Author Topic: Retiring on pensions versus savings  (Read 14054 times)

benjenn

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Retiring on pensions versus savings
« on: November 23, 2014, 07:33:40 PM »
Hey, everyone.  Hubby and I are planning to retire early the end of 2015.  At that point we will be completely debt free, mortgage and all.  We will be 51 and 52 years old. 

He has his Air Force pension and I'll have a pension from my job, too.  It will be a huge hit for me to retire early (I could retire with a full pension at 58 but instead of counting it as 7 years early they count backwards from 62 so it's 11 years early.)  Still, we think it will be worth it and our combined pensions will be right at $50,000 a year, which will be more than enough to cover our expenses, even with our son in college for another 3 semesters by then.

We both have 401Ks but we won't have access to them for 7 and 8 years.  The balance in them today is about $250,000.  We have a beautiful condo on the beach that's currently worth about $320,000.

I don't see much on here about retiring on pensions instead of on savings or other passive income so I was wondering what the MMM crowd thinks of our circumstances.  We are both so ready to leave our stressful, high-responsibility jobs.  In fact, we've been toying with the idea of leaving a month or two earlier, even though our monthly net income is over $10,000 so even after expenses we'd be leaving about $7-8,000 for each month we leave earlier. 

I don't want to get "one more year" or even "one more month" syndrome and think that just because we can accumulate more and more money, we should stay longer than we have to.  I'd just like to hear what this group has to say.  Thanks for your help!


MKinVA

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Re: Retiring on pensions versus savings
« Reply #1 on: November 23, 2014, 07:42:52 PM »
I think you should just look at how much you need each month. Avoid the "but I could have." I too will retire early (just a little) when my pension will cover what I need each month. So if you have enough to retire, you have enough to retire.

rmendpara

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Re: Retiring on pensions versus savings
« Reply #2 on: November 23, 2014, 07:43:47 PM »
Can you get by on 50k income coming from 100k+? There's really no difference in a pension vs personal savings, besides the fact that less and less people have pensions.

If your pension and personal savings will cover what you think you will need to live, then you're ready!
« Last Edit: November 23, 2014, 07:45:32 PM by rmendpara »

benjenn

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Re: Retiring on pensions versus savings
« Reply #3 on: November 23, 2014, 07:50:43 PM »
Our current income is actually a little over $240,000 so going to $50,000 is going to be a huge drop.  We bought our condo as a vacation home 4 years ago and have poured our extra money into paying it off... we will have it paid off less than 5 years after buying it.  We have lived pretty frugally since then but have maintained two homes, which we won't do after retiring.

We've run the budget over and over and cut some areas since discovering MMM.  I don't think our lifestyle is going to change drastically - we still have a line item in our budget for wine.  :)  Plus, I'm sure we'll both find something to do that will bring in money after we retire.

After reading MMM and seeing that our pensions are going to be twice what he spends each year, it seems ridiculous to think living on $50,000 would be difficult.

Primm

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Re: Retiring on pensions versus savings
« Reply #4 on: November 23, 2014, 07:59:35 PM »
Regardless of what MMM or anyone else spends, will YOU be happy spending only $50k a year? How does this compare to your current spending? Is your theoretical budget actually achievable?

Why not try living on it (obviously taking out work-specific expenses) for a couple of months first. If it's a dramatic drop from where you are you may find you can't / don't want to do it. If you can't live on that amount while you're working, why will you be able to live on it when you're not? And don't make the mistake of calling meals out / wine / whatever "chill out from work expenses" and think you won't spend that when you're retired. You'll have all this extra time on your hands, what do you plan to do with it that won't cost you more than what you're spending now?

Just some things to ponder...

benjenn

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Re: Retiring on pensions versus savings
« Reply #5 on: November 23, 2014, 08:06:16 PM »
Our budget after retiring really isn't much different than the budget we've been following except we won't be putting $6-7,000 dollars a month toward paying off the condo - it will be paid off.  So if we remove $7,000 a month from our take home pay, we'd be left with about $4,000 - which is about what our take home will be with the pensions.  So honestly, our lifestyle won't change much at all.

Gin1984

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Re: Retiring on pensions versus savings
« Reply #6 on: November 23, 2014, 08:15:58 PM »
Are your pensions indexed to inflation?

benjenn

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Re: Retiring on pensions versus savings
« Reply #7 on: November 23, 2014, 08:29:05 PM »
Are your pensions indexed to inflation?

