Are we (almost) ready?

[OregonER]

Hello All!

Like most, I'm a long time lurker, first time poster. DH and I have been working for a short time now to get our house in order so that we will be able to "retire" (whatever that means) when he begins receiving his pension checks in February, 2009.

I make a fairly decent wage ~$180K/yr, which Uncle Sam and I share (although I'm pretty sure he gets more than he should). Hub makes about $70K /yr. We save on the order of $70-80K/yr between 401K and after tax investments. We have NO deductions... OUCH!

Recently my company has hinted that I might like to work elsewhere... okay, I'm being cut, I'll admit it. However, they have extended a two month "job find" package whereby I'll stay employed and find a job with their resources, and then if I'm absolutely pathetic and can't find anything, they will give me 4 months severance. I don't mean to sound ungrateful, because I DO think this is a great deal, but before you start doing the math, realize that I (was) heavily leveraged, meaning my bonuses were quite a bit of my pay package. But... I'm getting ahead of myself.

Aside from the fact that I'm almost jobless at this point, here's our skinny:

• Expenses run: $4000/month or ~$48,000/yr (including medical provided by DH's pension
• Pension: $3700/month or $44,400
• 401K: $600K
• IRAs: $19,500
• NonQualified Investments: $145K

DH will be 55 at pension and I will be 47. One of the big things I'm struggling with is that DH loves to knock down walls and remodel our house for his recreation. I have NO IDEA how to budget for that. We live in a rural location with acreage and an outstanding view, so I'm sure even in the disarray that the house is constantly in, we'd get $1M for it, if we wanted to move, which we don't. I'm not counting any income from the house.

We are debt free, no car loans, mortgage or credit card debt. We pay for everything with a credit card and pay it every month to get the air miles.

I intend to obtain work again before we take the pension, but I'm assuming it won't be the same income I'm used to getting, so our savings may not be as steep as I had hoped over the next 14-18 months remaining (after the six months of pay mentioned above).

I've run FireCalc and think I'm fine, but I'm not really sure what I'm doing, to be honest. We are both in generally good health and DH has a $500K life insurance policy as well. I can't think of anything I've missed here, but feel free to ask. I value all opinions, even if they're different from my own .

Opinions please?

M

 

[txdakini]

Hello OregonER: I'm no firecalc expert, but your numbers look good to me. Here would be my questions:

do you get Social Security, how much, when will you take it and did you plug those numbers into Firecalc?

Is your pension COLAed? Will it increase each year with inflation? this can make a big difference in running firecalc, whether you check the box inflation adjusted or not.

Are your expenses net of taxes?

and how are your investments invested? That is 70% equities and 30% bonds and cash or what?

How many years of retirement do you need to cover (40 to 50?), meaning how long do you think you will live?

A quick rule of thumb is that you can take out 4% of your portfolio and still be safe (firecalc does a more accurate job of assessing this). 4% of your 765k is 30,600 a year or 2550 a month. If you add that to your pension of 44,400, you're pretty much home free, even if add taxes in.

Do you know how much you've spent in past years on hubby's hobby? Sounds like you've got an extra 15 to 20k per year over and above your expenses plus taxes (depending on accurate answers to above questions). Would that cover his playing with the house? Could he live within a budget of say 10k a year for that hobby?

I'm sure you'll hear more from the number crunchers on the board. They do a great job of setting us straight and helping with Firecalc.

Happy planning!

 

[jdw_fire]

Welcome to the board.

I make a fairly decent wage ~$180K/yr, which Uncle Sam and I share (although I'm pretty sure he gets more than he should). Hub makes about $70K /yr. We save on the order of $70-80K/yr between 401K and after tax investments. We have NO deductions... OUCH!

...

• Expenses run: $4000/month or ~$48,000/yr (including medical provided by DH's pension
• Pension: $3700/month or $44,400
• 401K: $600K
• IRAs: $19,500
• NonQualified Investments: $145K

I was running your numbers in my head and something doesn't add up.
Salary = $180k + $70K =$250k
Expenses + savings = $48K + $80K = $128K
$250K - $128K = $122K
Where does this difference go?

