FIRE Newbie: Made it to 56 - Looking at 60?

[bluztuzumab]

Hey Now! I was recommended to check this board out - you folks are great.

My story:
Me - 56yo (working professional, SF Bay Area, ~$180K/year)
Wife - 55yo (part-time now, ~$60K/year currently)

Both of us have been working since before High School and looking to retire at 60yo (2017). 2nd marriage for both of us (practice marriage was good for us because we are both very happily married now).

I have no children, my wife has 2 grown children in their early 30s, and 3 grandchildren. Luckily, they are not dependent on us financially. My MIL is a dependent of ours, but living independently on SS ($12000/year) with our help of ~$12K/year), and in good health for 78yo. My mother is well-off and will not need to be finacially dependent on us, in good health at 77yo.

Our last 3 years of our AGI have been around $280K/yr.
Our after-tax liquid assets are ~$600K with $400K in cash, and $200K in equities (mainly dividend paying stocks and ETFs)
Our retirement assets (401k and IRA-trad) are ~$1.1MM with 60% Equity, 20% Bonds, and 20% REITs. I have an excellent company match for my 401k of 10% of total wages, and I am maxing my contribution (6%) and the >50yo 401k catch-up.

My wife has a pension of $24K/year - which is not at risk. We will both have maximum SS. I am not a doom-gloomer, and believe SS will still be viable (although likely modified).

Our mortgage is $400K (15yr fixed at 2.875% = $2880/month) and property tax of $900/month, and our home value is ~$950K.

We have no other debt.

Our expenses are ~$12K/month ($144K/yr), and would like to live on $12K/month until we are 80yo. We do not really budget - and spend about $18K/year on vacations.

If I retire at 60yo, then my work will allow me to be on their health insurance until 65yo (I have to pay for it - currently ~$30K/yr for both of us, but excellent health insurance program - PPO). Thus, working until 2017...

My goal (and on track since 2009) is to have $2.5MM in retirement and liquid assets - and then retire.

No complaints about anything - as I have set my goals, and have been good at keeping an eye on finances over the years (except no budgetting)

So... how is it looking for me/wife to retire at 60yo?
Assuming we live well as can be expected to 80yo and then simple after that.

Any watch-outs?

TIA
David

 

[Grigori]

Welome David. Have you plugged the numbers into FireCalc ? "www.firecalc.com"

 

[bluztuzumab]

Welome David. Have you plugged the numbers into FireCalc ? "www.firecalc.com"

Thanks - I found it and have been playing with the input of numbers and variables. I am trying to figure out some aspects of it. Overall, in most scenarios I am at >95%.
At 1st, I was only at 65% and it made me worried, then I saw the additional input tabs and that made a world of difference.
On the first page I put in 2.5MM, 144K and 40 years with my house equity being gravy.
With the other inputs - further income for 4 years, SS/Pensions, etc - the numbers should good success rate.
Thanks again

 

[jclarksnakes]

Your numbers look good. It seems to me that you will be faced with big questions such as when to start taking SS and which accounts to draw from first. Your 30K a year for health insurance seems like a lot of money. It may be possible, depending on how things fall out as the Affordable Care Act is implemented for you to take money from the regular accounts for several years and keep your MAGI low enough that you can qualify for subsidized health care. That may be a good choice from the time you retire until you are old enough to go on Medicare. It may be best to wait and start either you or your wife on regular SS at full retirement age and the other of you take the spousal benefit. That would get you bigger SS and the cost of living allowance that comes with it. That may be especially important if your DW's pension is not COLA'd as the SS would then be the only part of your retirement income to be covered by a COLA. There are lots of options to consider with just these two issues and there are loads of threads about them here on the forum.

 

[bluztuzumab]

Thanks for the input. I realize how much of a newbie I am when reading the threads and posts.
Her pension does have a COLA, but I am unclear how this affects SS. Does her pension count against her SS?
Sorry if that is a stupid question - trying to catchup and educate myself in planning for retirement.

 

[Midpack]

Thanks - I found it and have been playing with the input of numbers and variables. I am trying to figure out some aspects of it. Overall, in most scenarios I am at >95%.
At 1st, I was only at 65% and it made me worried, then I saw the additional input tabs and that made a world of difference.
On the first page I put in 2.5MM, 144K and 40 years with my house equity being gravy.
With the other inputs - further income for 4 years, SS/Pensions, etc - the numbers should good success rate.
Thanks again

Based on what you've told us, those FIRECALC entries look representative. Looks like your current AA is about 64:12:24 stock:bonds:cash which is in the same ballpark as the FIRECALC default (if you didn't modify that). Most of us would just use FIRECALC to reply anyway, so you've answered your own questions. If you're happy with the success rate result, you're probably on track. Congrats!

 

[heeyy_joe]

An alternative to piling up retirement assets over the next three years would be to focus on getting rid of the mortgage. (Unless you are planning on downsizing to eliminate it at age 60).

 

[bluztuzumab]

Based on what you've told us, those FIRECALC entries look representative. Looks like your current AA is about 64:12:24 stock:bonds:cash which is in the same ballpark as the FIRECALC default (if you didn't modify that). Most of us would just use FIRECALC to reply anyway, so you've answered your own questions. If you're happy with the success rate result, you're probably on track. Congrats!

Thanks very much for your reply. I figured I was on-track, but it is nice to get reasonably unbiased/unvested feedback. I have been a DIY person, and this site really helps with retirement planning with diverse viewpoints and opinions.

I plan to better understand the input and variables for FireCalc. I still have a lot of research/planning to do (as I am sure most of do...) to maximize my assets in retirement.
Plus, figure out all the acronyms used here (and what they mean...) - I saw the acronym thread.

