FI and now what?

[EngrGal]

I’ve been pondering a bit. (Warning, long post).

I am at FI, but would like to build up my financial reserves a bit more.

I’m saving about 30% of my gross salary each year.

I have 67 more work weeks until I can get an ‘early out’ at 55 with 15 years service . I’d get a minimum pension (with no COLA) and healthcare coverage (And, these days, who knows how long the healthcare coverage will be company-provided).

I spent some time crunching numbers at the pension website and found out:

If I work until I’m 56, I’ll get an 8% pension increase (for life), and until
57 an additional 6%
58 an additional 5%
59 an additional 3%
60 an additional 2%
Obviously, the longer I work, the larger the pension, but you can see from these numbers that the increase for working an additional year starts to level-off.

Here’s something else to think about. Typically, in the past, my company has offered incentive packages every few years to some people who qualify for retirement in an effort to ‘sweeten the pot’ and get these higher-paid folks, many of whom are in RIP (retired-in-place) mode, to retire early. These packages used to be very sweet…but have been scaled-back every time they offer them.

I can’t predict what the next ‘package’ would be, but a SWAG (at a minimum) would be a lump sum payment based on seniority (e.g. for me it would $40,000 - $50,000). In previous years, in addition to the lump sum payment, they have actually “given” extra years of age and service as part of the package. For instance, boosting someone with 25 years service at age 58 to having 30 years service and age 60 for the purpose of pension calculations. I don’t see this as being likely in my case.

So, feeling that I can choose to leave when I want, I have started making some comments (sort of like, ‘So, am I going to get one?’), when the general subject of offering ‘packages’ comes up in a conversation with my manager. Yesterday, when I made that comment, he looked at me and said, “Oh, you don’t want a package” or something like that while looking at me quizzically. I gave him a smug smile and left it at that. I am trying to ‘plant seeds’ in the hopes of being offered a package and then being able to decide if it’s worth it for me to accept it.

One concern I have is, I’m still pulling my weight and delivering at work so I’m not the first person that they will think of when it comes to offering ‘packages’. A strategy I’m thinking of…I may need to start a work slowdown (which is hard for my type of personality to do) in sufficient time to be offered a package.

So, to boil all this down:

As long as I’m working, I’m saving about 30% of my gross salary.
I can retire at the end of 2005 with a minimum pension (roughly 15% of my current salary) and healthcare.
If I work until the end of 2006, I can get an 8% increase in my pension for life, etc.
If “packages” are being offered in 2005, I’d like to get one just to see how much they’d pay me to leave (hey, an extra $40,000-50,000 lump sum payment is nothing to sneeze at)

I’d like to hear your thoughts on this and what you’d do if you were in my shoes.

EngrGal

 

[sgeeeee]

Hi EngrGal,

From your description of your situation, it sounds similar to the situation I was in just a few years ago. (I was 48 years old at that time.) I was ready to retire financially but felt no urgency and the longer I worked the better the retirement deal. Plus, there were those buyout packages that kept popping up for some lucky folks. I had asked about getting a voluntary severance package on more than one occasion and was never taken seriously.

I decided that I would set a retirement date (about 9 months out) and I would work to get my finacial house, insurance, etc. ready for that date. I did not announce my intention.

Then, at work, I began to take on issues that were not politically acceptable, but that I felt strongly about. The individual evaluation process had become poluted with a focus on "behaviors" and lost all site of "performance". The management bonus system had become based on "target dollar" performance which was completely decoupled from actual business returns and growth. Attacking these "sacred cow" issues made a lot of executives uncomfortable. So when the next buyout packages came along (about 6 months prior to my established retirement date) and I mentioned my interest again, I got one.

Of course, it was mostly just luck that got me what I wanted, and it might not be a strategy that would work for you. But that's as close as I can come to actual advice.

Good luck. I hope you get a great deal and enjoy a wonderful retirment.

 

[EngrGal]

salaryguru,

I began to take on issues that were not politically acceptable, but that I felt strongly about.

Hey, thanks for the great idea. This would be easier for me to do than trying to implment a 'work slowdown'. I feel strongly about some issues and have typically 'erred on the side of caution' about strongly voicing my opinions. Maybe I can help serve as the 'conscience' of the organization or speak out for the 'huddled masses' who cannot for fear of losing their job/paycheck.

EngrGal

 

[MooreBonds]

Ah, quite a catch-22 you find yourself in, eh EngrGal...part of the reason you got to where you are is from hard work and creating value for the company, but it would not be in the company's best interest to offer you an early retirement buy-out (which is why you've worked so hard all along )

You could follow the advice from salaryguru, but part of me would feel a little odd in doing so.

