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Old 11-25-2007, 10:28 AM   #1
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Our ER Plan

My husband and I have no children, are 52 years old, and have been married for 33 years. We have always been thrifty. We got married at 19 and worked our way through college without any outside assistance Ė not even a college loan. The struggles in our earlier years of marriage resulted in a frugal life style which continued even when we both got good paying jobs.

I am leaving my govít job in just over a month. Iím under FERS and will not be eligible for an immediate retirement since Iím under the minimum retirement age of 56. My husband has worked for local government for nearly 30 years and will be retiring in about a year with a $46K colaíed pension and an excellent group health insurance for both of us at a cost of about $470/month. I realize this is more than I would pay for health insurance if I stuck it out 4 more years with Uncle Sam, but it doesnít seem like such a bad deal. In addition, there is no way I could stand working that much longer. We also have a high end LTC insurance policy I purchased through the government. The LTC policy costs $276/month for both of us and will not go up in price. After seeing what my husbandís mother went through after her stoke, we consider LTC insurance a necessity.

We have about $1.1 million in savings. About $600K of this is in tax deferred accounts Ė IRAs and the government TSP. We also own two homes. Our rental property is paid off and worth about $400K even in todayís market. Our primary residence is worth about $540K with a $160K mortgage. Both properties are located in Fairfax County, Virginia, a suburb of Washington, DC. We have no debt other than the mortgage.

Our plan is to move into our rental, sell our primary residence, then sell the rental after we lived there for 2 years so we can avoid capital gains tax on the sale. Since we bought the rental in 1974 for $54K and have done little to increase the basis, the potential capital gain would be huge.

We are planning to move to the Culpeper, Virginia area in about 3 years after we sell our two homes. Culpeper is about 50 miles from Washington, DC. We like the area and have good friends who retired there. There is a decent regional hospital in the area which adds to the appeal. While we are both in pretty good shape, we realize the access to good health care is critical as we grow older. Right now, we could buy a suitable retirement home for about $425K in Culpeper. The way we figure it, if the value of our two current properties rises or falls, the cost of our eventual retirement home would move in approximately the same direction so it shouldnít impact our plan in a major way.

We are looking for the simple life. My passion is volunteering with animal shelters and rescue groups. My husband loves gardening, ham radio, and generally tinkering around the house. We traveled a lot in our earlier years but donít have much desire to travel extensively in retirement. A trip a year to visit our friends in Panama plus a week at the beach would suit us fine.

At age 62, our monthly income will increase by about $44K per year. This includes social security and my deferred government pension. Until then, we will need to supplement my husbandís pension. I have considered purchasing an annuity from my TSP and IRAs, but am frankly not crazy about the idea of turning over so much cash to MetLife (the federal government annuity provider). It seems to me just that just pulling some of the interest on our savings would bring our income up into the $70K range we would like to live on without touching the principal.

My simple plan is to ladder our cash in CDs and use the interest to supplement our income until we hit 62 and receive social security any my small deferred pension. We recently put $200K in an 18 month CD through our credit union (a special rate due to their 60th anniversary) paying 6%. Everything else earns 4% to 5%. I know many of you will think our investment strategy is way beyond conservative. However, we met with a financial planner about a year ago and simple were not comfortable with putting much of our hard earned savings at risk.

We welcome any suggests or comments you have on our plan and look forward to using this site as a resource as we enter retirement.
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Old 11-25-2007, 10:50 AM   #2
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Purron, sounds as if you've thought through your retirement plans in great detail and covered the major stumbling block for many - health insurance. Congratulations on getting to the FIREing point.

As to your very (ultra?) conservative approach to keeping your nest egg in cash/CD's - hey, whatever works for you is the way you should go. As long as you are aware keeping all your funds in cash will cost you in reduced future buying power due to the inevitable toll of inflation, go for it. You need to do whatever helps you sleep at night. Everybody's nightmares are unique to their own personality.
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Old 11-25-2007, 04:51 PM   #3
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It's fine to be conservative since your income is almost guaranteed and inflation adjusted. There is no reason to take on more risk when you do not have to. After selling the primary residence, your assets will be 1.48M. You only need to withdraw 1.62% to support the $70K yearly expenses from now to age 62 (10 years). From then on, you will never have to withdraw any money from your portfolio except for unexpected events, whatever it may be. It seems that everything is covered, such as LTC and health coverage. Congrats!!!
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Old 11-25-2007, 05:41 PM   #4
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Sounds like you have your bases covered. While you will start out very conservative on your investments, I think that if you spend some time reading about investing that you will probably change your investment policy in a little while. Ultimately, you may wish to have more inflation protection even in your conservative investments, so if the yields are right, TIPS or a TIPS fund might be in your future. Congrats!

