Rag says hello

[ragabnh]

Hello all,

I am Rag, 56 years old and Planing to retire by summer 2014 at 57.5

Currently I work overseas and planning to return to the US by then, I have a son in highschool and will be starting college at the same time when I retire. My spouse is planning to work as she is 15 years younger than myself.

Currently I make around $200,000 annually and I save 60% of that approximately. My net worth is almost 1.5m and should be around 1.8m by the time I retire.

My house in the US is paid off and is a rental property at this time, it is managed professionaly and is netting around $1400 monthly.
Most of my savings are in tax deferred investment, 401K, TIRA, Roth IRA, government bonds and some is in brockerage accounts plus 30% in cash.
I plan on buying another home for retirement around 300k, and withdraw around 4% of my retirement money.

I plan on withdrawing SS at age 62, estimated at $1200/month

I will have 100k saved for my son education, and will keep contributing $1000/month to his 529 plan during his college years (planning on MS degree).

I work as a civil engineer and has been working long hours for the past 20 years. I do not enjoy my work anymore and I am just waiting for my time to come.

I plan to spend my retirement time in gardening, getting in shape, biking, hiking, cooking and fishing.

I have been enjoying this site very much and appreciate all the posts from members, it has been a great learning experience for myself.

Thanks for giving me the chance to be here around your community.

 

[pb4uski]

Welcome ragabnh! Sounds like you have thought things out. I assume that you have sufficient taxable resources to be able to carry yourself to 59.5 so you can then withdraw from tax-deferred accounts without penalty, but you only have a couple years to worry about.

 

[ragabnh]

Thanks Pb, actually I do have some cash to cover the new house and additional 5 years without having to work, I don't plan to withdraw any money from my accounts during that time, just park the cash may be in short term bonds or CD's.
I always lived below my means and tried to save, working overseas for the past 4 years helped me a lot and shortened by ER by at least 5years or so.

 

[Live And Learn]

Hi Rag. Welcome to the forum.

 

[obgyn65]

Welcome, Rag.

 

[RetiringAt55]

Welcome Rag!

One thing I would do is run the numbers regarding SS. You may be better off waiting until you are 70 to take it if you have a larger SS benefit than your wife. If you wait until 70, that will preserve a higher survivor benefit for her when you pass.

Have you calculated detailed budget numbers and run the numbers in FIRECalc or Quicken Lifetime Planner? Our numbers are similar to yours (1.8M at retirement) and there was not a lot of room even though we have higher SS and my DH also has a pension. The actual budget makes a big difference.

 

[ragabnh]

Hello RetiringAt55,I have run the numbers on Fircalc and it seems that the probability I can make it is 97%, which probably good enough for me.This is based on crude numbers which I should refine very soon. I don't want to delay my retirement (bored with my current work) and my wife is planning to work when we get back to the US, so that should help. Also I did not mention her SS in my above post. As for delaying my SS, I will certainly consider if the market conditions helps and I may cover my expenses without it.Are you retired yet?

 

[RetiringAt55]

The big question is what numbers did you run. What are you assuming for rate of return, inflation, and expenses? Expenses has to include taxes, which can be tricky to estimate. Also keep mind that you wife may be widowed for 25 years or more because of your age difference and the fact that she is female. Her tax rate will go way up because she will have to file as single and will be forced to take RMDs. When doing your retirement planning make sure to model the death of each of you at different ages. You do not want to leave your wife struggling financially when you pass.

We are planning to retire in 7 years. We are in a similar situation as you as there is a 10 year difference between us. We have decided to do Roth conversions on some of our retirement to try to get the size of the RMDs down. You may want to consider doing this when you stop working and before you take SS. That may be a time period you are in a lower tax bracket. We call this our "golden window" to do our Roth conversions.

Because of our age difference, we have run models assuming my DH passes at age 75 and I pass at age 95. It is helpful to see what happens to your savings in that scenario. Can you get any life insurance for your wife for the next 15 years or so? She would not be able to get your SS survivors benefit until she is 60.

 

[ragabnh]

Thanks a lot, your valuable input is really appreciated.
One thing I would like to clarify is that my tax deferred accounts total only 450k, the rest of my savings are in taxable accounts and cash. So RMD's are less of an issue for us. I would think my wife should be able to work for the next fifteen years, which should help a lot.
As for inflation, I have considered around 3% and Rate of return around8% but did not take taxes into consideration. As for expenses, should be around 50k/year. I think I should rerun the numbers and assume 45 years rather than 30 years and may be reduce our expenses to make up the difference.

