Retirement Plan Advice

[HomesteadDreamer]

My goal is to retire in 10 years at the age of 57. I think we can do it and just wanted to get some input/advice on what we're planning. I'm retired from the military with a COLA'd pension. I currently work for the gov't and will get a small pension at 57. My wife is in the national guard and will get her pension at age 60. Based on my calculations, we'll need around $5-6K/month while in retirement. Here is what I'm projecting at age 57:

My military pension: $2600
My gov't pension: $600
Wife's disability: $1200

We should have around $500K in our savings (TSP) at that point and we plan to take systematic withdrawals of $1500/month for about 5 years until my wife's military pension kicks in ($1500+/month) and we become eligible for SS. At that point, we'll adjust the amount of withdrawals we take, as needed.

We're both in pretty good health and we'll have TRICARE/VA for medical care for life, which will help.

Our #1 goal is to not work until we're 60+ so that we can enjoy the hobbies and family time that we want to focus on. Based on the above, do you see any major problems? Any other advice?

Thanks in advance.

 

[pb4uski]

If you input your situation into Quicken Lifetime Planner (included in Quicken Deluxe and higher) it will tell you if your plan works and allow you to look at what-if changes to your plan. You can also use Quicken to monitor your progress.

Or you can try FireCalc, though it is not as intuitive or flexible and more complicated... but it is free.

 

[Whisper66]

As long as you keep a good handle on living expenses, your pensions, disability and SS will cover them. Your savings will cover the shortfall until your wifes pension and SS kicks in plus have some left over to grow or use for unexpected expenses. I am assuming you won't have any other unexpected major hits like kids that return to home or aging parents that your end up supporting. Overall, this plan looks good to me if it works out this way.

One question you might consider is what happens if you pass early. Before your passing, you guys will collect both you and your wifes Social Security. If you pass early, your wife will lose some SS but still collects the higher of her or your social security. Will she still collect your two pensions or does she lose some / all of that money? Does she still have plenty to live off of? Just something to consider....I don't know how your pensions are set up to offer an opinion.

 

[pb4uski]

Good point... when doing such planning it is wise to also do a version as if one or the other of you died tomorrow.

 

[Koolau]

I always encourage some back-ups to your plan.

Can you see a part time gig if that became necessary? Do you have skills for something beyond minimum wage (coming from the military, you probably have many marketable skills.)?

Can you cut expenses for a while by 20 to 30% if you have to?

Could you move to a low COL area if need be?

You can probably think of others, but keep in mind there are two of you who would need to agree on your back-up positions. As always, YMMV.

 

[Blue Collar Guy]

Our #1 goal is to not work until we're 60+ so that we can enjoy the hobbies and family time that we want to focus on. Based on the above, do you see any major problems? Any other advice?

Thanks in advance.

Divorce would be a major problem. Counting on soc sec is another

 

[DrRoy]

At $5K/mo you look fine. At $6K/mo it feels just a little tight to me. Be sure that you are confident about your budget. If it looks like the higher figure is needed, a year or two delay is likely to do the trick.

 

[Koolau]

Divorce would be a major problem. Counting on soc sec is another

It's only my opinion, but though SS may be modified around the edges (maybe up to 100% taxable instead of 85% and means tested for those with huge stashes) my guess is that the changes which will have to be made to keep SS solvent will be on the front end. "Kids" may have to put in more as will their empl*yers, no cap on wages which will be "taxed" for SS, FRA may edge up further for those 10 or 15 years away.

Old people vote and politicians will most likely continue SS payments with little modification on the back end. This assumes no SHTF situation. Again, IMO, so YMMV.

 

[2017ish]

It's only my opinion, but though SS may be modified around the edges (maybe up to 100% taxable instead of 85% and means tested for those with huge stashes) my guess is that the changes which will have to be made to keep SS solvent will be on the front end. ....

This has been at the heart of my social security planning since the mid-80s--and, of course, "huge" is in the eye of the beholder.

Realistically though, implementation would be intriguing. Off the top of my head, how would DC get it to work? Asset reporting? Just income based? What about Roth withdrawals and sales of non-appreciated assets? Yet more variables for Roth conversions and asset placement....

 

[Koolau]

This has been at the heart of my social security planning since the mid-80s--and, of course, "huge" is in the eye of the beholder.

Realistically though, implementation would be intriguing. Off the top of my head, how would DC get it to work? Asset reporting? Just income based? What about Roth withdrawals and sales of non-appreciated assets? Yet more variables for Roth conversions and asset placement....

