Another Wusss-Need Opinions

[Bandit]

Opinions needed!!!

I'm thinking of ER this year. I’m currently 55 YO. I have developed a spreadsheet that shows "money spent" in each of the last three years. Although money spent has been lower each year, the average is $50,000/year. I excluded items such as car payments (both almost new and paid for), utility trailer and other discretionary (mostly) expenditures.

I have run several different calculations (again using a spreadsheet) and I can currently generate a net income of $60,000/year if I retired. This includes my DWs income. She is also 55 and plans on working until 62. At 62 it will take my SS and her SS to replace what she is currently earning.

My pension is non-cola'ed and I'm using a SWR of 3% from the 401K. (I have access to the 401K when at least 55 YO and separated from Megacorp). The pension, 401K and DWs income each represent approximately one third of the $60,000. I should also note that the $60,000 is after deducting retiree health care premiums.

I know for certain that we can get by just fine with the 10K cushion, but what about inflation? The pension is not cola'ed, SS may have some increases (or not) and the 401K may have some gains, but I'm concerned about inflation in the long term.

So...I'm very undecided about ER at this time. I know a large part of my indecision is fear of that first step (hence the Wusss part). If I continue working the pension will increase approximately $2,500 per year and the 401K should (I hope) also increase in value. I have run the "keep working" concept through my spreadsheet and it looks fantastic at 65 YO, but crud, that’s 10 years out!!!!!

I have requested, and received, my retirement papers....that's how close I am, but I have no obligation until they are signed and returned.....

I hate to be one of those "just one more year" guys...I asked a co-worker the other day "how much is enough" and he replied "Just a little bit more".

I should also point out that we could reduce our spending from its current level. I fully expect, with no special effort, that the amount spent in 2010 will follow the trend of the last three years and be less than it was in 2009. With that being said, I don’t think I would ER if I went into ER knowing I had to cut spending by $5,000 to make it work....seems like that would take some of the fun out of it.

I know this is a personal, individual decision that is ours to make, but I would really like some opinions. So, what does the group think? Is a $10,000 cushion enough? Do I need "just one more year" and "just a little bit more"?

Thanks
Bandit

[REWahoo]

Bandit, have you seen these threads?

http://www.early-retirement.org/foru...ome-20091.html
http://www.early-retirement.org/foru...ugh-30818.html

After several years of reading posts from folks debating when/if to pull the trigger, my only advice is be careful you don't wait too long. If you run short of money you have a couple of options - go back to work or cut expenses. If you run out of life, your options are very limited.

[dex]

Quote:

Originally Posted by REWahoo Bandit, have you seen these threads? http://www.early-retirement.org/foru...ome-20091.html http://www.early-retirement.org/foru...ugh-30818.html After several years of reading posts from folks debating when/if to pull the trigger, my only advice is be careful you don't wait too long. If you run short of money you have a couple of options - go back to work or cut expenses. If you run out of life, your options are very limited.

Good advise.

+++++
A couple of questions:
1. What is your withdrawal rate?
2. Your wife is going to work; what will you be doing?
3. What is motivating you to ER at this time?

[smjsl]

60k net is net of what? Is it after tax? I assume so (if not, then clearly it's not enough). Given that...

Sounds like you have 40k that could potentially keep up with inflation and 20k that is not COLAd. I think you should wait until you have 50k (to match your expenses) that you think can keep up with inflation and use the non-cola'd part as the buffer.

Then again, since you are using 3% WR for 401k, if you increase it to 4%, which many may find acceptable, that would get you from 40k up to 47k... so perhaps getting it up to 50k is not that far off... just another year? :-)

[Animorph]

20%+ margin is not bad. You sound like you have some flexibility in expenses and are still only at 3% withdrawal rate. Sounds gooed to me. The only thing I'd particularly worry about is all the things you listed, car payments, utility trailer, and discretionary expenses, that may pop up again, in different forms, in the future. No car replacement, no major house improvements, no replacement furniture? I'd throw in some extra for that stuff. I'd only try to cover the non-COLA pension for inflation, the rest will approximate inflation raises, and hopefully your spending will level off with age.

As for when to quit, how much more per year can you spend if you work one more year? If you used that extra money on your favorite activity, would it be worth the extra year of work?

[Nords]

Quote:

Originally Posted by Bandit I know for certain that we can get by just fine with the 10K cushion, but what about inflation? The pension is not cola'ed, SS may have some increases (or not) and the 401K may have some gains, but I'm concerned about inflation in the long term.

You've done enough analysis that you might be ready to ramp up to FIRECalc's different versions, and perhaps even a $39 quarterly subscription to FinancialEngines.com. The latter has extremely detailed data entry with a wide range of simulation options of income & inflation.

With your previous spreadsheet work you'd be able to see whether the results of these two programs make sense for your situation.

And "Welcome to the Class of 2010!"

[Bandit]

Thanks for the responses!!

I made all my calculations in after tax and after health insurance dollars. I wanted to compare net income working compared to projected net income in ER....spendable dollar to spendable dollar.

For each additional year working my net income in ER would increase approximately $3,500. This is a combination of increase in pension benifits and increase in value of 401K (still at 3% SWR). Really makes that "one more year" look good!

As for what I'll do in ER We have a farm with all kinds of work that has piled up over the years. It can be at times be physically demanding (maybe loose some pounds) but mostly all outside and satisfying....especially with a cooler in the back of the truck. The farm does produce a small income, but I've not included that in any calculations.

Reason for wanting to ER?? I'm just tired of the routine...

Thanks again for the responses!

[KM]

Bandit,

I think we are in a similar situation in terms of where we will be getting our retirment dollars. (We are hoping to join the class of 2012). Our income will come from non-COLA’d pensions, SS (if it exists) and income from 401Ks.

You are right to think your biggest risk will be inflation and whether you have accounted enough for it. You are looking at 20-40 years to cover. I think the $50K you need today will likely be closer to $100K-$130K (depending on inflation) when you are 80. Of course, a lot of this will depend on what that $50K is being spent on today - but you will need more.

How much of that will your non-COLA’d pension cover? Can your 401K cover the difference? Granted your expenses may have gone down…but your medical expenses may have gone up. Yes, you can go back to work at 60, but it might be harder at 80.

I have a pretty in-depth spreadsheet I have been building over the last few years – you might want to expand yours a little to get a better look at the impact of inflation.

Basically, I take my assumed expenses today (in your case $50K) and then I inflate it each year by x% (whatever % you are comfortable with to cover inflation) – one row per year. This tells me my income needs each year. It looks pretty scary after about 10-20 years of inflation....

Next column, I subtract my non-COLA’d pension and SS. I don't inflate my SS, but you could, if you wanted. This tells me how much I need to take from my 401K each year.

Next column, I give my 401K a 6% return for the year (again, you can make this return whatever you are comfortable with).

Last column I subtract from my 401K what I think I will need for the next year. The year I run out of money is the year I need to die. If I don't want to die that year - I need to find a way to get more money in my 401K or cut my expenses.


I actually also consider taxes and a bunch of other stuff in my spreadsheet, but you could start with this very simple exercise. It might give you a rough idea of whether or not your 401K can make up for the inflation loss of the pension.

Also, are you health insurance premiums fixed? Or will they go up by 7%-12% a year each year for the next 10 years? That can really hurt also.

Lastly, you could always through in a low estimate for the farm as additional income. That might be the little bit you need to make it.


Best of luck in whatever you decide! I certainly understand the "tired of the routine" bit.