Already FIRE but would like some advice

[timeforgolf]

Hello all. I’m a little late finding this forum as DW and I are already FIRE, but I could use some advice. I’m 64 and DW is 58. Two kids are grown and on their own. I retired in 2013 at age 60 (mandatory due to age) and my wife retired in 2013 at age 53. We own a home worth about $425k with $100k mortgage at 2.5%. I had planned on paying off the mortgage upon retirement but given the 2.5% rate I decided to invest the money. Cars are paid off and we have no other debt, although one car will probably be replaced this year and one next.

Our pre-tax pensions total $136k per year broken down as $45k for DW and $91k for me. I am not eligible for SS but my wife can start collecting approx. $1600/mo. at age 62. We both have paid health coverage for life, with the exception of vision. We also have $1.6m in retirement savings broken down as follows:

$1m in our IRAs
$600k in other investments, with about 80% in Vanguard and 20% in a UBS account; and about $60k in cash reserves.

Before retiring I worked on a retirement budget and although we have been doing fine, I also realize I did not budget enough for unanticipated expenses, mostly in the area of costly home repairs since we retired and maybe a little more spent on entertainment simply because we have more time on our hands. Based upon the last four years, our living expenses are running around $100k per year. Our house is much more than we need but we are not ready to downsize.

The better news is we haven’t done any drawdown on our retirement savings to date. And given our pensions, I don’t plan any fixed drawdown in the near future (5 years), however I do expect to make a couple of one-time withdrawals for big ticket items such as replacing cars. Because I am not looking at automatic drawdowns for the time being, my investments are almost all index or managed stock funds. So my first question is whether the financial picture as described above looks OK? Suggestion are certainly welcome.

My second question is concerning life insurance. When I retired, I had several options for my pension, and I selected the maximum payout with no provision for DW if I died first. This is generally considered as the best option as the penalty for survivor benefits is disproportionately large. As a result, the financial advisor provided through my employer recommended I obtain a $500k straight term life insurance policy for 30 years, which takes me to age 89. Although I was told I was a low risk candidate, my payments are $465 per month, probably because of the 30 year term. I am still not quite sure why I bought into this idea other than I was focused on selecting the best retirement option and simply accepted the advisor’s recommendation on insurance. I now believe our assets coupled with her pension and SS will sufficiently cover DW should something happen to me, and I am contemplating cancelling the policy. Does this make sense, or should I look at doing something different such as changing the term, if even possible? Longevity may or may not be on my side as my mom lived to 92 but dad died in his early 70s.

Given I am over 5 years into this policy (about $28k) is there any logic in keeping it with the belief if I don’t make 90 the kids get a bonus? The $465/mo. isn’t killing me but having it would certainly help me with some of those expenses I underestimated when I planned this out. Thank you in advance as in reading through the forum over the past 6 months I realize I should have been more focused on financial planning throughout my working lifetime.

 

[Mdlerth]

I can't golf my age, but I can golf my weight

Welcome to the forum, timeforgolf. At first glance, you're probably fine. You have a good income stream today and a cushy nest egg you haven't even tapped.

My advice is in the form of questions. Are your expenses really the 100k you report? And do the pensions include a COLA?

If that hundred grand doesn't include escrows for lumpy costs like replacing a car or a roof or a furnace, then your true cost of living is something larger.

Your pensions cover today's basic run rate, but suppose your better half goes to heaven first. Are you eligible for survivor benefits on either her pension or her SS?

I'm not an accountant or actuary, so I don't feel qualified to comment on the insurance policy. In fact, I'm curious to read what others will say about it, since I will face that issue when I FIRE (hoping for December!).

Your key task at this point is to take a closer look at your actual spending picture to make sure you're accounting for everything, including those infrequent capital dumps. I have learned here that a successful retirement is a far stronger function of spending than income. Not surprising when you consider that once we aren't earning, we have less control over the plus side of the ledger.