Whatever might be done with respect to "means testing" would almost certainly have to come from the tax-reporting system. Counting on folks to mention that they have a "deck" of pristine signed Micky Mantle rookie cards in their bank box would be problematic. That's another reason I don't personally look for them to use means testing as a first step (or even fifth) to deal with the coming crisis. It's much easier on the front end - as those of us of a "certain age" can attest about our treatment back in the 80's. Besides, there are always a lot more "kids" who have j*bs than there are geezers with millions. To get a lot of money, it's better to take a little from a lot than a lot from a little. YMMV

 

[Blue Collar Guy]

if i saw anything last year, it was the huge hatred that a large percentage of the population have against those that have saved money. They dont care if you worked 2 jobs, lived in a ratty apt for 17 years and didnt buy anything, or if your father left you 2 million bucks. The fact remained you have more than them and you are now the enemy. They are going to trim our social security , i dont know if its how much you saved , value of your house , or your yearly income. This is how things start. First its the 1% are the enemy, then it will be the top 5%, then 10 %. Either way ,counting on what social security will be in 10 -15 years is a dream. When i see a post from a 50 year old saying if they wait till 70 and it will be xx,xxx a year, they must be kidding themselves.

 

[braumeister]

This is how things start. First its the 1% are the enemy, then it will be the top 5%, then 10 %.

Or, put another way:

First they came for the billionaires, and I did not speak out—
Because I was not a billionaire.

…

But something tells me the wealthy have quite a lot of clout and will be speaking out. I'm OK with taking a 25% haircut in 2034 as predicted by the SS trustees, but I don't see a serious chance of worse than that.

 

[Cobra9777]

It's only my opinion, but though SS may be modified around the edges (maybe up to 100% taxable instead of 85% and means tested for those with huge stashes) my guess is that the changes which will have to be made to keep SS solvent will be on the front end. "Kids" may have to put in more as will their empl*yers, no cap on wages which will be "taxed" for SS, FRA may edge up further for those 10 or 15 years away...

...I'm OK with taking a 25% haircut in 2034 as predicted by the SS trustees, but I don't see a serious chance of worse than that.

I think the pain will be spread around in small-ish chunks without overtly raising rates or cutting benefits or unduly impacting any one group. For example: gradual increase in the wage cap subject to SS tax (with no additional benefit), slight increase in FRA but only for very young workers, possible expansion of SS tax to certain passive income, increase from 85% to 100% taxable based on income, lower income thresholds for taxation, tweaks in the definition of income such as including Roth/HSA withdrawals along with tax-exempt interest, changes to COLA indexes and timing, tweaking the rules around spousal benefits.... plus any or all of the above could be subject to some form of means test based on any combination of "comprehensive income" plus balances in retirement accounts.

I think something along those lines, if implemented thoughtfully, would be preferable to a flat 25% cut to all retirees, or an across-the-board SS tax increase for workers.

 

[Pilot2013]

subject to some form of means test based on any combination of "comprehensive income" plus balances in retirement accounts.

Any attempt to means test because a person was responsible and planned could (I dare say should) be met with whatever resistance is required to avert it.

I'm all for raising caps (with minimal to no increase in benefit) etc, but to take a SS payment for 35-40 years, and then totally eliminate the benefit because a person was responsible would not be acceptable.

 

[Cobra9777]

Any attempt to means test because a person was responsible and planned could (I dare say should) be met with whatever resistance is required to avert it.

I'm all for raising caps (with minimal to no increase in benefit) etc, but to take a SS payment for 35-40 years, and then totally eliminate the benefit because a person was responsible would not be acceptable.

As I'm sure you are aware, SS is already means tested in that you pay income tax on up to 85% of the benefit based on income. Second, nothing I posted suggested that any existing benefit would be totally eliminated. What I said was:

...plus any or all of the above could be subject to some form of means test based on any combination of "comprehensive income" plus balances in retirement accounts...

For example, perhaps COLAs would be phased out for people with income above some level. Maybe inclusion of Roth/HSA withdrawals in comprehensive income would be phased in above some level. Maybe passive income would be subject to SS tax above some threshold. That is where I think means testing is more likely to play a role, similar to the existing taxation thresholds.

I agree that eliminating anyone's SS benefit entirely based on a means test would meet overwhelming resistance... unless the threshold was so high (>$1M AGI?) that it was completely immaterial to the recipient and thus opposed by virtually no one.

But again, my major point was that I think the pain will be spread around in small increments and *hopefully* implemented thoughtfully. It's easy for retirees to say, "I'm all for raising caps." And it's easy for young workers to say, "I'm all for cutting benefits." I'm not suggesting I have a solution, but it seems to me that if there is a viable solution, it's somewhere in the middle, and it's in the gory details.

