Want to do Retire, but can't get Math to Work

[ivanl3]

Age: 49
Wife Age: 57

Pension at 65: $5.4K (no annual increase)
Wife Pension at 65: $12.5K (no annual increase)

SS at 65: $21.3K
Wife SS at 65: $23.6K

Part Time Job til 65: $35K/Year
Wife Works til 65: $60K/year

Only place to buy Healthcare is through company Retiree plan: $20K/yr

Retirement Savings: $3.25M (various different types of accounts)

Annual Expenses, including HC: $190K


There are a million other details I can provide and I am sure I need to do so to get good insights from the collective wisdom of the board. But I thought I would provide some basics to get things started. Please let me know what else to add.

I look forward to learning from all of you.

Would like to retire on 12/31. I will be just shy of 50 then. Call it 50.

Thanks in advance.

 

[nash031]

For the next 8 years, you need $95K from your portfolio, a WR of 2.9%.

For the following 8 years, you need (190K - 35K - 23.6K - 12.5K) = 112K, a WR of 3.65%

For the remainder of time, you need (190K - 23.6 - 21.3 - 5.4 - 12.5) = 127.5K, a WR of 3.9%.

That's all overly simplified, doesn't include inflation or returns. You need to run FIRECalc to get more certainty.

Are you sure you need 190K after you retire? Some folks find expenses go down after retirement as they drive less, don't spend as much on clothes, etc. Others, not so much. House ever going to be paid off? That might reduce your spending.

There's a lot of variables to it, but back of the napkin tells me you are close, if not there.

 

[joeea]

Are you sure that you will require $190k in expenses throughout your retirement? Have you explored ways to reduce that?

Have you run the numbers if you both delay your social security benefits until 70?

Why is the company plan the only place you can purchase healthcare? Have you considered the ACA marketplace? $20k seems expensive for many locales.

You haven't mentioned housing. Do you have a mortgage? Will you downsize and/or move?

 

[ivanl3]

For the next 8 years, you need $95K from your portfolio, a WR of 2.9%.

For the following 8 years, you need (190K - 35K - 23.6K - 12.5K) = 112K, a WR of 3.65%

For the remainder of time, you need (190K - 23.6 - 21.3 - 5.4 - 12.5) = 127.5K, a WR of 3.9%.

That's all overly simplified, doesn't include inflation or returns. You need to run FIRECalc to get more certainty.

Are you sure you need 190K after you retire? Some folks find expenses go down after retirement as they drive less, don't spend as much on clothes, etc. Others, not so much. House ever going to be paid off? That might reduce your spending.

There's a lot of variables to it, but back of the napkin tells me you are close, if not there.

The 190K is after tax.

I've already factored in reduced spending (very little).

We have no mortgage. House is worth about $400K.

Plan to reduce spending by $5K when I hit 65, and another $5K when I hit 75. Don't know how to enter that in to FIRE.

Do not expect to live past 85. Have had health issues. 90 is not happening for me. Assume wife will make it to 90. Don't know how to enter that into FIRE

The pension and SS income listed do not kick in until we turn 65 respectively, not when I initially retire. You seem to be assuming some start immediately (unless I misunderstand something).

 

[USGrant1962]

Your annual expenses jump out as quite high. Have you considered that after ER you will pay much less tax, won't contribute to 401(k), won't buy certain insurances, won't commute, etc?

Having said that, if I'm reading your post right your numbers should work.

Conservative 3.25% withdrawal on $3.25M is $105K. Add your PT work and wife's income and you get $200K/yr. Then your WR drops to ~2% when SS and pensions kick in.

Or are you saying retire to no PT work after 50?

 

[cathy63]

I agree with Nash that you should put your numbers into Firecalc and see what you get. I suspect you're there, especially if your expenses are really a little less than $190K.

One thing to be careful about is the age for SS. Your FRA is 67, not 65. Your wife's is either 66.10 or 67, depending on when her birthday is, so make sure you're using the appropriately discounted numbers if you plan to take it early at 65. You may want to play with SS' AnyPIA tool to get better estimates for these numbers.

 

[ivanl3]

Are you sure that you will require $190k in expenses throughout your retirement? Have you explored ways to reduce that?

Have you run the numbers if you both delay your social security benefits until 70?

