Author Topic: Pretty new here but honest sincere question  (Read 2909 times)

Bigjones

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Pretty new here but honest sincere question
« on: December 17, 2019, 10:55:57 AM »
Im pretty new to posting in this forum and yes i have used the search feature of this forum but dont seem to see exactly what im trying to find so im hoping someone can help me ot help me find another thread that helps me.

So my wife and I are 49yrs old, we started VERY late to saving for retirement.  We have two girls, one is in college and the other is just starting high school.  We both have decent jobs and have recently gotten promotions and nice raises etc.

As far as debts, the only thing currently that we have is our home, and we have begun living on one income and paying the house off as quickly in huge chucks biweekly as quickly as we can. I believe by next christmas we will own our 5 yr old 1100 sq foot home. Currently in order to pay down the home we have reduced our 401k contributions down to the min level required to get the company match etc.

My goal is to retire in ten years at 59.

With that being said and assuming we are still completely debt free, my question is related to how to figure on how much of a nest egg you need if you retire BEFORE SSI, but also factoring in SSI income at 62yrs old when it becomes available.

My biggest fear is health insurance.

So for this example: We currently own almost everything and in a year we will, we currently have $173 in retirement savings.  SSI.gov tells me that combined we will me lookiing in the neighborhood of $3300 a month in SSI income at 62.  I think i would like to have about $5000 a month in total retirement income if possible.

Can someone help point me in the right direction.

nippycrisp

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Re: Pretty new here but honest sincere question
« Reply #1 on: December 17, 2019, 11:15:43 AM »
You mean $173K saved, right?

You want to know how much money you need to save to get from 59 (retire) to 62 (SSI), with a constant spend of 5K/month?

Ignoring inflation, in ten years you'll need $5K a month for 3 years, than $1700/mo forever. Currently you have $173K(right?), which provides $580/mo under the 4% rule. I'd think of it like this: You need to get to where 4% supports $1700/mo, plus the extra bit to get you from 59 to 62. That's ((3 x 60,000) + (20,400 x 25) = $690,000 is what you need saved on paper. This could be thrown off by a lot of things, including market returns, changes to SSI law or your calculated earnings, etc. With limited time to compound, I'd think you'd need to target about $50K a year in savings to be confident of getting there, but that could vary dramatically.

Health insurance is for someone else to answer, but it may depend on what state you live in, and whether they support people with lower/no income. If you live in a red southern state, there's a good chance you're right to be worried, but in CA it's not much of an issue. 

Here's some homework: Think about delaying SSI to get more payout. Would that make sense or be worth it? Also, do you really need $5K month with no mortgage, or are you still mentally including it? Does it make sense to pay your home off early?

bbates728

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Re: Pretty new here but honest sincere question
« Reply #2 on: December 17, 2019, 11:20:10 AM »
Hi! Welcome to the forums! I am excited to hear that you have been looking at cutting expenses and taking care to plan your retirement. Great first steps and completely badass.

A lot of the numbers side of things are dependent on your family's risk tolerance and personal hang ups. Personal finance is indeed very personal. That being said, I hope that we can help arm you with the tools to dial in any general advice you receive.

https://engaging-data.com/will-money-last-retire-early/?spend=60000&initsav=600000&age=59&yrs=41&stockpct=80&bondpct=18&cashpct=2&sex=0&infl=1&taxrate=0&fees=0&income=36000&incstart=62&incend=80&expense=0&expstart=50&expend=70&showdeath=1&showlow=1&show2x=1&show5x=1&flexpct=10

The above is a url which will take you to one of my favorite fire calculators/visualizers. It is a little morbid (as I guess am I) as it visualizes the chances of  your initial investments deplete, keep their value, or grow compared to the chances that we are dead each year through our retirement.

The calculator is customizable and I have taken the liberty of filling in some of the boxes with what I could gather from your post and expectations that you will live to at least 100. Feel free to tweak things as you see fit and ask any questions you may have.

