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Confidence to retire
Old 04-18-2016, 06:17 AM   #1
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Confidence to retire

OK.. I am talking with a Vanguard personal advisory today but I do not think she will give me the confidence on retirement that I am looking for. I do all our money stuff while my husband still works.. he is looking to retire in January. I would like to learn more on when it is time to take money out of our IRA where do you take it and how ? and I want to know more on Taxes.

We have pensions, ssi, No debt and only 850,000 in savings... looking for suggestions.... I was told to do the Quicken lifetime planner and the Firecal.. hope to hear.
Janis
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Old 04-18-2016, 06:29 AM   #2
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FIRECalc is an excellent tool, but it is only as good as the data you input. Here are a few questions you may find useful Some Important Questions to Answer Before Asking - Can I Retire?
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Old 04-18-2016, 07:00 AM   #3
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FIRECalc is an excellent tool, but it is only as good as the data you input. Here are a few questions you may find useful Some Important Questions to Answer Before Asking - Can I Retire?
I did go through all the questions and good to go
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Old 04-18-2016, 11:53 AM   #4
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Assuming you have good idea on your total budget, meaning you need $X per month, then it just becomes an evaluation of the sources for those funds. In your case it seems you have: pensions (yours and his?), SS, and then savings. Your $X has to be made up from those three sources.

Very simplified example. So if you need $7000/mo total (that is after taxes BTW, so you need to understand the tax consequences of the various types of money sources); you plug in numbers which I will use for example again: pensions = $1000 + $1500, SS = $2500 + $1500. Total from these two is $6000/mo. Therefore you need $1000/mo net from savings after taxes. I will assume worse case $1000 for taxes, so you need $2000/mo withdrawal from the savings, if no witholding on the pension income. With your $850K, you need $24K/year or $24K/$850K = 2.82%. This would be normally considered very safe, which gives you the confidence that you can make it.

Hope that is not too simplified, but it shows the basic calculation. there is the more complicated aspects of inflation, cost of living, investment allocation, etc. You also have two main portions of your budget: fixed and discretionary. The fixed will likley not go down, and will maybe increase at a predictable rate. The discretionary you have control over and can make adjustments as needed.
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Old 04-18-2016, 12:09 PM   #5
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Assuming you have good idea on your total budget, meaning you need $X per month, then it just becomes an evaluation of the sources for those funds. In your case it seems you have: pensions (yours and his?), SS, and then savings. Your $X has to be made up from those three sources.

Very simplified example. So if you need $7000/mo total (that is after taxes BTW, so you need to understand the tax consequences of the various types of money sources); you plug in numbers which I will use for example again: pensions = $1000 + $1500, SS = $2500 + $1500. Total from these two is $6000/mo. Therefore you need $1000/mo net from savings after taxes. I will assume worse case $1000 for taxes, so you need $2000/mo withdrawal from the savings, if no witholding on the pension income. With your $850K, you need $24K/year or $24K/$850K = 2.82%. This would be normally considered very safe, which gives you the confidence that you can make it.

Hope that is not too simplified, but it shows the basic calculation. there is the more complicated aspects of inflation, cost of living, investment allocation, etc. You also have two main portions of your budget: fixed and discretionary. The fixed will likley not go down, and will maybe increase at a predictable rate. The discretionary you have control over and can make adjustments as needed.
+1. The above is a good brief summary of the basic methodology/calculation.

You must first project your spending, or the plan is meaningless. You may have done so already. Separating between fixed and discretionary as suggested is also enlightening IMO.

You can then input $ spending, $ portfolio and years in retirement (many build in a safety factor) in FIRECALC, or whatever tool you like. It will assume some level or returns & inflation based on past history. But you can also enter your specific asset allocation, which will influence returns. And you can enter your pension(s) and Soc Sec income(s) AND note if they are inflation adjusted (a key input). With all that, you have factored in returns and inflation based on past history. As mentioned above, it's a good tool, but no one can predict the future of returns, inflation or your longevity among many other variables.

No one can give you confidence or guarantee. The best they can do is compare your situation to past history, or theoretical probabilities (like Monte Carlo analysis). There's always some uncertainty, you have to decide what you're comfortable with - like all of us.

