Contemplating The Big Move

Donner,

I am not sure what a TSP is but you mentioned
that it contains $800k "liquid". Assuming you
are free to do so, you could invest that in
Vanguard's Wellesley Income Fund and collect
a current dividend rate of about 3.6%. This
would bring in about $28k more per year. This
would more than make up your gap between
$94k and $108k. Wellesley is a very conservative
fund containing 35% value oriented stocks and
65% intermediate term bonds. IMHO, you could
expect the income to grow with inflation. Vanguard
does the re balancing for you ..... even my 89 year
old depression era mom let me put her into that
fund. :)

Sorry, I just noticed that you need $108k after taxes.
So you would need to prune your life style or grow
the $800k to $1.25 mil to make $45k "almost guaranteed" with Wellesley.

Hey, I have one idea ....... If the cell phones are for
emergency use, take a page out of TH's book and
buy "free2go" cell phones. You can get 667 minutes
good for 1 year per $100. Another idea on meals out
is to share the entrée ..... Lyn and I do that a lot.

Donner, it is all a matter of "want to". If you really
want to retire you can find a way to do it and still
not impact your life style much. Most people would
kill to be in your financial shape. :)

Cheers,

Charlie
 
No comment from me on your budget, needs and wants as I am one of the few other high expense-ers round here.

My main points have been covered (far better than I could) by others already so will just wish you well and hope you find the solutions you need. At the end of the day, each of us has our own needs, be it 24k or 124k a year, but the principles and maths behind it all work regardless of the absolute numbers.

Good luck and good health.
 
Charlie-- Thanks for the suggestion on Vanguard's Wellesley Income Fund. It seems to be a favorite with a number of posters. I will investigate it. I had been thinking for some years now that when I finally pulled the trigger on reirement that I would roll out of the Govt Thrift Savings Plan into an IRA with Fidelity or TRowe Price or some other fund family. But I am reconsidering based on the extremely low cost of he TSP. The TSP website indicates the admin cost of the plan is about 0.001% of the balance. Can't beat that anywhere that I know of.

Also, while the TSP has limited investment options it does have one remarkable investment option that is available only to Federal employees and members of Congress who also participate. It is called the G fund and it is where I have our retirement funds invested for now. This is a special fund which by law must return the average of all U.S Govt obligations outstanding wih a maturity greater than 5 years. These special G Fund obligations turn over every 2 to 3 days with no possibility of losing your principal. So, TSP participants get a few low cost plain vanilla index investment options with one really unique opportuniy -- guaranteed long term risk free return on a short term instrument.As long term rates creep up so will my returns. Currenly returning about 4.4%. This is enough to keep current with inflation while I wrestle with my allocation demons. Not sure its a long term soluion though, particularly when I start drawing down.
 
Well Donner, at 4.4% of $800K you are only about
$10k short of your $45k investment return goal .....with an almost "COLA" in your G fund. I see now why you
said you need $1.0 mil to bullet proof your income.
I don't know how long it would take you to "save"
the remaining $200k, but I would be inclined to make
a try at pruning my expenses while increasing the
stash. You will get there quicker. Good luck!

Cheers,

Charlie
 
Donner:
We certainly live on the same planet and hell, maybe the same zip code.

Finetuning allocations, etc. is all well and good, but it seems that time would be better spent cutting the budget. We've got the same groceries budget as you (my #1 project to plan better, cheaper meals and shop better in my retirement) and other expenese are in the ball park but all to the lower side. Adds up to another $10-20 K annually saved though.

I agree with others on the life insurance, we've dumped that since we've saved enough to not need it.

Wish we'd bought our house in 90 instead of 2000, but still number one goal when we moved here was to pay off the mortgage (done last year) while continuing to save for ER as well as pay off other debts. Then we spend the rest! We try to look at every expense in terms of how big of a nest egg we need to support it. So your garden, for example, requires you to have about $150 k in the nest egg ($6K/4%). That simple math exercise helps us to prioritize how badly we want something. Do I really want to work for X more years in order to have a garden, etc.? That's how we determined that the groceries were out of control.

Being risk averse, the simplest way to improve the portfolio is to look at the expenses. You've got a lot of room to trim them.


Your fellow Arlingtonian,
Kay
 
Kay-- Hello and merry Christmas to a fellow Arlingtonian!
Hope you are enjoying this fine crisp day! Wife and daughter are off after frugal post-Christmas sales bargains. I am enjoying a rare day off to myself. Back to the grind tomorrow.

