Decision in One Month

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NanoSour

Full time employment: Posting here.
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Jan 1, 2008
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Looks like we're coming down to the wire with our decision to ER or not. There is such great knowledge here, I thought I'd lay it all out there and get thoughts from the community. I've run so many calculators and calculations my head is spinning and if anyone is willing to run my numbers through their favorite calculator as a backup, I'd appreciate the sanity check.

By way of background information, I'm 50, DW 48. I'm a mid-level manager and she's a SAHM. Two children, ages 11 and 14. The oldest will be starting high school this coming fall and this is the primary reason we believe the decision must be made be 1 Apr and our house listed for a planned move on 1 July. If I ER, we will be relocating a significant distance to a tax-free state. (Income tax this is)

Here are the numbers:

Last 3 years Annual Spending: $72,360

Taxable Accts: 360K
401K: 250K
Roth IRA: 28K
Trad IRA: 17K
Home Equity: 150K (will sell and possibly roll over to new home)
Age 62 SS: 21.5K
DW SS 62 10K
Age 65 Pension: 17K (non COLA)
Gov't Pension: 38.5K (COLA, currently receive)
HC: Retired Military HC

With all this information the calculators show the following annual spending results:

Financial Engines: 90.6K
FIRECalc: 91.6K (99% Prob or success., Bernicke reduction)
ESPlanner: 95K (includes 30K/year college per child)

I've run the other calculators also; ORP, Flex Planner and the results are all the in the ballpark. They all point to exceeding our current spending by a pretty good margin. At least I think that is a good margin.

I guess my question is would one feel comfortable enough with the calculated projections to walk away?

It's tough to overcome the OMY syndrome, which for me will most likely be 5 more years as I actually like the job and will go to 55 if we stay.

Thanks for your thoughts....Nano
 
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NanoSour said:
I guess my question is would one feel comfortable enough with the calculated projections to walk away?

It's tough to overcome the OMY syndrome, which for me will most likely be 5 more years as I actually like the job and will go to 55 if we stay.
Click to expand...

I'm far from the point of retiring, but these key factors stand out for me:

- You have Military HC
- You have a COLA'd pension representing half your current expenses
- All of your 99% success scenarios are for incomes listed 25-30% higher than your current income (quite a nice cushion).

Whether or not you want to uproot your kids as they go into HS is a personal decision, but it sticks out to me. If you like your job so much, maybe you can proposition them for 50% FT work?

Either way, I'd certainly take the jump if I were you.
 
Once you hit 62 - you're at close to your current spending.
and at 65 - you have extra. (Not inflation adjusted for some of it.)

You have 10 years of current spending shortfall in your taxable accounts. (since you already have a 38.5k pension coming in.) That will bring you up to age 59.5.

You can then tap the almost 300k in the IRAs/401ks to cover till you turn 62 and SS comes online.

this assumes no market growth and no inflation... Chances are that market growth will exceed inflation... but there are no guarantees.

Once you're 65 you're good... plus your kids should be launched by then.

The only thing that gives me pause is the planned move. What if you hate the place you move?

Moving kids in high school is rough on them. So I agree that you should do it now (before he/she starts high school) or wait till the younger one is out of high school.

Is the only reason you're moving the state income taxes? Moves are expensive... some of your income going forward is likely to be tax free (depending on the state). I'd really look hard at whether a move is worth it IF the only reason is taxes.
 
rodi said:
The only thing that gives me pause is the planned move. What if you hate the place you move?

Moving kids in high school is rough on them. So I agree that you should do it now (before he/she starts high school) or wait till the younger one is out of high school.

Is the only reason you're moving the state income taxes? Moves are expensive... some of your income going forward is likely to be tax free (depending on the state). I'd really look hard at whether a move is worth it IF the only reason is taxes.
Click to expand...

Good questions. We agree that we don't want to move once the kids start high school. The move is to a place we know well and have family nearby, but not too close.

We know that we want to eventually end up in this area, but if we stay here and the kids finish HS/College here, then the chances of ever moving will be pretty slim. I hate to say that as we know one can always move once retired. However, realistically, if this is the children's home, we most likely won't just pick up and move. At least not without much consternation.

We are approaching it as a "now or never" decision.

