Checkup on the path to retirement

[Explorer]

Emergency funds: six months (it's the only money I have in a taxable account)
Debt: 136k on a rental property with a 3.25% fixed rate mortgage (there are 8 years of regular payments remaining)
Tax status/rate: single, 15% federal, 5.75% state
Age: 42
Current assets: 137k in Fidelity government 457b, 143k in Fidelity 403b, 6k in Vanguard Roth IRA
Current contributions: maxing out both the 457b and 403b in Fidelity Spartan low cost index funds, contributing to defined benefit pension plan

I want to be able to retire at age 50 (or earlier). I should remain in the same tax bracket in retirement (roughly ~35k/year for living expenses, which should cover health/dental insurance). From age 50-65, I plan on living off the rental income of ~$12k/year, the 457b, and perhaps Substantionally Equal Periodic Payments from the 403b. Starting at age 65, I'll be able to begin taking the full pension benefit, which will start around 37k/year with annual increases indexed to inflation. Then I'll begin social security payments at around age 70.

What do you think of this early retirement plan? Any feedback would be much appreciated.

 

[Koolau]

The main question that occurs to me is 1) What % of your total funds will you be withdrawing to meet your plan needs in retirement? Without that info, it is more difficult to give much feedback. Certainly, it sounds like you are contributing generously toward your stash. 2) I don't know the funds well enough to evaluate whether you are in the "sweet spot" for such a withdrawal rate (whatever it turns out to be.) Are you quite comfortable with the $35K living expenses per year?

Just some thoughts to ponder. I doubt I could be of much analytical help here. Have you plugged into Firecalc yet?

 

[rodi]

I was also going to suggest firecalc. Be sure to explore the other tabs besides the front page... enter SS & when you expect to collect, enter the pension, be sure to indicate if it's COLA or not (check box). And for the rental income - you can enter that as a pension or other source of income.

Make sure you fill out the still working page - and indicate how much you expect to save each year.
Make sure your spending on the first page includes taxes and healthcare expenses.

 

[jkern]

The first question is what does your standard of living cost? Then, do you have enough money to support it?

 

[marinauser]

My question also would be: what do you mean by maxing out the retirement accounts? For me, that would mean $59,000 including all possible deferrals if I was still working and includes the over 50 extra deferral. For someone else under 50, that might mean as much as $53,000 to as little as $18,000 if they get no match or other deferral such as profit sharing. That's a big difference even over the course of 8 to 10 years.

 

[pb4uski]

.......From age 50-65, I plan on living off the rental income of ~$12k/year, the 457b, and perhaps Substantionally Equal Periodic Payments from the 403b. Starting at age 65, I'll be able to begin taking the full pension benefit, which will start around 37k/year with annual increases indexed to inflation. Then I'll begin social security payments at around age 70.

What do you think of this early retirement plan? Any feedback would be much appreciated.

So once you get to 65, your pension and SS will exceed your living expenses. So you need to have enough saved by 50 to carry you to 65. That would be $35k living expenses less $12k rental income (I assume $12k is the net cash flow?) would be $23k a year for 15 years or $345k and you now have $286k.

My sense is that you are on track with a number of caveats. First, $35k is a very low level of living costs, even for a single person. Does that include periodic car replacements, health care in retirement, etc? Is the $12k the gross rent or the net cash flow? Is there a provision for the cost of periodic roof replacement, A/C replacement, etc?

Finally, if you do retire at 50, once you reach 62 you can elect to tke SS if you need to and defer it if you want. However, you might want to file and suspend at FRA... that way if you get a serious illness that reduces your longevity you can clawback the early benefits that you missed out on.

Few people realize, however, that single folks ought to File and Suspend too. File and Suspend is a great technique for a single retiree who plans to wait until 70 to take benefits. The reason why is that you can change your mind about the suspend part once you file. If you wait until you’re 70 to file, then you CANNOT change your mind. At best, you can go back and get the last 6 months of benefits. If, however, you filed and suspended at 67, then became ill at 69 such that you think it is unlikely that you’ll live to your life expectancy, or if you simply need a lump sum of money, you can simply go back and get all those benefits you suspended. If your benefit were $2000 per month, that could be a $50K lump sum. Future benefits would be calculated as if you’d started receiving them at age 67 of course. If you remain healthy to age 70, and have no need for a lump sum, you can simply take your benefit at 70 like you planned. In essence, it gives you a little “insurance”, a bit of a “hedge” against bad things happening to your health and finances.

 

[Explorer]

So once you get to 65, your pension and SS will exceed your living expenses. So you need to have enough saved by 50 to carry you to 65. That would be $35k living expenses less $12k rental income (I assume $12k is the net cash flow?) would be $23k a year for 15 years or $345k and you now have $286k.

My sense is that you are on track with a number of caveats. First, $35k is a very low level of living costs, even for a single person. Does that include periodic car replacements, health care in retirement, etc? Is the $12k the gross rent or the net cash flow? Is there a provision for the cost of periodic roof replacement, A/C replacement, etc?

Finally, if you do retire at 50, once you reach 62 you can elect to tke SS if you need to and defer it if you want. However, you might want to file and suspend at FRA... that way if you get a serious illness that reduces your longevity you can clawback the early benefits that you missed out on.

Thank you for the feedback, everyone. You've raised some points/questions that I haven't thought of.

Yes, the 12k rental income is net cash flow. I know that 35k/year may seem like very little to some people, but for years I've lived off 18k/year after taxes (not including major expenses like car replacements). So I think 35k is doable & would even provide a cushion, even when health insurance premiums of $400-$500 per month are factored in. At the moment I'm only paying premiums of $55/month while working, so I definitely realize that this is a major expense in retirement.

When I say I'm "maxing out" both a 457b and 403b, I mean I'm contributing 18k to each of the plans in 2015, and plan to continue maxing them out until age 50. There is no employer match on these contributions (my employer contributes to a defined benefit pension instead).