New to Forum - Dreaming of Retirement

[mountainsoft]

Hi All,

I am new to the forum, and just looking for feedback regarding our retirement plans.

I am 53 (in two weeks), my wife is 48. Our home is paid off and we have zero debt (no mortgage, no credit card balances, no loans). Our combined take home pay is about $4000 per month, and we live quite comfortably.

Right now we are thinking of retiring in 12 years (I'll be 65, she'll be 60). We may tweak that a year or two earlier if all goes well.

We have a Vanguard IRA that is currently valued at $69K, and we contribute $525/month. Obviously, it's impossible to predict the future, but based on a 4% interest rate our IRA should be worth around $200K in 12 years.

At age 60, my wife should receive a pension around $3000/month. My social security at 65 will only be $600/month (my business has never been that profitable).

My plan is to withdraw about $1300/month from our IRA (about 9% of the predicted value) for the first five years of our retirement.

When my wife turns 65 we would start receiving about $1500/month for her social security, and could drastically reduce what we need to withdraw from the IRA. Of course, I'll be turning 70 at that time, so we'll have the required minimum distribution to deal with too.

It all seems to work out on paper, even planning for 3% annual increases for inflation. But, I'm curious if I am overlooking something as far as hitting the IRA hard during the first five years, then backing off significantly afterwards?

Thanks,

Anthony

 

[exnavynuke]

Have you planned for the impact her retiring at 60 will have on your medical insurance costs?

 

[mountainsoft]

Have you planned for the impact her retiring at 60 will have on your medical insurance costs?

I factored in health costs, but have not priced it out yet to know what actual figures might be. It's on my to-do list.

I estimated the $525 we pay to the IRA, $50 less gas not driving to work every day, and $25 for miscellaneous reductions (work related food, clothing, expenses) would leave us $600/month for health care costs. But that's just top of my head estimating, I really have no idea what the actual costs will be.

Obviously, I have more details to work out. My biggest concern was tapping our IRA so hard the first five years, and what side effects that might have. It seems to work out on paper, but if Social Security doesn't pay out as promised, the remaining IRA may not cover the difference.

 

[Moemg]

What if something happens to your wife ?

 

[rodi]

Welcome to the forum!

Have you run it through firecalc.
Does your wife's pension have a cost of living adjustment?
Does your wife's pension have 100% survivorship?

You've done a great job paying off debt (mortgage free) on a not-so-huge income.

If it were me I'd be running the plan through every calculator I could get my hands on - firecalc, Fidelity retirement planner, Quicken Lifetime planner, etc.. Each calculator makes different assumptions and asks different questions... I found this very useful when stress testing my retirement plan.

 

[mountainsoft]

We bought our property (2 acres) for $20,000 back in 1991, and lived in a mobile home for 13 years. Twelve years ago my wife and I built our house ourselves out-of-pocket and a tiny savings. It was paid off before we even moved in.

Regarding my wife's pension, I do not know if it has a cost of living adjustment. I'll have to research that. I have been planning annual 3% increases in our IRA withdrawal to accommodate inflation.

Her pension does have 100% survivorship and is what I've used when calculating the payout estimate. They also have 50% and 67% options that pay more, but we prefer to opt on the cautious side.

What is firecalc? I've seen a few people mention it here.

I've used a lot of retirement planning calculators online, but the vast majority return ridiculous numbers (i.e. 1 million dollars or we're gonna live in poverty). We haven't had that kind of money our entire lives. We're obviously outside of the norm when it comes to living a simple debt free life, and the calculators don't seem to factor that in.

I do use several different online calculators to estimate the growth of our IRA, how long savings will last with systematic withdrawals, etc. But I mostly just break everything down myself in a simple chart that better reflects our actual income and expenses. Not too hard when my remaining life fits on less than a page.

I did research health insurance costs this morning. Holy moly that's expensive! About $180 for my Medicare coverage, and $700 for my wife's medical/dental. Still, it should only increase my monthly estimates about $300. And that should only last the five years till my wife qualifies for Medicare. I had to tweak my numbers slightly, but it still works out on paper.

 

[REWahoo]

What is firecalc? I've seen a few people mention it here.

FIRECalc: A different kind of retirement calculator

 

[rodi]

The fidelity calculator is here:
https://www.fidelity.com/calculators-tools/planning-guidance-center

You might have to create a logon - but I don't believe you need to have an account there. It's a good calculator - lets you get into the weeds on some expenses inflating more than others (healthcare!!!! - and in my family's case College!!!!)