Again, what I'm really looking for is what level of faith do folks have in all these calculators when faced with the real-life decision point.
 
Personally I think the Bernicke reduction gives too rosy a picture. Have you tried FIRECALC using an offchart spending reduction for when the kids are launced and also use constant spending power ?

I think you'll find that the numbers work anyway but its another good check.

You may also want to evalute if the 72.5k in spending is going to go up as the kids get older. Also don't see any funding for kids college. I worked my way through college so I know its possible so if that is what you are thinking then that works too !
 
NanoSour said:
It's tough to overcome the OMY syndrome, which for me will most likely be 5 more years as I actually like the job and will go to 55 if we stay.
Click to expand...

You are so fortunate to like your job ! Be thankful. I know how hard it is to make these decisions but your numbers look alot better than mine. In your situation, based upon the success rates you posted, I'd be gone tomorrow ! (but then again - I really DON'T like my job !!!)
 
Live And Learn said:
Personally I think the Bernicke reduction gives too rosy a picture. Have you tried FIRECALC using an offchart spending reduction for when the kids are launced and also use constant spending power ?
Click to expand...

I purchased ESPlanner Plus ($199) about a month ago and have run the numbers with $30/year for each child's college. That's a total of $240K over 7 years. ESP factored all that in in today's dollars and still spit out discretionary spending of over $74K given 1/2 mean returns for our portfolio. I'm as surprised as any about these numbers.

I've found ESP to be very useful in my planning, but a little hard to swallow, i.e. believe the numbers. The $74K is after housing, taxes, and college expenses.

I must quantify that the $74K spending is for the household, which is 2 Adults/2 children. This number will go down when the children have left the roost at 22.
 
obgyn65 said:
I would wait a few more months, until the calculators say 100%. I am sorry.
Click to expand...

All the calculators say 100% is easily doable for my current spending level of $72K. I chose the 99% on FIRECalc just to see how it compared to the others.
 
As someone said, moving while the kids are in HS is a personal decision, but personally I don't think its that big of a deal. I moved every 2 years from age 6 to about 17 and I think all it did was make me learn to be more independent and be able to adjust to things better. I say better to learn some lessons now instead of later.

We will be retiring and moving between my son's sophomore and junior years which is less than 2 years away and he's fine with it. New friends, new experiences.

Having said that, I think you are good to go right now.
 
Time for an update on our decision.

Although, a couple weeks behind schedule, we decided to put our house on the market. I still have yet to notify Megacorp which will be quite a surprise for them. We'll wait to get a solid offer on the house before I let them know.

Our plan is to make the move mid July if everything goes well. I'm surprised how difficult and emotional this decision is/was, and at times, DW and I are not sure we're doing the right thing. But, we figure it's a win no matter what happens which gives us some comfort.

I will say I'm very apprehensive about my upcoming discussion with my boss. I suspect she'll be very surprised/shocked/disappointed. I can't help but feel a little guilt about walking out on them. I keep telling myself that this is a Megacorp that will survive just fine without me.

For now it looks like there's a good chance I'll be joining the Class of 2013.

More to follow.
 
NanoSour said:
Time for an update on our decision.

Although, a couple weeks behind schedule, we decided to put our house on the market. I still have yet to notify Megacorp which will be quite a surprise for them. We'll wait to get a solid offer on the house before I let them know.

Our plan is to make the move mid July if everything goes well. I'm surprised how difficult and emotional this decision is/was, and at times, DW and I are not sure we're doing the right thing. But, we figure it's a win no matter what happens which gives us some comfort.

I will say I'm very apprehensive about my upcoming discussion with my boss. I suspect she'll be very surprised/shocked/disappointed. I can't help but feel a little guilt about walking out on them. I keep telling myself that this is a Megacorp that will survive just fine without me.

For now it looks like there's a good chance I'll be joining the Class of 2013.

More to follow.
Click to expand...

Congratulations on your decision :dance: I am very happy for you !!

What is that song "well, you can't please everyone, so you've got to please yourself". Don't worry about Megacorp and don't feel guilty about it. You've accomplished what so many American's cannot - saving for retirement ! Be proud. I know you'll do all you can to ensure the transition at Megacorp is as smooth as possible.

