swampmaple
Confused about dryer sheets
- Joined
- Oct 12, 2006
- Messages
- 4
or I am. I felt like I was in the Twilight Zone last night when I started reading the "Personal Financial Analysis" he presented. This consisted of about twenty pages total - some boilerplate re "Income Tax Planning" and investments that wasn't personal to us, and the rest pretty colored graphs & pie charts and "Analysis" obviously created from some software program using data I'd given him (pay stub, copies of investment accounts, info re real estate investments, anticipated federal pension printout).
I had originally called this planner because I read a "Financial Makeover" column in the newspaper by a planner whose advice seemed good and was an "Independent" CFP, which I thought important (having suffered through an American Express planner experience some years ago). But when I called that planner she was not taking on new clients except on an ongoing basis (pay every quarter to manage investments) but recommended I call someone else associated with the Independent CFP association she belonged to. This led me to Mr X.
Well, I nearly had an out of body experience (which ideally would have had me turning over Mr. X and shaking the $500 we'd already paid out of his pocket) when I saw the row of figures on the "Retirement Capital Estimate" sheet. These showed fourteen consecutive years of deficit spending if I retired, as I planned, in May 2007 at age 51 1/2. The deficit started at $57,700 per year and tapered to about $24,000 per year before the tide turned. Adjoining columns indicated we would be depleting retirement accounts and Roth (the latter we don't own) over $300K to cover the shortfall.
As my fairly careful "self analysis" indicated my pension and rental income would cover 100% of our expenses starting at age 51 1/2, while our investment accounts would grow unmolested until we needed some withdrawal possibly for college expenses in ten years, I had a problem with the CFP analysis.
The next hour and a half was spent with me basically trying to figure out how in the world he got to the $57,000 a year deficit, pointing out some obvious errors, and multi-tasking by mentally composing a termination of service letter to him so we can get out of our "Agreement", i.e. contract, to pay him an additional $1,500 to $2,000 for the "Final Plan and Recommendations." (Which I've since done.)
So, here I am, by way of internet search and prior knowledge of the site from retirees who have gone before me. I am looking for a little reassurance from "the masters" and maybe some advice on specific questions that have been nagging me.
I am a federal law enforcement agent under the Civil Service retirement plan, close to 51 years old, with spouse and young children. We have - hey, one good thing about the bummer CFP experience was I made some nice spread sheets up for myself - $1,961,000 in assets and $208,000 in liabilities. All the liability is property mortgages - about $78,000 on our primary residence ($600K value) and $130,000 on four three-family rental properties (total value about $500,000, they're in kinda crummy low income areas but are solid and the rents carry the mortgages easily). We also have one single family rental property in good area (value $300K) with no mortgage but low rent/high taxes; and a buildable house lot (value $100K) which is basically just a tax burden and maybe gift to one of the kids, as it is next door to our house and we prefer it woods.
The rest of our assets are mostly tax deferred - about $200K in my TSP (invested in L 2020 fund, which I will add to until I retire); about $70,000 in UMAUTMA accts for children, in large cap DRIPS; $15,000 in spouse's trad IRA, $90,000 spouse's 401K (no addition since leaving job in 1997), $15,000 spouse's UPS stock; and $2,500 savings bonds. We keep about $25,000 cash in the rental business account and have $9,000 in 18 mos CDs too.
We live below our means - I think! - in that I've always put the max in TSP and we've put money into the rental property. We have one bottom of the line family mini-van, which we've been replacing each 3 years, no cable tv, no retail shopping habits, and generally no luxuries except living in the nice green suburb we do (with its high property taxes) and spending about $15,000 a year for family vacations and camps.
My biggest retirement asset is undoubtedly my pension. In May 2007, if I elect a minimal survivor benefit my pension gross will be about $77,000 (62% of hi 3 years). My when to retire decision was predicated on when I thought our net income would be the same as before retirement.
Recently, I figured I net about $64,800 per year from the job (from a gross of $128,000) after taxes, retirement, Medicare, TSP10% plus $5,000 Catch-up, payment on one TSP loan (now ended), and Health Insurance were taken out. In retirement, I figured net will be roughly the same as now - $64,000. (I am figuring only about 15% taxes total, maybe I'm wrong, as our state doesn't tax federal pensions and the rental properties seem to guarantee - with Sched E reductions to income - our total federal tax is consistently pretty low.)
By the way, one of the most glaring errors the CFP made was expressing surprise when I told him one of the things wrong in his calculations was including State Income Tax on a federal pension - he ACTUALLY WAS UNAWARE OF THIS AND HE LIVES AND PRACTICES FINANCIAL ADVISING IN THIS STATE! Another error I know he made was including all the rental property mortgages in our expenditures and not making a related entry in income for the rent (which equals or exceeds mortgages).
