Pay off remaining debt or FIRE?

[Katsmeow]

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Even though we are very LBYM, but because of the cost of college for the 3 of them and the purchase of new cars before FIRE (we keep them 10 - 12 years) we are cash poor while paying off debt quickly (about 50k annually). Another reason that I posted is that everyone else on here seems to have paid of their debts long ago or at least have "buckets" of cash/CD's to use after they FIRE. I just thought that we were unusual (not in a good way) of having enough cash flow but being cash poor after working for 35 years.

A few years ago, DH and I had debt and not a lot of cash. We did have good incomes and so really buckled down to pay debt which we have done (we still have mortgage on existing house but have it on market to sell it).

I semi-retired a few months ago. I have a 401(k) but no pension. DH retired a month ago and could have taken a sizable pension -- not $85k a year but not that far away from it. If he had done that our combined 401ks would have been about $340k.

In our case, we have elected for him to take a lump sum instead of a pension (lump sum is just over a million).

[Andre1969]

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Originally Posted by REWahoo Anyone with an $85k annual pension is very unusual and far from my definition of cash or any other type of "poor".

I used to work with a woman who retired from the federal gov't at the age of 62, and then came to back to work as a contractor. She claimed that she just couldn't make it on her pension. Her pension that was over $60K per year, way back in 2004!

She came back to work part time, 3 days per week, making $25 per hour. I shouldn't know how much she made, but I did. I have no idea what her typical raise is, but if you figure just 4% per year (I've usually gotten 5%, although one year I got 6.8%), then when we get our raises this September, that should put her to around $31.65 per hour.

And last time I saw her, she was still whining about being broke, and how hard it is to make it in the DC area, and so forth. Some people just find ways to spend money, no matter how much they make.

Heck, I wasn't even making $60,000 per year back in 2004! So if I suddenly got a $60K/yr pension thrown in my lap, I would've retired on the spot!

[ziggy29]

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Originally Posted by Andre1969 I used to work with a woman who retired from the federal gov't at the age of 62, and then came to back to work as a contractor. She claimed that she just couldn't make it on her pension. Her pension that was over $60K per year, way back in 2004! ... And last time I saw her, she was still whining about being broke, and how hard it is to make it in the DC area, and so forth. Some people just find ways to spend money, no matter how much they make.

Presumably she's attached to the DC area and its relatively high cost of living, then, because if she was retired with a $60K federal pension (presumably CSRS) she really doesn't need to stay in a high cost area. Granted it's not quite SF, NYC or Boston but it's still pretty high. Even if she was a "city gal," there are plenty of cities in "flyover country" where $60K goes a lot farther.

[ClassOf2010]

I assume that everyone realizes that our non-cola pensions are 85k total (47k me, 38k DW) which means if they are compared to the federal cola pensions under the old federal system, they would be worth about 2/3 of them or 31k and 26k (57k total).

[ziggy29]

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Originally Posted by ClassOf2010 I assume that everyone realizes that our non-cola pensions are 85k total (47k me, 38k DW) which means if they are compared to the federal cola pensions under the old federal system, they would be worth about 2/3 of them or 31k and 26k (57k total).

Give or take, yes, for sure a non-COLA pension has additional retirement planning wrinkles than a fully COLA'd one and isn't as valuable given the same initial payouts.

I think it's therefore important to concentrate your personal investments (plus whatever excess cash flow you'll have in the first few years) in areas that are best able to weather inflation. And perhaps you can save enough extra cash flow in the first few years that you can hold off on all your SS until age 70 and maximize the amount of COLA'd income you can possibly receive.

[REWahoo]

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Originally Posted by ClassOf2010 I assume that everyone realizes that our non-cola pensions are 85k total (47k me, 38k DW) which means if they are compared to the federal cola pensions under the old federal system, they would be worth about 2/3 of them or 31k and 26k (57k total).

Now I'm confused.

[ziggy29]

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Originally Posted by REWahoo Now I'm confused.

I think the point was that the current value of a non-COLA pension is perhaps 2/3 the current value of one with a full COLA kicker given the same initial monthly payout. In other words, $85K sounds like a lot now but it will still be $85K in 20-30 years which may not seem like so much any more.

But compared to the $650 a month my old, frozen Megacorp One pension will deliver starting in 2030....

[ClassOf2010]

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Originally Posted by REWahoo Now I'm confused.

There is a pretty good discussion of PV of pension payouts at http://www.early-retirement.org/foru...lue-34250.html

If you use this company Immediate Annuities - Instant Annuity Quote Calculator.
to give you a quote on how much it would cost to buy a 85k non-cola'd pension given our ages it would cost about $1.3 M. If you had a 85k cola'd pension I believe that you could make the case that it would be worth close to 25x (the 4% rule) or $2.0M. That is why I use the 2/3 value rule when comparing non-cola'd to cola'd pensions. Also I have heard a few of the financial "gurus" use two thirds.

Any pension these days is great to have.

[oilspill]

Try to retire without debt. Three months will pass by in a blink of an eye.

[oilspill]

Blink again to get six months.

[ERD50]

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Originally Posted by oilspill Try to retire without debt. Three months will pass by in a blink of an eye.

Wow - that was informative.

Care to share some reasoning behind that statement? The OP has the cash flow to support the payment and still do what he wants, but not the cash to pay it off. Why spend a single day at work when you can do what you want to do?

He could also work until he's dead. That would resolve any financial concerns. But I don't think that is what he wants.

-ERD50

[ziggy29]

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Originally Posted by oilspill Try to retire without debt. Three months will pass by in a blink of an eye.

