Do I need to go back to work?

[DFDubb]

I don't mean to be harsh, but you need to continue to work, save, and MOST IMPORTANTLY, continue to read sites like this one and educate yourself. You seem to have no game plan and no idea how any of this works.

You have 16 grand outside of retirement accounts, that will last but only months w/o the help of taking your SS early and drawing from your retirement account. These two things will put your wife in a very VERY bad position if/when you pass before her, if not long before then.

If you make 150k and your spend is only 42k, where is the rest of the money? $500 extra a month towards your mortgage is only 6k, where has the rest been going?

 

[Alan]

A reminder to all to be courteous and patient, particularly with newer members while we get acquainted.
The OP may have been unprepared or confused and crossed back and forth between the current situation with the one he expects after the 24 month payout. A good time for him to assess all the feedback, collect his thoughts and then continue the discussion, in this thread or another.

 

[anonymous_fred]

Just a thought, and I am going to be making some serious assumptions here.

Based on your username and the generous severance (almost 2 years), I'm guessing you're a sys-admin for a mega-cap with a fairly long tenure. Based on your stated savings (460K + 16K + 220K house paid off), it sounds like during that long tenure you've saved ~$700K. It sounds like your savings rate has been low (~6%) which means your standard of living has not been low.

I'd be very nervous about such an aggressive reduction in standard of living. I think that will be hard to accomplish. Like I said, there are a bunch of assumptions there, but I'm trying to read between the lines.

 

[unixfreak]

Just a thought, and I am going to be making some serious assumptions here.

Based on your username and the generous severance (almost 2 years), I'm guessing you're a sys-admin for a mega-cap with a fairly long tenure. Based on your stated savings (460K + 16K + 220K house paid off), it sounds like during that long tenure you've saved ~$700K. It sounds like your savings rate has been low (~6%) which means your standard of living has not been low.

I'd be very nervous about such an aggressive reduction in standard of living. I think that will be hard to accomplish. Like I said, there are a bunch of assumptions there, but I'm trying to read between the lines.

Your assumptions are correct. Unfortunately It's been quite a long time since I've done a budget. My plan has just been to "be frugal." Taking the layoff (it is voluntary) has opened my eyes, which should have been done years ago. My plan is get rid of the house payment and cut spending. I will also keep my eyes open for more freelance work and/or a full time gig. I think I have the luxury to be picky.

 

[joeea]

I really wanted to work another 5 years, but here are the numbers:
401k = 460k
My house is valued at 220k and is paid off.
I have zero debt and a very frugal wife.

I will be 61 when the pay stops coming in and would have to live off of liquid for a year before social security which will be 2200/ month if I take it then. I also pull in another 1600 a month with a free lance gig that I've been doing for 15 years. I just bumped my 401k contributions to 10% from 6% since the company won't be matching after June. I have a small pension coming at 62 that's 150/ month. I expect the 401k to be 600k at 62 and don't see a problem living off of 4% of it per year.

Should I go back to work ... or does this look doable?

You need to determine your expenses before you can answer your question. The good news is that you have plenty of time before you have to decide. Just keep track of your income and your savings for the next year. The difference is approximately your expenses.

And with a 50 year old wife, you should seriously consider delaying social security until 70 so that she can maximize her eventual survivors benefit. Check out https://opensocialsecurity.com/

I wouldn't feel comfortable retiring with your level of assets. But I'm guessing my expenses in retirement are more than yours.

Run the numbers, then decide.

 

[unixfreak]

After tracking my last three months of spending, it's averaging around 5k per month, and that is with a house payment and driving to work 5 days of the week. Things could definitely be tightened up some. We have needs but also a lot of wants. As for the SS, 82 would be the age that income from SS break even. If it take it at 62, that's 20 years .... and so on. Yes I need to think of my wife but also have to avoid down drawing too.