I know the emotional uproar and self doubt that comes with this. I'm decided to join the Class of 2013 also - but nothing is official yet and I can still change my mind, so it doesn't feel all that "real" yet. Putting your house on the market is a solid step and I know once I make that first real step that I'll freak out a bit and doubt the decision even more. BUT, I suspect that both you and I will look back on this in 1, 2, 5, 10 and 20 years and say "best decision I ever made !".

All the best
 
Guilt upon walking out (retiring) should not be your cross to bear. Let it go! Enjoy your kids while they are still at home, get their opinion on a move so at least they feel as though they have been heard and considered.
 
As some of the other posters pointed it out, how do you meet your cash needs the next 9 years or so? You have living expenses half covered with the pension, which leaves a need of about $400K (inflation) to meet living expenses plus you have another $210K in college expense during that window. That $610K exhausts all your after tax savings all of your home equity and your Roth and you would still be short. Once you hit 59.5 you are home free but you have to get there first. Even with 72t early access, you do not generate enough cash flow. I guess student loans for the kids & you pay them off would be an option. Otherwise 5 more years takes care of that cash shortage, but you end up with more money in retirement than you actually need. (I am assuming based on your kids current age you will have 7 years of college expenses before you reach 59.5 & your kids are among the 40% that finish in 4 years)
 
Agree with heeyy joe above regarding leaving. In my case, the clincher was when I realized that I'll have the freedom of raising my boys without the pressure of a career and meeting the organizations priorities. Priceless, they were only 1 and 3 years old at the time. I'm always available and connected, even though now they are 16 and 14.
Was fortunate also that I was approached for consulting agreement after retiring and it padded the stash a bit, but once the travel started ramping up, I quit that within two years.
Just curious what state your moving to that is good for retirees?
 
Today we are another step closer. A rather huge step as we accepted an offer to purchase our house. The house has been listed for 9 days and we got 3 offers, 2 at full asking price. :dance:

Now I have to have a big conversation with Megacorp. It may happen this week, but I may choose to wait until after the home inspection just in case the deal falls through.

Things are sure happening fast and it is quite stressful from my POV. But as they say, "nothing ventured, nothing gained".

Once I've had the conversation with employer, we'll get a mortgage pre-approval and start looking for our retirement home. It'll be interesting to see how the mortgage companies treats our situation, as I'll have no job, a decent pension, and some VG funds. Our cash flow plan is to set up a monthly deposit from VG to our checking account. Plan is to deposit 4 years of expenses into VG total Bond index fund and withdraw the monthly deposit from this fund. The rest of the assets will be spread across various VG index funds and eventually transfer 401K over to VG.

Well that's it for now. I'll let you know how the inspection goes.


Nano
 
Congrats on the next step!

I was apprehensive about talking with my Megacorp as well. Although I did get a call from my VP asking me what it would take to get me to stay on, after that everyone seemed to understand I was leaving (I gave 6 weeks notice.).

Although I made it clear that I was open to some short-term consulting after I ER'd (which is common at that Megacorp), I never got the call. It really brought home that although I took much institutional knowledge out with me, it didn't really matter.

So walk out with your head high and enjoy life after Megacorp!
 
Best of luck Nano!
I do agree with Shanky's note though....i am hoping your math works the way you need it to
 
MBAustin said:
.....Although I made it clear that I was open to some short-term consulting after I ER'd (which is common at that Megacorp), I never got the call. It really brought home that although I took much institutional knowledge out with me, it didn't really matter.

So walk out with your head high and enjoy life after Megacorp!
Click to expand...

+1 I kept getting the ol "we don't know what we'll do without you" from colleagues when i was leaving and I kept telling them that they had a bunch of smart folks and that they would figure things out fine. Got one call about a possible consulting gig but that opportunity fizzled away.
 
I took your numbers and put them in Firecalc I used annual spending of 72400 for 4 years, then 102400 for 3 years, 132400 for one year (2 kids in college), then 3 more years at 102400 and then in year 12 went back to 72400

I started with a portfolio of 655000, with a 45 year retirement. SS 21500 in 2025, 10750 (half of yours) in 2027 with 38500 inflation adjusted pension in 2013 and 17000 pension with no COLA in 2028.

I kept investments as defaults. I got a success rate of 83.3%.

