Age 56 and Still Close to Ready (Update from Aug 2017 Post)

[Travis Bickle]

Hi All -

So - it's about 10 months later since my first post (http://www.early-retirement.org/forums/f26/55-and-close-to-ready-what-am-i-missing-88007.html) and I'm still working, so I figured I would give a quick update and some new facts that will impact my situation and hopefully get some solid opinions or thoughts from you all. Things that have changed since my original post in Aug 2017 are showin in italics:

Updated situation:

Personal Situation:

• 56 years old
• Current Income about $165K + 30% target bonus (bonus can vary between 10 and 40% depending on company performance)
• Assoc. Director in a Large Pharma Company
• Two daughters 18 and 19 years old - Freshman and Sophomore in college this fall
• Getting very tired of the corporate grind and ready to go now. Vacations are never, ever long enough and the last half of every one is dread about having to go back to work. Sometimes I suffer stress, but nothing too serious yet and I control via meditation (but not medication yet). However, I recognize that it's not healthy. I find myself getting irritated a lot easier at corporate nonsense. I am still considered a high performer, but that's not always a good thing because lots of stuff comes my way
• Have plenty of hobbies and interests outside of work. Not worried at all about not working. I'm looking forward to exercising more, losing some weight, doing some volunteering, and maybe do some part time consulting work (I know I will be in demand) or another part time gig of some sort.
  

Current Savings/Retirement Income:

• $1.25M in Fidelity 401k - maintaining about 30%bonds/70%Stock Index Funds. (NOTE: I keep this more aggressively positioned as I consider the lump sum pension to be my "safe" money)
• Will receive Lump Sum Pension upon retirement - current estimate at $1.51M if I retire by YE2018 (This amount is now frozen and actually will drop with interest rate increases - see below). (So - total pre-tax $$ at year end would be ~$2.8M)
• ~$50k cash
• $25k in ROTH IRA (over the income limit to add more)
• Have stock options for 3 years worth about $60k total (~$20k/year) plus a final year bonus of ~$40k
• If I retire, I am eligible to withdrawal from 401k before 59 1/2 without penalty.
• Social Security projection is $66k/year (me + spousal) if I delay taking it until age 70.
• My wife has a part time job at the school making ~$8k/year and is enjoying it. I expect she may eventually get more hours the longer she works there.

Current Expenses:

• Currently spend about $130k in expenses - ~$90k deemed as "essential" and ~$40k as discretionary. I feel pretty confident that we could lower the discretionary, and even some of the essential, by about $10-15k with no trouble if we had to.
• Expenses include $20k/year in mortgage that will be paid off in 2025
• We have 529's that will cover 1 more year of older daughter and first three years of younger daughter. Total I still need to come up with is ~$150k
• In retirement, I will be eligible for retiree HC benefits, which will make my health insurance about $3-$4k more than what I pay now - total of around $8-$9k/year for a family of 4. It's a good plan with low deductibles and preventive care covered 100%.

Updated Plan and Open Questions:

My employer announced at year end 2017 that our pension plans are frozen - i.e. that the company will no longer contribute to the fund. So - basically my projected annuity is frozen at it's current value. The lump sum I would receive, however, will continue to change based on interest rate movement. With interest rates rising this year, the lump sum I would receive will drop as of Jan 1, 2019. (At the end of last year it also dropped $23k).

Bottom line is that with $1.51M due to me in a lump sum, I feel like having that money sit there with no growth has to be worth considering in my early retirement decision.

The Fidelity Planning tool puts my readiness rating at a 106 if I do not work at all in retirement (above 100 meaning "on track") and shows my money lasting until age 95 even in a "significantly below average market".

I also use a self-built tool to project spending vs. balances and am showing my money lasting to age 99 assuming a flat 4.2% growth (I got the 4.2% from reading something put out by John Bogle about what he thinks the future holds for growth). Withdrawal rate peaks at 3.6% at age 69 and doesn't approach higher than that until age 84. My model assumes an annual spending growth of 1.5% per year. (I recognize that this is less than projected inflation, but I figure our spending should slowly drop over time as well - especially considering that right now we are supporting a family of 4 adults).

