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Three Years Out/Two Bucket Plan!
Old 06-09-2019, 12:04 PM   #1
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Three Years Out/Two Bucket Plan!

Hello, everyone!
I welcome all thoughts and feedback! ER.org was my first $ forum when I googled “early retirement” in 2013! We really became educated and moved from terrible AXA annuities/Edward Jones to Vanguard, massively ramped up tax-deferred, increased income, and still continue to live a rich life! Feel very fortunate that we can cash flow the college drain and still maintain solid investing. Our family includes: Me (50), Spouse (48), Off-spring (Junior in College), NY.

The Plan
Me - work thru June 2022, retire, collect pension, pay for healthcare
Spouse - go PT when I retire which gives space for Off-Spring to launch; PT pays for mortgage (don’t want to use 457b for THAT, if can help it!)
When Spouse retires and Off-Spring settles, sell house in NY and move to FL; would love no mortgage, but flexible for a small one. Should clear $285k from house to buy the next one. May travel for a while and then rent until we find what we want (two car garage, pool, bikeable/walkable)
Neither of us are averse to small, fun PT work; not worried about how we’ll use our time!
Current Assets (May 31, 2019) - $585k
Anticipated Assets @ 5% Growth + Additions (July 2022) - $830k
Anticipated Assets @ 5% Growth minus 457b (January 2030) - $1,030k
Me 457b (Primarily Valic Fixed Assets) - $50k - adding $90k thru 2022
Me 403b (Primarily Vanguard TR 2035 80/20) - $335k - adding $55k thru 2022
Me Roth - $7.5k (Vanguard TR 2025 65/35) will try to add to!
Spouse IRA - $178k (Vanguard TR 2030 75/25/10% Wellington)- adding $34k thru 2023
Spouse Roth - $15k (Vanguard VTSAX) - will try to add to!
Other Assets $440k
House $380k
Antique Car to Sell $50k
Cash $10k (our jobs are very secure)
Any suggestions on assets or allocations? I’m thinking it’s a bit bond heavy given the pension, but now also doesn’t seem the time to make big changes? The 457b is “safe” given the short time frame that it will be needed, but the tax break is needed, esp with SALT in NY.

Liabilities:
House - Owe $125k @ 3.375% to 5/2027 - Monthly $2370 (Principal - $1160, ITI - $1270) Yay, NY Property Tax
Cash Flowing College (estimated costs remaining $75k)
Me - Will buy a car prior to retirement (current everyday vehicles: Me - 2010 Acura (139k miles), Spouse - 2003 Honda (210k miles)
Build Additional Cash after College (minimum $50k)
Any suggestions on liabilities? I know college is a ton of money & that’s WITH merit! May get some assistance from a grandparent 529, but no counting chickens over here.

Expected ER expenses:
$92k
Healthcare - $15k (family)
Taxes - $12k, (anticipating federal, property) - will likely roll over IRA to Roth to tax limit
Spending $65k (four year average (minus mortgage & college) has been ~$60k which included quite a lot of family travel, some off-spring costs, and house/car projects; anticipating a drop in current expenses once off-spring launches *fingers crossed*)
Expected ER annual income:
Non-COLA Pension (75% Spousal) - $68.6k
Bucket #1 457b (thru 2029) - $23.4k
Bucket #2 403b/IRA (begin 2030) - $30k (inflation gap of non-COLA pension) - 3% of $1,000,000 which is estimate of current accounts after ten years of growth at 5%.
Could take dividends to fund extra travel/housing/wedding - $15k (current)
Me Estimated SS at 70 (70%) $29k (helps with non-COLA pension/healthcare)
Spouse Estimated SS at 67 (70%) $20k
To Retirement - 3 years!
2022 - ˝ Year FT Work, then Pension + Spouse PT Work
2023-2029 - Bucket #1 - Pension + 457b + Dividends (if wanted/needed)
2030 - Bucket #2 - I run FIRECalc as if I'm age 59.5- constant spending
$1,030k
$68.6k non-COLA pension
$29k Me SS at 70
$20k Spouse SS at 67
Left everything else as is!
It says max 100% Spending = $99k
How do expected expenses and income look? Anything I’m missing? I’m working off four years of data, so expenses are pretty accurate! Are the buckets clear? Suggestions? How do you feel about how I’m running FIRECalc (basically ten years in the future)? It seems the easiest way with the two buckets. Buckets are flexible, but not touching Bucket #2 until at least January 2029. We’ll be 7 years into early retirement by then, so spending may drop off a bit, but who knows where anything else is!

Thank you, all! Looking forward to participating rather than just lurking.
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Old 06-09-2019, 12:38 PM   #2
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Looks solid to me, but I'll defer to pb4uski who specializes in this type of analysis. Hopefully he will take a look and comment. I'll admit to having pension envy. Yours is like having a few million tucked away, if it's secure.
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Old 06-09-2019, 06:29 PM   #3
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I would definitely build your cash position especially if you’re planning to buy a car prior to retirement. You could argue for a little adjustment in asset allocation but I’ve always had the opinion that asset allocation is really more of a personal preference based on an individual’s risk tolerance and expected investment time horizon.

