Out into the Light!

[Huston55]

Well, I've actually been on the forum for a few months, not really lurking 'in the dark' per say; I've posted a few times to threads I found interesting or where I thought I could contribute. But, I realized that I hadn't formally introduced myself and thought it was appropriate to do that.

I'm 56 this month and DW just turned 54. I still work but, DW no longer does. I've moved my entire life, 32 times thus far (the last ~16 with DW), grew up as an Army brat, went into the Air Force (6 yrs active & 17 yrs reserve), and have worked for an engineering and construction company for the past 27 yrs. DW and I currently live in eastern Tennessee.

We've lived in some very nice places and some 'interesting' places; I like new experiences (must have caught the travel bug as a kid) so, even the 'interesting' locations hold some value for me. But, as has likely happened for many of you, I/we have lived in a few places that we long to return to -and which top our retirement locations list. Those places include: San Francisco; Cocoa Beach, Fl; and Hawaii (favorite is Maui). We've lived in Europe and, I could definitely retire for the first few years overseas but, DW is not so inclined. Our top retirement location criteria are: warm, beach, low cost of living, easily accessible community, and probably a bunch of other stuff if I was King.

We've been pretty good at LBYM, while still enjoying life along the way with a nice trip or two each year. I currently qualify for retiree medical benefits from my company ( 55 yrs age & 10 yrs service) although it's expensive, and will qualify for Tricare at 60 (I think I can also pay a higher premium at <60 and get Tricare coverage). After 65, it's Medicare with Tricare as supplemental coverage. I will also get an AF Reserve pension at 60 (~$20k/yr), and have maxed out SS, which I get at 66+yrs. Our savings (low seven figures) will have to provide the remainder of income. I use Fidelity Retirement Planner, which says we can retire now. I've used the free version of Firecalc and would be interested in views on how it compares to the Fidelity tools.

Even though the tools are saying we can retire, I have to admit the prospect makes me nervous. After being almost completely absorbed by a career for 33 yrs, I wonder about being bored and all the other mental stuff that goes with that transition. I read Joe Dominguez's book years ago and just finished Bob Clyatt's "Work Less, Live More.". Lots of good advice in them but, I can tell I have more 'mental' work to be ready to retire.

Subjects that I'd like advice on include:
1. Ways to ensure income for essential expenses (immediate annuities, etc)
2. Strategies for the withdrawal phase during retirement.
3. Tips on where to find the perfect low cost beach community with great weather all year.
4. Strategies you've used to make the transition from work to semi- or full retirement smoothly, both financially and mentally.

I've already benefitted from several threads in the few months I've been on the forum, and I'm looking forward to getting and sharing more knowledge and experience with you in the future---as I work to make the leap to being FIREd!

 

[Nords]

(I think I can also pay a higher premium at <60 and get Tricare coverage).

Yes, although the rates change roughly annually:
Reserves and National Guard: Tricare Reserve Select and Tricare Retired Reserve health insurance | Military Retirement & Financial Independence

There are also rumors of charging an annual fee for Tricare For Life starting in 2013. The proposed number is either $200 or $295 but these are just proposals, not even draft legislation.
Medicare, Tricare For Life, Medigap insurance, and Congress | Military Retirement & Financial Independence

I will also get an AF Reserve pension at 60 (~$20k/yr)

Two things to consider:
1. The Reserve pension calculation uses the highest pay scale for your pay grade, regardless of your actual years of service. Even if you retired at 20 good years, if the pay scale for your rank is higher at longer years of service then you use the higher pay scale.
2. Although military pay raises are no longer linked to the Employer Cost Index, there may be targeted pay raises at some ranks. It's worth keeping an eye on the annual pay tables and updating your numbers so that you're closer to the actual pay scale in effect when you turn 60.

I've heard that some retired AF Reservists have even been able to go back on active duty after age 60. This might be based on very specialized skills, and it might be unlikely during the coming drawdown. Depends on what your specialty is and how interested you are in a commitment.

After being almost completely absorbed by a career for 33 yrs, I wonder about being bored and all the other mental stuff that goes with that transition. I read Joe Dominguez's book years ago and just finished Bob Clyatt's "Work Less, Live More.". Lots of good advice in them but, I can tell I have more 'mental' work to be ready to retire.

Before you retire, everybody worries about "What will I DO all day?!?" right after inflation & cheap healthcare.

After you retire, you might still worry about inflation & cheap healthcare. But you'll be wondering why the heck you were so worried about what you'd do all day.

Subjects that I'd like advice on include:
1. Ways to ensure income for essential expenses (immediate annuities, etc)

You already have inflation-adjusted annuities coming from your Reserve pension and Social Security. You might be able to bridge your current portfolio across that gap to ages 60 & 66+, perhaps even spending some principal, in anticipation of those annuities kicking in. Would you need more than that?

