Do You Think We'll Make It???

[choices1945]

I've been a lurker here for a few months. It's time for me to ask some questions.
I recently took early retirement. I have been looking at early retirement for the last couple of years. When I do the calculations from Fidelity, Vanguard or other experts, not only can I not retire, but I can never retire. The Fidelity site said I needed 1.3 million. I know a lot of retired people and none of them have a million dollars. And they seem to be doing OK. When I talk to financial advisors, they say, “No problem”. Of course, they want to get there hands on my 401K. I am 62 and my wife is 58. We have 2 kids, both done with college. The older one just got married a few months ago and the younger one still lives at home but is effectively supporting herself. The company I worked for is not doing well and has been cutting benefits for the last several years. Morale is in the pits and there have been no raises for the last 5 years. They came out with a voluntary layoff and I jumped at it. They gave me 10 months of severance. I have 4 months left to go. Here are my circumstances.
I have a frozen pension that I can start collecting immediately that pays about $17000/yr with a 50% contingency. Social Security will also pay $17000/yr if I start collecting at 63. I have $350000 that I just rolled over into mutual funds. That will also pay about $17000 if I withdraw 5% a year. I know about the 4% rule, but I don’t know if that will be enough. So $51000/yr is 70% of my pre-retirement income. I have $225000 equity in my house (250000 – 25000 Home Equity Line of Credit). No credit card bills, no car payments, no installment payments. I do have a college loan (PLUS) with a balance of about $20,000. I don’t want to pay that off early, because it’s the only tax deduction I have. I have $25,000 in savings and my wife has $20,000 in her brokerage account. We don’t have expensive hobbies. I play golf once a week and do a lot of fishing, hunting and hiking. Now for the negatives. After my severance runs out, I have no health insurance. We have two cars and both have about 150000 miles. So we need at least one new car and health insurance. The company does have post-retirement medical but the cost is $750/month. I can purchase a catastrophic policy with an HSA for about $500/month from the same company. My health is good – I have been to the doctors only twice in the last ten years and that was for a physical and colonoscopy. I really can’t see myself not working. But I won’t go back to the rat race. I don’t mind taking a no-brainer, low stress job either full-time or part-time.

I think we’re going to be OK but I’d like an unbiased opinion. Thanks.

 

[Razor]

Relax. You are going to be just fine.

 

[mickeyd]

Welcome 1945,

After my severance runs out, I have no health insurance.

You will probably be entitled to 18 months of COBRA after that. Is that the $750/month you refer to?

No credit card bills, no car payments, no installment payments.

Sweet!

Though you may have a few issues, you also have many positives there. I suggest that you cut down expenses to the bare bone now so you can see what you can tolerate when your severance stops. That way you will know what your real bottom line is. I lived on bear minimum for a while prior to ER just to see how little DW and I could live on and now I know how much wiggle room we have.

Good luck.

 

[travelover]

You'll make it. You may need to tweak your spending until you are comfortable, but I'd guess that you will be pleasantly surprised at your after retirement expenses.

 

[RetireeRobert]