Hubby's Air Force pension has an annual COLA adjustment but mine won't.  I have our monthly budget projected out for the next 12 years and have inflaction factored in there and we should still be fine.  Plus, in 7 years, he'll have access to his 401K and I will in 8 years.

Primm

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Re: Retiring on pensions versus savings
« Reply #8 on: November 23, 2014, 08:31:06 PM »
Are your pensions indexed to inflation?

Hubby's Air Force pension has an annual COLA adjustment but mine won't.  I have our monthly budget projected out for the next 12 years and have inflaction factored in there and we should still be fine.  Plus, in 7 years, he'll have access to his 401K and I will in 8 years.

Our budget after retiring really isn't much different than the budget we've been following except we won't be putting $6-7,000 dollars a month toward paying off the condo - it will be paid off.  So if we remove $7,000 a month from our take home pay, we'd be left with about $4,000 - which is about what our take home will be with the pensions.  So honestly, our lifestyle won't change much at all.

I'd say you're good to go then!

deborah

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Re: Retiring on pensions versus savings
« Reply #9 on: November 23, 2014, 10:38:18 PM »
I'd say you're good to go then!
As long as you don't become spendipants, and decide to travel the world in the Queen Elizabeth!

Dicey

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Re: Retiring on pensions versus savings
« Reply #10 on: November 24, 2014, 12:28:37 AM »
I'm good with your plans, except for inflation. Haul out the internet calculators and start figuring out what your numbers are going to look like in twenty, thirty and forty years. Twelve years is not a long enough time line. Since DH's inflation-protected pension is only a portion of your retirement income, you might feel the pinch of inflation more than you'd like to in the long term. I am presuming that healthcare for both of you is included in your retirement package. If you're still comfy after viewing a longer timeline, go ahead and FIRE away.

clifp

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Re: Retiring on pensions versus savings
« Reply #11 on: November 24, 2014, 04:45:59 AM »
This is going to sound harsh, but the numbers aren't adding up at all.

You make 250K a year and are 50+ years old.  The combined 401K balance 250K and the only other saving is $320K soon to be paid off condo.  Assuming husband is fairly high ranking officer a decent chunk of your income is tax free. Your after tax income has to be at least 150K and probably another 10-30K above that depending on deductions. If your plan is only to spend 50K, that means you should be saving 100K/year on your salary.  If you had been saving anything close to that level you'd have well over a $1 million dollars saved up, plus the son college tuition.  It sounds like living pretty frugally means you've paying down 50K/year or so on the  condo over the last 5 years.

My back of the envelope calculation say you are probably spending north of $10K/month. Have you been tracking your spending the last couple of years.? Now there is absolutely nothing wrong with spending that amount of money given your incomes.  But while it is easy to make a budget that says we will spend $50k/year, it is entirely different to actually live on budget which is less than 1/2 of what you are use to be spending. 

Based on the limited information you've given.  As ball park I think you need a at least $1 million in saving which combined with 50K pension and a paid off condo, will give out about 85-90K/year
Traditionally financial planners say you need something around 70% of your pre retirement income in retirement, for the super saver like many of the folks on the forum that is a silly figure. However for you guys that maybe a better starting point..
Before you retire you absolute should really track your expenses and try spending only $50k, with only cheating being college tuition.

Rural

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Re: Retiring on pensions versus savings
« Reply #12 on: November 24, 2014, 04:49:01 AM »
Not fun to think about, but does the surviving spouse get any of the pension if/ when one of you dies? You have to plan for that, too, unfortunately.

Villanelle

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Re: Retiring on pensions versus savings
« Reply #13 on: November 24, 2014, 05:54:58 AM »
You are making $250k, and have only $250k in investments.  Unless there is some major detail missing, you are spending an obscene amount of money.
Even if you take out the condo payment ($84,000), you have $166,000 in pre-tax income. SO your take home is likely well over $100k.  Where has all that gone if you only have $250k invested?  (And is that $7000 toward the condo all mortgage, or is it also insurance and property taxes, which you'll need to keep paying?) 

It sounds like you aren't even close to having enough pension income to cover your living costs because it sounds like you are spending way more than $50k.  You are probably spending more than $100k, in fact, unless your income was until very recently, a hell of a lot less. 

That fact hat your pension isn't inflation adjusted is another concern, though it wouldn't be as significant if your other numbers weren't so far off.

