New Member - Your Guidance Requested

[ProGolferWannabe]

Good morning—I am a first time poster. I have been lurking for a few years and have been trying to absorb a lot of the information that you have all been sharing. I, like nearly all of you, have an interest in retiring early. I feel like I am finally getting close to my destination of early retirement (early by my standards anyway), but I wanted to see if I could get an objective assessment about how close/far I am away from reaching that goal, and what, if anything, I should be doing to try and achieve it. For example, should I suspend my planned 401K catch-up contributions and just set that money aside in an after tax account to provide me with resources to draw down before I am eligible for my pension and social security? Should I change my asset allocation? We have a rather large house, and now that the kids are gone, we could certainly downsize, and use the excess assets to help fund early retirement (if needed). Maybe in general, I was just looking for a reality check—do you think I am anywhere close to being able to quit my job in the next year or two? Thanks in advance for any perspective. I have learned a lot here over the past couple of years.
About us:
Me (49), Wife (49) – Both professionally employed in secure positions. Combined total gross income: $240,000.
- I am eligible to retire with a Pension at age 56 with a value of about $33,000 per year
- Wife is eligible to retire with a Pension at age 58 with a value of about $32,000 per year
- Two children (20, and 19) – Both enrolled in college; tuition/room & board expenses/etc. are fully funded

Assets:
- Non Retirement Accounts
- Cash/Savings Bonds/MMF/Savings Accounts: $140,000(Add $15000/year to these accounts)
- Equities (Balanced Mutual Fund): $15,000 (Add $12000/year to this account)
- Health Savings Account Balance (MMF): $20,000 (Add $6250/year to this account)

- Retirement Accounts (60% Equities, 40% Bonds)
- Traditional IRAs - $83,600
- Roth IRA’s - $18,000
- 401k’s – $931,000 (Add $51,500/year to this account - $34K regular; $5.5K catch-up, $12K Employer match)

- Other Assets
- Primary Home - $240,000 (Paid off in Full)
- Two relatively late model cars (6 and 7 years old) - $18,000 (Paid off in Full)
- 1 Dog - $7 (Paid off in Full)

- Other Stuff
- We have other assets not shown above to fund the kids education.
- We have no credit card debt, outstanding loans, etc.
Again—thanks for any suggestions or perspective that you can add.

 

[obgyn65]

You have been doing great. Welcome to the site.

How did you come up with $7 for the dog ?

 

[REWahoo]

I have been lurking for a few years and have been trying to absorb a lot of the information that you have all been sharing.

Pro, welcome to the forum.

If you look closely at the typical forum response to other first time posters who ask the "can I do it?" question, you will see three common questions:

What are your expected annual expenses in retirement?
What about medical coverage?
Have you run your numbers through FIRECalc?

 

[Trawler]

Assets and future income look good but would need to understand your projected expenses in retirement and be sure covered by healthcare plan.
Fire Calculator and other retirement calculators would help you determine weather you are FI .
Welcome aboard

 

[Trawler]

I see Wahoo just posted same

 

[travelover]

You have been doing great. Welcome to the site.

How did you come up with $7 for the dog ?

Right. Everything else looks promising, but I'm worried about the lowball estimate on the dog. They do need to be replaced every 10 years or so.

 

[Midpack]

Like others have said, without knowing your expenses, we can't tell you much. You may not want to share any other info, and many are reluctant to do so. Here's a link to FIRECalc: A different kind of retirement calculator, it's an excellent place to start. Based on what you learn there, you may have more specific questions that we can be more helpful with.

The rule of thumb (back of a napkin calc based on 4% SWR) at age 65 is:
[projected total annual expenses (incl taxes & unusual expenses) - annual pension/other income x 25 = required nest egg]
example based loosely on your numbers - $120,000/yr spending - $65,000/yr pension x 25 = $1,375,000 nest egg

for "early retirement" it's:
[projected total annual expenses - annual pension/other income x 33 = required nest egg] $1,815,000

Evidently you'll be relying on pensions quite a bit, that's a nice benefit. Good luck, let us know if we can help...lots of good people here.

 

[Aiming_4_55]

Welcome to the forum Pro.

$$ looks good, but as others have mentioned, what are your ongoing expenses? Have you factored in replacement costs for large purchases, i.e. cars, etc. Use retirement calculators to test various scenarios.

Other things... healthcare options with your pension? possibility of boomerang kids after graduation?