Why is the company plan the only place you can purchase healthcare? Have you considered the ACA marketplace? $20k seems expensive for many locales.

You haven't mentioned housing. Do you have a mortgage? Will you downsize and/or move?

No mortgage. House worth about $400K. No plans to downsize.

$20K is the current rate from my company for retirees. ACA is slightly cheaper for us, but deductible and flexibility of providers make the company plan better option. I am a cancer survivor (in remission only about 1.5 years). Still high risk period of return. Don't want to risk not being able to see best providers or a crazy deductible.

 

[ivanl3]

I agree with Nash that you should put your numbers into Firecalc and see what you get. I suspect you're there, especially if your expenses are really a little less than $190K.

One thing to be careful about is the age for SS. Your FRA is 67, not 65. Your wife's is either 66.10 or 67, depending on when her birthday is, so make sure you're using the appropriately discounted numbers if you plan to take it early at 65. You may want to play with SS' AnyPIA tool to get better estimates for these numbers.

I got those numbers directly from SS website assuming age 65 for each of us.

 

[ivanl3]

Your annual expenses jump out as quite high. Have you considered that after ER you will pay much less tax, won't contribute to 401(k), won't buy certain insurances, won't commute, etc?

Having said that, if I'm reading your post right your numbers should work.

Conservative 3.25% withdrawal on $3.25M is $105K. Add your PT work and wife's income and you get $200K/yr. Then your WR drops to ~2% when SS and pensions kick in.

Or are you saying retire to no PT work after 50?

Thanks. Yes I considered the reduced expenses already.

PT work would begin at retirement and end in 8 years.

Here is the missing link I think. The $3.25M is in various accounts -- some are taxable some are not. See below



What is WR?

 

[bingybear]

WR == withdraw rate = annual withdraw from assets/total assets

pensions and SS become cash flow to reduce the amount you need to withdraw from assets.

 

[ivanl3]

Here is the $3.25M i referenced. Hopefully worth more by 12/31

Plan to invest most of cash upon retirement. Big chunk of that is the severance I would get if I leave on 12/31. Rest (about $90K) is true cash on hand.

 

[ivanl3]

Your annual expenses jump out as quite high. Have you considered that after ER you will pay much less tax, won't contribute to 401(k), won't buy certain insurances, won't commute, etc?

Having said that, if I'm reading your post right your numbers should work.

Conservative 3.25% withdrawal on $3.25M is $105K. Add your PT work and wife's income and you get $200K/yr. Then your WR drops to ~2% when SS and pensions kick in.

Or are you saying retire to no PT work after 50?

I did mention that the $190K would be reduced by $5K at age 65 (me) and another $5K at age 75 (me). But FIRE doesn't let me do that.

 

[ivinsfan]

IMO you shouldn't be counting your spouse's wages...things can change..it's not easy for some people to work FT until 65

 

[bingybear]

Here is the $3.25M i referenced. Hopefully worth more by 12/31

Plan to invest most of cash upon retirement. Big chunk of that is the severance I would get if I leave on 12/31. Rest (about $90K) is true cash on hand.

Much of what you have is pre-tax. If you take that severance all at once... do you know how much will be lost to taxes.

You need to look at how you can take $ and how much will be sucked by the tax man. If you take too large of a chunk and the tax man take his share, you may be working on much less than you are planning

 

[ivanl3]

IMO you shouldn't be counting your spouse's wages...things can change..it's not easy for some people to work FT until 65

Thanks, I agree. She actually makes about $110K now, so I reduced it to about $60K for that risk.

She sells real estate and averages about $110K over the last 20 years (that includes the crash).

Granted, if something happened where she did not work at all, I have an issue, but assuming no income seemed too far the other way I think.

The way I really view it is that she+me would have to make ~95K per year somehow if I left my job.

 

[ivanl3]

Much of what you have is pre-tax. If you take that severance all at once... do you know how much will be lost to taxes.

You need to look at how you can take $ and how much will be sucked by the tax man. If you take too large of a chunk and the tax man take his share, you may be working on much less than you are planning

The severance amount assumed is after tax.

But the tax man definitely will take a chunk out of those retirement accounts I listed.

