Missed the boat but still afloat? 52 shooting for 62 now.

[2HOTinPHX]

Hello Everyone...

My wife and I are about 10 plus years out to retirement. Lately I have been trying to do some better retirement research\planning and came across this website Early Retirement. WOW great idea, I sure wish I had run across this website a long long time ago...

I have been doing a lot of reading here and there is tons of great info from a very kind group of persons and my hats off to everyone here ...thanks for sharing your stories and inspiring others. I am a little hesitant posting here among so many FIRE's that have really kicked some major butt as far as income and savings and getting out of the rat race so early. I am going to share my situation anyways in hopes to get some good feed back on our ever evolving retirement plan. Who knows what things will look like ten years from now?? Dow 20,000 or 2000?....

I just hit 52 and my lovely wife is 3 years younger and we have been married 22 years now. We are both in decent shape for our age and no major health issues. We have no kids so its just the two of us. Ok with current jobs most days...LOL

We sold our 2 bed 1 bath home in the SF Bay Area in California 10 years ago and moved to Phoenix AZ to escape the $$$ home prices and $$$ property taxes. We were amazed at the half off sale in Arizona compared to California. The first home we purchased in AZ, 4 bed 2 bath 2200 sq ft was too big for just the two of us. We expected a lot more visits from family but that didn't happen as often as we thought so we have already downsized to a more reasonable for us 3 bed 2 bath 1400 sq foot home. Our current goal is to have the remaining $48,000 mortgage paid off February of next year. I know some say to invest the money but for us we will sleep a lot better with a paid off mortage. This may be our forever home as we love the neighborhhood. We can then save 40% to 50% of our pay to put towards retirement.

Our goal to retire as soon as we can start collecting SS at 62 or if need be a little later, but sooner than later. As we all know tomorrow is not guaranteed. Sorry for going on and on...here comes the details..

$92,000 combined gross income per year.
$7,000 current total emergency fund, $2000 in savings and rest in I-bonds.
$230,000 current retirement savings mostly 401k's some IRA's.
$40,000 will be going into 401k's starting next year after house is paid off.
$340.00 only pension, turned into a defined benefit plan now.
$50,000 defined benefit lump sum payout\rollover at retirement.
$300,000 in home equity guestimate, current value $250,000.

Retirement income per month best guess.
$2700.00 SS for both at 62.
$340.00 pension
$2485.00 401k 4% withdrawal rate from $745,000 (4% return on above 401k and planned contributions for 9 more years)
$5500.00 Total Income
$3600.00***estimated expenses (includes monthly $600 for health care and $300 saving up for vacations) We live pretty modestly....couple of homebodies.
$1900.00 overage or cushion

I know its very very hard to plan these things out and everything is riding on how well the stock market is doing... please be good to us all O'mighty Wallstreet.

So some questions:
Where could the home equity figure into all of this? I was thinking if we stay in this home forever to not touch it as we may need to sell the house someday for long term care.
Since you can't take it with you...what if we use up some of our 401k moneys along the way
Any thoughts on above?
We manage our own accounts..Index funds mostly with Vanguard.

Thanks for reading.....


JDPascale and JDpaskall

 

[jfn111]

You have to have a place to live so a 1400 sq ft paid off house is a good option.
There is a lot of debate whether a 4% withdrawal rate is sustainable over a, potentially, 30 year retirement.
The fact that you're planning for a $1900 per month excess should give you some flexibility to lower withdrawals during a bad market.
As far as using up some of the 401K. With no kids to worry about of course you should use up some of the 401K. The tricky part is how to do this. We would all like our last check to bounce (ok, maybe not all) but don't want to run out of money before the hearse shows up.

 

[2HOTinPHX]

You have to have a place to live so a 1400 sq ft paid off house is a good option.
There is a lot of debate whether a 4% withdrawal rate is sustainable over a, potentially, 30 year retirement.
The fact that you're planning for a $1900 per month excess should give you some flexibility to lower withdrawals during a bad market.
As far as using up some of the 401K. With no kids to worry about of course you should use up some of the 401K. The tricky part is how to do this. We would all like our last check to bounce (ok, maybe not all) but don't want to run out of money before the hearse shows up.

Thanks for the input. We could probably adjust our SWR down to 3% no problem and still have a good monthly cushion.
Is the plan to use the home value as a last back up in case of long term care needs a good idea? Or could one use a reverse mortgage to get long term care insurance and pull out some $$$ along the way Hate to just sit on all that equity once retired. Who knows we may even down size once more and stash more cash...

 

[Sunset]

The house can be an insurance policy for the other spouse, in a time of LTC, as the costs can be extremely high.

One concept I have read here is keep the house, and after a lot of the cash is spent on LTC, let medicaid take over the payments. That way say the sick person in LTC dies, then the surviving spouse at least has the house to sell and can rent or do a reverse mortgage to have cash and a place to live.
So don't be too quick to pay all the LTC with all your assets or one of you will literally be living on the street for the next decade.

Regarding your savings plan, I hope you both are currently stashing into 401K's to at least get the match amount rather than pay off the mortgage.
Plus, knowing what I know now, in your shoes I would even delay paying off the mortgage further, by putting $$$ into a ROTH for each of you.

It will mean the mortgage takes an extra year to pay off, but its important to have ROTH accounts.