 

[RetiringAt55]

As for inflation, I have considered around 3% and Rate of return around8% but did not take taxes into consideration. As for expenses, should be around 50k/year. I think I should rerun the numbers and assume 45 years rather than 30 years and may be reduce our expenses to make up the difference.

That rate of return seems REALLY high to me. We have been planning with inflation at 3 or 3.5% and rate of return at 5 or 6%. Do you have your expenses in Quicken right now? It may be helpful to track your spending in the next year to get an accurate number. We did this and then made a spreadsheet to compare current expenses and alternative budgets. For example, we made different budgets in the same house vs in a downsized house. Running the numbers with these different budgets made us realize that we will get a lot safer numbers if we downsize when my son goes to college.

 

[ragabnh]

I do have quicken and used it since 1994, however the data almost stopped since 2008 since I moved to work overseas by then, at the time we were averaging around $6000 monthly including our mortgage. 7 years from now, my son should be done with college and our expenses should be down a little since he will be covered by 529 during his college years. As for 8% return I will drop it to 6% and rework the numbers, if I am short may be I should consider finding part time job to help out, however I hope the market cooperates with us and I don't have to work. I think you are a little conservative which is good.

 

[UserRequested]

Hello all,

My spouse is planning to work as she is 15 years younger than myself.

Wish I could get DW to work. I could have RE'd a long time ago

 

[RetiringAt55]

Some more thoughts.

Are you both covered under your wife's health care? When does she plan to retire? If before 65, you need to budget for that if her employer does not have retiree health care. This is often a huge retirement cost.

If most of your money is in taxable, you will definitely want to contribute to Roths each year. Even if you have no earned income, as long as your wife has $12K of earned income, she can fund her $5500 and your $6500 assuming you are under the income limit. (I assume without your salary you now will be.) Even if you do not have enough income coming in to pay expenses, contribute to her tax deferred, etc. and still do this, take the money from your taxable account to feed the Roths anyway. You may want to do some Roth conversions from your tax deferred when you hit 59.5 as well. The best time to do the conversions is before you take SS and start Medicare.

Be careful not to overfeed your son's 529. I have a recent thread on college saving and people had great advice you may want to read. You should be able to claim the American Opportunity Credit when your son starts college, which gives you a $2500 federal TAX CREDIT each year he is in college. As long as you pay $4000 in tuition that is not reimbursed from the 529, you can claim it. Remember the first calendar year when he begins as a freshman, he will only be in school for one semester before the end of the tax year. Make sure to only take out enough then to cover qualified expenses and still leave $4000 in tuition you are paying so you can take the credit. There may be other ways of doing this as well as suggested by some on my thread. Definitely look at this. Also look at any state tax savings you may be able to get doing the 529. For me in Illinois, it comes out to $1K a year when I contribute $20K to the 529.

When filling out your FAFSA forms for your son, I believe you can refile after you leave your job. I am not sure how having a large taxable bucket affects things. There may be some timing you can do.

Add in the cost of LTC insurance for your wife at least. It is less important for you to have it for yourself, as she will probably outlive you.

It is always good to have Plan Bs like downsizing and working part time. As a fellow engineer, I always want those factors of safety.

 

[HighRoller]

welcome

 

[ragabnh]

Hello highRoller,

Termendous advice Retiringat55 with regards to 529, I was not aware about the tax credit and the conditions associated with it, I will go back and read the thread.
Currently my family is covered with my health insurance through my work, when going back to the US, I hope my wife can find a job and we should be covered as well, otherwise I will have to purchase on my own.
I do max our Roth every year, since I have no 401k at this time.
The issue I have considerable amount of cash at this time 500k, and I am not comfortable going into the market, the indicies are very close to their highs with the exception of Nasdaq, and the cash is earning only 2% at this time.
Nice to know there are fellow engineers around, are you Civil?

 

[RetiringAt55]

There are many engineers on this board. My degrees were in General Engineering which was kind of a cross between Mechanical and Industrial Engineering. I actually work as a computer engineer doing decision analysis and computer modeling.

Take the jump and invest the cash. You cannot keep up with inflation unless you do this. Try a conservative 25/75 or so stock/bond portfolio. There are many threads on this board talking about asset allocation. You really should not have more than 5 - 10% cash.

 

[ragabnh]

I am thinking about it, but my horizon to retirement is short, taking a plunge should be a calculated risk and may be should be planned timing and amounts.

I am in the process of reading this forum at this time, however there is wealth of information around hear to digest, thanks for all your input and advice.