How great is it that you are able to expect such a high level of SSI! That will surely help you live the lifestyle that you hope for in your many years of retirement.

BECABECA

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Re: Pretty new here but honest sincere question
« Reply #3 on: December 17, 2019, 11:23:13 AM »
First, the search functionality on the forum doesn’t work very well. A trick to searching the forums more effectively is to use google site specific search. For example, pasting the following into google returns the forum posts with SSI keyword:
Site:forum.mrmoneymustache.com SSI

Next, the social security website shows you what your benefits would be assuming that you continue working until you draw benefits. If you plan to retire early, then the site will be overestimating how much you’ll be eligible for. So I’d recommend explicitly calculating your social security benefits, using the social security worksheet:
https://www.ssa.gov/pubs/EN-05-10070.pdf

For health insurance, if the ACA is still around when you retire, you can look at what the subsidized rates would be. If you plan to have very low expenses during your early retirement before you’re eligible for Medicare, then your income level would likely qualify you for very low cost health insurance. Here’s a link to calculate how much subsidy you’d be eligible for:
https://www.healthinsurance.org/obamacare/subsidy-calculator/

And then, I’d enter all your data into this site so you can play around with different scenarios until you find one that you feel comfortable with:
https://engaging-data.com/will-money-last-retire-early/
(Edit: great minds think alike @bbates728 )

But one last aside, I’d recommend maxing out your 401k contributions first, and only paying down your mortgage with whatever is leftover.
« Last Edit: December 17, 2019, 11:25:31 AM by BECABECA »

Bigjones

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Re: Pretty new here but honest sincere question
« Reply #4 on: December 17, 2019, 11:34:31 AM »
You mean $173K saved, right?

You want to know how much money you need to save to get from 59 (retire) to 62 (SSI), with a constant spend of 5K/month?

Ignoring inflation, in ten years you'll need $5K a month for 3 years, than $1700/mo forever. Currently you have $173K(right?), which provides $580/mo under the 4% rule. I'd think of it like this: You need to get to where 4% supports $1700/mo, plus the extra bit to get you from 59 to 62. That's ((3 x 60,000) + (20,400 x 25) = $690,000 is what you need saved on paper. This could be thrown off by a lot of things, including market returns, changes to SSI law or your calculated earnings, etc. With limited time to compound, I'd think you'd need to target about $50K a year in savings to be confident of getting there, but that could vary dramatically.

Health insurance is for someone else to answer, but it may depend on what state you live in, and whether they support people with lower/no income. If you live in a red southern state, there's a good chance you're right to be worried, but in CA it's not much of an issue. 

Here's some homework: Think about delaying SSI to get more payout. Would that make sense or be worth it? Also, do you really need $5K month with no mortgage, or are you still mentally including it? Does it make sense to pay your home off early?

Yes i have 173k saved currently, but im saying i need 5k a month till SSI kicks in, and then be able to subtract my SSI monthlys from my total = What is my number :)

Alternatepriorities

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Re: Pretty new here but honest sincere question
« Reply #5 on: December 17, 2019, 12:55:04 PM »
You can find endless debates on taking SS earlier or later around these parts, but if you only want an approximate answer to get the ball rolling we could consider the case where you wait to take SS until it will provided the desired 5K per month. I calculate that as age 68 based on your numbers.

Now we just need to just need to calculate the value of the annuity required to live for the 9 years between early retirement and 68. That's a pretty straight forward calculation which I ran here: https://www.investopedia.com/calculator/annuitypv.aspx
Using a 4% rate and 9 years at $60k a year gives about $450k. If the $173k doubles over the next decade (7.2% average) you need to add another $104k to pile between now and then which seems very doable for someone paying off a new house in 5 years.

As for reducing your 401k contributions to pay off the house... that's another issue debated endlessly between people who want the best numbers and people who prefer peace of mind. Sometimes those line up nicely and sometimes they don't. Since you are planning to live firmly below the 22% tax bracket in retirement just make sure you aren't paying any 22% tax now in order to pay the house off faster. You might also want to investigate how reducing your income by contributing to a 401k impacts your expected family contribution for your daughters college.

