ER planning sanity check please

[Lisa99]

Now that we're between a year and 18 months from ER I'd like to see if you guys would do a sanity check on our planning. I've learned a lot here and I've read the related FAQ but I'd love a sanity check to make sure we don't have a 'gotcha' waiting around the corner. I'll be about 53 and DH will be 49 when we retire. I know this is a long post but I greatly appreciate your input.

1. Budget - We know our budget and how much we need to live the lifestyle we want. I've modeled a 40-year retirement in FireCalc, ORP, Quicken and others and they all agree that our plan has a 95% chance of success. We've been living within our retirement budget for the last two years so know it is reasonable. I know one of us has a good chance of exceeding 40 years, but I have a contingency plan that I outline in #7. Expense wildcard is healthcare insurance.

2. Healthcare costs - we'll know this number in November when the ACA rates are available. We'll compare those rates to what I'd be charged via my company retiree plan. Company retiree doesn't kick in until 55 so we'd have to have a bridge if we go that route. Although I need to verify that if I quit before 53 that I can get retiree medical at 55.

3. Long term care insurance - undecided on this. I want to take a wait and see approach to see how the product matures before deciding.

4. Money (after tax) - more than 50% of our investments are in after tax so no issues with having funds available before age 59 1/2.

5. Money (401k) - I've confirmed that both of our megacorps allow roll-over to IRA upon termination.

6. Money (Roth IRA) - we've been above the income threshold so don't have Roth. Also our taxes will be much lower in retirement so we don't plan to do conversions. I think this is the right thing to do. Do you agree?

7. Money (yearly checkup) - I know the money floor that we have to maintain to fund our living expenses. I plan to run a yearly check and if we start getting close to the floor we'll consider buying an SPIA.

8. Life insurance - we don't plan to have life insurance since our plan has a 95% success rate.

9. Pension - I have a small pension that starts on my 55th b-day. We've determined the payout type that we want.

10. Social Security - FireCalc shows that our success rate is higher by starting SS at 62 for both. I've modeled 50% of our expected payout rather than 100%.

11. Housing - we're planning to relocate and will pay cash for our retirement house. This expense is included in our budget numbers.

12. Family - both sides know we plan to move and while they aren't thrilled about it, they've accepted it. We're not terribly close so it's not an issue.

13. Wills, HC POA, etc - We have wills, living wills, and HC POA. We don't have any trusts and don't really know under what conditions we'd need one.

14. What will we do all day - the list is endless... that question isn't a problem.

I know there is a lot more in the FAQ related to lifestyle, getting medical and dental taken care of and giving notice, but have I missed anything that once we pull the trigger it would be hard to recover from? Other thoughts on what I've outlined?

Your insight is greatly appreciated!

 

[Katsmeow]

Just a couple of comments.

If you are relocating out of state, I would advise consulting with an attorney in the state you will be moving to regarding wills, POA, asset protection, etc. (anything else that might be different in another state).

With regarding to FireCalc and it showing a higher success rate with SS at 62, I have a couple of comments. I think the primary reason to take SS late - for those who do - is for longevity protection. It isn't so much about whether you get more money by doing it, but the protection for living longer than you anticipated. In modeling it with FireCalc I also get results of a higher success rate with me taking it earlier (DH has already taken it as he is several years older than I am). However, I was wondering if that would continue to be the case if I put in a longer duration for retirement length. That is, if one's default was 30 years and FireCalc had higher success with taking SS earlier, what happens if you change it to a 35 year or 40 year retirement? With a longer retirement, would FireCalc find the later SS advantageous?

 

[pb4uski]

You plan seems sensible.

I plan to take SS at 70 rather than 62 for longevity protection reasons. From 62 to 70, I view SS as an "option" that I can start at any time if investment results are subpar and I feel my nestegg is dwindling too quickly so I'll play it by ear.

Since I expect my tax rate to be higher once my pension and SS start, I will be taking Roth conversions to the top of 400% FPL until Medicare begins and to the top of the 15% bracket from 65 to 70.

 

[jkern]

My observation is that you thought everything out very well. No stones left unturned.

 

[Lsbcal]

You sound like you are way, way ahead of the average persons about to do retirement. That's great.

Here are a few items (by your numbers) that bear my comments:
3) Retiree medical by my company was a crap shoot. It got worse each year as they reduced this benefit for workers and retirees. However, at Medicare age they have introduced a reimbursement plan and a 3rd party help firm that was a very nice surprise. But you can probably count on nothing going forward here.

4) We had lots of after tax money that sort of disappeared in the 2008 crash. Luckily we have survived quite well and road the market back up. By design we lived on that money but it went faster then expected. So now we have an income stream from IRA's + SS. Hopefully you will not run into a 2008 repeat.

