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Wake up call - I've got 10 years to go!
Old 10-08-2007, 08:50 PM   #1
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Wake up call - I've got 10 years to go!

Hi, I just discovered this board a few weeks ago and I have to say I am impressed and looking forward to learning more about the whole subject of retirement planning. Finding this forum has been a superb wake up call for me!

I had seen in about 3 or 4 different magazine and newspaper articles a reference to only withdrawing 4% of your savings each year to be able to preserve it throughout retirement. I could not figure out how they had come up with it so I did some searches and found this board as a result. I have read through some of the ďbest ofĒ threads and I think this will be a wonderful resource in the years to come.

OK, here are my vitals:

Age: I am 47, wife is 48, and we have one 12 year old kid. We live in Colorado but Iím not sure if we will stay here after retirement.

Income: $140K+ per year for me and about $50K for wife. Kid has no income and, in fact, is a complete black hole as far as money goes

Pension: Yes, Iím lucky to still have a pension. If I retire at 57, I will receive about 66K per year fixed (i.e. no cost of living increases.) As I think is probably typical with pensions, every year I work beyond that increases it greatly and so I found the thread on ďone more yearÖĒ to be fascinating. If I actually waited until 65 the amount is in the 6 figures somewhere but then again if I wanted to wait until 65 I would not be posting to the ER forum. One of my concerns is about my company freezing pension benefits as IBM and some others have done.

401K: We have about $500K spread in about 90% stock mutual fund and 10% in company stock. I have periodically moved money out of the company stock just for diversification purposes since all of the 401K match comes in the form of company stock. I currently put 15% of my income into the 401K each year which maxes out the IRS limits on doing pre-tax contributions. The company converts it to post-tax contributions and still does the match.

No debt except for a mortgage, about $240K at 5.25% for 30 years. Iím currently paying an extra $700 a month extra in principal with the goal of being done with house payments when I retire.

Iím looking at retiring in 10 years at age 57. Iíve been doing spreadsheet projections for several years but when I recently turned 47 and realized that itís only 10 years away I started to give it more serious thinking. My 401K should grow to somewhere between $1.1M and $1.8M given a growth rate of 5% to about 10%. (and of course Iím still making contributions and getting the company match.) For 10 years, is 5% growth about right? I know the market averages are more in line with 9 or 10% but what do people use for a 10 year horizon?

I have looked at the FIREcalc tool and found it pretty cool Ė can it do something similar to project how much Iím likely to have in 10 years based on the various combinations of 10 year runs in the past? That would be pretty interesting to see.

Here are the issues I hope to learn more about in the coming months:
- Since we have never used a written budget, I really donít know how much money we will need in retirement. Iíve seen some say that $50K a year is fine if you live simply but Iím afraid weíve become used to some luxuries that we might not want to give up. So one major goal is to get a good estimate of post retirement expenses.
- Since my pension is fixed, Iíll looking to see if I can treat it like more like a lesser pension with an increase each year for inflation. For example, say I get $66K a year but I only spend $52K the first year. I bank the difference and then next year spend $52K + 3% for inflation and bank the rest. My spreadsheet says that if I invest (at 6%) the saved amount each year the money should last 30+ years. Looking for feedback on that approach.
- Places to live in retirement. Do most people stay put? If you move to a cheaper locale, are most people happy? I realize thereís no ďrightĒ answer but I think I can learn from otherís experiences.
- I have the advantage of enjoying my job and feeling like I do really contribute something to society with my work. So learning how others make that adjustment will be interesting. It also makes the ďone more yearĒ dilemma interesting to read about.

I hope this isnít too long-winded for folksÖ
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Old 10-08-2007, 09:41 PM   #2
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Since we have never used a written budget, I really donít know how much money we will need in retirement. Iíve seen some say that $50K a year is fine if you live simply but Iím afraid weíve become used to some luxuries that we might not want to give up. So one major goal is to get a good estimate of post retirement expenses.


Welcome.

Starting immediately, track every penny; chances are, the very act of tracking will lead to reductions in spending.

Khan - retired


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Old 10-08-2007, 10:30 PM   #3
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I do use Quicken to pay the bills so I will use that as a starting point. Once I have a base to start from, do you just assume inflation at 3% or whatever to project expenses into the future?

As far as it reducing our expenses, I'm not sure it would have much effect on the DW
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Old 10-08-2007, 11:09 PM   #4
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Originally Posted by boilerman View Post
I have looked at the FIREcalc tool and found it pretty cool Ė can it do something similar to project how much Iím likely to have in 10 years based on the various combinations of 10 year runs in the past? That would be pretty interesting to see.
I'm already retired, so I haven't really played with the feature, but on the options tab of Advanced FC you can specify "what year will you retire?"

Then, on the "how much will you spend" tab, increase the number of years for "when will the plan end?" to adjust for your start year.
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Old 10-08-2007, 11:45 PM   #5
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Hi and welcome to the boards

I have to sign on to the importance of checking expenses. You sound like you have it under control. I would also keep in mind that the 66K pension is going to be taxed so having $52K of expenses won't leave too much left over.

Ironically, we are planning to move to Colorado to retire.
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Old 10-09-2007, 07:42 AM   #6
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Originally Posted by boilerman View Post

- Since my pension is fixed, Iíll looking to see if I can treat it like more like a lesser pension with an increase each year for inflation. For example, say I get $66K a year but I only spend $52K the first year. I bank the difference and then next year spend $52K + 3% for inflation and bank the rest. My spreadsheet says that if I invest (at 6%) the saved amount each year the money should last 30+ years. Looking for feedback on that approach.
That sounds like an interesting idea. It lets you turn a fixed annuity into a (somewhat) inflation protected annuity. That allows you to more accurately project the portion of expenses your pension will cover over the future (by guesstimating that the corresponding expenses will increase at the same inflation rate). You need to run some hypothetical tax scenarios to make sure you lower your initial pension spending to allow both the set aside and money to cover tax on the whole pension amount but that is easy enough to do.
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Old 10-09-2007, 08:53 AM   #7
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Originally Posted by twaddle View Post
I'm already retired, so I haven't really played with the feature, but on the options tab of Advanced FC you can specify "what year will you retire?"