 

[Golden sunsets]

Does you SS benefit reflect the payment for just yourself at age 62? Will your wife continue to work until she reaches age 62 while you are retired? Have you considered not taking SS at 62, perhaps the best rate of return that can be achieved safely - 8%(approximately) for each year you delay plus cola?

 

[2HOTinPHX]

The house can be an insurance policy for the other spouse, in a time of LTC, as the costs can be extremely high.

One concept I have read here is keep the house, and after a lot of the cash is spent on LTC, let medicaid take over the payments. That way say the sick person in LTC dies, then the surviving spouse at least has the house to sell and can rent or do a reverse mortgage to have cash and a place to live.
So don't be too quick to pay all the LTC with all your assets or one of you will literally be living on the street for the next decade.

Regarding your savings plan, I hope you both are currently stashing into 401K's to at least get the match amount rather than pay off the mortgage.
Plus, knowing what I know now, in your shoes I would even delay paying off the mortgage further, by putting $$$ into a ROTH for each of you.

It will mean the mortgage takes an extra year to pay off, but its important to have ROTH accounts.

Thanks for the reply...
I think I have read some of the same ideas here at ER to protect some of your moneys its a good idea to own your home and hold onto the equity in case LTC is needed so remaining spouse still has options.

I am currently adding just the 3% to 401K to get my company match....free money.. Wife just started new job and can't start contributing until 1 year. Hopefully the market can continue going up but I feel like we are buying high right now at these prices....dunno??

Would you recommend ROTH over 401K? We hope to be in a pretty low tax bracket when we retire.....hope...LOL...but who knows what ten years from now will bring?

 

[2HOTinPHX]

Does you SS benefit reflect the payment for just yourself at age 62? Will your wife continue to work until she reaches age 62 while you are retired? Have you considered not taking SS at 62, perhaps the best rate of return that can be achieved safely - 8%(approximately) for each year you delay plus cola?

Thank you for your input.

SS benefit noted includes the two of us. MY wife will most likely continue to work until she reaches 62 so I kind of lumped her salary and my SS together. I would love it if we could both retire at the same time. So looking at options of getting her out early if any. How the market does over the next 9 years will help determine this...

As far delaying SS I have read break even point is about 75 Tomorrow is not guaranteed so I would rather take sooner than later although the 8% is tempting.

 

[beowulf]

Another possibility is for the person who receives the lower benefit to claim the spousal benefit at 62 while the other person waits until FRA or even later. You will need to make this decision when you are much closer to age 62 as the rules might change as well as your need for money. In our case, I claimed early as my wife's benefit will be much higher than mine and she claimed her spousal benefit at 66. She is waiting until 70 to claim her full benefit. While no one knows what will happen tomorrow, her familial longevity is far longer than mine. That's something else to consider.

 

[ERTX]

What is the interest rate on your mortgage? When you pay it off you lose the tax deduction, so that needs to be factored in. I would say it would be better to build up your emergency fund than put it towards the mortgage, especially when only $2K is truly liquid.


Are you losing the match now with your 401Ks now?

 

[2HOTinPHX]

Another possibility is for the person who receives the lower benefit to claim the spousal benefit at 62 while the other person waits until FRA or even later. You will need to make this decision when you are much closer to age 62 as the rules might change as well as your need for money. In our case, I claimed early as my wife's benefit will be much higher than mine and she claimed her spousal benefit at 66. She is waiting until 70 to claim her full benefit. While no one knows what will happen tomorrow, her familial longevity is far longer than mine. That's something else to consider.

thanks for the suggestions...It is hard to plan any of this out so far in advance when the rules may change and markets could be up or down. I thought I would try and run some numbers since most everything you hear is people will have a hard time retiring and my wife thinks we will never get there. So at least I can show her there may be some light at the end of the tunnel if we have some target\goals. I know they may all change due to unforeseen circumstances.

Since our SS will be about the same perhaps one of us could delay taking it. We will have to see in about 9 years...all I know is we want out of the rat race ASAP..LOL

 

[2HOTinPHX]

What is the interest rate on your mortgage? When you pay it off you lose the tax deduction, so that needs to be factored in. I would say it would be better to build up your emergency fund than put it towards the mortgage, especially when only $2K is truly liquid.


Are you losing the match now with your 401Ks now?

Thanks for the response.
With such a low mortgage balance we lost the tax deduction a long time ago. Interest rate is low but we will sleep better knowing the roof over our head is paid for. We will build up our emergency fund back up to 10,000 or so next year. The I bonds are pretty liquid we have had them well over 5 years and could covert to cash pretty easily.
Then the plan is to put away 40% to 50% of our income away for the next ten years or so. Now where and how to invest that $$$. We will always start with the 401k to get the company matches (we are still doing that now)....free money is the best... Then more into 401k or IRA's...hmmmm Thats where we need to come up with a plan. I am leaning towards the 401K to reduce current taxes but probably should put some $$$ into both I think.

 

[RetireAge50]

If I were in your shoes I would immediately do the following:

$18,000/year into your 401k
$11,000/year Roth IRA's
Whatever you want to do with mortgage is fine. I would only pay the minimum and invest the difference.
When spouse is eligible max out her 401k

Congrats, sounds like you have a nice home in a warm place with good health. Enjoy!