What if you were to offer the following: speak to your employer/boss. Tell them that you have been planning on your early retirement for quite some time, and that you recognize your contribution and many years of hard work and service to the company. You would like to leave on good terms, while at the same time thanking the company for its many years of providing you with a job (I know, it may not necessarily be the case from your perspective, but you have to say something nice to set your boss up for what follows ).

So, although you are already planning on retiring, you would still like to work as hard as you always have to reach a certain pension level of so many years of service, but you're starting to get a little burned out. Because you only have so much left in you, you would be willing to set a goal of "X" between now and when you retire (where "X" would be a milestone that would be above and beyond what you would normally produce in an average year)...and if you reach that goal, then you would be given a bonus of so many added years to your pension. If you don't reach X, then no one's any worse, since you would have already produced your normal average annual production.

So, it's a win-win for everyone: your company benefits by not having you (a great producer) in 'retirement mode' slowdowns AND they have the option of having an all-time high production from you..you benefit by having additional years added to your pension while working just a little bit harder (although you would have to ask yourself if working 1 year at 120% or 130% of effort is better than 2 years at 100% effort).

Why would I pursue this goal rather than salaryguru's suggestion? Because there's no guarantee that you being ideological and suddenly outspoken will result in an early-buyout. They could simply lay you (and possibly others) off and claim they were changing departments, etc., etc. and you would have no added years to your pension. Or simply out and out fire you by yourself with no added pension sweetener for an ER buyout, leaving you to decide if you want to try and work up a nasty civil case against them.

I'm the type that would rather take a 'guaranteed' possibility of having a win-win situation, rather than gambling on something that might not be the best, most pure of intentions. But, to each his/her own...

 

[cute fuzzy bunny]

Ahem, well...

When I returned from the paid sabbatical my company sent me on (their big mistake) I realized how much silly and unproductive stuff we do...more of the 'slow boiled frog' situation. And I stopped doing a lot of it. I stayed out of the pan.

I didnt seek out specific problem areas, 'sore' projects, deliberately antagonize people, or 'slow down' anything I was doing. I just did everything I should have done, stripped of the politics, double speak and unnecessary overhead.

I stuck out like a sore thumb, and the executive team really liked it. So did all of my direct reports. My peers, on the other hand, didnt like it one bit.

But I did get a lot done for the company, earned my money, and I went on in this mold, not intending to retire early, until a deal came around I liked, offered to all employees in certain divisions.

After some consideration I took it. After 3 vp's tried to talk me out of it. In retrospect I probably could have pushed them to give me a huge salary increase and maybe even lined me up for one of the next VP slots. Wasnt in me anymore though...

So my little bit of advice is to ride the horse that brought you here. Live a little less politically if that brings a smile to your face and doesnt create any major problems that will cost you, and bide your time waiting for the opportunity you want.

Perhaps knowing you can pull the trigger whenever you want will slack you up enough to just ride through a few more years, stack up those larger, tastier extra % points of pension, and that time will just fly by.

Retiring at 58 looks to be the sweet spot.

 

[johnblake]

I expect that retirement packages are different from layoffs. Aren't retirement packages offered to everyone who qualifies?

I worked at a shrinking company that went through a few layoffs. I hoped for a package, but I wasn't selected. I doubt that they would have given me a layoff slot, even if I asked. There wasn't any pension involved, just a cash payment, and insurance. I resigned.

In your case I'm a bit confused. You said that your company has offered retirement packages to people who qualify. Then said that you are hoping that you'll be offered a packaged. What does it take to qualify for a package?

Does getting a package make a big difference in your financial position? For example, if you just resign, you'll still get the pension, right? Im addition, you'd get another year or so to enjoy your early retirement.

RIP mode would drive me nuts. I also think it's unethical, equivalent to stealing from the shareholders.

 

[EngrGal]

JohnBlake asks several questions:

Aren't retirement packages offered to everyone who qualifies?

Yes, provided that they have the needed number of years of service and have reached a certain age.

Then said that you are hoping that you'll be offered a package. What does it take to qualify for a package?

Sort of being the the right place at the right time. Typically when the economy is less than booming and sales are off, the company looks to save money by trimming salaried ranks. The easiest way is to get the older folks (who typically have the highest pay in any salaried grade level) to leave. If your managment doesn't think you are 'pulling your weight' and you're an older empoyee, you'll be the among the first to be offered a package. Severance packages have only been offered to the those older employees who qualify for either early or regular retirement.

Does getting a package make a big difference in your financial position?