And Northern Virginia is a great place to live. I have many fond memories of when I lived in Fairfax.
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Old 11-25-2007, 06:13 PM   #5
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Purron, you could always do a 72-t from your tsp or IRA to get you the extra cash without paying the 10% early withdrawal penalty. You would still be liable for regular taxes. This would also avoid buying an expensive annuity.
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Old 11-25-2007, 06:30 PM   #6
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Wow it sounds like you've just made a template on how to have a sucessful retirement.
You covered all the contigency for your financial future. I was going to suggest TIPs also, but I think between your COLA pension, SS, and two piece of property you have inflation protection well in hand.
My you've even identified what you are going to during retirement. I am impressed.

Only one question how is your TSP invested?
If you'd like an ego boost submit your question to some of the financial guru Suze Orman, Scott Burns, Money mag etc, and watch how they fawn all over how well you have everthing thougth out.
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Old 11-25-2007, 06:37 PM   #7
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You seem to have affairs and plans thought out. Congratulations.

Your husbands $46k pension is Cola'd, and when you reach 62 the SS and your pension will be Cola'd. Very good for income.

Before you reach 62, you can take interest earnings only, no touching principal, to earn $45000 annual. After selling your real estate (and setting aside $425000 for a new residence) you will have about $1.5 million savings. If you earn 3% on $1.5 million, that is $45000 income, and with DH's pension gives you total income of $91000 till age 62.

1) One thing you might consider, with a portion of your taxable accounts, is tax-exempt municipal bond funds. Link to one such at Nuveen:

NPV - Nuveen Virginia Premium Income Municipal Fund

This will yield you federal and state of Virginia tax-exempt income now at about 4.5%. Tax-equivalent yield somewhere around 6 or 7+%.


You don't like taking risks with your money. Inflation IS a risk you face with your money. You need to think how you will cope with inflation over 25, 30, 35 years.

2) After thinking about RISK of longterm inflation effects on your savings, you may want to read more about asset allocation. If you devoted even 20% of your portfolio to large-cap dividend paying equities, this would provide some inflation offset for your savings principal.

3) Also, another poster mention TIPS--US Treasury bonds with yields indexed to inflation. You might devote some portion of your savings to TIPS as well.
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Old 11-25-2007, 06:43 PM   #8
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If Mr. Purron dies, how does that affect Mrs. Purron's future? And vice-versa?
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Old 11-25-2007, 07:38 PM   #9
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Thanks for all of your comments and suggestions. We have thought about what happens if one of us dies. The biggest problem, as I see it, is after being together for 35 years (33 years married) would be the trauma of losing a soul mate and life partner. Everything we have would be left to the surviving spouse and my husband's retirement will include a provision for me to get 100% of the pension in the event of his death. Our family members are pretty well set so we do have that safety net as well. Someone asked about how my TSP is invested. Up until recently, I had it in 50% stocks, 25% bonds and 25% treasuries (G-fund). About 2 months ago, I moved it all into the G-fund to reduce risk so as not to jepordize our early retirment plans. Once we get settled into a retirement routine, we might consider diversifying investments to add a bit of risk and return but we will always err on the side of a conservative and safe investment portfolio.
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Old 11-25-2007, 07:58 PM   #10
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Double cola'd pensions after 62? Plenty of savings, rentals, health insurance, and most important, no leeches, er, darling children to aid you in your spending plans.... I'm reminded of Groucho Marx:

...who purportedly once toured the New York Stock Exchange and held court with the floor traders after the closing bell.


Knowing that Groucho was wealthy, one trader yelled out, "Hey Groucho, where do you invest your money?"

"I keep my money in Treasury bonds," is what the leader of the Marx brothers reportedly replied.


"They don't make you much money," a trader shouted back.


"They do," Groucho said drolly, "if you have enough of them."

I think Buffet has said that at a certain point the most important thing is not to lose money - with the double pensions i think you are at that point.

