Would like some advice

[ERfantasy]

Hi, it's great to be here as a new member. I hope you gurus will have some advice for me.

I've been offered early retirement by my employer and need to make a decision soon.

I'm 54 years old, a federal civil servant, and single. I have an urge to leave fulltime employment, and then to do contracting or part-time work--or even no work at all.

The offer is for a small pension, about $35,000, and federal health insurance, and a cash payment of $25,000. I think I need about $55,000 yearly income. I would need $20,000 income from my nest egg or consulting work. Or else I could just cut back.

I have a retirement nest egg of $500,000 and about $300,000 in home equity. There's also an emergency fund of about $70,000.

If I follow the 4% SWR rule I'll have $20,000 coming from my nest egg each year. Add that to the $35,000 pension and you get $55,000--which is my income goal. The health insurance option comes with the U.S. federal pension.

What am I missing? Why shouldn't I leave this job at the end of the year to do something else? Of course, it's a big deal to leave a civil service job early--I need some advice.

 

[yakers]

Understand your situation. I am about to turn 55 and under CSRS. But I have a son in high school. In general you have things covered, you have a COLAd pension and medical coverage and enough basic funds. And if you get bored or feeling poor you can work full or part time. Only a couple things to think of---where do you want to live? Cheaper places and you have it made. And there is also long term care issues, there is a decent federal program you should check out.

Other than that its all psychological, how much do you away from work? A few more dollars could feel better. Hows your health? anyway, you have the basics covered and reasonable options if things look a bit short or the market tanks shortly into retirement.

 

[ERfantasy]

Thanks for the reply,yakers. A couple of points:

1. If I stay on the job a couple more years and then leave without the early-out offer, I'll get a big age-based pension reduction. Which means that I would take home less pension than if I left now with the special offer.

2. The issue of where to live. I'm in a high cost area now. Have considered moving elsewhere but haven't focused on it. Most of my support system is here. I will need to downsize my place in order to lower housing costs, but I'm prepared to do that. I need to think about this issue more.

3. I'm already in the federal LTC insurance program, so I have that covered. I have federal employee health insurance and my health in general is good.

4. I've got a lot going on away from work, many interests, hobbies, things I want to do. Parent care is in the picture, too, and that takes ever more of my time--which if fine with me but there are only so many hours in a day.

5. Inflation. The FERS pensions don't get a COLA until age 62, so I will have several years of non-COLA followed by the FERS diet COLA. I'm worried about that.

 

[Dawg52]

Looks as though you can do it. I would strongly consider it since you would get the age-based pension reduction if you continue to work. I would downsize as you suggested and do some contracting work for a couple of years. Do this at least until you are a little more confident with your ability to fully retire.

Good luck with whatever you decide!

 

[grumpy]

Does your agency employ a lot of support contractors? If so, you might try to get a part-time gig with one of them. I retired from NASA at age 55 and a week later was back at the same desk as a support contractor, doing the same work but only 3 days a week. I was able to negotiate an hourly contract that paid me more for the 3-day week than I would have made full time in the civil service job! I eventually reduced my schedule to two days a week and after two years as a contractor, adding a huge percentage of my income (pension plus contractor wages) to my nestegg, I retired fully. Good luck.

Grumpy

 

[ERfantasy]

dog51, I wish I were more confident. I'm used to working, earning a good salary, saving a lot of it, and then not worrying about the rest. It's hard to adjust the mindset to spend that nest egg instead of adding to it! And I can't exactly figure out how it's going to generate the money needed. My original plan had been to leave the 500K in retirement accounts untouched until I'm a lot older--but now I'm thinking of 72(t) SEPP withdrawals. Big change!

I'm going to see a fee-only financial planner to help me get a handle on some of this--I'm also running my numbers through several of the calculators.

grumpy, thanks for your savvy advice. My agency does indeed have a lot of support contractors around--this is a possibility for me, although I was trying to make a clean break. Plus, if I move to a area with a lower cost of living, working for my agency would be tough. But it's very interesting to hear your story.

What do people around here think about immediate fixed annuities?