Then, on the "how much will you spend" tab, increase the number of years for "when will the plan end?" to adjust for your start year.
I didn't see any tabs on the screen where I entered the data - is there a different version that has more options?
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Old 10-09-2007, 09:32 AM   #8
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boilerman, welcome to the forum from another Coloradoan!

On the FIRECalc home page, look for the advanced FIRECalc link. That version will let you simulate pre-retirement years, as twaddle described.

Coach
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Old 10-09-2007, 01:00 PM   #9
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Hi and welcome to the boards

I have to sign on to the importance of checking expenses. You sound like you have it under control. I would also keep in mind that the 66K pension is going to be taxed so having $52K of expenses won't leave too much left over.

Ironically, we are planning to move to Colorado to retire.
Taxes are another part of the equation I need to learn more about. Particularly if I pay off my mortgage by then...

We love it in Colorado but I'm just not sure what we'll be doing in 10 years.
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Old 10-09-2007, 01:07 PM   #10
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That sounds like an interesting idea. It lets you turn a fixed annuity into a (somewhat) inflation protected annuity. That allows you to more accurately project the portion of expenses your pension will cover over the future (by guesstimating that the corresponding expenses will increase at the same inflation rate). You need to run some hypothetical tax scenarios to make sure you lower your initial pension spending to allow both the set aside and money to cover tax on the whole pension amount but that is easy enough to do.
Exactly. My spreadsheet says that I could treat the $66K per year fixed pension as a $52K per year inflation adjusted annuity. If I assume a 6% ROI on the saved portion, I should be able to maintain the inflation adjusted payout for about 33 years. Has this been discussed elsewhere on the board? I'd be interested in hearing if anyone else has tried this.
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Old 10-09-2007, 01:08 PM   #11
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boilerman, welcome to the forum from another Coloradoan!

On the FIRECalc home page, look for the advanced FIRECalc link. That version will let you simulate pre-retirement years, as twaddle described.

Coach
Thanks, I will!
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Old 10-09-2007, 01:22 PM   #12
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Hello and welcome! I see that your son could be graduating from college about the same time that you plan to retire. Are some of your investments targeted towards college, or are you planning to pay mostly from your earnings?
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Old 10-09-2007, 01:59 PM   #13
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Hello and welcome! I see that your son could be graduating from college about the same time that you plan to retire. Are some of your investments targeted towards college, or are you planning to pay mostly from your earnings?
Good question! I have separate savings for college that amounts to about $20K per year for 4 years. After that, I'd look to for my daughter to help out with the rest.
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Old 10-09-2007, 04:36 PM   #14
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oops, sorry, thought I read boy somewhere. Your plan for funding education sounds a lot like mine, enough to cover a state school and the rest up to them to get scholarships, loans (up to a point), etc. My oldest started college this year, on a full scholarship. I figure the money will be used later for a grad degree, towards a first house or a very good start on ER!
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Old 10-09-2007, 10:17 PM   #15
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oops, sorry, thought I read boy somewhere. Your plan for funding education sounds a lot like mine, enough to cover a state school and the rest up to them to get scholarships, loans (up to a point), etc. My oldest started college this year, on a full scholarship. I figure the money will be used later for a grad degree, towards a first house or a very good start on ER!
Full scholarship - sweet! I should only be so lucky. You know that brings to mind that with a daughter I might have wedding to pay for. I'm afraid to ask what that runs...
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Old 10-10-2007, 12:39 AM   #16
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Ironically, we are planning to move to Colorado to retire.
Strangely enough, we are also planning to move to Colorado when we retire - in two more years.
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Old 10-10-2007, 01:28 AM   #17
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Welcome! I actually plan on getting DW out to see my parents place near Colorado Springs to plant the seed as an ER possibility. It's hard to do better than Colorado.


You sound like you are in great shape. Like others said, just tracking will cause you to reduce expenses. We've probably cut 10% from our budget without pain that way.
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Old 10-11-2007, 06:20 PM   #18
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Your expense should be easy to figure on the macro level:

140,000 - (140,000*.15) +50,000 = 169,000 in expenses

Portfolio size to retire at same expense, w/ pension would be:

169,000 - 66,000 = 103,000 in expenses

103,000 / .04swr = 2,580,000 needed in income producing assets.

I would take a close look at where the 169k is going. Should be lots of opportunity there.

Dave
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Old 10-11-2007, 08:33 PM   #19
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Your expense should be easy to figure on the macro level:

140,000 - (140,000*.15) +50,000 = 169,000 in expenses

Portfolio size to retire at same expense, w/ pension would be:

169,000 - 66,000 = 103,000 in expenses

103,000 / .04swr = 2,580,000 needed in income producing assets.

I would take a close look at where the 169k is going. Should be lots of opportunity there.

Dave
You're right. When I start looking at the expense side of things, I will probably start with more of a tops-down approach like this as opposed to a bottoms up. If my house is paid off by then, I can subtract another $24K per year, my daughter will be on her own (hopefully) by then, etc. We do currently save for her college and my wife's IRA so that would also be subtracted, lower tax rate... I have some work to do but I know for sure that we will be able to live on less than we do now.
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