Katsmeow
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 11, 2009
- Messages
- 5,308
Not very long ago I assumed I was a few year's away from retirement. However, with some more up to date numbers and information my calculations keep saying that both DH and I could retire sometime during 2010. Just a check to see if I am missing anything. I have run everything through Firecalc (checking both with a 35 and a 40 year plan) and Financial Engines.
Situation:
DH - 62
At retirement will take lump sum in lieu of pension (for variety of reasons feel lump sum is better than his non-COLA pension). If he retired in January, the lump sum would be $910,000.
The amount of the lump sum is heavily weighted based upon his last 3 years of employment. There is a likelihood he will receive a large bonus in the first quarter of the year. If it was the same as this year's bonus, the lump sum will probably be at least $975,000 perhaps a bit more.
His 401(k) - $220,000. Contributions between now and mid-2010 between him and company matching is probably about $18,000
He has subsidized retiree medical for him and dependents. Unclear at this point if, when he turns 65 and goes on Medicare, the dependents lose coverage. If they do, would have COBRA for 3 years.
He can convert his life insurance ($660,000) when he retires.
We have 3 children. One is 18 and is graduating high school in May. Will be attending community college (living in dorm) for 2 years -- very cheap about $6k per year. After that, we will pay state residential for last 2 years.
Another is 15 (would be just turning 16 if DH retires mid-2010). He will receive SS benefits (if DH retires) of about $1070 a month for 2 years until he turns 18. He is graduating high school early and will be in community college until he turns 18. That will be paid for by the SS benefits as will some of his other expenses.
Another child is 13 (turning 14 in mid-2010). She will receive SS benefits of $1070 until her brother turns 18. Then her benefits will increase to roughly $1125 a month until she turns 18. Her benefits will go to pay some of her expenses over hte next 4 years with the remainder to fund college (well she could spend it however she chose but from our standpoint it would be to meet college expenses).
Me - 55 (56 at likely time of retirement)
No pension or retiree medical.
401(k) - $150,000. Between now and time retirement - expected contributions of my employer and me is about $39,000
SS - $22,000 at age 62.
So, using the $975,000 lump sum and contribution and assuming no investment returns or losses in the 401(k) in the next 6 months total is just over $1.4 million.
We have negligible assets outside of retirement funds, roughly $100k.
Biggest negative - Right now we have an expensive house with a large mortgage. We are listing in spring as soon as we can get house ready for sale. Difficult to know right now if we will clear anything from sale, break even or have to bring money. We don't live in a bubble area and prices in our specific area have stayed fairly steady. However, we have a home on acreage and those can take a long time to sell in our area (or can sell very quickly). Current house is very large and expensive to maintain.
Once we sell, we want to buy a house that is much smaller and costs no more than $250k. Undecided whether to take a mortgage or to withdraw funds and pay cash. The negative to withdrawing funds is that we are in 33% tax bracket and so the taxes would be high. The negative to a mortgage is that we may not be able to get one after we retire so going that direction may mean buying the house before retirement which might limit us in location.
Possible negative - health insurance. DH's company could eliminate retiree coverage or the subsidy (the subsidy has been eliminated for many, DH is grandfathered in with a soft cap subsidy). It is possible that when he turns 65 that the kids and I lose coverage and 3 years of COBRA would take me to 62. Under current law, it looks like I would be eligible for the Texas High Risk insurance pool at that time. I don't like this uncertainty but it doesn't seem reasonable for me to stay employed for the next 7 years just so I can have health insurance at 62 particularly when there is no guaranty that my small employer will still provide health insurance in 7 years or will even still exist.
Spending - In all spending plans I have not included spending that would be paid for out of the two younger children's social security benefits.
If we were in the smaller house we want to buy, with a mortgage of $1200 a month, for the next 4 years, project spending at about $83,000 a year. This has generous discretionary spending and could easily be cut. Spending goes down once all children are no longer in house.
One option is sell current house, buy new house and then retire with above spending. The negative is that if we want to avoid withdrawing the money at one time to pay cash for new house we probably have to get a mortgage before retiring and are locked into staying in this area. We have considered moving a couple of hundred miles away but that probably means going the cash route rather than a mortgage and we would prefer to retire first.
So second option is to retire while this house is still on market, sell it and then buy elsewhere. In that option, even if retired, our expenses are roughly $35k more annually.
Firecalc
I ran it with several options. I ran level spending of $90,000 showing my SS at age 62. I ran it with 35 and 40 year plans, 60% equities and was 100%.
I also ran it with spending of $118k for 2 years, $96k for 2 years. For a 35 year plan, future spending to still stay at 100% was $92k. For a 40 year plan it was $90k. I did this to model what would happen if we retired still in this house and it took 2 years to sell.
Financial Engines
I ran it with desired spending of $90k. It said that had over 95% chance of $105,000 spending (median results). Lower results were $103,000 and higher $107,000.
So -- everything looks OK -- but am I missing anything?
Of course selling this house is a must (actually I can run a plan where we keep this house. However, we have to significantly cut discretionary spending for it to be sustainable long term and we don't like this house enough to want to spend that much on living here long term).
The issue will be whether to sell this house first or not. Because of how lump sums are calculated, DH's lump sum will likely never be higher than it will be during 2010. Also, every month he doesn't retire it is true he has income from work -- however, the social security benefits the children can receive is a very finite amount and every month he isn't retired those benefits are not being received. So there is a case to be made for retiring in mid-2010 regardless of whether the house has sold or not.