 

[Koolau]

Of course, as we all know, SS is ALREADY very significantly means tested. Those who put in the least (within statutory limits) receive back the most in relation to what they contributed. SS is both a "social" program AND a forced savings for a pension. Quite honestly, given a choice, I'm MUCH happier being one who paid in virtually the max and receiving proportionately less on the back end. But I WOULD be really upset if suddenly I was penalized MORE by some particular means test. I went through the "means testing" of the 80's - FRA went up, rates went up(?) - not sure - taxability of benefits went up on the back end, MC wage-limit was dropped (I think.) So, we've been here before. Any significant future "adjustment" will NOT be retroactive to benefit receivers or those close IMO. BUT, I could be wrong. I was once, so YMMV.

 

[pb4uski]

I guess that we don't all know.... I don't think it is and the American Society of Actuaries doesn't either.

.... Means testing would reduce or eliminate benefit payments to participants whose current income or assets exceed specified thresholds. There are many ways this could be done. For example:

● An income test could take into account all income or only “wealth-related” income, such as investment income or income from a business;
● Similarly, an asset test could include all assets or exclude widely held assets such as houses and cars;
● The means test could be applied one time when benefits begin or at regular intervals after benefits begin;
● The test could eliminate benefits altogether for those exceeding the threshold, or phase out benefits gradually as income or assets increase beyond the threshold.
● The Medicare reform package enacted by Congress late in 2003 includes means testing provisions, which increase the Part B premium for high-income retirees, and bases the cost to the participant of the new drug benefit in part on current income and assets.​

...

https://www.actuary.org/pdf/socialsecurity/means_0104.pdf

 

[Pilot2013]

It's easy for retirees to say, "I'm all for raising caps."

I'm not retired, and I hit the maximum SS contribution in July/August (depending on annual bonus amount), and I still say that if keeping SS going for my income similar to Medicare helps solve the long term issue, I'm ok with that.

If the decision WAS to eliminate, I would pass out the pitchforks....

 

[pb4uski]

+1 While I am currently retired, I have had the same view that the caps should be raised or eliminated for many years, including many years when I benefitted from the caps.

 

[ikonomore]

My goal is to retire in 10 years at the age of 57.

We should have around $500K in our savings (TSP) at that point

Do you have anything in your TSP now? If you and your wife max that for 10 years you should have way more than $500k in there.

 

[Ragna]

I am actually in similar situation... a little less pension and a little more stashed away. If I put my figures into firecalc I get 100% survival even with some pessimistic assumptions (e.g., 20% cut to SS; cuts to pension). Considering the pensions are cola'd or semi-cola'd (could change, but I doubt it) and you have health care covered, I would guess you would be fine. If you computed the value of the pensions and healthcare as an equivalent savings balance you would be in the ballpark of many people on this forum.

 

[evilanne]

We're both in pretty good health and we'll have TRICARE/VA for medical care for life, which will help.

For your information, with Tricare for life you must sign up for Medicare Part B at age 65. I'm not sure about VA . Medicare is currently $134/month per person but it will increase your medical expenses.

 

[FI_RElater]

Including Roth withdrawals as income would effectively eliminate them for that group-- the tax advantages for normal taxable accounts would then be superior; the gov would also not get any taxes from those doing conversions, as there would be no benefit.
What constitutes "huge" is a political hot potato-- a few mil for a forty-something or early sixty-something retiree isn't the same as it used to be-- (thankfully we saved a few and have a pension, but even still, we don't jet off to the islands like some who haven't saved might think, but rather expect and observe a more modest 3.5% SWR). We'll see what happens when we get to FRA for both of us...

(As noted above, already have had changes to FRA, excess taxes for SS, prior changes to my pension-- so our pound of flesh has already been extracted)

 

[Scuba]

I think the pain will be spread around in small-ish chunks without overtly raising rates or cutting benefits or unduly impacting any one group. For example: gradual increase in the wage cap subject to SS tax (with no additional benefit), slight increase in FRA but only for very young workers, possible expansion of SS tax to certain passive income, increase from 85% to 100% taxable based on income, lower income thresholds for taxation, tweaks in the definition of income such as including Roth/HSA withdrawals along with tax-exempt interest, changes to COLA indexes and timing, tweaking the rules around spousal benefits.... plus any or all of the above could be subject to some form of means test based on any combination of "comprehensive income" plus balances in retirement accounts.



I think something along those lines, if implemented thoughtfully, would be preferable to a flat 25% cut to all retirees, or an across-the-board SS tax increase for workers.

+1
These incremental changes would be much more politically palatable than a flat cut affecting only seniors.

 

[Brat]

Keep in mind the fact that the "Government Pension Offset" may reduce SS payments.