Some questions for your consideration:

1 - For my social security, it's based on the projection on the SS web site which says "if you work until full retirement age". However - I am going to end up with about 3 years at <$5k in income counting against the "average of highest 35 earning years" that goes into that calculation. SO - I think my projection of the social security payment is definitely high, but I just can't tell how off it is. Anyone know how much you get dinged for those "zero years" and how to calculate the impact?

2 - Any thoughts about ways to get the additional $150k needed to cover the rest of undergraduate college costs for my daughters? If I show it as a withdrawal from the 401k, the tax hit is killer. I was thinking of a HELOC, but understand that is not deductible any more. Not really interested in a re-fi, as we are due to be paid off in 2025.

3 - What's the latest consensus around here for whether spending increases, decreases, or stays flat upon retirement? I've traveled overseas a ton for work the last 5 years, so am happy to not travel much for the foreseeable future, but someday I might want to travel again.


Thanks for any additional thoughts you might have.

- Travis Bickle

 

[pb4uski]

For 1 above, use this and your earnings history to calculate.

https://www.ssa.gov/pubs/EN-05-10070.pdf

On 2, I would do a re-fi and then pay off with tax-deferred withdrawals to spread out the tax bite.

On 3, our experience is flat, perhaps a slight increase at worst.

 

[Dtail]

Hi All -


Some questions for your consideration:

1 - For my social security, it's based on the projection on the SS web site which says "if you work until full retirement age". However - I am going to end up with about 3 years at <$5k in income counting against the "average of highest 35 earning years" that goes into that calculation. SO - I think my projection of the social security payment is definitely high, but I just can't tell how off it is. Anyone know how much you get dinged for those "zero years" and how to calculate the impact?

2 - Any thoughts about ways to get the additional $150k needed to cover the rest of undergraduate college costs for my daughters? If I show it as a withdrawal from the 401k, the tax hit is killer. I was thinking of a HELOC, but understand that is not deductible any more. Not really interested in a re-fi, as we are due to be paid off in 2025.

3 - What's the latest consensus around here for whether spending increases, decreases, or stays flat upon retirement? I've traveled overseas a ton for work the last 5 years, so am happy to not travel much for the foreseeable future, but someday I might want to travel again.


Thanks for any additional thoughts you might have.

- Travis Bickle

The below link can be used with the concept of filling in zeros for your SS calc at various ages.

https://www.ssa.gov/benefits/retirement/estimator.html

 

[gamboolman]

TB

Ms. gamboolgal & I are near to your situation

Is your expenses of $130K Gross and then you deduct Income Tax? Or is that net?

Our estimated net is ~$10,800 per month and in Texas that puts us at ~$150K Gross

Just saying....you need to account for the only other sure thing in life.....

 

[Travis Bickle]

TB

Ms. gamboolgal & I are near to your situation

Is your expenses of $130K Gross and then you deduct Income Tax? Or is that net?

Our estimated net is ~$10,800 per month and in Texas that puts us at ~$150K Gross

Just saying....you need to account for the only other sure thing in life.....

I noodled that same question myself a bunch of times when projecting things.

The $130k is actual spending, so withdrawals would need to include taxes. this is accounted for in both the models I used - the Fidelity tool and the spreadsheet I built myself.

 

[COcheesehead]

The 106 RPM score means you have 106% of your anticipated spending covered. That's only a 6% cushion.
I would look for ways to add to my income in retirement or decrease my expenses.

 

[aja8888]

Tell us about your mortgaged house and whether or not it can be downsized when daughters are out of school. A lot of us get into smaller, more manageable houses once RE.

 

[Dtail]

The 106 RPM score means you have 106% of your anticipated spending covered. That's only a 6% cushion.
I would look for ways to add to my income in retirement or decrease my expenses.

My RPM score is currently 104. I believe that Fidelity is one of the most conservative calculators out there and by using a Monte Carlo simulation, it can include many worst possible scenarios which don't have a true relationship to how the historical sequence of market returns work.
Having 100% for all calculators worked for me, but YMMV.

 

[Travis Bickle]

- We have definitely talked about downsizing houses and possibly relocating to somewhere with slightly lower property taxes. I probably have about $200k equity in the house that is not included in my calculations, but is included in the Fidelity calculator.

- Adding to income is definitely a possibility/likelihood. My company frequently hires back recent retirees under contract, and my discipline is one that is definitely in demand. Part of me wants to do something completely new though. Need to do some research in that area.

