proposed work reduction and then slide into retirement

[Tyrone]

Hello all,
Thanks for taking the time to read and offer your opinions.
Thinking about seriously downshifting my time at work and therefore reducing household income in a significant way. Thinking if this works, would fully retire in about 3 years.

Proposal: Reduce household income to 30k/year (not including pension)

The numbers (note that college expenses are fully funded from different account not listed below):

Age: 51, spouse age 49. Kids ages: 19,17 and 16

Savings: $740k (45% stock, 35% bond and 20% cash)
-Roths: $130k
-Traditional IRA: $125k
-457b (we can now access): $245k
-457b (can't access yet): $35k
-SEP: $125k
-Taxable: $80k (50K cash)

Pension: 48k/yr pre-tax. Currently being collected. 100% spousal benefit and COLA.

Health insurance for life for self, spouse. For kids until age 26. Minimal cost. Becomes secondary after medicare kicks in.

Expenses: $6,650/month post tax dollars

Debt: Mortgage only of $235k @3.75% fixed. 28 years remaining. Cost of PITI included in monthly spending.

Taxes: current effective rate fed and state combined: 15%. Would be reduced to about 9% effective combined fed and state under proposed change. Some calculators say we would actually have a negative tax rate due to college expenses for the next few years.

Social Security at age 62 for self and spouse under proposed income reduction: Self: $1326/month. Spouse: $1248/month

Feedback appreciated!

 

[conversationalphrase]

Quick question. Are the mortgage, health care, and taxes included in the monthly expense number?

 

[Tyrone]

Quick question. Are the mortgage, health care, and taxes included in the monthly expense number?

Yes. Plus, monthly expenses are in post tax dollars. Sorry if that wasn't clear.

 

[Dtail]

Sounds good overall. You will be at a little above 4% WR for 8 years then should be under 3% WR starting at 62 y.o.
Have you factored into the expense budget some lumpy expenses such as a new roof, new car, etc?

 

[Tyrone]

Sounds good overall. You will be at a little above 4% WR for 8 years then should be under 3% WR starting at 62 y.o.
Have you factored into the expense budget some lumpy expenses such as a new roof, new car, etc?

Thanks for the feedback.
Good issue to raise as I did consider but not plan for that type of expense. How would one plan? Just set aside additional funds?

 

[Aerides]

H
Health insurance for life for self, spouse. For kids until age 26. Minimal cost. Becomes secondary after medicare kicks in.

Are you basing the assumption of "minimal cost" on current ACA rates and subsidies? If so, at 51, that's gotta work for a long time. While I don't think the ACA will go away, I wouldn't bank on anything being minimal in your healthcare budget.

 

[Tyrone]

Are you basing the assumption of "minimal cost" on current ACA rates and subsidies? If so, at 51, that's gotta work for a long time. While I don't think the ACA will go away, I wouldn't bank on anything being minimal in your healthcare budget.

Hi.
The health insurance we have is part of spouses hazard duty retirement plan and costs us under $100/month (par of our monthly expenses listed above). Will become no costs once this becomes secondary to medicare. We are very fortunate in this respect.
ACA isn't a factor for us.
Thanks

 

[Patricia Lyn]

I can’t speak to the financials but I went part time two years ago and retired last month. I found the part time work very satisfying! I was able to develop a dormant talent (oil painting) through taking a class every other week, and getting into a routine of seeing friends and family, taking care of the house, etc. that I never seemed to have time for when I was working full time. The difference in stress level was significant! I became happier, less reactive to stress and more focused on my abilities outside of my job identity.
It has also made the transition to retiring so much easier. I’m just basically picking up my pace with art class and even starting to sell a few paintings (not the original intent but I’ll take it), organizing things at home, planning our home exchanges, etc. not bored!

 

[38Chevy454]

It seems you are pretty good shape to follow your plan. You have good grasp of your budget needs, and the savings and pension income to meet it.


My main contribution is that I also did the part-time wind down for the last part of my working career. I went to 3 days/week, with a small bump to 4 days/week to help out right before I retired. In my case I was able to keep the employee benefits, specifically the health insurance was a big factor for me. I had been living on the 60% of income already, so all it really required was less savings, no change in std of living. It worked great for me, I encourage you to do it if your employer will accomodate you working part-time.

 

[Tyrone]

Patricia Lynn and 38Chevy454, thanks for the feedback. I will be speaking with my employer in the near future about this idea. Wanted to make sure the math worked out first tho!
Thanks again.

 

[Dtail]

Thanks for the feedback.
Good issue to raise as I did consider but not plan for that type of expense. How would one plan? Just set aside additional funds?

Some forum members usually do it one of 2 ways.
1) Figure our your best guess of when you might need a new roof for example and accrue that expected cost each month into a lumpy type separate "emergency" type fund.
2) Don't accrue any costs and just pay it out when the costs are incurred, but still include it in any expenses portion of retirement calculations when using retirement calculators.

 

[RobLJ]

1. Your numbers look fine, particularly given the healthcare clarification. I would just scrape some of the excess (unused monthly/yearly) into an emergency fund, as I think Dtail just posted.
2. I'm still working online on my own schedule about 15 hours/week (not during summer) for 1/2 of my salary. Some here don't call this FIRE; I call it semi-retired and love it. I've done it almost for 4 years and will continue for at least 1-2 more years (1 for sure; it looks like they will extend for 2 years, though).

Since the time is flexible I can do it anytime during the week or during days/nights; I realize this amount of flexibility is unusual. Summers are off. This has allowed DW (4 years younger) to fully retire; I enjoy it, although I wasn't enjoying anymore the 50-60 hours/week when I was working fulltime.


So I'd say try the part-time to see if you like it. If not, cut the cord completely.

 

[RobLJ]

I posted in part because our portfolio numbers 3.75 years ago when we pulled the trigger were similar, as well as planned spending (we have quite a bit of slack due to high travel expenses, etc).

My current salary is a little less than your pension but similar.

Portfolio now is about 1/3 higher than when we started semi-FIRE in July 2015.

 

[Tyrone]

Great feedback. Sounds like people are saying I can follow through on this plan! Now to just deal with the emotional aspect of letting go of a steady, good paying gig and drop down to very part time. Any suggestions on that front would be helpful as well.
Thanks!