Retiring in 7-8 Years But Have Been Big Spenders

[PandaBear]

I’m not sure my husband and I fit in here, as we are looking at a retirement age of 60. That’s not really early retirement. I am hoping we are okay for retirement, but have always had great anxiety about it as well. Probably because of everything you read in the papers and internet.

We have made good incomes for a while, but haven’t been great at managing money (I know we should have way more saved than we do). I don’t realistically see that changing in the next few years. On the plus side, we do have limited debt (just a mortgage).

My husband and I both have pensions, which is somewhat atypical, I think. We plan to both draw pensions with 100% survivor benefits. We have 401K money. My husband is eligible for social security, I am not. We have one child graduating from college this year, one in college with entry level master’s degree required to work and one child in high school (junior). We are paying for their college. We live in a city that is routinely considered in the top 10 of most expensive cities in the country, although our house is not in the high priced range (probably about 750K in value right now, for an almost 1800 square foot 4 bedroom in a middle class neighborhood). I have always worked, but worked part time until about 6 or 7 years ago.

Our facts are as follows, as much as I know right now.
At age 60, my husband can draw a pension at approximately $6375 per year (in fall 2018)
I am 3 ½ years younger and can also draw a pension at age 60, at approximately $4624 per month.
Our current take home income is $13,466 per month. So we do have a pretty big discrepancy. I don’t see our incomes changing dramatically over the next few years.

Currently we fund college and one child’s competitive sport from savings and from our current salaries (about 43K a year from our salaries, the rest from savings). Our kids went to parochial schools and then state colleges. We also have a mortgage of close to $2000 per month, which will be paid off in a couple of years. So I am thinking that can also help to give us more wiggle room in retirement income. I am also not counting all the “extras” from 3 kids-car insurance, cell phones and many other things. So even with retirement expenses, I’ve got to hope our general monthly expenses will be reduced.

We have a million dollars in our 401K’s and IRA’s. We also have just regular savings of maybe $200,000 (not exactly sure) from some inheritances. While my husband has the opportunity for social security, we are not including that in our planning. Anything we get is a bonus. It’s quite possible I will inherit money from my parents, but that’s not something we will plan for. If I had to guess, I would think low 6 figures.

We currently have term life insurance purchased when our kids were young which expires in about 5 years. We are getting pressure from our agent to continue it, or change to whole life. However, we are thinking of just letting it expire. We are thinking it did its job, which was to protect of family in those years of kids being at home and going to school (we maintained enough insurance to pay off the house and provide a financial buffer for the remaining parent) We still have whole life policies that continue to provide term insurance, as well as cash payout which we plan to continue at least for now.

We also have long term care insurance and will continue that.

Unknowns for us right now:

• My husband could be laid off. If he is, he’d take retirement right away. Depending on when this would happen, his pension would be reduced by about $5000 per year away from age 65. So if it happened tomorrow, we’d lose about 22K per year. It’s not that it’s likely, but he has survived many layoffs and his department is a lot smaller than a few years ago.
• With an anticipated retirement at 60, I can begin to work part time at age 55. I’d have my yearly salary reduced, but my retirement would accumulate as if I was full time. Something I can consider.
• We definitely would want any kids marrying to have a nice wedding, so I feel we need to set aside 100K for all three.
• We’re not really sure what we’d want to do in retirement. My husband is a golfer and I think would like to be a marshall on a course. The pay is ridiculous around here (just above minimum wage) but you get free golf. I may decide to do volunteer work. I may also need to provide care to my own mom. Often, people in my position go back to the previous workplace and help with projects/training/etc, especially the first couple years transitioning from work to retirement.
• Both of us will want to travel. We own 2 timeshares and will likely end up with one more (from my parents).
• If my kids have their own kids, I hope to be able to be a nanny when the babies are young (the first year). If my kids live out of this area, I am open to temporarily relocating to help them out. Of course, that’s a big unknown. My daughter is already certain she’d want that, but with boys and their wives, who knows If we have our children in the area, I am absolutely open to providing day care when they are young and being the after school nanny when they are in school, if their parents want that help (My mom babysat my kids and was the afterschool nanny, ferrying the kids to activities when I worked, etc)
• In terms of relocating for retirement, that is a huge unknown. I don’t see that happening. But I also wouldn’t rule it out. So much depends on variables that I don’t know as of now…..if our siblings stay in the area, if our kids do, what our health is like.
• My husband’s sister is unemployed and her unemployment is getting close to ending. Not sure how much we will need to help her. Also, her daughter (who is about 20 years older than our kids and 10 years younger than me) has special needs. She works as a transporter at a hospital but isn’t really independent. We want the mom to make sure the house is in a trust so her daughter can’t get manipulated by someone after the mom is gone. We may need to provide some financial support as well.

That’s all I can think of at this moment. Thanks for any insight.

[Turboslacker]

Heck ya you belong here, welcome!

You do have many variables in play for sure, especially when you account for relatives beyond your immediate family.

