Countdown Begins From Chilly Northern Colorado

[PolicyProf]

Hi everyone --

Long time (9 year) lurker and first-time poster. I've learned so much here, but now all the levers, dials, switches have to be in place to land. I've pointed this plane at the airport and am petrified that a wheel will fall off just at the gear hits the runway! I'm going to have a bunch of granular question in the future, but for now a little about me:

54.5 years old, planning to land at 59.5 My profession doesn't require any heavy lifting, so could continue for a while but life's too short so I plan to be done.

* IRAs (401A, 403B, 457B) $1,420,000 (45/40/15 - equities/bonds/tiaa traditional)
* SS $24k@62
* $30k pre-tax contributions (including employer)/year until done
* No kids at home, DW whose income and assets will cover all of her own expenses (so not included here -- she will pull the plug 5 years after me).
* Healthcare provided by employer until I reach 63, then I'm on my own for 2 years.
* Two homes, but in 5 years the equity in one will eclipse the principle owed on the other and we'll move to home #2 with no mortgage and no state income tax.
* Expected expenses $75k (low end) and $95k (high end with more travel, cars, etc.).

FIRE Calc and other sites say I'm okay, but I feel like I'm much too conservative. In my younger years I was closer to 75/25 but two years ago I changed my AA when things seems a little wonky out there. I'm thinking of taking another look at my AA and plan to use the bucket method after I drop my keys off....

Thank you all for your amazing insights. What do I need to change? How would you deal with this? Tax efficiency is really important and I can't quite wrap my head around that.... The level of experience and knowledge here is shocking. Kudos to all of you!

 

[REWahoo]

* No kids at home, DW whose income and assets will cover all of her own expenses (so not included here -- she will pull the plug 5 years after me).

Welcome to live participation.

Questions:

What do your numbers look like should the above not go as planned - if your DW loses her job for some reason shortly after you retire and can no longer work? What will that do to your financial plans, including healthcare coverage for her?

 

[ivinsfan]

In five years that employee provided "retired" HI might vanish into thin air. That would be my biggest concern.

You don't say how much after tax money you have, in an era of ACA that has turned into a big deal.

 

[PolicyProf]

Live participation requires some thinking!

DW and I have always had totally separate finances. For all practical purposes we have mostly lived on my $ and she has used hers to manage her life and kid stuff, but your question is an important one. Her professional life is just about as stable as mine, has an excellent income, and she has her own IRA ($400k, but no SS -- she works at a non-SS institution), but we have not included an unemployed DW! And if my HI goes away we would both become reliant on some version of ACA (should it still exist). The plan (which really isn't a plan at all) is to pull in the sails and ride it out with what we have.

We have very little after tax money ($50k) and I can't quite wrap my head around how to tap into ACA with our current asset mix should I/we lose HI (despite reading tons!).

Lurking is easier but less helpful! Thanks to you both for pointing this weak spot out! (And I'm sure there are others!)

 

[MRG]

I left the workplace almost 7 years ago and have found taxed assets to be beneficial for the current insurance plans. Not sure what your DW is doing about insurance or for your Plan B but it might be good to look at increasing your taxed assets.

Have you looked at insurance from the state exchange. We're in the SW part of CO and were pleasantly surprised when our cost of health insurance dropped by over 50% this year. Hopefully this is a new normal. Based on this change I may go without subsidies my last year before Medicare.

 

[PolicyProf]

Thanks for the suggestion, MRG. I have not looked on the exchange (yet). The only reason I haven't is that the ACA seems to be forever changing and jumping in now might make my head explode. DW has HI from work (state employee) but I'm thrilled to know it may not be a bank-breaker even now. That's a great safety net for a crash landing! Increasing taxed assets is a good idea. I think I can make that happen.

 

[ivinsfan]

So what's your actual total household spend? That's the number you need to drill down on IMO...because what happens when your DW's paycheck stops for whatever reason. From your numbers it appears you have been the primary breadwinner for the family.

 

[ivinsfan]

Thanks for the suggestion, MRG. I have not looked on the exchange (yet). The only reason I haven't is that the ACA seems to be forever changing and jumping in now might make my head explode. DW has HI from work (state employee) but I'm thrilled to know it may not be a bank-breaker even now. That's a great safety net for a crash landing! Increasing taxed assets is a good idea. I think I can make that happen.

on the contrary you need to jump in now to see what a plan B for HI might look like and/or cost.

 

[38Chevy454]

I think you should have a bit more money in after tax, $50K isn't going to last long if something happens outside your plan.
You're better shape than many, but I do agree with others that you might be little thin on alternatives if things change with employment or pension benefits.

 

[PolicyProf]

Thank you all for making me think more clearly about DW and if the wheels fall off. Total spend for the two of us is $85k/year low-end and $120k on the extravagant end. Both of these high end figures include a HI premium based on some version of COBRA for the two of us (but will look at the CO exchange and see how that can reduce that cost). In adding her expenses I'll also need to add her IRA ($500k), which as all of you point out keeps us, in total, right on the edge. Because DW works at a non-SS institution I need to think more carefully about when to take my own SS as well.

With two stable professional lives, no kids, we've become accustomed to the wheels staying firmly on the tracks. Her income is about 60% of mine and my income pays for the core expenses associated with the home economy. I need to think more carefully at HI and the potential for unemployment should my/our plan change. And I need more cash.

Ugh. I should have stayed a lurker! This is painful!

 

[REWahoo]

Ugh. I should have stayed a lurker! This is painful!

Far less painful than retiring without a good set of spare wheels and discovering you need them.

