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Old 12-18-2006, 07:40 PM   #1
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Intro

Been lurking on this forum for quite some time. Originaaly put the following message in HI I am section:

Personals - 51 yrs old, married with one kid (13 yrs old). Hoping to retire in 7 or 8 yrs.

Retirement made up as follows:

401 (approx. 50%) - contribute about 17% of gross salary plus 6% company match

Trad IRIs (approx. 25%)

Roth IRAs (2%) - plan to fully contribute for both me and my wife

Taxable (23%)

60/20/20 Equity/bonds and cash - Mostly Vanguard funds and mostly active.

My company offers a pension but it is not colad (Pension is projected to be worth $10,000 per year when I am 55 and $20,000 when I am 62.
Have 529 plan thru state of Nevada (Vanguard) with a healthy balance (should pay for 4 yrs of in state (Illinois) public university. Presently 529 is 25% equities and 75% bonds (all index funds and I realize a very conservative mix but I figure it will be only only 4 1/2 years before junior starts college). I figure it should grow about 5% per year and we contribute $250 per month.

I have learned alot reading the messages on this forum. Admittedly, I am reluctant to provide $ figures of our retirement fund. Should I be concerned??

My company offers a pension but it is not colad (Pension is projected to be worth $10,000 per year when I am 55 and $20,000 when I am 62.

Presently we live comfortably on $6,600 take home a month.

Just wonder how much we would need in a nest egg when I am 55 given I should be able to draw about $10,000 per yr from my pension.
My guess would be $1.8mm.

What do you think??

Golfnut
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Re: Intro
Old 12-18-2006, 09:46 PM   #2
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Re: Intro

Welcome Golfnut! I wouldn't be hesitant to provide balances, I'm sure you will find a broad spectrum of people here, some with less than you, some with more, many with the same.

If you want to net $80k after-tax per year in retirement ($6,600 per month) then you will probably need a little over $100k in pre-tax income. The exact amount would vary based on your personal tax situation. Your $1.8 million estimate would yield $72,000 per year at a 4% withdrawl rate. If you bumped this up to a 5% SWR you could take out $90,000 per year. Are you qualified for social security? If so then you could probably swing a 5% SWR until social security kicks in. $90,000 plus $10,000 and change from your pension and you would be able to retire comfortably.

Does that $6,600 include a mortgage payment that will stop in retirement? There may be some other expenses that go away when you quit working or when your kid moves out. Another big unknown is health insurance. Do you have a plan for health insurance until medicare kicks in? I'm not sure what a policy costs for someone in your position, others on the board can probably give you a better estimate of that.
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Re: Intro
Old 12-19-2006, 06:49 PM   #3
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Re: Intro

Alright, I'll bite. Right now our portfolio is approx. $1.1mm (net of our 529 plan which about $67,000 in it) and including our emergency funds.

My employer offers a very good 401k plan but we are getting strong signals the pension plan may be discontinued after 2007. Should have a balance of $90,00 in it that time (when I think of it this kind of a small balance given I have 17 yrs of service). Guess I can't complain too much given that only 1 in 3 companies even offer a pension plan these days. It should be noted there are no other pensions coming our way.

Assuming my company will not be offering healthcare (let's assume the worst), just curious what a family plan would cost a year with say a $2500-$5,000 deductible??

Mortgage is a 15 yr with a 4.75% rate. Our mortgage balance is apprx. $100,000. We are presently 2 yrs into the 15 yrs. and we contribute about $250 per month in extra principal. I have to admit we sometimes think about just paying up ang getting rid of this but I am not certain this the prudent thing to do. Equity in home (net of the mortage balance) is approx
$375,000.

Still shooting to retire in 7 or 8 years ( but sooner would be better). Think we have a shot here??

Would love to hear from people who retired when the youngins are in college.

Thanks,
Golfnut


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Re: Intro
Old 12-19-2006, 07:12 PM   #4
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Re: Intro

Quote:
Originally Posted by golfnut
Assuming my company will not be offering healthcare (let's assume the worst), just curious what a family plan would cost a year with say a $2500-$5,000 deductible??
Health insurance costs vary widely depending on what state you live in. Have you tried going to www.ehealthinsurance.com/ and getting a quote? That will give you some idea of the cost...today.

Quote:
Originally Posted by golfnut
Mortgage is a 15 yr with a 4.75% rate. Our mortgage balance is apprx. $100,000. We are presently 2 yrs into the 15 yrs. and we contribute about $250 per month in extra principal. I have to admit we sometimes think about just paying up ang getting rid of this but I am not certain this the prudent thing to do. Equity in home (net of the mortage balance) is approx $375,000.
There are strong arguments in both camps on the wisdom of going into retirement with or without a mortgage. I think it all boils down to doing what makes you sleep better at night.

Quote:
Originally Posted by golfnut
Still shooting to retire in 7 or 8 years ( but sooner would be better). Think we have a shot here??
Do you have a good handle on what you expect your expenses to be in retirement? I think in an earlier post you said you were currently living on 6600 take home per month. Is that what you are shooting for once retired or do you need less due to no more work related costs...or more due to travel plans?