One additional source of funds to include in your financials is that you will receive half of the SS amount that your DH receives when he starts claiming it. Did you really mean his pension is $6k per year or is it monthly?

Next thing to sort out is putting together a budget that you forecast in your retirement. Also play with retirement planner calculators like FIREcalc. It really helps with getting a sense of what is possible based on your risk style and lifestyle choice.

[38Chevy454]

All I can add is that you need to get a better picture of your expenses and a real budget before you can retire. Too many things now that will either end in next few years, or could add to expenses in next few years. Good that you both have pensions, I assume your husband's is monthly? $6375 per year is $530 per month, which has basically negligible effect on your monthly spending.

If you do not want to move, and your house is in high COL area, well just have to pay the price to stay. You don't say where you live, but depending on where you are there could be some differences in taxes for pension vs work income. So some tax planning or at least understanding would be good to check on.

My impression is you don't have a good idea of what true retirement expenses will be, so it is hard to make decisions without good data.

[Fermion]

Quote:

Originally Posted by 38Chevy454 I assume your husband's is monthly? $6375 per year is $530 per month, which has basically negligible effect on your monthly spending.

But $6375 per month would seem huge. Couple that with the other pension and they only need $3000/month from their $1,000,000 401K to keep spending $13K per month.

If that is from a public pension, I am very glad I will be quitting work and living in the forest (and not paying tax). If it is a private pension then can I know the company so I can sell my stock if I have any?

[PandaBear]

Quote:

Originally Posted by Fermion But $6375 per month would seem huge. Couple that with the other pension and they only need $3000/month from their $1,000,000 401K to keep spending $13K per month. If that is from a public pension, I am very glad I will be quitting work and living in the forest (and not paying tax). If it is a private pension then can I know the company so I can sell my stock if I have any?

Yes that $6300 is monthly. Sorry. It is from a private company that stopped offering pensions a few years ago. However everyone vested was grandfathered in. The pension is actually overfunded and has been for many years. A lot of guys seem to keep working and contributing but aren't retired long so do t collect. So the fund is in good shape.

[rodi]

Hello and welcome.

A few things to look at when you run the numbers.
Your pensions are awesome - and the fact that your husband will be able to collect SS on top of it is bonus.

You're monthly spending is (net) 13.5k, your pensions will bring in 11k - so your gap is $2500 PLUS taxes taken on the pension. Your $1M in 401(k) money would cover the $2500 gap - but not the taxes... (3% SWR on 1M).

It seems like for it all to work - there needs to be a good analysis of your spending as well as a look of what you'd need to cover that you're currently paying through payroll deductions. You have taxes, and probably insurance that you'll need to account for.

[LeavingOhio]

I'm going to somewhat go out on a limb and say that if you actually retire after the kids are gone and through college and you don't enable them beyond that that you have enough RIGHT NOW so that you can retire then...and easily so. $11,000 coming to you each month when you turn 60 is incredible. With no kids living at home, no extra car insurance and food and cell phones and on and on to pay for, that should EASILY take your expenses down to what your pensions will pay. Also, you said a $2000 a month mortgage will be gone by then...so you can do this EASILY.

Then, on top of that, you have a million dollars...if you go with a conservative 3% draw on that, that's $900 extra a month. You can do some fun stuff with $900 extra a month. Beyond that, you STILL have $200,000 more dollars.

With the kids and all their expenses gone, I'd say you're gaining $2000 a month right there. Add to it the loss of the mortgage, and that's another $2000 a month, so your current expenses of $13,466 are down to $9466. Your pensions more than cover that. If you take the 3% from your 401k (and it's ONLY at a million and doesn't go UP between now and then), then you should have $2434 above and beyond your expenses, and you STILL have $200,000 in cash extra (which if you wanted, you could also take 3% of that for another $500 a month).

Really, the only thing is the unknowns at this point...can you keep those jobs, do either of your companies file bankruptcy and change your pension payouts (since 1978 they can do that).

If you have the option of taking a lump sum of cash at retirement instead of pension payouts, I'd be interested in looking if that's a viable option if I were you. The nice thing (if they give you enough money) is that you can invest it as you see fit, it can no longer be taken from you, and if you want, once you die, you can pass that money on to heirs.

Anyway, you are in GREAT shape as I see it. With the house you have, if you felt like you needed to, you could also probably downsize for even more saving (heating, taxes, likely income from the sale).

[pb4uski]

PandaBear, since you have so many moving parts I would suggest that you get Quicken Lifetime Planner (included in Quicken Deluxe and higher) and out in your investments (just tickers and share counts are sufficient for this purpose I think) and go through the screens. It allows for special items like college, weddings, helping family, etc. It also has a what-if tool allows you to see how specific items affect your plan.

Firecalc is another tool many of us use.

My sense is that you are probably in pretty good shape.

[Rothman]

PandaBear I think your focus should be getting an accurate budget for your retirement expenses. You should start just tracking what you spend today and dividing it into base and discretionary. Then with that understood review with your husband the expenses and prioritize the discretionary. You are very fortunate with the pensions and can clearly retire comfortably you just need a plan that you and husband understand and agree on, so spending doesn't wipe out the $1m too early.

