Introduction and Questions

[Tom52]

Hi all! I have been lurking and reading for a couple weeks now and decided it is time to join in the fun. Here is my current situation....

I am 54, and my wife of 32 years is 53. We have one daughter who is financially independent and living on her own. We have a home valued at about $350,000 and have no mortgage for about the last 10 years. We live in a very popular town, Naperville, IL, which has been rated either 1,2 or 3 as the best small city to live in the USA that last three years running. Thing is, we moved here almost 20 years ago from Iowa and have never really cared for the area, too expensive and too much congestion, but the pay is too good and my career somewhat too specialized to easily consider relocation. So, obviously we would like to relocate somewhere more to our liking if we can ever make it to retirement. Maybe we would relocate back to Iowa if the parents are still with us, if not someplace further South, maybe Eastern Tennessee.

Right now, we have about $830,000 in tax deferred investments, most all mutual funds of one type or another and $390,000 in I bonds and CD's. We have another $20,000 in emergency cash laying around. We have no pensions. We have no debt, two fairly new cars and at least right now about $200,000 in yearly gross income, however, we just heard this past week that there is a chance my wife's company has been sold and there will be layoffs. Her future earning potential is at best cloudy at this point. In fact, I believe that my position may only run for another 2 or 3 years, unfortunately there are no guarantees in life.

We have always lived below our means, and saved money, but apparently not as successfully as many I have been reading about on this forum

Last January 1, we started on what we hoped was our five year plan to save and invest so that we would be in a position to RE in 5 years, which is now 4 years and 2 months in the future. We figure that we will need at least $1.75 M$ to be able to support ourselves, I would be 58 and the wife would be 57 at that time.

Well, we are $500,000 and a little over 4 years away. There are too many unknown's to know for sure whether or not we will reach our goal but we will keep saving. I really haven't set down to see how easy it would be to live on $70,000 per year, I am not sure how much health insurance costs, right now we have no medical conditions.

I don't think we would have a problem finding things to keep active in retirement, I play the guitar, and have a nice old Chevy waiting in the garage for me to tinker on. I also have always wanted to get into model railroading. My wife enjoys gardening, we both enjoy traveling.

Well, that is where we are at, I would appreciate any comments, cautions, or suggestions.

Tom

 

[Callie]

You sound like you are doing great.

How much will you spend each year after retirement? Your house is paid off....

 

[astromeria]

Welcome, Tom.

First thing I recommend is--relax! You're already financially independent (IMO), and the rest is feathering the nest.

Second, take the time to figure out exactly how much you spend, and on what. It isn't possible to guess accurately at this--no substitute for taking the time to track expenditures. After a few months, if you can remember all of your less-often-than-monthly expenses (property taxes, car & home & life insurance, clothing purchases...), you can probably do a decent extrapolation. You might be surprised at waht you find--hopefully how little of your paycheck you need to live on. Then look into the cost of COBRA and individual health insurance--prices vary widely based on age, health, terms, and location.

My husband and I live happily on 1/4 of our peak income and aren't doing without anything of significance (we take expensive trips, live in a very nice house, go to concerts, and so on).

 

[GOJAGATORS]

Hey Tom,

You are 4 years older than me and are about exactly where my wife and I hope to be when we are 54 and also aiming for ER around 58ish. You are also asking the exact same questions I have been asking myself, such as how much do I really need, what about healthcare until medicare sets in etc. We are currently tracking our actual expenses, and I'd like to echo astromeria's advice that you do the same. We have found lots of places that we both under and over estimated our actual living costs. As we've started to get a grip on that half of the equation, I'm starting to feel a whole lot better about the prospects of getting to ER around 58 also. Now, if only the market would continue this nice run......... Good luck

 

[REWahoo]

Tom,

Your situation is very similar to mine in that I was roughly where you are at age 52 and hit my number and FIREd at 58. I’ll echo what others are saying: start tracking your expenses. Nothing gives you more confidence in your ability to pull the trigger than having a good understanding your expenses. Don’t quit work without it.

 

[73ss454]

Tom,

I also am in about the same boat. I'm 57 and DW is 55 and we both will be done in about a month. Also moving from NY to Fla. for the warmer weather and the Grand Kids. You are not alone!

 

[AltaRed]

I echo the same thinking. You are getting close and I also recommend you track expenses for the next 6-12 months to get a good handle on where the money goes. $70k (AT if that is what you are saying) is at the higher end of expenses for most of the folks here and you may find you can do with less. Especially so if DW's job vaporizes.

I would suggest a spreadsheet or Quicken or MS Money to ease the effort of tracking expenses. You do not have to get excessively detailed but you will want to get it into at least 10-12 categories in my mind. It will at least give you some groundbasing and confidence on what it actually takes to retire on.

 

[73ss454]

Tom,

One other thing, I also have an old Chevy. It's waiting for me in Fla.

