Author Topic: A phased retirement scheme for review for 52yo  (Read 1112 times)

szmaine

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A phased retirement scheme for review for 52yo
« on: January 22, 2019, 11:43:34 AM »
Hello good people,

Been some time since I have posted here having used alot of great information here to optimize my spending and savings. I have never really considered myself a candidate for FIRE in the traditional sense but do aspire to get out earlier than some and I also want to leave some money for my daughter. Lately Ive been running the numbers to see what I might be able to pull off. If I was traditional FIRE my number is in the 650-750K range based on 26-30K annual spending. Bare bones I can get it down to 19K if I had to. But since I am older and can likely (hopefully) count on social security I think that # doesn't necessarily apply to my situation and want to explore how I can do this.

Details:
I'm 52, DD is 20 and in college (50% off because I work there)..2-3 years until finished.
I make about 50K and save about 1/2 (10% employer match).
Current net worth 360K not including house (100K), 0 debt.
Employer offers (after age 55) a partial phased retirement program (PPRP) where you can reduce hours (negotiable and based on current salary) but have full time benefits status (low healthcare premiums!) and have access to retirement accounts....I'd have to inquire about that last bit as I'm not sure how it works but sounds interesting. One can only do this for 3 years.
At age 60 I can get a widows benefit from my husband record without deemed filing on my own my much higher benefit which means it will not be reduced and continue to grow. Its only 6700 but I could earn up to $15720 (currently) without effecting the benefit amount. I believe that retirement account withdrawals do not count as income in this case and would not effect it.
FRA for me is 67, benefits about 20400 but would be higher at 70.

So the scenario that is shown in my table is that I take the PPRP at 57 yo and continue at 1/2 time. I take distributions from my 457b (also have a 403b...lumped under the same category in the table) with the goal of staying in the %12 tax bracket. All excess contributions go into either my regular Roth ($7000 limit)or my 457b Roth (limit much higher) through payroll deduction....grouped together in the table.

At 60 I take the widow's benefit and further reduce my hours but this could be somewhere else as I'd like to move. I really hope the ACA is still around since trying out my numbers on the exchange shows a very reasonable premium at the income levels I'm projecting. I continue taking distributions and contributing to my Roth. I can then take SS at 67 or wait until 70 but am not sure there is a point to do that and will have to run the numbers.

I am using a conservative 5% rate of return. And while I do get higher than the 4% SWR for a few years (ok, I thought I did but I donít when accounting for $ going back into the Roth and small required contributions to the 403b while working 1/2 time) anyway the whole point is to draw down the balances subject to RMD at age 70.5 while growing the Roth.

So I'm just putting this out there for your perusal and would really like to hear any and all comments, criticisms and what-about-isms that anyone can think of.
Sorry if the table is hard to read let me know if anything needs clarification.

Thanks in advance. Posting now in case I lose anything but will edit for mistakes if needed.


AgeYear403b/457b  BalAdd/yrInt (5%)RothAdd/yrInt (5%)TotalTot Int $WithdrawalSSEarnRMDTotal $WD %
pre-tax
522018271,11423,85214,74839,8496,5001,992310,96316,741
532019309,7147,12115,84248,34122,6002,417358,05618,259
542020332,6777,12116,99073,35922,6003,668406,03620,658
552021356,7887,12118,19599,62622,6004,981456,41423,177
562022382,1047,12119,461127,20822,6006,360509,31225,822
572023383,6873,50019,359156,1687,0007,808539,85527,16825,000 $25,000 $39,5002.69%
582024381,5463,50019,252170,9777,0008,549552,52327,80125,000 $25,000 $39,5002.62%
592025379,2983,50019,140186,5257,0009,326565,82428,46625,000 $25,000 $39,5002.56%
602026376,938018,847202,8527,00010,143579,79028,98925,0006,700$15,720 $40,4203.10%
612027370,785018,539219,9947,00011,000590,77929,53925,0006,700$15,720 $40,4203.05%
622028364,324018,216237,9947,00011,900602,31830,11625,0006,700$15,720 $40,4202.99%
632029357,541017,877256,8947,00012,845614,43430,72225,0006,700$15,720 $40,4202.93%
642030350,418017,521276,7387,00013,837627,15631,35825,0006,700$15,720 $40,4202.87%
652031342,939017,147297,5757,00014,879640,51432,02625,0006,700$15,720 $40,4202.81%
662032335,085016,754319,4547,00015,973654,53932,72725,0006,700$15,720 $40,4202.75%
672033331,840016,592342,427017,121674,26633,71320,00020,400 $40,4002.97%
682034328,432016,422359,548017,977687,98034,39920,00020,400 $40,4002.91%
692035324,853016,243377,525018,876702,37935,11920,00020,400 $40,4002.85%
702036341,096017,055396,402019,820737,49836,875 20,400 $12,449 $32,8491.69%
712037345,702017,285416,222020,811761,92438,096 20,400 $13,045 $33,4451.71%
722038349,942017,497437,033021,852786,97539,349 20,400 $13,670 $34,0701.74%
732039353,769017,688458,885022,944812,65440,633 20,400 $14,323 $34,7231.76%
742040357,135017,857481,829024,091838,96441,948 20,400 $15,006 $35,4061.79%
752041359,986017,999505,920025,296865,90643,295 20,400 $15,720 $36,1201.82%
762042362,266018,113531,216026,561893,48244,674 20,400 $16,467 $36,8671.84%
772043363,912018,196557,777027,889921,68946,084 20,400 $17,166 $37,5661.86%
782044364,942018,247585,666029,283950,60847,530 20,400 $17,977 $38,3771.89%
792045365,212018,261614,949030,747980,16149,008 20,400 $18,729 $39,1291.91%
802046364,744018,237645,697032,2851,010,44050,522 20,400 $19,505 $39,9051.93%
812047363,476018,174677,981033,8991,041,45752,073 20,400 $20,306 $40,7061.95%
822048361,344018,067711,881035,5941,073,22453,661 20,400 $21,131 $41,5311.97%
832049358,280017,914747,475037,3741,105,75455,288 20,400 $21,980 $42,3801.99%
842050354,213017,711784,848039,2421,139,06256,953 20,400 $22,852 $43,2522.01%
852051349,071017,454824,091041,2051,173,16258,658 20,400 $23,586 $43,9862.01%
« Last Edit: January 23, 2019, 05:39:06 PM by szmaine »