 

[Trawler]

on expenses in retirement after 5.5 years we spend more than when we worked however
that was our plan. Just prior to retirement went thru expenses line by line and asked what would change and by how much. Spending a bit less than planned due to a very flexible budget of non essential expenses. one interesting note unplanned or unforeseen expenses that arise every year total about the same just different stuff each year.

 

[Travis Bickle]

For 1 above, use this and your earnings history to calculate.

https://www.ssa.gov/pubs/EN-05-10070.pdf

On 2, I would do a re-fi and then pay off with tax-deferred withdrawals to spread out the tax bite.

On 3, our experience is flat, perhaps a slight increase at worst.

Thanks again for this. Looks like the impact of the "near zero" years for me would drop our combined SS payment from ~$66k to ~$62k. Not as bad as I was fearing, but definitely a negative impact.

 

[tb001]

My RPM score is currently 104. I believe that Fidelity is one of the most conservative calculators out there and by using a Monte Carlo simulation, it can include many worst possible scenarios which don't have a true relationship to how the historical sequence of market returns work.
Having 100% for all calculators worked for me, but YMMV.

Are you referring to the calculator at the link below, or is there something else I haven't found?

https://www.fidelity.com/calculators-tools/fidelity-retirement-score-tool

For us this basically just gives us 4% withdrawal rate plus SS, so want to be sure I'm not missing something more sophisticated/conservative!

 

[COcheesehead]

Are you referring to the calculator at the link below, or is there something else I haven't found?

https://www.fidelity.com/calculators-tools/fidelity-retirement-score-tool

For us this basically just gives us 4% withdrawal rate plus SS, so want to be sure I'm not missing something more sophisticated/conservative!

That's not it. This is it. https://www.fidelity.com/calculators-tools/PGCretirement-score It is more robust than your link. You can build budgets, add in one time events, pensions, more of a complete plan to understand your retirement.

 

[COcheesehead]

My RPM score is currently 104. I believe that Fidelity is one of the most conservative calculators out there and by using a Monte Carlo simulation, it can include many worst possible scenarios which don't have a true relationship to how the historical sequence of market returns work.
Having 100% for all calculators worked for me, but YMMV.

It can be conservative depending on how you use and what inputs you have. If you fail to take into account some expenses, it will kick out results that may not match reality. I suggest using the built in expense work sheet to not overlook any expenses. I found it very helpful.

 

[Dtail]

Are you referring to the calculator at the link below, or is there something else I haven't found?

https://www.fidelity.com/calculators-tools/fidelity-retirement-score-tool

For us this basically just gives us 4% withdrawal rate plus SS, so want to be sure I'm not missing something more sophisticated/conservative!

I use the link below. I believe one must have an account at Fidelity to use it.
It is the "Retirement Score - Planning and Guidance Center".
There is a lot of input of individual expenses/sources of income/investment portfolio (portfolio is automated if held at Fidelity).
The score shows your readiness for retirement.e.g. a score of 104 means you have covered 104% of your expenses.


https://www.fidelity.com/calculators-tools/PGCretirement-score

 

[Dtail]

It can be conservative depending on how you use and what inputs you have. If you fail to take into account some expenses, it will kick out results that may not match reality. I suggest using the built in expense work sheet to not overlook any expenses. I found it very helpful.

Yes, I do use the detailed expense worksheet associated with the Fidelity calculator instead of the one line monthly expenses. I do include lumpy expenses too.
I actually run the calculator monthly, since it is my first full year of retirement and effectively put in 2019 as a retirement date, since the calculator (RPG) is really for pre-retirement.

 

[tb001]

Ah, got it. Thanks for the links!

 

[COcheesehead]

Yes, I do use the detailed expense worksheet associated with the Fidelity calculator instead of the one line monthly expenses. I do include lumpy expenses too.
I actually run the calculator monthly, since it is my first full year of retirement and effectively put in 2019 as a retirement date, since the calculator (RPG) is really for pre-retirement.

Thumbs up

 

[Dtail]

Thumbs up

Actually I believe that Fidelity has another retirement type calculator for when you are already retired.
Are you familiar with this calculator?

 

[COcheesehead]

Actually I believe that Fidelity has another retirement type calculator for when you are already retired.
Are you familiar with this calculator?