 

[nun]

OP, you certainly have a good foundation with the pensions and substantial investments. However, it's impossible to know if you are able to ER until you know your expenses. You're obviously thinking about that because you mentioned the possibility of downsizing your home.

If you don't already know your spending I'd suggest recording absolutely every penny you spend; I do it on a phone app so that I can log spending as it happens. After a few months you'll see interesting trends and you'll be able to see the level of spending you can sustain without salaries coming in.

 

[ProGolferWannabe]

Thanks for all of the immediate responses---yes, I realize you are correct regarding my expenses and figuring out what those will be. I have never really tracked my expenses--basically, I just set aside certain amounts to save each month (e.g. for retirement, the kids education, down payment on a house, etc) and pretty much lived on the rest. It was not very scientific. I guess that might be a good project for the next few months and see what I actually need to get by on. I am guessing that we could make due on half of our current gross ($120K), a we will not longer be saving for retirement, our taxes should (hopefully) go down, etc.

Regarding the dog--yes, we paid $7 for him. One of the worst financial investments I have ever made, but one of the best emotional investments I have ever made. I used to think people who paid large sums of money to treat their dogs when they were ill were foolish. Now I understand why they do what they do.

 

[LOL!]

Assets and pensions look low for the kind of current income that you enjoy. Did you get big pay increases in recent years?

With that kind of income, I see no need to not be making the maximum possible contributions to 401(k) plans and Roth IRAs and contributing an equal amount to a joint taxable account.

 

[Amethyst]

Yeah, you can amortize the canine depreciation, but yearly maintenance tends to spike from time to time. I think OP needs to pad his canine emergency fund.

Just kidding!! OP, you and spouse are doing great!

Amethyst

I'm worried about the lowball estimate on the dog. They do need to be replaced every 10 years or so years.

 

[Midpack]

Regarding the dog--yes, we paid $7 for him. One of the worst financial investments I have ever made, but one of the best emotional investments I have ever made. I used to think people who paid large sums of money to treat their dogs when they were ill were foolish. Now I understand why they do what they do.

Honest truth, we spent $1524 on our dog last year (she had some health issues) and only $681 on DH's personal expenses, and we're fine with that - she's worth it. I know

 

[ProGolferWannabe]

Assets and pensions look low for the kind of current income that you enjoy. Did you get big pay increases in recent years?

With that kind of income, I see no need to not be making the maximum possible contributions to 401(k) plans and Roth IRAs and contributing an equal amount to a joint taxable account.

No--income has been pretty steady/grown slowly over time. We did always put the max amount we could into our 401k's (had a pretty constant 70/30 equities/bond mix over the years---moved ito 60/40 in the past couple years). We did pay off our house early---put extra payments on, and the house was paid off after about 17 years, and we did fully fund our kids college educations, so those things might have taken a toll on our finacial assets. Of course, like everyone else here--we also did not fair very well in the market over the past 10 years.

The pensions are, sadly, what they are.

We are not eligible for Roths as far as I know. Wish we were, but I do contribute max to HSA.

I would not say that we have been as frugal as most people who post on this board. We certainly have lived below our means, but we are lightweights compared to some of you giys with regard to defering immediate gratifcation to achieve early retirement. That may be a good thing for us to keep in mind moving forward---maybe we need to tighten up the purse strings a bit more if we want to have sufficient assets in retirement.

Thanks for the observations.

 

[ProGolferWannabe]

Honest truth, we spent $1524 on our dog last year (she had some health issues) and only $681 on DH's personal expenses, and we're fine with that - she's worth it. I know

I would do exactly the same thing! Maybe your husband can go without a haircut for a few years to help fund the dog's medical expenses!!

 

[Lagniappe]

The original question posed was whether the OP can quit in the next year or two.

How would retiring in the next year or two affect the future value of the pension? Can you live on your spouse's income?

Based on the savings you shared, I backed into spending of about $100K - $120K per year. To generate that from your portfolio for 5 years until your pension kicks in, you'll need $500-$600K. But even after the pensions start, you'll have a shortfall, and will have depleted almost half of your savings, when you probably needed to double them.

It looks like you have a strong foundation for retiring after the pensions kick in, if you track and manage your spending carefully, and ramp up your savings a bit. But the next couple of years? Only if your spouse continues to work and you can live off that amount, or if your expense tracking exercise gives you insight that $50-$60K per year is more than enough for you and your spouse until your pensions start.

