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Asking for insight
Old 10-21-2015, 11:35 PM   #1
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Asking for insight

Greetings All

Hoping for some insight/suggestions from any who can comment.

Some sudden and unforeseen circumstances have altered DW and my plan for ER. Simply put, my employer has abruptly gone out of business. The owner decided he'd had enough and liquidated (privately held company). This happened extremely fast and there was no time to prepare/no advance warning. Unfortunately, no severance for me either. So I have been furiously hammering away at FIRECALC and various other retirement calculators trying to determine whether we are in position to phase out of work altogether (I've had absolutely no luck with a job search). We have painstakingly examined our annual spending.

In a way we feel blessed, even in light of my current job situation. We've always been planners and savers. Yet, the money we've saved doesn't seem like much when we consider we might be lucky enough to live for another 45+ years. And that this money needs to last a LOOOONG time...hopefully. The prospect of this scares us as we are worriers to begin with.

If you could look at our situation and offer comments we'd very much appreciate it!

-DW is 45 and I am 48
-One child who is 12
-DW still working and earns $102,000/yr and is planning to work until June of 2017. It's worth adding that she is growing quite weary of her job as she's been there 22 years. We have very good health insurance through her employer at present
-Once she retires in 2017 we will have to self insure

Assets

-$812,000 After Tax (48% stock, 30% bonds, 22% cash)
-$1,295,000 Tax Deferred (also 48% stock, 30% bonds, 22% cash)
-One small pension of $6,600 with no COLA, starting in the year 2032
-Money for child's college, wedding, etc has already been saved
-We built a smaller house recently that is worth $350,000/no mortgage (so a future downsize to free up add'l money is really not in the cards)
-I hate to plug anything in for S.S., but you could figure a small annual amt if need be
-2014 and 2016 vehicles/low miles/own outright (these are the first 2 new cars we've purchased in the last 20 years...a moment of weakness I suppose)

Expenses

-we have been spending almost exactly $4,800 per month/$57,600 per year after tax the last year 4 years in a row. This includes all bills and 'fun' money. If we had to, there is maybe a small bit of room to tighten our spending up but not much, frankly
-moving forward we will need to consider health and nursing home insurance

When I run FIRECALC I do cut back the default stock allocation to our more conservative mix, but I'm not certain I'm doing it right overall. I'd be so appreciative in anyone could give us some insight/suggestions on how to make this work. Is this too risky? What could we do differently to make this work? Thank you in advance!!!
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Old 10-22-2015, 02:05 AM   #2
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$57,600/Yr is less than 3% of your nest egg--that's good for you.
You can do it but since you will be drawing your monthly expenses from after tax account starting June 2017 until you reach the age of 59 1/2 and if we experience a big bear market in the next 11 years (quite likely) you may run into a little problem. You may have to draw your living expenses from tax deferred account and would incur early-withdrawal penalties +taxes.

You are still young , maybe working a few more years even at a lower salry before ER will help.

Good Luck!
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Old 10-22-2015, 02:23 AM   #3
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In general, based on your savings, I'd nornally say you look to be in decent shape but I do worry a bit about how long you have ahead of you. Are you both prepared for this big life change apart from finances? One key consideration is the cost of healthcare once you lose the employer-provided plan. That will likely add quite a chunk to your monthly costs and continue to rise over the years. You should check into what a comparable health plan will cost when you have to foot the whole bill on your own. Off hand, I'd say you probably would qualify for some premium assistance through Obamacare. There are good threads here regarding LTC ("nursing home") insurance and I'd say the consensus is that it's no longer the good deal it once was. I also assume that your college savings are not included in your numbers. If they are, then that's a hit to your nest egg too. Re SS: while you won't have the greatest number of years of contribution, the years you will have at eligibility age will at least be far in the past and hence more valuable than more recent years.