Quicken Lifetime Planner comes with Quicken deluxe or higher. A pretty all encompassing tool - but deterministic (fixed growth, fixed inflation).

Financial Engines has a retirement calculator - I had access to it from my former employers 401k - and also Vanguard accounts give you access to it.

Firecalc is good because it back tests against previous market results (including the great depression and the high inflation of the 70's.) But you need to set your asset allocation accurately, and have a good idea of your spending (including taxes and healthcare). You need to fill out all the tabs - in your case the other income tab is where you'll input your SS and your wife's pension, and the dates they start.

 

[mountainsoft]

I'll give the Fidelity calculator a try.

I tried Firecalc, but it honestly made no sense to me. Just a bunch of squiggly lines going everywhere. It also assumed 18 years of retirement. I'm planning for 25, even though my wife says I have to live forever.

As with most calculators, I did not see a way to change where money is coming from at different stages of retirement (i.e. Mostly from IRA the first five years, mostly from social security after that).

I checked my wife's pension and confirmed it does provide cost of living adjustments, up to 3% annually.

 

[REWahoo]

I tried Firecalc, but it honestly made no sense to me. Just a bunch of squiggly lines going everywhere. It also assumed 18 years of retirement. I'm planning for 25, even though my wife says I have to live forever.

As with most calculators, I did not see a way to change where money is coming from at different stages of retirement (i.e. Mostly from IRA the first five years, mostly from social security after that).

Sigh....

Like many worthwhile things in life, FIRECalc takes a little patience and study to understand. It can and will handle all you describe if you input the information correctly.

If you didn't notice them, there are a number of tabs to complete immediately under the green header. Also, take the time to read about how the calculator works and what "all those squiggly lines" are telling you: FIRECalc: Why another retirement calculator?

 

[pb4uski]

Keep crunching numbers, but I think you will find out that you will be ok if you stay the course and keep saving.

Once your wife hits her FRA, you will be golden... you'll have the equivalent of $5,250/month today of inflation adjusted income between her $3,000/month COLAed pension + her $1,500/month SS + your $750/month SS (bumped up from your $600 SS benefit for spousal benefit). Plus, you'll have whatever is left in your retirement savings.

 

[Katiek]

There is also a sub forum here that addresses FireCalc questions. Worth checking out, and then posting if you still have questions.

FIRECalc support - Early Retirement & Financial Independence Community

 

[mountainsoft]

her $1,500/month SS + your $750/month SS (bumped up from your $600 SS benefit for spousal benefit).

Huh? Can I collect MY social security AND spousal benefits from HER social security at the same time? Does she get spousal benefits from my account also?

I am seriously misunderstanding or I haven't heard of this before. Where would I find more information?

Thanks!

Anthony

 

[freedomatlast]

You'll have the equivalent of $5,250/month today of inflation adjusted income between her $3,000/month COLAed pension + her $1,500/month SS + your $750/month SS (bumped up from your $600 SS benefit for spousal benefit). Plus, you'll have whatever is left in your retirement savings.

What this means is that your SS benefit can either be your SS benefit ($600) OR half of hers ($1500/2 = $750). In this case it makes sense to take half of hers.

 

[mountainsoft]

What this means is that your SS benefit can either be your SS benefit ($600) OR half of hers ($1500/2 = $750). In this case it makes sense to take half of hers.

I don't understand. I was going to start my SS benefit at age 65. She will only be 60 at the time, not old enough to start collecting SS. Wouldn't that prevent me claiming half of hers?

Also, if I choose to take half of hers, what effect does that have on my own SS account?

 

[pb4uski]

What will happen is this. When you are 65 you will receive your $600/month. When she begins collecting at her FRA, your benefit will increase to be 50% of her benefit ($750) since your benefit based on your work record is less than 50% of her benefit.

To get a better idea on this, try running your situation at SSAnalyze - Bedrock Capital Management

 

[mountainsoft]

When you are 65 you will receive your $600/month. When she begins collecting at her FRA, your benefit will increase to be 50% of her benefit ($750) since your benefit based on your work record is less than 50% of her benefit.

OK, that makes more sense. Thanks! That's a nice surprise I wasn't aware of.

Anthony

 

[lemming]

Most people on here assume that they won't get ss at all-too conservative for me.
But the age of full retirement is now 66 and going up
"Data source: Social Security Administration.
So, the full retirement age for people retiring now is 66, but an increase to 67 will phase in beginning in 2021 when people born in 1955 start to reach retirement age. You can start collecting benefits earlier or later than this.Mar 20, 2016"
If your business is not profitable could you change careers at this point or get a second w-2 job?
(meant to ask- Can you sell your business for a lump sum that will help build your portfolio?)

