52 and looking at ER in 2015- super dreamer?

[supernova72]

Hello, fairly new to this forum but have been cruising through the interesting posts and information. A little about me:

* 52 years old and can take early retirement 55 (same company 28 years).
* I work in the information Technology field at a large aerospace company that makes jets, missiles, and cool stuff like that.
*No children or spouse (that I know of).
* $550K in a 401K (projection at pre-tax max with company match is ~ $750K at 55).
* Asset allocation currently at about 55% equities, 45% bonds and cash.
* 2012 return on the above portfolio was just over 10%.
* Company pension at 55 would be $3K a month (no lump sum option).
* Retiree medical until I turn 65 at Medicare age
* $185K left on my mortgage (ouch). Home value is $400K, 4% 15 year loan (refi in 2011), $1530 P&I, paying an extra $670 a month currently. Will increase as possible but paying if off in three years seems very unlikely (will still owe $120K.
*No credit card or other debt.
*own three cars...kind of a car guy (One muscle car, two drivers). Total value about $40K.
*my retirement income needed will be about $70K if I still have a mortgage...which I don't want to have...if that makes sense. Without my mortgage my "budget" says I can live on $50K a year.
*Net worth with home equity is about $800K. Not much in savings outside my 401K (maybe $10K).
*when I retire I'll have about $30K in sick leave and vacation as a payout.
*for every year I work beyond 55 my pension increases by about $200 a month.
*I plan to take social security at 62 if that is still an option (~$1600 a month).


Non financial side notes:
*Live in Seattle WA and would like to retire here if possible.
*My family (sisters, bro in laws, mom, nieces) are all self sufficient and financially secure.
*Considered Thailand or Philippines but after visiting both countries have decided against that (might end up marrying a 25 year old Thai lady).
*Fitness is important to me and I want to continue being active while I still can.
*I take 2-3 trips a year to a warm tropical location (in the budget I think ). Some of this is budget travel to SE Asia.

My simple math at 55: $36K from company pension + $30K yr from investment income ($750K @ 4% SWR).

A bit long winded here...

Am I super dreaming? Questions? Thanks!

 

[azphx1972]

Welcome. Have you played with FIRECalc? I think you're cutting it really close, too close for comfort if it were me. We have similar balance sheets, except I don't have a pension, and I wouldn't dream of RE with your projected numbers even if I did have one. Is your pension COLA? That might make a little difference in your favor. I'd look into cutting expenses and stockpiling more into savings, and figure out a way to get rid of that mortgage payment before calling it quits.

 

[obgyn65]

It would appear that your planned SWR is greater than 4%. I believe more analysis is needed. FIREcalc will be a good start, as noted by the previous poster.

 

[chris2008]

I am missing your income of today.
Is it more than 70K/year? If so, I would start by a deeeeep analysis of how I spend my money today, detailed tracking for several months.
I would also start to live on the same budget that would be applied post retirement. Then you'd know if you can really cut back your spending.

 

[WestLake]

You could sell your home and rent or buy a less expensive home or condo for cash. Maybe a duplex. Otherwise I would not personally feel comfortable doing this. 55 is also kind of a magic number for me, but I also thought that at 50 and got over it - glad I didn't retire then as I'm now about $400,000 better off at 54. I'm now looking at very late 55 or 56-57. I have one more mortgage to pay off myself (I have rentals).

You are extremely fortunate to have a pension and medical coverage.

 

[nun]

I'm in a similar situation to you being 52 this year and waiting on employer's retirement health benefits at 55. Having the pension is enormous, that $3k will give you a good foundation. But I'd advise you to pay off the mortgage and increase your taxable savings if you are to ER.

 

[Lazarus]

Can you sell your house and downsize? If you had no mortgage debt I think you could do it.

If you can live off 50K. (I can and do.) Your pension is 36K so you only need 14K more. Even if you put your 401K money in a mattress and took out your money yearly you would burn only 98K till age 62. (Not accounting for taxes here)

At 62 you get 20K in SS and your 36K pension so that is 56K. You can quit taking money out of your 401K and let it rebuild.