Situation:
DH - 62
At retirement will take lump sum in lieu of pension (for variety of reasons feel lump sum is better than his non-COLA pension). If he retired in January, the lump sum would be $910,000.
The amount of the lump sum is heavily weighted based upon his last 3 years of employment. There is a likelihood he will receive a large bonus in the first quarter of the year. If it was the same as this year's bonus, the lump sum will probably be at least $975,000 perhaps a bit more.
His 401(k) - $220,000. Contributions between now and mid-2010 between him and company matching is probably about $18,000
He has subsidized retiree medical for him and dependents. Unclear at this point if, when he turns 65 and goes on Medicare, the dependents lose coverage. If they do, would have COBRA for 3 years.
He can convert his life insurance ($660,000) when he retires.
We have 3 children. One is 18 and is graduating high school in May. Will be attending community college (living in dorm) for 2 years -- very cheap about $6k per year. After that, we will pay state residential for last 2 years.
Another is 15 (would be just turning 16 if DH retires mid-2010). He will receive SS benefits (if DH retires) of about $1070 a month for 2 years until he turns 18. He is graduating high school early and will be in community college until he turns 18. That will be paid for by the SS benefits as will some of his other expenses.
Another child is 13 (turning 14 in mid-2010). She will receive SS benefits of $1070 until her brother turns 18. Then her benefits will increase to roughly $1125 a month until she turns 18. Her benefits will go to pay some of her expenses over hte next 4 years with the remainder to fund college (well she could spend it however she chose but from our standpoint it would be to meet college expenses).
Me - 55 (56 at likely time of retirement)
No pension or retiree medical.
401(k) - $150,000. Between now and time retirement - expected contributions of my employer and me is about $39,000
SS - $22,000 at age 62.
So, using the $975,000 lump sum and contribution and assuming no investment returns or losses in the 401(k) in the next 6 months total is just over $1.4 million.
We have negligible assets outside of retirement funds, roughly $100k.
Biggest negative - Right now we have an expensive house with a large mortgage. We are listing in spring as soon as we can get house ready for sale. Difficult to know right now if we will clear anything from sale, break even or have to bring money. We don't live in a bubble area and prices in our specific area have stayed fairly steady. However, we have a home on acreage and those can take a long time to sell in our area (or can sell very quickly). Current house is very large and expensive to maintain.
Once we sell, we want to buy a house that is much smaller and costs no more than $250k. Undecided whether to take a mortgage or to withdraw funds and pay cash. The negative to withdrawing funds is that we are in 33% tax bracket and so the taxes would be high. The negative to a mortgage is that we may not be able to get one after we retire so going that direction may mean buying the house before retirement which might limit us in location.
Possible negative - health insurance. DH's company could eliminate retiree coverage or the subsidy (the subsidy has been eliminated for many, DH is grandfathered in with a soft cap subsidy). It is possible that when he turns 65 that the kids and I lose coverage and 3 years of COBRA would take me to 62. Under current law, it looks like I would be eligible for the Texas High Risk insurance pool at that time. I don't like this uncertainty but it doesn't seem reasonable for me to stay employed for the next 7 years just so I can have health insurance at 62 particularly when there is no guaranty that my small employer will still provide health insurance in 7 years or will even still exist.
Spending - In all spending plans I have not included spending that would be paid for out of the two younger children's social security benefits.
If we were in the smaller house we want to buy, with a mortgage of $1200 a month, for the next 4 years, project spending at about $83,000 a year. This has generous discretionary spending and could easily be cut. Spending goes down once all children are no longer in house.
One option is sell current house, buy new house and then retire with above spending. The negative is that if we want to avoid withdrawing the money at one time to pay cash for new house we probably have to get a mortgage before retiring and are locked into staying in this area. We have considered moving a couple of hundred miles away but that probably means going the cash route rather than a mortgage and we would prefer to retire first.
So second option is to retire while this house is still on market, sell it and then buy elsewhere. In that option, even if retired, our expenses are roughly $35k more annually.
Firecalc
I ran it with several options. I ran level spending of $90,000 showing my SS at age 62. I ran it with 35 and 40 year plans, 60% equities and was 100%.
I also ran it with spending of $118k for 2 years, $96k for 2 years. For a 35 year plan, future spending to still stay at 100% was $92k. For a 40 year plan it was $90k. I did this to model what would happen if we retired still in this house and it took 2 years to sell.
Financial Engines
I ran it with desired spending of $90k. It said that had over 95% chance of $105,000 spending (median results). Lower results were $103,000 and higher $107,000.
So -- everything looks OK -- but am I missing anything?
Of course selling this house is a must (actually I can run a plan where we keep this house. However, we have to significantly cut discretionary spending for it to be sustainable long term and we don't like this house enough to want to spend that much on living here long term).
The issue will be whether to sell this house first or not. Because of how lump sums are calculated, DH's lump sum will likely never be higher than it will be during 2010. Also, every month he doesn't retire it is true he has income from work -- however, the social security benefits the children can receive is a very finite amount and every month he isn't retired those benefits are not being received. So there is a case to be made for retiring in mid-2010 regardless of whether the house has sold or not.