Have you run your numbers through FIRECalc to see what nest egg you will need to fund your expected expenses?

I wasn't comfortable with the question "do I have enough" until I'd done both of the above. But it sounds to me like you are probably in pretty good shape to hit your goal.

Quote:
Originally Posted by golfnut
Would love to hear from people who retired when the youngins are in college.
Sorry, mine were out of school and on their own before I pulled the plug. But based on the reports of several others here, it is definitely doable.

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Re: Intro
Old 12-19-2006, 08:08 PM   #5
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Re: Intro

REWahoo,

Thanks for the site for the health insurance costs. Look like it could be easily $6000 to $8000 per year plus big deductibles !!

I attempted Firecalc and and got a little confused. I'll try it again. Should I go with the advanced version? Assuming I have a good handle on living expenses, will Firecalc give me an idea what we need as a nest egg?

Hopefully will get some feedback from others who pulled the plug while kids were in college.

Thanks again.

Golfnut
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Re: Intro
Old 12-19-2006, 08:15 PM   #6
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Re: Intro

Quote:
Originally Posted by golfnut

I attempted Firecalc and and got a little confused. I'll try it again. Should I go with the advanced version? Assuming I have a good handle on living expenses, will Firecalc give me an idea what we need as a nest egg?
I recommend you play with the standard version of FIRECalc to begin with. You can alter the "What do you want to know?" settings at the bottom to see what size nest egg it says you need for your spending target.

And be sure to read the "Background and Questions" page to get an understanding of how FIRECalc works.

Have fun!
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Re: Intro
Old 12-19-2006, 08:28 PM   #7
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Re: Intro

To net $6600 per month after taxes, you will need about $100k a year plus another $10-15k for health insurance prior to Medicare. Maybe the pension neutralizes the health insurance premiums.

Conservatively, it would take about $2.5 mm to generate that $100k at a 4% safe withdrawal rate, maybe a bit less if you take, say 4.3%. Your $1.1 million at 7% will become, in 7 years, about $1.6; corrected for inflation that would compare to $1.3mm in purchasing power.

I think you need to learn FIRECalc and work it every which way. You may find that you need to save a bit more, or perhaps ratchet down expenses by downsizing the house, etc. My gut tells me you are well on your way but your savings and expenses may be a little out of line for a 7 year target barring any unexpected changes.

One final thought: have you considered semi-retirement? Take your pension, retire, then get a part time job you more or less enjoy for 5 years. Bob Clyatt's book discusses this, and it is probably what I will do. It doesn't have to be a 100% decision.
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Re: Intro
Old 12-19-2006, 08:49 PM   #8
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Re: Intro

Rich,

Thnaks for the response. You mentioned the following:

"To net $6600 per month after taxes, you will need about $100k"

This translate into a 21% tax bracket. Just curious how you came up with this estimate.

You mentioned the follwing:

"Conservatively, it would take about $2.5 mm to generate that $100k at a 4% safe withdrawal rate, maybe a bit less if you take, say 4.3%. "

Wouldn't one need a larger nest egg if withdrawing 4.3% vs. 4.0%?? Maybe I do not understand this statement.

Thanks again.

Golfnut
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Re: Intro
Old 12-19-2006, 09:05 PM   #9
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Re: Intro

Quote:
Originally Posted by Rich_in_Tampa
To net $6600 per month after taxes, you will need about $100k a year plus another $10-15k for health insurance prior to Medicare. Maybe the pension neutralizes the health insurance premiums.

Conservatively, it would take about $2.5 mm to generate that $100k at a 4% safe withdrawal rate, maybe a bit less if you take, say 4.3%. Your $1.1 million at 7% will become, in 7 years, about $1.6; corrected for inflation that would compare to $1.3mm in purchasing power.
Doc, I think the $2.5M number is being a little pessimistic.

I agree that Golfnut will need something in the neighborhood of $100K to generate $6.600/mo. And if he had no other source of income, $2.5M would be the number ($4% of $2.5M = $100k). But if he's retiring at age 58-59, he will be eligible for reduced SS in 3-4 years and full SS in 8-9. Presumably his DW will also be drawing SS at some point. The SS income will reduce the amount of nest egg he will need to generate $100k, and will likely allow him to safely withdraw something above 4% during the first few years of retirement.

Golfnut, like Rich (AKA 'Doc') says, you need to become very comfortable with FIRECalc and run it six ways from Sunday. Then you can tell us what it's telling you and we'll be able to critique the results.

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Re: Intro
Old 12-19-2006, 09:33 PM   #10
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Re: Intro

Quote:
Originally Posted by golfnut
Thnaks for the response. You mentioned the following:

"To net $6600 per month after taxes, you will need about $100k"

This translate into a 21% tax bracket. Just curious how you came up with this estimate.