 

[REWahoo]

What do people around here think about immediate fixed annuities?

Can't speak for everyone, but I place annuities in the same category as prostate exams, enemas and colonoscopys: I really don't like them. It appears to me annuities primarily benefit the individuals/companies who sell them.

Why are you considering an annuity? Are you that concerned about managing your nest egg yourself to generate the $20,000/yr you need to supplement your pension?

Looking back at your original post, you are in a great position to ER. I don't see that you are missing anything from a financial standpoint. Many of us are envious of the medical coverage you will get, a wonderful retirement benefit.

 

[Brat]

What do people around here think about immediate fixed annuities?  

Brewer12345.. is the best on the board to answer that, however, I have heard that the immediate annuities offered by the likes of Vanguard calc out on a low return rate in recent years.  I wouldn't consider one without a cola feature.

I recall that parent care management is on your list of "todos", that will impact your ability to move to another community.  Moving away from your social network can also impact your quality of life.  I don't recommend making a move for at least a year unless you are moving TO a place that you always wanted to live.

If lowering your cost of housing is something you want to do, after you retire start exploring your options.  Some folks discover that they have a good deal because of property tax provsions that protect long-term home owners. If you keep your home for another 10 years or so minor improvements can lower your utility costs, and you have time to make repairs (hire a home inspector to help you set priorities) for that day when you do sell.

 

[brewer12345]

What do people around here think about immediate fixed annuities? 

They come in two flavors: lifetime and period certain. The lifetime ones are mostly just a fixed payment for life. They are pretty conservatively priced by any company you'd actualy want to buy one from and usually are not a good deal. COLA'd ones are prohibitively expensive. Annuities period certain are basically just equal to bonds.

If you haven't figured it out by now, I don't think fixed annuities are a very good idea. If you are absolutely terrified of thethought of having to deal with your wn portfolio for income, I suppose you could consider them, but you pay a very heavy price for it.

 

[unclemick]

Hmmm

Annuities (perhaps in my case only) - are for the financially inept and 'those subject to getting sold' - I have relatives and potential heirs that fit the bill.

Hence some provision in my will.

There are other cases/situations that annuities could form part of an overall estate/retirement plan.

But - I have a general negitive view vs say balanced index funds - De Gaul and the Norwegian widow and all that rot.

Heh heh heh heh

 

[Dawg52]

Hopefully your FP will give you some good advice but you sound like a good candidate for Vanguard's Wellesley fund.(stole that from Unclemick). It's a 40/60 stock/bond fund and is currently yielding 4%. Plus it would give you some growth potential. If you could scale back to a 150-200k, home that would also give you some cushion plus lower property taxes. I think you are in good shape. I will be retiring soon and I am a little nervous. Everyone goes through that, unless you are a millionaire several times over. 

Anyway, good luck again. Take your time thinking it through. 

 

[Mr._johngalt]

Hmmm

Annuities (perhaps in my case only) - are for the financially inept and 'those subject to getting sold' - I have relatives and potential heirs that fit the bill.

Hence some provision in my will.

There are other cases/situations that annuities could form part of an overall estate/retirement plan.

But - I have a general negitive view vs say balanced index funds - De Gaul and the Norwegian widow and all that rot.

Heh heh heh heh

I bought a variable annuity once. Guy sold it to me when I wasn't
paying attention. I lived to regret it. Kind of a metaphor for my first
marriage.

JG

 

[lets-retire]

Just my .02. It sounds like you have the financial portion of retirement taken care of. Since it is a federal retirement and if you miss this opportunity you'll have to work a few more years until you receive the "full" retirement, I'd be out the door. The boss would look around saying where Lets go he was here a second ago. There'd be nothing left but the dust I disturbed while running out, but that's just me.

Really if you find out you need/want more money or are not ready to retire, yet you could easily do part time work at something.

 

[AltaRed]

Just my .02.  It sounds like you have the financial portion of retirement taken care of.  Since it is a federal retirement and if you miss this opportunity you'll have to work a few more years until you receive the "full" retirement, I'd be out the door. 

Really if you find out you need/want more money or are not ready to retire, yet you could easily do part time work at something. 