I'd commit to one full year of spending at a$50k level.  If you can do that, you are set.  If not, you need to figure out how to cut expenses.  And of course, during that year, you will have padded that investment account a great deal, and perhaps also padded a savings or non-retirement investment account that you can tap while you wait to get to your 401k money.

I get that you don't want to do "one more year".  But your numbers don't make sense, so I think you need to reassess.  What are you actually spending right now?

I think you need to get to a point where you are living on that $50k and know you are comfortable with it before you lock yourself in to it. 

lizzzi

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Re: Retiring on pensions versus savings
« Reply #14 on: November 24, 2014, 06:36:38 AM »
+1 for all who said to live on $50,000 for enough time to make sure you can do it and still enjoy your life. But the other thing: Social security. Won't you have that coming in later? That would add some lucre to the mix.

benjenn

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Re: Retiring on pensions versus savings
« Reply #15 on: November 24, 2014, 06:49:53 AM »
Thanks, everyone.  What I should have explained is that we didn't even consider retiring early until a little over 2 years ago... so saving for retirement wasn't a priority because it wasn't on our horizon. 

Hubby has been retired from the Air Force for a few years but works for a big government contractor now.  His income has risen significantly in the last 6 years since we first got married. From about $70K to $108K.

I've been with the same company for 24 years and my income has gone from $20K when I first started to $103K now, with a big promotion 15 years ago and lots of nice raises.  However, when I got divorced 12 years ago, first husband got half my 401K and half my retirement then (which he took as a lump sum at that time).  That hurt.

So back in May 2012, we were $711,000 in debt with two houses and a vacation home, a HELOC, a 401K loan and a car loan on a 2012 Nissan Leaf (100% electric... we were early adopters and it cost us).  Plus, we spent money on things we wouldn't consider today... like a housekeeper, etc. because we could. 

Today, 2 1/2 years later, we are $58,000 in debt.  So, while we haven't made great strides in savings we have definitely made a HUGE dent in debt.

For 2014, we will have paid $81,200 toward paying off the condo, $20,000 for college and another $20,000 on a surgery (that wasn't covered by insurance).  So there's $120,000 out of our $160,000 net income for 2014.  In 2015, we'll have another $20,000 in college expenses, pay off the $58,000 on the condo and build our cash reserves for retirement - about 40,000 if we work until the end of the year, $30,000 if we work until end of November, $20,000 if we work until the end of October.

So yes, we definitely WERE spending WAY more than $50,000 a year prior to deciding early retirement was the way we wanted to go but we have been pretty close to it since our decision (not including the debt payout).  And we are doing just fine with the tightened belts.

As for 12 years not being enough of a forecast, since we will have access to our 401Ks in 7 and 8 years and they will surely be worth way more than $250K by then, and then at 62 we can take social security, which will equal almost what our pensions are (thereby doubling our income), I can't imagine inflation outpacing that.

We will live in a state that doesn't tax pension income so that's good.  If something happens to one of us, we lose the other's pension but we have sufficient life insurance for the next 18 years (a 20 year term) to make up for that.

Our health care is covered by Tri-care thanks to hubby's 24 years of service to our country.  Hooray!  I will be leaving my job with $15,000 in a health savings account, too.  Forgot to mention that.

Interestingly, we started following a plant-based diet right about the time we decided to retire early.  We both have great test results from recent physicals so our goal is to be as healthy as we can for as long as we can.

Hope that explanation helps make more sense of our numbers.  Appreciate all your responses and thoughtful evaluations.  You guys ROCK!

Villanelle

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Re: Retiring on pensions versus savings
« Reply #16 on: November 24, 2014, 08:13:44 AM »
That definitely clear it up a bit.

Admittedly, I tend toward the conservative, but since you haven't been living lean for every long, and since you are only "pretty close" to a $50k budget, in your shoes I wouldn 't feel comfortable quitting.  I'd spend another year working so you can save (should be almost $200k!) and make sure you've factored everything in to your 50k budget.  Things like new (used!) cars--eventually that Leaf will die.  Does your $50 budget include a sinking fund so you can afford a new one when the time comes (in ~10 years).  Do you have sufficient savings, or monthly dollars slowly being set aside, for when your house needs a new roof.  Things like that make a huge difference.  A lot of people think they have a $50k budget, but what they really have is $50k in regular expenses, and that doesn't account for major stuff arising.

Also, if the condo isn't paid off until the end of 2015, it sounds like you really can't afford to retire until then.  So that give you one more year to trim expenses a bit more so that you are at, say $45k, leaving you $5k per year for unexpected major expenses, which is more like a true $50k annual budget for a homeowner.