 

[Tom52]

Well, I did some preliminary number crunching. Using the rule of thumb I have seen expounded here, $1,750,000 nest egg properly invested can normally be maintained when drawing out 4% per year, or $70,000. So the $70,000 would be before taxes. I also seem to remember seeing here that an approximate tax rate is 15%, is that fairly accurate? If so that would leave approx. $59,500 after taxes? Since not all of my investments are tax deferred maybe 15% is not quite accurate.

If that is the case, it would be fairly difficult to afford health insurance, guessing $12,000 to $15,000 yearly premiums for the two of us, plus property taxes of almost $6000 per year, and still maintain a semblence of our lifestyle which is far from extravagant. I am sure there are some areas where we could and would cut back but even so......

I realize once we would hit SS age, our income would increase, assuming SS will still be around in 8 or 9 years. Then later in about 12 years we would then be able to reduce our health care coverage costs. The interem would look to be fairly tight on finances.

Maybe I am overlooking something obvious, if so appreciate your ideas.

Tom

PS Here is a photo of my Chevy retirement project, yeah that is Dennis Gage from My Classic Car between my wife and me.

 

[REWahoo]

So the $70,000 would be before taxes. I also seem to remember seeing here that an approximate tax rate is 15%, is that fairly accurate? If so that would leave approx. $59,500 after taxes? Since not all of my investments are tax deferred maybe 15% is not quite accurate.

Tom,

Here is an online tax calculator you might want to use for some "what if" looks at your possible tax situation after FIRE. I suspect it will be much better than the 15% number you used to come up with $59.5 (think average tax rate, not marginal rate). http://www.finance.cch.com/sohoApplets/Tax1040.asp

Nice car...

 

[REWahoo]

If that is the case, it would be fairly difficult to afford health insurance, guessing $12,000 to $15,000 yearly premiums for the two of us, plus property taxes of almost $6000 per year, and still maintain a semblence of our lifestyle which is far from extravagant. I am sure there are some areas where we could and would cut back but even so......

One other point...have you looked at the cost of individual health coverage? I realize there are big variations in cost and availability based on where you are located and your health status, but it may not be as bad as the $12-15k number you are ballparking. We (DW and I) are paying less than $7k for our combined policies ($5k deductible), and she's in our state high risk pool due to some pre-existing conditions. Yes, these costs will go up, but they will have a ways to go to get to your numbers.

If you haven't already, you might try getting some quotes on ehealthinsurance.com. and be sure to check out your state health insurance rules on healthinsuranceinfo.net

Did I mention what a nice car you have?

 

[73ss454]

Tom,

Nice 66 chevy convertible. Small block or big? Looks like a small block by the front emblem but my eyes are getting old.

You should run firecalc and see if it allows you to take more than the 4%. When I run firecalc it tells me 6%+ as a SWR. Although DW has an 8K pension which may help my #'s.

 

[Nords]

Welcome to the board, Tom.

Well, I did some preliminary number crunching. Using the rule of thumb I have seen expounded here, $1,750,000 nest egg properly invested can normally be maintained when drawing out 4% per year, or $70,000. So the $70,000 would be before taxes. I also seem to remember seeing here that an approximate tax rate is 15%, is that fairly accurate? If so that would leave approx. $59,500 after taxes? Since not all of my investments are tax deferred maybe 15% is not quite accurate.

Nah, that's a progressive tax and not a flat tax.

If all that $70K came from interest income and not from qualified dividends or cap gains (probably the worst case), then your tax would be about $7200. That's $70K - $10,300 (the standard deduction) - $6600 (two exemptions, Mr. Gage and the Chevy don't count) = $53,100. The tax on that amount is $1510 plus 15% of the amount over $15,100 or $1510 + ($53,100 - $15,100) = $7210. So you'd still have $62,790 left.

If you had income from cap gains then they might be taxed at an even lower rate. Cap losses would offset more cap gains. If you had more deductions than the $10,300 standard (for example, mortgage interest) or more exemptions then your taxable amount would be even lower. If you had tax credits (childcare, energy initiatives) then your tax would be lower too.

One way to estimate your taxes would be to plug through the IRS' Estimated Tax worksheet in Form 1040-ES. But that swag above is probably close enough.

I realize once we would hit SS age, our income would increase, assuming SS will still be around in 8 or 9 years. Then later in about 12 years we would then be able to reduce our health care coverage costs. The interem would look to be fairly tight on finances.

You're only buying health insurance until you hit Medicare, right? And your withdrawals will also go down when you start receiving Social Security.

Now that you have some expense information, enter that into FIRECalc along with your Social Security estimate (depending on whether you take it at age 62 or as late as age 70) and assuming your health insurance costs plummet when you hit age 65. You may find that you only need to bridge the gap to Medicare & SS, not pay for the rest of your life. Starting with a higher SWR may work just fine if you're reducing it after 10-15 years.

 

[MooreBonds]

Welcome Tom, from someone a few hops, skips, and a big jump across the river over in St. Louis.

I'd also echo the other posters' comments about it being enough until 65.

