Update: 53 and looking at potential 55 ER- Dreaming?

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supernova72

Recycles dryer sheets
Joined
Apr 12, 2012
Messages
479
Location
Seattle
Hello, I originally posted this in "Hi I am" about 18 months ago. This is an update since some things have changed with my pension plan and balances.

* 53 years old and can take early retirement 55 (same company 29 years).
* I work in the information Technology field at a large aerospace company that makes jets, missiles, and cool stuff like that.
* $670K in a 401K (projection with company match is ~ $775K at 55).
* Asset allocation currently at about 65% equities, 35% bonds and cash.
* Company pension at 55 would be $3K a month (no lump sum option, No COLA).
* Retiree medical at $20 a month until I turn 65 at Medicare age
* $160K left on my mortgage (bummer). Home value is $420K, 4% 15 year loan (refi in 2011), $1530 P&I, paying an extra $670 a month. Will increase as possible but paying if off in three years seems very unlikely (will still owe $120K).
*No credit card or other debt.
*own three cars...kind of a car guy (One muscle car, two drivers). Total value about $35K.
*my retirement income needed will be about $70K if I still have a mortgage...which I don't want to have...if that makes sense. Without my mortgage my "budget" says I can live on $50K a year.
*Net worth with home equity is just over $1M. Not much in savings outside my 401K ($12K).
*when I retire I'll have about $30K in sick leave and vacation as a payout.
*for every year I work beyond 55 my pension increases by about $100 a month (update since OP--pension will be frozen to new accruals on Jan 1st 2016).
*I plan to take social security at 62 if that is still an option (~$1725 a month per ss.gov site).


Non financial side notes:
*Live in Seattle WA and would like to retire here if possible.
*Fitness is important to me and I want to continue being active while I still can.
*I take 2-3 trips a year to a warm tropical location (in my expenses)

My simple math at 55: $36K from company pension + $31K yr from investment income ($750K @ 4% SWR). So $67K annual total.

PS: I currently like my job and my comfort zone says 57 yrs ER old adds a nice cushion even tho my pension will be frozen for one yr. Annual income would be $77K including the 401K at 4% WR.

A bit long winded here...

Am I super dreaming? Firecalc said 93% the last I checked. Questions? Suggestions? Thanks!
 
I am surprised that Firecalc does not give you a higher probability of success. You could probably take a little more than 4% from the investments until the SS starts and then cut back to a safer withdrawal rate and also count on the SS to cover the inflation risk in the non-COLA'd pension. You should be okay so long as inflation does not go crazy high.
 
jclarksnakes said:
I am surprised that Firecalc does not give you a higher probability of success. You could probably take a little more than 4% from the investments until the SS starts and then cut back to a safer withdrawal rate and also count on the SS to cover the inflation risk in the non-COLA'd pension. You should be okay so long as inflation does not go crazy high.
Click to expand...

Thanks JCsnakes--

I better go back and re-run firecalc to see if I input into the fields correctly. I can also take an accelerated pension from 55-62 adding about $5K to my annual pension of $36K. Then it drops down to a lower amount from then on which would be $31K annual. Still debating that...Cheers.
 
Your numbers look pretty good, but a few things do jump out to me. Your pension does not have a COLA and you are still very young. While $3K represents a significant portion of your expenses today, that will look very different in 20 years.

And you still have a mortgage balance of $160K, but only $12K in savings outside of retirement accounts. This tells me that you have been spending almost every cent of your paycheck for a long time, and only setting aside your retirement contributions for the future. You really don't have a sufficient emergency fund given that your pension doesn't start until 55 years old. The extra principal payments you have been making have likely helped to get the mortgage balance down, but it appears at the expense of having a sufficient emergency fund.

If it were me, I would keep working until the mortgage was paid off. Your numbers look much better to me if your expenses were $50K rather than $70K. You may want to see if you can trim some fat off the expenses as well and put the difference toward the mortgage. Retiring early generally requires some sacrifices, and your balance of $12K makes me wonder if you have been spending above your means for most of your life.

In summary, I think you will probably be OK, but if it were me I would not want to cut things that close.
 
supernova72 said:
Thanks JCsnakes--

I better go back and re-run firecalc to see if I input into the fields correctly. I can also take an accelerated pension from 55-62 adding about $5K to my annual pension of $36K. Then it drops down to a lower amount from then on which would be $31K annual. Still debating that...Cheers.
Click to expand...

Hey Supernova, I've looked at the accelerated Boeing pension option as well and figured out break even ages for different inflation rates (assuming RE at 55). I don't recall the numbers exactly, but I remember that if inflation is above 4% the accelerated option doesn't fall behind the constant benefit until somewhere in my 90s (and above 7% never falls behind). If no inflation then the constant benefit is advantageous after my mid-70s.