I haven't used it yet, but I think its called a Retirement Income Planner. It only works from my understanding when you are already retired.

 

[Dtail]

I haven't used it yet, but I think its called a Retirement Income Planner. It only works from my understanding when you are already retired.

Thanks. That sounds correct. I will speak to Fidelity about it soon.

 

[Travis Bickle]

Th Fidelity tool I use is part of the "Planning and Guidance"functionality of the site.

Here's how it's described on the Fidelity site:

"Your Fidelity Retirement Score (FRS) represents the percentage of your average estimated retirement expenses your plan could cover, assuming an underperforming market. It's based on information you provided the last time you used a Fidelity planning tool or updated during this planning session, including the accounts and income sources you assigned to your retirement plan, your current or modeled savings rate, your current or modeled asset mix, your retirement time horizon, and your estimated taxes and expenses. "

I've been using the tool about the last 5-6 years, and will say the functionality in the tool continues to improve all the time. You can easily model more detailed spending as well as any "one-time expenses" - which is how I modeled in the future college tuition bills for us. If you guys have Fidelity 401k's and haven't used it it's worth checking out.

 

[Cobra9777]

Congrats. You seem to be well prepared and in pretty good shape overall for ER. Just some random thoughts, questions, answers:

1. Just curious about why lump sum instead of annuity? ...I like a 3-legged stool vs 2 if given the opportunity.

2. No taxable account at all except $50K cash? ...I'd want more.

3. Sounds like your $150K is for 3 years at $50K/yr/child. ...sounds high to me.

4. I'd use a combo of FIRECalc, RIP, i-ORP, c_FIRE_sim, Excel, etc. ...get a variety of perspectives.

5. Some of us youngsters like to discount SS in the plan. ...my current fudge factor is 0.7.

6. Spending... for us, total spending went down drastically when we retired. But that's mainly because we paid off the mortgage, college costs ended, kids went off the payroll (health ins, car ins, cell phone, laptops, $600/wk grocery runs, etc). Excluding those big discrete items, spending is about flat... we pay more for health insurance and travel, but this is offset with reductions in commute costs, other work-related costs (dry cleaning, clothes, lunches), and reduction in stuff like cutting the cord, shopping for insurance, and DIY most home repairs and maintenance.

7. I'd use the stock option proceeds to help close the college gap. Also save as much as you can in taxable before retiring. Also any/all part-time earning could help close the gap. I'd stay away from any form of debt.

8. Long range spending... to me, this is the key to solid retirement planning. Many people use current spending plus inflation. You're using a discounted inflation rate, which is slightly better. The online tools have other options like VPW. That's fine, but I want to know specific amounts and the timing profile, which is surprisingly easy to estimate. I have a spreadsheet with 19 categories of spend, with lots of history and 30 years forecast. Each category has a unique inflation rate. And each has a unique consumption factor or cost driver. For example, gasoline has a high inflation rate, but stays relatively flat in nominal terms because over time we reduce the number of cars, miles driven, and thus gallons consumed. This level of detail can be eye-opening, especially with medical "consumption" increasing in latter years and likely with a very high rate of inflation. We plan to downsize in about 10 years and it's amazing how many categories of cost go down sharply at that point. The result of this exercise is nothing at all like a smooth line.

9. Contracting... I thought I would do this also, and told Megacorp I was open to the idea. They called twice in the first year and I said no both times. Once I had a taste of freedom, the idea of putting on my clown suit, getting in traffic, and then sitting in a conference room looking at PowerPoint slides made me physically ill.

 

[Travis Bickle]

Congrats. You seem to be well prepared and in pretty good shape overall for ER. Just some random thoughts, questions, answers:

1. Just curious about why lump sum instead of annuity? ...I like a 3-legged stool vs 2 if given the opportunity.

2. No taxable account at all except $50K cash? ...I'd want more.

3. Sounds like your $150K is for 3 years at $50K/yr/child. ...sounds high to me.

4. I'd use a combo of FIRECalc, RIP, i-ORP, c_FIRE_sim, Excel, etc. ...get a variety of perspectives.

5. Some of us youngsters like to discount SS in the plan. ...my current fudge factor is 0.7.

6. Spending...

7. I'd use the stock option proceeds to help close the college gap.

8. Long range spending...

9. Contracting...

Thanks for the comprehensive answers- I appreciate you taking the time to do that - some really great points to consider. Some additional info