Laura33

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Re: A phased retirement scheme for review for 52yo
« Reply #1 on: January 22, 2019, 02:20:09 PM »
So first, hi from a fellow 52-year-old.  ;-)  I am not the spreadsheet guy, so I am not the right person to go through that.  But one thing that helped me plan all this out is the bucket approach, which I first got from someone here:  basically, you divide your life into different financial buckets based on the different income and expenses you will have over a given period of time, and you figure out how much you will need to cover each individual period.  Then you start filling up your "buckets" with you current savings, started with the furthest out, and when you get to the point where your current savings fill all the buckets, you're good to quit.

So to illustrate:  for you, maybe the first bucket is 55-58, bucket 2 is 58-60, bucket 3 is 60-70, and bucket 4 is 70-95 (or however long you are projecting through).

Bucket 1 you are making say $25K for that three years under the PPRP program.  Your expenses are $30K.  Therefore, you will need $5K/yr x 3 years = $15K to fill that bucket.  58-60 you can't do PPRP any more, so you need $30K/yr x 3 years = $90K to fill that bucket.  Then from say 60-70 you can draw the widows' benefit, figure out how much that would be, subtract from your expenses, multiply by 10 years.  Then at 70 you can claim SS, so you add SS + widow's benefit to get your total income and subtract that from your anticipated expenses and multiply that figure by the number of years after 70 you are expecting to live.

Of course, you don't need all that money right now -- you will need to have $15K at the age of 55, and $90K at the age of 58, and so on.  So once you figure out the individual numbers, you present-value that back to today.  So maybe you only need $12K today to have $15K in 3 years, and $65K today to have $90K in six years, etc.  Once you have the present values for how much you need now to fill each bucket, you add all that money together -- that's how much money you need today to cover each of those periods.

If you currently have that much in investments, congratulations!  Your plan is set.  If you are short, then you use your current investments to fill those buckets starting with the furthest-out period.  So say you have $350K now and you will need $200K of that to cover your 70-95 period.  OK, mentally allocate that to that bucket.  Then look at your 60-70 bucket -- maybe you need $125K to fill that bucket.  Good, that one is filled, too.  Now you look at your 58-60 bucket -- you have calculated you need $65K today to fill that bucket.  But now you only have $25K left.  OK, well, now you know what you need:  you need another $40K in today's money to fill Bucket 2, plus another $15K in today's money to fill Bucket 1 (55-58).  So you need a plan to add that amount to your savings, which you can totally do.  (Please note that all these dollars are totally made up for illustration!!).

FYI, DH and I did exactly this, because we are also older, and so we really only have a relatively short period of time before SS/pensions are available, and it showed us that we needed much less than the 4% rule would have suggested.  So that might give you another way to evaluate the scenario as a reality check -- I bet you will be more than ok.

szmaine

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Re: A phased retirement scheme for review for 52yo
« Reply #2 on: January 22, 2019, 04:22:47 PM »
Hi! Thanks for your very interesting perspective. Thatís a great approach!  After all the magic of 25xExpenses  is only that you have to have the money up front that youíll spend for 25 years so if itís less sometimes than others you can just add that up too. Duh! I just never thought of it that way.

Is there some easy formula for getting the present day value of future dollars that peeps use?