Currently and in retirement I figure on $1,000 a month additional income from the rental of the paid off single family home we have (while accounting for its property tax and insurance in my expenditures). Anyway, all in all our yearly expenditures I figure at around $75,000 and I figure my anticipated pension + single family home rental income at $77,000.
So can you feel my pain at being told I would be $57,000 in the red for the first year, and another $300K or so more in the following years of retirement? I told the guy, "Look, this is crazy, I could never retire if this were true!" I followed that up by noting if I were so deluded as to fund the first ten years of early retirement by completely depleting TSP and IRAs there would be whopping early withdrawal penalties plus the 20% income tax off the top to consider.
Well sorry so long here - just needed to vent a bit and hopefully get some reassurance. One important point I didn't mention is that spouse is vested in a Teamster's pension which is not the greatest (has a very pseudo COLA in that the board of directors occasional "adjusts" payments upwards) but should be worth about $26,000 (or upwardly adusted equivalent) in 14 years, as well as SS to look forward to. I have no SS. Also the rental mortgages are all done by ten years from now, which will definitely free up about $3,000 a month (this won't seem like as much in ten years, but the rents go up with time).
Which brings me to the first of my nagging questions: In our case, is it reasonable to not take the full spousal annuity available with my CSRS pension, with the qualifiers I intend to fund a tiny annuity so that access to health insurance continues, and I intend to extend and increase my current term life insurance policy (so it covers until I'm 70, and goes from $400K to $1,000,000)? The full spousal annuity would reduce my pension about $7,500 per year. If I die, the spouse gets $45,500 per year (or whatever the COLA's equivalent is).
Re cost of life insurance, a million dollar term life policy for me is about $1400 per year (locked in rate for 20 yrs) or $1000 per year (locked in rate for 15 yrs.). My thinking here is within ten years paying off rental property mortgages frees up about $36,000 yr; and in 14 years spouse is eligible for about an additional $45,000 yr in Teamster's pension and SS. Also, kids will be in 20s and hopefully expenses will be done. So spouse has 3 additional income streams to look forward to - totalling more than what the spousal benefit would have been. Therefore eating dogfood scenarios are unlikely...and if we both stay alive we will be receiving about $6,000 per year in my pension while not having to tap investments. Worst case, I die early in retirement, life insurance can be used to immediately pay off rental property mortgages and the remaining $750,000 used to bridge the gap until pension/ss kicks in. Yet almost everything I read counsels against replacing spousal benefit (particularly CSRS one) with insurance. But I do think in our case it makes some sense. I would never be tempted by a "pension max" type insurance product, but simple term life insurance to me is quite different.
I have other nagging questions, but I'll save them for now.
thanks,
SwampMaple ("readytogo" was taken, so I went with the brightest fall foliage tree around here)
I had originally called this planner because I read a "Financial Makeover" column in the newspaper by a planner whose advice seemed good and was an "Independent" CFP, which I thought important (having suffered through an American Express planner experience some years ago). But when I called that planner she was not taking on new clients except on an ongoing basis (pay every quarter to manage investments) but recommended I call someone else associated with the Independent CFP association she belonged to. This led me to Mr X.
Well, I nearly had an out of body experience (which ideally would have had me turning over Mr. X and shaking the $500 we'd already paid out of his pocket) when I saw the row of figures on the "Retirement Capital Estimate" sheet. These showed fourteen consecutive years of deficit spending if I retired, as I planned, in May 2007 at age 51 1/2. The deficit started at $57,700 per year and tapered to about $24,000 per year before the tide turned. Adjoining columns indicated we would be depleting retirement accounts and Roth (the latter we don't own) over $300K to cover the shortfall.
As my fairly careful "self analysis" indicated my pension and rental income would cover 100% of our expenses starting at age 51 1/2, while our investment accounts would grow unmolested until we needed some withdrawal possibly for college expenses in ten years, I had a problem with the CFP analysis.
The next hour and a half was spent with me basically trying to figure out how in the world he got to the $57,000 a year deficit, pointing out some obvious errors, and multi-tasking by mentally composing a termination of service letter to him so we can get out of our "Agreement", i.e. contract, to pay him an additional $1,500 to $2,000 for the "Final Plan and Recommendations." (Which I've since done.)
So, here I am, by way of internet search and prior knowledge of the site from retirees who have gone before me. I am looking for a little reassurance from "the masters" and maybe some advice on specific questions that have been nagging me.
I am a federal law enforcement agent under the Civil Service retirement plan, close to 51 years old, with spouse and young children. We have - hey, one good thing about the bummer CFP experience was I made some nice spread sheets up for myself - $1,961,000 in assets and $208,000 in liabilities. All the liability is property mortgages - about $78,000 on our primary residence ($600K value) and $130,000 on four three-family rental properties (total value about $500,000, they're in kinda crummy low income areas but are solid and the rents carry the mortgages easily). We also have one single family rental property in good area (value $300K) with no mortgage but low rent/high taxes; and a buildable house lot (value $100K) which is basically just a tax burden and maybe gift to one of the kids, as it is next door to our house and we prefer it woods.