I've run FireCalc and think I'm fine, but I'm not really sure what I'm doing, to be honest. We are both in generally good health and DH has a $500K life insurance policy as well. I can't think of anything I've missed here, but feel free to ask. I value all opinions, even if they're different from my own .

If your expense numbers are correct it looks like you are golden with your hubby's pension and a >$750K nest egg. However if your hubby's pension does not have spousal coverage you may need more life insurance on him, if it does you may have too much life insurance on him. Also, what happens to your medical ins if hubby dies?

 

[Sam]

Welcome aboard OregonER. Based on the numbers you provided, you guys are all set! Congratulations and enjoy.

A few observations:
1) 48K expenses appears to be low considering the 1,000K home. Property Tax, repair & maintenance, utilities?
2) Total net worth of 1.75M, of which 57% is in home equity. May be a little bit out of balance.

I was running your numbers in my head and something doesn't add up.
Salary = $180k + $70K =$250k
Expenses + savings = $48K + $80K = $128K
$250K - $128K = $122K
Where does this difference go?

3) Ditto.

 

[OregonER]

Okay, here goes.

I will get SSoc, but not for quite a while. We are both healthy, and he 55, I 47 at the time of pension.... Haven't figured it in.

DH's pension is not guaranteed to be COLA'd, but looking at the pension since it's inception (~75 years), it always has been.

Expenses are not net of taxes.

Right now, my portfolio is HEAVILY weighted with mutual fund equities.

We are both healthy, and so as to the "how long will you live" question, I'm figuring 90-94.

jdw_fire, you are good! I was wondering if someone would catch the discrepancy in the funds! The inlaws were in a bit of a crunch this last year and we spent a bundle on some legal fees to get them out of it. Nothing too serious, but it cost a bit 'o cash. Between that and DH's hobby, the delta ate the money. Remember, the numbers on salary are gross and we had heavy AMT this year, since we have NO deductions.

DH's pension allows me to elect to continue coverage under his plan when he dies, so this shouldn't change dramatically.

The thought I had was that we would leave the qualified funds alone for the first ~10 years and use up the non-qualified funds.... simply buy them down until there is nothing left. After 10 years (which DH's life insurance covers) the 401K should be built up enough to sustain the 4% rule easily... I hope.

In addition, Sam, you are right about the expense numbers looking out of what, but if you could see this home, you'd know we're just reg-lar folks. Remember I said we weren't counting on income from the house. At least 1/2 to 3/4 of the value is in the view/location. We get by on about $600 bills and the rest is living too darn high on the hog eating out and so forth if you ask me! I've tracked our expenditures and we spend a LOT on eating out, due to the fact that I've been working 12-13 hour days and not cooking. I am also working about 45 miles one way away from my house. Gas = $3/gal and 90 miles round trip per day.... hoping that will go away when I retire. I certainly wouldn't go that far away to go shopping! Not even on a MONTHLY basis, let alone a daily basis.

Thoughts/concerns?

 

[DangerMouse]

Your numbers look good to me.

However, I do have a question with regards to your husband's hobby of demolishing your house. Does he intend to do it forever? Would it not be more profitable if you bought some rundown starter homes that he could refurbish for profit? Why does he enjoy doing it so much? If it is related to the stress of his job that might go away once he is retired.

 

[OregonER]

DangerMouse --

Why indeed. Very good question. Perhaps some other remodeling guy out there can help me with the psychology of this one?

OregonER

 

[Sam]

In addition, Sam, you are right about the expense numbers looking out of what, but if you could see this home, you'd know we're just reg-lar folks.

But if the market value of this "reg-lar" home is at least 1 million, wouldn't the property tax be quite high? At 1% rate, you're looking at 10K annually.