Help in reviewing retirement plan requested

[ESKyoko]

Hi Everyone,
Been lurking on this forum for quite a while, trying to educate myself on finance and particularly retirement financial planning. I’ve now come to the point that retirement is within sight, and wanted to ask for help and outside opinions on my retirement plans. I had always assumed that before retiring I’d go see a financial planner to get confirmation that my plans were solid. But, right now I don’t know what they would tell me that I don’t already know, and frankly I don’t want to spend $2K-3K. I’ve worked with just about every retirement calculator available and they all seem to show a favorable outcome. Would appreciate if anyone could take a look at my information and poke holes, or confirm that it looks solid.

Age = 59 at retirement (Planning till Age 95)
Planning on retiring at the end of 2020, but due to Company cuts might go earlier in 2020.
Single, no children
Salary = 120K
House = 430K (paid off by end of 2019)
Trad IRA = 91K
Roth IRA = 69K
401K = 609K
Other Stocks/Cash =90K
No debt other mortgage

Pension = $52K (1.3% flat annual increase-not compounded)
Estd Social Security at 62 = 21K
Expected Tax Rate in Retirement (Fed=13%/State=6%)
No State Taxes on Pension, Retirement accounts taxed by State.

Expected Annual Expenses (not incl taxes) = 75K

Have retirement group medical till 65 for which I will pay around $500/month. When I start medicare, Company will pay for most of a supplemental medical such that my medical premium cost drop in half.

% Stocks = 74%
% Bonds = 21%
% Cash = 5%

I plan on reducing stocks to around 55-60% before retirement.

The 2 major retirement calculators I have been depending on are Fidelity RIP and Maxifi (online version of ESPlanner). Results are as shown below:

Fidelity RIP shows 101% for significantly below average market with retirement in Dec 2020., and 98% for retirement in March 2020.

The Maxifi Planner base plan calculates $65,000 discretionary spending. This does not include taxes or housing costs. Housing costs include mortgage, prop. taxes, insurance, association maint. fees. I have around 10K budgeted for Housing costs, so the allowable discretionary spending is equivalent to my expected annual expenses (after taxes) of 75K.

FireCalc shows 100%

Any help would be appreciated. If people think I ought to see a financial planner, I can do that too.

 

[Dtail]

Welcome to our wonderful forum.
At what age does your Pension start?
You state your expected annual expenses are 75k NOT including taxes. However, you state that Maxifi calculates effectively 75k including housing but not taxes, which is your expected annual expenses AFTER taxes.
These 2 above statements appear to be in conflict as to the inclusion of taxes, unless I am missing something.
When calculating Firecalc, are you including your estimated taxes as an expense, as that is the typical process.

 

[Retire52]

Hello, I would say you are on solid ground to retire in 2020.

Assuming the worst financial case and you start retirement early next year. You will be 58 and your investments have grown to $900k. A conservative $40k growth. House is paid off. Pension starts at retirement. And you've done your homework on what your expected expenses are and they hold steady with inflation added.

Your after tax spending of $75k would put you at about $10k needed to cover fed and state taxes. I used a tax estimater App, "TaxCaster," to swag it.

Phase one, 58 to 61 before social security income. You would need $85k-$52k pension=$33k after tax from your investments. You would need to pull $39k to generate the $33k needed. This would be for 4 years. $39k is a little over the 4% of your investments, but only by $3k, so I wouldn't sweat it for the next 4 years.

Phase two. 62 and beyond with social security income of $21k. Again, you would need $85k-$52k pension+$21k=$12k after tax from your investments. You would need to pull about $14k to generate the $12k needed. Well within 4%. So your portfolio will grow from there. This will more than offset the gap from your pension reduction as inflation outpaces your COLA adjustments.

A couple of points, if you're not doing this already, test fire your spending this year to see if your estimate is on target. Since you are still working, you will need to adjust down the work related expenses and add additional retirement expenses. If you plan on more travel for instance. My biggest challenge in the 20 months of retirement has been to stay within my estimated spending levels. I overshot by about 50% so far, but I blame it on my DW and 4x DDs. [emoji3]. A factor you do not need to worry about. But, we would have test fired our budget for a year, I think I would have known better what to expect.

I agree with you that a FA may not be value added at $2/3k; however, if you still want to get their opinion to buttress your's, I'd find one that charges by the hour.

Best of wishes to you when you take the leap

 

[MBAustin]

Welcome ESKyoko! If you haven't found them already, we have a helpful list of things to think about as you prepare to pull the plug:

Some Important Questions to Answer

I would agree that you probably don't need an FA. That said, it was meeting with an FA to confirm everything that gave me the confidence to ER, so if that might be what you need, go for it.

 

[ESKyoko]

Thank you for everyone’s input. Just to answer a some of the questions and clarify.

1. My pension starts upon my retirement. “Full Retirement” starts at 60, but they only have a 1% penalty for every year from 55 to 59, so if I retire next year, it would just be a 1% reduction that I’ve already accounted for in my pension calculation.

2. My expected annual expenses is after taxes (but includes my “housing costs”). The Maxifi discretionary spending allowance is also after taxes, but also does not include “housing costs”. So, taking my expected annual expenses of 75K and subtracting out 10K “Housing Expenses”, it matches up with the Maxifi discretionary spending allowance of 65K.

3. I have run turbo tax to try and calculate my taxes when in retirement. I expect that with taxes, my annual requirement will be around 90K (from 59 to 65), then 87K (above 65). I have run FireCalc with this tax estimate.
4. I’ve been using Quicken forever, so I have a pretty good idea of my spending. Also my estimated retirement expenses are pretty conservative, and include a good amount of discretionary costs that could be cut back, including 15K+ for traveling/recreation/luxury items (for my electronics addition).