 

[pb4uski]

The other thing that you need to consider is what will happen to DW if you pass unexpectedly. I presume that she has a government pension of some sort so is subject to GPO.

You can get a decent idea what health insurance will be by visiting healthsherpa.com

You should also visit opensocialsecurity.com to see what your best SS claiming strategy might be.

Finally, I think your AA is too conservative, but it might position you well to adopt an increasing equity glide path when you retire, where you live off of fixed income during the critical sequence of returns risk period (first 4-8 years) so your equity percentage grows in retirement because you are leaving equities alone to grow and reducing fixed income. See https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

... One popular way to manage the concern of sequence risk is through so-called “bucket strategies” that break parts of the portfolio into pools of money to handle specific goals or time horizons. For instance, a pool of cash might cover spending for the next 3 years, an account full of bonds could handle the next 5-7 years, and equities would only be needed for spending more than a decade away, “ensuring” that no withdrawals will need to occur from the portfolio if there is an early market decline.

Yet the reality is that strict implementation of a bucket strategy is more than just an exercise in mental accounting; it can actually distort the portfolio’s asset allocation, leading to an increasing amount of equity exposure over time as fixed income assets are spent down while equities continue to grow. Yet recent research shows that despite the contrary nature of the strategy – allowing equity exposure to increase during retirement when conventional wisdom suggests it should decline as clients age – it turns out that a “rising equity glidepath” actually does improve retirement outcomes! If market returns are bad in the early years, a rising equity glidepath ensures that clients will dollar cost average into markets at cheaper and cheaper valuations; and if markets are good… well, clients won’t have a lot to worry about in retirement anyway (except perhaps how much excess money will be left over at the end of their life). ...

 

[Ducati52]

I think you should have a bit more money in after tax, $50K isn't going to last long if something happens outside your plan.
You're better shape than many, but I do agree with others that you might be little thin on alternatives if things change with employment or pension benefits.

Agree. Do you or your wife have access to a HSA? Do you and/or your wife have access to a Roth 401k through work? Do you and your wife make under the Roth IRA contribution limits? Will your wife once you are retired?

At this point, I would be funneling all of both you and your wife's ongoing investment dollars into the above accounts in the order listed. If you don't have access to any of those, then it should go into a taxable brokerage account.

Also, not clear from your original post if you're planning on taking SS at 62 (based on your assets, I would hope not), but that will add another layer of complication to your planning.

 

[PolicyProf]

Once again, thanks everyone for these important suggestions.

I will definitely check out healthsherpa and opensocialsecurity. I've read great things about these from your comments before and will now drill down.

DW does invest in her HSA. I have access, but currently utilize a low-deductible HI plan (I am healthy, but it was also pretty inexpensive for me). We make above the Roth limits, but when I retire we will make below. DW does not have a pension, but she is in the TIAA-CREF system (as am I, but from different institutions). I have been considering a taxable brokerage acct as part of the creation of my very conservatively invested "cash bucket." Whether that's the right move at this moment I'm not sure. Because DW will not get SS (or only a tiny amount from a previous professional life) it's important for me to come up with a SS approach that provides the greatest benefit, which I realize means waiting as long as possible. I need to do the math once again to sort that out. Yikes.

GREAT article on the "rising equity glidepath." Thank you for that!

 

[Vacation4us]

Seems odd that she doesn’t pay into SS but has no pension.

If that truly is the case then wouldn’t she be entitled to 50% of you SS amount?

 

[PolicyProf]

Yup. It's very unique. Employees at this institution are not covered by the SSA and, as such, are required to participate in either PERA or a DCP, which in this case is TIAA-CREF. Employees have a choice to either take the state pension system OR go it alone with a defined contribution plan to which the state contributes. Many employees tend to go it alone because it's more portable. A few institutions back in the day exempted themselves and this is one of them.... A state institution with no SS contributions but no benefits. It's not the only institution like it, but it's pretty rare

 

[pb4uski]

Very interesting.... however, it isn't clear to me that she wouldn't get spousal benefits... if you pass would she get your SS survivor benefits?

I would check with SS rather than rely on what other people or her employer say.

 

[COcheesehead]

Far less painful than retiring without a good set of spare wheels and discovering you need them.

Agreed. I looked at the online resources and I even called a HC insurance broker. He laughed at me for being too far ahead of the game. I wanted to understand what I was getting into.

 

[ivinsfan]

Yup. It's very unique. Employees at this institution are not covered by the SSA and, as such, are required to participate in either PERA or a DCP, which in this case is TIAA-CREF. Employees have a choice to either take the state pension system OR go it alone with a defined contribution plan to which the state contributes. Many employees tend to go it alone because it's more portable. A few institutions back in the day exempted themselves and this is one of them.... A state institution with no SS contributions but no benefits. It's not the only institution like it, but it's pretty rare

well if this system means she cannot get a spousal SS, you literally have the worst of all worlds...

 

[PolicyProf]

As always, thanks for the thoughtful comments.

She is eligible for spousal SS benefits, thankfully. When the exemption from SS was first hatched (back in the mid-40s), the idea was that employees would use the tax they would have paid and plow it into their own DCP and that the institution would provide a more robust contribution to make up for their portion of SS. Well, we all know how that works in practice. But, having said all that, she does have a fair-sized nut to draw upon when she turns 59.5. The idea, initially, was that we would plan our own individual retirements and make the same contributions to the collective as we had in the past, which is why I originally didn't include her portion. But, we certainly need to plan for contingencies. With such historically stable lives (personally and professionally) we just anticipated that life will keep moving in a straight line. #famouslastwords