Think I can go at 55, but not sure...

[Bandit]

Hi everyone! Not really sure how to use all the tools for posting and stuff, so some mistakes may be made....

I will be 55 early next year, can draw a pension at that time and my 401K can be accessed at 55 (if retired) with no early withdrawal penalty. I'm looking at retirement income of $50,000 a year. No question about being able to get by (no debt). I can pay the bills with that amount and have some left over. Heck, I can get by on half that, just have to cut out the satilite TV, internet, start a bean and 'tater diet, etc.

I have run Firecalc and it always turns out good, but I still have that fear factor. Its the old "how much is enough" question that I have been asking myself for the last couple years.

Anyway, I have been reading the fourm for that past few weeks and find it very interesting and informative. I like the "polite" feel of the postings and the various topics.

 

[Coach]

Hi Bandit, and welcome to the forum!

Many of us can sympathize with your "fear factor". I wish I had a good answer to it. I imagined a plausible worst case scenario and figured that I could survive it, and decided that I'd rather see what the future brings from retirement rather than from a cubicle.

Best of luck, and I'm glad you've joined us.

Coach

 

[Rich_by_the_Bay]

It has been while, but with FIRECalc I found it useful to create a "probable" scenario or two, and then a "worst-case" scenario where everything that could go wrong (within reason) did go wrong. Kind of a poor man's "sensitivity analysis."

It doesn't completely remove doubt (after all, if you make inflation 5% in your worst case, who's to say it won't go to 10%) but if you're OK with your worst case scenario you are probably ready to go, and will likely be pleasantly surprised when things don't unfold nearly as badly as you feared.

If you get up the nerve to share additional basic numbers with the board members you will probably get some gut-level opinions on whether it looks OK.

 

[bizlady]

Firecalc does not factor in taxes. Be sure you consider that in your plan, and also medical since you are relatively young.

You do not indicate if you have dependents-- that too may be a factor.

Also be sure your budget can handle a vehicle or two down the road, and home repairs if you own a home.

 

[Rustic23]

Is your plan to retire at 55 and draw SS at 62? How much pad is in the $50K? What are your no sh*t long term i.e. 7 years till SS, expenses? What about medical? Can you sustain a large medical bill i.e. if your co-pay is 20% can you afford a half million dollar medical bill?

 

[Midpack]

I will be 55 early next year, can draw a pension at that time and my 401K can be accessed at 55 (if retired) with no early withdrawal penalty.

Didn't know there was any way around the 401k early withdrawal stipulation - hmmmm.

To maintain the tax advantage for income deferred into a 401(k), the law stipulates the restriction that unless an exception applies, money must be kept in the plan or an equivalent tax deferred plan until the employee reaches 59½ years of age. Money that is withdrawn prior to the age of 59½ typically incurs a 10% penalty tax unless a further exception applies. This penalty is on top of the "ordinary income" tax that has to be paid on such a withdrawal. The exceptions to the 10% penalty include: the employee's death, the employee's total and permanent disability, separation from service in or after the year the employee reached age 55, substantially equal periodic payments under section 72t, a qualified domestic relations order, and for deductible medical expenses (exceeding the 7.5% floor).

401(k) - Wikipedia, the free encyclopedia

 

[mn54]

For me, the big question mark is health care. I too am 55. How do you cover yourself for 10 years and know that you will have enough later on. Like many here, I have a high deductible policy and an HSA. I haven't been sick a day since college. On tuesday I had surgery for melanoma. You never know.

 

[bizlady]

"Didn't know there was any way around the 401k early withdrawal stipulation - hmmmm."

I believe that if you retire at 55 or later, than you can indeed access the 401k with no early penalty

 

[RocketHead]

I will be 55 early next year, can draw a pension at that time and my 401K can be accessed at 55 (if retired) with no early withdrawal penalty

.