And if you are paying $20k for a surgery, then it sounds like your health insurance isn't great, which surprises me based on what I know of Tricare.  But that's another thing you'll have to make sure you can cover out of your $50k annual budget--unexpected medical expenses.

I don't know.  As I said, I am very conservative.  But to me, it doesn't sound like you are quite there.  Another year buys you more savings, more time to make a few more cuts, and a slight increase in your pension amount.

When is your son done with college?  Until then, you have to come up with that extra $20k, on top of your $50k in living expenses, if I am understanding correctly and assuming you plan on continuing to cover that cost for him. 

By the end of 2015, you'll have everything paid off, more of college paid for, and $40k more in savings.  And you'll have lived on your tighter budget a bit longer.  To me, that would be worth it.  I'd promise myself a 2015 Christmas present of FIRE, if and only if I was able to live on $45k (with $5k in sinking funds and allowing for some wiggle room) and pad the savings as much as you predict. 

benjenn

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Re: Retiring on pensions versus savings
« Reply #17 on: November 24, 2014, 09:16:26 AM »
We sold the Leaf and currently have a '98 VW Cabrio with only 100,000 miles.  It cost $1,600.

The condo will be paid off in July 2015.  We plan to have at least $25,000 set aside for any unexpected expenses like another used car. Luckily hubby can do pretty much anything on a car so that makes it a lot easier.  We don't have to worry about a new roof since we'll be in a condo that was built in 2007 - not very old so it's in great shape.  We have monthly condo dues that cover insurance, sattelite TV and Internet as well as upkeep.

By the end of 2015, heathen son (it's an affectionate term) will have 3 semesters left at most (maybe only 2).  Roughly $21,000 in tuition max.  Hubby should receive a $22,000 lump sum payment (after taxes) from his current job that's completely separate from his Air Force pension.  That will cover the college expenses. We pay $500 a month toward his living expenses and that's factored into the budget.  That's in the budget until May 2017, when he will graduate.

Here's what our monthly budget looks like:

COA Fees $458
House expenses $50
Electric $150
Cell phones $60
Car expenses $400 (includes insurance for the heathen son who is only 20)
Groceries $575
Insurance $245
Health $25
Wine $125
Hair $50
Clothes $50
Entertainment $125
Restaurants $200
Gifts $50
Misc. $50
Cash $350
Son's living expenses $500

These charges are included annually in December:
annual condo insurance $600 (contents)
property taxes $800 (seriously... we have some of the lowest property taxes of anyone I know!)
Christmas $750

I feel like I've been very generous with a lot of these categories and we will probably end up spending less on most of them.  I cook most of our meals but we like to be able to go out when we want to.  We will have an annual golf membership that will let us play as often as we want to. It's a 9-hole par 3 course that we can walk - so it's good exercise as well as fun.  We're right on the beach so we don't need much other entertainment.  We probably won't spend as much on hair or clothes once we retire.

As for the surgery I had not being covered by insurance - we have really great insurance but it wouldn't cover the tummy tuck and breast reduction I had.  I'm really glad I did it when I did because now, I'd probably have a hard time spending the money for it.  Surgery was pre-MMM.  Now I'm watching every penny.  :)

We've always been very conservative, too, as far as our planning goes but it seems like the more we look at it, the more we think we can do it on less.  We will both make money after retiring, I'm sure, and since we won't need that money, it will all be rolled into our savings.

I threw all this out on the forum so we could hear from everyone -- those who think we'll be fine, as well as those who think we're pushing it and should hold back and wait.  We've learned a lot from reading through the forums in the last few months and we're happy to be part of this awesome group.  So thanks for all the help!


DoubleDown

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Re: Retiring on pensions versus savings
« Reply #18 on: November 24, 2014, 10:20:26 AM »
As long as you're sure you are already able to live comfortably on the pensions, then it sounds to me like you have plenty of safety margin built in already (401ks, paid off house, likely SS later on). Personally, I would go for it! I realize it's a big step walking away from big incomes and all that earning potential and increased pension/benefits (I did the same myself), but if you don't need more, then you don't need more. Your time left on this earth is more valuable than more $.

Are you sure you can access your own pension immediately, at your current age?