I just read throught the thread again and realized I did Nippycrisp's homework assignment for you... When you are really getting into the details in about 10 years. Don't forget to consider the tax implications of different income sources when taking SS.

robartsd

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Re: Pretty new here but honest sincere question
« Reply #6 on: December 17, 2019, 02:49:23 PM »
As far as debts, the only thing currently that we have is our home, and we have begun living on one income and paying the house off as quickly in huge chucks biweekly as quickly as we can. I believe by next christmas we will own our 5 yr old 1100 sq foot home. Currently in order to pay down the home we have reduced our 401k contributions down to the min level required to get the company match etc.
Unless you have an very bad mortgage (APR > 6%) and can't get better by refinancing because your credit is bad, you almost certainly would be better off contributing the max to your 401k (assuming invested in low cost index fund) and paying off your mortgage over more years. I'm firmly a member of the Don't Pay Off Your Mortgage Club. At least you aren't passing up the match, but you you're leaving a bunch of tax savings on the table to pay off a non-callabl, low interest loan early. You might feel better with a lower mortgage balance, but the lender can foreclose for non-payment until it is paid in full so it's not really providing any security.

Freedomin5

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Re: Pretty new here but honest sincere question
« Reply #7 on: December 17, 2019, 03:22:18 PM »
www.firecalc.com will also let you enter future SSI income in the calculations. You can then play around with the numbers to figure out how much you need as a nest egg to tide you over until SSI kicks in.

How much of a nest egg you need saved depends on your expenses in retirement.

Given the numbers you posted, if you can save $18k per year in your retirement funds from now until you retire in 10 years, then there is a 100% success rate according to FIREcalc.
« Last Edit: December 17, 2019, 03:30:45 PM by Freedomin5 »

nereo

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Re: Pretty new here but honest sincere question
« Reply #8 on: December 17, 2019, 04:41:08 PM »
But one last aside, I’d recommend maxing out your 401k contributions first, and only paying down your mortgage with whatever is leftover.

From what you have described, you have an uncomfortably large percentage of your net worth tied up in your house.  That's concerning. The fact that you are almost certainly paying far more in taxes than necessary by not leveraging your tax-advantaged accounts only compounds the situation.

STrongly recommend that you slow down your mortgage payments and fund your IRA & 401(k) accounts.  It will put you in a much stronger position down the line, and limit your tax burden at the same time.

Chris @ Saturday Financial

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Re: Pretty new here but honest sincere question
« Reply #9 on: December 17, 2019, 05:18:15 PM »
100% agree with the previous posters - you should strongly consider maxing out all retirement accounts before paying extra on your mortgage. Because you'll be reducing your taxes by doing that, you may even have some left over to pay extra on your mortgage if that's what you want to do.

There is much debate on these forums regarding whether it's better to pay off your mortgage early or invest in brokerage accounts after you've maxed your retirement accounts. But there is not very much debate at all regarding where to put your money before your retirement accounts are maxed out... you'll retire sooner and more securely if you max out your retirement accounts before paying extra on your mortgage.

BTDretire

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Re: Pretty new here but honest sincere question
« Reply #10 on: December 17, 2019, 06:17:50 PM »
www.firecalc.com will also let you enter future SSI income in the calculations. You can then play around with the numbers to figure out how much you need as a nest egg to tide you over until SSI kicks in.

How much of a nest egg you need saved depends on your expenses in retirement.

Given the numbers you posted, if you can save $18k per year in your retirement funds from now until you retire in 10 years, then there is a 100% success rate according to FIREcalc.

  I want to add my vote to FireCalc, it took me some time to really get it all figured out, but it's not hard, just take some time to use everything in it if it is applicable to your situation.
 Click all the links and figure what they are there for.

 

Wow, a phone plan for fifteen bucks!