Since I still foolishly imagine I'm immortal I'll probably opt for the constant benefit option myself (along with planning for a 45 year retirement). Both of these will limit my spending over the next 20 years just when I should be trying to have the most fun.
 
Looks like your plans are doable for early retirement, but don't leave much reserve for an unexpected expense. While you are still working, you might reconsider NOT paying an extra $670 per month toward your mortgage, and instead invest in in a Roth IRA ($6500 maximum) buying stocks. This could be your emergency fund.

You may also consider putting a few %/year less into your 401K and instead increase your stock holdings in a taxable brokerage account. It looks like you'll be in the 15% tax bracket when you retire. 401K withdrawals are taxable, but capital gains are NOT taxed in the 15% bracket.
 
Try to have enough after tax cash on hand to control your income and your PPACA insurance premiums. You may want to work a few more years to build up your ROTH assets. Start by looking at converting your present 12k IRA. Hang in there 2 or 3 more years if you can stand it.
 
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Ready said:
Your numbers look pretty good, but a few things do jump out to me. Your pension does not have a COLA and you are still very young. While $3K represents a significant portion of your expenses today, that will look very different in 20 years.

And you still have a mortgage balance of $160K, but only $12K in savings outside of retirement accounts. This tells me that you have been spending almost every cent of your paycheck for a long time, and only setting aside your retirement contributions for the future. You really don't have a sufficient emergency fund given that your pension doesn't start until 55 years old. The extra principal payments you have been making have likely helped to get the mortgage balance down, but it appears at the expense of having a sufficient emergency fund.

If it were me, I would keep working until the mortgage was paid off. Your numbers look much better to me if your expenses were $50K rather than $70K. You may want to see if you can trim some fat off the expenses as well and put the difference toward the mortgage. Retiring early generally requires some sacrifices, and your balance of $12K makes me wonder if you have been spending above your means for most of your life.

In summary, I think you will probably be OK, but if it were me I would not want to cut things that close.
Click to expand...

Yes, you are correct on the spending side in regards to me taking another look at my "other" savings. I realize having 90% of my retirement savings in a 401K is not the common but with $45K a year going to 401K, SS, and Fed Taxes and then $25K a year to mortgage there is not much left over. But all good points. I've basically saved 10% of my income the first 20 years now closer to 20%.
 
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Al18 said:
Looks like your plans are doable for early retirement, but don't leave much reserve for an unexpected expense. While you are still working, you might reconsider NOT paying an extra $670 per month toward your mortgage, and instead invest in in a Roth IRA ($6500 maximum) buying stocks. This could be your emergency fund.

You may also consider putting a few %/year less into your 401K and instead increase your stock holdings in a taxable brokerage account. It looks like you'll be in the 15% tax bracket when you retire. 401K withdrawals are taxable, but capital gains are NOT taxed in the 15% bracket.
Click to expand...

The unexpected expenses are the one thing that scare me a bit. I don't want to be scrambling when the furnace goes out or a major appliance goes Kaput.
 
Al18 said:
Looks like your plans are doable for early retirement, but don't leave much reserve for an unexpected expense. While you are still working, you might reconsider NOT paying an extra $670 per month toward your mortgage, and instead invest in in a Roth IRA ($6500 maximum) buying stocks. This could be your emergency fund.

You may also consider putting a few %/year less into your 401K and instead increase your stock holdings in a taxable brokerage account. It looks like you'll be in the 15% tax bracket when you retire. 401K withdrawals are taxable, but capital gains are NOT taxed in the 15% bracket.
Click to expand...

I'm wondering about that extra principle as well. For some reason when I checked I was not eligible for an IRA? Maybe a Roth is different? The income limits seem to put me out of that option?
 
stepford said:
Hey Supernova, I've looked at the accelerated Boeing pension option as well and figured out break even ages for different inflation rates (assuming RE at 55). I don't recall the numbers exactly, but I remember that if inflation is above 4% the accelerated option doesn't fall behind the constant benefit until somewhere in my 90s (and above 7% never falls behind). If no inflation then the constant benefit is advantageous after my mid-70s.

Since I still foolishly imagine I'm immortal I'll probably opt for the constant benefit option myself (along with planning for a 45 year retirement). Both of these will limit my spending over the next 20 years just when I should be trying to have the most fun.
Click to expand...

Hi Stepford, I keep going back and forth on the accelerated as well. I've had friends recently retire and some have done it and some not. I had used a 30 year as my years of retirement which might be understated given we are all lining longer now. I have to believe inflation will not remain this low forever but I typically use 3% in my calculations.

