Request for validation

[OAG]

Age 65, wife 68
No Debt
Traditional IRA 140K
Roth IRA 40K
Other Savings 300K
SSA (both of Us) 20K per year
Mil Ret (COLA'd) 28K per year
Home paid for (350K)
Newer car (2005)
Annual Expenses including Taxes (St and Fed), RE Taxes, all living expenses: under 25K
Medical Insurance taken care of (MEDICARE and TRICARE For Life and MO Presc). Both in reasonably good health.
Ran all of the retirement calculators I can find and my own SS in MS all look fine. I guess I am a bit apprehensive about the future. We would like to travel a lot more but really worry a lot about the future -- mainly not outliving the $$. Really from all of what I have read, studied, and do not see any problem.

My investing is purely CD's at Credit Unions and a single Bank. Total of all CD's get a rate of about 5.5% and are laddered over the next 9 years (average maturity is 4.3 years). Several years ago I dabbled in the Stock Market and Mutual Funds, never lost money but was not comfortable with the unknown. The particular CU we use is ALWAYS about 1-2% above the average rate for CD's (at least they have been for over 25 years).

My thinking is that we should be able to STOP SAVING (just roll over the CD's as they mature) and withdraw an amount starting at 75K in 2007 and increasing the withdrawal in future years by the COLA increases (or the inflation rate).

Need some validation but also need to know if there are holes here (remember, ultra conserverative financial person).

Thanks for any help, information, you care to provide. This is, by far and away, the best financial web site I have found.

 

[Martha]

Ron, I am very conservative when it comes to quiting work and determining how much of a nest egg to spend.  But it sure seems to me that you can loosen up the purse strings a bit.  As Cut Throat has said:  what are you saving for? 

Yesterday my DH and I visited the husband of my DH's aunt who died a couple of months ago in her early 80s.  He is 85.  He talked about how he and his wife lived conservatively, how he started in the post office earning 91 cents an hour and worked there for years, always saving for their old age.  He expressed regrets that his wife did not have the chance to enjoy more fruits of their labor. 

So now he sits in his assisted living apartment, unable to see well enough to drive or read.  Not having anything he really wants to spend money on.  He will be OK; he already is starting to flirt with the old ladies.  But it is past the travel and other things that he and his wife might have enjoyed.

 

[justin]

I'm not sure if I'm reading this correctly, but it looks like you have $480,000 in savings in CD's earning 5.5%. You want to take $75000 per year from the CD's? That will deplete your CD stash in 8-9 years.

Or if you are saying that your total withdrawal includes your SS and military pension, you'd need ~ $27000/yr from your CD's to make up the difference. The interest earned is almost exactly that amount. You would have to start eating into the CD principal when you adjusted that $27000 withdrawal for inflation each year. Assuming 3% inflation and the same 5.5% yield, you would deplete your CD stash in 26 years. You'd be 91 and your wife would be 94. I seem to recall the probability that one spouse of a married couple has a 25% chance of living to 95. So there is a risk that you would "outlive" your money. Although how much do you plan on spending at 91?

Bottom line, I wouldn't worry too much. Your expenses are about half of what your guaranteed income from SS and pensions are. Paid health insurance. It sounds like you have a lot of extra income for "margin of error". Enjoy your money!

 

[bosco]

I'm not sure I understand your post correctly, but if I do, then you have $480K in savings (ignoring the pre and post-tax issues but most is after tax) and a COLA'd income stream totalling 48k. I'm assuming the 20k (both of us) means both of you together. If it means each of you, then your income stream is 68k

If the 75k withdrawal you mention includes your pension and SS, then you are left withdrawing 27k per year. This is a 5.6% withdrawal rate which is unsustainable given the way you have it invested--you will lose to inflation big-time.

If you intend to withdraw 75k per year in addition to your income stream, well, let's just say you seem like you have things figured out better than that.

If, on the other hand, you income stream is 68k, then what are you waiting for?