As I am looking at this I am realizing that I donít have a handle on how taxes effect the plan since these are all before tax numbers. Also, I should compare how I fare if I do not continue Roth contributions as long as I have on my sheet.
« Last Edit: January 22, 2019, 04:55:00 PM by szmaine »

Laura33

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Re: A phased retirement scheme for review for 52yo
« Reply #3 on: January 22, 2019, 07:27:05 PM »
For present value I would use a web calculator.  😉. In terms of tax issues, I would focus on post-tax dollars - your future budget is going to be something you cover with post-tax money, so you need to save however much total money you need to cover both those living expenses and whatever taxes are required.  That said, the tax implications may not be as significant as you think given your relatively low income needs - remember that post-tax savings would require only capital gains, and if your AGI is below a certain figure, the capital gains rate is currently 0.  So may make sense as you get closer to spend some time playing around with TurboTax or similar software to plan what you withdraw from when.

szmaine

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Re: A phased retirement scheme for review for 52yo
« Reply #4 on: January 23, 2019, 11:10:13 AM »
So the bucket approach says that my number, depending on how tight one makes it....  for 30-35K annual income is 457-573K.  I am projected to reach 457K at 55, I wouldn't reach the higher end until 60 with the withdrawal scheme I propose in my table. But that withdrawal scenario is discretionary and based on wanting to transfer assets from tax deferred to Roths. For 35K before tax income I never actually need to take out more than $14600 all the way out to 100 yo.

Very cool approach. It certainly does look doable. :) FireCalc approves 100% FWIW.

Note: I made so corrections to my table...
1. Roth contributions until 57yo were too high.
2. the percent withdrawal column was corrected to reflect that some of that was going right back into savings (roths).

FreeBear

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Re: A phased retirement scheme for review for 52yo
« Reply #5 on: January 23, 2019, 03:00:20 PM »
So the bucket approach says that my number, depending on how tight one makes it....  for 30-35K annual income is 457-573K.  I am projected to reach 457K at 55, I wouldn't reach the higher end until 60 with the withdrawal scheme I propose in my table. But that withdrawal scenario is discretionary and based on wanting to transfer assets from tax deferred to Roths. For 35K before tax income I never actually need to take out more than $14600 all the way out to 100 yo.

So does this mean you only need to spend $15K/year out of $450K invested forever (3.3% WR)?  Also, investment growth, according to your table, will cover current expenses around age 57.  I doubt you'll need to w*rk to age 67 unless you want to.  Maybe even quit as soon as 57 or at least go to part time or increase spending.

Is there a fixed amount that you MUST leave your estate with "100% success"?  This can be programmed into Firecalc too.  It could make a big difference in the required savings between leaving 1 milliion dollars at 100% success and say, several hundred thousand dollars at 90% success.

You are in a great position financially to transition out in 5 years, if you choose and the market behaves. Do you have plans, other than financial, for your retirement?  If there is stuff you really want to do other than w*rk, you many not want to delay until traditional retirement age.  I've seen most of my friends struggle with serious health issues in their 60's and 70's that have adversely impacted their enjoyment in retirement.  In an event, you are headed in the right direction!

szmaine

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Re: A phased retirement scheme for review for 52yo
« Reply #6 on: January 23, 2019, 04:45:12 PM »
So the bucket approach says that my number, depending on how tight one makes it....  for 30-35K annual income is 457-573K.  I am projected to reach 457K at 55, I wouldn't reach the higher end until 60 with the withdrawal scheme I propose in my table. But that withdrawal scenario is discretionary and based on wanting to transfer assets from tax deferred to Roths. For 35K before tax income I never actually need to take out more than $14600 all the way out to 100 yo.

So does this mean you only need to spend $15K/year out of $450K invested forever (3.3% WR)?  Also, investment growth, according to your table, will cover current expenses around age 57.  I doubt you'll need to w*rk to age 67 unless you want to.  Maybe even quit as soon as 57 or at least go to part time or increase spending.

Is there a fixed amount that you MUST leave your estate with "100% success"?  This can be programmed into Firecalc too.  It could make a big difference in the required savings between leaving 1 milliion dollars at 100% success and say, several hundred thousand dollars at 90% success.

You are in a great position financially to transition out in 5 years, if you choose and the market behaves. Do you have plans, other than financial, for your retirement?  If there is stuff you really want to do other than w*rk, you many not want to delay until traditional retirement age.  I've seen most of my friends struggle with serious health issues in their 60's and 70's that have adversely impacted their enjoyment in retirement.  In an event, you are headed in the right direction!

Yes indeed...thatís the most I would HAVE to take out under the scenario in the table. But as you say I might not want to do the part time work I have listed from 60 to 67..in which case Iíd have to take out 28k which is about what my balances could be producing in annual interest at that point. I think Iíd like to do the part time work 57 -60 but would revisit that when closer...health ins options, market performance etc.

There isnít a set amount I want to leave but it would be nice if she get by on the income herself....she has aspergers and while is doing really well Iím naturally concerned, Iím teaching her mustachianism and we have got her started on her own Roth this year 🙂 Iíd consider it a great success if her inheritance could provide better quality of life if she canít ever get above a basic income...I know she can do min wage jobs as she has one now. But having said that Iím not opposed to spending more of saving if we want to take some cool trips every so often.

Yup, I do have mild rheumatoid arthritis now and will definitely try not put off too long physical stuff but wonít be doing anything hardcore anyway 😁

Thanks for you comments. Itís very encouraging. Iíll try that firecalc option...I didnít know it was there.