As a fellow Northern Virginian, I wonder if you share my wonder at those who can ER on a 24k frugal budget?
I don't see how anybody could pay taxes, pay rent, eat, and put clothes on their backs for $2k per month around here and coninue to live on their own. Yes, I am sure people do but it has got to be one heck of a spartan existence. I know some young people who are earning about that much but they are just starting out and living wih others and sharing costs. You may want to argue wih me but I know this much --you cannot support a family independently on that income in our area.

I agree there is plenty of room to CUT BACK in my projected budget. Mrs Donner has suggested a few places where I am way off or where retirement would bring savings. I am wondering whether reirement
(ER or otherwise) always means you have to cut back somewhere. Sometimes I get the feeling on this board that maintaining your pre-retirement spending level ( or, heaven forefend ,planning to increase post-retirement spending!) is an immoral proposition. Not a very virtuous goal among ERers apparently. Frugal living BYM is the virtuous goal. And of course lots of discussion about what constitutes frugality.

I think your ideas about the groceries are good. I don't want to start another rah rah on this board but we do shop at Whole Foods for our protein and fresh vegetables. Safeway for the paper and cleaning products etc When we retire I think we will do a little better job at shopping for food bargains.

I will look hard at the life insurance. But since I am into maintaining what we have, rather than ratcheting down, I will place a high value on replacing my lost income for my wife in the event of my demise. And that will cost me a good penny. Now is that foolish or frugal?
Is that good planning or a frivoulous waste of money that could be better spent on? on? on? What?

Paying off the mortgage sounds good. Just out of curiousity how did you manage to pay off your morgtage in 4 years (2000-2004)? You must have placed a real high priority on that.

Finally, Kay, are you living in ER and retired in place here in Arlington? We could pull the plug today and move to one of the low cost paradises you read about on this board but I want to hear from people who are fighting to stay in place!
 
Donner:
It's a great day! (because I am not working)! I am enjoying the crisp air and just goofing off around the house, running errands, etc.

I haven't "pulled the plug" yet. I plan to hand in my resignation anytime in the next month or 2. (I got carried away with my last working Christmas and over spent, maybe subconsiously delaying the big day). My husband is going to work another year or so. Since neither of us will retire with full benefits we need a bit more in savings to feel completely comfortable. And he really likes his job, where I am finding mine stressful and time consuming.

We had been working to pay off our mortgage since we first got married, late in life in 1997. We had made good progress, but then the move to Arlington set us back. So we really were working on paying down the mortgage for about 7 years total. We did make it a priority. And we don't have any children (married too late for that). However, my husband likes to point out that I have spent as much on my dog and cats as he thinks it would take to raise a child! (Not true looking at your phone bill!).

We like the area for all the parks, trails, museums, culture etc. We'd like to stay here post retirement for awhile and feel that we have taken advantage of what the area has to offer. We've both been working so much that we haven't nearly done all that the things we want to. So for the near to mid term we plan to stay here, although after my husband quits it might be tempting to sell the house and try to stash some of that money in the bank and move to Iowa! It one of the main questions that has not been settled as we enter this phase.

As for the budget, we think we can get along on $70 K, with no mortgage, but we would be paying for health insurance at that point so may need more like $85. Health care is another reason my husband wants to work a while longer. We'd be ok right now with our annuities and interest/dividends but health care is a wild card. I really feel right now that I'd be increasing my chances of staying healthy by quitting sooner vs. later though.

We use quicken and we have figured out that our bare bones budget a (all non discretionary stuff) is something like $45-50 K. Everything does cost a lot here...$25K would not be doable unless I got rid of the husband, pets, house, and started eating canned pork and beans! (pets are not discretionary...another topic of discussion around here :))

Best of luck to you. One thing that I have learned on my grocery quest is that ANYTHING that you find at Trader Joes is cheaper than our grocery store (Harris Teeter). We shop at Whole Foods a lot too which I know is just throwing money down the tubes!

Kay
 
Kay-- You and I are definitely on the same planet. Difference is the mortgage and the health care costs.
We too like life in Arlington. Wife is a native and here is where family, friends and community are. Moving would be a really big decision for us. We shop at Trader Joe's only occasionally. I think their specialty items are great. Not so crazy about meat and veggies though.
 