Something else to consider is whether or not you have the potential of significant inheritance(s). Can either or both of you consult to add some income at least in the early retirement years? Part time consulting is not just a source of income, but can also ease the transition to full time retirement. Consulting income can also enable you to deduct some or all of your health insurance premiums thus lowering your adjusted gross income which then gets you even more health insurance premium support.
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Old 10-22-2015, 02:54 AM   #4
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In general, based on your savings, I'd nornally say you look to be in decent shape but I do worry a bit about how long you have ahead of you. Are you both prepared for this big life change apart from finances? One key consideration is the cost of healthcare once you lose the employer-provided plan. That will likely add quite a chunk to your monthly costs and continue to rise over the years. You should check into what a comparable health plan will cost when you have to foot the whole bill on your own. Off hand, I'd say you probably would qualify for some premium assistance through Obamacare. There are good threads here regarding LTC ("nursing home") insurance and I'd say the consensus is that it's no longer the good deal it once was. I also assume that your college savings are not included in your numbers. If they are, then that's a hit to your nest egg too. Re SS: while you won't have the greatest number of years of contribution, the years you will have at eligibility age will at least be far in the past and hence more valuable than more recent years.

Something else to consider is whether or not you have the potential of significant inheritance(s). Can either or both of you consult to add some income at least in the early retirement years? Part time consulting is not just a source of income, but can also ease the transition to full time retirement. Consulting income can also enable you to deduct some or all of your health insurance premiums thus lowering your adjusted gross income which then gets you even more health insurance premium support.
Thanks so much for the response. Yes, the money we have saved toward college is in addition to numbers provided in original post. And I suppose there is potential for a modest inheritance, but nothing we would include in our plan. When you indicate that LTC insurance isn't the deal it used to be (which doesn't surprise me), what alternative is there then but to self insure? Maybe you're saying that many have decided to just pass on buying LTC, hoping they won't need it or maybe only a year's worth which they can cover themselves. And you touch on our biggest concern and likely anybody who retires early without retiree coverage...health care. We are extremely concerned. Her current coverage is exceptional so we would not be able to afford anything comparable on our own. We understand this and are OK with it, to a degree. At this point we're just a bit stuck and struggling with how to proceed with this next step.

Thanks again for your comments
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Old 10-22-2015, 03:13 AM   #5
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Syd - sorry to hear about your former employer. Congrats on building the savings that you have. If DW was planning to work until 2017, you have time to research healthcare, LTC, etc. Alot of ACA and LTC threads on this site, so grab some coffee and continue your research. I'm not retired yet, but I see alot of people self fund for LTC as the coverage and premiums are ever changing in a negative way. You will have to factor in current health conditions and family history.

If your expenses stay under $60k, with your current nest egg, you are under SWR of 3%, so you should be ok depending on your asset allocation.

Depending on what type of work you were doing, perhaps you can do consulting work in your field part time for some of the old customers since they will be shopping for a new service provider.

Good luck and hang in there.
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Old 10-22-2015, 06:47 AM   #6
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You could use this time while your wife is still employed to lower your expenses. With more free time to devote to frugal living I bet you can knock off $10,000.

You know exactly what you spend each month. You could always post that.

Exciting!
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Old 10-22-2015, 09:24 AM   #7
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You will be collecting unemployment correct? Why don't you sign up for the program and used the mandatory job searches to just poke around and see what interests you.

Your wife will work for at least 18 months and you could just take the bulk of your income for next couple years and stash it away to help with health care costs in the future. Take a good look at the fun money area and decide would you rather work longer or cut back on the fun money.

You have no house payment, so where is your money going, if you need 60K plus health care things might get a little uncomfortable.
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Old 10-22-2015, 11:07 AM   #8
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Originally Posted by syd03 View Post
Thanks so much for the response. Yes, the money we have saved toward college is in addition to numbers provided in original post. And I suppose there is potential for a modest inheritance, but nothing we would include in our plan. When you indicate that LTC insurance isn't the deal it used to be (which doesn't surprise me), what alternative is there then but to self insure? Maybe you're saying that many have decided to just pass on buying LTC, hoping they won't need it or maybe only a year's worth which they can cover themselves. And you touch on our biggest concern and likely anybody who retires early without retiree coverage...health care. We are extremely concerned. Her current coverage is exceptional so we would not be able to afford anything comparable on our own. We understand this and are OK with it, to a degree. At this point we're just a bit stuck and struggling with how to proceed with this next step.