One last thing: It sounds like you have everything you need to pull the plug, but you might consider picking a short but definite time to quit, after taking advantage just a little longer of those high incomes. For example, you could pick the summer to quit, when the weather will be nice. In those 6 months or so, you could amass a very nice extra chunk of money to deal with any unforeseen circumstances, or just to continue growing and used as needed over the years. That is money you could access at any time without any penalties or tax consequences.

I lied, one other thing: If you didn't mention it already, get a HELOC on your paid off house while you are still employed! That will be another source of emergency cash should you ever need it.


benjenn

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Re: Retiring on pensions versus savings
« Reply #19 on: November 24, 2014, 10:44:26 AM »
Yep, I can access my pension at my current age.  There are lots of people in our industry who retire with 30 years younger than I am - I have a friend who is 49 and is retiring with her full pension the first of next year.  She started when she was 18!  I know it's rare today to even have a pension but in our industry, it's just the way it is.

We are getting a lot of flack from people for leaving our extremely high-paying jobs at the peak of our earning potential.  We are definitely leaving a lot by doing that.  Yeah, if we stuck it out a few more years we could amass a small fortune.  But we don't want to just accumulate money.  We want to be happy... and we really think retiring and leaving the stressful jobs behind will make us WAY happier.

As for timing the leave, we're kind of doing that already.  Spring is the busiest time of the year for me so I definitely want to be gone before all that happens again.  Leaving at the end of the year would be great if I have someone to train to take my place because I have the kind of job where I do the same things every year - not every month.  I'm hoping my boss will see the benefit of me being able to train someone for a year... otherwise, I think they're going to be in a world of hurt because there is seriously no one who knows what I do -- I don't even have an assistant at the moment after my last one left and my boss decided not to replace her.  So I am a one-person department with no cross training.  I don't have a lot of faith that he's going to hire anyone any time soon so leaving earlier than we originally planned (like the end of October instead of December) doesn't bother me too much.  I do realize if we can wait until November and leave at Thanksgiving instead, we can have about $10,000 more for 3 more weeks of work.  That is what I'm leaning towards at the moment.

We are going to move when we retire.  Our condo we own is our vacation home and we live 850 miles away now.  That's another big drop in our current budget because we won't be paying the $1,850 we currently pay on the condo we live in now (but I didn't include that in the budget I posted earlier since we won't have that when we retire).

It's just a little scary to walk away from so much... I'm confident we can do it... but it's still a little scary.

RichMoose

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Re: Retiring on pensions versus savings
« Reply #20 on: November 24, 2014, 10:50:37 AM »
I lied, one other thing: If you didn't mention it already, get a HELOC on your paid off house while you are still employed! That will be another source of emergency cash should you ever need it.

+1 Great advice here!

benjenn

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Re: Retiring on pensions versus savings
« Reply #21 on: November 24, 2014, 12:35:13 PM »
benjenn -> How well managed is your company / pension fund?

Frankly, I don't trust any kind of defined benefits/pension plans as it can go belly up pretty quickly. However, you aren't going to get any lower risk than a US Gov't / Military pension.

My company pension fund is incredibly reliable and well-managed.  I have no concerns there at all.  Been around for 75 years and is going strong.

Villanelle

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Re: Retiring on pensions versus savings
« Reply #22 on: November 24, 2014, 12:55:37 PM »
Any chance you could do long distance consulting for your company after you leave, either training or in some other capacity? 

My dad is paid obscenely well to consult with a former employer from several states away.  He puts in probably fewer than 10 hours per week, and has to get on an hour plane flight ever 2-3 months, for a 2-3 day stay (all paid for by the company). 

Given that it sounds like they will struggle without you, it seems like a situation rife for a part time consulting gig, if that interests you at all.  Generally, those situations are all the interesting parts of the work, without nearly all of the BS.  If you are willing or interested at all, it's worth asking about it when you give notice, and seeing if you can come to an agreement. 

If you give them a year's notice, is there any reason they will let you go early?  That seems very risky. 

benjenn

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Re: Retiring on pensions versus savings
« Reply #23 on: November 24, 2014, 01:12:46 PM »
I'm sure hubby could easily consult for his company but I'm also sure he doesn't want to.  His blood pressure goes up just thinking about work (we're at the beach now on vacation for Thanksgiving).  That doesn't mean who could do some consulting work for someone else though.  Any company would be lucky to have him.

I don't think consulting would work for my job... not without me doing all the work I'm already doing.  It would be nice to do it without all the TB (tiresome bullshit) at the office but I don't think it would work without my physical presence.