I'd support this approach. You have an opportunity to take a "gift horse" at this moment. I've never known anyone who has regretted taking a buyout. The key, if you are feeling somewhat vulnerable, is replace the current full time income with a part time job for a few years to ease the anxieties. After all, the alternative is that you would have been working full time until "regular" retirement.

 

[ERfantasy]

Thanks to all for the advice.

You folks are right about the "gift horse" aspect. If I don't take this chance I'll have to work another 7 years for full retirement. I have to consider this one very seriously.

Annuities for the financially inept? Sounds like me. I have been thinking of converting part of my nest egg to an annuity, maybe half? But the rates are so low right now that I want to wait a while. Who knows, maybe I'll change my mind in the meantime?

What's up with "De Gaul and the Norweigian widow"?

Brat, your advice about not moving for a year is interesting. Terhorst recommends moving right away as a way to save money. I have thought about doing that but have mixed feelings about leaving my comfort zone so quickly.

Thanks again to all of you for your support and advice. I'm beginning to feel more comfortable about all this.

 

[Brat]

Brat, your advice about not moving for a year is interesting.  Terhorst recommends moving right away as a way to save money.  I have thought about doing that but have mixed feelings about leaving my comfort zone so quickly.

Contentment is a complex state, it has both financial and emotional aspects.  If you are truely strapped then act quickly, however, I think you need time to digest your new situation before making a major change in your life.  You may not be as strapped as you fear.

Work is both an economic and social activity.  Retirement will change that, few consider that disruption.  Work structures our daily life.

Consider doing the "Franklin Planner" type of thing.  Make a list of goals with something like one, three and five year horizons.  Then make a to-do list to accomplish them with dates for completion.   One item on your list can be researching housing options.

For example, my brother recently divorced.  He is retired and has a very modest pension.  He found a 55+ apartment in the city which had income based rents.  The building is state of the art and in the hotest neighborhood.  He knew nothing of this option until he started looking around.

 

[SteveR]

Brat, your advice about not moving for a year is interesting.  Terhorst recommends moving right away as a way to save money.  I have thought about doing that but have mixed feelings about leaving my comfort zone so quickly.

Retirement is a major life event for many people. Major life events can take some adjustment and time is the best way to do this. Moving too soon may force you into making a bad decision. If you can afford to stay put while you research where you would like to live it will save you some major grief down the road. Living in a place for all 4 seasons is really the only way to be sure it will be the place for you. If you must move because of financial reasons, then rent a while to see if you like the area. When you find "the place" you will do so as an informed consumer.

"Wait a year" is good advice for many major events in life.

 

[ERfantasy]

I like your advice to stay in place for one year after retiring. We'll just have to see how the finances would hold up in that scenario, which is my task over the next few weeks. If I landed some consulting work or part-time gigs over the next year, that might take the pressure off. I guess the question really is whether moving/downsizing is a basic requirement in order to ER, or is it just something that's a good idea eventually?

 

[JPatrick]

I like your advice to stay in place for one year after retiring.  We'll just have to see how the finances would hold up in that scenario, which is my task over the next few weeks.  If I landed some consulting work or part-time gigs over the next year, that might take the pressure off.  I guess the question really is whether moving/downsizing is a basic requirement in order to ER, or is it just something that's a good idea eventually?

Not necessarily a good or bad idea.  A large part of the beauty of ER, if done with proper preparation, is to be able to have the freedom of choice, which includes where you hang your hat.
If you are happy where you are and you find your current digs are practical for your new life, then stay and be happy you can avoid the rather major hassle of a move. 
Lots of folks, on the other hand, find ER a great opportunity to live where they want and not where they must.
As far as putting off a move for the first year while you get your game plan together- -sounds like it could be a good idea.

 

[ERfantasy]

As far as putting off a move for the first year while you get your game plan together- -sounds like it could be a good idea.

My original plan had been to use the $25K retirement bonus to fund a "year of exploration," including mortgage payments on my current place for that year. The other half of me wants to move away (I'm not wild about my current place) and cash out while the housing market is so elevated here...