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Old 03-30-2011, 10:55 PM   #1
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Early Retirement - verification

My wife and I are currently 57 and are looking at retiring in July.
We have $ 1M in our 401K.
Pension of $65,000 per year available July 1st.
Both planning on drawing Soc. Sec ($39,000) at 62.

Home paid for, no other debt.
Currently spend $75000 after taxes per year. Want to do some traveling after retirement so expect this to go up a little.

Two of the calculators I have used predict money left over at 95.

Kind of scared to pull the trigger ! ! !

I know this is a loaded question, however would folks here agree I have enough to retire?
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Old 03-30-2011, 11:43 PM   #2
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Do you have any other savings besides 401k? Would you need to buy health insurance? Between your present age and 59 1/2 you would need to live on your pension and a small withdrawal from the 401k (based on the IRS life expentency tables), unless you were willing to pay the penalty for early withdrawal. So it could be a bit a little tight for the first couple of years, depending on how much you can/will withdraw from the 401k.
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Old 03-31-2011, 03:28 AM   #3
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Quote:
Originally Posted by chas57006 View Post
My wife and I are currently 57 and are looking at retiring in July.
We have $ 1M in our 401K.
Pension of $65,000 per year available July 1st.
Both planning on drawing Soc. Sec ($39,000) at 62.

Home paid for, no other debt.
Currently spend $75000 after taxes per year. Want to do some traveling after retirement so expect this to go up a little.

Two of the calculators I have used predict money left over at 95.

Kind of scared to pull the trigger ! ! !

I know this is a loaded question, however would folks here agree I have enough to retire?
you have plenty, if you take 20k from savings between now and age 62 yoy have more then enough and once you hit 62 you have way more then enough. you could increase it by waiting to take SS till you are 70 but you dont need to.
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Old 03-31-2011, 04:26 AM   #4
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You appear to be in pretty good financial shape.

Does the pension have a cola?

You need to develop a complete financial plan for retirement. Model your income and expenses.... This includes health care costs on the expense side.


Don't forget taxes. That is often a critical aspect of the planning process. Since you are 57, you have 13 years until you will be facing RMD.


For your pension and SS benefits, you should consider your options. Do not just go with gut assumptions about when you will begin taking which payment stream. This will take some analysis.

For example: SS has a cola. Some couples take SS at different ages to maximize the income for the surviving spouse and/or or longevity mitigation. A common example is for the spouse with the lower earnings to take SS at 62 and the other spouse to wait till FRA or 70.

Keep in mind, even though you have a plan related to SS you have some flexibility to change your mind if circumstances change along the way.

Pensions can be looked at in a similar manner. Some pensions have very steep reductions if taken before a certain age. This requires some analysis.

Ultimately, on the income side you will want to optimize your resources and balance your risk. To understand it, you will probably need to look at all of the the numbers separately several different illustrations/projections (combined scenarios).
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Old 03-31-2011, 05:02 AM   #5
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You are set. Enjoy.
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Old 03-31-2011, 06:11 AM   #6
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Chas,
What's your expectation for average inflation? What's your expectation for investments return?
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Old 03-31-2011, 06:37 AM   #7
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As others have done I wish to emphasize that if the pension has a COLA it will make big difference.

Also one needs to think about SS and delaying at least one person's benefits until age 70. A general scheme seems to be take lowest earner's SS at their Full Retirement Age (FRA) and get the spousal benefit for the spouse (not their own benefit) until the spouse reaches age 70, then switch to their own higher benefit from the higher earner spouse. I don't think the SS administration will tell you all this.

Also think about conversions of the 401(k) assets to a Roth IRA piecemeal. This may not be necessary with the pension, but it should be figured out. If you delay the pension, are they any benefits such as a higher amount in future years? When you die, does the pension continue for your spouse?
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Old 03-31-2011, 07:34 AM   #8
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Unless you have significant savings that are not tax-sheltered, I don't think you can do it [I'm presuming health insurance is already taken care of. If not, that's another item to consider]. If you're currently spending $75,000/year, you need more than that in taxable income. $65,000 taxable pension obviously won't cover that by itself, and SS won't kick in for 5 years.
If you have the differential covered elsewhere, and health insurance is covered, looks like you're in the clear.
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Old 03-31-2011, 07:58 AM   #9
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I keep seeing this erroneous advice pop up. The IRS allows penalty free withdrawals from 401K (not IRA), when you separate or retire as long as you are at least 55 years old in year of retirement. You don't have to wait for 59 1/2. Caveat: Check with your 401K people. Not all plans participate.
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Old 03-31-2011, 08:33 AM   #10
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If you are in the private sector, chances are that your pension has a lump sum option. Given the 65K amount, I am assuming you pension lump sum should be in the ball park of 750-850K. Most allow rollover into an IRA.

