Retirement Math Logic
 12-21-2016, 04:39 PM #1 Dryer sheet wannabe   Join Date: Nov 2014 Posts: 16 Retirement Math Logic Hi there. I have been reading posts here for a while. All this info is useful in considering retirement and have my wheels spinning. A little background on me. - Wife and I are both 51. Both work in sales with decent incomes. - I have a pension from old mega corp job with 20 years with a lump sum option or an annuity option. My current job also has a pension but only with an annuity option. Both pensions have a COLA. - Our goal is to retire at 59.5 yrs old. -so far we are in good health and do the best to take care of our health as we age. - Currently \$1.8M in retirement funds (401Ks, profit sharing, some old company stock pension lump sum). - current home equity (not included in the \$1.8M) is \$600,000 with \$150,000 mortgage balance. We plan to pay off balance in the next 3-5 yrs to be debt free. We will probably downsize a bit as we near retirement and possibly buy a 2nd home for the winter months. - 4 kids. Oldest is married and on her own and 2 in college and youngest in high school. The youngest will be done with college when we turn 57. We currently cash flow all college costs so no debt incurred by kids when they graduate. - Wife and I will both qualify for SS and will probably delay until 65- 70 yrs old or close to that. - I am assuming a conservative 5% growth on the \$1.8M over the next 9 yrs will grow the portfolio to about \$2.8M and that doesn't t account for the annual contributions of self and employers match so I feel that is a conservative figure. - while retirement is still 8 yrs away, I have an all in budget of \$150,000 in annual spending once retired to maintain quality lifestyle we desire. So, here is my logic that I am questioning: Expenses of \$150,000 x 30 years (age 60-90) = a total spend of \$4.5M. I am sure that as we age our annual budget will drop as we won't travel as much so there is some fluff in the spend figure. Projected Income Streams: -SS for self \$30,000 per year x 25 years (age 65-90) I discounted the SS figures about 20%) = \$750,000 -SS for wife \$30,000 per year x 25 years (age 65-90). I discounted the SS figure about 20%). = \$750,000 - Pension from old mega corp if I take the annuity is \$2,630 (50% Joint Survivor) (age 65-90) = \$2,630 x12 x 25= \$789,000 - Projected pension from current gig if I retire at 59.9 with 16 years of employment is \$2,856 (50% joint survivor) = \$2,856 x12 x25 yrs = \$859,500 Total from revenue stream = \$2,437,500 (for the 25 year period of age 65-90) Less total projected spend of \$4.5 M = \$2,062,500 shortfall that I would need to spend from my portfolio which at the age of 59.5 should be \$2.9M which in theory would leave me with about \$840,000 balance in my portfolio. These calculations don't include the continued growth on the portfolio. Balance from age 60-90 so I anticipate that the balance could be higher at age 90 that the \$840,000 noted above. -Also the expense figure of \$150,000 per year provides for \$24,000 annual spend for health care pare,kim's from age 60-67 but if I stay with current company I will get subsidized healthcare at age 60 when I retire so the expenses are a guesstimate but I believe on the heavy side. What do you all think of this math logic? Are we on the right track to retire early at age 59.5? Thanks in advance for your input. __________________
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 12-21-2016, 04:52 PM #2 Recycles dryer sheets   Join Date: Nov 2002 Location: Alajuela, Costa Rica Posts: 221 Don't overthink it. Use one of the many excellent and free retirement calculators. My favorite is firecalc. __________________ __________________ AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
 12-21-2016, 05:13 PM #3 Dryer sheet wannabe   Join Date: Nov 2014 Posts: 16 Thanks galena. I will play around with fire Calc some.
12-21-2016, 05:24 PM   #4
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Join Date: Jul 2011
Location: The Bay Area
Posts: 2,505
Quote:
 Originally Posted by JohnnTexas Hi there. I have been reading posts here for a while. All this info is useful in considering retirement and have my wheels spinning. A little background on me. - Wife and I are both 51. Both work in sales with decent incomes. - I have a pension from old mega corp job with 20 years with a lump sum option or an annuity option. My current job also has a pension but only with an annuity option. Both pensions have a COLA. - Our goal is to retire at 59.5 yrs old. -so far we are in good health and do the best to take care of our health as we age. - Currently \$1.8M in retirement funds (401Ks, profit sharing, some old company stock pension lump sum). - current home equity (not included in the \$1.8M) is \$600,000 with \$150,000 mortgage balance. We plan to pay off balance in the next 3-5 yrs to be debt free. We will probably downsize a bit as we near retirement and possibly buy a 2nd home for the winter months. - 4 kids. Oldest is married and on her own and 2 in college and youngest in high school. The youngest will be done with college when we turn 57. We currently cash flow all college costs so no debt incurred by kids when they graduate. - Wife and I will both qualify for SS and will probably delay until 65- 70 yrs old or close to that. - I am assuming a conservative 5% growth on the \$1.8M over the next 9 yrs will grow the portfolio to about \$2.8M and that doesn't t account for the annual contributions of self and employers match so I feel that is a conservative figure. - while retirement is still 8 yrs away, I have an all in budget of \$150,000 in annual spending once retired to maintain quality lifestyle we desire. So, here is my logic that I am questioning: Expenses of \$150,000 x 30 years (age 60-90) = a total spend of \$4.5M. I am sure that as we age our annual budget will drop as we won't travel as much so there is some fluff in the spend figure. Projected Income Streams: -SS for self \$30,000 per year x 25 years (age 65-90) I discounted the SS figures about 20%) = \$750,000 -SS for wife \$30,000 per year x 25 years (age 65-90). I discounted the SS figure about 20%). = \$750,000 - Pension from old mega corp if I take the annuity is \$2,630 (50% Joint Survivor) (age 65-90) = \$2,630 x12 x 25= \$789,000 - Projected pension from current gig if I retire at 59.9 with 16 years of employment is \$2,856 (50% joint survivor) = \$2,856 x12 x25 yrs = \$859,500 Total from revenue stream = \$2,437,500 (for the 25 year period of age 65-90) Less total projected spend of \$4.5 M = \$2,062,500 shortfall that I would need to spend from my portfolio which at the age of 59.5 should be \$2.9M which in theory would leave me with about \$840,000 balance in my portfolio. These calculations don't include the continued growth on the portfolio. Balance from age 60-90 so I anticipate that the balance could be higher at age 90 that the \$840,000 noted above. -Also the expense figure of \$150,000 per year provides for \$24,000 annual spend for health care pare,kim's from age 60-67 but if I stay with current company I will get subsidized healthcare at age 60 when I retire so the expenses are a guesstimate but I believe on the heavy side. What do you all think of this math logic? Are we on the right track to retire early at age 59.5? Thanks in advance for your input.

