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Can we afford to ER?
Old 06-19-2005, 11:21 PM   #1
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Can we afford to ER?

I retired about 3 and 1/2 years ago with medical, drug and dental benefits for myself. I received a lump sum at retirement of $290,000. I have it invested with Merrill Lynch in a safe 40 stocks and 60 bonds ratio. My wife and I have no other savings. I can collect SS at 62 which will be beginning of 2006 of about $1300. a month.

My wife is still working making about 65000. a year. She will be 55 the end of the year and is eligible ro retire and wants to. She will get about $21,000. a year in monthly pension payments. She will also have medical, dental and drug benefits upon retirement.

Our son has 2 more years of college left at about $3500. a year plus books,fees and his medical policy thru the college.

We still will owe about 5 years of mortgage payments of about $220. a month. Plus we pay about $2500. a year in property and school taxes. We owe 3 years worth of car payments at about $470. a month.

Can we afford to take ER?



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Re: Can we afford to ER?
Old 06-20-2005, 08:35 AM   #2
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Re: Can we afford to ER?

Quote:
Originally Posted by New Yorker
I retired about 3 and 1/2 years ago with medical, drug and dental benefits for myself. I received a lump sum at retirement of $290,000. I have it invested with Merrill Lynch in a safe 40 stocks and 60 bonds ratio.* My wife and I have no other savings. I can collect SS at 62 which will be beginning of 2006 of about $1300. a month.

My wife is still working making about 65000. a year. She will be 55 the end of the year and is eligible ro retire and wants to. She will get about $21,000. a year in monthly pension payments.* She will also have medical, dental and drug benefits upon retirement.

Our son has 2 more years of college left at about $3500. a year plus books,fees and his medical policy thru the college.

We still will owe about 5 years of mortgage payments of about $220. a month.* Plus we pay about $2500. a year in property and school taxes.* We owe 3 years worth of car payments at about $470. a month.*

Can we afford to take ER?



Absolutely! My entire net worth is not much higher than your lump sum
payment. No pension, no paid drug, dental or med. benefits, and my daughter has a year left in school where the annual cost is almost 40K a year.
Been totally retired since 1998. I will draw SS in 2006 as well.
In our case, my ER would be DOA without it. Otherwise, smooth as
silk..............

Good luck.,

JG
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Re: Can we afford to ER?
Old 06-20-2005, 08:50 AM   #3
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Re: Can we afford to ER?

New Yorker, JG is like you in that his spouse is still working. JG also lives in a low cost area of the country. Because of individual differences, it is important to put together a budget and see if you will have sufficient income from retirement to meet your needs. One big advantage you both have are the retiree health benefits. Is this from a private employer or government? I ask the question because one factor to consider is the odds that those benefits will continue.

Is does your wife's pension have COLA increases? Inflation really eats away at non-COLA pensions. How safe is the pension? Is it public or private?

What do you like to do? Will you have enough funds to do it?

There are many questions to answer in determining whether you have enough for both of you to be retired.
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Re: Can we afford to ER?
Old 06-20-2005, 02:01 PM   #4
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Re: Can we afford to ER?

Your budget and post-ER anticipated style of living are pretty important. It looks like you're going to make enough for a fairly spartan retirement, but inflation would be my biggest concern, as Martha points out.

Pay no attention to people who breathlessly tell you its a no brainer. You need a brain on this unless your wife is going to keep working to pay the bills like Galts does.
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Re: Can we afford to ER?
Old 06-20-2005, 03:15 PM   #5
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Re: Can we afford to ER?

Quote:
Originally Posted by Martha
One big advantage you both* have are the retiree health benefits.* Is this from a private employer or government?* I ask the question because one factor to consider is the odds that those benefits will continue.

Is does your wife's pension have COLA increases?* Inflation really eats away at non-COLA pensions.* How safe is the pension?* Is it public or private?

What do you like to do?* Will you have enough funds to do it?