Best of luck...we all know what a big step it is, but you know when you're ready.
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Old 04-18-2016, 12:47 PM   #6
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OK.. I would like to learn more on when it is time to take money out of our IRA where do you take it and how ? and I want to know more on Taxes.
One tool that addresses some of your questions above is Optimal Retirement Planner - Parameter Form . If assets include taxable, tax deferred (traditional IRA) and/or tax exempt (Roth IRA), this tool suggests how much to pull from each type of asset each year to optimize lifetime use of your money (in effect, minimizing lifetime taxes). Also provides a table which shows how much you would pay in taxes each year and what the tax rate would be. It does take into account the Required Minimum Distributions (RMDs) from your IRA at age 70.5. That is one area that if not planned well can cause unexpected tax hit. The program will also, if you tell it to, suggest when you should consider Roth to IRA conversions.

Overall, it's a good tool to develop a plan you think should work reasonably or check a plan offered by an advisor. People on this board can answer questions on this tool. Also, the tool developer often monitors this board and will answer questions posed here or sent directly to him.
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Old 04-18-2016, 12:51 PM   #7
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OK.. I am talking with a Vanguard personal advisory today but I do not think she will give me the confidence on retirement that I am looking for.....
BTW - may consider asking the advisor to provide you with a written financial plan for your retirement. They may charge a small fee but it may offer somethings for you to think about. I had a few done by different advisors before I retired and learned quite a bit through the process. Ended up managing our funds myself but appreciated the things I learned from those plans.
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Old 04-18-2016, 01:54 PM   #8
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One thing that caught me off guard was that we hit the 25% tax bracket hard, my first year of retirement. We had been just touching it a couple of years before retirement, but it wasn't very noticeable. The year I retired, I had work income (included personal leave payoff), pension income, wife's income and IRA withdrawals. Suffice it to say, the IRA withdrawals were taxed at 25%. There was a big tax bill due the following year which came from the IRA, so another large tax bill due the second year. My third year of retirement is under better control, so no big tax bill (may actually end up with refund if I don't change withholding strategy). Our plan is still on track despite the unplanned tax hit. In fact, we are in a better position than the original plan for when I retired.


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Old 04-18-2016, 06:13 PM   #9
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You may benefit from this perspective:

The Retirement Café

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Life expectancy and spending are the two largest determinants of retirement cost and, as I have pointed out, both are unpredictable. So, when someone asks how much money they will need to retire or how much retirement will cost, the correct answer is, “We can't say with any certainty, at all. We can tell you what typically happens, but your retirement may not be typical.” That rules out waiting until you're certain you can afford it to retire.
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Old 04-18-2016, 09:22 PM   #10
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The confidence thing was really an issue originally for me. In the end, it's like strapping on a one of a kind experimental parachute and jumping. You can stay in the perfectly good airplane, or jump.

It really doesn't take that much to equal your job income, assuming you max out your 401K and recently paid off your mortgage. In my case, it's only 33% of my income, plus taxes.


DescriptionAmount
Salary$113,001
-FICA($8,645)
Less 401K($24,000)
Tax Savings($26,300)
Sub Total$54,056
Mortgage Pmt($16,836)
Annual Total$37,220
Monthly Total$3,102
Salary Equiv %32.94%
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Old 04-19-2016, 12:23 PM   #11
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The confidence thing was really an issue originally for me. In the end, it's like strapping on a one of a kind experimental parachute and jumping. You can stay in the perfectly good airplane, or jump.
That's a nice analogy, I'll probably steal that one for future use

One thing that helps though is that are alot of examples and tutorials on how to build the parachute.

It's kind of hard to know which tutorial is the right one though, alot of hobbyists out there and you don't know 100% for sure which chute actually works until hit the ground ..
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Old 04-19-2016, 01:42 PM   #12
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The confidence thing was really an issue originally for me. In the end, it's like strapping on a one of a kind experimental parachute and jumping. You can stay in the perfectly good airplane, or jump.

It really doesn't take that much to equal your job income, assuming you max out your 401K and recently paid off your mortgage. In my case, it's only 33% of my income, plus taxes.
Well said, this is what I have been telling co-workers for years, work your budget smartly so that your retirement net pay is as close to your current net pay as possible. Stop trying to calculate everything off of your gross salary now.
I will be living off of 60% of my gross salary upon retirement next year but 97% of my current net pay. The difference is about two pizzas a month.
My parachute is packed just waiting to jump!!
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Old 04-19-2016, 02:08 PM   #13
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This got real long winded. I'm sorry about that, but it explains my method for decision making......