As long as you have the funds in the 457b plan to make it through those first few years along with PT work and the pension income it looks pretty good. Just make sure those healthcare cost estimates are as accurate as possible to forecast.
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Old 06-09-2019, 07:15 PM   #4
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Congrats on appearing to be well-positioned!

Have you run the numbers in FIRECALC for 40+ years? You can put in the SS and pension payouts when they begin on the second tab, and can also add your exact AA, as well as years to retirement. If you sell the house and buy a second, less expensive house, you can also input the extra proceeds as a lump sum addition. Running FIRECALC with a 10-year horizon isn't going to show you the long term SORR.

When does the pension kick in (53?)? Until I made it to the pension part of the intro, I didn't think you were close to ready, but the pension, with SS, makes this all more reasonable!

With your high fixed income AA (including the VG TR funds), will you really be growing your entire portfolio at 5%? I calculated that at ~38% of your assets are in fixed/cash. With the markets projected to make less than historic averages over the next few years, and with the age of our current bull market, that may/may not be a valid assumption, and it's certainly not a conservative one.

Most of your funds can't be easily tapped for years 54-59.5, as they're in IRAs (except the 457). How will you draw out funds during that period without receiving a 10% early penalty withdrawal? Any plans for emergencies? The ROTH principal (contributions) can be taken penalty and tax-free so I'd first focus on maxing out those contributions right after the 457. I'd personally ramp up the equities to 80%, and ramp up the cash reserves at the same time (IMHO; note that I'm less traditional and conservative than most here regarding AA, holding 82/18 at less than one year to planned FIRE date).
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Old 06-09-2019, 07:50 PM   #5
Confused about dryer sheets
 
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Quote:
Originally Posted by bigcmagor View Post
Looks solid to me... I'll admit to having pension envy. Yours is like having a few million tucked away, if it's secure.
Thank you!! Yes, we know the pension makes early possible and it's as secure as it can be. Would love if I could have a say in how THAT is managed!

Quote:
Originally Posted by RxMan View Post
I would definitely build your cash position especially if you’re planning to buy a car prior to retirement. ..As long as you have the funds in the 457b plan to make it through those first few years along with PT work and the pension income it looks pretty good. Just make sure those healthcare cost estimates are as accurate as possible to forecast.
Thank you, too!. The cash would be in addition to the car purchase. Should be able to do both after college is done. The 457b should see us through to 59.5 with everything else. Can certainly adjust if needed. HC is already budgeted $4+k over and off-spring will be 23, so it's hopeful that family coverage can be dropped sooner than later. I think something's in the works for state HC, so it's a possibility my % of the cost could drop.

Quote:
Originally Posted by HNL Bill View Post
Congrats on appearing to be well-positioned! Have you run the numbers in FIRECALC for 40+ years? When does the pension kick in? With your high fixed income AA (including the VG TR funds), will you really be growing at 5%? I calculated that at ~38% of your assets are in fixed/cash.
Most of your funds can't be easily tapped for years 54-59.5, as they're in IRAs (except the 457). How will you draw out funds during that period without receiving a 10% early penalty withdrawal? If I were you, I'd ramp up the equities to 80%, and ramp up the cash reserves at the same time.
Thank you, HNL Bill! I'll try to clarify a few things; it's hard to determine the best order for an intro! I ran 30 years in FIRECalc, but basically "starting" in ten years at where I estimate us being. We'll be using the 457b + Pension (which starts at 53/retirement) until 59.5, so no 10% penalty! I'm not sure I follow on the asset allocation. It's pretty close to 80/20, maybe 75/25?, outside of the 457b which is basically tax-deferred cash given it will be used within 3.5 years. The 403b/IRA will not be touched for 10 years and I hope not to touch the ROTHs at all. I felt 5% might be an okay balance for growth the 403b/IRA for ten years? I'm not adding extra house sale $, antique car $ or cash to FIRECalc (cushion).

