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Please tell me I can retire
Old 07-24-2008, 11:46 AM   #1
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Please tell me I can retire

I hope to retire in two years. My wife will work two years after that, because of the way her retirement plan is set up (I could also work two more years, but all I'd get is older).

After we're both retired our total pensions will be about $70k per year -- quite a bit less than we make now, but we currently live on about $40k and save the rest -- so for certain we can afford to live on those pensions. We shouldn't have to touch our savings at all until inflation catches up with the pensions.

Our savings are currently just over $700k, and should be around $900k by retirement. I figure we'll be able to live on pensions alone (not touching savings) for at least 10 years, and probably more. By then the savings will have grown significantly.

We have an old house with two garage apartments. The rent on them is enough to cover all of our housing expenses (taxes, insurance, utilities). We have zero debt.

To me, it seems like we're set, but the closer we get to our target date, the more my wife gets cold feet. She's the financial genius of the family, so I respect her opinions, but she's also the one who is afraid of taking risks, so maybe I'm right, and she just worries too much.

So what's your take? Are we in good enough shape for ER, or am I deluding myself?
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Old 07-24-2008, 11:53 AM   #2
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Healthcare coverage? If you can qualify for affordable individual healthcare coverage or are covered by your retirement benefits, you are in a good position to ER.
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Old 07-24-2008, 11:53 AM   #3
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Have you budgeted for medical coverage? The way premiums are increasing, they could take a big chunk out of your monthly pensions.
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Old 07-24-2008, 11:55 AM   #4
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If your pensions are stable...I don't see a problem....

Have you used firecalc yet?
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Old 07-24-2008, 11:57 AM   #5
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What are your ages? How long till Social Security is an option? Will healthcare be covered? Home paid off yet or will it be by retirement? Will cars be in decent shape to last a few years?

Those items need to be addressed to answer the question.

Perhaps wifes cold feet have more to do with the emotional/social aspects vs. the financial ones? Or, has the crazy market as of late scared her?

With the assets listed and a minimal mortgage, decent car, no consumer debt, a subsidized health plan I would be history at work.
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Old 07-24-2008, 12:32 PM   #6
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Answers: We both work in the public sector, so the pensions and health coverage are as secure as anyone else's, if not more so.

State employees do not contribute to Social Security, so I won't be eligible, but my wife will. Both will be Medicare eligible.

We're currently 48 and 47 years old. Both of us are open to finding work we enjoy, so our income will probably not be limited to pensions.

Mortgage was paid off a few years ago. No debt of any kind.

One vehicle is newer, one is getting old. But even with our projected pensions we should be able to replace them easily. We never have been seduced by expensive cars.
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Old 07-24-2008, 12:38 PM   #7
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If you are living off of 40k for certain and have the 70k pensions (maybe not 100% guaranteed, but 99.9%, or as guaranteed as many others), you should be able to live off of those fine for a while. COLA would be preferred, but your savings will be able to adjust for that. If you can live for 10 years with the pensions alone as you say you can, then the 900k you say you will have by retirement will have substantial room to grow before you need to start drawing on it (8% a year for 10 years would turn 900k into 1.95 million). Then, when you do start drawing on the moneym 4% is a safe withdrawal rate, but you definitely won't need that much because you will have pension and wife's SS to cover much of the gap. Based off of a quick run through, everything seems A-OK.
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Old 07-24-2008, 12:48 PM   #8
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Great. Now tell me where I can earn that 8%

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Old 07-24-2008, 12:54 PM   #9
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Do your pensions have survivor benefits ? If not could either of you make it on the one pension ?
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Old 07-24-2008, 01:01 PM   #10
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Do your pensions have survivor benefits ? If not could either of you make it on the one pension ?
Yes. The $70k figure is the reduced amount with survivor benefits.

The only issue is if my wife would die in the two years after I retire. Then I wouldn't get her pension, and I'd be screwed. I'm thinking of getting a term life policy during that period.
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Old 07-24-2008, 01:02 PM   #11
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Originally Posted by bbbamI View Post
If your pensions are stable...I don't see a problem....

Have you used firecalc yet?
bbbamI makes a good point. If you haven't yet, spend some time with FIRECalc -- there's a link at the bottom of the page. It might reassure the financial genius of the family.

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Old 07-24-2008, 01:18 PM   #12
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Originally Posted by skittles View Post
Great. Now tell me where I can earn that 8%

I would focus on dividend paying stocks, 30-40% in bonds and the rest in either foreign stocks or diversified US stocks (large-mid-small caps).

The dividends and interest on the bonds should get you around 3-4% per year without much "risk".
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Old 07-24-2008, 01:25 PM   #13
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Originally Posted by skittles View Post
Yes. The $70k figure is the reduced amount with survivor benefits.

The only issue is if my wife would die in the two years after I retire. Then I wouldn't get her pension, and I'd be screwed. I'm thinking of getting a term life policy during that period.

or you could put her in the freezer for two years and save the life insurance money !
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Old 07-24-2008, 01:45 PM   #14
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Of course if your DW passes away before her pension kicks in, your cost of living will be slightly lower as a single. But if you kick the bucket before she retires she will really be on easy street.... Maybe you want to rethink retiring ahead of her
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Pensions
Old 07-24-2008, 03:06 PM   #15
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Pensions

My public sector pension also includes a disability and lifetime payment to spouse if I die before retirement, with some strings attached. You should check your wife's plan to see if there is such coverage, if you haven't already.

Sounds to me like you're pretty set.
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Old 07-24-2008, 03:07 PM   #16
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Your situation is very similar to mine.

Pension income is similar and savings income is similar. Pensions are incompletely colad (mine has no cola for 5 years, then 1/2 CPI for 5, then 3/4 CPI thereafter). DWs doesn't start for 3 more years, then 1/2 CPI for 5, then 3/4 CPI).

Our income dropped from 150-200k per year to current levels. We are getting by on about 65k pension right now, but other income streams phase in over the next 10 years which will serve to inflation proof. I don't expect having to use savings for 10 years, and have therefore invested it fairly aggressively.

If you have no other income streams coming online, nor inflation-proofing, I would recommend charting a plan whereby you don't spend all the 70k pension in the early years, but set money aside (short-term money) to self-inflation proof. Set aside less each year (i.e. give yourself a raise), and then use the set-aside in the later years before you tap your investments. "consumption-smoothing. "

I can only tell you that I don't regret pulling the plug even a little bit. Try it...you'll like it!
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Old 07-24-2008, 03:35 PM   #17
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You should be well safe if your pension is safe and you protect yourself with a 2 year term insurance that would be enough to purchase an annuity to cover the lost pension.

I calculate that even if inflation averages 6 percent per year for the next 45 years and your return on investments is only 1 percent above inflation and you start out and maintain 50K per year spending, inflation adjusted - 25 percent more per year than you are now spending. You still would last more than 45 years. And it is far far more likely that your will do much better than this and actually end up with a very large investment pool. Enjoy your life while you are young and live within your budget
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Old 07-25-2008, 04:20 PM   #18
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I stuck my thumb up in the air and the answer came back "GOOD TO GO".
The term Fat Cat comes to mind.
Your thought on life insurance for 2 years is a good solution too,
best of luck to you.
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Old 07-25-2008, 06:40 PM   #19
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skittles,

In short, you can retire.
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Old 07-25-2008, 06:44 PM   #20
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Yes you can do it with all kinds of room to spare. Funny my job pays less than your pension.
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