1 - I did some calculating of lump sum vs. annuity last year and it seemed like the lump sum would be the better deal if I was going to be able to get 4.2% average growth out of it like in my model. However, my employer gives both options and I can run either version into the Fidelity tool. Will do that and see how it impacts risk and score. I am guessing it will probably show a benefit in "significantly below average markets" which is what I was using in the fidelity tool, but will negatively impact the scoring in the "average or above average markets" scenarios and in my consistent growth tool. With a lot of the prognosticators saying we should reset market expectations for the foreseeable future, then perhaps an annuity should be back on the table. Any other opinions out there?

2 - I'm assuming you mean "after tax savings"? If so you are correct that we run pretty lean here as we have been dumping as much after tax money as we can into 529's the last several years. We are working on tightening current spending, which should raise this number. Interested in opinions on if I should stop contributing to 529's and just instead put those savings (currently about $600/month) directly into cash. I don't see a huge difference with the exception that if we go into cash it can serve as emergency funds while I'm still working.

3 - The $150k is the total that is required to cover the gap from what is in the 529's now vs. what the total cost is for both daughters to get through undergrad - tuition+room/board. Current cost/yr after loans/financial aid/scholarships is $40k/year for first daughter (3 years left) and $38k/year for second daughter (freshman this fall). (I recognize a lot will have the opinion that in-state tuition offers the most value, but we have chosen to support their school choices at high quality out of state public schools and agree on their choices as being best fits for them and that I might need to work a little longer to cover that decision.)

4 - Already did Firecalc and showed 97% chance of success - will also do the others. Will also try discounting social security and see how that impacts results and more importantly how we might have to adjust spending to account for lack of full SS funding. I'm thinking that's where downsizing might be a nice fit to lower RE tax and utlities/house mainteance costs. That should also be well after both daughters are "off the payroll."

8 - Long range spending - I really like your idea here of modeling out long range spending. Gonna try to do that a little in my model. My $130k spending number has some spending that would be considered not "normal" (i.e. used car for daughters, new water heater, cost of wisdom tooth removal for daughter, etc.). I kind of left those in the spending budget as "essential spending" thinking that "every year it's something". However, I do think some - like car replacements, new appliances, contribution to weddings, etc. - can be planned out in advance. What other of these did you include?

9 - Contracting - you got that right - I go back and forth on that all the time. A lot of times - when I dislike my job the most - I can't imagine ever wanting to step back through that door after I go. OTOH - I always talk to the guys who do come back after going about what they are thinking - and one of the things I've heard from a few of them is that it's much different for them mentally because they don't feel as tied to the success and failure of everything going on. They know they can just go at any time and that makes them enjoy what they are doing a little better.

My initial thinking would be to take some time off and get my head right, and then look at options. I even thought about Uber driving as something interesting to do, until I read an article about how unfairly they are paid - lol.

Did you end up doing an part time work at all? Is there anywhere on these forums where people talk ideas for interesting/fulfilling part time work? I did a quick search through some of the forums and didn't find anything immediately.

 

[pb4uski]

I worked part-time for many years before I retired/quit. Our firm had an established program for part-timers.... generally speaking, everything was a % of FTE... so when I was 50% I received 50% pay for my position, 50% bonuses, 50% vacation time, etc. ... health insurance was all or nothing... all for 50% or more and nothing for less than 50%. Since we billed for our time and our billing rate was many times what they paid us it was a win-win for them... even as a part-timer they made oodles of money from my work... from their perspective 50% of pb4uski was better than no pb4uski.

I'm not a huge fan of 529s... to me the restrictions are not worth the tax savings so we used taxable account savings. Good thing as it turns out because DS decided not to attend college so I would have had a lot of money tied up in 529 for him. Or a couple nephews received substantial scholarships for college so if their parents had a boatlaod of 529 money then that woudl have been tied up.

On my pension, I looked at my lump sum decision as simply an opportunity to purchase an annuity at better than market rates and make a portion of our retirement income not dependent on investment returns so I chose the pension benefit over the lump sum. The pension makes 20% or so of our current spending... SS will cover another 50% or so.