I've been a lurker here for a few months. It's time for me to ask some questions.
I recently took early retirement. I have been looking at early retirement for the last couple of years. When I do the calculations from Fidelity, Vanguard or other experts, not only can I not retire, but I can never retire. The Fidelity site said I needed 1.3 million. I know a lot of retired people and none of them have a million dollars. And they seem to be doing OK. When I talk to financial advisors, they say, “No problem”. Of course, they want to get there hands on my 401K. I am 62 and my wife is 58. We have 2 kids, both done with college. The older one just got married a few months ago and the younger one still lives at home but is effectively supporting herself. The company I worked for is not doing well and has been cutting benefits for the last several years. Morale is in the pits and there have been no raises for the last 5 years. They came out with a voluntary layoff and I jumped at it. They gave me 10 months of severance. I have 4 months left to go. Here are my circumstances.
I have a frozen pension that I can start collecting immediately that pays about $17000/yr with a 50% contingency. Social Security will also pay $17000/yr if I start collecting at 63. I have $350000 that I just rolled over into mutual funds. That will also pay about $17000 if I withdraw 5% a year. I know about the 4% rule, but I don’t know if that will be enough. So $51000/yr is 70% of my pre-retirement income. I have $225000 equity in my house (250000 – 25000 Home Equity Line of Credit). No credit card bills, no car payments, no installment payments. I do have a college loan (PLUS) with a balance of about $20,000. I don’t want to pay that off early, because it’s the only tax deduction I have. I have $25,000 in savings and my wife has $20,000 in her brokerage account. We don’t have expensive hobbies. I play golf once a week and do a lot of fishing, hunting and hiking. Now for the negatives. After my severance runs out, I have no health insurance. We have two cars and both have about 150000 miles. So we need at least one new car and health insurance. The company does have post-retirement medical but the cost is $750/month. I can purchase a catastrophic policy with an HSA for about $500/month from the same company. My health is good – I have been to the doctors only twice in the last ten years and that was for a physical and colonoscopy. I really can’t see myself not working. But I won’t go back to the rat race. I don’t mind taking a no-brainer, low stress job either full-time or part-time.

I think we’re going to be OK but I’d like an unbiased opinion. Thanks.

Welcome. I think you will be ok. A few suggestions that might help make things work out better:

1) I would suggest you strongly consider the HSA high deductible health policy, and pair it up with a Health Savings Account. You get to put up to the deductible amount in the HSA each year, it grows tax-deferred, it comes out tax free for medical expenses, and it remains YOURS if you don't need it for medical. It is in effect a backup retirement plan. That HSA would save you $3000/year in premiums. You say you are in good health, if your wife is too, the HSA is a very good option.

2) After saving that $3000/yr on healthinsurance, then you can make do with $3000 less from investment withdrawals. Ratchet those down to 4% SWA, that gives you $14000 (instead of $17000 at 5% rate) but is much safer to sustain over longterm. Also remember medicare cuts in at age 65 for you likely saving you something net on health insurance between premiums for you on medicare and for your wife on other insurance.

3) Find another part or fulltime job with a different employer (if you just cannot stomach current employer/job) to get you from age 62 (or will you be close to 63 at end of severance?) to age 65---looks like maybe only 2 years?
a) That lets you avoid starting SS at 63, but you can wait to 65 and get a higher for the rest of your life benefit. Might also let you avoid starting withdrawals from your investments till 65 too, letting them grow a few extra years.
b) lets you further add more to your investment accounts, perhaps payoff the $25k due on your house, and/or get a newer car (I'd say get a 2 or 3 year old low mileage model, maybe one of the "certified" used).
c) probably gets you health coverage too for another 2 years and you can invest those saved premiums to further build your investments.

4) During these 2 additional years, you and DW can practice living on a tight-as-a-drum, barebones budget of what you "would" have had in income 2 years prior. But then when you really retire 2 years later with higher income, you have an automatic safety net already built in.

5) Don't know about size of house, but downsizing may be a possibility. That could free up some additional funds to add to investments.

Again. welcome, and I hope this is helpful.

 

[Razor]

Good advice R-Robert.

 

[choices1945]

Thank you Robert, all of your suggestions were excellent. I do plan on setting up an HSA. I hope to put off SS as long as possible, but it depends on what kind of job I can land. I should have mentioned that my wife still works. But she makes very little because she works with handicapped kids for a non-profit. I could get on her health care but it would still be more expensive than a catastrophic policy with an HSA. As far as paying off the house, I've gotten it down from 40000 to 25000 in the last 6 months. As far as downsizing, the average cost of a house in my area is over 400000 so there isn't much cheaper than what we have. We've spent a lot the last few years on improvements to the house, so it's just the way we want it for retirement.

Thanks for all of your good advice.