It depends on the package. During the last decade I know of 'packages' offered that added 5 years to your service and 5 years to your age (thereby increasing your lifetime pension benefits greatly) PLUS a lump sum payment that was predicated on your years of service --- something like 1 or 1.5 month's pay for every year of service.

Over the years, they have started scaling-back these very generous enticements. Aa I said earlier, I'd guess that the next round of pacakges would result in a lump sum payment to me of $40,000 - 50,000 dollars. This amount of money would not make a huge difference in my retirement. But, I'd hate to pass up that much 'free money' if it's available.

 

[JonnyM]

I've been pondering a bit.
I am at FI, but would like to build up my financial reserves a bit more.

I'm saving about 30% of my gross salary each year.

I have 67 more work weeks until I can get an early out at 55 with 15 years service . I'd get a minimum pension (with no COLA) and healthcare coverage (And, these days, who knows how long the healthcare coverage will be company-provided).

I spent some time crunching numbers at the pension website and found out:

If I work until I'm 56, I'll get an 8% pension increase (for life), and until
57 an additional 6%
58 an additional 5%
59 an additional 3%
60 an additional 2%

EngrGal

Two thoughts spring to mind. You start with the blanket statement that you have achieved FI. So the rest is about comfort levels, feelings of security, maybe cushion, extras, whatever. I'd look at it from the reverse, i.e expense side of the equation. Clearly I don't know your income, but I'm guessing it's significant if you can slice off 30 percent for savings. At the same time that tells me that after Fed/State/FICA/Other/taxes, employment expenses, you must be spending somewhat less than 50 percent of your gross if that on your normal expenses. So calculate that figure. Then subtract those expenses that you estimate will be reduced in ER and add in those you think will increase. I have a similar table that I stare at daily, except that I've substitued the actual estimated pension amounts for the percentages, and I expect you've done the same. So your chart becomes:

55 = 15%
56 = 23%
57 = 29%
58 = 34%

and so on as I agree with above, the sweet spot appears to be 58, with those last couple years not amounting to that hill-o-beans, but the next part of the equation becomes how much will 1/25 (4%) or your favorite SWR from all those 30 percent savings years add to your potential yearly income?

For example if you tell yourself that you'll stick around until 57 on the chance that the way-cool package will be offerred, but going to work each day with good kharma knowing you can step of the hamster wheel anytime you like, how much will the nestegg be on that ER date. Let's say it's an amount such that you could safely grab an amount each year equal to 10 percent of salary. Now you've got your numbers. Pension plus another 10% kicker vs estimated expenses. Does it fly? I'll bet it does, as you've already proven to be someone that knows well how to live below their means. And you've got a nice bonus raise to look forward 2 in just a few more years courtesy of the Feds via SS at 62. If I wasn't already me, I'd sure like to be you. 8) :

 

[EngrGal]

Johnny responds:

You start with the blanket statement that you have achieved FI. So the rest is about comfort levels, feelings of security, maybe cushion, extras, whatever.

Your perception is very accurate. Money in my life does represent security and comfort. The thought of walking away from a well-paying job does give me second thoughts. Although there are some days when I feel like just saying the heck with it and leaving.

....the next part of the equation becomes how much will 1/25 (4%) or your favorite SWR from all those 30 percent savings years add to your potential yearly income?

After 4 years (4x30%) = 120% of current annual salary. And as you noted, I'm living on something closer to 40% of my gross today. So the added savings over 3-4 years would add a nice 'bump' to my planned 4% SWR.

Thank you for your insights. I'll add a couple of these numbers to my planning spreadsheet. It'll give me food for thought (as well as comfort) going forward.

I appreciate everyone's input. Your unemotional "fresh eyes" look at my situation helps to keep it in all in perspective.

EngrGal

 

[John Galt]

Hello Engrgal! Re. "walking away from a well paying job", I did it several times including when I officially
ERed. It wasn't that I don't like money, and a couple of times I was not even all that unhappy with the work
(sometimes it was the people ). I assume
this makes me unusual since I have always been able
to be happily unemployed sort of regardless of my
fiancial situation. Being very self confident helped a
lot in business and certainly was a big assist in
deciding to ER. The only downsides I can see with
hindsight are that all that jobhopping resulted in a
lot of moving the family around, and I never owned a house long enough to score big when I sold. It was
quite a party though

John Galt

 

[BUM]

Damn!

EG,

I was composing a reply that just vaporized. Anyway the gist is the other half of FI is RE. Life is short. You're at the 99th yardline. Fall forward. Check out the posts here. Regrets are non-existent.

BUM