 

[supernova72]

Welcome. Have you played with FIRECalc? I think you're cutting it really close, too close for comfort if it were me. We have similar balance sheets, except I don't have a pension, and I wouldn't dream of RE with your projected numbers even if I did have one. Is your pension COLA? That might make a little difference in your favor. I'd look into cutting expenses and stockpiling more into savings, and figure out a way to get rid of that mortgage payment before calling it quits.

Hi, I went in once to FIRECalc but need to go back and give it another run. Good point on expenses in that I'm a bit of a spender right now. Cheers.

 

[supernova72]

It would appear that your planned SWR is greater than 4%. I believe more analysis is needed. FIREcalc will be a good start, as noted by the previous poster.

Yes, more analysis needed indeed. I will give FIREcalc another go. I did that in a bit of a hurry and did not document the results. Thx.

 

[zedd]

Supernova72


Welcome to the forum and congratulations on your accomplishments thus far.


Repeat after me: “The lazy B has been good to me”. Just kidding.


FWIW: If you are a java developer or an Oracle DBA, I most probably have worked with you at some point over the years.


Back of the envelop analysis of your situation.


50k Annual expenses (assuming no mortgage)
<36k> Annual pension payout
14k Needed from other sources


@ 55 your 401k might be worth 750k (Lord willing)


BTW: IIRC as long as you leave the money in the company 401k (ie. don't roll it into an IRA) you can start drawing on it @ 55 without penalty. Withdrawals at that point are considered simply ordinary income.


Running the numbers thru Firecalc (Spending: 14k, Portfolio: 750k, Years: 30 ) it looks doable.


See link: → FIRECalc: A different kind of retirement calculator


Of course YMMV. YOU WILL WANT TO DELVE INTO THIS TO GET A DEEPER UNDERSTANDING OF THE ASSUMPTIONS. You're an IT guy, this is second nature to you.


Some are critical of Firecalc in that it does monte carlo simulation using historical market returns.


I suggest that you also look at ORP and my personal favorite, Otar's Retirement calculator. Checkout the Bogleheads for investment ideas.


IMHO hold off on drawing social security until full retirement age.


Best of luck. You are on the right track, keep at it. Don't trust some anonymous yahoo on an internet forum Do your homework.


References:


FIRECalc: A different kind of retirement calculator
http://www.i-orp.com
otar retirement calculator
Bogleheads • Index page

 

[supernova72]

I am missing your income of today.
Is it more than 70K/year? If so, I would start by a deeeeep analysis of how I spend my money today, detailed tracking for several months.
I would also start to live on the same budget that would be applied post retirement. Then you'd know if you can really cut back your spending.

This is where my analysis could have the largest hole. $70K is about 60% of my current income. Thanks again for all the input here. Cheers.

 

[supernova72]

Supernova72


Welcome to the forum and congratulations on your accomplishments thus far.


Repeat after me: “The lazy B has been good to me”. Just kidding.


FWIW: If you are a java developer or an Oracle DBA, I most probably have worked with you at some point over the years.


Back of the envelop analysis of your situation.


50k Annual expenses (assuming no mortgage)
<36k> Annual pension payout
14k Needed from other sources


@ 55 your 401k might be worth 750k (Lord willing)


BTW: IIRC as long as you leave the money in the company 401k (ie. don't roll it into an IRA) you can start drawing on it @ 55 without penalty. Withdrawals at that point are considered simply ordinary income.


Running the numbers thru Firecalc (Spending: 14k, Portfolio: 750k, Years: 30 ) it looks doable.


See link: → FIRECalc: A different kind of retirement calculator


Of course YMMV. YOU WILL WANT TO DELVE INTO THIS TO GET A DEEPER UNDERSTANDING OF THE ASSUMPTIONS. You're an IT guy, this is second nature to you.


Some are critical of Firecalc in that it does monte carlo simulation using historical market returns.


I suggest that you also look at ORP and my personal favorite, Otar's Retirement calculator. Checkout the Bogleheads for investment ideas.


IMHO hold off on drawing social security until full retirement age.


Best of luck. You are on the right track, keep at it. Don't trust some anonymous yahoo on an internet forum Do your homework.


