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Our 30:30 Plan – Targeting ER at Age 55 (detailed)
Old 03-17-2013, 12:19 PM   #1
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Our 30:30 Plan – Targeting ER at Age 55 (detailed)

Hi,

I just introduced myself over on the "Hi, I am" board: Our 30:30 Plan – Targeting ER at Age 55 (intro). But I'd also like to ask a more detailed request for an overall ER plan review here.

We’ve put a lot of effort into trying to set ourselves up for ER and balancing that with raising our family. I recently did a free financial plan with Vanguard and they think we have an 83% chance of not outliving our money. Firecalc thinks we’re at 100%.

My employer will reimburse me for $500 of financial planning now that I’m 50. I plan to do this within the next year or two. In the meantime, I’ve already learned a lot the past few months reading at Bogleheads and more recently, here. But rather than heading into a financial planner and having to pay by the hour to be learning terms and tactics for the first time, I’d like to have tested our strategy a bit with an experienced community of others who’ve been down this path.

At this time, I guess I’m looking for input on any areas we’ve missed, any items we should be focusing on when we meet with a planner, any hidden “gotchas”. So I apologize in advance for the length of this post; but for the past several months now, I just have a lot of variables swirling around in my head. I’d like to get some confirmation or tips for improving our plan so that I can put this to rest awhile, as we work towards ER in 5 years.

So here goes, either grab another drink and kick back or hit the back button on your browser. You’ve been warned.

We live in the Northeast and plan to stay here when retired too, as long as our kids end up here too. We might consider renting a few months some winters though, likely in FL or SC or similar areas.

Careers & Income
We are both fortunate to have had very stable careers. I’ve only had one job at one employer since graduating from college; current salary is $105k, but with great benefits, including 6 weeks of vacation. I know that one employer might sound nauseating to some folks. But I’m an IT Architect at a very stable private insurance company and the nature of IT is that the technology changes enough to keep things challenging and fun. I’ve gone from Assembler language programming, through COBOL, C++, and mostly Java now. And that’s just the programming languages. From green screen terminals to PCs to internet and mobile, it keeps evolving and I’m right in the thick of it. So it’s been fun and still is. My wife is a foreign language teacher at one of our city’s junior high schools, but spent her first decade teaching at a high school (and not paying into SS back then). She still enjoys teaching too; current salary is $81k and obviously the usual extensive vacation time. Even though we both still enjoy our work, we don’t feel defined by it.

Pensions, Social Security & Health Insurance (Oh my! )
My employer is a rare breed that still provides a free non-COLA DB pension at retirement age 55 that will work out to around 60% of my highest 3-year salary average, with a free 60% survivor benefit that I can buy up to 100% for 6% of my benefit. They also 100% match the first 6% of my 401k. And they cover 80% of health insurance, and will continue to provide me access to that group plan from my ER age 55 until Medicare, at which point they still provide access to group Medicare supplemental plans.

My wife’s retirement age is a bit up in the air as of now, due to state pension overhaul a year or so ago, which pushed her retirement age from age 52 to 59, as well as some other changes. However, with this now in court between her union and the state, I suspect there could be some compromise that might yield an age somewhere closer to 54 or 55 for longtime employees. We shall see. If so, her pension will be around 56% of her final 3 years’ salary; if she really does have to work til 59, it’ll be higher, as would mine, seeing I’d probably continue working too – but we’re really hoping to still be able to both retire in mid-50s. Hers has a slight chance of COLA every 5 years or if/when the pension’s funding increases substantially (not holding breath). Her survivor benefits are more costly than mine: 10% gets me 50%, and 18% gets me 100%.

The bottom line is that our pensions will provide $100k/year. In retirement we’ll no longer be saving for retirement or paying SS taxes, plus no more college bills. And boomerang kids aside, no more other child expenses like auto insurance, cell phones, etc. Given that pretax income, we'd have about $75k/year spending money and we feel that we can live on this amount without our lifestyle changing. Of course, without COLAs, we’ll likely need to withdraw enough each year from our portfolio to offset the effects of inflation on our pensions. But our goal would be to delay SS benefits until age 70 (or maybe wife taking spousal at 67, but me suspending?). By that time, our $100k pensions would have deflated to more like mid-60s; but then our SS benefits, from what I can tell with their anyPIA software (accounting for 10 years of WEP effect on my wife’s prior school system) would add back in around 48k/year, putting us back up to where we started retirement or better.