If you income stream is really 48k, I suggest a little smaller withdrawal, say, 19k for a 67k total per year. I also think that in the long haul, you would be happier long-term with some of your money in equities but if you can't sleep at night it is not worth it. However, you may want to cut your withdrawals back further in that case.

 

[bosco]

I show depletion in about 18 years, not 28. You have to deplete the principal for inflation as well as increase the witdrawal for inflation.

 

[justin]

I show depletion in about 18 years, not 28. You have to deplete the principal for inflation as well as increase the witdrawal for inflation.

I don't follow. The principal is what it is. Inflation doesn't change what is left of your principal. The withdrawals get increased due to inflation. And the amount you are taking from the principal to fund your withdrawal reduces the principal, but inflation won't reduce the dollar amount of your principal (in nominal terms). Am I missing something?

 

[jdw_fire]

Age 65, wife 68
No Debt
Traditional IRA 140K
Roth IRA 40K
Other Savings 300K
SSA (both of Us) 20K per year
Mil Ret (COLA'd) 28K per year
Home paid for (350K)
Newer car (2005)
Annual Expenses including Taxes (St and Fed), RE Taxes, all living expenses: under 25K
Medical Insurance taken care of (MEDICARE and TRICARE For Life and MO Presc). Both in reasonably good health.
Ran all of the retirement calculators I can find and my own SS in MS all look fine. I guess I am a bit apprehensive about the future. We would like to travel a lot more but really worry a lot about the future -- mainly not outliving the $$. Really from all of what I have read, studied, and do not see any problem.

My investing is purely CD's at Credit Unions and a single Bank. Total of all CD's get a rate of about 5.5% and are laddered over the next 9 years (average maturity is 4.3 years). Several years ago I dabbled in the Stock Market and Mutual Funds, never lost money but was not comfortable with the unknown. The particular CU we use is ALWAYS about 1-2% above the average rate for CD's (at least they have been for over 25 years).

My thinking is that we should be able to STOP SAVING (just roll over the CD's as they mature) and withdraw an amount starting at 75K in 2007 and increasing the withdrawal in future years by the COLA increases (or the inflation rate).

Need some validation but also need to know if there are holes here (remember, ultra conserverative financial person).

Thanks for any help, information, you care to provide. This is, by far and away, the best financial web site I have found.

Welcome R Wood.  To address your plan let me ask some questions.  1) Do you have any children?  If so do you want to leave them any money, if not do you want to leave money to anyone?  2) Have you cosidered your income picture when one of you dies?  What happens to the military pension? Can one live on less than the both of you?  3) Have you thought about if your spending will decrease (in real terms) as you age per Bernicke "Reality Retirement Plan"?

The reason I ask is you seem very conservative and maybe CPI adjusted immediate annuities would best fit your needs.  For $440k you could buy 2 CPI adjusted immediate annuities (one for you and one for your wife) each paying $1130/mo to start.  This will put your total income at $75120/yr CPI adjusted.  It would also consume all but $40k of your savings (leaving little for heirs) and go down when one of you dies.  If Bernicke "Reality Retirement Plan" does apply to you, fixed payment immediate annuities might be a better choice.

 

[OAG]

Thanks for all of the information; especially the annuity information. To clear some things up the following is furnished.

I have 4 Children all in thier 40's, happliy married (to first spouses). All are college grads, professional and will never be a $$ drain; and I hope never a source of income for me.

Total SS is 20.3K (13.1 and 7.2K, respectively.

I croak first she would lose Mil Ret and her SS; replaced with Annuity of 5.4K (COLA'd) and my SS. She could get 50K annually TOTAL. If more needed, sell condo (purch 2005 @ 350K), go live with a Son or Daughter OR get reverse Mort on Condo.

No need to leave anything behind except to pay off any final expenses, creamation and transfer to Arlington National.