Cut-Throat-- Upon reflection I think you are right. Cut out he mortgage and the health care costs and our orbits do begin to cross! :)
 
Hi Donner,

I just wanted to say that I am impressed with the amount that you have been able to save in the TSP fund being that you are so risk adverse. I am a Fed employee also, but I am under CSRS, so I can't contribute as much and the gov does not contribute a cent to mine. I have been contributing the maximum allowable since TSP has been in existence and I also do the catch-up since I am 51 yrs old. My salary would not be as high as yours, since I can't max out the $14000.00 per year since I can only contribute 10% of my salary. Last I check my TSP balance was approx $76,000. I keep thinking that I must be doing something wrong. I had a large portion in the C Fund (stock fund)and it did lose alot for a few years while the market was down. Maybe you are alot smarter being strictly in the G fund!! Best wishes in your retirement decision!!

Dreamer
 
This is a repeat, but Kay got my creative juices flowing
a bit as she mentioned her planned ER budget,
and also mentioned 25K a year as a deprivation level
of spending. I have seen many similar posts and it
always amazes me. We (a couple with 4 dogs) live quite
comfortably on 25K (gross) per year, and do not expect
to spend much more down the road (unless inflation goes
through the roof). "Bare bones" for us would be the $50
per day level which I have written about often. Thus,
we are currently about 7K per year (almost 40%)
over our "just scraping by" level. Also, the future
spending assumes no draw-down of principle whatsoever. Obviously, this is a further buffer against
inflation and other "troubles" which may pop up.
In summary, there are places all over the country where a couple can live on our income (or less) and not suffer
at all, unless a lack of expensive cars, the latest gadgets,
big houses and country club tabs that look like the
national debt are considered suffering :)

JG
 
My step daughter lived for years in Ms (paid up mobile home on a paid up lot, no debt) on 9-12 k excluding business expenses( commercial fishing license, traps. boat maintence, gas, etc). Dog, cat, beer, cigarettes, ten year old truck - boyfriend funded vacations.

Doable - but not recommended ER wise.
 
Dreamer - I'm also a Fed. employee under CSRS, 50 years old, have been putting $$ into TSP since it started (no govt. match, as you know). My total balance is only about $12,000 more than you said yours was, so don't feel bad. FERS employees get the govt. match, and anyone putting the max. into TSP in the latter half of the 90's, when the market went up, up, up, made out very well. You and I just could not keep up, but we still did okay. My problem now is that as I get closer to retirement (5 years away), I am getting more risk-averse with my TSP account, so I'm not comfortable exposing a big % of it to the equity funds. But, even just earning 4.4% in the G fund will grow the balance to over $160k by 2010 (contributions plus interest), which is adequate to meet my needs. This is just supplemental retirement $$ anyway, since my wife and I are living quite comfortably now on what my CSRS annuity will be upon retirement (the rest is invested), and expect to be able to do so after retirement as well.

I came to this thread late, but I must say I'm amazed reading Donner's description of his expenses. We live on about $35,000 now, and there are many, many ways that I could cut that back if I had to. We go out to eat (yes, nice places) occasionally, we drink wine every day with dinner (and we eat great meals at home), we go on 2 vacations each year (going to the Bahamas in March), we just bought a 2004 truck (need a 4WD where we live), our house is paid for, etc.. I don't feel deprived at all. Donner, I agree with Cut-throat that you need to do a lot more thinking about what is important to you. If you really want to retire, you can make it work on a lot less than
you your current budget. If you want to maintain that budget and feel the need to even increase the safety net due to unknown future health care expenses, etc., then by all means, keep working until you feel comfortable with your situation.

RAE
 
JG - If I had to, I know we could live on $25 K a year somewhere outside a big city, just not here without feeling deprived.  And it would take me a lot of "work" to figure out how to do it!  And I am not sure I could do it if I needed to pay taxes out of that.

But we don't have expensive tastes or cars (1 10 year old Camry, but finally had to break down and buy another car this year as DH was working local and needed his own wheels).  We bought a Honda CRV.  No big screen tv.s etc. No country club. No debt.  But we pay a lot of taxes, donate a lot each year (will need to donate time instead of money in ER I suppose ).  One area like Donner where we spend a lot of money is groceries.  We haven't changed our habits but just from our Quicken records I see we spend about 20% more on this category here than we did in Texas for example.  Another example, we like to go out for Sushi and eat a fairly standard selection of items.  In Texas that meal, with a beer each (usually 2 for DH) and a 20% tip cost us around $35.  Here the exact same thing costs about $55.  

In ER I know my drycleaning, clothes, eating out (more time to cook) will go down, but I expect that I will want to spend more time and $ on hobbies so I am expecting that to wash.  Hopefully we'll be able to save on that but just planning worst case.