Most important thing i can think of is to say is that's a fine looking cat you've got there.
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Old 11-25-2007, 08:02 PM   #11
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I do love my cats. I have 4 feline friends and have factored $350 per month in my budget to cover vet care, food and supplies for them
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Old 11-26-2007, 03:03 PM   #12
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I think you copied our life except we have much less in real estate and more invested. Midwest and frugal did not translate into great appreciation on housing but much more on savings.
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Old 11-26-2007, 03:04 PM   #13
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Purron, We have five cats inside and two ferals we provide for and our yearly cost for over 20 years has been around $1200 or $100 a month. $350 is a lot but you know your cats best.
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Old 11-26-2007, 03:38 PM   #14
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Purron, Another cat lover posting a welcome to you. Three indoor/outdoor and one feral cat. Frontline is our friend.
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Old 11-26-2007, 04:56 PM   #15
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Thanks for your replies. I'm happy to find some other feline fanciers on this board! I realize $350/month is high. However, this includes one with special medical needs and supplies and food for homeless kitties I foster for shelters and rescue groups. At any given time, I work with 2 or 3 adult cats or a litter of homeless kittens too young to be adopted. Others may use a similiar amount for golf or travel. My passion is helping animals and is one reason I want to retire early. Instead of pushing paper, I plan to do the work I love and reap the rewards of seeing more homeless animals saved.
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Old 11-26-2007, 05:01 PM   #16
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Quote:
Originally Posted by Purron View Post
Our plan is to move into our rental, sell our primary residence, then sell the rental after we lived there for 2 years so we can avoid capital gains tax on the sale. Since we bought the rental in 1974 for $54K and have done little to increase the basis, the potential capital gain would be huge.
Hi Purron, I'm actually doing a slightly different variation of your plans in a few years. We moved last year from the F'burg area up to Arlington, in a downsizing move to make my job commute much more manageable. Our plans are to retire in 3-4 years -- I'm under CSRS and wife has some retirement accounts but is now in local government and needs a few years to vest in the local government's retirement system. We have a rental property in Arlington and a primary residential condo. We were thinking of selling the primary residential condo and then moving into the rental for precisely the same reasons you outlined, though our gain on the rental is not that huge but still significant. Instead of moving into the rental, I've been thinking about a Starker Exchange to shelter the income; namely, selling the rental and then purchasing another rental in my retirement destination place, then we'd move into that rental after one year or so and make it our primary residence. We think we could buy our dream retirement home and just rent it out for a year and then move into it -- I think all gains would not be recognized in that situation. This has the benefit of not being stuck in the rental for 2 years, but, on the other hand, our dream house might be rented for a year before we move into it.

Regarding the regional hospital in the Culpepper area, if it's Mary Washington then the locals down there might have a different view of things, though I believe HCA is building a fmedical facility down there too.
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Old 11-26-2007, 05:31 PM   #17
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Quote:
Originally Posted by Purron View Post
Thanks for your replies. I'm happy to find some other feline fanciers on this board! I realize $350/month is high. However, this includes one with special medical needs and supplies and food for homeless kitties I foster for shelters and rescue groups. At any given time, I work with 2 or 3 adult cats or a litter of homeless kittens too young to be adopted. Others may use a similiar amount for golf or travel. My passion is helping animals and is one reason I want to retire early. Instead of pushing paper, I plan to do the work I love and reap the rewards of seeing more homeless animals saved.
I had orginally planned on leaving my cats (currently 2+ 2 for roommate) to my cat fanatic sister. I see that there are other options, they'll come with airline tickets and small endowment LOL...

I am still hoping to be reincarnated as the house cat of a female cat lover. 18 hours of sleep, constant love and attention, and fancy feast what a life!
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Old 11-26-2007, 05:48 PM   #18
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We thought about the Starker exchange too. However, we don't want to deal with renting another home out for a year or two. Plus our rental has some great renters in it now and is actually not such a bad place to "hang our hats" for awhile. We lived in the place for over 20 years. Not where we want to retire though as it's small and in Fairfax County. Thanks for the heads up about the regional hospital in Culpeper. This is something I want to look into. Our friends in Culpeper think it's great but they are already committed to the area so may look for the best in things such as this. Someone told me recently the hospital in Winchester, VA is very good - any input on this?

Thanks,

Purron
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Old 11-26-2007, 06:25 PM   #19
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I misspoke about the regional hospital in Culpeper; didn't know it had one and thought Culpeper was served by Mary Washington Hospital in F'burg. I know nothing about the Culpeper Regional Hospital.
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I also live in Fairfax,
Old 11-26-2007, 06:55 PM   #20
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I also live in Fairfax,

am 51, work for the Feds, and plan to ER before long. One thing that you might not know about the TSP G Fund is that the fund consists of special overnight securities issued only by the Treasury to the TSP but which pay a variable interest rate that is the average of several different long term Treasury bonds. So, with no interest rate risk and a high variable rate, the G Fund is a great place to keep your "safe" money. Just one more perk of working for Uncle Sam.
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