Thanks again for your comments
Regarding LTC insurance, I think many on this site decide to self-insure. There appear to be many stories of denied coverage and huge premium increases after years of contributions. Apparently, some years back, the deals were too good for the customer and the insurance companies weren't making enough money. Many including myself would be interested in some sort of low cost catastrophic coverage that only kicks in after some years of self insurance but IIRC, the last time it was discussed here, such policies were not available. While self insuring is a gamble, the odds of needing many years of nursing home care are very small. That said, IIRC, there are some states where it may make sense to spring for LTC insurance because the state will help out. Perhaps someone will be along with more knowledge in that regard.

Regarding health insurance, I'd suggest that you create an account on the healthcare.gov website and look into costs and premium subsidies to which you may be entitled under Obamacare. You can also get an idea at Affordable Care Act (Obamacare) Health Insurance Exchanges but I'm not sure if they have the 2106 numbers yet.
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Old 10-22-2015, 11:46 AM   #9
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I think you are fine. Spending is reasonable. College covered. No debt. Investable assets well over $2M. Small pension and SS down the road. Still some details to work through. But your wife is working 2 more years and you can collect unemployment for a while. Spend that time reading on this site, working the plan, and double-down on building up the savings, especially the taxable account.

In our case, expenses went down sharply after I retired, especially federal income taxes but many other things as well. Lots of threads here discussing why this happens and other creative ways to reduce cost without sacrificing anything. You'll have time to pay attention to the details now... everything from cutting the cable to cash-back credit cards.

Health insurance will go up, but you've got time to evaluate your options. Many threads on that as well. I would make it a goal to pay for health insurance with savings elsewhere. Look closely at taxes after your wife retires. You should be very pleasantly surprised. Withdrawal strategies, rebalancing, Roth conversions, ACA subsidies, tax efficiency... lots to learn and figure out how and if they apply to your situation.

Ultimately you will need to work through these details on your own. It's one thing for some anonymous person on an internet forum to say you are good to go. It's quite another to work the details yourself using multiple tools and approaches. This will build up your confidence in the decision and give you the tools needed to move forward and DIY.

Stop worrying. Do your homework and start thinking about freedom!

BTW, 22% cash seems high for my taste. Lots of threads on that topic as well. Read and decide for yourself.
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Old 10-22-2015, 11:54 AM   #10
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First of all you've done a great job to get where you are today. I'm almost in exactly the same position but 15 years older so we're at a different point. If it were me I'd work another 5 years or at least P/T to cover insurance costs.

We have a bigger pension and my wife hits 62 in Jan so will get SS. You have a big bridge between now and first draw of SS.

My sister has retired several times then jumped back into business for spurts of time. Her motto is "retire early, retire often". You can always change your mind and jump back in.

Good luck.
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Old 10-22-2015, 12:15 PM   #11
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I concur with Aiming and Donuts above that
a) you have the luxury of plenty of time to make a decision, and could continue looking for w*rk of some kind (being picky is fine) while developing your scenarios in more details and
b) it's likely you could find some ways to reduce expenses some by using your non-w*rking time.

I'd also agree that you look to be in pretty good shape, but a long bear market at the front end of your retirement could change that.

Keep asking more specific questions as they come up. Good luck!
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Old 10-22-2015, 12:51 PM   #12
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You should be collecting UI right now.
You probably need to find another job.
Will your wife get a pension later, or would she have to put in a few more years to qualify?
Not sure why you don't want to put in SS benefits at some age, you can calculate out what you will get by using calculator at the government site using your real wage values.
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Old 10-22-2015, 01:07 PM   #13
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Regarding health insurance, I'd suggest that you create an account on the healthcare.gov website and look into costs and premium subsidies to which you may be entitled under Obamacare. You can also get an idea at Affordable Care Act (Obamacare) Health Insurance Exchanges but I'm not sure if they have the 2016 numbers yet.

If your wife is working, you will not be eligible for a subsidy most likely. If/when she stops, definitely check this out. If you are living off savings as opposed to drawing from IRA or 401, you may very well be eligible for a time.