So, I think there is definitly room to downsize, move elsewhere and spend a lot less then we do.  But if we choose to stay here then we need to plan to have a bigger expense budget.

I'm not saying "oh poor me, I live in a high cost area". I am just recognizing a fact that if I continue to live here, it is going to cost me more than I could reasonably live elsewhere. It's our choice for now, to plan for a bigger expense budget.
 
My problem now is that as I get closer to retirement (5 years away), I am getting more risk-averse with my TSP account, so I'm not comfortable exposing a big % of it to the equity funds. But, even just earning 4.4% in the G fund will grow the balance to over $160k by 2010 (contributions plus interest), which is adequate to meet my needs. This is just supplemental retirement $$ anyway, since my wife and I are living quite comfortably now on what my CSRS annuity will be upon retirement (the rest is invested), and expect to be able to do so after retirement as well.
Click to expand...

RAE,

As a retired CSRS Fed, I treat my pension as if it were the income stream from a very large bond allocation (>$1M). Therefore, my allocation to equities within the TSP is very low on an overall percentage basis. Also, since you can live comfortably on the amount your pension will provide, you would not need to withdraw anything from TSP until age 70.5. That gives you over 20 years to allow the volitility in equities to smooth out and to have some hope of staying ahead of inflation. From that perspective you may be better off with a good portion of your TSP funds in equities rather than running scared and pulling it all into the G fund.

Grumpy
 
Hi Rae,

Thanks, I feel better now. I have been reading these boards for a few months and am going to introduce mysellf one of the days when I get financial info more in order. Do you make Voluntary Contributions? I have been having $25.00 per week withdrawn from C/A and don't miss it at all. I keep thinking that I should raise the amount.

I am wanting to retire at 55 also, so that is the reason that I stayed under the CSRS system.

I think that Donner should be able to cut back on some of their expenses also. I would love to be able to have his retirement income. I would not hesitate to retire at 55 also.

I know that my husband and I spend more than we probably should at times, but we also live below our means. We also have a 16 yr old daughter who requires way too much money!!! Once she is on her own, we will probably feel like millionaires! LOL

Have fun in the Bahamas. I am headed there and to St John and St Thomas on a cruise the beginning of 02/05. I am going with 4 ladies that retired from where I work at in 12/31/04. The youngest one that retired was 57 yrs and the other 3 are in their early 60's. I do not want to work that long. I have worked with 2 of the ladies since 05/80 when I transferred to this office, so we are like a family. It should be a great time!!

Dreamer
 
Grumpy - good point about keeping my TSP funds in equities longer, since the annuity is basically an income stream from a large bond allocation. I guess I hadn't quite thought of it that way, but I should have. The way I had been thinking about it, the money I could draw off of TSP after retirement would be basically fun money.......for vacations, buying a toy if I want one, etc.. Granted, $160k is not a lot of money, but drawing off 4% per year would give me about $6400 annually to work with (if I want/need it), which is okay. I've had equity investments most of my life, and still do, but I have a lot of concerns about the equity markets in general these days, and I could easily see the markets going nowhere for a decade or more (while being exposed to risk all that time). But, I'll continue to think about it.

Dreamer - no, I have not made the voluntary contributions, but if you can do it, I think that's great. I'm maxxed out on my contribution to TSP, though (including the age 50 catch-up thing, which I just started). And I contribute the max. to my IRA every year. With all of that, plus setting aside some other $$ each year in taxable accounts, I think we're positioning ourselves fairly well for retirement in 5 years. I also stayed in CSRS because I wanted to retire at 55, plus the full COLA at 55 was a big factor as well.

I have two step-kids that are with us part of the time (dad pays some child support), so I know what you mean about kid's expenses. We are trying to teach our kids to be frugal and think about what they really want before spending their $$, and I think it's catching on (maybe), but it's a long, slow process. Lots of outside influences on kids these days, and most of them say "spend, spend, spend!!".

RAE
 
Thought this thread was about played out. I think Cut-Throat put his finger on my situation vs others on this Board. Take away the mortgage, the obscene health care costs and the insurance costs and my expenses get to looking a lot like everybody else.

Cutting expenses is always an option, and we will if it comes to that.