If your nest egg bumps up to 1.8M, you can pull 80K+ on a 4.5 % SWR...The market's on your side... we are climbing out of a recession...

Once SS starts kicking in, you can pull back the SWR...it would even give you the ability to delay drawing it for one of you.

Every coin has a flip side. Given the 30Yr and Corp Index rate that most pensions are benchmarked against are on the lower end of the curve, you have the potential to pull in 15-20% more lump sum should you wait for a higer level.
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Old 03-31-2011, 09:16 AM   #11
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The OP has enough to retire, but the problem is funding the time until 59.5, so I'd say we need a bit more info to come up with a plan.

The OP can retire now if they can reduce expenses to the level of the pension, or they have sufficient after tax investments to generate income to add to the pensions and bring them up to $75 a year, or they satisfy the rules to make penalty free withdrawals from the 401k or they roll it over into an IRA and do a 72t.

There are enough options above to make it highly probably that the OP can retire. The bigger issue I see looming is RMD and efficient tax planning.
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Old 03-31-2011, 09:50 AM   #12
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I think you're in great shape. There is some discussion about the lack of a COLA on the pension. IMO, that's probably okay since you don't need to rely on the pension for your basic spending long term. The non-COLA'd nature may well match a plan that involves more spending in the early years.

If you want more COLA'd annuity, simply defer SS to a later date. I'd suggest going back to the calculators and inputting $68k of SS starting at age 70 to get an idea of how that works.
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Old 03-31-2011, 07:22 PM   #13
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Thanks for all of the replys and thanks to all on the forum for the information on other subjects
Answers to some of the questions.
Have about $20,000 savings outside of 401K
Pension is not cola
Planning on 3% inflation
Planning on 6% return on investments
Insurance is included in yearly spend
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Old 03-31-2011, 08:01 PM   #14
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Originally Posted by chas57006 View Post
Thanks for all of the replys and thanks to all on the forum for the information on other subjects
Answers to some of the questions.
Have about $20,000 savings outside of 401K
Pension is not cola
Planning on 3% inflation
Planning on 6% return on investments
Insurance is included in yearly spend
given this it might be a good idea to put off starting SS till 70 so as to get a large, government backed, COLAed annuity. until age 70, you should be able to cover the difference between the pension and your needs with WDs from your 401k. if your expected SS at age 62 is $39k then at age 70 it should be about $68.6k (CPI adjusted) and that plus your pension should provide for you quite well after age 70.
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Old 03-31-2011, 10:59 PM   #15
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Originally Posted by Bourne View Post
.

If your nest egg bumps up to 1.8M, you can pull 80K+ on a 4.5 % SWR...The market's on your side... we are climbing out of a recession...
Really?
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Old 04-01-2011, 10:49 AM   #16
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I think the scariest part is actually jumping in and doing it!!

What I've found is that things tend to find their own financial equilibrium and a new life emerges; you find yourself doing without things you thought were *so important* but now you just don't need it.

Your free time becomes it's own currency; you end up doing things you didn't (couldn't) do before and spend your time and money differently as a result.

In short, you may have *less* but you end up with a lot more in the quality of life section.

PS: Two people I know died in the past three weeks at ages 59 and 61. You don't want to be the richest people in the cemetary.

Good luck!
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Old 04-03-2011, 06:33 AM   #17
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Wow, I wish my pension was going to be nearly all of my annual needs. I think you're in good shape, you just need to take enough from the 401k to make up the difference. At approx $10k from $1M, that's a withdrawal of 1%, which is no problem.

You can get the money out of the 401k, but you need to structure the withdrawals so the IRS doesn't penalize you. I think as long as you follow their rules.

Quote:
401k Withdrawal Exceptions

The following three exceptions also apply to 401k plans:
  • Distributions or withdrawals made to you after termination of employment, if the separation from your employer occurred in or after the calendar year you reached age 55.
401k Withdrawals
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