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$4000 a month net income possible?
Old 04-30-2010, 12:37 PM   #1
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$4000 a month net income possible?

I'm 53 with a 401K and pension (lump sum) that are currently worth about $950,000 together. I visited with my financial advisor yesterday and told her that I think I'll need $4000 a month after taxes when I retire, hopefully at age 56 or 57. She said she thinks I'm "in the ballpark". What do you think?
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Old 04-30-2010, 12:48 PM   #2
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Trying to generate $48,000 a year on a $950,000 portfolio is more than a 5% withdrawal rate. Seems pretty aggressive to me, but it's also true that you can ratchet this back when you start collecting SS. Have you put this scenario through FIRECalc?

And what is your health insurance situation? Is that settled and secured? If not that would be an added consideration.
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Old 04-30-2010, 12:55 PM   #3
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Sounds like you are doing very nicely, though I do agree that 5% is pretty aggressive.

At 53, some might assume they would get nothing from SS, and some might assume they would eventually get full SS. It might be good to think of a "Plan B" in case it is needed.
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Old 04-30-2010, 12:56 PM   #4
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OP:

Doing some simple math. $4000 x 12 months = $ 48,000 annual income

Divide by $ 950,000 = 5.05% return needed.

This is before taxes. Rule of thumb is 4% withdrawal rate.

You will have to earn more than 5.05 % return to produce a $ 48,000 income.

Also, take into inflation the $ 48,000 will need to increase.

1. Is your pension tied to inflation.

2. Are you elgible for social security

3. Do you have a home paid for. If you rent, your expenses will rise each
year.

Just my 2 cents, but unless you have additional assets, I think your financial advisor is being to optomistic.
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Old 04-30-2010, 01:02 PM   #5
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OP:

I also agree with ziggy 29. Medical insurance is a top priority.

If you are elgible, does it cover, dental and vision. Medical expenses are very expensive when you retire.

Also, premiums rise every year. I've been retired 8 years now. The first year our premiums were about $ 79 a month.

Currently our premiums are $ 511 a month. Only medical. $ 3000 deductible. No vision or dental included.
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Old 04-30-2010, 01:03 PM   #6
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Originally Posted by rdjrn View Post
I visited with my financial advisor yesterday and told her that I think I'll need $4000 a month after taxes when I retire, hopefully at age 56 or 57. She said she thinks I'm "in the ballpark". What do you think?
You really need to determine what you need with taxes, as that too will need to come from your portfolio.

Though personally not a fan, you might consider an annuity, and like others said, take into account social security. I would also assume that perhaps your advisor gave you a written plan as to how you will get to your desired retirement. If you have a spouse, there may be add'l social security. I think you will get SS, how much or when it is available may change however by the time you would like it.
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Old 04-30-2010, 01:08 PM   #7
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Suppose you expect $1500 after taxes from SS at age 62 ($18,000/year). You have 9 years to go, so that would be $162,000. If you subtract that from your nestegg, that leaves you with $788,000.

4% of $788,000 gives you $2627/month before taxes, maybe $2233/month after taxes. $2233+$1500 = $3733/month.

3.5% of $788,000 might be a better withdrawal rate, though, since you are only 53. That would give you $2298/month before taxes, maybe $1954/month after taxes. $1954+1500 = $3454/month.

Like your financial advisor said, you are close (based on the assumptions above, which are probably incorrect anyway!). It might be pretty dicey making ends meet, though, especially if SS doesn't provide as expected.
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Old 04-30-2010, 01:08 PM   #8
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Quote:
Originally Posted by rdjrn View Post
I'm 53 with a 401K and pension (lump sum) that are currently worth about $950,000 together. I visited with my financial advisor yesterday and told her that I think I'll need $4000 a month after taxes when I retire, hopefully at age 56 or 57. She said she thinks I'm "in the ballpark". What do you think?
More info needed as to other sources of income from 56 or 57 and what year the income would kick in.
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Old 04-30-2010, 01:10 PM   #9
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First,... I'm hoping that my portfolio will grow some in the next 3-4 years.
Also, I do have retiree health insurance (Megacorp), and will also start receiving Army Reserve pension when I turn 60 (to include TriCare health insurance). Finally,... I am eligible for SS (if there is any left).

Now what do you think?
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Old 04-30-2010, 01:10 PM   #10
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Like your financial advisor said, you are close.
Especially if they are in a position to save rather aggressively in the last 3-4 years of w*rking. That could actually tip the scales into making the numbers work.

Quote:
Originally Posted by rdjrn View Post
First,... I'm hoping that my portfolio will grow some in the next 3-4 years.
Also, I do have retiree health insurance (Megacorp), and will also start receiving Army Reserve pension when I turn 60 (to include TriCare health insurance). Finally,... I am eligible for SS (if there is any left).

Now what do you think?
This makes me more inclined to think the numbers can be made to work. How large is the Army Reserve pension and what do you expect to be able to get from SS? I just read the "after taxes" part, though, which raises the bar.