I'm just so relieved to have the discussion as Spouse just believes me, I've run every number/calculator I can, and I feel so responsible for it all!
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Old 06-09-2019, 08:35 PM   #6
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Originally Posted by not so far away View Post
I'm not sure I follow on the asset allocation. It's pretty close to 80/20, maybe 75/25?, outside of the 457b which is basically tax-deferred cash given it will be used within 3.5 years.
Total "Investable" Assets: $585K + $50K Car + $10K cash = $645K

Fixed cash/bonds:
457b Fixed: $50k
4033b VG TR 80/20: 20% of $335 = $70K
Roth VT TR 65/35: 35% of $7.5K = $2.6K
Spouse IRA VG TR 75/25/10: Let's say 25% of 90% of the $178K + 36% of Wellington, for a total of 25% of 90% of $178 + $17.8*0.36 = $46.4K
Cash $10K
Car $50K (assumed not apreciating or depreciating)
TOTAL FIXED = $50K + $70K + $2.6K + $46.4K + $10K + $50K (car)= $229K

$229K/$645K = 36% Fixed.
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Old 06-10-2019, 04:50 AM   #7
Confused about dryer sheets
 
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Quote:
Originally Posted by HNL Bill View Post
Total "Investable" Assets: $585K + $50K Car + $10K cash = $645K

Fixed cash/bonds:
457b Fixed: $50k
4033b VG TR 80/20: 20% of $335 = $70K
Roth VT TR 65/35: 35% of $7.5K = $2.6K
Spouse IRA VG TR 75/25/10: Let's say 25% of 90% of the $178K + 36% of Wellington, for a total of 25% of 90% of $178 + $17.8*0.36 = $46.4K
Cash $10K
Car $50K (assumed not apreciating or depreciating)
TOTAL FIXED = $50K + $70K + $2.6K + $46.4K + $10K + $50K (car)= $229K

$229K/$645K = 36% Fixed.
Super interesting way to break it down! I was doing it in my head! Please check my work, HNL Bill.

So, using your numbers and clarifying our Bucket #1/Bucket#2 plan:
Total Invested- $585k (no cash, no car)
FIRECalc plan (at 59.05) does not include 457b (Bucket #1), so $535k to grow for 10 years (plus additional investments 2019-2023)
Bucket #2 - $70k+$2.6k+46.6k = $119k
Bucket #2 - $119/$535 = 22% Fixed
I do think I may need to look at the IRA for Spouse and to add a bit more to my ROTH (then I can move it to VTSAX like Spouse's). With the pension, it may be a bit too bond heavy; I can easily adjust for the future which will help even out in three years!
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Old 06-10-2019, 05:34 AM   #8
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On AA, you can go into Vanguard online and add your spouses accounts to the analysis and link in your 457b and 403b accounts and then run a Portfolio Watch report that will tell you your overall AA as well as interesting metrics on your stocks, bonds, costs, tax-efficienty, etc. The Portfolio Watch also provides advice as to where your AA stands vs various metrics that Vanguard uses.

Top of 12% tax bracket + standard deduction is $103,350 in 2019... and federal tax would be $9,086... leaving $94,264 to spend.

$94.264 less $68,600 pension is $25,664 gap which would only be 2.5% WR of your anticipated assets plus you have SS reinforcements so the fact that you are getting 100% on FIRECalc isn't surprising.

Only mystery is why you are considering things to be two buckets rather than one. Do you have to withdraw the 457b on a particular schedule?
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Old 06-10-2019, 12:29 PM   #9
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Originally Posted by pb4uski View Post
Only mystery is why you are considering things to be two buckets rather than one. Do you have to withdraw the 457b on a particular schedule?
The 457b is the only account with significant funds that the OP can tap prior to 59.5 without penalty.
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Old 06-10-2019, 04:06 PM   #10
Confused about dryer sheets
 
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Originally Posted by pb4uski View Post
On AA, you can go into Vanguard online and add your spouses accounts to the analysis and link in your 457b and 403b accounts and then run a Portfolio Watch report that will tell you your overall AA as well as interesting metrics on your stocks, bonds, costs, tax-efficienty, etc. The Portfolio Watch also provides advice as to where your AA stands vs various metrics that Vanguard uses.

Top of 12% tax bracket + standard deduction is $103,350 in 2019... and federal tax would be $9,086... leaving $94,264 to spend.

$94.264 less $68,600 pension is $25,664 gap which would only be 2.5% WR of your anticipated assets plus you have SS reinforcements so the fact that you are getting 100% on FIRECalc isn't surprising.
Thank you, pb4uski. I hadn't tried playing with the tools in Vanguard. I will look at those as I imagine I'll learn tons! My primary concern is the non-COLA pension. Inflation will eat it up over time and gradually increasing what is needed from the 403b/IRA will be needed to maintain "constant spending." Not that I predict actual "constant spending" but I'm sure healthcare, taxes will also change as time passes.

Quote:
Originally Posted by HNL Bill View Post
The 457b is the only account with significant funds that the OP can tap prior to 59.5 without penalty.
HNL Bill is correct. $ prior to 59.5 is the primary reason for the two buckets. I also can't roll over a 457b and maintain its no penalty use pre-59.5 and it's in Valic :/ which has terrible expense ratios attached to it. I'm happy to use that $ right up and leave the Vanguard accounts to grow.

Thank you to everyone who replied! I guess that's the benefit of waiting until 2013 to post as I had plenty of time to think a good amount and absorb so much information!
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