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Old 10-21-2009, 02:24 PM   #1
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Hi, I just registered on this forum.

I'm 34 and my wife is 28. We both work for companies that have pension plans and 401K with matching.

We are trying to figure out what we need to do in addition to this, to be able to retire when I am 56 and she is 50.

1) My company has a "Special Unreduced Early Retirement" based on a credit system: Age + Years of service = 85 and you can retire. That number is 56 for me. At that point, according to the document, my pension would be (2% ending salary * years of service up to 25) + (1% ending salary * years 25 to 30).

2) My wife would be eligible for a drastically reduced pension after 23.5 years.

3) I put in 6% of my salary for 401K (my company then matches 4%)
My 401K is in a Vanguard Target Retirement 2030 fund

4) My wife puts in 3% of her salary (her company matches 3%)
Her 401K is in some sort of employee stock purchase plan of Abbott Labs

I make $84,000
She makes $60,000

I only have about $18,000 in my 401K
She has only about $4,000 in her 401K


How does this picture look for the hopes to retire in 2031 ? What should we be doing differently?


Thanks!
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Old 10-21-2009, 03:26 PM   #2
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The answer really depends on how much you spend. Some folks here get by on $20k per year in retirement, while others (like me) will need/want to multiply that several times. Do you have any idea how much you're spending now, and how much you think you'll be spending in retirement? Do you own a home? If so, will you still have a mortgage in retirement, or will you have paid it off by then? Will your company provide healthcare insurance, or are you on your own for that? Lots of stuff to consider on the expense front.

I've never worked for a company that offers a pension, but I'd be pretty leery of planning for one 20+ years from now, unless it was a government job. If both you and the company can stick it out that long, and make good on the deal, good for you.

That said: if we assume that any annual salary increases you get keep pace with inflation, you'd be receiving an annual pension of $45,360 in today's dollars.

If your 401k contributions remain the same (adjusted for inflation), and you earn 8%, you'd be looking at something over $700k in today's dollars in your 401k in 2031. Your wife's 401k situation is a little concerning to me. After the Enron fiasco, I'd be exceedingly leery about having all my eggs in one company's basket. Does she have any other options for her 401k?

Just looking at your 401k balance, $700k at a SWR of 4% would give you another $28k per year. Added to your pension, that's $73k per year, before taxes.

If you think you'd want more income in retirement, you're eligible to make Roth IRA contributions. If you can afford to do so, I'd contribute the maximum (up to $5000 each) to a Roth IRA. If you've done that, and still want to save more, I'd up your 401k contribution as far as you can, up to the federal limit.

Good luck!
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Old 10-21-2009, 03:27 PM   #3
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Yours is similar to my situation. I'm 32, wifes the same age as me. Rule of 85, 4% match, etc.

Personally, I save more, as a percentage of my gross (or net depending on how you want to calculate), since I hope to benefit from time on my (our) side. Get some cash in the market "early". Whether this will pay off, who knows, but I like to think I'm erring on the side of caution.

Could put up to your and her match and put the rest of the contributions in a Roth.

Could run the calculations in various return/inflation environments, but you have to make a lot of assumptions. Lots to ask yourself. Do you need 50% or 150% of your salary to retire (or somewhere in between, probably).

Others should have more valuable replies, but without calculating, I'm guessing you're going to be a little short of being fabulously wealthy in 22 years. But, on the other hand, you're probably ahead of 80-90% of people our age.

Edit: DOH! Posted the same time as ProspectiveBum.

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Old 10-21-2009, 04:02 PM   #4
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Originally Posted by ProspectiveBum View Post
The answer really depends on how much you spend. Some folks here get by on $20k per year in retirement, while others (like me) will need/want to multiply that several times. Do you have any idea how much you're spending now, and how much you think you'll be spending in retirement? Do you own a home? If so, will you still have a mortgage in retirement, or will you have paid it off by then? Will your company provide healthcare insurance, or are you on your own for that? Lots of stuff to consider on the expense front.

I've never worked for a company that offers a pension, but I'd be pretty leery of planning for one 20+ years from now, unless it was a government job. If both you and the company can stick it out that long, and make good on the deal, good for you.

That said: if we assume that any annual salary increases you get keep pace with inflation, you'd be receiving an annual pension of $45,360 in today's dollars.

If your 401k contributions remain the same (adjusted for inflation), and you earn 8%, you'd be looking at something over $700k in today's dollars in your 401k in 2031. Your wife's 401k situation is a little concerning to me. After the Enron fiasco, I'd be exceedingly leery about having all my eggs in one company's basket. Does she have any other options for her 401k?

Just looking at your 401k balance, $700k at a SWR of 4% would give you another $28k per year. Added to your pension, that's $73k per year, before taxes.

If you think you'd want more income in retirement, you're eligible to make Roth IRA contributions. If you can afford to do so, I'd contribute the maximum (up to $5000 each) to a Roth IRA. If you've done that, and still want to save more, I'd up your 401k contribution as far as you can, up to the federal limit.

Good luck!
We would like to retire with as close to our income as possible, so we will be able to travel and generally enjoy retirement.
We own a home, which will be paid off in 2038. We are looking into either a) paying a little extra each month for the life of the loan or b) paying semi-monthly so we can have it paid off 7 years ealy in 2031.