When FIRE asks me to enter my Income on front page, is that pre or post tax? I need to go check that. I'm sure it says

 

[USGrant1962]

Your annual expenses jump out as quite high. Have you considered that after ER you will pay much less tax, won't contribute to 401(k), won't buy certain insurances, won't commute, etc?

Having said that, if I'm reading your post right your numbers should work.

Conservative 3.25% withdrawal on $3.25M is $105K. Add your PT work and wife's income and you get $200K/yr. Then your WR drops to ~2% when SS and pensions kick in.

Or are you saying retire to no PT work after 50?

Sorry, error on my part. Your WR (withdrawal rate) will be just about 4% when SS and pensions kick in - which is risky for a 40+ year retirement. I played around with FIRECalc a little bit and confirmed that you are not quite there yet but are close.

Here's a first cut at your numbers in FC:

FIRECalc: A different kind of retirement calculator

You have a few too many income streams for basic FIRECalc, so i neglected your late-life spending reductions and did a math trick on to represent your transition from work to pensions (deducted the difference from your income).

 

[ivanl3]

I see FIRE wants me to include Tax as an expense. My $190K did not include taxes. But based on my investments listed above, I don't know what to enter. This is where this whole thing gets so messy for me. If I just gross it up by 30%, that is too conservative, but cannot ignore taxes.

Ugh!!

 

[ivanl3]

Sorry, error on my part. Your WR (withdrawal rate) will be just about 4% when SS and pensions kick in - which is risky for a 40+ year retirement. I played around with FIRECalc a little bit and confirmed that you are not quite there yet but are close.

Here's a first cut at your numbers in FC:

FIRECalc: A different kind of retirement calculator

You have a few too many income streams for basic FIRECalc, so i neglected your late-life spending reductions and did a math trick on to represent your transition from work to pensions (deducted the difference from your income).

Thanks. Looks to me like the entry you made assumes we will work PT forever. We only wanted to do this for 8 years.

But don't see the pensions either.

I don't think FIRE is flexible enough for me.

 

[Aerides]

That 190k expenses for two, with no mortgage... seems still very high. 170 after HI, still. Ofc, you may life in a high COL area or have some other big ticket?

(and personally, if I had guaranteed employer care for $20k per year for two ppl, I'd take it, so in this environment that might be a good deal).

 

[USGrant1962]

Thanks. Looks to me like the entry you made assumes we will work PT forever. We only wanted to do this for 8 years.

But don't see the pensions either.

I don't think FIRE is flexible enough for me.

That's the trick. Show 95K income starting now, then reduce it when you each turn 65 by the difference between your salary and pension. The next two lines of "off chart spending" do that.

There is no good way to start and stop income streams in FC other than playing with the "spending changes".

 

[ivanl3]

That 190k expenses for two, with no mortgage... seems still very high. 170 after HI, still. Ofc, you may life in a high COL area or have some other big ticket?

(and personally, if I had guaranteed employer care for $20k per year for two ppl, I'd take it, so in this environment that might be a good deal).

I keep getting that question. Yes, we live a fairly affluent lifestyle. Goal is not to have to change that.

Remember the $190K does not include tax expense. That is actual cash spent after taxes are paid.

Don't know what HI, OFC or COL mean, sry....

 

[ivanl3]

That's the trick. Show 95K income starting now, then reduce it when you each turn 65 by the difference between your salary and pension. The next two lines of "off chart spending" do that.

There is no good way to start and stop income streams in FC other than playing with the "spending changes".

Thanks, I get it now....good tip.


Still have the tax challenge though. Don't see how FIRE can handle that for me.

 

[ivanl3]

Also need to find a way to reduce HC costs when we turn 65 respectively, when medicare kicks in. Won't go to 0, but drops.

I've been trying to build a s-sheet to do this, but I get hung up on the principal drawdown.

I have seen 2 professional planners. One from Prudential; one from Fidelity. Both seem to want to use tools like FIRE to do the planning, but none can handle all these complications.

I keep hearing things like..."well, our tool doesn't really allow us to do that complicated of a scenario"...

Very frustrating...

 

[joeea]

I got those numbers directly from SS website assuming age 65 for each of us.

You should consider waiting until 70 to begin collecting SS.
Compare:
- numbers starting early (at 65)
- numbers starting at FRA
- numbers starting at 70

65 is not FRA for either of you. Collecting then will result in reduced benefits for life.