 

[bluztuzumab]

An alternative to piling up retirement assets over the next three years would be to focus on getting rid of the mortgage. (Unless you are planning on downsizing to eliminate it at age 60).

Thanks - I understand the strategy for eliminating mortgage, but our rate (2.875% - 15 yr) is excellent, and even renting out would easily cover costs if necessary. The RE and rental market here (SF Peninsula) is hot, and never took a big hit. Plus, it is good to have write-off.

Actually - and perhaps wrongly - we are looking to upsize in some manner. Looking to buy a 2nd home (>50mi north from where we live) with the intent of retiring to it in 2017. In the meantime - renting the 2nd home out to cover costs and allow writeoff and tax relief against rent, certain upgrades, etc. So we are going to have a 50% mortage on the 2nd home. Our current home is at ~50% mortgage (30% above purchase price) - which after we move to 2nd home we are planning on renting out primary home with the intent of holding or selling for tax conversion/considerations.

 

[bluztuzumab]

I have run multiple simulations in FireCalc (I like it better that the Fidelity one), and appears in most reasonable circumstances we are doing quite well. I was even able to increase our annual spending up by 15% until a 99% success rate. Heck, I was even able to show that I could have ER now, if we spent less and/or budgetted better.

I was also amazed on how much investment management charges affected the outcomes. Luckily, I realized this already and have most of our retirement assets (401k and IRA) in low cost tracking funds (my company changed over last year to lower cost funds - we are a huge company and they appear to be aware of these issues, and still allow adequate diversity).

Question: We can I find info for strategies for optimal draw out of our funds (401k, IRA, and standard brokerage accounts) when we finally retire? And how this impacts when to draw on SS? I realize that these are complicated topics. I have looked thru threads but not seen anything yet. Am I missing something?

 

[heeyy_joe]

Lots of generic articles out on the web on withdrawal strategies. Your puzzle pieces may or may not fit into the standard advice. Figuring out best withdrawal strategy is often associated with tax planning and needs to be done annually in time to make adjustments before year end.

 

[Nomad4hire]

Hey Now! I was recommended to check this board out - you folks are great.

My story:
Me - 56yo (working professional, SF Bay Area, ~$180K/year)
Wife - 55yo (part-time now, ~$60K/year currently)

Both of us have been working since before High School and looking to retire at 60yo (2017). 2nd marriage for both of us (practice marriage was good for us because we are both very happily married now).

I have no children, my wife has 2 grown children in their early 30s, and 3 grandchildren. Luckily, they are not dependent on us financially. My MIL is a dependent of ours, but living independently on SS ($12000/year) with our help of ~$12K/year), and in good health for 78yo. My mother is well-off and will not need to be finacially dependent on us, in good health at 77yo.

Our last 3 years of our AGI have been around $280K/yr.
Our after-tax liquid assets are ~$600K with $400K in cash, and $200K in equities (mainly dividend paying stocks and ETFs)
Our retirement assets (401k and IRA-trad) are ~$1.1MM with 60% Equity, 20% Bonds, and 20% REITs. I have an excellent company match for my 401k of 10% of total wages, and I am maxing my contribution (6%) and the >50yo 401k catch-up.

My wife has a pension of $24K/year - which is not at risk. We will both have maximum SS. I am not a doom-gloomer, and believe SS will still be viable (although likely modified).

Our mortgage is $400K (15yr fixed at 2.875% = $2880/month) and property tax of $900/month, and our home value is ~$950K.

We have no other debt.

Our expenses are ~$12K/month ($144K/yr), and would like to live on $12K/month until we are 80yo. We do not really budget - and spend about $18K/year on vacations.

If I retire at 60yo, then my work will allow me to be on their health insurance until 65yo (I have to pay for it - currently ~$30K/yr for both of us, but excellent health insurance program - PPO). Thus, working until 2017...

My goal (and on track since 2009) is to have $2.5MM in retirement and liquid assets - and then retire.

No complaints about anything - as I have set my goals, and have been good at keeping an eye on finances over the years (except no budgetting)

So... how is it looking for me/wife to retire at 60yo?
Assuming we live well as can be expected to 80yo and then simple after that.

Any watch-outs?

TIA
David

Wecome to a great forum!! --Nomad

 

[LinCella]

Where is her pension from? Government, city agency, something else? I have a pension from a city government and my social security will be affected because of it. Right now at 40% less if I wait til the year I'm supposed to collect. Though I am taking it at 62 no matter what - it isn't going to be that big anyway.

Windfall Elimination Provision
http://www.ssa.gov/pubs/EN-05-10045.pdf

 

[bluztuzumab]

Where is her pension from? Government, city agency, something else? I have a pension from a city government and my social security will be affected because of it. Right now at 40% less if I wait til the year I'm supposed to collect. Though I am taking it at 62 no matter what - it isn't going to be that big anyway.

Windfall Elimination Provision
http://www.ssa.gov/pubs/EN-05-10045.pdf

Thanks.
I really need to understand more about her pension. It is from a city government. She has been collecting it (~24K/yr taxable) for the last 7 years (since 48yo), as part of a (Calif) divorce settlement. The pension came from her Ex (25yrs working for City/county Gov't), and she/we decided to withdraw the money when available instead of wait (and get a higher payment) in order to help pay for her Mom's living expenses.

I didn't realize that receiveing a pension would go against her SS - I do not understand why that would be since she has been working all of her life and paying into her own SS.

So - I guess I better figure this out. If true, then we would wait as long as possible to draw on her SS (I guess).

 

[Dreamer]

Welcome, David. Her receiving the pension will not affect her social security. Click on the link that Linny provided and it will explain it to you.