I didn't put in anything for the $150,000 equity from your house since you said you might put it in your new house. Also from having bought a house last year and moved about 60 miles there are a lot of one time expenses the year you move. There are expenses for the move itself and usually there is work you want to do to the new house, you may need to buy some different furniture that will work better in the new house, may need to build a fence, etc.

If I change year 12 to $50,000 spending I get 88.5%.

Of course, you may not spend $30k a year for kids for college. I have a son in college and his costs are way less than that as he went to CC for awhile and will be transferring to a state university close to our home so he can live at home. Even if he was in a dorm the cost would be closer to $20k a year than $30k.

Also, with kids the age of yours it remains to be seen what they will want to be doing 4 to 7 years from now. For example, my daughter doesn't want to do a 4 year program and wants to do a 2 year program. On the other hand, my son is going to take more than 4 years to graduate.

If I add back in $100,000 of your house equity to the portfolio then I get 95.8% with reduced spending of $50,000 in year 12. With spending of $72,400 in year 12 and after and the extra $100,000 in the portfolio - I get 92.7%.

You also need to go to investigate and ask for data in spreadsheet format. When you do that, you should make note of any cycles were you fully deplete your taxable account before you are 59.5.

I may not be inputting your numbers correctly, as I was just basing on your original post, so this is more just something to look at.
 
Katsmeow said:
I took your numbers and put them in Firecalc I used annual spending of 72400 for 4 years, then 102400 for 3 years, 132400 for one year (2 kids in college), then 3 more years at 102400 and then in year 12 went back to 72400

I started with a portfolio of 655000, with a 45 year retirement. SS 21500 in 2025, 10750 (half of yours) in 2027 with 38500 inflation adjusted pension in 2013 and 17000 pension with no COLA in 2028.

I kept investments as defaults. I got a success rate of 83.3%.
Click to expand...

Thanks very much for checking my analysis Katsmeow. The only difference I have is the initial amount will be 770,000 of which 310,000 is currently in tax-deferred accounts. The 770K is after 65K down on a new 325K home and 15K set aside for the move (moving van, gas, etc). I've already had the discussion with DW about new furniture and setting up the new homestead. We agreed we can't go crazy on the decorating and really need to get a "turn-key" property.

When I run FIRECalc, I use the Bernicke reduction factor as I'm comfortable with scaling back expenses as I get into my older years. FIRECalc does this a little bit early, but I use a 1.5% reduction starting at age 70 in ESPlanner.

ESPlanner is my primary decision tool and it gives me 34K of annual discretionary spending per household member. This is spending after taxes, home expenses (PITI) and college. We have lived on 22K/member for the past 3 years in preparation for this decision and we are very comfortable with our spending and don't feel at all deprived. As a bonus the 34K assumes only 1/2 mean real return on specific portfolio allocation. So in our case, the 34K is a "Cautious" spending level.

Again, I do appreciate you looking more deeply into my numbers as one can never be too sure you're not putting garbage in and getting garbage out of these calculators.

Finally, my military retirement is $3205/month. We will transfer the same amount monthly from VG giving us $6410/month net. I used paycheck city.com to calculate what Gross salary this transfers to and it is $93K/year. This is a pretty good salary for the area we are moving to. I trust it will all work out.

Thanks again,


Nano
 
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Notified employer yesterday of my resignation. My boss was very supportive of my decision which was no surprise as he's been a linchpin to my success during my entire time of Megacorp. I feel pretty fortunate as I'm sure most will not miss their boss after ER. However, I must say, I will.

Hit a small bump today when I went to get a pre-approval for a mortgage. Had to put 50% down as they would not consider assets and only income in which I'll be at the military retirement of $38,500. Qualified me for $162,500 at 3.25%. Not what I wanted as we were planning to put down just 20% to avoid PMI. According to ESPlanner, the additional 30% down will cost us approximately $5K annually in our discretionary spending budget. Oh well, I'm sure there will be many more bumps along the way.

Good news is we decided to go with PODS for the cross country household move. Too many horror stories on the net about the big mover such as Allied and United. So we'll pack it and load it onto a locked POD and let them store it on the other end until we have a new home ready for delivery.

Next hurdle is the home inspection on our current home which should be this week.
 
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