Expenses & Debt
Our daughter will graduate college this summer from our State U, where she’s enjoyed living too, and will have completed her bachelor’s degree in just 3 years. Though we never qualified for any financial aid, our costs were quite low for her degree, so we managed to pay as we went each month, without incurring any student loans. This was always our plan for college, so we paid down our mortgage for many years and funded 10% into retirement accounts in lieu of saving for college. Thankfully, both of our kids chose the state school over more expensive privates (at which we’d have asked them to take on some loans to cover the difference). Our son is in his freshman year, also at our State U. It was a bit tight this past year with both of them in school, but we still managed to cover costs without debt. Now we’ll only have his college costs for 3 more years, which we can continue paying from our income.

We have no other debt, and our cars are less than 7 and 5 years old. And we usually drive our cars a good 10 years, so we don’t anticipate new ones soon. We set aside money each month though to build up a down payment for our next purchases, so that we usually put down 50-60% and only have to finance for 3 years.

Assets
We managed to pay off our mortgage about a year ago and our home is worth around $350k; plus we have the possibility of splitting our lot into another sellable lot, and either building a new home for us or yielding another $75-100k if we decide to relocate (though we intend to stay in our current state).

Our current retirement portfolio is ~$628k. Now that we only have one child left in college and I’m 50, we’re going to increase our 10% contributions to $23k for me, and keep wife’s for now at ~10% ($8500). Adding in my employer’s match, we’ll be saving close to $38k/yr for the next 5 years before retirement. Obviously, without a crystal ball, I can’t say for sure what our portfolio balance will be then, but I’m estimating around $1 million.

Our current asset allocation is roughly 80:20 stocks:bonds. With my catch-up contributions now, we’ll be sliding towards 70:30. I know this is a bit aggressive, but we’ve never panicked and sold during downtimes. Plus with our pensions, I feel like we can withstand a bit more risk.

Funds:
Vanguard Total Stock Mkt Idx Inst (VITSX) 35%
Vanguard Total Bond Market Index Fund Institutional Shares (VBTIX) 15%
Fidelity Low-Priced Stock Fund (FLPSX) 12%
Fidelity Diversified International Fund (FDIVX) 10%
Vanguard Total International Stock Index Fund Institutional Shares (VTSNX) 10%
Fidelity New Millennium Fund (FMILX) 8%
Fidelity Capital & Income Fund (FAGIX) 5%
Spartan500 Index Fund - Fidelity Advantage Class (FUSVX) 5%
Total 100%

We also have sufficient emergency funds.

Life and Long-term Care Insurance
I haven’t started really learning much about long-term care insurance, but that’s on my to-do list. I currently have free life insurance of 5x annual salary from employer group plan, and we have a term policy for my wife for ~$330k for a few more years. Our goal has always been to stop buying life insurance once we’re no longer insuring against lost income potential.

So as Forrest Gump said, “That’s about all I have to say about that”. If you’ve endured it this long, I thank you and would appreciate any words of wisdom – positive or constructive suggestions for improvement.

Thank you very much. I’m so glad I found this site (and bogleheads)!
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Old 03-17-2013, 02:05 PM   #2
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However, if projected retirement spending/expenses were in there, I missed them. Without that, it's impossible to conclude anything re: success rate, so I'd expect any feedback you get to be incomplete. If spending was in there, my apologies.
I initially had the same response, but this sentence seems to set some rough parameter on spending.

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The bottom line is that our pensions will provide $100k/year. In retirement we’ll no longer be saving for retirement or paying SS taxes, plus no more college bills. And boomerang kids aside, no more other child expenses like auto insurance, cell phones, etc. Given that, we feel that we can live on this amount without our lifestyle changing.
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Old 03-17-2013, 02:18 PM   #3
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Based upon a beginning income of 100K and adjusting for inflation each year would mean you need 3K to 4K per yr from your portfolio (year one) to adjust for inflation. With just a 600K portfolio you should be able to take 18K yr with a 3% SWR. I would say you have no issues. If it were me, I would reduce my equity exposure to 50%. Good luck.
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Old 03-17-2013, 02:23 PM   #4
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I initially had the same response, but this sentence seems to set some rough parameter on spending.
Sorry. Yes, we feel that our $100k pretax pensions should cover our roughly $75k annual spending.
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Old 03-17-2013, 02:27 PM   #5
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Now that Gumby pointed out what I missed (thanks), I don't see anything wrong with your plan.

Holdings and asset allocation are reasonable. Have you experimented with other asset allocations, just to know where you're at? What's more important to you, low risk/volatility or shooting for a higher residual for family/charity?

Probability of success with pensions exceeding spending to start and a reasonable nest egg are undoubtedly good, no reason I'd recheck your FIRECALC findings.

I'm not sure why you'd plan to age 85 unless you know something we don't. But if you're at 100% success out to age 85, odds are your success to age 90, 95, 100 are still good.