+1 on Galeno's comment; put your numbers into FireCalc and/or other calculators. Your simplified methodology leaves out too many important variables (like 30+ yrs of returns & inflation).

Is \$150k including taxes? If not, add them.

I'm assuming \$150k/yr is a budget you've already demonstrated you can live on (or you're living on less). If not, reevaluate your retirement budget.

I think you dropped a "0" in your income stream Calc because your total guaranteed income streams add to \$3,148,500.

Don't assume that annuitizing your pensions is the best choice. Do some analysis to see what's optimum. You will find some good examples of similar analyses on this forum.

When using FireCalc (and other tools) evaluate taking SS @ different ages to see what's optimum for you.

If you're relatively certain you're going to sell your current house & buy 1/2 retirement home(s), you should consider whether you want to pay it off early. I'm assuming you meant you'd pay it off earlier than required by your mtge. If that's the case, and you have a low % rate, you might be better off investing the \$\$\$ you'd use to pay off the mtge early.

Congrats to a fellow Texan! IMO, you & DW seem to be in good shape financially. Welcome to E-R.org! Lots of smart, experienced members here; take advantage of their knowledge.
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 12-21-2016, 05:32 PM #5 Dryer sheet wannabe   Join Date: Nov 2014 Posts: 16 Thanks Houston55. Good catch on the math. My total revenue stream should be \$3,148,500 for a short fall of only approximately \$1.4m that I would need to use from my portfolio over time. Yes tax s are included in my Annual budget spend of \$150,000 as well as healthcare. On the current mortgage I only have 8 yrs remaining but may pay it off early or downsize now to now mortgage and bank some of the equity.
 12-21-2016, 06:13 PM #6 Thinks s/he gets paid by the post   Join Date: Jul 2011 Location: The Bay Area Posts: 2,505 Just for giggles, I put your info into FIRECalc. The result summary is: "Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was \$1,056,998 to \$11,499,649, with an average at the end of \$4,497,586." I used the SS, COLAd pensions and NW info from your post but, did not include any value for the house. I also assumed a 30 yr time period (until you're 90). Suggest you play around with FIRECalc but, this initial cut says you're in good shape. __________________ You may be whatever you resolve to be. 100% x 10% > 10% x 100%
 12-21-2016, 07:50 PM #7 Recycles dryer sheets   Join Date: Aug 2013 Posts: 275 I'm always so jealous when I see people with awesome pension plans that are around the same age as me. You do not see nice pension plans like yours these days. From what you have provided it looks like you are "golden" to retire at 59. I have two concerns with your plan (if this were me): 1) Your plan is heavily relying on pensions & SS to be successful for until you reach 90. For me this is a potential risk. 2) \$150,000/year is a hefty burn rate so make sure you "really" understand your expenses and it includes taxes and healthcare cost. Now if this were me I think I would investigate a plan to retire much earlier by reducing my expenses until I reached age 60-65 to understand how much I would really be getting from my pensions & SS. If they do not fix SS they will only be able to pay 75% of the benefits. Are you pension solid? I hear a good pension needs to be 90-95% funded at all times. My quick figures using FireCalc shows if you could reduce your spending to \$100K/year & if your pensions & SS were only able to payout 75% at age 65 you still get a 100% success rate with a AA of 50/50. If you have been reading on this forum you probably see people say that they wish they retire much earlier. Keep playing with different scenarios with FireCalc and other tools and you may be surprise you can come up with a realistic plan that allows you to retire much earlier. Bottom line is you need to run the numbers and be comfortable with the final plan.
 12-21-2016, 08:01 PM #8 Give me a museum and I'll fill it. (Picasso)Give me a forum ...   Join Date: Jun 2005 Posts: 9,841 I see that over at bogleheads.org, a user bobcat2 does some math with spreadsheet functions FV and PV. You might want to check it out because it seems close to what you are trying to do: https://www.bogleheads.org/forum/vie...?f=10&t=205824
