turning 60 ... need a plan

[albireo13]

Hi,
Turning 60 soon and am late to the game in terms of retirement planning.
I've always been conservative but, not a great, save.
Together, my wife and I have 1.2M (401ks,IRAs,403b,pension). We both work and pull good salaries ($250k total).
I am a bit nervous about retirement spending so, want to do what I can over the next 3 yrs before I retire.  This year's plan was to pay off debt. By next month we'll have all CCs and loans cleared except for mortgage.  I don't expect to pay off mortgage since we still owe $298K at 3.6%. Have about $140k in equity.

What is the most effective plan for the next 3 years?

  My thought is first, sell house and downsize ... maybe rent.  Also, max out 401k contributions.

Beyond that ???

[lizzzi]

Pretend you are already retired, and live at that level of income. See how it "feels" and how it works for you. In other words, practice being retired before you actually are...while you still have some time to make adjustments.

[Another Reader]

I think you would find this site of interest: www.early-retirement.org.  More folks of the same age with the same issues.

You say you have $1.2MM including a pension.  How much is the pension?  When does it kick in?  Is it COLA'd?  How much Social Security and what is your plan to draw the two annuities?   Do you have a contingency plan for the survivor if one of you dies and that annuity disappears?  What are your retirement savings net of the pension?

Have you run any of the retirement calculators - FIREcalc, Fidelity's RIP, or others to see how you would fare under their projections?

In your shoes, I would max out both 401k/403b plans starting today.  Cut spending if necessary, but do that. Between the two of you, you can stash $48k a year, including the over-50 allowance of $6,000 each.  If your wife has a second plan at her employer, look at that as well.

Edited to add:  If you can get your MAGI down, you might qualify for Roth contributions as well.  No tax benefit, but no RMD's either.  See below for limits.

https://401k.fidelity.com/public/content/401k/home/vpcontributionlimits

[Scandium]

I think you would find this site of interest: www.early-retirement.org.  More folks of the same age with the same issues.

You say you have $1.2MM including a pension.  How much is the pension?  When does it kick in?  Is it COLA'd?  How much Social Security and what is your plan to draw the two annuities?   Do you have a contingency plan for the survivor if one of you dies and that annuity disappears?  What are your retirement savings net of the pension?

Have you run any of the retirement calculators - FIREcalc, Fidelity's RIP, or others to see how you would fare under their projections?

In your shoes, I would max out both 401k/403b plans starting today.  Cut spending if necessary, but do that. Between the two of you, you can stash $48k a year, including the over-50 allowance of $6,000 each.  If your wife has a second plan at her employer, look at that as well.

Edited to add:  If you can get your MAGI down, you might qualify for Roth contributions as well.  No tax benefit, but no RMD's either.  See below for limits.

https://401k.fidelity.com/public/content/401k/home/vpcontributionlimits

As a high earner he can contribute via a back-door Roth. No need to worry about the MAGI. Maxing out two 401ks and two Roths they could contribute $61k each year (($18k +$6k + $6.5k) x2), or almost $200k just in the three years until he wants to retire! And that's not even counting any employer contributions or taxable accounts.

By that point OP could pull $60k per year, plus pension, and full SS 7 years later. Unless spending is outrageous sounds like they're pretty well set! Well done.

[Another Reader]

Yes, he could backdoor the Roth, but the simple way is easier if it's possible.  The $1.2MM includes the pension, and it was not stated how much is allocated to the pension and how much to the other accounts.  There are probably two options with the pension - lump sum or annuity.  It's important to look at both options from the perspective of potential income, as that is what the OP needs.

[Scandium]

Yes, he could backdoor the Roth, but the simple way is easier if it's possible.  The $1.2MM includes the pension, and it was not stated how much is allocated to the pension and how much to the other accounts.  There are probably two options with the pension - lump sum or annuity.  It's important to look at both options from the perspective of potential income, as that is what the OP needs.

I did a back door Roth this year. It took 3 min and one online form at Schwab. Pretty simple.

I missed that the NW included pension. I agree OP needs to post more details. Spending/need being the big one.

[Exflyboy]

What struck me is you don't have much time and your spending is way too high.

But there IS time but you got to get on it.

As posted above your max spend is $48k a year on $1.2M. As you have been presumably making a LOT of income for a long time, but you have only saved $1.2M (less if that includes the pension value) then your spending is probably way higher than $48k.

So max EVERTHING out in terms of pre tax savings.. then see what you can save on top of that after tax.

What do your housing costs look like?.. $1M McMansion with $20,000 in RE tax per year?.. If so downsize to the house you need (not the house you want.. after a while you'll realize you don't want the big house anyway).

The idea is to find out what your comfortable with spending.. In fact live at a level that your NOT comfortable as this will focus the mind on SAVING..

Lets say you can sock away $100k per year.. well that's 300K which means you'll have $1.5M and your annual spending can be as high as $60k per year.

Or of course you can keep working/saving.

I have not mentioned your SS income so you'll have to factor that in.

[albireo13]

Actually our stash is made up of 401k, IRAs, and wife's 403b. I have an annuity pension which will payout $1900/ month but I'm not including that or SS here.
We haven't saved well the last 15yrs ... remarried, 5 kids, saving for college, big house, too many pet, a few medical crises, etc ....  wah, wah!
Have not kept track of spending well. Now I have gotten religion.
Anyway, now the last kid is moving out next year and we are planning to downsize and simplify our lives.

[Gray Matter]

I think you're actually in pretty good shape--not where you ought to be given your income, but you know that. 

Your current retirement savings will bring in about $4000 a month, then, depending on when you take it, social security will bring in another $3000-4000 a month between you and your spouse (made some assumptions here), plus your annuity pension of $1900 a month, plus whatever additional savings you can amass in the next three years.  You'll have much more income than the average retiree.

I second the advice to max out all the pre-tax savings and then keep saving, and to cut your spending now to prove you can live on less, and I'd consider selling the house as soon as the last kid is out of the house.