I would tend to agree if someone didn't have a secure income stream; i.e. if they were dependent on a j*b that didn't have much security. But if someone has a reliable and secure cash flow that can easily accommodate a small amount of debt, I don't see the problem with retiring while the debt is in place.

[Amethyst]

Few observations:

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The reason that I believe that this is not another "pay off the mortgage early" thread is that the tax benefits and amount of the debt is minimal.

On its face, that's a no-brainer (retire now), but it sounds like you could be easier in your mind if you continue to work and save $$ for the few months left till your mortgage is paid off. Either way - nice position to be in, congratulations.

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I am the nerd of the family according to Dave Ramsey, DW is the "free spirit".

I don't know who Dave Ramsey is, but does he allow each couple only one of each? I ask, because I am the nerd and the free spirit in our marriage.

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And last time I saw her, she was still whining about being broke, and how hard it is to make it in the DC area, and so forth. Some people just find ways to spend money, no matter how much they make.

Poormouthing is a deplorable, but common, personality trait. I swear, some people are afraid that if they don't make a poor mouth all the time, someone will ask them for money. I tune out such people; they rarely have much conversation. I know people in real need who are trying to keep it a secret.

Amethyst

[ziggy29]

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Originally Posted by Amethyst I don't know who Dave Ramsey is, but does he allow each couple only one of each? I ask, because I am the nerd and the free spirit in our marriage.

Dave Ramsey has a popular syndicated radio show and is particularly known for being extremely averse to debt and credit. Basically his opinion is that the only thing people should ever go into debt for is a mortgage, and even that he supports grudgingly and only with at least 20% down for equity.

As far as the free spirit thing, I think the idea is that someone in the relationship needs to be grounded enough to make responsible financial decisions. "Free spirit" in this context basically means having a devil-may-care attitude about things like spending and using debt to finance stuff.

[ERD50]

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Originally Posted by ziggy29 Dave Ramsey has a popular syndicated radio show and is particularly known for being extremely averse to debt and credit. Basically his opinion is that the only thing people should ever go into debt for is a mortgage, and even that he supports grudgingly and only with at least 20% down for equity.

Well, I'm not debt adverse (but one needs to be cautious), certainly not credit-card adverse (pay it off each month and collect those rewards baby!), but I agree with him about at least 20% down on a mortgage.

As we've seen, it's easy for your home value to drop by 20% (and there are costs in buying/selling). So if you have 20% down and it drops even 18%, and you need to move (job, health or other external driver), and will incur a few added % points to sell, you may be in trouble.

I'm constantly amazed that it's illegal to buy a diversified basket of conservative stocks at less than 50% down, But people were buying a single non-diversified investment (their home) with single digits (or zero?) down, and the govt often helps with that (even if only a tax deduction). Hey, and stocks don't even require constant feeding (mortgage payments), in fact they probably provide an income stream (dividends). And you can liquidate them if you lose your job (no, I'm not advocating buying stocks on margin, just offering it up for comparison).

-ERD50

[Independent]

I must be missing something. I see annual expenses of $55k compared to annual pensions of $85k. That's $30k (less taxes on the $30k) of free cash flow to me. It seems that you can prepay the mortgage over the next 18 months with your excess income, but you say you have a cash flow problem.

If the 18 month timeframe is correct, I'd guess that refinancing wouldn't pay.

[survivor1998]

To all of you guys: My uncle kept saying he wanted to retire and never did. My Aunt kept putting off their travel plans and telling him he had to work. In the end, he had a massive heart attack and died. He didn't get to travel, didn't get to spend ANY of his life savings to enjoy life, and my Aunt lives with GUILT for not allowing him to retire. We are not promised tomorrow! GO FOR IT.....

[easysurfer]

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Originally Posted by survivor1998 To all of you guys: My uncle kept saying he wanted to retire and never did. My Aunt kept putting off their travel plans and telling him he had to work. In the end, he had a massive heart attack and died. He didn't get to travel, didn't get to spend ANY of his life savings to enjoy life, and my Aunt lives with GUILT for not allowing him to retire. We are not promised tomorrow! GO FOR IT.....

I hear ya. It is sad to leave that much time on the table. Some folks shake their heads and think I'm nuts for retiring so early, I shake my heads at them who can retire early but choose to stay in the rat race

I to understand that some folks enjoy their career. Some some folks I know, kill themselves w*rking long long hours while they can FIRE anytime they wish to. As they say, different strokes ....

[Katsmeow]

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Originally Posted by ziggy29 As far as the free spirit thing, I think the idea is that someone in the relationship needs to be grounded enough to make responsible financial decisions. "Free spirit" in this context basically means having a devil-may-care attitude about things like spending and using debt to finance stuff.

I think that isn't quite what he would say. A free spirit could be someone like that. Really what he is talking about with nerd and free spirit.

Nerds are planners. They like to analyze finances to death. They do the detailed budgeting, etc. They keep records and know that they spent $42 for a tank of gas last week.

Free spirits...not so much. They don't do all this analysis. They don't get interested in the details.

http://www.cbsnews.com/stories/2006/06/13/earlyshow/living/money/main1705368.shtml

However, it has nothing to really do with whether you are a spender or not. I'm a nerd from way back. I kept detailed spending records for over 20 years! However, despite this, for years I was a spender. I just spent money with my eyes open.


On the other hand, my DH is a free spirit. He doesn't get into tracking everything to death. He agrees it is good to know what we are spending and how much we have, but he isn't interested in the fine details. It is perfectly possible to be a free spirit and not be a big spender. Imagine a person who saves x% off the top each month. Then, makes sure they pay all credit card bills in full each month. That person may spend very little money but not be doing much detailed analysis or planning.