T Minus 4 years

[firemediceric]

As you can discern from my screen name, I am a firefighter/paramedic. Come November 1, 2022 I can retire with 85% of my salary plus some supplements that will put me at just above 90% of my average salary for the past 5 years. At that time I will be 54 years old.

Currently 9% of my salary gets deducted from my paycheck to go towards my defined benefit pension. Money also comes out for union dues, insurance and contribution to a 457 retirement plan. Those will all be expenditures that will go away upon retiring, the effect of which puts me at a net of above 100% of what my take home is now.

With the above numbers in mind, my monthly retirement check will be at least equal, more likely several hundred dollars more, to what I am currently taking home. I am debt free. Anticipated expenses in retirement however give me pause.

The largest expense that I am concerned with is the cost of health insurance. I currently pay roughly $260 per month for insurance. If I continue to purchase it through my employer after retirement, it will cost me $800 per month. That’s the current rate for single retirees. You can be sure it will increase. I chafe at the idea of paying what’s nearly equivalent to a mortgage payment for insurance that I hope to use minimally.

Another fly in the ointment, due to negative changes in my personal life, I am recently divorced and no longer a homeowner. Upon retirement I would like to move out of state to an area more suited to how I envision my retirement. I’m leaning strongly towards eastern Tennessee.

In the way of investments, I have at present $45,000 invested in a Roth IRA, $15,000 in a 401(k), $40,000 invested in the 457 plan mentioned above, $15,000 invested in a stock trading brokerage account, and about $20,000 cash on hand at present. I plan to grow that over the next 4 years with the intention of using a large portion to go towards a home purchase. Although I am certain my mortgage will be more than the $1000 per month in rent that I’m currently paying, I hope with enough money down my mortgage payment will not be drastically above what I am now paying in rent.

Of course I would like to have more saved to draw from but things are what they are. The obvious vehicle with horsepower for my retirement is the pension benefit. Although I could stay another 5 years beyond 11/1/22 to take advantage of the DROP provision which would put roughly $500,000 into an investment account at the end of the 5 years, I’m inclined to not go that route. I think I would prefer the time of not working over the money that would come from continuing to work.

I feel pretty confident in 4 years I’ll be ready to go, but the health insurance as mentioned above is the elephant in the room that I’m not sure how to deal with. Only time will tell what the real estate market will hold for me, too. In the meantime I’ll just keep trying to sock money away.

Please give me your thoughts, insights and suggestions.

 

[exnavynuke]

My first thought is that depending on how extravagant a home you want, or how expensive a neighborhood you want to be in, it's quite possible your mortgage will be less than $1k/month. PI with 20% down on a $180k home for a 30 year loan is ~$700/month. Add another $200/month for insurance and taxes and you're still under $1k/month.

My second thought is that single insurance on the open market may cost less than $800/month (significantly less possibly). So I'd recommend looking into that as an alternative, especially if you feel comfortable with a larger deductible since you don't plan on using it much.

 

[MBAustin]

Welcome firemediceric!

If your pension is well-funded (unfortunately some public sector pensions are not) and the cost of living in TN is equal to or lower than your current location, you should be fine. While HI is definitely a concern, you should have enough slack to cover it until Medicare with some adjustments to other spending.

I agree with exnavynuke that in many areas you would have no trouble keeping your housing costs under $1K/month. Perhaps you can do some research and use some vacation time over the next few years to visit prospective retirement locations?

 

[Mdlerth]

Stay flexible, but plan on jumping early

I agree with the above posters that if your pension is funded then you will be good to go on target date.

What to do then? Stick around another five years for an additional half million? I dunno.

One of my sons is a firefighter. I've observed his co-workers, and while they all are in excellent physical condition, they all are well shy of 54 years old. You are in a rough profession, one that puts a lot of demand on both your body and your mind. There's a high probability that by the time you become RE-eligible, you'll be "burned out". (I am full of clever witticisms like that one! DW says I'm full of something all right.)

The longer you can delay the decision the better. If at 54 you are still up to extending your career for another half-decade, then good for you. An extra 500k never makes things worse. But I would plan on making sure that all your bases are covered to allow your exit sooner. Take a few trips around your proposed retirement location, price some houses, clarify what amenities you want access to, etc.

Meanwhile, welcome to the forum and thank you for your service in keeping the rest of us safe!

 

[firemediceric]

I am fortunate that my pension is in good shape. Being that it's a defined benefit plan, it will not be effected by market fluctuations. The formula is years of service x 3% for the first 20 years. The multiplier becomes 5% beyond the 20 year mark. There are additional supplements for years of service to fluff up the monthly payout a little further.


As mentioned in the original post, once retired I'll no longer be paying the $250 per paycheck that goes toward that pension, the $200 per paycheck that goes to my 457 plan or the funds I drop into my Roth IRA and brokerage account as I find the money.


Although the DROP is enticing once I reach the 25 year threshold, to get the full +/-$500,000 one needs to complete the full 5 years in the DROP to benefit from the compounding returns in a favorable market. Of course once the funds are accessed taxes are due. That'll take a big bite which makes spending the time to get the money seem even less appealing. To do one year would put around $60K in the account. Nothing to scoff at, but if I can be paid that to not come to work, it seems like a good deal to me. I know I don't have the desire to stay another 9 years. 4 is tough enough. Had I started this job when I was 18 or 20 years old maybe I'd look at things differently as opposed to having started when I was 29 years old.

I anticipate my home price being around $200,000. Perhaps higher but it'd be nice if it were lower. I am fine with a simple home but I desire seclusion and solitude. It's the land and privacy that will up the price. I do vacation in eastern Tennessee which has led me to rule out some areas and favor others.

In the meantime I'll be lurking on this site more and more as I try to learn while also trying to be patient. Thank you for your input.

 

[Walt34]

As others have mentioned as long as the pension plan is well funded you are good to go. I'm a retired police officer and the pension I have, while good, is not as nice as yours. I retired at 52, but was hired a week before turning 23 and I knew "it was time" then. And my net monthly pay did increase a few dollars, single digits, because all the other stuff like the 457 contributions, pension contributions, and SS went away. Our share of the HI for two is a tad over $700/month so $800/month doesn't look all that bad from here in light of the other benefits.

The biggie is that we had a paid-for house in a high COL area and didn't get divorced.

Like you, when I retired and we moved to WV that meant leaving a lot of money on the table. We gave that a lot of thought. DW quit her job and never found another, although she did look and interview for several. I did stumble into one, but only took it because it was close by and low stress. About six months after retiring and moving we went to see my sister in VA, and the first thing she said was "I haven't seen you two looking so relaxed in years."

At that point any lingering doubts about the wisdom of retiring when we did went away. Of course, YMMV.