I have already told my boss I'm leaving the end of January 2016... we've just moved it up a couple months now and I haven't shared that.  I'm not worried about them letting me go early... as I said, no one else know how to do what I do and it has to be done.  We're a member-based non-profit and, after 24 years there (he's only been the 4 1/2), I'm very well-liked and respected by our membership.  That's why I gave so much notice... I'd really like to be able to fully train whoever takes my place so our membership is taken care of the same way I've taken care of them all these years.

Dicey

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Re: Retiring on pensions versus savings
« Reply #24 on: November 24, 2014, 01:24:10 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

While you're at it, check out the opportunity cost of paying off your mortgage(s) so early. I'd rather have that chunk of money invested while I dole out tiny mortgage payments at record low interest rates for a few more years. I congratulate you on paying off so much debt, but challenge you to start looking at your finances a little bit differently. Instead of killing every cent of debt, consider what you can do to create wealth. There's a reason the uber rich carry mortgages.

You mentioned two houses and a vacation house. Do you still own all of them? If so, can you rent them out for an additional source of income in retirement?

Finally, thanks so much for responding with more details. It drives me nuts when people ask for help on the forum and never follow up.

clifp

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Re: Retiring on pensions versus savings
« Reply #25 on: November 24, 2014, 02:54:23 PM »
Paying off debt was the one explanation that I was hoping to hear to account for the relatively small savings vs your income.  Since you are too young to be able to easily tap into your 401K, I'd want to have sav 50K in taxable account to pay for the condo association assessment for the new roof/HVAC,  the next car, and enough money to pay sons tuition.

But yes I think overall you are guys are in good shape.

beltim

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Re: Retiring on pensions versus savings
« Reply #26 on: November 24, 2014, 03:59:25 PM »
At the age of 52, you can withdraw more than 4.3% annually from your 401k using substantially equal periodic payments (SEPP) a program designed to allow for early access to 401k's for retirees.  So that would be more than an extra $10k per year that you can use until Social Security kicks in.

Beric01

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Re: Retiring on pensions versus savings
« Reply #27 on: November 24, 2014, 04:06:53 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

Yup, inflation absolutely kills a pension. I walked my Dad through his pension lump offer and it's incredible how soon the pension becomes worthless. The only way to make up for it is to save an invest a large portion of the initial pension payouts. That's why a lump sum offer is highly likely to be a good deal.

The other thing to be concerned about is underfunded pensions. Do you really want to tie your financial future to one company? Personally, I'd treat a pension like I would Social Security - nice if you get it, but quite possible you won't.

beltim

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Re: Retiring on pensions versus savings
« Reply #28 on: November 24, 2014, 04:14:14 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

The worst 11-year period of inflation in US history was 1973-1984, where total prices went up by 140%.  Considering that one of the two pensions of the OP is inflation adjusted, there's no way that Social Security (which will match the pensions) won't be able to make up for the worst possible inflation over those 11 years.  Social Security is also inflation-adjusted.

Dicey

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Re: Retiring on pensions versus savings
« Reply #29 on: November 24, 2014, 07:59:42 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

The worst 11-year period of inflation in US history was 1973-1984, where total prices went up by 140%.  Considering that one of the two pensions of the OP is inflation adjusted, there's no way that Social Security (which will match the pensions) won't be able to make up for the worst possible inflation over those 11 years.  Social Security is also inflation-adjusted.

I don't disagree with you at all, beltim. I was concerned that the OP did not have a full appreciation for the effects of inflation on the pension that does not include a COLA. Knowledge being power and all.

Gin1984

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Re: Retiring on pensions versus savings
« Reply #30 on: November 24, 2014, 08:00:27 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

The worst 11-year period of inflation in US history was 1973-1984, where total prices went up by 140%.  Considering that one of the two pensions of the OP is inflation adjusted, there's no way that Social Security (which will match the pensions) won't be able to make up for the worst possible inflation over those 11 years.  Social Security is also inflation-adjusted.
However, it is likely that the husband will die before the wife, removing that indexed pension, right at the time she needs it the most.  I'd cover at least the higher pension with the 4% rule plus $250,000 for medical for each of you from 65 on before I'd retire.

beltim

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Re: Retiring on pensions versus savings
« Reply #31 on: November 24, 2014, 09:51:10 PM »
I can't imagine inflation outpacing that.
Which is exactly why I recommended trying an inflation calculator. I just googled one and found the following using random numbers:
At 3% inflation over 30 years, your 100K today will be worth $41,200.
A 50k annual budget will cost $121,363 thirty years from now.
So, find one and start running your numbers. It is mind boggling.

