm single.

Most of my friends are either well off but frugal, or broke, lol. As a result, we tend to lean towards activities that are free or inexpensive. Rehearsing and gigging with bands, BBQ's, house parties, helping each other with renos and projects, etc. Golf is cheap around here...$30 - $35 average round (we always walk), and plenty of coupons can be found to reduce the price even further.

I once paid $14 for a round last year...2 for 1 coupon plus a senior discount (50 is "senior" for golf). Followed the round with a BBQ on the deck sipping a few cold ones, and passing around the acoustic guitar. Fun times for $20.

 

[offroad]

So the consensus is $30k is doable this year.

And given experience with obamacare with my girlfriend we can buy a catistrophic medical coverage for $200 monthly that has a $5000 deductible.

Just need a van down by the river. Lol. Or a relative to move in with on the cheap. Or HUD elderly subsidized housing.


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[bclover]

So the consensus is $30k is doable this year.

And given experience with obamacare with my girlfriend we can buy a catistrophic medical coverage for $200 monthly that has a $5000 deductible.

Just need a van down by the river. Lol. Or a relative to move in with on the cheap. Or HUD elderly subsidized housing.


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lol, for some it is doable. I have a friend who is retired and enjoying her life immensely on 30k.

Would I do it? no? but then I dread going to work every day. so who's better off

 

[haha]

Income and capital tend to produce flexibility. In many cases, that flexibility is not needed. But if it is, it is better to have it than not-unless you can count on a bailout from somewhere.

Ha