In order to gain the confidence you need, I suggest you muck around in the ball pit for a while. It's a phrase I used much of my professional life. As a career fortune 100 Sr. Mgr. I dealt a lot with financials, data analysis, and strategic decision making. I always required those that worked for me, and always recommended to my peers and superiors to "Muck Around" before ever arriving at an opinion or decision.
Its a visual example. Think of all the data about your ability to retire as balls in the ball pit at Chuck E cheese. In order to get comfortable with all that data, and really understand what's going on, you need to immerse yourself in the balls, play a round, move them, throw them, and get personal with them. My data analysis technique involved multiple consolidations of data, throwing them away and doing more. Kind of a manual Monte Carlo model. By doing that you figure out what's BS and what's real, what will impact your decision and what really doesn't have a lot of effect.

A lot of what the prior posters have shown is that "mucking around". I can't suggest more strongly though that you run the numbers yourself. Make mistakes. Do it 4 or 5 times. Do it different ways. Out of all of that your high confidence solution path will emerge.

All that said, my solution showed me that I need a lot less than I thought to retire. As you retire, its learning about maximizing what you have already saved. There comes a day when you transition from saver to spender. That is a dramatic tipping point.

Lastly, I read somewhere here a cool quote as a great retirees guide....
"Retiree's don't have to beat the market. They have to beat their withdrawal rate." Perspective.
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Old 04-19-2016, 02:18 PM   #14
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That's a nice analogy, I'll probably steal that one for future use

One thing that helps though is that are alot of examples and tutorials on how to build the parachute.

It's kind of hard to know which tutorial is the right one though, alot of hobbyists out there and you don't know 100% for sure which chute actually works until hit the ground ..
All of this has helped but still!!! I am using very calculator I can find. The problem is that if husband retires in Jan,... we will have a 22 month window before he gets his pension. If we took it before 65, it will be reduced by 900 a month. Our total expenses a year is about 40,000. I have my pension at 18,000 and house rental money at 15,000. I told my husband that we will just have to take money from our 900,000 net egg or get a part time job. I do not have a problem taking 30-40,000 a year out of our IRA.
When he turns 65 he will get 45,600 and at 66 he will get 31,200 and I 4800.
We own two houses 450,000 and 200,00 and boat 95,000 so I think taking 30-40,000 out of the saving should be fine.... We have no debt NOT houses or boat....... so what do you guys think.. give me some confidence... If my husband stays at this stressful job he might never have a retirement................ His goal is to go down the International Coastal Waterway ICW.... we have almost finished this boat.... I told him that not being at the house our utility bills will be cut in half

.... so WHAT ARE YOUR THOUGHTS.......

THANKS jwr
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Old 04-19-2016, 02:33 PM   #15
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All of this has helped but still!!! I am using very calculator I can find. The problem is that if husband retires in Jan,... we will have a 22 month window before he gets his pension. If we took it before 65, it will be reduced by 900 a month. Our total expenses a year is about 40,000. I have my pension at 18,000 and house rental money at 15,000. I told my husband that we will just have to take money from our 900,000 net egg or get a part time job. I do not have a problem taking 30-40,000 a year out of our IRA.
When he turns 65 he will get 45,600 and at 66 he will get 31,200 and I 4800.
We own two houses 450,000 and 200,00 and boat 95,000 so I think taking 30-40,000 out of the saving should be fine.... We have no debt NOT houses or boat....... so what do you guys think.. give me some confidence... If my husband stays at this stressful job he might never have a retirement................ His goal is to go down the International Coastal Waterway ICW.... we have almost finished this boat.... I told him that not being at the house our utility bills will be cut in half

.... so WHAT ARE YOUR THOUGHTS.......

THANKS jwr
I'm confused a bit. You say Annual expenses are $40,000. You also say you have an $18,000 annual pension, and $15,000 rental income. Expenses at 40 and income of 33, you only have a $7000 a year shortfall.

Also with a $900K IRA, only a 2.5% withdrawal will gain you $22,500 annually.

It's not clear how much your husbands pension will be 22 months from now. If it is the $45,600 you note later, then giving up the $900 a month now would yield a $34,800 annual number in January. That means you have a break even at ~3.2 years.

All in all, if all you really need to do is cover $7000, you are well covered. However, with 2 homes and a boat, I would make very sure you total annual expenses of $40,000 is correct. Don't forget to include medical expenses, taxes, rental property maintenance, etc.