So, what would you recommend as an additional investment for us now? I've looked at Sharebuilder as a potential place to put some money into some stocks, but I'm not sure if this is a good idea.
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Old 10-21-2009, 04:05 PM   #5
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Do you really expect to keep working for this company for the next 22 years? I think it is way too early to count on that pension. Too many (bad) things can happen between now and 2031. You should definitely save more just in case that pension does not pan out as expected...
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Old 10-21-2009, 04:12 PM   #6
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Do you really expect to keep working for this company for the next 22 years? I think it is way too early to count on that pension. Too many (bad) things can happen between now and 2031. You should definitely save more just in case that pension does not pan out as expected...
I do. I've been here almost 10 years already. I love it. The work is good, the people are great to work with. I'm excited about the sector that they are in. Also, they rank in the top 20 every year on Forbes Global 2000. So, I do have a pretty strong degree of confidence in them. However, I understand the concern in having TOO MUCH trust in ones employer. That's one of the reasons I want to try and invest elsewhere.
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Old 10-21-2009, 04:19 PM   #7
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Welcome to the forum, Von Dingle. You will find lots of good advice here and others in your age group and situation. I second FIREdreamer's comment to be cautious about counting on pension promises. Just saw your response to FD and am glad you enjoy your job.
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Old 10-24-2009, 06:15 PM   #8
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Welcome to the forum.
My thoughts, fwiw
1) what PB said. You need to figure out what you need to live on. If it's today's budget, then reverse engineer that to a conservative SWR + pension and see if you have it.
2) also what FD said. See how you feel as you reach the downward slope of your career. It's a hellav a lot different then the 1st 20 years. Would you tough it out if at 20 years you started to hate the job? Maybe ...
3) 3 things you need to absolutely do starting RIGHT NOW.
here they are:
a) LBYM
b) LBYM some more
c) LBYM even more ...
IOW if you save a bunch now, and overengineer your retirement, then you are golden.
4) throw yourself into your career ... maximize your earnings ... become that wage slave while you are young and flexible ... and stoke it away. When you reach FIRE ... you and your DW will be patting youself on the back while traveling the world and wondering what the 'wage slaves' you left behind, are doing today
5) OH did I mention SAVE ALL YOU CAN?

We FIREd at one of the uh more interesting times (July 2007). Luckily my pension (yeah, I'm one of those dinosaurs) covers all of our base living expenses ... and we have enough fixed income to finance our traveling ... but having your portfolio tube by 40% is no fun ... Having enough to weather the storm was still not enough to not feel the pain... however we stayed the course and now have recovered to a 16% loss ... Having sufficient funds (over engineering the FIRE funds) did give me the breathing room to not panic

Best of luck to you ... hope this helps.

btw, at your age, you are doing fine ... just go back to the top of the list and re-read it a few times and think about it. You'll get there. This worked for me .... just MHO ...
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Old 10-27-2009, 02:12 AM   #9
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I would second (or third) the caution about the pension. Even if you stay at the same company for the rest of your career AND it continues to thrive (history has very few examples of this), virtually all pension plans have explicit statments that they are at the will of the company and can be changed, abandoned, etc. at will.
I have a defined benefit pension, and that is always a concern - some hotshot accountant will convince the company that they could save big bucks by eliminating it. Fortunately, the company changed the whole pension system several years ago to limit their future liability and I was grandfathered into the previous plan.
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Old 10-27-2009, 11:59 AM   #10
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You asked a question about where you should be investing your extra savings. This is a big question -- as big as "can I retire at age xx?" How you invest is as important as how much you invest. Two steps you may want to take:

1. Educate yourself about asset allocation (diversifying to get the best total performance). Get the book All About Asset Allocation by Rick Ferri. He carefully explains all the investing options and how you want to divide your assets among them depending our your stage of life.

2. Post your question about what you should invest in at the Bogleheads site (bogleheads.org) in the "Help with Personal Investments" forum. They have a form to use to put your info together for them, and they are excellant at providing asset allocation advice. Note, they won't suggest stocks, but will suggest Vanguard mutual funds, for many reasons (see the Ferri book).

Finally: keep reading!

-- Rita
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Old 11-03-2009, 02:43 PM   #11
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Originally Posted by VonDingle View Post
We are trying to figure out what we need to do in addition to this, to be able to retire when I am 56 and she is 50.

What should we be doing differently?
(1) Save more money than you are currently (I don't know what the latter amount is, but figure out how to save more).

(2) Invest the savings and build a portfolio to supplement your anticipated pensions and 401ks. You will need to arrive at your own decision about what sort of investments you are comfortable with: some people like index funds, some prefer real estate, some favour dividend-paying common stocks, some are only happy with fixed income. There are pros and cons to essentially every different form of investment, and you will need to educate yourself through study and application ... there are few shortcuts. But don't worry, you are only 34 and have lots of investing years ahead of you.

Quote:
Originally Posted by VonDingle View Post
We own a home, which will be paid off in 2038. We are looking into either a) paying a little extra each month for the life of the loan or b) paying semi-monthly so we can have it paid off 7 years ealy in 2031.
If you want to retire by 2031, the mortgage needs to be retired by that time (if not sooner).
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