You mentioned the follwing:

"Conservatively, it would take about $2.5 mm to generate that $100k at a 4% safe withdrawal rate, maybe a bit less if you take, say 4.3%. "

Wouldn't one need a larger nest egg if withdrawing 4.3% vs. 4.0%?? Maybe I do not understand this statement.
REWahoo is right, I was not counting on your future social security and other sources of revenue down the road. Then again, you had not factored in inflation, so be careful about that. It will cut the purchasing power of a dollar by half in about 22 years at today's relatively tame rate.

Your questions:

I assumed a 21% tax bracket assuming all your income was from pretax dollars. This was a guess, of course. If you use your 23% taxable savings first, it's all after tax, and that is probably a good idea. Add one optimism point to my initial take . Married, jointly, 2006 gives an average (not marginal) rate of about 18-19% federal on 100K, to be more accurate. I love this page for estimating taxes.

For a given nest egg, higher SWRs yield a higher yearly withdrawal, but at increased risk. Most agree that 4-4.5% is sensible. So with $1mm, you can take 40k a year (4%) or up it to, say, $43K (4.3%) if you are OK with a little more risk. FIRECalc is perfect for this kind of detail. Sorry if I was unclear.

It gets a bit trickier if you want to add in SS at a later date, but FC helps with that too. It is real easy to over-think this stuff, but if you invest wisely, you should be fine if you have saved 20-25 times your annual expenses when you retire. Pensions can be factored in by using them to lower your annual expenses needed from savings. Don't forget taxes. FC handles inflation for you. I found it amazing how lowering your expenses gives amazing cushion in your planning, but actually doing that is another thing.

I was where you are less than a year ago, and learned a lot here. Most are much more knowledgeable than I so don't hesitate to ask. Sometimes folks want actual numbers cause it lets them give sounder advice, so don't take it personally. Just share whatever information you are comfortable with.

Hope that helps.
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Re: Intro
Old 12-19-2006, 09:54 PM   #11
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Re: Intro

REWahoo and Rich

Thanks to both of you. I already have learned alot. Guess I need to sharpen my pencil and figure out what my expenses are and what theymay be in the future.

Just curious what investment returns does Firecalc figure for a 60/20/20 portfolio??

At 51 , I am not in the retirement home stretch as of yet but hopefully just around the bend.

Thanks,
Golfnut

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Re: Intro
Old 12-19-2006, 10:06 PM   #12
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Re: Intro

Quote:
Originally Posted by golfnut
Just curious what investment returns does Firecalc figure for a 60/20/20 portfolio??
It depends. The program doesn't 'figure returns' in the way you might assume. Rather, it looks at your investment mix against each year's historical return.

FIRECalc "analyzes what would have happened if you retired in 1871, in 1872, in 1873 and so on. It then calculates how often your strategy would have panned out historically."

As I recommended in an earlier post, you will need to do some reading on the FIRECalc "Background and Questions" page to understand how the program works.

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Re: Intro
Old 12-19-2006, 10:14 PM   #13
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Re: Intro

Quote:
Originally Posted by golfnut
Guess I need to sharpen my pencil and figure out what my expenses are and what they may be in the future.
Bingo. No way to figure out if you have enough to retire unless you have some reasonable idea of how much you will spend. It seems obvious that this would be an essential part of the retirement equation, but it is amazing how often it's ignored or glossed over, especially by the financial press.

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Re: Intro
Old 12-20-2006, 06:26 AM   #14
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Re: Intro

Quote:
Originally Posted by golfnut
"To net $6600 per month after taxes, you will need about $100k"

This translate into a 21% tax bracket. Just curious how you came up with this estimate.
Since I am running TurboTax (2005 version) scenarios, let me plug in some numbers for you.

Married, filing jointly with $20K in qualified dividends and $70K in taxable IRA withdrawals would pay about $10K in federal income taxes leaving you with $80K to spend. That's about 11% in taxes.

Married, filing jointly with $10K in qualified dividends and $81.5K in taxable IRA withdrawals would pay about $11.5K in federal income taxes leaving you with $80K to spend. That's about 12.5% in taxes.
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Re: Intro
Old 12-20-2006, 07:30 AM   #15
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Re: Intro

Quote:
Originally Posted by LOL!
Since I am running TurboTax (2005 version) scenarios, let me plug in some numbers for you.
Just a good reminder for early planners that the main thing is whether your source of spending money is coming from after-tax money (dividend, etc.) or tax-deferred funds in which case it is ordinary income. So make sure you are explicit in your planning as to where the money is coming from.

My nest egg will be 90% or more in tax-deferred plans, so I am forced to pay income tax on virtually all my withdrawals. <sigh>
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Re: Intro
Old 12-20-2006, 07:43 AM   #16
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Re: Intro

Quote:
Originally Posted by Rich_in_Tampa
My nest egg will be 90% or more in tax-deferred plans, so I am forced to pay income tax on virtually all my withdrawals. <sigh>
That's close to where I was when I pulled the plug. At least for the first few years, it looks as if I'll be able to stay within the 15% tax bracket by mixing spending from tax-deferred and after tax accounts, plus do some Roth conversions. Beats the heck out of the 33-35% brackets I was in before FIRE.

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