Do price out plans and consider this in your budget, as it will be an added expense to current expenses based on what you describe when she does quit.

Never a guarantee on Social security, but based on your age, I think assuming 50-75% of what you are entitled to would be a very safe assumption. If you exclude it, it becomes more of a cushion.
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Old 10-22-2015, 01:22 PM   #14
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You could use this time while your wife is still employed to lower your expenses. With more free time to devote to frugal living I bet you can knock off $10,000.

You know exactly what you spend each month. You could always post that.

Exciting!
Yep. Good point-we're already exploring a few areas. Truth is we live pretty frugally though we fail every once in while. Two new cars in the span of less than two years...a classic example. I'd like to get my old Toyota back. Could've squeezed another 20k miles out of her. What floorboards?
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Old 10-22-2015, 01:32 PM   #15
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You should be collecting UI right now.
You probably need to find another job.
Will your wife get a pension later, or would she have to put in a few more years to qualify?
Not sure why you don't want to put in SS benefits at some age, you can calculate out what you will get by using calculator at the government site using your real wage values.
Wife will not receive a pension, not an option at her place of employment. I guess the reason I leave SS out of calculations is because I'm suspicious of what our benefit might end up being (or not being) close to 20 years out. Maybe I haven't been looking at it the right way
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Old 10-22-2015, 04:05 PM   #16
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Two new cars in the span of less than two years...a classic example.
You're not the only one. When we retired, within six months we bought a brand new house and two brand new vehicles, replacing ones that were 18 and 14 years old.

I'm pretty sure we'll never do that again but all were long-planned purchases, the timing just worked out that way.
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Old 10-22-2015, 04:17 PM   #17
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syd03, you have enough now and it will only get better between now and mid-June 2017 when your wife retires.

The tax efficiency of your portfolio could be changed and that will likely save you some money in taxes. See https://www.bogleheads.org/wiki/Prin...fund_placement but in short, it is better to keep bonds in tax-deferred and stocks in taxable.

Also, 22% in cash is too much IMO, put some of that cash to work.

Another angle you might explore is in 2018 and beyond doing Roth conversions to take advantage of low tax rates until SS starts.
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Old 10-22-2015, 04:49 PM   #18
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In "normal times", with a 50/50/0 allocation, a 3% withdrawal rate would be plenty conservative.

But, you've got 48/30/22 at a time when cash is producing negative real yields and bonds might be 1.5% (??).

I'd go ahead and retire. I'd think about what I really want to do in retirement. You can't afford expensive travel -- this is a "live quietly at home" plan. May be a great idea, especially for the next few years, if you're coming out of high stress jobs. I'd be open to eventual job possibilities. After a while, you won't be comparing jobs to your prior six-figures, but to your $60,000 budget. You may find something that doesn't pay so well that you still think is worth your (now much more available) time.
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Old 10-22-2015, 07:54 PM   #19
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Thanks

Much thanks to all who replied to my post. So much useful information. I'm just blown away at the level of financial knowledge here and I always have been. I don't post often but I sure love to read along and learn!
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Old 10-22-2015, 08:59 PM   #20
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Hi Syd - sorry to hear about your job.

I'm not much older than you (Ok - a bit older) but have the kid(s) at home thing. I also have a smaller nest egg, but do have rental income coming in.

I agree with pb4uski about the cash percentage being too high - especially in this zero interest environment.

For SS estimates - go to the ssa.gov website, log in to get your personal info, then estimate future - select the option of still working (vs retired) - but put in $0 for future years... that will let you run scenarios for different times to collect (62, 67, 70.)

I would include SS in your estimates. But I'd also investigate ACA options for healthcare. As mentioned, you won't qualify for subsidies while you're wife is working - but a family of 3 can have a decent income level and still qualify. (I know my family of 4 it's around $96k and under to qualify for subsidies.) Know healthcare options/prices will allow you to better estimate/run calculators.

I think you're probably good to go - but if you're like me you'll want to run every calculator you can get your hands on; go back and look at past spending to verify budgets; etc...

Good luck!
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