There are many questions to answer in determining whether you have enough for both of you to be retired.
Martha- thanks for your input.The health benefits are free right now at least for the next 4 years till the union contract is up-then it depends on the new union contract.* *My wife will get COLA's every 10 years but it is like 2%. The pension is from a major telecommunications company that we assume will always be in business. It should be quite safe.

We like to travel. We own 6 timeshares-4 are paid for but have annual maintenance fees of $250- $950. a year. We are still paying on 2.* I am selling one in the next year or so.

Thanks John and Notth for your advice too. I am very worried about all of this.

New Yorker

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Re: Can we afford to ER?
Old 06-20-2005, 04:28 PM   #6
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Re: Can we afford to ER?

I ran the numbers on Firecalc and it says that I can withdraw about $35000. a year for 20 years and have a safe 95% rate.

So here are the annual bills:

Mortgage: $2640.(for 5 years)
Son's Tuition and Fees: $2966. (for 2 years)
Property and School Taxes: $2500.
Car Insurance: $ 1100.
Homeowners Insurance: $500.
Car Payment: $5640.
Timeshare Maintenance Fees: $2400.
Other Debt: $ 3600.
Gas and Electric: $2280.
Internet and Cable TV: $1260.

Grand Total: $ 24886.

This leaves about $10,314. for everything else. Does Firecalc take income taxes into consideration?

I am not sure this is doable!

New Yorker




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Re: Can we afford to ER?
Old 06-20-2005, 06:22 PM   #7
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Re: Can we afford to ER?

Quote:
Originally Posted by New Yorker
So here are the annual bills:

Mortgage:* $2640.(for 5 years)
Son's Tuition and Fees:* $2966. (for 2 years)
Property and School Taxes: $2500.
Car Insurance: $ 1100.
Homeowners Insurance: $500.
Car Payment: $5640.
Timeshare Maintenance Fees: $2400.
Other Debt: $ 3600.
Gas and Electric:* $2280.
Internet and Cable TV:* $1260.

Grand Total: $ 24886.

This leaves about $10,314. for everything else. Does Firecalc take income taxes into consideration?

I am not sure this is doable!
No food, clothing, health insurance, telephone, out of pocket medical, airline travel? Or is that part of the $10,314?
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Re: Can we afford to ER?
Old 06-20-2005, 08:43 PM   #8
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Re: Can we afford to ER?

Quote:
Originally Posted by retire@40
No food, clothing, health insurance, telephone, out of pocket medical, airline travel?* Or is that part of the $10,314?
Health Insurance is a benefit of retirement for both of us as is Free telephone service. Out of pocket medical is like $5.00 co-pay for Dr's appts. and $15. for a script. The rest all has to come out of the $10,314! I am not sure this is doable.

New Yorker
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Re: Can we afford to ER?
Old 06-20-2005, 09:05 PM   #9
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Re: Can we afford to ER?

Nope, taxes arent factored into firecalc.

I dont see capital replacement items like cars, painting the house, new refrigerator, washer, dryer, etc. Figure about 5k per year for these items on average. Miscellaneous 'stuff' from my budget planning runs about 2-4k a year.
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Would you like groceries with that?
Old 06-20-2005, 09:17 PM   #10
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Would you like groceries with that?

Quote:
Originally Posted by New Yorker
Health Insurance is a benefit of retirement for both of us as is Free telephone service. Out of pocket medical is like $5.00 co-pay for Dr's appts. and $15. for a script. The rest all has to come out of the $10,314! I am not sure this is doable. * New Yorker
Welcome to the board, NY!

Let's start worrying this problem constructively.

The short answer is that if you're not sure, then don't retire. *If you're not working now, then one constructive way to worry over this situation would be to bring in some more income.

The more complicated answer might work out without requiring extra employment. *One rule of thumb for a 4% safe withdrawal rate would be to have 25x as much times in savings as your annual (unfunded) expenses. *However you can see that one flaw in FIRECalc's percentages is the assumption that you're going to die within the next 20 years. *You don't want to have to actually ensure that you don't live past that "dead"line.