Clear as mud....right?
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Old 04-19-2016, 02:51 PM   #16
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the $40k/year expenses... does this number include taxes and health insurance and all the stuff we tend not to think about because it's deducted from our paycheck... ?
If so - you're totally fine. If not - you need to figure out what the real number is - or at least guess.

Will you be drawing money from tax advantaged accounts (IRA/401k) or after tax savings/brokerage accounts? That makes a big difference on your tax bill. If it's IRA accounts you need to plan for the taxes on withdrawals.

Also - your rental income will be taxable. Have you looked at the expenses of the rental property? Have you planned for vacancies, etc...

You do have some assets that you could divest if things went south - the 2nd home, the boat.... but obviously, you don't want to do that if you don't have to.
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Old 04-19-2016, 03:35 PM   #17
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I'm confused a bit. You say Annual expenses are $40,000. You also say you have an $18,000 annual pension, and $15,000 rental income. Expenses at 40 and income of 33, you only have a $7000 a year shortfall.

Also with a $900K IRA, only a 2.5% withdrawal will gain you $22,500 annually.

It's not clear how much your husbands pension will be 22 months from now. If it is the $45,600 you note later, then giving up the $900 a month now would yield a $34,800 annual number in January. That means you have a break even at ~3.2 years.

All in all, if all you really need to do is cover $7000, you are well covered. However, with 2 homes and a boat, I would make very sure you total annual expenses of $40,000 is correct. Don't forget to include medical expenses, taxes, rental property maintenance, etc.

Clear as mud....right?
Ok this is the deal..... If I got out When he retired it would be 3,482 a year later 3,731 and normal retirement date 3,932... I think what looks good is taking about $30,000 the first year then kicking in the retirement at 3,731... of course we will have to factor in the taxes................ That makes me feel much better about the retirement... even if we took it when he retire instead of 900 as I though it is only $450//////////////

so what are your thoughts take when he retires or wait a year...... the only thing is because I am under the windfall.. my survivorship with ssi is reduced about 1000.00

Love to hear from you guys on my situation
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Old 04-19-2016, 03:52 PM   #18
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the $40k/year expenses... does this number include taxes and health insurance and all the stuff we tend not to think about because it's deducted from our paycheck... ?
health insurance is taken out and I have $1000 for misc. But I have not put the taxes in

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If so - you're totally fine. If not - you need to figure out what the real number is - or at least guess.
Will you be drawing money from tax advantaged accounts (IRA/401k) or after tax savings/brokerage accounts? That makes a big difference on your tax bill. If it's IRA accounts you need to plan for the taxes on withdrawals.
.
It will be from IRA account

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Also - your rental income will be taxable. Have you looked at the expenses of the rental property? Have you planned for vacancies, etc... .
we plan to sail down the Inter coastal waterway ICW is our very small boat in which we will anchor ou

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You do have some assets that you could divest if things went south - the 2nd home, the boat.... but obviously, you don't want to do that if you don't have to.
Right.... at this time we do not want to sell the main house but the rental could go today... It is a load on me anyway... thanks for your input
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Old 04-19-2016, 05:41 PM   #19
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[QUOTE=38Chevy454;1720239]Assuming you have good idea on your total budget, meaning you need $X per month, then it just becomes an evaluation of the sources for those funds. In your case it seems you have: pensions (yours and his?), SS, and then savings. Your $X has to be made up from those three sources.

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Originally Posted by 38Chevy454 View Post
Very simplified example. So if you need $7000/mo total (that is after taxes BTW, so you need to understand the tax consequences of the various types of money sources); you plug in numbers which I will use for example again: pensions = $1000 + $1500, SS = $2500 + $1500. Total from these two is $6000/mo. Therefore you need $1000/mo net from savings after taxes. I will assume worse case $1000 for taxes, so you need $2000/mo withdrawal from the savings, if no witholding on the pension income. With your $850K, you need $24K/year or $24K/$850K = 2.82%. This would be normally considered very safe, which gives you the confidence that you can make it.
pension 1046 pension + 1175 rental + 2000 savings = 4221..... the reality if we do not work for the first year of retirement we might have to pull just a little more money until pension kicks in but after that we will not have to take it

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Hope that is not too simplified, but it shows the basic calculation. there is the more complicated aspects of inflation, cost of living, investment allocation, etc. You also have two main portions of your budget: fixed and discretionary. The fixed will likley not go down, and will maybe increase at a predictable rate. The discretionary you have control over and can make adjustments as needed.
I am playing around with the Firecal. thanks
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