Keep in mind also that your portfolio has the potential to drop, too. As you get closer to retirement it might be good to keep a few years of income outside of riskier investments so you wouldn't have to sell stocks at low prices into a bear market.
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Old 04-30-2010, 01:11 PM   #11
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Oh, yeah, run your own numbers here: FIRECalc: A different kind of retirement calculator

and see what you think!

You have a nice amount of $$ to retire on. Are you planning on the Reserves pension to be in addition to the $4K a month you want?
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Old 04-30-2010, 01:12 PM   #12
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What everyone is forgetting is that, assuming the OP is adding to his retirement, in 3 years his retirement should be worth over $1,200,000. This should give him $5,000/month which should more than cover taxes.
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Old 04-30-2010, 01:12 PM   #13
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Oh yeah,..... house is paid for too!!
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Old 04-30-2010, 01:17 PM   #14
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What everyone is forgetting is that, assuming the OP is adding to his retirement, in 3 years his retirement should be worth over $1,200,000
I didn't forget that. I considered it mostly irrelevant for planning purposes. I for one wouldn't base a financial decision on what I think the market "should" do over a three year period, knowing that the range of potential market outcomes over a three year period range from very good (1996-99 or even 2003-05) to rather terrible (1971-74, 2006-09).

Frankly, if the OP is fairly heavily invested in equities, a bear market in the next 3-4 years is likely to postpone retirement, possibly by several years. The numbers are close enough that a 20% portfolio hit pours cold water on it.
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Old 04-30-2010, 01:18 PM   #15
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Especially if they are in a position to save rather aggressively in the last 3-4 years of w*rking. That could actually tip the scales into making the numbers work.
Oh, oops! I missed that part of his post saying that he was going to work 3-4 more years. Ignore my figures above.

I guess between that, and the incomplete information provided (we still don't know about SS amount, or the amount of his Army Reserve pension that apparently he forgot to mention) it would have been impossible to get any idea whether or not the OP was close to his $4000/month goal so most/all of our posts up to here and beyond can probably be ignored as well.
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Old 04-30-2010, 05:25 PM   #16
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Quote:
Originally Posted by rdjrn View Post
First,... I'm hoping that my portfolio will grow some in the next 3-4 years.
Also, I do have retiree health insurance (Megacorp), and will also start receiving Army Reserve pension when I turn 60 (to include TriCare health insurance). Finally,... I am eligible for SS (if there is any left).

Now what do you think?
Numbers would be helpful. But you only need 48K for 3-4 years; then 48K-pension at 60, then 48K-pension-SS when you take it - this ignores inflation for simplicity.
Fill in the numbers - What is the net you need from your investments at the age you take SS? Is it doable? What do you think?
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Old 04-30-2010, 06:43 PM   #17
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This post really interests me because it is also my hope to FIRE with hopes of being able to generate $4000 a month.... my portfolio would also be between 1m and 1.2m. But things get a bit murkier for me, considering I will be 45 when I want to exit the rat race ( seven years from now ). Then factor in that my wife actually ENJOYS her job and might want to keep working...

And though I feel like a bit of a dirtbag even thinking about it, I'm likely in line for a considerable inheritance. Don't really know how to quantify "considerable", but the more I think about it, it should allow me to perhaps stray away from the 4% SWR... then again, sometimes I think I really have no idea what the heck I am doing... Thats why I am a frequent lurker, and rare poster on this board.
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Old 04-30-2010, 07:23 PM   #18
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Then factor in that my wife actually ENJOYS her job and might want to keep working...
That actually makes it easier ***if*** both (a) it wouldn't cause you to be bored or restless because you were alone so much and (b) she doesn't resent you not w*rking while she still does. Especially if it's a fairly secure job with health insurance. You'd probably have to promise to do almost all the housework and run almost all the errands, though, or else she'd really be getting a raw deal.
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Old 04-30-2010, 09:12 PM   #19
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And though I feel like a bit of a dirtbag even thinking about it, I'm likely in line for a considerable inheritance. Don't really know how to quantify "considerable", but the more I think about it, it should allow me to perhaps stray away from the 4% SWR....
You are not a dirtbag to think of it.

As one who has already inherited to one who may, I would urge you to NEVER depend on an inheritance in your ER plans, until the money actually has been distributed to you and is in your bank account. Seriously you never know what might happen. End of life expenses and other unexpected expenses can be monstrous, and if you aren't counting on it then you aren't going to be disappointed.

If you can, do spend some time with your loved one from whom you may inherit. The richest inheritance you can get is the love, caring, and perspectives of such a person. Not to say that you didn't already know that.
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Old 04-30-2010, 09:14 PM   #20
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More info. Army Reserve retirement shoud be around $800 per month (before taxes). Wife is 12 years my junior and will continue to work for about another 10 years. And I totallly forgot to mention that I draw a tax free VA pension of $1300 per month for a service related disability.
I'd still like to draw between $3500 - $4000 a month after taxes from my investments alone.

Now whatcha think?
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