Plan A: Start withdrawing enough that with Mil Ret Pay and SS TOTAL 75K in 2007 and adjust in future years by COLA (Mil Ret Pay and SS, go auto and withdrawals manually) OR

Plan B: Delay withdrawals until 2011 and save approx 45K per year for 4 more years.

Plan B good because a shorter period of withdrawals would be neccessary and nest egg increase to about a total of 660K. Bad because as one reply mentioned one of us may die and never really enjoy the money.

Hope that is a bit clearer. From the replies thus far I get the "go do it, and now" impression. Hope that is right.

Thanks again and also for the really quick responses.

 

[haha]

I must be unusually slow this morning, but are you saying that you add $45,000 per year to your savings? Where does this come from?

Also, it isn't clear to me why you can't just ease into a more free-spending mode, without going to such large withdrawals so soon.

Do you have some specific plan that will cost this much?

Ha

 

[eridanus]

Also, it isn't clear to me why you can't just ease into a more free-spending mode, without going to such large withdrawals so soon.

Do you have some specific plan that will cost this much?

Ha

"Annual Expenses including Taxes (St and Fed), RE Taxes, all living expenses: under 25K"

Especially since he's currently spending <$25k currently. $50k of travel per year is a LOT of travel. Vacation home in mind? RV purchase every other year?

 

[AltaRed]

"Annual Expenses including Taxes (St and Fed), RE Taxes, all living expenses: under 25K"

Especially since he's currently spending <$25k currently. $50k of travel per year is a LOT of travel. Vacation home in mind? RV purchase every other year?

I would agree it is very significant to jump from $25k to a $75k lifestyle on retirement. My guess is that it will be less than $75k no matter what.

 

[AltaRed]

I don't follow.  The principal is what it is.  Inflation doesn't change what is left of your principal.  The withdrawals get increased due to inflation.  And the amount you are taking from the principal to fund your withdrawal reduces the principal, but inflation won't reduce the dollar amount of your principal (in nominal terms).  Am I missing something?

I didn't get this either. The only thing that changes as a result of inflation is tje withdrawal amount.

 

[AltaRed]

I must be unusually slow this morning, but are you saying that you add $45,000 per year to your savings? Where does this come from?

Also, it isn't clear to me why you can't just ease into a more free-spending mode, without going to such large withdrawals so soon.

Do you have some specific plan that will cost this much?

Ha

I think he is saying that if he doesn't retire right away, he puts away $45k per year savings. Note his post says he should be able to "STOP SAVING".

 

[OAG]

The 45-50K in savings comes from current Mil Ret 28K, SS 20K and Interest On Nestegg 27K less the 25K current living expenses. Hang out at home, go on the internet, play with computers, read lots of books, knit (DW), sew (DW), spend time with SIL and Daughter along with 3 urchins (grandkids). Save money and defer "actual retirement travel" for 4 years (PLAN B).

I like plan A better than plan B; but not sure yet.

Thanks again for all of the suggestions and recommendations - I just need to go "do it". Should be able to do a lot of traveling for 50K - anyways can always come home and lie low for a few months to rebuild the travel kitty.

 

[justin]

You could still travel a lot on 25k!

 

[jdw_fire]

The 45-50K in savings comes from current Mil Ret 28K, SS 20K and Interest On Nestegg 27K less the 25K current living expenses. Hang out at home, go on the internet, play with computers, read lots of books, knit (DW), sew (DW), spend time with SIL and Daughter along with 3 urchins (grandkids). Save money and defer "actual retirement travel" for 4 years (PLAN B).

I like plan A better than plan B; but not sure yet.

Thanks again for all of the suggestions and recommendations - I just need to go "do it". Should be able to do a lot of traveling for 50K - anyways can always come home and lie low for a few months to rebuild the travel kitty.

How about plan C =>   Living expenses + some travel = Mil pension + SS;  keep assets (and their earnings) for emergencies.

 

[haha]

How about plan C =>   Living expenses + some travel = Mil pension + SS;  keep assets (and their earnings) for emergencies.

