We are very close and I am getting nervous

[Russ2020]

Hello this is my very first post on your forum. I hope I am posting in the correct forum. My name is Russell and I have been lurking for a while. I was looking for some opinions on whether our retirement plans have a good chance of success. We are very close to retirement and it will be a little unnerving living off our savings. Please excuse me if I made this post a little long winded but I wanted to provide all the data I could. I will really appreciate any comments I receive. I think I included everything that was outlined in one of the welcome messages I received when I joined the forum.

I am 62 and would like to retire at 63 next March. My wife is 63 and she is retiring this July at the age of 64. I have followed the Boglehead’s principles of investing during the last 18 years of the accumulation phase. This has done well for us however I am finding that the withdrawal phase is complex (for me at least). I have used all kinds of calculators. The Fidelity Retirement Planner and Firecalc calculators show my success at 100% but I am still skeptical (read worried). Here are the details.

Assets
Traditional IRA - $1,006,792
Roth IRA - $380,603
Taxable - $298,374
Total - $1,685,769

Asset mix: 30% Total Stock Market fund, 15% Total International Stock fund and 55% Total Bond Market fund, intermediate and short term bond funds.

Social Security Benefit
My benefit at full retirement age is $2642/month.
My wife’s benefit at full retirement age is $2008/month.
Opensocialsecurity.com recommends taking our SS as follows:
I begin SS on 3/2027 for a monthly benefit of $3382.
Wife begins SS on 3/2020 for a monthly benefit of $1807.

Pensions
None.

Long term care insurance
Both my wife and I have a policy. The total monthly premium is $219.

Life expectancy
We are currently both healthy and both our parents lived to 90, however over the years I have not been good to my body. I expect my wife to outlive me.

Legacy
We do not plan on leaving money to our three children but if there is money left over to distribute to them that would be great. We do have a Living Trust.

Debt
We will have no debt when my wife retires in July as this is the month of our last mortgage payment, i.e. the house is paid off.

Spending
This was hard to compute since our budget has been, make our bills and retirement savings and then spend the rest. This is how I figured our monthly spending for 2018. I took our SS wages for 2018 and subtracted federal tax paid, SS and Medicare tax paid, retirement contributions and mortgage payments. This gave me $6100 of monthly spending for discretionary and non-discretionary spending. We are able to do everything we want to on this amount of income including travel. I don’t expect monthly cost’s to decrease much in retirement, maybe one less car. We live in a state with no income tax. I will need to add additional health care costs in retirement.

Heath care costs in retirement.
These costs will vary since we are both retiring before Medicare age. I am estimating them below and these figures do not include medical inflation. The cost’s below vary due to each of us being on my employers plan and then moving to Cobra and then to Medicare at different times.

Wife retires – I work - $600/month - wife on my employers plan for the next 8 months
Both retired - $1250/month - both on Cobra next 5 months
Both retired - $970/month – wife on Medicare I’m on Cobra next 13 months
Both retired - $1150/ month wife on Medicare and I need a private policy for 6 months
Both retired - $700/month both on Medicare ($150ea Medicare tax, $200ea supplemental


How much will I need to withdrawal each year?
If I take my spending of $6100 a month and add in $1000? to cover medical that’s $7100 a month or $85,00 a year and I need to add federal income tax to that. In Firecalc if I use a withdrawal rate $110,000 a year I get 100% chance of success. When I ran Firecalc I used the amounts and start dates for SS recommended by opensocialsecurity.com

So what do you all think?
Are we on the edge? Do we have some margin? Am I missing and/or underestimating a cost. If you made it to the end of this post I appreciate your time. Like I said the accumulation phase is way easier than withdrawal phase. Now I have to think about how to make my withdrawals, how to manage taxes, RMD’s, Roth conversions, market ups and downs and the list goes on and on. It is quite overwhelming.