Are you in a Puget Sound BA location?
 
supernova72 said:
Yes, you are correct on the spending side in regards to me taking another look at my "other" savings. I realize having 90% of my retirement savings in a 401K is not the common but with $45K a year going to 401K, SS, and Fed Taxes and then $25K a year to mortgage there is not much left over. But all good points. I've basically saved 10% of my income the first 20 years now closer to 20%.
Click to expand...

Saving 10% of your earnings is fantastic! And it puts you far ahead of almost everyone in this country. No need to feel bad about it.

However, you are looking to retire much earlier than most Americans. The general guideline is to put away between 10-15% of your earnings from the beginning of your career, and that should set you up for a nice comfy retirement at 65 years old. Since you are looking to retire ten years earlier, you will need to step up the percentage savings since you have fewer years to accumulate. If you are now saving 20%, that is great! Just keep doing it, cross your fingers that we have some good years ahead of us in the markets, and see how things look in another few years. You'll get there sooner than you think.
 
What to do

I'm in a somewhat similar position, only 55 and looking to retire in 12-18 months. No pension, not quite twice the 401k, a much lower value house (but paid off; I'll ignore the vacation cabin).
Another possibility is to downsize the house to pay off a smaller replacement or come close to no mortgage.
Ironically DW wants to more to the PNW next year close to our youngest son but wants to work (she's younger) for a while, so I'll probably semi-retire with PT online work with current employer similar to your pension, and move assets from the 403b to taxable or for immediate retirement use. I plan drawing 5% from my 403b until SS but not touch DW's 401k assets. So it's less risk for me, as long as DW locates work. The rub is to plan in case she loses the job. We plan on spending more than you, at least ideally. Getting by comfortably (little or US travel, etc.) longer term would be about your target spending.
 
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RobLJ said:
I'm in a somewhat similar position, only 55 and looking to retire in 12-18 months. No pension, not quite twice the 401k, a much lower value house (but paid off; I'll ignore the vacation cabin).
Another possibility is to downsize the house to pay off a smaller replacement or come close to no mortgage.
Ironically DW wants to more to the PNW next year close to our youngest son but wants to work (she's younger) for a while, so I'll probably semi-retire with PT online work with current employer similar to your pension, and move assets from the 403b to taxable or for immediate retirement use. I plan drawing 5% from my 403b until SS but not touch DW's 401k assets. So it's less risk for me, as long as DW locates work. The rub is to plan in case she loses the job. We plan on spending more than you, at least ideally. Getting by comfortably (little or US travel, etc.) longer term would be about your target spending.
Click to expand...

I have thought about downsizing but for my neighborhood that house is almost entry level pricing. I really don't want to move out of the city so I can retire either. Thanks for the info tho. The PNW is a great place to live---just don't tell anyone :cool: I say it rains everyday even tho it doesn't : )
 
Does your budget include income taxes, or is that budget net income? You say that as long as you have a mortgage, 70k is the budget, but income will be 67k. How will you make up the difference- cut expenses, or increase withdrawals?

Seems you are right on the edge. Market could fall just before or after retiring. I agree with others and I would build my contingency fund to at least one year of expenses.

If you budget does not include taxes, I think another year or two may be prudent.
 
bizlady said:
Does your budget include income taxes, or is that budget net income? You say that as long as you have a mortgage, 70k is the budget, but income will be 67k. How will you make up the difference- cut expenses, or increase withdrawals?

Seems you are right on the edge. Market could fall just before or after retiring. I agree with others and I would build my contingency fund to at least one year of expenses.

If you budget does not include taxes, I think another year or two may be prudent.
Click to expand...

Thanks Bizlady. I did finally go in and re-run FIRECALC and glad I did. At first I put in $60K and got the 93% result. Then I put in $70K and it dropped to 71%!! Ouch. I guess that answers question number 1 about dreaming! My expenses do include Fed taxes...we don't have state income tax in WA. But that is a "guess". I pay $18K a year now but hope that drops to half that. Cheers.
 
supernova72 said:
Thanks Bizlady. I did finally go in and re-run FIRECALC and glad I did. At first I put in $60K and got the 93% result. Then I put in $70K and it dropped to 71%!! Ouch. I guess that answers question number 1 about dreaming! My expenses do include Fed taxes...we don't have state income tax in WA. But that is a "guess". I pay $18K a year now but hope that drops to half that. Cheers.
Click to expand...

Your firecalc results jibe with my initial estimate, which is that you're right on the edge of having enough saved. If the markets do well, you'd probably be fine. If they didn't, you could be in some trouble.