You seem to have an estimate of about two-thirds of your expenses, but if you're feeling close to the line then you need to get a better fix on your annual expenses. *Start tracking EVERYTHING today and keep it up for a couple years. *At the end of one month you could multiply by 12 for a rough estimate, at the end of three months you'll have a better estimate from multiplying by 4, and after a year you should be feeling pretty confident that you know what you're spending. *You might be surprised how small daily or weekly expenses add up. *If they're not important to you then they could be cut out in favor of funding your retirement, as long as you don't cross the line from "frugality" to "deprivation".

Take a look at your "occasional" expenses-- a new roof, a replacement car, new appliances, a kid's wedding, one or two fantasy vacations over the next few years, whatever's important to you. *You'll also have to take a guess at your medical coverage costs, although at age 65 you'll probably be kicked off to Medicare and have to buy your own part "B" coverage. *(I'm 20 years away from that stage so I'm just going on what my father-in-law tells me about this.)

Some of your current expenses (hopefully) won't last forever. *For example you're just about done with college tuition & mortgage payments. *SS will kick in a few months (perhaps you should add that to the income side of your budget). *I believe FIRECalc has an after-tax box but you could also add up a year's taxes (income federal/state/locality/city, property, & investments) and add those expenses to your annual budget. *You also mention that you're selling a timeshare and you may be able to raise additional cash by selling off others in the coming years. *Your cashflow should improve considerably after a couple years and especially in five years.

Your current budget is a potentially scary picture, but you can refine it with the above suggestions. *That work will remind you of other income & expenses to add in to the picture. *When you feel that you have a good handle on the expenses, consider whether you want to start taking SS at age 62 (that's what I'd do) or if you can delay it until age 65 for another 25%. *The payoff difference is about 15 years, which you perhaps may feel exceeds your life expectancy, but your spouse may appreciate having that extra 25% if she's collecting survivor's benefits.

I wouldn't mess with your investment allocations and I wouldn't buy any new products (like *shudder* annuities or bonds) until you've cleared up your picture on expenses for the next few years. *But you might want to read a library copy of Bud Hebeler's "J.K. Lasser's Your Winning Retirement Plan" and read through his website for another way to monitor your withdrawals. *He uses an annual withdrawal calculation with annual revisions instead of a 4% thumbrule.

Don't worry if you mess up and run out of money. *John Galt promises to put you up at his place in exchange for expressing himself in posts like that... *hmmm, on second thought, I'd keep worrying constructively.
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Re: Can we afford to ER?
Old 06-21-2005, 05:03 PM   #11
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Re: Can we afford to ER?

Nords.....Thank you for all the invaluable advice. I am gonna research this some more. I appreciate all the advice from everyone.

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Re: Can we afford to ER?
Old 06-22-2005, 11:43 AM   #12
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Re: Can we afford to ER?

Last thought...either of you particularly like a line of work that may not be highly profitable but can make a few bucks for a few hours work here and there? Something you wouldnt mind doing for 10-15 years? Your plan probably firms up nicely with 10-15k in extra income every year, at least during the beginning years.
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Re: Can we afford to ER?
Old 06-22-2005, 07:43 PM   #13
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Re: Can we afford to ER?

Thanks for that thought Notth.

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Re: Can we afford to ER?
Old 06-23-2005, 02:11 AM   #14
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Re: Can we afford to ER?

I don't know how you did your firecalc, but I put in $55000/year, and then adjusting downward as your three payment obligations disappear, settling thereafter at $45000/yr. Starting with your investment of $290000, your SS, and your wife's pension, it said you would have 95% chance of going 30 years.

Your listed fixed, permanent expenses seem to be only about $20000/yr (I left off the tuition, car, house payments that will cease soon, but added an estimate for food and home repair/ car repair/purchase fund). Then up to $10000 for taxes, and that leaves you with $15000 to cover entertainment, vacation travel, and other things that come up.