The rest of our assets are mostly tax deferred - about $200K in my TSP (invested in L 2020 fund, which I will add to until I retire); about $70,000 in UMAUTMA accts for children, in large cap DRIPS; $15,000 in spouse's trad IRA, $90,000 spouse's 401K (no addition since leaving job in 1997), $15,000 spouse's UPS stock; and $2,500 savings bonds. We keep about $25,000 cash in the rental business account and have $9,000 in 18 mos CDs too.
We live below our means - I think! - in that I've always put the max in TSP and we've put money into the rental property. We have one bottom of the line family mini-van, which we've been replacing each 3 years, no cable tv, no retail shopping habits, and generally no luxuries except living in the nice green suburb we do (with its high property taxes) and spending about $15,000 a year for family vacations and camps.
My biggest retirement asset is undoubtedly my pension. In May 2007, if I elect a minimal survivor benefit my pension gross will be about $77,000 (62% of hi 3 years). My when to retire decision was predicated on when I thought our net income would be the same as before retirement.
Recently, I figured I net about $64,800 per year from the job (from a gross of $128,000) after taxes, retirement, Medicare, TSP10% plus $5,000 Catch-up, payment on one TSP loan (now ended), and Health Insurance were taken out. In retirement, I figured net will be roughly the same as now - $64,000. (I am figuring only about 15% taxes total, maybe I'm wrong, as our state doesn't tax federal pensions and the rental properties seem to guarantee - with Sched E reductions to income - our total federal tax is consistently pretty low.)
By the way, one of the most glaring errors the CFP made was expressing surprise when I told him one of the things wrong in his calculations was including State Income Tax on a federal pension - he ACTUALLY WAS UNAWARE OF THIS AND HE LIVES AND PRACTICES FINANCIAL ADVISING IN THIS STATE! Another error I know he made was including all the rental property mortgages in our expenditures and not making a related entry in income for the rent (which equals or exceeds mortgages).
Currently and in retirement I figure on $1,000 a month additional income from the rental of the paid off single family home we have (while accounting for its property tax and insurance in my expenditures). Anyway, all in all our yearly expenditures I figure at around $75,000 and I figure my anticipated pension + single family home rental income at $77,000.
So can you feel my pain at being told I would be $57,000 in the red for the first year, and another $300K or so more in the following years of retirement? I told the guy, "Look, this is crazy, I could never retire if this were true!" I followed that up by noting if I were so deluded as to fund the first ten years of early retirement by completely depleting TSP and IRAs there would be whopping early withdrawal penalties plus the 20% income tax off the top to consider.
Well sorry so long here - just needed to vent a bit and hopefully get some reassurance. One important point I didn't mention is that spouse is vested in a Teamster's pension which is not the greatest (has a very pseudo COLA in that the board of directors occasional "adjusts" payments upwards) but should be worth about $26,000 (or upwardly adusted equivalent) in 14 years, as well as SS to look forward to. I have no SS. Also the rental mortgages are all done by ten years from now, which will definitely free up about $3,000 a month (this won't seem like as much in ten years, but the rents go up with time).
Which brings me to the first of my nagging questions: In our case, is it reasonable to not take the full spousal annuity available with my CSRS pension, with the qualifiers I intend to fund a tiny annuity so that access to health insurance continues, and I intend to extend and increase my current term life insurance policy (so it covers until I'm 70, and goes from $400K to $1,000,000)? The full spousal annuity would reduce my pension about $7,500 per year. If I die, the spouse gets $45,500 per year (or whatever the COLA's equivalent is).
Re cost of life insurance, a million dollar term life policy for me is about $1400 per year (locked in rate for 20 yrs) or $1000 per year (locked in rate for 15 yrs.). My thinking here is within ten years paying off rental property mortgages frees up about $36,000 yr; and in 14 years spouse is eligible for about an additional $45,000 yr in Teamster's pension and SS. Also, kids will be in 20s and hopefully expenses will be done. So spouse has 3 additional income streams to look forward to - totalling more than what the spousal benefit would have been. Therefore eating dogfood scenarios are unlikely...and if we both stay alive we will be receiving about $6,000 per year in my pension while not having to tap investments. Worst case, I die early in retirement, life insurance can be used to immediately pay off rental property mortgages and the remaining $750,000 used to bridge the gap until pension/ss kicks in. Yet almost everything I read counsels against replacing spousal benefit (particularly CSRS one) with insurance. But I do think in our case it makes some sense. I would never be tempted by a "pension max" type insurance product, but simple term life insurance to me is quite different.
I have other nagging questions, but I'll save them for now.
thanks,
SwampMaple ("readytogo" was taken, so I went with the brightest fall foliage tree around here)