The worst 11-year period of inflation in US history was 1973-1984, where total prices went up by 140%.  Considering that one of the two pensions of the OP is inflation adjusted, there's no way that Social Security (which will match the pensions) won't be able to make up for the worst possible inflation over those 11 years.  Social Security is also inflation-adjusted.
However, it is likely that the husband will die before the wife, removing that indexed pension, right at the time she needs it the most.  I'd cover at least the higher pension with the 4% rule plus $250,000 for medical for each of you from 65 on before I'd retire.

The wife will be just fine, considering that she will also get Social Security in 11 years.

benjenn

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Re: Retiring on pensions versus savings
« Reply #32 on: November 25, 2014, 05:34:48 AM »
Plus, if anything happens to either of us in the next 18 years we have $500K in life insurance ($750K if it's an accident). We chose to do that because it was way cheaper than having our pensions continue with spousal benefits.  After that, we'll both have Social Security in addition to the pensions as well as the combined 401Ks.  While we definitely hope to have many years together in retirement (one reason to retire early), I think either of us will be okay (financially) if something happens to the other.

Gin1984

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Re: Retiring on pensions versus savings
« Reply #33 on: November 25, 2014, 08:42:38 AM »
Plus, if anything happens to either of us in the next 18 years we have $500K in life insurance ($750K if it's an accident). We chose to do that because it was way cheaper than having our pensions continue with spousal benefits.  After that, we'll both have Social Security in addition to the pensions as well as the combined 401Ks.  While we definitely hope to have many years together in retirement (one reason to retire early), I think either of us will be okay (financially) if something happens to the other.
I'd do the math on that.  Looking at your pension alone, with just what you have in your 401k, assuming $2000/month for SS (which may be wrong), I'd worry in the later years.

benjenn

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Re: Retiring on pensions versus savings
« Reply #34 on: November 25, 2014, 08:59:22 AM »
I bet if we had to, we could sell our condo and find a much-more modest place to live for a fraction of the cost.  We're on the 15th floor overlooking the Gulf of Mexico.  It's worth about $320K today (we paid $230K 4 years ago).  That would help if we needed to do that.

DoubleDown

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Re: Retiring on pensions versus savings
« Reply #35 on: November 25, 2014, 09:36:50 AM »
Plus, you can elect survivor benefits on the husband's military pension. It will pay a 50% benefit to the wife as long as she lives.

DoubleDown

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Re: Retiring on pensions versus savings
« Reply #36 on: November 25, 2014, 09:40:38 AM »
At the age of 52, you can withdraw more than 4.3% annually from your 401k using substantially equal periodic payments (SEPP)

Do you have something you could refer me to for more info on this (specifically, taking a significantly higher rate starting at age 52)? I can't believe I haven't seen this before -- but every SEPP/72t calculator I've ever used seems to cap the withdrawal rate based on whatever banking/interest rate index they use, and I've never seen a difference at age 52. This could be very useful to me!

beltim

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Re: Retiring on pensions versus savings
« Reply #37 on: November 25, 2014, 09:49:00 AM »
At the age of 52, you can withdraw more than 4.3% annually from your 401k using substantially equal periodic payments (SEPP)

Do you have something you could refer me to for more info on this (specifically, taking a significantly higher rate starting at age 52)? I can't believe I haven't seen this before -- but every SEPP/72t calculator I've ever used seems to cap the withdrawal rate based on whatever banking/interest rate index they use, and I've never seen a difference at age 52. This could be very useful to me!

I just used the bankrate calculator.  The withdrawal rate depends on interest rates as well as age.  http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx

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Re: Retiring on pensions versus savings
« Reply #38 on: November 25, 2014, 10:09:21 AM »
Plus, you can elect survivor benefits on the husband's military pension. It will pay a 50% benefit to the wife as long as she lives.
I was going to mention this, but I'm not sure how long one has the option to take SBP, given that he's been retired for a while.  It would reduce their monthly payment, and given that it sounds like they will be on a very tight budget, that might be the tipping point to make this plan fail, but it might be worth looking in to. 