Thanks for your time
Russell

 

[SumDay]

If FireCalc gives you 100%, then go for it! I hear your concerns about the draw down phase. We retired last year, and it is and was scary, but I'm getting used to it. I share these links all the time, but they gave me some good practical advice, not all of which I implemented, but it was a great starting point for our situation.

https://www.theretirementmanifesto.com/our-retirement-investment-drawdown-strategy/

https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

The Bucket Strategy concept works for me. Many on this board wouldn't be comfortable with that much cash, but for now it helps me sleep. After I get on Medicare, I'll probably be a bit more relaxed about having all that cash at the ready.

Good luck to you - it looks like you've done some great saving and planning, so start thinking about what you want to do after you retire (besides worrying about your $$). Great first post, by the way!!

 

[pb4uski]

Financially, I think you should be fine. You probably have way to much provided for taxes. If you withdraw $95k and it is all taxable, your tax would only be $8k... leaving you $7,250/month to spend.

If you use TurboTax, open your 2018 return and open a What-If spreadsheet and put your expected retirement numbers in a column, click the use 2019 tax rates checkbox and see what your tax will be.

It is natural to be nervous.... very common.

For a 45/55 portfolio, if you earn a conservative 7% that would be $118k a year and you are only spending $95k... and even less once SS starts... so it is most likely that your portfolio will be growing even after you retire... it is quite common. I retired at the beginning of 2012 and our nestegg is 135% of what it began at after 7 years of withdrawals of ~4% annually.

 

[RunningBum]

I find it unlikely that Firecalc gives 100% to $110K spending on $1.69M. That makes me suspicious something was entered wrong.

Maybe the $95K that pb4 thinks is more realistic, with SS, it probably works, maybe even 100%. But will SS be cut in the future?

How accurate is that budget? Does it take into account car replacement, new roof, travel, etc? Health care costs are more than the premiums, since most plans have a high deductible, but maybe you can get on a subsidized ACA plan.

I don't want to make the OP any more nervous, but I'm not quite buying that Firecalc 100% with these numbers. Recheck, or use another tool.

 

[Dtail]

I ran the numbers in Firecalc using the OP information with the default fund charge of 18 bps.
I agree with the OP but just barely. The maximum spending with 100% success is 110k.
I agree with @pb4uski that your tax calculation appears to be high.

 

[Russ2020]

Thank you all for your replies. I went back and ran Firecalc again and I get a max spending level of $114,702. I am using a starting value of 1.69 million for thirty years. This produces many failures. After I add SS using the amounts and times Opensocialseurity.com gives me I get two failures. Then when I change the retirement date from 2019 to 2020 and add $10K I get a 100% success rate. Am I missing something?

 

[RunningBum]

No, that's fine, Dtail confirmed the numbers too. Obviously I was wrong.

Personally I don't count on 100% SS, and I'd do more work on figuring out my actual retirement budget based on some of the things I mentioned. If you didn't have any irregular expenses in 2018, projecting that for retirement really isn't very accurate.

On the other hand, at your age SS may stay 100% for long enough, and for all I know, 2018 was a very typical spending year for you. These are just things to consider. With more planning and estimating, you will have more confidence in your numbers and be less nervous about pulling the plug.

 

[Aerides]

Given you have a short on ramp before MC and SS, I think you look fine. Your WD will be higher for those first few years, but you have a very short time on the ACA/COBRA before MC so that's not too long.

And you've got one more year to raise those numbers, so make sure you maximize timing with your employer for your exit date. For example: My MC had a lot of bonus'y type stuff based on being employed on the last day of the quarter: our 401k match, annual profit shares, etc. Look at the way they time HSA contributions, or vacation accrual, etc. Load up your 401k contributions in the 1st quarter of next year (if you can) to complete a full year's add.

Stuff like that, ymmv. If I retired on 3/31 vs 4/1 it would have made about a $40k difference, just because of the way my company front loaded compensation and required 1Q completion for payouts. Also, some companies count you as having HI for the full month as long as you were there on the first of the month (not all companies do this). So, homework time for those last details before you finalize your date (without telling anyone at work).