Midpack, I have the same deal where I work. I found it in the IRS documents. The year you turn 55 is how it is phrased, not your 55th birthday. But the company you work at has to allow it. So not everyone will get that deal. Call your plan administrator to confirm it. I was forwarded to a Fidelity rep who does our 401k and he explained it to me. This Jan 1st is my magic day to lock in that exclusion. If I get laid off between now and then, I pay the 10% penalty on any withdrawals until I'm 59 1/2.

 

[fisherman]

Try Googling Substantially Equal Periodic Payment (SEPP) also known as 72T. I am not suggesting you do or do not use it but it is away to get around the 10% penalty if you first roll the 401K to an IRA after leaving the company.

 

[segfault]

Can you sustain a large medical bill i.e. if your co-pay is 20% can you afford a half million dollar medical bill?

Not sure about the OP, but my health plan has a maximum out of pocket limit.

 

[Rustic23]

I figured most did, but it is a question that has to be answered. Other things might be, house fire, auto accident, theft, law suit, replace auto uninsured. Most of our retirement plans deal with covering the everyday stuff. FireCalc and programs like it, cover the 'do we have enough' for daily living, and I really think if you do in this market, i.e. down, then you should be good for that. But can you deal with the unexpected and still have the cash flow for the daily stuff.

 

[CuppaJoe]

Welcome, Bandit.
Looking forward to seeing your progress towards being ready to pull the plug. btw, I love 'taters.

.... I'd rather see what the future brings from retirement rather than from a cubicle.
...

Hear, Hear!! Every Tuesday for the last 35 years, I've heard the noon test siren and always take note of where I am at that moment. When I found myself at a desk at w*rk, I would ask myself why am I still there. Now I just enjoy the variety of places I find myself.

 

[plowking]

Hi Everyone first post here. I`m curious if anyone has tried this calculator from CNN money, I`ve found it to be very informative,Its buried on their website,very hard to locate.Sincerely,Plow.
Calculators - Retirement Planner

 

[CuppaJoe]

Plowking, that calculator did not allow my numbers because I am already retired so I have no opinion. Have you tried FIREcalc?

Welcome, Plow. When you get a chance, start a new thread in the "Hi, I Am" section and tell us more about yourself.

 

[Bandit]

Lemme see if I can answer some of the questions...

I can carry health care through my company in retirement, it's one of the benifits, the cost is reasonable and the coverage is about the same as when working. However, the company health care coverage is determined each year. It's not a sure thing like the pension, although it should be pretty close as I work for a public utility.

There is some wiggle room in my proposed 50K a year over normal expenses. I have run our last three years of spending and it will more than cover everything except the big ticket items like a recently purchased tractor (hobby farm, limited income).

My DW will also be 55 next year and thinks she wants to continue working for few more years. If she does it's really a no brainer.

My 50K a year will just about replace 80% of my current disposable income...I've been putting 20% into the 401K for years. DW will not have any pension and her 401K is small. A lot of my worry is that while I can replace my income, I cant replace both. And, as I have said, we can get by on the 50K, I'm just not sure that we can do it at the level that will satisfy us.

I have also considered doing some contract work. I could work a couple of months in the spring and fall (4 months a year) that would bring in an additional 30K or so, but would have to travel...dont like working travel any more.

The scary part is the 7 years to SS...

 

[Milton]

The "fear factor" you mention is common. This thread may be of some help: http://www.early-retirement.org/forums/f29/handling-the-just-one-more-year-syndrome-20091.html.

Ultimately no one has a crystal ball and it is impossible to know what the future holds for us. Outliving your savings is a real possibility, but so is the chance of contracting a fatal illness and dying well before you have had a chance to enjoy your savings.

At the end of the day, all most of us can do is make some reasonable assumptions, build in a cushion for unforeseen contingencies (say, work up your savings to the point where your retirement income exceeds your predicted annual spending by 10% or more), and hope for the best.

For me, the big question mark is health care. I too am 55. How do you cover yourself for 10 years and know that you will have enough later on.

This is certainly a real concern, and I suspect that it is a common stumbling block for American early retirees. Fortunately we don't have that issue in Canada.