I've been around this site for a while, focused on the debt-payoff portion of MMMing. I've projected that at the end of the year we should FINALLY pay off my student loans (expect an exuberant celebratory post in December), so I'm starting to think about the next step, which is preparing for a flexible "early retirement". I'm married and we are both 29, still unsure on kids so let's leave that out of the equation.
Income
I make 80K, DH makes 46K
Current expenses
About 4,200/month, or 50K a year, not including money sent to student loan payoff.
Expected ER expenses
Obviously health insurance, and eventually possibly long term care, but I expect the long term care environment to be drastically different by the time we are old.
Assets
30K in TSP fund. I recently upped my contribution to 7% and there is an additional 5% agency match.
10K in 403(b) fund. DH contributes I think around $80/paycheck to this.
Liabilities
20K in student loans at 6.5%, I am prioritizing this payoff and should be done by the end of 2014
~280K mortgage at 3.75%. Mortgage payments are reasonable and I'm really not concerned about this. (Mortgage may seem high to many of you but its the norm for the area, actually somewhat on the budget side)
Goal
To be able to transition out of the formal full-time working world by our mid-40s, if we want to. I would like the freedom for us to take on low-paying jobs, part-time jobs, possibly take time off to travel, volunteer, etc. We may opt to keep our current jobs but I want it to be a choice if we do!
Specific Question:
Basically, I'm wondering what to do with our extra money once the student loans are paid off. I think the typical advice is to max out your 401(k), and then a Roth account, and then non-tax-sheltered accounts. I've seen the numbers on how much stronger a pre-tax dollar is worth invested and I'm pretty much sold on that, and I know there are some ways to get money out early if you want to.
If we didn't have pensions, I would just fund our 401(k) equivalents as much as I could and move on from there. But today I was wondering about those pensions.
[Specific Question 1] We are both vested, so I THINK we can have our stop work age be whenever and then it is just accounted for in the pension via the years of service adjustment. Does this sound right? He is on a state teacher pension plan, I am on FERS (federal employee).
I made some calculations with an absurdly-low assumption that our high-3 salaries match our current salaries, and we both retire in our early 40s with 20 years of service, our combined pensions will bring in $2,713/month, 32.5K a year, if we begin withdrawing at age 62.
I also calculated our social security benefits, assuming an average pay of 50K for DH between now and then, and an average pay of 90K for me between now and then - still very very very much on the conservative side. If we stop work at 43 and begin withdrawing at age 62 our combined social security will bring in $2035/month, 24.4K a year.
So, combined, a very very conservative estimate of our combined social security and pension payments is $4748/month, 56,980 a year. This will theoretically be COLA-adjusted. This implies that we really don't need to save a ton for retirement as it is enough to cover our current spending, and by the time we are 62 the house will be paid off so our spending (in today's dollars) should drop to around 3,000.
However, obviously neither of these funds (pensions or social security) are a guarantee given the current environment of state and federal governments. [Specific Question 2] How in the world do you plan for retirement with HUGE caveats like this one? I imagine the pensions can't go away entirely because we do pay into them (DH pays a pretty significant 7% into them, I pay a pretty insignificant .08%), and we do have unions, but then again who knows!
If I CAN count on the pensions and social security, I would still want more saved for age 62+ but it seems like we wouldn't need a TON more. It seems like the bigger financial gap is for that age 42-62 range. If we don't need to save more during that range we can take a pretty major paycut but given that our part-time/low-paying/flexible jobs will be much much less secure than our current jobs I think we would need the ability to access investment cash flow during this time before we felt comfortable jumping ship.
[Specific Question 3] Given all of this information, does it still make sense to put the cash freed up when our loan payoff is over into our tax-sheltered TSP and 403b accounts?