2020 Retirement - Fighting the OMY Syndrome & Taking the Plunge

[schenbew]

I’ve been a member of the forum for about 6 months now, and have learned a tremendous amount since joining. All that learning made me realize, and then seriously consider, retirement at the end of 2020. Since I’ll be 58 in December, I hesitate to call it ER, but it’s earlier than I planned on. As a military retiree, I have the benefit of a defined benefit pension with healthcare for DW and I.

I have been working for a great company with a great manager for several years now post-military, but I find myself increasingly thinking about retirement, mostly as a result of reading this forum!

All my lurking encouraged me to do some planning, using the details below. Fearing I might have overlooked something, I’m posting here to see if the combined wisdom of this forum can see something I may have missed. DW and I have lived our entire marriage well below our means, and are wrestling with the idea of retiring at the end of this year and actually spending the assets we spent 30+yrs accumulating while raising 4 DDs. Here are some details:

Age (in Dec 2020): me 58, DW 56

SS benefits at 67: $2.7K/mth, DW’s – $1.3K/mth

Taxable accounts: $365K in indiv stocks and VTSAX

tIRAs: $780K in various accounts, preponderance in the TSP. Intend to aggressively convert to Roth IRAs into the 24% tax bracket once I hit the age 59.5 threshold

Roth IRAs: $450K

Home: 12yr remains on our 15yr mortgage; over $200K in equity today. Plan to remain in place for another 10yrs and then reevaluate based on health and desired lifestyle at that time.

Rental Real Estate: 2 x SFHs ($750K total appraisals, mortgage balances ~ $395K), combined $1,000 month cash flow positive. We plan to sell the rental properties in 5 yrs at age 62 to take the capital gains before IRMAA becomes an issue for our Medicare expenses.

College: 2 DDs down, 2 to go. Existing 529 assets will cover anticipated in-state expenses.

Pension: COLA adjusted $6,700K/mth post tax

Budget: $11.5K/mth based on close tracking for over a year. Plenty of room to scale back if there’s a prolonged period of poor market performance. DW has a 55% survivorship benefit

AA: with a beefy COLA adjusted pension, 90%+ in equities (lots of VTSAX and equivalent funds), with 6 months in emergency cash

I’ve run our scenario through Firecalc, New Retirement Planner, Fidelity’s planner, i-ORP, and Flexible Retirement Planner. All show an ability to draw assets down before taking SS at 67 with an approx. 3.8% or less WR. Once SS kicks in, WR drops to approx. 1.5%. i-ORP says we can achieve a Disposable Income above our budget well into our 90s; Firecalc gives a 100% success rate at levels above our budget.

Bottomline: are DW and I prepared? Are we missing something? The numbers tell me DW and I are, but the concept of spending the assets we so diligently accumulated over the past several decades just makes us uncomfortable. I want to avoid the OMY syndrome.

What say you, wise and insightful ER.org members - are we ready to take the retirement plunge?

[Bir48die]

Man, with that pension you're good to go. You have thought this out nicely. With positive rental cash flow you're under 4% WR. Assume you personally are on Tricare? So just insurance for DW? Man, I'd be gone for sure

[HI Bill]

Sounds like a solid plan! RE when you feel like it!

[GrayHare]

Looks good. Consider delaying a December retirement date until January so that you have earned income in the year 2021 for one last IRA contribution.

[pb4uski]

Financially you are good to go now. Does your pension grow if you delay it? When does your pension start?

I'm thinking that if you can delay your pension without any economic penalty, you may be able to manage your income to minimize the tax implications of the sale of the properties. If you can manage your total income to less than $104,800 (in 2020) long-term capital gains are taxed a 0% and long-term capital gains above that level are only 15%. Not enough details to know but it might be tax advantageous to sell the rentals earlier rather than later.

[schenbew]

Thanks for everyone's comments.

pb4uski - my military pension started several years ago immediately upon retirement. It puts me at the bottom of the 22% income tax bracket, which has introduced some first world problems of minimizing taxes and maximizing disposable income in the long term.

Gray Hare - I hadn't considered extending wo#k through 2021, but was planning to have zero earned income in 2021 to minimize the tax bite of large tIRA to Roth conversions starting in 2021. I will max out my 401k this year, however.

HNL Bill - thanks for the comment, and enjoy paradise...DW and I loved a previous assignment to Oahu some time ago. We look forward to visiting frequently in retirement.

Bir48die - DW and I are both covered by Tricare. We can add the DDs to Tricare until they're 26 (coverage ends when they turn 21 or when they graduate college, no later than 23 yrs of age) for an extra $225/mth each.

[Born2BRetd]

Does the amount of your social security take into account the Windfall Exemption from your pension? I'm assuming you are not exempt.

[schenbew]

Quote:

Originally Posted by Born2BRetd Does the amount of your social security take into account the Windfall Exemption from your pension? I'm assuming you are not exempt.

Since I have more than 30 years of "substantial earnings" (from the SSA website), I believe I am exempt from WEP.

[cyber888]

You're good with at pension. Do it.

[finnski1]

Quote:

Originally Posted by schenbew Since I have more than 30 years of "substantial earnings" (from the SSA website), I believe I am exempt from WEP.

It says" 30 years of earnings that you paid social security tax on"
Were you having ss tax withdrawn from your pay over all those years?
I copied this below from the ssa website



Windfall Elimination Provision (WEP) Chart

If you paid Social Security tax on 30 years of substantial earnings you are not affected by WEP.

[schenbew]

finnski1 - I should have been more precise in my reply. I paid 35yrs of SS tax above the WEP levels as depicted in the SSA chart below, so I'm confident WEP isn't a player for me.

[finnski1]

sounds good