I like this plan better too, at least as a starting point. Usually not wise to consider interest on assets as "savings". Often, you will be lucky to more or less hold your own after inflation and taxes.


Ha

 

[Jarhead*]

RWood:

You've got your basic living covered with cola'd pension, and you both have soc. sec. House paid for no debt, and health ins. covered. Your kids are apparantly in good financial shape. (Apparantly no financial responsibilities left).

I think you should "Hit the Road". (I really doubt you'd be as enthusiastic about traveling in 10 years, as you are today.).

Good Luck, Have Fun

 

[OAG]

Think we will try plan C starting in December. Pretty cold here in Ohio in December. We will head to Florida with stops in Virginia and then to Alabama and then back to Ohio. Work on some more travel for after the first of the year. My kids all tell me to "do what you want" Mom and Dad we all really would like to see you guys enjoy your later years. Don't worry about us. So we will try a bit of moderate travel and see how it goes. Never gave the Plan C very much thought but after all of the responses to the question it seems to be the best.

Thanks again for all of the input and thought that went into the replies.

 

[bosco]

I don't follow. The principal is what it is. Inflation doesn't change what is left of your principal. The withdrawals get increased due to inflation. And the amount you are taking from the principal to fund your withdrawal reduces the principal, but inflation won't reduce the dollar amount of your principal (in nominal terms). Am I missing something?

never mind, my mistake

When I do these kind of calculations, I do it differently. I keep the withdrawal amount the same and adjust the principle for inflation, or for after-inflation earnings. I do it this way because for my situation it is easier. But in my pre-coffee morning haze, I did both. I stand corrected.

 

[haha]

never mind, my mistake

When I do these kind of calculations, I do it differently.  I keep the withdrawal amount the same and adjust the principle for inflation, or for after-inflation earnings. 

If I understand you correctly, this is the way that TIPS do it also. Let me ask if this is how you do it: Say principle Jan 1, 2005 is $1,000,000. Say principle Jan 1, 2006 is $950,000. Further say that CPI Jan 2006/CPI Jan 2005 =1.04. Then your Adjusted Principle is $950,000/1.04 or $913, 462. So if your assumed SWR is 4%, in 2005 you withdrew $40,000, and in 2006 you will withdraw $36,538.

If this is your idea, it seems quite sound to me. I imagine it would be hard to run out of money this way, though I suppose given enough stagflation the withdrawals could get tight.

Ha

 

[bosco]

Let me ask if this is how you do it:

not exactly. I have a number at the top of my spreadsheet for inflation. If it's 3%, I use 1.03. I have enother number for investment rate of return. Say 1.055 (in the case of a 5.5% CD).

I will adjust my principle by the ratio of (1.055)/(1.03) every year. If I want to experiment with other rates, I change the two numbers at the top. I can break things out further if I want.

I will continue to leave my withdrawal as the same number (i.e. not adjust it). That way, I don't have to adjust social security estimates which (supposedly) the government will increase with the CPI. If something, like, say my wife's pension, receives a 50% CPI adjustement, I will divide it by 1.015.

It really doesn't matter if you apply inflation (or discount rate or whatever) to the principle or the withdrawal. But not to both, which is what I did yesterday. The whole day more or less continued on in the same vein.....

 

[justin]

When I do these kind of calculations, I do it differently. I keep the withdrawal amount the same and adjust the principle for inflation, or for after-inflation earnings. I do it this way because for my situation it is easier. But in my pre-coffee morning haze, I did both. I stand corrected.

I do that too for "back of the envelope" type spreadsheets. Deflate the principal amount by inflation to keep it in "real" terms instead of nominal terms. Then keep the future withdrawals constant since they are in real terms too.

 

[spideyrdpd]

Gee I was thinking you were going to be talking one of those really really expensive world cruises.
As a retired person I have read that you can get good deals.

Do yall have a thread on that ?