I recommend either working longer or finding a way to reduce your expenses. I also wouldn't want to retire w/ a mortgage.
 
Would it be worth working just long enough to pay off your mortgage?

Also, have you added out of pocket medical expenses (copays, dental, vision) in your budget?

Sounds like you are close. :)
 
Update to previous thread

I’m posting an update due to an accelerated ER due to my job being surplussed. As of September 1st I’ll be on retirement benefits from my Megacorp. As part of the package I’ll receive 26 weeks of severance + partial sick leave payout and vacation ($62K total post tax)

* 55 years old and can take early retirement 55 (same company 31 years).
* I work in the information Technology field at a large aerospace company that makes jets, missiles, and cool stuff like that.
* $780K in a 401K
* Asset allocation currently at about 73% equities, 27% bonds and cash.
* Company pension at 55 would be $3125 a month (no lump sum option, No COLA).
* Retiree medical at $47 a month until I turn 65 at Medicare age
* $120K left on my mortgage (bummer). Home value is $565K, 4% 15 year loan (refi in 2011), $1530 P&I,
*No credit card but have a HELOC of $24K (will pay off balance with sick leave and vacation)
*own three cars...kind of a car guy (One muscle car, two drivers). Total value about $58K.
*my retirement income needed will be about $70K if I still have a mortgage...which I don't want to have...if that makes sense. Without my mortgage my "budget" says I can live on $52K a year.
*Net worth with home equity is just over $1.2M. Not much in savings outside my 401K ($11K).
*I plan to take social security at 62 if that is still an option (~$1688 a month per ss.gov site).


Non financial side notes:
*Live in Seattle WA and would like to retire here if possible.
*Fitness is important to me and I want to continue being active while I still can.
*I take 2-3 trips a year to a warm tropical location (in my expenses)

My simple math at 55: $36K from company pension + $31K yr from investment income ($750K @ 4% SWR). So $67K annual total.

PS: I currently like my job and my comfort zone says 57 yrs ER old adds a nice cushion even tho my pension will be frozen for one yr. Annual income would be $77K including the 401K at 4% WR.

A bit long winded here...

Am I super dreaming? Firecalc said 93% the last I checked if I can somehow payoff my mortgage. Questions? Suggestions? Thanks![/QUOTE]


------------------------------------------------------------------------------------

supernova72 said:
Hello, I originally posted this in "Hi I am" about 18 months ago. This is an update since some things have changed with my pension plan and balances.

* 53 years old and can take early retirement 55 (same company 29 years).
* I work in the information Technology field at a large aerospace company that makes jets, missiles, and cool stuff like that.
* $670K in a 401K (projection with company match is ~ $775K at 55).
* Asset allocation currently at about 65% equities, 35% bonds and cash.
* Company pension at 55 would be $3K a month (no lump sum option, No COLA).
* Retiree medical at $20 a month until I turn 65 at Medicare age
* $160K left on my mortgage (bummer). Home value is $420K, 4% 15 year loan (refi in 2011), $1530 P&I, paying an extra $670 a month. Will increase as possible but paying if off in three years seems very unlikely (will still owe $120K).
*No credit card or other debt.
*own three cars...kind of a car guy (One muscle car, two drivers). Total value about $35K.
*my retirement income needed will be about $70K if I still have a mortgage...which I don't want to have...if that makes sense. Without my mortgage my "budget" says I can live on $50K a year.
*Net worth with home equity is just over $1M. Not much in savings outside my 401K ($12K).
*when I retire I'll have about $30K in sick leave and vacation as a payout.
*for every year I work beyond 55 my pension increases by about $100 a month (update since OP--pension will be frozen to new accruals on Jan 1st 2016).
*I plan to take social security at 62 if that is still an option (~$1725 a month per ss.gov site).


Non financial side notes:
*Live in Seattle WA and would like to retire here if possible.
*Fitness is important to me and I want to continue being active while I still can.
*I take 2-3 trips a year to a warm tropical location (in my expenses)

My simple math at 55: $36K from company pension + $31K yr from investment income ($750K @ 4% SWR). So $67K annual total.

PS: I currently like my job and my comfort zone says 57 yrs ER old adds a nice cushion even tho my pension will be frozen for one yr. Annual income would be $77K including the 401K at 4% WR.

A bit long winded here...

Am I super dreaming? Firecalc said 93% the last I checked. Questions? Suggestions? Thanks!
Click to expand...
 