 

[ulrichw]

After tracking my last three months of spending, it's averaging around 5k per month, and that is with a house payment and driving to work 5 days of the week. Things could definitely be tightened up some. We have needs but also a lot of wants. As for the SS, 82 would be the age that income from SS break even. If it take it at 62, that's 20 years .... and so on. Yes I need to think of my wife but also have to avoid down drawing too.

I'll differ slightly with other people's advice - I think you may be relatively close, but that's if, and only if your spending assumption (42K per year) works out.

My guess is that your SS benefit should be close to maximum - this means that if you hold off until 70 to collect, it should be very close (if not slightly over) the 42K/year number. Also note, that unlike virtually any other benefit, this one is cost of living adjusted (unfortunately, there's also a risk of benefit reduction).

This means your 401k only needs to bridge 8 years, and anything left will help supplement your income after you start collecting SS.

My personal advice would be to start living to your post-retirement budget *immediately* (i.e., tomorrow), no fudging. Save as much of your salary and your side-gig income as you can. See how it works out.

If you find yourself unconstrained by the budget, you're all set.

If you find yourself cheating on the budget, or otherwise put off by holding the budget, you have your answer: You need to save more.

One other possibility to consider is seeing if you can scale your side-gig up, or can pick up a second side-gig - this could be a viable alternative to being employed full-time.

On the whole, it'll all come down to lifestyle (or rather the budget that will dictate your lifestyle).

 

[unixfreak]

I agree. I think I'll bump my 401k contributions up from 10% to 15% and also get close to the max for my contribution into my HSA. That will all lower my taxable income, put the money in savings, and get used to seeing less money.

 

[RetiredAt55.5]

I'll differ slightly with other people's advice - I think you may be relatively close, but that's if, and only if your spending assumption (42K per year) works out.

My personal advice would be to start living to your post-retirement budget *immediately* (i.e., tomorrow), no fudging. Save as much of your salary and your side-gig income as you can. See how it works out.

If you find yourself unconstrained by the budget, you're all set.

I think that budget plan would work, except for the health insurance angle. The OP stated the company will pay for the next 2 years, but then he's on the hook from 61 to 65. Part of that would be Cobra, but Cobra isn't cheap.

And then there's the health insurance costs for his younger spouse until she's on Medicare.

Using ACA's already been discussed, but how knows what that'll look like in 2 years. The state of ACA could be better or worse.

I also don't know what ACA subsidies would look like for the spouse once the OP is on Medicare.

If it were me, I'd want a plan B just in case healthcare costs blow the budget. That could be the spouse working, or the OP getting another job or increasing his side gig, etc.

 

[unixfreak]

After looking further into the documentation about my severance, the company is offering a non subsidized plan for retirees that is only 765 per month for a kaiser HMO (retiree plus partner) or a PPO for 1800 per month. That plan could take us to Medicare. Also I've already made the change and will be contributing 15% into the 401k and 7k into the HSA. That's roughly an additional 800 per paycheck (every other week) of pre-taxed deductions.

 

[unixfreak]

Firecalc actually give me 100% as long as I don't retire until 2022 (62) and take the SS money then. That's also assuming the freelance gig goes on for a few years at 12k a year. Spending is constant spending power. Portfolio investments are total market. The spending is 60k and the portfolio is 500k. If the freelance gig goes away that takes me down to 78% but then if I reduce my spending to 50k then I'm back to 100%.

 

[YoungSaver]

As a young saver, I'm struggling to grasp at where your money went over the last 30 years. You make 150k per year but only have $16k in savings. Where is your 100k (net pay) per year going? Sorry, I just don't understand.

 

[ulrichw]

Firecalc actually give me 100% as long as I don't retire until 2022 (62) and take the SS money then. That's also assuming the freelance gig goes on for a few years at 12k a year. Spending is constant spending power. Portfolio investments are total market. The spending is 60k and the portfolio is 500k. If the freelance gig goes away that takes me down to 78% but then if I reduce my spending to 50k then I'm back to 100%.

I'd strongly recommend waiting until at least FRA (Full Retirement Age) to take your SS benefit, and I'd at least consider waiting until 70.