 

[RunningBum]

Why not wait until 70 to collect her SS? That would give her a lot more income along with her smaller pension if you should pass. With that, and your other investments, I'd think you'd be ok without the insurance but that depends on things like whether the pensions are COLA and what how much her expenses would be reduced without you.

 

[joeea]

We own a home worth about $425k with $100k mortgage at 2.5%. I had planned on paying off the mortgage upon retirement but given the 2.5% rate I decided to invest the money.

Seems like a very smart move to me. 2.5% is cheap money.

Our pre-tax pensions total $136k per year broken down as $45k for DW and $91k for me. I am not eligible for SS but my wife can start collecting approx. $1600/mo. at age 62. We both have paid health coverage for life, with the exception of vision. We also have $1.6m in retirement savings

Based upon the last four years, our living expenses are running around $100k per year.

So my first question is whether the financial picture as described above looks OK?

Your expenses are more than covered by your pensions. And you'll be getting $1600/month more in a few years. Not to mention $1.6M in assets.

Seems like you are more than okay to me.

I now believe our assets coupled with her pension and SS will sufficiently cover DW should something happen to me, and I am contemplating cancelling the policy. Does this make sense, or should I look at doing something different such as changing the term, if even possible?

Your $1.6M in assets plus her pension and SS seem like they should be sufficient, but only you know what her anticipated expenses will be once you are gone. I agree with the advice that she should very likely wait until 70 to claim her benefits.

Given I am over 5 years into this policy (about $28k) is there any logic in keeping it with the belief if I don’t make 90 the kids get a bonus?

I'm not a big believer in purchasing insurance as a bonus for the kids.

The $28k paid over the past 5 years of term life is a sunk cost. Don't base any future decisions on that - it no longer matters.

The $465/mo. isn’t killing me but having it would certainly help me with some of those expenses I underestimated when I planned this out.

It doesn't seem like $6000/year would matter all that much to you either way. Perhaps I'm missing something here.

 

[timeforgolf]

Answering the questions, the pensions do not include a COLA. Should DW pre-decease me, I won't receive any survivor pension benefits from DW's pension, and since she hasn't started collecting SS that is still down the road. Honestly, I am not as worried about something happening to her, as (1) she is younger than me; (2) if anything happened to her I would downsize and am fairly confident my pension along with investments would be more than sufficient.

The budget question is a bit tougher to answer. I have estimated $100k because over that past 5 years it has included all our normal expenses plus the capital expenses along the way. For example a patio/sun room renovation ran me $30k two years ago, but that is done. Last year it was HVAC overhaul for $15k. I foresee at least one bathroom re-do coming up which might be $15k or so, so again, I will try and budget that along the way. I am sure we could better manage our total expenses, and that has been the challenge. As MD noted, retirement is more a function of spending. While working we both received pay increases and promotions, so larger expenses required less planning.

The insurance question remains unclear. Agreeing with Joe, I am typically not a fan of buying insurance to reward kids down the road. I tend to view it more literally - as insurance. And my gut tells me to cancel it since I think DW will be OK, but I don't want to act hastily and want all the information before deciding.

 

[donheff]

I view the insurance question a bit differently than some. I see it as trying to guarantee that the death of a spouse will not leave the other materially worse off. Thus I took the maximum spousal benefit on my pension and would have kept a term policy otherwise. With your assets 30 years are probably excessive but what would be the impact if you died now? You have the far bigger guaranteed income stream. If the roles were reversed would you tell your wife to cancel the insurance and leave you with the portfolio and SS or would you prefer to lock in a better future. Waiting to take SS until 70 (while maintaining the term policy until then) seems a sensible alternative. Cancelling the term policy when it is clear that assets and guaranteed income streams feel sufficient seems sensible. Is it possible to negotiate a shorter term with the insurance company to get a lower rate? Again, I wouldn't view this as a question of which is the approach most likely to save a few bucks but in terms of what appraoch would leave you both able to fully financially enjoy the retired life you planned.