Bob W

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Re: Retiring on pensions versus savings
« Reply #39 on: November 25, 2014, 10:15:48 AM »
Don't forget to factor any social security income into your equation.   You can run it on the SSI calculator.   You could kick that in at 62.   My guess is if you sell a home for 300K and invest the money that your actual spending could be closer to 75 K with the anticipation of SSI.    75 K with paid off everything is a huge amount.   You would basically have 50K of play money per year. 

DoubleDown

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Re: Retiring on pensions versus savings
« Reply #40 on: November 25, 2014, 12:40:08 PM »
At the age of 52, you can withdraw more than 4.3% annually from your 401k using substantially equal periodic payments (SEPP)

Do you have something you could refer me to for more info on this (specifically, taking a significantly higher rate starting at age 52)? I can't believe I haven't seen this before -- but every SEPP/72t calculator I've ever used seems to cap the withdrawal rate based on whatever banking/interest rate index they use, and I've never seen a difference at age 52. This could be very useful to me!

I just used the bankrate calculator.  The withdrawal rate depends on interest rates as well as age.  http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx

Oops, despite using that very calculator even in the very recent past, I was having a simple math fail. Thanks, and never mind what I said about not being able to hit 4.2% withdrawals!

Huskerfan

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Re: Retiring on pensions versus savings
« Reply #41 on: November 25, 2014, 07:26:44 PM »
Can you get by on 50k income coming from 100k+? There's really no difference in a pension vs personal savings, besides the fact that less and less people have pensions.

If your pension and personal savings will cover what you think you will need to live, then you're ready!

How many on here are planning retirements with pensions and savings? 
I really need to detail my situation to see what everyone thinks.   I'm a bit worried about the tax situation when it comes time to retire.  Wife and I both will be getting nice pensions as well as our 401Ks and Roth IRAs.   We won't be doing it the early route (I love my job and plan to stick it out). 


Nords

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Re: Retiring on pensions versus savings
« Reply #42 on: November 29, 2014, 10:43:59 AM »
Are your pensions indexed to inflation?

Hubby's Air Force pension has an annual COLA adjustment but mine won't.  I have our monthly budget projected out for the next 12 years and have inflaction factored in there and we should still be fine.  Plus, in 7 years, he'll have access to his 401K and I will in 8 years.
I've read through the entire thread, and between the military & SS COLAs I think you'll be fine with inflation.

Your budget line items did not mention federal/state taxes, but they'll be pretty low and I doubt they'll break the budget.

aj_yooper

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Re: Retiring on pensions versus savings
« Reply #43 on: December 01, 2014, 07:51:44 PM »
Thanks, everyone.  What I should have explained is that we didn't even consider retiring early until a little over 2 years ago... so saving for retirement wasn't a priority because it wasn't on our horizon. 
So back in May 2012, we were $711,000 in debt with two houses and a vacation home, a HELOC, a 401K loan and a car loan on a 2012 Nissan Leaf (100% electric... we were early adopters and it cost us).  Plus, we spent money on things we wouldn't consider today... like a housekeeper, etc. because we could. 

Today, 2 1/2 years later, we are $58,000 in debt.  So, while we haven't made great strides in savings we have definitely made a HUGE dent in debt.

For 2014, we will have paid $81,200 toward paying off the condo, $20,000 for college and another $20,000 on a surgery (that wasn't covered by insurance).  So there's $120,000 out of our $160,000 net income for 2014.  In 2015, we'll have another $20,000 in college expenses, pay off the $58,000 on the condo and build our cash reserves for retirement - about 40,000 if we work until the end of the year, $30,000 if we work until end of November, $20,000 if we work until the end of October.

So yes, we definitely WERE spending WAY more than $50,000 a year prior to deciding early retirement was the way we wanted to go but we have been pretty close to it since our decision (not including the debt payout).  And we are doing just fine with the tightened belts.

As for 12 years not being enough of a forecast, since we will have access to our 401Ks in 7 and 8 years and they will surely be worth way more than $250K by then, and then at 62 we can take social security, which will equal almost what our pensions are (thereby doubling our income), I can't imagine inflation outpacing that.

Hope that explanation helps make more sense of our numbers.  Appreciate all your responses and thoughtful evaluations.  You guys ROCK!

I'm with cliffp on your situation.  You and your husband have cleared an enormous amount of debt quickly, but I hear fog horns and sirens in that you built that much of a deficit.  I don't like the hefty HOAs that you would be paying.  I would suggest developing a detailed budget and close tracking of your expenses for at least a year or two. I would build your savings closer to what your debt used to be.  Is your life insurance paid up?  I did not see a line item for that expense.