Our 30:30 Plan – Targeting ER at Age 55 (detailed)

[jclarksnakes]

Quote:

Originally Posted by Sandman62 Thanks for the welcome and the suggestions everyone. I've heard about "self insuring" LTC; what exactly does that mean besides just putting aside enough to cover a few years worth? Even that could be quite a lot though, no? I mean, if LTC costs $100k/yr x 3 years each, that's $600k. Granted, not needing it all on the same day means it could be less, but still probably a big number? ..........................................

600K does sound like a lot of money but during those three years in the nursing home you would still be drawing the pensions and SS. SS for you and your DW will be pretty large if you both wait till age 70 to start drawing it. Together the SS and pensions will not cover all of the 600K but will cover enough of it that you would only need a couple hundred thousand from your savings.

[Sandman62]

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Originally Posted by heeyy_joe As long as you decide not to build another house, you are in good shape. Well done!

Thanks Joe. If we do build a house, I may be naive, but was thinking that if we could build for $350k (we already own the land), then sell our existing home for that, we might be able to pull it off sans mortgage?

[Sandman62]

Quote:

Originally Posted by jclarksnakes 600K does sound like a lot of money but during those three years in the nursing home you would still be drawing the pensions and SS. SS for you and your DW will be pretty large if you both wait till age 70 to start drawing it. Together the SS and pensions will not cover all of the 600K but will cover enough of it that you would only need a couple hundred thousand from your savings.

Ahh, gotcha. Thanks for pointing that out. With any luck, if we do end up in nursing homes, it'd be after we're 70 - at which point SS kicks in and brings our spending power back up to $100k (deflated pensions + SS).

So "self-insuring" doesn't mean anything other than "put aside some funds in something with low/no risk to cover"?

[Surewhitey]

$75k used to be our "fun-time" budget back in the double income days. When we tested the ER waters last year, we went to Mexico and found $2k / month was our real budget.

Came back to Los Angeles and found $4k was a basic (but fun) budget. We're headed back down to Mexico for a couple years, next month. We're planning on $2,500 so we can do plenty of travel around the Yucatan, Belize and maybe into Guatemala.

Point is, you may find what you used to spend is double what you "could" spend. Keep an open mind on this.

Otherwise, you got it made, for sure. DW has a small pension when she gets there (she's 48, me 42). We plan to w*rk 15 hrs a week down there and volunteer 20 hrs a week. Fun time is 30 hrs / week...

We have always lived pretty simple; one salary of $55k in 1999 and now we're back to that or less. "Keep it simple" is our motto. Still have life insurance and HD medical insurance. Drive our 10 yr old Toyota Avalon, headed back to its second tour of Mehico (along with our dog).

We also are conservative on the allocation with only 15% or so in stocks, the rest in guaranteed % stuff. It'll bite us one day, but so far no big deal. Our overall NW is a little over a mil for reference.

[Sandman62]

Interesting points on what we "could" vs. "may" spend. Thanks.

I really don't know what we will spend. So I just started with the assumption that "whatever we spend now, minus college, other kids costs, and SS tax". Of course, it could go down or up from there.

As midpack and others have suggested to people, it's a good idea to test drive our intended spending goal a couple/few years before ER. So in a few years, when our son graduates college and we're still 2 years from ER, that's probably a good time to try setting aside the difference and get a feel for it.

Thanks again.

[obgyn65]

I haven't read the answers from other forum participants above, but to the OP : you are all set. Congratulations. Enjoy your retirement.

[Sandman62]

I just realized I'd made a mistake in calculating our retirement spending and income needs: I had calculated our pension benefits knowing what we'll get when we retire in 5 years. However, that's in "5 years from now" dollars, so don't I have to adjust for inflation?

So, taking our current $75/yr (after-tax) spending and adding 3% inflation for 5 years makes that ~$86k. Adding federal and state taxes onto that means we'll need more like $115k pretax income.

Does that make sense? If so, then for the 15 years until SS (unless we do so spousal benefits earlier), we'd need to either withdraw $15k/yr from our portfolio or tighten up our budget.

That said, when entering Spending in Firecalc, is that today's dollars or as of retirement date?

[MichaelB]

FIRECalc will add inflation to your spending. It will not add taxes, you have to include that. It will apply a COLA to the pension ony if you indicate that.

Quote:

Originally Posted by Sandman62 So, taking our current $75/yr (after-tax) spending and adding 3% inflation for 5 years makes that ~$86k. Adding federal and state taxes onto that means we'll need more like $115k pretax income.

In this case, you would need to gross up to the $75k what you need to pay for taxes for the first year. FIREcalc will apply inflation from that point.

[REWahoo]

Have you used TurboTax or some other tax program to check your estimated tax bite on your proposed income? Your estimated 25% seems to be high to me, but then I'm not familiar with what your state might hit you with.

[Sandman62]

Sorry Michael, but I don't quite follow your recommendation. What does "gross up to the $75k" mean? Do I enter in Firecalc's Spending the amount we spend NOW or WILL SPEND in the first year of retirement.

ReWahoo, I'm using TaxCut, and thought I'd calculated estimated tax rates from our 1040, but looking closer at TaxCut now, I probably messed that up. I had used 20% federal and 5% state. Upon further review though, TaxCut shows:

Gross Income: 168,322 (obviously excludes retirement savings)
AGI: 168,134
Taxable Income: 134,774
Federal tax: 25,054, 14.9% of AGI
State tax: 6,235, 3.7% of AGI
Total tax: 18.6% of AGI
Is it correct to calculate tax rate based on AGI or should I be using Taxable Income?