2. Strategies for the withdrawal phase during retirement.

Classic Trinity Study 4%? Bob Clyatt's 4%/95%? Keeping a couple years' expenses in cash and the rest in your asset allocation? Using your annual withdrawal to rebalance your portfolio? What other withdrawal issues are you looking at?

3. Tips on where to find the perfect low cost beach community with great weather all year.

On Maui you might consider staying far away from Lahaina & Ka'anapali. Perhaps upcountry (Kula, Makawao) or Paia. Kahului's pretty built up but Wailuku has affordable areas. Kapalua (west side) is very expensive but Napili (just south) is having a fire sale on condos. If you're interested in more details, a friend grew up on Maui (he currently lives on Oahu) and still owns Maui property. He can recommend a specific area and I can recommend a realtor-- although the realtor's attitude will be "when" you buy, not "if".

4. Strategies you've used to make the transition from work to semi- or full retirement smoothly, both financially and mentally.

Surfing lessons.

Sorry, not much more specifics than that. I was pretty burned out and more than ready to find other ways to entertain myself...

 

[Huston55]

Nords- Thx much for all the info! A few questions below...

You already have inflation-adjusted annuities coming from your Reserve pension and Social Security. You might be able to bridge your current portfolio across that gap to ages 60 & 66+, perhaps even spending some principal, in anticipation of those annuities kicking in. Would you need more than that?

Yes, I will need more than AF Reserve and SS will provide. For the short term, I'm planning to work a little part time in my current field. For the long term, I'm considering a fixed annuity to bridge the gap for "essential" expenses; just need to determine the right age (and time) to buy one. My current plan is to use investments to cover the remaining (primarily discretionary) expenses. Beyond that, it's about having enough to punch out now (or soon) and bridge the gap to 60/66.

Trinity Study 4%? Bob Clyatt's 4%/95%? Keeping a couple years' expenses in cash and the rest in your asset allocation? Using your annual withdrawal to rebalance your portfolio? What other withdrawal issues are you looking at?

Of all the stuff I've read on SWR, much of it on this forum and links therefrom, I like Clyatt's 4%/95% method best. I think he did some research that showed even 4.5% is safe. Beyond that, other questions are: What else have you seen regarding withdrawal strategies that you think is worth investigating? If you use annual withdrawals to balance, how do you consider the tax implications of which account to withdraw from? Which takes precedence, gain or tax status?

Maui you might consider staying far away from Lahaina & Ka'anapali. Perhaps upcountry (Kula, Makawao) or Paia. Kahului's pretty built up but Wailuku has affordable areas. Kapalua (west side) is very expensive but Napili (just south) is having a fire sale on condos. If you're interested in more details, a friend grew up on Maui (he currently lives on Oahu) and still owns Maui property. He can recommend a specific area and I can recommend a realtor-- although the realtor's attitude will be "when" you buy, not "if".

DW and I have vacationed in a Napili condo, nice area. What's the long term prospect for condo prices there? Do you think the land ownership issue (fee simple?) is something to worry about?

Surfing lessons.

Sorry, not much more specifics than that. I was pretty burned out and more than ready to find other ways to entertain myself...

I know what you mean, I'm getting there quickly.

Thx again for all the help.

 

[Nords]

No worries-- sounds like you're most of the way there.

I don't think annuity pricing will change until interest rates change. And that could be another couple of years?

Of all the stuff I've read on SWR, much of it on this forum and links therefrom, I like Clyatt's 4%/95% method best. I think he did some research that showed even 4.5% is safe. Beyond that, other questions are: What else have you seen regarding withdrawal strategies that you think is worth investigating? If you use annual withdrawals to balance, how do you consider the tax implications of which account to withdraw from? Which takes precedence, gain or tax status?

I think the vast majority are happy with either the Trinity Study's 4% or Bob's 4%/95%. I like Bob's variable withdrawal system. Everything after that adds an additional layer of complication.

It's probably better to rebalance without worrying about taxes. Every time the tax tail wags the dog, you end up sorry. Paying higher taxes on higher gains is always better than paying lower taxes on lower gains. But if there are two similar ways to achieve a rebalancing, and one of them is more tax-efficient, then you could go with tax efficiency.

We rebalance when out portfolio's outside our desired allocation bands. We also start a year with two years' expenses in cash. If our portfolio's up at the end of the year then we replenish the cash stash. If our portfolio's down at the end of the year then we spend the rest of our cash stash and hope to replenish at the end of the second year. So far so good.

DW and I have vacationed in a Napili condo, nice area. What's the long term prospect for condo prices there? Do you think the land ownership issue (fee simple?) is something to worry about?

Long term? Cheaper! I think Napili's overbuilt, and lot of absentee owners are going to get discouraged and dump their properties over the next few years. We enjoy vacationing there but there sure were a lot of "FOR SALE" signs a year ago.

As long as you're buying fee simple you own the land. Leasehold has been a big problem as the terms run out (and land values rise) but these days the vast majority of Hawaii real estate is fee simple.

 

[obgyn65]

Welcome, Huston55.