12-22-2016, 12:12 AM   #9
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Quote:
 Originally Posted by LOL! I see that over at bogleheads.org, a user bobcat2 does some math with spreadsheet functions FV and PV. You might want to check it out because it seems close to what you are trying to do: https://www.bogleheads.org/forum/vie...?f=10&t=205824
I'm a big fan of Bobcat2. We look at our retirement funding in a similar fashion.
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12-22-2016, 01:56 AM   #10
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Quote:
 Originally Posted by JohnnTexas - while retirement is still 8 yrs away, I have an all in budget of \$150,000 in annual spending once retired to maintain quality lifestyle we desire. --- -Also the expense figure of \$150,000 per year provides for \$24,000 annual spend for health care pare,kim's from age 60-67 but if I stay with current company I will get subsidized healthcare at age 60 when I retire so the expenses are a guesstimate but I believe on the heavy side. What do you all think of this math logic? Are we on the right track to retire early at age 59.5? Thanks in advance for your input.
How are you factoring in inflation in your annual spend?
How are you factoring in taxation on your withdrawals?
Are you considering changes to the way you travel as you age? Eg. Potentially more cruising and tours vs DIY.
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 12-22-2016, 08:36 AM #11 Thinks s/he gets paid by the post   Join Date: Jun 2013 Posts: 1,513 If it were me I would use age 95 or 100 as an end date, not age 90. Even if longevity is not in your or your DW's genes, reaching age 90 is increasingly likely for a growing number of people. Sent from my iPad using Early Retirement Forum __________________ "Luck favors the prepared mind" Pasteur
 12-23-2016, 06:29 AM #12 Recycles dryer sheets   Join Date: Oct 2015 Posts: 388 OP, we have a few things in common... I'm 52, 4 kids in shooting range of yours (1 married, another engaged), downsize part of plan. Differences... I'm the only earner (DW at home), no pension so all on me, targeting \$200K after tax income in RE (conservatively growing that at 3%/yr even though inflation not much today), potentially RE age is 55, but I could chicken out and stay working as long as 60 (OMY syndrome). In addition to running the math, a few other real life things to consider (part of my own logic/strategy)... - Launching RE feels best when last kid graduates college and is paid for (in my case age 55) - Don't forget about wedding costs \$\$\$\$!! In my case, I have 3 girls. I married 1 off last year and spent allot of time "setting the number" because I had 2 others watching closely. My boy just got engaged so hoping to save a few coins on him. As you may experience with 4 kids, I have a bunch of score keepers! - Anticipate kids staying a year post college graduation as they save a little dough before they go 100% on their own. That means they are eating your food and perhaps still a little on the proverbial nipple as some say. - Downsize may not work out as you planned for a number of reasons. My logic was sell the big house and buy 1/2 the house for 1/2 \$. In my case, where we want to downsize will probably cost the same \$ for 1/2 the house. We will save on a few items like utilities & maintenance, but not like we originally thought. Also, with a family of 4 kids who will hopefully make grandkids there is always the discussion of keeping the big house to host the whole family one day. Just a few other items to factor in.
12-23-2016, 07:41 AM   #13
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Quote:
 Originally Posted by DawgMan ... - Anticipate kids staying a year post college graduation as they save a little dough before they go 100% on their own. That means they are eating your food and perhaps still a little on the proverbial nipple as some say. ....
My plan was to retire the summer my youngest finished college in 2013. I retired, he is still working toward that college degree. Just sayin...