I do have some concerns about retiring in a presidential election year. Regardless of the outcome, the stock market seems to be unstable for a while, and I know Sequence of Returns is a concern at the beginning of retirement.

I also have a couple of chronic medical conditions that are stable now, but could have a possibility of flairing up in the future. I do have good medical insurance that has a annual max out of pocket of 3K (which got tested unfortunately a few years back). I also have long term care insurance that I started at probably too young an age, but is good now because the premium is pretty low.

I tried to hit all the possibilities in my planning, but still a little scary. I think that as long as I don’t get cut from my job before next March, I should be in good shape. If something happens this year, I’d have to re-evaluate on whether I need to get another job for 1-2 yrs. Really hoping doesn’t happen, as I’m feeling burnt out, ready for retirement and don’t want to get acclimated to another work environment.

 

[gwraigty]

Is your retiree medical solid? My husband's employer cancelled it effective immediately several years ago. It really came as a shock to then-retirees who had never expected to lose it and had been depending on it.

 

[ESKyoko]

Regarding medical. It's always hard to say, but my Company is pretty big in this area, pillar of the community, does lot of PR. I think taking away benefits from retirees would make them look very bad. It's more likely that they would change the benefits/take away retiree medical for new employees coming into the company. At the most, they would probably change the benefits for employees still working. However, if the company ever gets bought out, all bets are off. If needed, I think I have enough fat in my budget to pay for medical on my own, but if Obamacare goes away, and insurance companies don't take people with pre-existing conditions, I'd be in bad shape.

 

[gwraigty]

Regarding medical. It's always hard to say, but my Company is pretty big in this area, pillar of the community, does lot of PR. I think taking away benefits from retirees would make them look very bad. It's more likely that they would change the benefits/take away retiree medical for new employees coming into the company. At the most, they would probably change the benefits for employees still working. However, if the company ever gets bought out, all bets are off. If needed, I think I have enough fat in my budget to pay for medical on my own, but if Obamacare goes away, and insurance companies don't take people with pre-existing conditions, I'd be in bad shape.

The same could be said of my husband's employer. They established headquarters here in 1941, donate money regularly for city events, involve employees regularly in volunteer opportunities, get lots of favorable national press in their industry, one of the largest employers in the city, are currently making record sales and profits, continually growing, I could go on...

...yet the new president who came on board last year wants 30% of the budget slashed across all departments by 2023. No explanation given. No obvious reasons for it.

And when they eliminated retiree medical several years ago, no consideration was given to the retirees that were already depending on it, or the near retirees who probably intended to start collecting soon and had factored it into their budgets. At least we were - and still are - of an age that having retiree medical was not something to be factored into any of our decisions.

In short, never think it can't happen to you. I hate to see people count so heavily on their retiree medical as being untouchable. It's not. If you still get it, great for you.

 

[gauss]

+1
Understand what your Medical Costs would be under ACA if your retiree medical were to go away. It sounds like you would be only looking at 6 years of coverage prior to Medicare. You would likely have income in excess of 400% of FPL so a subsidy/PTC would not be available to you, but at least they couldn't medically underwrite your premiums based on your current medical condition.

This could all change, however. Some have proposed extending the subsidy/PTC level above 400% of FPL in some cases and others would like to get rid of the ACA all together and this would imply a return to medical underwriting.

-gauss

 

[ESKyoko]

Thanks for the advice on medical. I’ll look into ACA. Hoping that medical underwriting doesn’t come back.

Gwraigty: what your husbands company did is awful. Hope you folks are still ok in retirement without medical benefits.

 

[gwraigty]

Thanks for the advice on medical. I’ll look into ACA. Hoping that medical underwriting doesn’t come back.

Gwraigty: what your husbands company did is awful. Hope you folks are still ok in retirement without medical benefits.

I'll let you know when we get there. I think we were in our 40s when they did this.

 

[FREE866]

retire now...why wait 18 months?


you seem to be more than fine!

 

[Surewhitey]

Looks good to me. I'd be gone yesterday.

But... Why so much home? California? Get a roommate or lower cost of home, prop taxes, ect.

 

[ESKyoko]

retire now...why wait 18 months?

you seem to be more than fine!

18 months increases my pension by 13%, gets my mortgage paid off, and a little time to save for some home renovations.

Looks good to me. I'd be gone yesterday.

But... Why so much home? California? Get a roommate or lower cost of home, prop taxes, ect.

I'm in Hawaii. Have a pretty much nothing condo. We like to say that's the price for living in paradise.

 

[l8_apex]

Everything looks fine. I guess I would ask about the $75k spending budget. If a worst-case scenario occurs with your portfolio/assets, can you cut back? If so, then it's hard to come up with any reason why you wouldn't be good to go.

In the last few years prior to ER, I tracked my expenses carefully and separated mandatory spending from discretionary spending. I retired when I felt I was at roughly $3k/mo in retirement income above and beyond the mandatory expenses. Worked for me.

 

[ESKyoko]

Everything looks fine. I guess I would ask about the $75k spending budget. If a worst-case scenario occurs with your portfolio/assets, can you cut back? If so, then it's hard to come up with any reason why you wouldn't be good to go.

In the last few years prior to ER, I tracked my expenses carefully and separated mandatory spending from discretionary spending. I retired when I felt I was at roughly $3k/mo in retirement income above and beyond the mandatory expenses. Worked for me.

I think that I have a bit more than that over my mandatory spending, but I have been planning to try and provide a gold-plated retirement for myself. Don't want to spend the rest of my life scrimping, and worrying. Hopefully, having the extra amount will also help guard against SS possibly being reduced (or taken away in total), and unexpected medical expenses.