If this is more accurate, then unfortunately, I think our retirement spending goal will be higher because our current consumption is evidently higher. I'm estimating current spending as "Pretax income, minus taxes, and what we save for retirement and savings, pay for college and other child expenses". So if I was calculating too high on income tax rates, that means we actually spend more.

Revised estimates based on 18.6% total income tax rate:
Current spending: 85,220 (not $75k, as originally thought)
Inflation rate: 3.00%
Inflation-adjusted ret. spending: 98,793
Inflation-adjusted ret. inc.: 121,381

Pensions will total $100k, meaning need to withdraw the difference or tighten up budget.

You see? This is why I'm out here getting input on our plan. Just because I'm handy with Excel doesn't mean I'm using the right numbers and formulas.

Much appreciate the help folks.

[REWahoo]

I wouldn't use the effective tax rate (18.6%) on your current income to estimate taxes in retirement since you know you'll have a lower income. Do some 'what if' runs in TaxCut using your projected retirement income and I think you'll find the effective rate will be less.

[MichaelB]

Sandman, for spending, use the amount it is now. Make sure it includes taxes.

I also agree with REW's suggestion. If you need $85k of net spending, use TurboTax to see what gross income you need to produce that net amount.

[REWahoo]

Also, if you aren't already doing so I would strongly urge you to use your Excel skills track your actual spending. We did this for three years prior to retiring and it was a huge help in our planning.

You don't have to track every penny, just get granular enough to understand where your money is going every month. This will show you that you probably have the ability to 'tighten the budget' with very little real impact to your standard of living.

[REWahoo]

Quote:

Originally Posted by MichaelB Sandman, for spending, use the amount it is now. Make sure it includes taxes.

+1

[Sandman62]

Ohhhh, so Firecalc's "Spending" is meant to be BEFORE-tax? I thought it meant actual money spent.

As for tracking actual expenses, I can probably get a good start from our Discover card, seeing we use it for almost everything (and pay the balance every month) except the monthly bills, which my wife pays from our checking. I know we've charged over $48k in the last 4 years on it, and they nicely break down by categories. Thanks for the suggestion.

[REWahoo]

Quote:

Originally Posted by Sandman62 Ohhhh, so Firecalc's "Spending" is meant to be BEFORE-tax? I thought it meant actual money spent.

When you are getting pensions, SS benefits and withdrawing $ from your IRAs, you'll be paying taxes on them. That's an expense - and money spent (buying all the things govt provides ).

FIRECalc ignores taxes so you need to include ALL expenses, including taxes, in your "spending".

[Surewhitey]

Quote:

Originally Posted by REWahoo Also, if you aren't already doing so I would strongly urge you to use your Excel skills track your actual spending. We did this for three years prior to retiring and it was a huge help in our planning.

+1 also; we use Mint on this and it works quite well, even on the small spendings...

[aida2003]

Reading OP's first post, his financial situation sounded very enviable: great household income, no student loans for children, everything is COLA'd....wonderful, but just this one tidbit of information that he doesn't really know his current spending and what's that for shows that he lacks some basic skills on budgeting. Without this knowledge, you might not even realize how quicky you might overspend the $75k that even COLA'd benefits won't be able to cover it. Will your children be all set after college and no more financial help from you expected anymore? What about future grandkids and 'spoiling' budget for them?

I'd suggest starting tracking your current spending for the next few years and see if you'll have any wiggle room for cuts if needed in the future. You are planning to do 'catch-up' for your 401k, what about doing the same for your DW or would it really scrimp your current lifestyle?

Your current financial picture is truly wonderful, but this lack of knowledge of spending and reluctance to cut it (maybe you won't need it, I don't know) raises a red flag for me.

[Sandman62]

Thanks for pointing out the concern. Honestly, we've never really tracked our budgets because we live below our means. We've never really scrutinized our spending for "Where else can we tighten up?" because we really haven't needed to. I'm not trying to be flippant; just being honest. We save for retirement, pay our bills, eat, live, etc, and bank the rest. We don't take annual extravagant vacations or have other expensive hobbies. We put one kid through college with no loans and we don't anticipate any for DS. No car payments. No mortgage.

I actually thought I was being conservative by arriving at our curent annual spending by simply starting with our income, then deducting taxes, what we save, what we currently spend on college and other kid costs - all things (except for taxes) that will go away before retirement (notwithstanding the chance of college grad kids possibly still needing some support). Then I just assumed that "We spend the rest". Yes, we can probably cut some fat in areas like dining out or some of my high-stakes fantasy football habit, but I thought that it might be more accurate (or at least a "worst case" scenario) to see what we actually spend instead of just poring over bills to try to see what I think we spend - and risking leaving some things out.

But I do agree with taking a look at our spending over the next few years. I just updated some numbers in Fidelity's Retirement Planner, but over the next couple weeks, I'll obtain more accurate numbers from credit cards and check register.

I have started thinking about catchup on DW too. I'm leaning toward getting through a year of that for me first, then revisiting to see how it felt. Still have one kid in college for 3 more years.

BTW, our pensions do NOT include COLAs. DW's "may" get one every 5 years, but mine won't.

Thanks again for the warning.

[REWahoo]

Quote:

Originally Posted by Sandman62 I have started thinking about catchup on DW too.

You might try some mustard on her once in a while to spice things up.