 

[Russ2020]

RunningBum, I have thought about those big ticket items and they will be a problem if I get hit with multiple things at one time. We are entering retirement with two new vehicles so that helps but we will need to replace a vehicle some time in retirement. I have always done my own repairs and maintenance on the house and vehicles and have never called on a tradesman. We will need a roof sometime in the future and I physically can't do that anymore. That's $8-10K. We live in the woods on a private road. In the near future it will need to be repaved. That will be $5-6K. Also in the future the well pump will need replacing, that's $2-3K. Lastly we will need a new HVAC system sometime. Although I have a good friend in the business it will still cost me $3K. Most other things I can do myself but for how long.

As a plus, some time in the future we will have to sell the house and move back to MN to be near the kids. We will be going from a higher priced real estate market to a lower priced market. We should be able to to cash out $100-150K in equity.

Gosh when you study this stuff it makes me wonder if I should retire at all. The budget I came up with I believe to be on the fat side and if stuff happens we could just tighten our belts. But if multiple events happen at the same time including down markets it could be tough.

 

[RunningBum]

It does pay to be handy. Even if you get to where you can't do things yourself you still pretty know what needs to be done and how much it should cost, so you won't be taken advantage of.

I don't see a big issue with them all happening at the same time, just as long as they don't happen too often. You aren't living paycheck to paycheck. Let's say you budget for $95K/yr spending + $5K repair+replace fund, so $100K budgeted. Suppose you get hit with a lot of bad things one year and you spend $115K one year. But if you have three non-event years to follow, it all evens out. The problem is if you have multiple big events every year or two, which probably means you didn't predict those irregular expenses well enough. Sounds like you have a handle on it though. I've had a few other such home expenses, like repainting the deck and trim with other repairs, resealing windows, and taking down some infested trees that were a danger to the house. I didn't really expect those but built in a general pool for home expenses that have covered it.

The down market really isn't an issue either. For one thing, $20K is a drop in a 7-figure portfolio. For another, in a down year, sell bonds or other non-equities instead of stocks. Have all of your bonds in retirement accounts for tax purposes? No problem, just sell stocks in your taxable account, and in your IRA sell the same amount in bonds and buy the stocks back. If you're taking a loss just make sure it is not the same or very similar fund that would invoke a wash sale.

My intent wasn't to make you feel less secure, but rather to see if you've really considered everything. The more you write, the more I see that you have, and I would hope that'd make you feel more secure. Really, in most scenarios you are more than fine, and it seems to me that it'd take a bad market run or high inflation coupled with more unexpected expenses to break your plan, and in that case you fall back to cutting out some of the fat and you're still probably fine. You'll never cover ever bad scenario imaginable, so just plan for reasonable cases with a little buffer or fat in your budget. I'm not seeing a reason to work longer than you planned.

 

[pb4uski]

I think you're analysis paralysis mode... bottom line is that your max spending is $115k at 100% success and you're only spending $95k or so with taxes so you have plenty of wiggle room.

 

[KCGeezer]

I agree with you pb4. Russ, I’d simply say yes, you’re good to go.

I had similar financials and similar doubts 3 years ago when I made the jump. I worked estimates with me dying tomorrow, various end dates in between, and then both of us till 95. In all cases we were/are 95% or better.

So, I decided I’d much rather take my chances on my own terms. As the saying goes, so far so good.

Oh, and welcome to the forum.

 

[Russ2020]

I think you're analysis paralysis mode...

My wife would agree with that. She wonders why I am overly concerned and I wonder why she is not. But anway thanks for everyones input. It is helpful and encouraging.

Russell

 

[gauss]

Hi Russell,

Congratulations on your coming retirement and becoming an active member of the ER board.

A few questions on your spending analysis follow.


Were your W2 earnings less than the Social Security maximum? I see that you based your spending analysis on SS wages. If you earned more, than the SS max then you have unmeasured spending to deal with.

One easy way to check this is to compare your SS Wages to your Medicare Wages. If they are the same, then you you did this correctly. If they differ then you would need to recalculate spending based on Medicare Wages.

Note that this assumes that you do not have an HSA with your employer. If there are HSA contributions involved, then this would further distort things on your W2 and your spending analysis.