Congrats...
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Old 03-17-2013, 04:12 PM   #6
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I haven't played with other allocations. Do you mean in Firecalc or somewhere else? I guess if we're really 5 years away from ER, we should probably be closer to 60:40?

I actually think I did firecalc out 40 years. I just dubbed this our "30:30 Plan" a long time ago. I do hope to live past 85, but who knows? At any rate, we need to plan to live to more like 95 in order not to run out.

I'll check my firecalc stats on my laptop a little later (I don't have the link here).

Thank you.
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Old 03-17-2013, 04:22 PM   #7
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With $100K in pensions annually and a million in cash, you are golden. Quit over thinking it.
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Old 03-17-2013, 08:34 PM   #8
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With $100K in pensions annually and a million in cash, you are golden. Quit over thinking it.
And a very reasonable buy in to health insurance.

Golden indeed! Congrats Sandman!

DW and I are your age, similar professions. I envy your stability of employers. Rare indeed. Yes the work changes and is challenging. Unfortunately many employers throw out the old employees and get new to handle this issue. I'm glad you appreciate what you have. Some in your position would complain about being underpaid, but you have a great pension, great insurance, and an employer that trains you to deal with the changes. That is huge!

We are taking a different path, funding our own pensions through savings. On one hand, it is great to have complete control over our retirement income. On the other hand, you hear things like the Cypress tax and worry the govt. will punish us for saving... But I digress.

Just want to say "Welcome" again and sounds like you are on the right track.
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Old 03-17-2013, 11:34 PM   #9
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As others have said you seem to be golden. I think you are right to end the life insurance when you no longer have to worry about insuring against lost potential income. If I was you I would try to keep the spending down just enough that you do not have to use much of your savings before you start drawing SS. When it gets closer to starting SS you can make the decision whether to do the file and suspend and spousal benefit or not. Waiting to draw the SS will of course get you higher SS benefit and the COLA with it. The COLA is important as your pensions are not COLA'd. I think you should look at your savings as a possible hedge against inflation after age 70. You also seem to be in a good position to self insure instead of buying LTC insurance.
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Old 03-18-2013, 03:18 AM   #10
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I think your plan looks good. One suggestion to verify your expenses - try living on your planned after-tax retirement income for a month. It will really help you see if your budget will need further tuning.
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Old 03-18-2013, 06:10 AM   #11
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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?

Also, what are some methods of covering the deflation of our pensions for 15 years? For example, after the first year, we'd need to replace about $3000-3500 of our pension buying power, then increasing to probably something more like $30,000-35,000 as we approach age 70. One way would be to use Excel (or an online calculator?) to figure out the starting principle necessary to fund a CD ladder that would provide an increasing amount of annual draw. I've also heard about TIPS, but have read that now may not be a great time for them (though I honestly haven't researched them much yet and we don't need them for 5 years anyway). I guess a 15-year annuity would be another way? What else?

Thanks again.
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Old 03-18-2013, 06:19 AM   #12
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Also, what are some methods of covering the deflation of our pensions for 15 years?
One way would be to continue to maintain the AA in your portfolio heavily weighted toward equities to help offset inflation losses to your pension. You seem to have a tolerance for the volatility one would expect from an 80/20 AA, and the level of equity investment seems both reasonable and prudent to me with your large pension income.
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Old 03-18-2013, 06:26 AM   #13
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I haven't played with other allocations. Do you mean in Firecalc or somewhere else? I guess if we're really 5 years away from ER, we should probably be closer to 60:40?

I actually think I did firecalc out 40 years. I just dubbed this our "30:30 Plan" a long time ago. I do hope to live past 85, but who knows? At any rate, we need to plan to live to more like 95 in order not to run out.

I'll check my firecalc stats on my laptop a little later (I don't have the link here).

Thank you.
I checked Firecalc; yes, I'd calculated over 40 years. Both my wife and I had a grandparent live to mid-90s, and I had one in mid-80s. The rest didn't reach 80. So who knows? At any rate, Firecalc's 100% also includes current SS laws, and our benefits could end up reduced by 25+% if SS moves more towards needs-based in the future. So 40 years seems safer to use.
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Old 03-18-2013, 06:30 AM   #14
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And a very reasonable buy in to health insurance.

Golden indeed! Congrats Sandman!

DW and I are your age, similar professions. I envy your stability of employers. Rare indeed. Yes the work changes and is challenging. Unfortunately many employers throw out the old employees and get new to handle this issue. I'm glad you appreciate what you have. Some in your position would complain about being underpaid, but you have a great pension, great insurance, and an employer that trains you to deal with the changes. That is huge!

We are taking a different path, funding our own pensions through savings. On one hand, it is great to have complete control over our retirement income. On the other hand, you hear things like the Cypress tax and worry the govt. will punish us for saving... But I digress.