My individual high-deductible plan is through Assurant Health (http://www.assuranthealth.com/). I plugged in Napierville's zip code and your and your wife's ages into Assurant's on-line quote page, and got the following (assuming non-tobacco user):

Network: Health's Finest Network (the more expensive of the two networks offered)
SaveRight PPO, 100% Co-insurance, $5,100 deductible
$241 monthly premium for a family policy, with a $5,100 deductible for you, and a separate $5,100 deductible for your wife.

Knock the above down to a $3,000 deductible, and your monthly premium would be
$304 (same conditions on the deductible)

AND - both plans are HSA plans, meaning you can contribute up to your deductible each year into an HSA, TAKE A TAX DEDUCTION when you contribute to your HSA, invest the money, let the money grow TAX FREE, and use the money TAX FREE to pay for medical bills now or when you are retired.

Even w/ a $3k deductible, your annual health insurance costs would be just $3,648.
(assuming you have no significant health history that would explode the above quotes)

That leaves your disposable income as follows:

$70,000 Gross Income
$6,760 Federal Taxes (reduced for HSA deduction)
$6,000 Property Taxes
$3,648 Health Insurance (estimated, and will increase as you get older)
$3,000 HSA Investment Account Contribution
$50,592 Disposable Income, LESS any state/local taxes, plus your assets in your HSA

Also, roughly 2/3 of your portfolio is tax-deferred, so just roughly 2/3 of your 'gross income' would be taxable (you have some tax liability with your savings bonds, but it all depends on how much of your savings bond value is accrued interest, and how much is initial contribution). This would possibly decrease your taxes even more, but not by too terribly much.

Don't forget - if you retire early, those Social Security estimates thave you've been getting every year from the gov't are null and void. Try going to the social security website and plugging in your past salaries to determine an exact benefit if you were to stop working today.

http://www.socialsecurity.gov/retire2/AnypiaApplet.html

 

[Tom52]

What can I say...I am overwhelmed by all your kind responses. You have definitely given me a lot to consider. I will continue to monitor this site and try to educate myself in hopes that I can someday RE. Maybe my situation is not quite as bad as originally thought, but I still have a long way to go.

By the way it is a 65 impala SS, factory 327 and factory air, 43,000 original miles.

Tom

 

[73ss454]

Tom,

Mine is a 73 SS 454 4speed chevelle with A/C 44K.

 

[HFWR]

I thought '65s had round tail lights...

 

[73ss454]

65's do have round tail lights. It's just hard to tell by the side shot which tail lights it has. I thought it was a 66 the way it looks in the picture. Sort of looks like the 66 wrap around tail light's in the rear.

 

[gindie]

Here is a Google image of the rear of a 65 Impala SS:

http://tinyurl.com/td27t

 

[Tom52]

I haven't seen a 73 Chevelle SS since forever!

This is the back end of my 65

 

[HFWR]

It's not often I'm both right and wrong in the same post... :

 

[HobbyDave]

We have a home valued at about $350,000 and have no mortgage for about the last 10 years. We live in a very popular town, Naperville, IL, which has been rated either 1,2 or 3 as the best small city to live in the USA that last three years running. Thing is, we moved here almost 20 years ago from Iowa and have never really cared for the area, too expensive and too much congestion, but the pay is too good and my career somewhat too specialized to easily consider relocation.

Hey there Tom. My wife and I live in Montgomery, though we often drive over to Naperville for the restaurants.. pretty nice selection over there

We know exactly what you're talking about with the whole traffic / expensive, etc. It's a "good" place to live, as in good restaurants, good neighborhoods, good houses, good businesses nearby, but I don't know really anyone who loves the area. Just about everyone in the area (naperville, aurora, etc) all plan on moving out once they retire.

Anyway, I think everyone else has given some good advice. I just wanted to say hello from a neighbor

Dave

 

[Tom52]

Hi Ceberon, Montgomery huh?, I must work in you back yard. My office is in Oswego, in the Kendall Point Business Park right on US 34. It's the big blue and white building you can see from the highway. The internet has made the world a bit smaller hasn't it?

 

[HobbyDave]

Hi Ceberon, Montgomery huh?, I must work in you back yard. My office is in Oswego, in the Kendall Point Business Park right on US 34. It's the big blue and white building you can see from the highway. The internet has made the world a bit smaller hasn't it?

Small world, I pass that location quite often (often heading to restaurants in Naperville, since our area doesn't have much yet). Funny stuff. I'd ask you if there were any openings there, but I seem to remember you mentioning something about your position possibly not lasting more than a couple years, so maybe I shouldn't be so interested A 5 minute drive to work would be pretty fun.

 

[mickeyd]

Hey Tom,

We have always lived below our means, and saved money

IMHO this is the most important clause in your posts. You obviously know how to manage youy money, your mortgage is paid off, you have substantial savings/investments, and you are a planner. Continue what you have been doing up until now, evaluate all of the free advice that you can scoop up (but remember what you paid for it) and relax.