When I RE'd, I was kind of spoiled. I had decades of actual categorized spending data logged in Quicken. As such I, personally, have a lower comfort level with your top-down. spending analysis method. It may be correct, but I would vet if like hawk, so I hope my comments help in this regard.

I also note that you have significant Social Security funding your retirement. Beware that there is talk in Congress again about "saving" Social Security. Often their proposals for "saving" Social Security involve "raising the retirement age". This would result in an 8% per year reduction in Social Security available to you. Ie. If they raise the full age from 67 to 70 that could translate into a 24% reduction regardless of what age you take it at.

-gauss

 

[Russ2020]

gauss, my SS wages and Medicare wages are equal, I do not have an HSA and I realize that the SS benefits could change.

Russell

 

[pb4uski]

WADR, I think gauss' concerns about SS are too alarmist.... who knows what will happen but IMO it is highly unlikely that Congress will make significnt changes to benefits for anyone currently 60 or older. Most proposals are to start increasing the full retirement age from 67 to 68 or from 68 to 70 by increasing the FRA by 2 months each year beginning 2023... the OP would not be impacted by those proposals.

At this point the most conservative view would be a 23% reduction in benefits beginning in 2034.

 

[TNBigfoot]

I am in agreement that a SS haircut will be eminent. For my comfort, I take a 20% discount shortly after FRA.

What spending model are you using in Firecalc? If Constant Spending Power Model, your inflation rate assumption will have a big impact on your outcome. Again being conservative, I use 3.5% for this input.

 

[Russ2020]

I am using constant spending power with the default 3% inflation value.

 

[TNBigfoot]

I can only speak for myself, however in any retirement planner I default to a very conservative assumption. My thought being if I’m still good under this scenario, things most likely will get better. I plug in 3.5% and then model other inflation rates to get a sensitivity.

 

[Dtail]

Thank you all for your replies. I went back and ran Firecalc again and I get a max spending level of $114,702. I am using a starting value of 1.69 million for thirty years. This produces many failures. After I add SS using the amounts and times Opensocialseurity.com gives me I get two failures. Then when I change the retirement date from 2019 to 2020 and add $10K I get a 100% success rate. Am I missing something?

I redid your numbers again using the additional info you provided, especially changing the inflation to 3% and longevity "only" at 30 years.
I now get a maximum spending of 108k. Nevertheless, as long as you include provisions for lumpy expenses, you should be fine.

If you filter in cuts in SS, it will not be at 100%, but I am also of the opinion the cuts will not be across the board and will not affect those over 60 perhaps 55.

Overall, still sounds like time to go. You are clearly detailed enough to make adjustments if needed.

 

[cyber888]

It looks good. You have enough.

 

[Dan4495]

If you withdraw $95k and it is all taxable, your tax would only be $8k... leaving you $7,250/month to spend.

How do you arrive at the $8000? Wouldn't $95K all taxable be taxed as ordinary income at 22-24% depending on whether filing as single or jointly as married? that would be around $20K in taxes wouldn't it?

Forgive my ignorance if I am mistaken.

Thanks!

 

[pb4uski]

Ordinary income............... $95,000
Standard deduction............(24,400) for married filing jointly for 2019 (OP is married)
Taxable income................ $70,600

10% tax on first $19,400..... $1,940
12% tax on next $51,200...... 6,144
Total tax on $70,600........... $8,084.... I rounded down to $8k.

You need to consider deductions and graduated tax rates... but even then your marginal rate would only be 12%... not 22%.

 

[topcat2001]

Do it. Your biggest risk is at this point is much of your money outliving you. Even if you spend 6K/month with no social security that should take you to 25 years. But actually you do have social security which means you should be able to grow your investments with inflation while taking a bit for expenses and can also reverse mortgage the house as a backup. I don't know if opensocialsecurity lets you input life expectancy but based on what you said about yours vs your wife it seems interesting it would recommend she takes hers right away and you wait another 8 years.

 

[Russ2020]

Once again thanks for all the replies. As a followup I decided to go ahead and have a Vanguard CFP prepare a final investment plan before we retire since there is no cost for this. I will make another followup post when I know the results.

Russell