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Supernova, a 4% withdrawal rate with an ER age of 55 is probably doable, but a bit tight (hence the <100% success rate on FireCalc). That said, looking at your numbers my only big worry is your low savings outside of the 401K. Does this mean that you've been spending most of your income and will have to make a big adjustment to live within your ER budget? This is still doable, but may mean having to make various adaptations in your lifestyle as it all "gets real" over the next 6 months or so.

FWIW depending on your activities this may not be that hard to do. After my ER I found that I spent a lot of time cycling, which costs almost nothing (at least with my crappy old bike) and that I could live on just my unemployment payments. I had budgeted an expense level much like yours and found I was living comfortably on not much more than half of what I'd predicted. This can go both ways, though, depending on what you like to do with your time.

I guess all I'm saying is be careful and ready to adapt. Your plan looks doable, but without a whole lot of margin. The only concrete recommendation I can make is to try to save rather than spend the severance (after paying off your HELOC) to have a somewhat bigger emergency reserve fund. I'd also probably pause on making any extra mortgage payments for the moment. While it's very appealing to have a paid off mortgage in retirement I think you first want to ensure that you can live comfortably within your retirement income, then once you've settled into ER and have a better handle on expenses if you have a reasonable excess you can use it to pay down or pay off the mortgage.

I now see why you were considering the accelerated pension option and in your situation it might be the better choice after all - despite my earlier advice (particularly if your mortgage is paid off before the pension resets downward at 62). In any case, the lifetime payout differences between the standard and accelerated pension options aren't that huge. I'd still advise against taking social security early if you can avoid it. The differences there are more significant, but if the numbers work out better for you so be it.

All that said, we all only live once and in your situation I'd just ride the wave out of Megacorp (not as if either of us had much choice) and enjoy the next chapter.
 
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stepford said:
Supernova, a 4% withdrawal rate with an ER age of 55 is probably doable, but a bit tight (hence the <100% success rate on FireCalc). That said, looking at your numbers my only big worry is your low savings outside of the 401K. Does this mean that you've been spending most of your income and will have to make a big adjustment to live within your ER budget? This is still doable, but may mean having to make various adaptations in your lifestyle as it all "gets real" over the next 6 months or so.

FWIW depending on your activities this may not be that hard to do. After my ER I found that I spent a lot of time cycling, which costs almost nothing (at least with my crappy old bike) and that I could live on just my unemployment payments. I had budgeted an expense level much like yours and found I was living comfortably on not much more than half of what I'd predicted. This can go both ways, though, depending on what you like to do with your time.

I guess all I'm saying is be careful and ready to adapt. Your plan looks doable, but without a whole lot of margin. The only concrete recommendation I can make is to try to save rather than spend the severance (after paying off your HELOC) to have a somewhat bigger emergency reserve fund. I'd also probably pause on making any extra mortgage payments for the moment. While it's very appealing to have a paid off mortgage in retirement I think you first want to ensure that you can live comfortably within your retirement income, then once you've settled into ER and have a better handle on expenses if you have a reasonable excess you can use it to pay down or pay off the mortgage.

I now see why you were considering the accelerated pension option and in your situation it might be the better choice after all - despite my earlier advice (particularly if your mortgage is paid off before the pension resets downward at 62). In any case, the lifetime payout differences between the standard and accelerated pension options aren't that huge. I'd still advise against taking social security early if you can avoid it. The differences there are more significant, but if the numbers work out better for you so be it.

All that said, we all only live once and in your situation I'd just ride the wave out of Megacorp (not as if either of us had much choice) and enjoy the next chapter.
Click to expand...

Thanks Stepford---always appreciate your perspective on this especially given how close to home it is for both of us.

On the spending I must come clean and say for 2+ yrs I was traveling like a crazy person taking 5 good sized trips during that time (it was a relationship thing). Prior to my job being surplused that also unraveled so my part of my lack on savings was due to me traveling quite a bit and going out to eat more than a "normal" person would.

So yea two big changes for me this year. I need to re-establish a better savings outside my 401k yes so good tip there.

The still having a mortgage is on my mind almost daily but nothing I read says "tap into your retirement savings and pay it off" but it's tempting.

I apply for UE the week of July 25th. Someone told me it's $664 a month here in WA state before 10% withholding. I'm doing to dust off the old bike myself. I'm a runner at heart but it's getting harder to log the miles so I've been mixing in biking once a week lately (stationary when it's crappy out).

The accelerated pension would be $3575 then drops down to $2876 at 62 yes. Lifetime is the $3125 number. Again--so tempting to help me get rolling without too much of an adjustment in lifestyle.
 
Lots of different opinions on the Mortgage in retirement thing...

If I had your pension situation, I think I would have pulled the trigger. Can always do some PT work if needed, and at such young age, is probably a good idea anyway!
 
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