References:


FIRECalc: A different kind of retirement calculator
http://www.i-orp.com
otar retirement calculator
Bogleheads • Index page

Thanks again...and we call it the "Big B". The lazy ones have long left the company

I'm a newbie here to the forum and do realized 55 is a stretch but a starting point if nothing else.

Thanks for the great references and resources to look into. I had not yet figure out on my 401k if I was going the rule 72t route or Yes I can leave it in the company 401K and draw without the 10% penalty pre 59.5. Cheers!

 

[nun]

This is where my analysis could have the largest hole. $70K is about 60% of my current income. Thanks again for all the input here. Cheers.

You have a reasonable handle on the resources/investment side of the equation, but you need to really understand the spending side. I've been tracking every cent that I spend for the last 18 months and doing lots of calculations to understand my annual budget. I'm now confident that I need $36k/year to maintain my lifestyle with a 15% emergency reserve. Of course I have no mortgage.

Going into ER you need to be confident of your expenses and to have lived them in reality for a couple of years to make sure they line up with your ER income.

 

[pb4uski]

I think you'll be ok but you should do some more analysis. If I understand you correctly, your pension and SS at 62 will be ~$55k a year and from age 55 to 62 you will have a $14k a year gap ($50k living expenses x-mortgage less $36k pension ~$100k for the 7 years).

So I think of it this way. At age 55 your 401k will be $750k and your mortgage will be $120k and your gap need will be $100k so you'll have $530k left and at a 3.5% WR you could have a paid off house and draw $18k a year ($530k * 3.5%) on top of your pension and SS.

I would suggest that you flesh out your plan via Firecalc, Quicken Lifetime Planner, OMP and other on-line retirement planners, but my sense is you will be ok.

One important thing though - can you access your 401k without penalty before you turn 59 1/2? Some 401k plans allow penalty free access if you leave service after age 55 and others do not. If you plan does not, then you could have a problem generating the penalty free funding you need from age 55 to 59 1/2 (4 1/2 years of ~$14k/year gap funding).

 

[supernova72]

Can you sell your house and downsize? If you had no mortgage debt I think you could do it.

If you can live off 50K. (I can and do.) Your pension is 36K so you only need 14K more. Even if you put your 401K money in a mattress and took out your money yearly you would burn only 98K till age 62. (Not accounting for taxes here)

At 62 you get 20K in SS and your 36K pension so that is 56K. You can quit taking money out of your 401K and let it rebuild.

Thanks again for all the input here. Very valuable.

Should have mentioned on my home...it's "small" and within SEA city limits so downsizing in the same area would mean a condo or townhome. Doable although I enjoy working on cars and just had a new garage built in 2012. I would hate to give that up but would be an option and required if I downsize.

 

[supernova72]

You have a reasonable handle on the resources/investment side of the equation, but you need to really understand the spending side. I've been tracking every cent that I spend for the last 18 months and doing lots of calculations to understand my annual budget. I'm now confident that I need $36k/year to maintain my lifestyle with a 15% emergency reserve. Of course I have no mortgage.

Going into ER you need to be confident of your expenses and to have lived them in reality for a couple of years to make sure they line up with your ER income.

Indeed, it sure sounds like I need to take a closer look at the spending side. I'm not a stay at home and watch TV/movies every night kind of person so that means more $$ out the door. Then the occasional travel element...thx.

 

[supernova72]

I think you'll be ok but you should do some more analysis. If I understand you correctly, your pension and SS at 62 will be ~$55k a year and from age 55 to 62 you will have a $14k a year gap ($50k living expenses x-mortgage less $36k pension ~$100k for the 7 years).

So I think of it this way. At age 55 your 401k will be $750k and your mortgage will be $120k and your gap need will be $100k so you'll have $530k left and at a 3.5% WR you could have a paid off house and draw $18k a year ($530k * 3.5%) on top of your pension and SS.

I would suggest that you flesh out your plan via Firecalc, Quicken Lifetime Planner, OMP and other on-line retirement planners, but my sense is you will be ok.