You have enough money to bridge the gap, and SS gives you inflation protection that no other investment vehicle does.

Your wife will also benefit from a larger survivor's benefit the longer you delay.

One way to think about it: While the SS reduction/benefit is roughly "actuarially fair", meaning that people will statistically collect the same total amount regardless of when they start their benefit, the fact that your wife is so much younger than you means your benefit will likely be paid out considerably longer than most people's. Therefore, the longer you wait, the better off you (as a couple) will be.

 

[unixfreak]

As a young saver, I'm struggling to grasp at where your money went over the last 30 years. You make 150k per year but only have $16k in savings. Where is your 100k (net pay) per year going? Sorry, I just don't understand.

Well ......I haven't made 150k per year for the past 30 years. When I got into my field full time, my starting pay was 27k. I've been married twice. I'll spare the gory details, but raising kids in a family of 5 is not cheap. I've raised 6 children in total. Doctor bills, cars and groceries are NOT cheap. Also the divorce wasn't cheap. You get the point.

Sure ... I could have done better, but it is what it is.

 

[YoungSaver]

I see. Thanks

 

[unixfreak]

I see. Thanks

No problem. Another point that I just thought of was that I didn't have a 401k until 21 years ago at 38 years old and gave up half of it after 7 years of savings. That'll knock ya back a bit.

 

[Carpediem]

No problem. Another point that I just thought of was that I didn't have a 401k until 21 years ago at 38 years old and gave up half of it after 7 years of savings. That'll knock ya back a bit.

Lost my VG IRA to a similar tragedy in 2013. And 8.5 years alimony on top of it. GRRRR

 

[unixfreak]

So I had a job literally fall into my lap paying me the same as the 130k that I'll be recieving for the next 102 weeks of severance. So needless to say, I'll not be retiring. Obviously I'm maxing out as many IRAs as I can .. in addition to the HSA.

 

[Dtail]

Lost my VG IRA to a similar tragedy in 2013. And 8.5 years alimony on top of it. GRRRR

13 years of alimony for me when adding cash plus the house. Cost me 600k not including the lost investment potential.

 

[unixfreak]

13 years of alimony for me when adding cash plus the house. Cost me 600k not including the lost investment potential.

Ouch. That hurts me to hear it.

 

[gayl]

I cannot emphasize enough that you need to save 100% of that severance in that the new position is enough

 

[Running_Man]

The best chance of making it long term is to deplete your savings and utilize Social Security as a back stop. When you hit 70 your wife will be 61 and one year from claiming. Your social Security will be $3,770/mo at age 70. Inflation protected and by itself at $45,240 above your annual spend need of $42,000 per year. Your wife will be able to claim an additional $1,100 per month 13,200 per year for a total of $4,870 per month for a total from Social Security of $58,440. It will be a more efficient tax method.
This means you need a nine year plan from age 61 to age 70.

You would need I think to plan for a life insurance policy to cover for contingencies of income reduction with the first death. Also how health insurance would be covered.

In general I would state this: When one is so close to the edge on being able to make it or not make it and has a long time to go, Social Security is far more effective than counting on individual investments. It is far easier to plan on the next 11 years and build from that point than to quit working at 61 and assume a plan will work for the 50 years your wife needs to plan for.

 

[Teacher Terry]

Congrats on the new job. Unless your wife is disabled she really should be working to increase savings.

 

[unixfreak]

Thanks! I’m pretty stoked! You’re kidding about the wife working, right?

 

[kimcdougc]

"I can do cobra until about 65 so I'll need to pay what ... a couple of grand per month until medicare?"



Uh...why would you ever mess with Cobra when the ACA is available to you?

In my experience, we took Cobra for 18 months because it was cheaper than the ACA and it had way better coverage than ACA. Just my experience. We have been on ACA for the last 4 years now and I sure do miss mega health care insurance. ACA sucks for me. Again, just my 2 cents.