My concentration in the G Fund comes as a result of two things: my view of market capitalization right now (considerably overvalued) and my belief that I can get to where I need to be in a relatively short time by taking the slow, safe fixed income overland route. The path eschewed by George Donner in 1847. :)

If Mrs. Donner and I were in a different situation I might be compelled to accept more market risk to get where I think we need to be. I gave up trying to maximize returns long ago. I do believe in a cool appreciation of risk. I don't want to accept risks I don't have to. I may die a bit poorer that way but I trust that Mrs Donner and I will enjoy a comfortable retirement for many years.

I like Grumpy's take on viewing the TSP balances as a long term vehicle for dealing with market risk. My worry is inflation risk. Arlington Va. homeowners got their annual assessment in the mail last week. Average increase from last year -- 24%! But my own research tells me that common stocks don't do well at all in periods of high inflation. Stocks do best in periods of very modest inflation 2 -3% kinda like what we have had for the past decade or so. (Deflation is a killer for stocks). If inflation heats up I may be forced out of my slow track approach. Might even be forced out of the TSP altogether via a rollover IRA at the point of retirement. I don't relish the thought of searching out non-equity inflation coping investment vehicles in high cost managed funds. Hope we don't get to that point.
 
Donner:
I was rethinking my strategy to stay in Arlington after getting that assessment. :eek:

Compared to 2000 when we bought our increase has been 89%. We certainly could not afford to buy a house here now. Or we could afford it, but I wouldn't be able to sleep at night.
 
Greetings Donner-

Fed here too. Falls Church.

I think some who have commented here missed the point that your 94 K Pension is taxable. (I know, a tiny portion is a return of your contribution). For simplicity lets assume it is all taxable. Gross up your $108K expenses and you will need 108 x 150% = $162 K before taxes to maintain your present expenditure level. That means you need to draw $68K per year from TSP just to maintain. At 4% that's $1.7 million. Looks to me like you need to think some more.

Here's a thought: Did you know that in NC your pension is not taxed by the state provided you have 5 years of service pre-1989? Look it up!

Best,
Rapoole
 
Quite a few states do not tax federal pensions. Michigan is another one. I know, because that was a big factor in choosing where I wanted to retire as a fed. employee.

RAE
 
Hi;
I am a FED also and under FERS this program will be good for the young employees if they make good use of it. For those that had to join it late it is not so good unless you are a non risk averse investor. I live in Virginia not in the metro DC thank goodness. I live in Norfolk and the prices and expenses are shooting out of sight here.

Soooo, I am leaving when I retire moving to a state that does not tax my fed retirement and taking the equity out of this humble house and buying a humbler house in a lower cost of living area. Ya gotta do what you gotta do to get by, I will be so relieved when I get freed next year I will have to resist running up and down the hallways yelling "I'm free, I'm free at last" at the top of my lungs. Working for the Feds has its good points (the check doesn't bounce) and bad points you have to take a lot of crap for a loooong time to get anywhere. Well it is almost over and it is time to move on.

You will know when it is time and intuitively know where if you give it some thought; remmember DC is not reality there are very nice places to live very well on a lot less.
Kitty
 
Hi Kitty--

        Sounds like you are ready to go! DW and I are thinking hard about retirement as well right now.  As far as the financial aspect goes, the two biggest items in our retirement budget will be the mortgage and out -of -pocket health care costs.  If we were to dump the mortgage and move to a lower cost area and limit the health care costs by joining a comprehensive HMO instead of relying on consumer unfriendly high out-of-pocket cost Blue Cross/Blue Shield Fee for Service payment standards for out-of-network health providers then the financial descision would be a no brainer for us.

         Trouble is we like living in Arlington,  Va.  My wife has lived here all her life and it has been my home since 1988.  We have lots of family, good friends, good neighbors and an active church community.  Our first grandchild was born two weeks ago and lives down the street.  These are ties that bind and it would be difficult in many ways for us to pack up and leave.  We also like our expensive doctors who give us high quality care with a lot of attention and immediate access when we need it. 

          I agree with you when you say you gotta do what you gotta do.  Fortunately for us we have done enough saving and preparing over the years that we don't have to move.  We can afford to retire in place at the standard of living to which we have become accustomed.  That really is the goal of all retirement planning.  But I realize that there are tradeoffs that people are willing to make to ER.  Part of that may involve making choices that we, at our age, find difficult to contemplate.  We will not be ERing.Too late for us. We are just now at the beginning of the normal R stage  Waiting a little later does have some advantages -- perhaps one of them is the financial ability to age gracefully in place in the company of family, friends and loved ones. 

          But it sounds to me like you have a plan and are good to go in a short while.  I wish you all the best as you enter this wonderful new stage in your life.  Go for it! :D


Donner
 
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