Just want to say "Welcome" again and sounds like you are on the right track.
We are very grateful indeed for our jobs and our pensions. I recall starting out in IT in '86 (coding mainframe Assembler) at $18k salary when my peers were starting in mid-20s. At that young age, I can't say the pension drew me there; rather, it was a well-known stable company, that's all I knew. Over the years, many of my colleagues have left for greener pastures - some real, some perceived, some have even returned as consultants (but minus the benefits, had they stayed). But up until a couple years ago, I also had just a 35-hour work week (it's now 37.5, though most at my level work a few more). That allowed me the freedom and balance to make it to all of our kids' sporting and school events. I even coached baseball for about a decade, making it to 5:30 games and practices. So though I always knew I could be making more money elsewhere, the combination of work/home balance, plus the benefits, are what kept me at just one employer for nearly 27 years now.

Similar for my wife, who is fluent in 3 foreign languages; she could probably have had a more lucrative and possibly exciting international career. But being a teacher - especially 2 miles from home - meant that when our kids were out of school, so was she = no day care costs. We were also fortunate that her parents were retired when our kids were preschool age, and they offered to watch them during the day. Not only did that save us an expense, but it also gave our kids something I never really had - an extremely close relationship with their grandparents. They grew up out in their garden, picking up tidbits of Italian and seeing their live-in great-grandmother every day. My son still goes over there every week during the Spring and Summer to cut their grass and visit (and eat, because being Italian, you CAN'T leave without eating SOMETHING! ).

I'm rambling again, sorry. I just am very grateful for the life we have. Most of our family still lives locally, two kids of which we are extremely proud, married my prom date and neighborhood sweetheart, and on the path to age 55 ER. It couldn't be much better.
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Old 03-18-2013, 06:36 AM   #15
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One way would be to continue to maintain the AA in your portfolio heavily weighted toward equities to help offset inflation losses to your pension. You seem to have a tolerance for the volatility one would expect from an 80/20 AA, and the level of equity investment seems both reasonable and prudent to me with your large pension income.
Thanks REWahoo. That's why we've maintained 80:20 this late. I've read the debates about "Should I count pension income as part of my 'net worth'?", and I tend to agree that it makes little sense to do that, other than to perhaps compare where one stands against others with larger portfolios and no pensions. But it does make a bit more sense to count pensions towards bond allocation in portfolios. Though they're not as guaranteed as true bonds, they are better than having NO pensions. So it does seem like we can continue with a bit more equities than if we didn't have so much of our retirement income from pensions. As I said, right now, we're still 80:20; but as I ramp up on catch-ups over the next 5 years, our contributions are going in more like 70:30, so we're sliding towards 75:25.

Thanks for your input.
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Old 03-18-2013, 07:51 AM   #16
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Great job. And if the talking heads are correct with their bull market theme for the next few years(the one's I like to listen to ), you may have well over 1 million. I admit, I'm not comfortable with an aggressive AA. But I'm conservative by nature and my numbers work for me. I do understand your way of thinking however.

Anyway, best of luck and stick to your plan. Looks good.
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Old 03-18-2013, 09:19 AM   #17
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Also, what are some methods of covering the deflation of our pensions for 15 years?
Well, my dad accidentally did something to handle this. I'm only realizing now since I handle his finances.

When he retired 20+ years ago, his pension appeared huge. He saved a portion in those early years. You can save 25k your first year, presumably decreasing as the years go by.

Now the time has come for him to dip into that money saved, which also appreciated through investments. His pension doesn't look so huge today, so we have to supplement it.

I get the feeling you will be doing this and saving the overage. I'm probably redundant. I guess you are asking for more concrete examples of how to invest that (stocks, bonds, annuities, etc.) That's not my strength so I'll leave it to others.
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Old 03-18-2013, 02:13 PM   #18
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I doubt we can save $25k/yr from our pensions. The $100k combined pensions will be taxed, leaving us around $75k/yr - which is about what we spend now, after college and other kid costs, and retirement savings and SS tax. Sorry I wasn't clearer on that.
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Old 03-18-2013, 02:31 PM   #19
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I doubt we can save $25k/yr from our pensions. The $100k combined pensions will be taxed, leaving us around $75k/yr - which is about what we spend now, after college and other kid costs, and retirement savings and SS tax. Sorry I wasn't clearer on that.
Ah, I see. OK. Sometimes people quote their expenses as including the tax load. I understand. So, nevermind!

Glad you are thinking about inflation though.
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Old 03-18-2013, 03:08 PM   #20
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As long as you decide not to build another house, you are in good shape. Well done!
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