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Soon to be 56, and out of work - retired?
Old 03-22-2011, 06:19 PM   #1
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Soon to be 56, and out of work - retired?

I'm currently negotiating how many more months I'll be at work and a severance package - maybe up to 22 months of base salary $134,400 which is about $38,000 more than my partner (65) and I need to live on. I didn't expect to be here quite so soon, but I think I'm in pretty good shape - net worth $1,773,465, house is $347,618 of that. Debt of only $85,000 (mortgage and HEL, only). Trying to decide whether to keep paying off the mortgage at a higher than required rate $1500 in order to retire it sooner, or go back to paying $1132/month and stretch it out longer. Definitely freaked out about spending rather than accumulating, even though I should be able to accumulate a couple more years if the severance comes through. I'm even more freaked out about being so tight with money that my partner flips. Losing a job is one thing. Divorce is quite another. We haven't had to budget in quite awhile. Comments welcome. I expect to return often. P.S. I'm tickled pink to have at least a long break from work. Maybe I'll never go back!
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Old 03-22-2011, 09:18 PM   #2
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Hi lem1955 and welcome to the forum!

At first glance it seems like you should be in good shape -- your net worth seems enough to support a comfortable lifestyle in most parts of the country.

You should go ahead and start developing that budget. I've found that a budget is helpful both ways -- it helps me keep some controls on spending, but it also gives me permission to spend what I've budgeted. It should help out on the kind of natural tendency to clamp the wallet closed.

"Comprehensive health insurance is an idea whose time has come in America." President Richard M. Nixon, February 6, 1974
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Old 03-22-2011, 09:54 PM   #3
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Don't spend much time right now on whether to pay your mortgage or not, that's pretty much a wash and will have very little to do with whether you need to go back to work or not.

Coach is right that you probably have enough for a decent lifestyle in most places, but it's probably not the lifestyle you've been living. Sounds like you'll come out with about $1.6-1.7M (not counting your house), so you'll need to figure out if you can live on ~60-65K instead of nearly $100K now, if I understand what you've said. Got health insurance covered? At my first glance, IMO you're not ok unless you are able and willing to make cuts. Some will depend on how much of that net worth is still to be taxed (in non-Roth IRAs, unrealized capital gains, etc).

You need a realistic budget, and if you can go back the last couple of years and track expenses you'll have a better picture. You'll also need to budget in maintenance, car replacement, and so on, if the last couple of years haven't been typical. And figure out what your taxes would be in retirement--they should be less than what you're paying now.
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Old 03-22-2011, 10:41 PM   #4
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1. Figure out a budget.
2. Run it and your assets through FIRECalc.
2a. Run both mortgage scenarios through FIRECalc-- one at $1500/month and the other at $1132/month, and decide which makes you sleep better at night.*
3. Pick a drawdown asset allocation that makes you comfortable even if the stock market drops 25%. That would probably involve having at least 10% of your portfolio in CDs or a money market.
4. Read a library copy of Ernie Zelinski's "How to Retire Happy, Wild, & Free"...

* You could revert to $1132/month and stash the extra $368 in a savings account for a few months to see how you feel about it. If you decide to resume the accelerated payoff then you could always make a lump-sum payment.

You could also continue paying $1500/month until the rate of longer-term CDs rises above the interest rate of your mortgage.

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Old 03-23-2011, 01:45 AM   #5
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I think you're in good shape, but may not be on easy street yet. I agree with others that your nestegg may not be sufficient to support your current lifestyle at a prudent sustainable withdrawal rate. Take a run at the budget - not sure what is included in the $95k that you need to live currently and how that might change in ER. Be sure to consider health care costs, as they can be quite substantial. However, income taxes will be much lower once your severance runs out.

If your mortgage interest rate exceeds the earnings rate on taxable funds, then pay it down quicker, of not then revert to the scheduled payments - however, that decision is more of nibbling at the edges.
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Old 03-23-2011, 03:52 AM   #6
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Create a plan.

The withdrawal phase has some additional complexities (and risks) to manage compared to the accumulation phase. Leading up to the withdrawal often includes positioning assets a certain way to ensure a certain amount of liquidity.

Do your homework and create a plan. The Journal of Financial Planning has some good articles.

Check out Jim Otar's book: Unveiling the Retirement Myth
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Old 03-23-2011, 05:13 AM   #7
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Been in your shoes a few times (in addition to the financial anxiety of getting laid off, for me, there was some emotional trauma as well -it stinks being older and getting let go, IMO) and what kept driving me back into the workforce was healthcare. As the other folks have pointed out, develop a budget, run FIRECalc, and figure out healthcare. Once you've done that you'll know if you are truly retired.

best of luck!
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Old 03-23-2011, 06:24 AM   #8
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I found myself unemployed at age 50, and again at age 58. I landed on my feet both times, but I learned very quickly that in the corporate job market 50 years is "old." With that in mind, I'm sure you'll find another position but it may take a while.
So why not just pay the $1132 mortgage amount until you have a better idea of your job prospects and lifestyle on reduced income? The extra $368 could be useful in that short term.
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Old 03-23-2011, 06:39 AM   #9
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Pay off the mtge, unless you have an interest rate under 4%. Get used to a budget that you'll live with unless you work. You may have 30+ years to live on 1.7m, that's a long time. Most important is can you live happy on a budget long term....that's the only way I could sleep nights. Or, will you be bored and want to do something and find yourself being limited by budget ( can't afford to travel) and work, at less money, becomes "fun" for you.....I know it doesn't for many. Overall you have good choices, many don't so you are fortunate. Enjoy your past success, plan for the future and do what feels right for you. Good luck!
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Old 03-23-2011, 07:20 AM   #10
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You may have enough but it really depends on your future budget for daily living.

A few questions/thoughts for clarification:
- Your net worth without the house is about $1.4M. Is that all invested? In what accounts, i.e. taxed, 401k, roth, etc? You might want to review your asset allocation for the changes in your life.

- 134k for 22 months = about 73k a year (is that right?), and you had extra so you should be able to create a budget maybe in the 40 - 50k range after you reduce taxes, 401k contributions, work related expenses, etc.

- Since your partner is 65, any SSN or other income?

- Will you be collecting unemployment now or after your severance ends?

- Will your severance include healthcare now or when it ends? Can you get reasonable individual healthcare policy? Cobra cost?

- If you have a flexible spending account at work, start scheduling all your normal appointments and use up the FSA.

- As for paying off the mortgages, it's harder to get a loan or re-fi without a job, so pay the min. and hold the extra. This assumes that both loans have low interest rates, say about 4%. If the rates are higher, look into a quick no cost re-fi. It may take 2 - 3 months tho.

Again, I think you could be ok, but really depends on the lifestyle/budget you want.
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Old 03-23-2011, 08:29 AM   #11
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OK, I'm not clear anymore on whether $134K is your yearly salary or what you'd get for 22 months of pay. Then you said you lived on 38K under that, but since your yearly salary isn't clear, the expenses aren't either. And what expenses are now is less important than what they'd be in retirement. Can you restate the numbers more clearly?
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mortgage, spending

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