 

[mountainsoft]

the age of full retirement is now 66 and going up. If your business is not profitable could you change careers at this point or get a second w-2 job?

Our social security statements already say full retirement age is 67.

I'm not too worried about retiring early myself. I work from home, mostly part time, so in many respects I am retired already. My business is profitable, just not a living wage on my own.

I will probably keep doing it as long as I can, even into retirement. I enjoy it and it allows me time to work on projects that I would otherwise have to pay someone else to do.

 

[syd03]

Most people on here assume that they won't get ss at all-too conservative for me.
But the age of full retirement is now 66 and going up
"Data source: Social Security Administration.
So, the full retirement age for people retiring now is 66, but an increase to 67 will phase in beginning in 2021 when people born in 1955 start to reach retirement age. You can start collecting benefits earlier or later than this.Mar 20, 2016"
If your business is not profitable could you change careers at this point or get a second w-2 job?
(meant to ask- Can you sell your business for a lump sum that will help build your portfolio?)

Do most people really assume no SS on this forum? I'm not doubting you...just surprised. Maybe the choice to add or not add is mostly age dependent. I suppose if I were 28 y.o. I'd be less likely to factor SS into projections. But maybe we've been doing this wrong all along. DW and I are near-50 and we usually cut our stated SS projections by 65%. But we still include some benefit. Do others think this is reasonable? Too much/too little? Gosh, I'm hoping we can count on at least something modest

 

[exnavynuke]

Do most people really assume no SS on this forum? I'm not doubting you...just surprised. Maybe the choice to add or not add is mostly age dependent. I suppose if I were 28 y.o. I'd be less likely to factor SS into projections. But maybe we've been doing this wrong all along. DW and I are near-50 and we usually cut our stated SS projections by 65%. But we still include some benefit. Do others think this is reasonable? Too much/too little? Gosh, I'm hoping we can count on at least something modest

I'm 39 and plan for 75% of projected benefits based on the current estimates that it will be able to pay out ~75% when the "shortfall" hits in the 2030's (iirc) if no changes are made in the future.

 

[Mdlerth]

We have a Vanguard IRA...

...My plan is to withdraw about $1300/month from our IRA (about 9% of the predicted value) for the first five years of our retirement...

...When my wife turns 65 we would start receiving about $1500/month for her social security, and could drastically reduce what we need to withdraw from the IRA. Of course, I'll be turning 70 at that time, so we'll have the required minimum distribution to deal with too.

Is this a joint IRA? I plead ignorance. I thought IRAs were individually owned, in which case any IRA assets in your wife's name shouldn't trigger RMDs for another 5 years when Mrs. Mountainsoft hits 70.

Anybody else out there understand this better than I do?

 

[mountainsoft]

Is this a joint IRA? I plead ignorance. I thought IRAs were individually owned

Our IRA is in my name. Since she has a pension through her work, we set up the IRA in my name with her as the beneficiary if something happens to me.

I do believe IRA's are for individuals, as a husband and wife can each have their own IRA. Unfortunately, we can't afford to max out my own IRA contributions, let alone add another IRA for my wife.

 

[2017ish]

Most people on here assume that they won't get ss at all-too conservative for me.
...

Although I am one of the stupidly conservative ones on this point (since the 80s, so at least I'm consistent!), I think I'm in a decided minority--particularly for those of us age 45/50 and above.

(Am starting to think about what to do with any SS, have to admit, but it isn't yet included in calculations. Unless something goes seriously wrong, which would take us out of any extreme means testing anyway, we will serve as conduits to our kids/grandkids for those monies.)

 

[Mdlerth]

Our IRA is in my name. Since she has a pension through her work, we set up the IRA in my name with her as the beneficiary if something happens to me.

I do believe IRA's are for individuals, as a husband and wife can each have their own IRA. Unfortunately, we can't afford to max out my own IRA contributions, let alone add another IRA for my wife.

Perhaps you don't have to change your overall savings rate at all. What's already in your own IRA will still be available once you turn 59.5. But if you redirected your future contributions into an IRA in Mrs. M's name, then you could delay the RMD hit on those funds for an extra five years. Each could still be the other's beneficiary, but during those critical five years your household could enjoy some extra growth instead of extra taxes. And by then she'd be old enough to make voluntary WDs if the need arose.

Just a thought.