 

[joeea]

The insurance question remains unclear. Agreeing with Joe, I am typically not a fan of buying insurance to reward kids down the road. I tend to view it more literally - as insurance. And my gut tells me to cancel it since I think DW will be OK, but I don't want to act hastily and want all the information before deciding.

Your wife's pension, plus her Social Security benefits if started at age 70 would deliver more than $75k per year.

Your $1.6M in retirement assets would easily fund $25k per year in withdrawals forever.

I can't see how your wife would need any additional insurance money to fund $100k in expenses after your demise.

Even if she decided to start SS benefits at 62 (not what I would recommend), the numbers tell me additional insurance is not needed.

 

[pb4uski]

Here's one way of looking at the insurance... according to Vanguard:

For example, here's the likelihood of 65-year-olds living to certain ages, according to figures from the Society of Actuaries:

Male. A 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90.

So there is a ~20% chance that you'll pay $154,440 on life insurance premiums and receive nothing... OTOH, there is an ~80% chance that you'll spend $495 to $154,440 on premiums and your beneficiaries will receive $500,000 tax-free.

 

[joeea]

Here's one way of looking at the insurance... according to Vanguard:



So there is a ~20% chance that you'll pay anywhere from $154,440 on life insurance premiums and receive nothing... OTOH, there is an ~80% chance that you'll spend $495 to $154,440 on premiums and your beneficiaries will receive $500,000 tax-free.

And on the other hand (okay, let's just assume we have 3 hands here), how much would $495/month invested according to your current asset allocation be worth in 25 years?

 

[MichaelB]

timeforgolf, welcome to E-R Forum!.

WARD, I don't think we have enough data to properly respond to the OP questions. Not sure the OP has all the information needed, either. Both spouses have a pension, neither of which has survivor benefits. There is also a large portfolio. What we don't know is how much is the spending budget, just that over the past 4 years is has been running at around $100K, and that doesn't include large, non-repetitive, one time items, or some upcoming remodeling.

While the portfolio looks big enough at first glance to cover eventual needs, this is a question we typically approach with more rigor and precision, and it's not clear why we aren't doing that here.

So, a few questions.

- What is the total expected, planned and required spending, including ongoing expenses, big ticket items (such as new cars) and one time expenses, such as home improvements? You can break them up and categorize them as you wish, but total planned spending needs to be specified.

- In the case one of the spouses passes unexpectedly, how will that change the planned spending? IOW, what is the total "budget for one"?.

- How much is the total income of each spouse if the other passes?

With this data, it is easier to model the pensions and portfolio and determine just how secure are the retirement finances. That, in turn, leads to more easily answer 1) when should the spouse take SS, and 2) is the insurance needed.

 

[pb4uski]

and on the other hand (okay, let's just assume we have 3 hands here), how much would $495/month invested according to your current asset allocation be worth in 25 years?

$326,376.28

 

[marinauser]

The other question is based on why the OP purchased the life insurance. As worded, the OP purchased the life insurance to provide income to the spouse in exchange for not picking the survivor option for the pension payments. That has not changed. How much additional pension is the OP collecting as a result of rejecting the survivor option? If that amount is more than the cost of the life insurance, then it may not be a bad deal. If the OP only gained say $200 per month in pension in exchange for forgoing the survivor option, then maybe it was a mistake. It all depends on how long the OP lives and how long the spouse lives. I don't view the life insurance as having anything to do with the children - it was simply a plan based on the rejection of the survivor option on the pension.

 

[ncbill]

agree with donheff & pb4uski.

keep the term insurance for now & have spouse defer SS until they are 70 and then re-evaluate the need for insurance.

 

[Sunset]

agree with donheff & pb4uski.

keep the term insurance for now & have spouse defer SS until they are 70 and then re-evaluate the need for insurance.

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