[daylatedollarshort]

I agree with the other posters to pull together a pre and post kids budget and run all the numbers, including Social Security, in a spreadsheet and/ or retirement planner. Social Security is currently fully funded through 2033, and at 75% after that. Why include a job pension in your planning but not SS? To buy an equivalent annuity today to replace the income our SS will provide would be a large amount of money - something I personally would not discount completely in my planning.

I do not know all the ins and outs of the government pension programs where people do not get SS, too, but are you quite sure you would not at least get even half your husband's SS? Or get the full amount of his SS if you became a widow? In some cases this seems to be true for other posters here, but I would be absolutely sure of each of your SS benefits before you do your retirement planning.

Our post jobs / post kids budget went down quite a bit - no more saving for retirement, no more job costs, no more need for life and disability insurance, no kids or college costs, less taxes, less expenses with more time to cook and price shop, etc.

If I were you'd I'd figure out how much money you'd have to live on if you both stopped working tomorrow and see if you could be happy living on that amount or if you'd rather keep working to save up some more.

[PandaBear]

Thank you for all of the thoughtful responses. I feel like I received a lot of guidance. Based on some of the advice, this is what I plan to do moving forward:

1. Social security: I haven't really considered SS because I thought there was legislation fading out benefits for higher income folks. I guess maybe I'm wrong? My husband gets social security (teachers can't pay into it) and I didn't know there might be a survivor benefit. I will try and find out if I'm eligible.
2. Budgets: well, I guess I kind of knew this was coming! I plan to work with my husband and figure out our current budget. Part of our issue is we are very different with how we handle money. So we have adapted our 2 salaries to reflect our strengths. That's good, but one unintended outcome is I have no clue about our monthly expenses. Right away I had 2 biggies: mortgage of 2K and tuition of $3500 each month. That's $5500!!!! We've been paying tuition of some sort since 1997-it's hard to even imagine a time in our life when that's not a big line item in our budget. But I'm going to figure out the other stuff too: cell phones and internet and water and life insurance and so on.
3. After I look into #'s 1 and 2, I guess I'll tackle some of the harder items....what if we have to help out my husbands sister, can my husband retire early and all those other questions. But right now 1 and 2 seem like a good place to start.

Again, my gratitude for the suggestions and advice. I am already feeling better!

[Spudd]

So your retirement budget will be at least $5500/mo less than what you're spending now. That should help a LOT.

[Fermion]

Quote:

Originally Posted by Spudd So your retirement budget will be at least $5500/mo less than what you're spending now. That should help a LOT.

Well the tuition was probably deductible unless they have a pretty high MAGI, so it is more like saving $4500 a month or thereabouts.

[PandaBear]

Yep, no deductions. Sigh.

[Fermion]

Quote:

Originally Posted by PandaBear Yep, no deductions. Sigh.

Bummer, same here, although I only spent about $40,000 total in tuition going back for an advanced degree.

[PandaBear]

Our current budget is 2 kids in college (about 17k per year each) and a HS student (about 15k per year).
Our oldest graduates this spring so only 2 tuitions, but for the next 5 years.

[MBAustin]

Welcome, Panda - you will fit in here just fine! Lots of nice people and good information around here. Remember - the only dumb question is the one you don't ask!

[Walt34]

Quote:

Originally Posted by MBAustin Remember - the only dumb question is the one you don't ask!

I am reminded of a cartoon. Old airplane mechanic to young new guy: "Don't be afraid to ask stupid questions. They're a helluva lot easier to explain than stupid mistakes."

[daylatedollarshort]

We found that after adding up the income from taking our pensions early, the money we have saved from having DH home (less fast food, more price shopping, less life outsourcing), less taxes, no more W2 job and commute costs, ACA subsidies, qualifying for college financial aid (assets in non countable asset classes) we just about broke even with DH working a full time salary job.

We weren't necessarily big spenders but we weren't the most careful spenders. Since DH has been off we've cut bills like grocery and energy in half, raised insurance deductibles, changed out the landline for Ooma, replaced some high maintenance cars with new more efficient MPG models, replaced an old energy hog TV, switched to LED bulbs, etc. It has been kind of wild how much we cut our expenses while keeping the same house, upgrading the cars and not negatively impacting our overall lifestyle.

[Gumby]

Quote:

Originally Posted by PandaBear 1. Social security: I haven't really considered SS because I thought there was legislation fading out benefits for higher income folks. I guess maybe I'm wrong? My husband gets social security (teachers can't pay into it) and I didn't know there might be a survivor benefit. I will try and find out if I'm eligible. !

If I understand correctly, you are a teacher who has not paid in to Social Security and who will get a pension from the state. If so, your survivor benefits, should your husband predecease you, will likely be eliminated by the Government Pension Offset. See here http://www.ssa.gov/pubs/EN-05-10007.pdf