FreedomSeeker
Confused about dryer sheets
I am trying to decide if I have applied the correct logic to my husband’s pension choices. We have selected the life-only benefit option. We have until the end of January to make any changes to that selection; after that, it is set in stone. I will not be receiving a pension myself.
My husband is 58. I am 53. Shortly after we were married 11 years ago, we hoped to quit our jobs in 2015, when my husband had the opportunity to take an early pension. Our goal was met and surpassed (thank you markets), and effective November 30, 2015 we quit.
Since we are retiring early, obviously we will have a longer time-horizon, and also a longer wait for Social Security income (especially me), so my thought was that if we could maximize the pension: 1) we could avoid having to withdraw as much from our investments early in retirement, letting them continue to grow, 2) lessen any sequence risk (for the same reason), and 3) have more purchasing power with the pension money early on, because it’s NOT indexed to inflation.
The thing going for us is that we are good savers (particularly me), having started early and continued during low markets, so our nest egg is ~48 times our last two years’ actual expenses, adjusting for lower income tax and adding in for health insurance premiums.
I used FireCalc to plug in various what-if scenarios, including the possibility that my husband died the day after he started taking his life-only pension. I reduced the value of our qualified accounts (which are ~50% of the total portfolio) by the expected Fed and CA state taxes. I used a 50-year time horizon. I further took an additional 20% off the grand total to assume for a market correction at the beginning of retirement and said I’d take out a lump sum $100,000 in 2018. I indicated that my Social Security income would start at age 62 (hopefully SS will still be there then!). FireCalc said there was a 100% chance of success that my money would last 50 years, even without a pension. In fact, I could take out more money than we spent on average the last two years, which is good because we plan on doing extensive travel. This calculation was based on using a 50/50 asset allocation in retirement.
Particulars:
Portfolio: $2,800,000
50% of the portfolio is in after tax accounts, so no problem with access to money before age 59 ½
Emergency Fund: $100,000+
Expenses: ~$60,000/year + traveling costs (includes fixed and estimated taxes - ~70%, and discretionary expenses)
Life-only pension: $45,114/yr (we chose the option to increase the benefit to $48,120/yr until 62, then $44,520)
Survivor option 1: $39,114/yr, survivor: $26,088 (2/3)
Survivor option 2: $38,616/yr, survivor: $28,962 (3/4)
Current asset allocation is 62% stocks/38% bonds & cash
Stock portfolio is currently 60% domestic stocks, 28% international, & 12% REITs
Portfolio made up of virtually all mutual funds, 92% of which are index funds.
House paid off, no other debt
No kids, so no big need to provide for a legacy
I would expect an average life expectancy for both of us. We are both healthy and extremely fit.
Anything else I should be considering that might change my mind?
Thank you!
My husband is 58. I am 53. Shortly after we were married 11 years ago, we hoped to quit our jobs in 2015, when my husband had the opportunity to take an early pension. Our goal was met and surpassed (thank you markets), and effective November 30, 2015 we quit.
Since we are retiring early, obviously we will have a longer time-horizon, and also a longer wait for Social Security income (especially me), so my thought was that if we could maximize the pension: 1) we could avoid having to withdraw as much from our investments early in retirement, letting them continue to grow, 2) lessen any sequence risk (for the same reason), and 3) have more purchasing power with the pension money early on, because it’s NOT indexed to inflation.
The thing going for us is that we are good savers (particularly me), having started early and continued during low markets, so our nest egg is ~48 times our last two years’ actual expenses, adjusting for lower income tax and adding in for health insurance premiums.
I used FireCalc to plug in various what-if scenarios, including the possibility that my husband died the day after he started taking his life-only pension. I reduced the value of our qualified accounts (which are ~50% of the total portfolio) by the expected Fed and CA state taxes. I used a 50-year time horizon. I further took an additional 20% off the grand total to assume for a market correction at the beginning of retirement and said I’d take out a lump sum $100,000 in 2018. I indicated that my Social Security income would start at age 62 (hopefully SS will still be there then!). FireCalc said there was a 100% chance of success that my money would last 50 years, even without a pension. In fact, I could take out more money than we spent on average the last two years, which is good because we plan on doing extensive travel. This calculation was based on using a 50/50 asset allocation in retirement.
Particulars:
Portfolio: $2,800,000
50% of the portfolio is in after tax accounts, so no problem with access to money before age 59 ½
Emergency Fund: $100,000+
Expenses: ~$60,000/year + traveling costs (includes fixed and estimated taxes - ~70%, and discretionary expenses)
Life-only pension: $45,114/yr (we chose the option to increase the benefit to $48,120/yr until 62, then $44,520)
Survivor option 1: $39,114/yr, survivor: $26,088 (2/3)
Survivor option 2: $38,616/yr, survivor: $28,962 (3/4)
Current asset allocation is 62% stocks/38% bonds & cash
Stock portfolio is currently 60% domestic stocks, 28% international, & 12% REITs
Portfolio made up of virtually all mutual funds, 92% of which are index funds.
House paid off, no other debt
No kids, so no big need to provide for a legacy
I would expect an average life expectancy for both of us. We are both healthy and extremely fit.
Anything else I should be considering that might change my mind?
Thank you!