 

[ProGolferWannabe]

The original question posed was whether the OP can quit in the next year or two.

How would retiring in the next year or two affect the future value of the pension? Can you live on your spouse's income?

Based on the savings you shared, I backed into spending of about $100K - $120K per year. To generate that from your portfolio for 5 years until your pension kicks in, you'll need $500-$600K. But even after the pensions start, you'll have a shortfall, and will have depleted almost half of your savings, when you probably needed to double them.

It looks like you have a strong foundation for retiring after the pensions kick in, if you track and manage your spending carefully, and ramp up your savings a bit. But the next couple of years? Only if your spouse continues to work and you can live off that amount, or if your expense tracking exercise gives you insight that $50-$60K per year is more than enough for you and your spouse until your pensions start.

Thank you---your "back of the envelope" calculations seem to make sense. A couple of things---I doubt we would be willing to try and give retirement a try at $50K/year. I think we could do it, but think that may mean counting our pennies a bit more closely than what I wanted in retirement. Nonetheless, we do need to get a better idea of what we spend now, so we can see what is and is not realistic.

If we left work now, I think my pension would be reduced about $5000 - $6000 per year than if I stayed till 56, so that would be a financial hit.

We have discussed my retiring and my spouse would continue working, but I am not certain what the point of that would be. If she has to work, it seems financially irresponsible for me to retire, since we would still be tied down because of her professional resposnibilities, and we could not fully share the benefits of retiring early. On a more prial level, I am also afraid she might kill me if I got to quit and she didn't!

 

[REWahoo]

I have never really tracked my expenses--basically, I just set aside certain amounts to save each month (e.g. for retirement, the kids education, down payment on a house, etc) and pretty much lived on the rest. It was not very scientific. I guess that might be a good project for the next few months and see what I actually need to get by on.

Good plan. I can't imagine retiring without a very clear idea of what it is going to cost you to fund your annual expenses. I tracked ours for a full three years prior to pulling the plug.

 

[devans0]

You would just have to take up the home responsibilities to such a level that she wouldn't want to give it up. Think foot massages, succulent dinners, rapt attention to her every need. That's what keeps me at work.

 

[travelover]

.............

We are not eligible for Roths as far as I know. Wish we were, but I do contribute max to HSA.

............

Backdoor Roth IRA - Bogleheads

 

[ProGolferWannabe]

Backdoor Roth IRA - Bogleheads

Thank you--I have read about this (in this forum) and I am not sure it will make sense for us as we have some traditional IRAs (that contain pre and post tax contributions). I understand if we do this conversion, we cannot pick the money to convert---it has to be prorated across all of our IRAs, and we would be subject to paying taxes. To be honest, the process gets me rather aggravated---I think it is confusing.

 

[Dawg52]

Most important question..........what is your golf handicap? Mine dropped a couple after I retired, but only got down to a 6. Now back up to 7.1. But I'm a scratch at the 19th hole.

 

[kcowan]

Congratulations Wannabe.

I think you would be wise to plan on retiring at 56. Spend the next few years getting your expenses in order, particularly medical. Don't count on getting Medicare in 16 years. Try out Firecalc and see how it goes in 6 years. I am pretty sure you will be able to make ends meet.

 

[ProGolferWannabe]

Most important question..........what is your golf handicap? Mine dropped a couple after I retired, but only got down to a 6. Now back up to 7.1. But I'm a scratch at the 19th hole.

You might be able to give me a few tips---I was down to a 14.2 last summer, but if had more time to play I could probably get it up to 18 or 19 (LOL). Seems like the more I play, the worse I get. I think I would be able to trounce you at the 19th hole--you wouldn't need to even give me any strokes!!!

 

[nun]

Thank you---your "back of the envelope" calculations seem to make sense. A couple of things---I doubt we would be willing to try and give retirement a try at $50K/year. I think we could do it, but think that may mean counting our pennies a bit more closely than what I wanted in retirement. Nonetheless, we do need to get a better idea of what we spend now, so we can see what is and is not realistic.

!

You may be surprised at how much you spend on things that you can economize on without feeling any hardship.

I've been accurately tracking my spending for over a year in preparation for ER and I immediately noticed how much I spent on phone and cable so I've eliminated my land line and gone to a less expensive cable package. You can save on insurance by increasing deductibles and food is also easy to save on as it's a big expense.

I'm now confident that I could ER if I wanted or needed because I know my expenses and where I could economize if it became necessary.