Sounds like no problem to me, but I don't know the style of your vacations...

BTW, will your wife be eligible for SS, also? If so, that's all gravy.

Boy, New Yorker, where do you live, Watertown? I don't know anywhere else you could have a $200 mortgage payment, haha.
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Re: Can we afford to ER?
Old 06-23-2005, 11:14 AM   #15
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Re: Can we afford to ER?

Quote:
Originally Posted by igsoy
I don't know how you did your firecalc, but I put in $55000/year, and then adjusting downward as your three payment obligations disappear, settling thereafter at $45000/yr.* *Starting with your investment of $290000, your SS, and your wife's pension, it said you would have 95% chance of going 30 years.

Your listed fixed, permanent expenses seem to be only about $20000/yr (I left off the tuition, car, house payments that will cease soon, but added an estimate for food and home repair/ car repair/purchase fund).* Then up to $10000 for taxes, and that leaves you with $15000 to cover entertainment, vacation travel, and other things that come up.

Sounds like no problem to me, but I don't know the style of* your vacations...

BTW, will your wife be eligible for SS, also?* If so, that's all gravy.

Boy, New Yorker, where do you live, Watertown?* I don't know anywhere else you could have a $200 mortgage payment, haha.
Igsoy,

Maybe I am plugging the numbers in wrong; I don't know.

My wife will be eligible for SS in 7 years after she retires, which will be the end of the year if we can.

The $220. mortgage figure does not include our property or school taxes which we pay out of pocket. We have lived in the same house in upstate NY for years.

New Yorker
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Re: Can we afford to ER?
Old 06-23-2005, 12:40 PM   #16
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Re: Can we afford to ER?

igsoy...I think you did the firecalc stuff wrong...
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Re: Can we afford to ER?
Old 06-23-2005, 05:13 PM   #17
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Re: Can we afford to ER?

I know I might have had something off in firecalc (first time looking at it), but I don't think it would be that far off.

I input NY's SS and wife's pension that adds up to $36000/yr immediately. Then from the investment account to get the extra 19000/yr short term and 9000/yr long term I used the 'change withdrawal at future date' boxes. It calculated that including their income and drawing from investments they would have the long term $45000/yr with a 95% chance of that lasting them 30 yrs.

That also did not include the wife's SS that NY says will kick in in 7 yrs. I'm sure that will take them up over $50000/yr. They are living on $65000/yr from wife's job right now?, and will not need that much as their expenses shrink (house payment/ college/ car payments). So with 50000+, it seems like they will be pretty well set.

Let me know if I should have run the numbers some other way, I am here to learn, too.

Thanks,
igsoy
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Re: Can we afford to ER?
Old 06-23-2005, 05:21 PM   #18
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Re: Can we afford to ER?

You probably used a + number where a - was called for or vice-versa, thats the most common oopsie.

But maybe the #'s you got are right. I'm too lazy to check. Good thing I dont have a job.
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Re: Can we afford to ER?
Old 06-23-2005, 05:35 PM   #19
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Re: Can we afford to ER?

Let me add-

If I run the #s including wife's SS, I get 100% chance of lasting 30 yrs of $45000/yr. I should say that that only works if the pension is inflation adjusted. If the pension just stays at 21000, then it only gives you an 88.6% chance of lasting 30 yrs. Since I don't know if it is or isn't, I figured I'd run it both ways for you.

I like playing with numbers, hee.
igsoy.
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Re: Can we afford to ER?
Old 06-24-2005, 08:53 AM   #20
 
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Re: Can we afford to ER?

I'd recommend some thorough research on your expenses. Go back for the last two years, and figure out exactly how much you've spent, and on what. You may be able to get a yearly summary from the credit card company.

When I did this, I found that my estimate of what I was spending was incorrect.

After you categorize what you spend per year, you can make estimates of what will change during retirement.

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