One important thing though - can you access your 401k without penalty before you turn 59 1/2? Some 401k plans allow penalty free access if you leave service after age 55 and others do not. If you plan does not, then you could have a problem generating the penalty free funding you need from age 55 to 59 1/2 (4 1/2 years of ~$14k/year gap funding).

Oh boy, had not considered paying off the home with 401K at 55. We can forgoe the 10% penalty yes but I believe it's within the 72t IRS rule guidelines of equal withdraws over a given 5 year time period. Let me check that out.

Also I need to spend more time on other retirement calcs like you suggest. Appreciate all the insight here. Lots of great input!

 

[supernova72]

Welcome. Have you played with FIRECalc? I think you're cutting it really close, too close for comfort if it were me. We have similar balance sheets, except I don't have a pension, and I wouldn't dream of RE with your projected numbers even if I did have one. Is your pension COLA? That might make a little difference in your favor. I'd look into cutting expenses and stockpiling more into savings, and figure out a way to get rid of that mortgage payment before calling it quits.

Shoot, hit the submit too fast here. My pension is NOT adjusted for COLA so what I chose is what I get for the duration. Thanks again and great question. I'm sensing I need to take a much closer look at the expense side. I'm not a make my own lunch and cook at home person

 

[Lazarus]

Oh boy, had not considered paying off the home with 401K at 55. We can forgoe the 10% penalty yes but I believe it's within the 72t IRS rule guidelines of equal withdraws over a given 5 year time period. Let me check that out.

Also I need to spend more time on other retirement calcs like you suggest. Appreciate all the insight here. Lots of great input!

72t refers to the IRA not 401k.

Some companies will allow you to leave your money in the 401k after retirement. If you leave at 55 you can make withdrawals without penalty assuming the company will let you.

 

[nun]

Shoot, hit the submit too fast here. My pension is NOT adjusted for COLA so what I chose is what I get for the duration. Thanks again and great question. I'm sensing I need to take a much closer look at the expense side. I'm not a make my own lunch and cook at home person

No COLA on the pension will make things a lot tougher. I'd concentrate on knowing your budget and finding ways to save without impacting your lifestyle, increasing your taxable savings so you have flexibility in how you'll be taxed and making some extra mortgage principal payments. Going into ER completely debt free is great

 

[zedd]

A few more datapoints to consider: Taxes


50K gross, $5,950 deductions, $3,800 exemptions, $40,250 Taxable Income
Federal tax bill: $6,099
WA state tax bill: $0


see -> TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator


What if you sold the house and rented.
Is it better to buy or rent? See-> Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com


The sale might result in:


$400k in taxable investments (assuming no capital gains owed on sale of house)
$18,000 annual rent


68k Annual expenses (includes rent)
<36k> Annual pension payout
32k Needed from other sources


scenario 1:
Assuming 16k drawn from the 400k taxable portfolio (4%), 16k drawn from the 401k (2%)
52K gross (36k+16k), $5,950 deductions, $3,800 exemptions, $42,250 Taxable Income
Federal tax bill: $6,599
WA state tax bill: $0


scenario 2:
Assuming 32k drawn from the 400k taxable portfolio (8%)
36K gross, $5,950 deductions, $3,800 exemptions, $26,250 Taxable Income
Federal tax bill: $3,506
WA state tax bill: $0


Numbers is hard


zedd

 

[zedd]

... and of course you could reduce the $6,099 Federal tax bill down to $3,709 by getting married to that Thai lady. Just sayin

 

[omni550]

... and of course you could reduce the $6,099 Federal tax bill down to $3,709 by getting married to that Thai lady. Just sayin

And she might be willing to make lunch and cook at home. YMMV

Just think of the savings.

omni

 

[azphx1972]

 

[supernova72]

72t refers to the IRA not 401k.

Some companies will allow you to leave your money in the 401k after retirement. If you leave at 55 you can make withdrawals without penalty assuming the company will let you.

Sorry for the confusion. The way our company explains it yes we can leave it in our qualified plan (or go the IRA path) but the words behind the first option of keeping it in our plan says you must take "Substantially equal periodic payments" which sounds similar to the 72t rule. I realize the 401K is different than the IRA but the words about the SEPP sounded soooo darn similar. Cheers.