12-23-2016, 12:42 PM   #14
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Quote:
 Originally Posted by Hermit My plan was to retire the summer my youngest finished college in 2013. I retired, he is still working toward that college degree. Just sayin...

My sister and her husband moved while their youngest was on a trip right after graduation. They also changed their phone number. When my nephew came "home", strangers answered the door and the neighbors had to take them to the new house! I thought about that when my youngest DS graduates!

12-23-2016, 01:08 PM   #15
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Quote:
 Originally Posted by Taxman59 My sister and her husband moved while their youngest was on a trip right after graduation. They also changed their phone number. When my nephew came "home", strangers answered the door and the neighbors had to take them to the new house! I thought about that when my youngest DS graduates!

 12-24-2016, 12:57 PM #16 Dryer sheet wannabe   Join Date: Nov 2014 Posts: 16 Thanks to all those that responded. I realize that 9 yrs away is a long time to think and plan for retirement. We could possibly go before 59.5 but the uknown on the healthcare premiums and insurance and what that might look like at age 55 is something we will have to monitor.
 12-26-2016, 09:02 AM #17 Recycles dryer sheets   Join Date: Sep 2009 Posts: 68 Just a couple of things to add on. We have many things in common re: income, spending, kids, etc. I don't think \$150K/year is really high. I do think once your kids are all gone, that will drop pretty dramatically. Also, in my spreadsheet, I knock down my annual spending figure every five years, just thinking that over time we'll get more sedentary - going out less, etc. Looking at your situation from 50,000 feet, I do think you're in great shape, and if I were in your shoes, I would look at retiring earlier - it seems highly likely that you could, with minimal risk. Finally, don't minimize healthcare costs. My budget for this year is \$25,000. And the annual inflation on it is almost certainly higher than overall inflation. __________________

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