Hi, I am "Retiring" this Month

[Youngster]

Hello, I am "retiring" this month and I hope I have done my homework correctly. I will soon be 58. My spouse will soon be 64. The retirment is about 1.5 years earlier than I anitcipated. However, I think we can make it work financially.

I took a practical approach to my calculations and I hope the approach is correct. Any comments as to the approach would be greatly appreciated. My approach was not to take a percentage of my gross earning. Rather, I took a point in time last year before my spouse statred working again (part time) and looked at our net income (take home pay) because I think we were living comfortably on that amount.

The expenses will be the same; except for health care premiums. I calculated my pensions (defined benefits) and my spouse's social security that will start next January, 2016. With the pensions and the social security, the take home (net) will be very close to the amount we were making net last year. This includes the anticipated premium under the HCA with a subsidy.

We do have 401k plans that we do not intend to touch for about 5 years or so. Of course, I will be eligible for social security in about 4 years but have not decided whether I will wait or take it then.

Did I miss anything? Is there something I have failed to consider from a financial standpoint?

 

[rodi]

Hi, Welcome, and Congrats on your pending retirement.

Did you figure taxes?

I understand using net to get an idea - but you still will owe taxes.

 

[Whisper66]

Sounds reasonable to me. One thing I didn't see mentioned was if you've considered the possibility of unexpected expenses --- car gets wrecked and need to replace, run into major health problem and have to pay out up to your deductibles, house A/C breaks and must replace....... If such one time occasional expenses are coverable in your plan, it seems reasonable to me.

 

[Midpack]

Sounds reasonable to me. One thing I didn't see mentioned was if you've considered the possibility of unexpected expenses --- car gets wrecked and need to replace, run into major health problem and have to pay out up to your deductibles, house A/C breaks and must replace....... If such one time occasional expenses are coverable in your plan, it seems reasonable to me.

+1. Often overlooked, but crucial IMO. Our planned spending is about $45K/yr and our "accrual" expenses are at least another $10K/yr. Things like roof/siding/window replacement, car replacements, appliance or other major home system replacements, furniture replacements, remodeling, etc. they don't come up often but they will come up eventually.

 

[Youngster]

Thank you for the responses so far.
Yes, taxes have been figured. Went to an accountant who told us how much to have withheld from the monthly checks to cover state and federal taxes. So I figured the net amount after taxes for the monthly income.
Also, we do have an emergency fund for unexpected expenses such as those mentioned.

 

[pb4uski]

One angle that you might want to consider. A number of us that seem to be similarly situated as you are concerned about the so-called "tax torpedo".... that is, high income taxes after pensions and SS start and 401k RMDs kick in. The problem is that once those income streams start, if you add in 401k distributions, including required minimum distributions after one is 70 1/2, it pushes many couples into the 25% tax bracket and a lot of their SS is taxable as well. Additionally, if one of the couple dies then the survivor is commonly pushed into an even higher tax bracket.

One solution is to do some Roth conversions of 401k money from now until these pension and SS income streams begin while you are in a lower tax bracket (usually to the top of the 15% tax bracket). The hitch is that the higher income from doing Roth conversions reduces ACA subsidies.

In my case, I decided that the benefit of 15% tax vs 25% tax later in life far exceeds any ACA subsidy benefits I could get so I decided to forgo the ACA subsidies in favor of doing Roth conversions. The tax on my conversions the last two years have only been about 7% and are much better than paying 25% later in life (or more if one of us dies early). It helps that in our situation we are eligible for catastrophic coverage under ACA and in our state it is about 37% less than the cost of a bronze plan.

If you search for "tax torpedo" in the search box at they top of the age you should find many threads on the subject. One warning though... it is a very complicated topic.

 

[Bamaman]

Congratulations on your pending retirement. The near future will be a great time for you.

About the time we started retirement, so many of our assets required replacement and or heavy maintenance. We've had to withdraw more of the 401K than planned, however our 401K's have kept up or exceeded our withdrawals the last 7 years.

We have found that our lifestyle has required more income than originally planned. We've done okay, but the recent downturn in the stock market is disheartening. But we'll be okay as long as inflation doesn't rear its ugly head.

It's sometimes hard to project your financial needs in retirement. Good luck to you.

 

[Youngster]

Thanks. I just hope I figured it correctly.