6) We did aggressive Roth conversions. I think it depends a lot on a complex tax situation. I would strongly consider paying some taxes and getting conversions done which will lower your tax burden when SS kicks in. Consider running that other calculator Retirement Calculator - Parameter Form . It may give you some ideas for managing the future.

10) I think getting only 50% of projected SS is too conservative. If it were me I'd go to at least 75% but that is a wild guess.

14) You will have no problem with finding fun. My prediction.

 

[obgyn65]

I would not go with 95% chance of success only, but that is just me. I would work a few more weeks or months to cover the last 5%. Do you plan to use annuities?

 

[Free To Canoe]

Looks good! Looks like a well thought out plan.
In my mind the biggest risk is waiting too long to ER and then not be healthy enough to do the stuff you want to.
Have fun!

Comments:
6 Roth- I agree with you. However, if your tax rate after retire but before SS is really low (0 or 10%) you may want to convert some. Don't want to let lower tax rates go unused. At RMD time your TIRA is not your friend and it is good to have options. Since you have monies outside TIRA, you do have options.

Fudge factor - It is good to have built in fiscal conservative for the unknown. The unknown seems to crop up. 2008 was an "unknown" for me. I see you have fudge factors: 50% SS, 95% with Firecalc so this is good.

You did not mention investments. Not being diversified here can be a risk.

 

[Live And Learn]

95% success would be ok with me if I had significant discretionary expense that I could significantly dial back if I needed to. One of the reasons I didn't jump ship this year (even with 100% FireCalc success) was because I could only dial back my expenses by a few thousand dollars and still be "happy". I also didn't want to worry about money, so am working on building my cushion up some more.

In your budget did you account for "one time" type expenses (car replacement, roof replacement, furniture replacement, etc) ?

 

[Animorph]

6. Money (Roth IRA) - we've been above the income threshold so don't have Roth. Also our taxes will be much lower in retirement so we don't plan to do conversions. I think this is the right thing to do. Do you agree?

Do the conversions! You want to siphon the money out of your tIRA's at the lowest possible tax rate. With a Roth conversion, you're paying the lower tax rate now and still getting tax-free growth in the Roth account. Or, comparing it to an IRA withdrawal, you get to put some of your taxable money into a Roth. That's a good deal. Look at the tax rate you'll be paying when RMD's hit. If you can get that money into a Roth for less than that now, do it.

A couple of the smaller issues that sometimes get overlooked:

When the first of you dies, the survivor has to pay taxes at the single taxpayer rates which have lower bracket thresholds. You probably lose one SS income stream, and maybe a pension. Expenses will not be cut in half. That can be a tough situation, especially if the non-planner is the survivor.

There are things like appliance replacement, house painting, car replacement, and HI deductibles that don't get into a yearly budget. Make sure you have a reserve budget for these expenses.

I'm happy with 95% FIRECalc success. Also try with a 30 year period, since that is sometimes worse. All that means is that if you see your portfolio going down too fast, you'll want to adjust your spending down for a while. Something you should be doing whatever your success rate is.

 

[Lisa99]

Thanks everyone for the feedback and the points I hadn't thought about on the Roth IRA.

To answer your questions:

• We're good with 95%. There are no guarantees in life, so 95% is fine for us.
• Our investments are fully in index funds with an AA of 50/50. We also have about about two years in cash on hand to smooth out market drops.
• After re-running i-ORP they do recommend doing the Roth conversions so we'll add that to the plan.
• About $30k/year of our budget is discretionary, so if we have to replace a roof or a car we're ok, we'll just take a few less trips that year.
• The HC part of our budget includes premiums and out of pocket amts before deductibles. If we have a nasty surprise the $30k budget cushion can handle it.

We sold our last rent house last week and I'm now pretty comfortable that there aren't any gotchas waiting around the corner that we can control.

When I joined the forum in August 2010 we thought retiring in 2019 was the earliest we could manage. Now three short years later it looks like 2014 is a real possibility and it's all due to the great education I've gotten here.

 

[Lsbcal]

Yes, we are all helping each other by all of these back-and-forths here.
Better then a broker or the school of hard knocks.

Even when I just read stuff here and on Bogleheads, I get new ideas and test out current thoughts and am reminded of my original intentions.

 

[Live And Learn]

When I joined the forum in August 2010 we thought retiring in 2019 was the earliest we could manage. Now three short years later it looks like 2014 is a real possibility and it's all due to the great education I've gotten here.

That's all great news ! Congratulations

 

[SJ1_]

2. Healthcare costs - .... Company retiree doesn't kick in until 55 so we'd have to have a bridge if we go that route. Although I need to verify that if I quit before 53 that I can get retiree medical at 55...

That stuck out the most to me. I would find out ASAP. For our plan we had to have the health ins. the day before we retired or we could not get it. I had to pay Cobra until I got to retirement to qualify for the health at retirement.


Good Luck retirement is great