Can I retire from teaching early?

[blosky]

Life Situation: I am about to be 50. Wife is 43. Two children age 10 and 7

Gross Salary/Wages: 220k

Total Retirement Savings ~1.6M
> $340k Taxable Acct
> $70k Roth IRA 1
> $95k Roth IRA 2
> $565k 403b #1    maxing out contributions $30,500
> $240k 403b #2    maxing out contributions
> $165k 457b #1    maxing out contributions $30,500
> $120k Cash
> $70k 529    Adding $750 a month

Current AA overall is about 80/20 - Stocks/Bonds

Real Estate – House will be paid off in Nov. 2032
$2500 a month
Taxes $11,000

Pension: I can retire early but will take a hit on my pension. If I stop working at 55 and delay collecting my pension until age 60(2034) it will be $90k/yr. If I collect the pension immediately it would be $70k/yr. Every year that I retire below 55 would result in ~4k less.
My wife will retire in 2036 and will receive $60k a year.

If I retire early I would go on my wife’s insurance. I am not sure of the exact cost yet. Once I start collecting my pension I will be eligible for retiree insurance(TRIP) until I hit medicare age.

Current expenses:
Total for household: 90k a year which will drop to 70k in 2032 when the house is paid off

Future expenses:
Every year that I retire below 60 I will need to use 30-40k from my taxable accounts to cover expenses that will not be covered by my wife’s salary alone.
4 years of college for both kids.
Cars are 2013 and 2015 so will likely need used cars

Specific Question(s): I’m trying to figure out at what age I can safely retire. It is rare for teachers to retire early. I know a few that have retired 1-2 years early but not 5. People think I’m crazy for leaving money on the table. Maybe I am. They tell me I should just teach til I’m 60 and not have 5 years where I’m not receiving a salary or a pension. I think we’ve done a pretty good job saving so it is slightly difficult to think about the money that could be earned during that time period. I’m sure that’s something all early retirees grapple with. I do not dislike teaching but I have saved well and need to spend the money at some point. I have put all of my information into personal capital’s app and it seems that retirement at age 55 is doable. I have to let my school know 4 years in advance of my actual retirement. I’m trying to figure out if I’m missing anything.

[jeroly]

You will be receiving a $90k pension and need $70k/yr, so if that pension is COLA'd, you're good to go as long as you have enough $$$ to bridge the gap, and you do, almost four times over right now, and you still have five years to save.  Are you social security eligible?  If so, even if it eventually gets a haircut of 25%, you'll have even more padding.

Lots of teachers do retire at 55 btw, maybe just not in your school.

[c-kat]

Is your pension indexed?  If so, I'd take the 70K at 55 and then with inflation it will already be worth close to 80K by 60, only 10K less than the 90K you would have ended up with if you'd delayed it to 60.  I think that's worth it to start collecting the money 5 years earlier.

[lucenzo11]

Does your wife want to retire early too or is she good sticking it out until 2036?

I'm confused because it seems like you are all set now.
If you retire now you get $50,000 ($70k-5*$4k) from your pension a year. Your wife keeps working and also brings in some number at or greater than $50k. You didn't state it specifically but you comment about needing to pull money from investments implies that her net is somewhere around $50k. That's atleast $100k which covers your expenses and your nearly $1.5M in actual investments at 4% grows your investments for college and cars by $60kish per year.
Am I missing something?

[blosky]

Lots of teachers do retire at 55 btw, maybe just not in your school.

They do but they started teaching right out of college. I didn't start until 28. You have to put in 34 years
I am not social security eligible

[blosky]

Does your wife want to retire early too or is she good sticking it out until 2036?

I'm confused because it seems like you are all set now.
If you retire now you get $50,000 ($70k-5*$4k) from your pension a year. Your wife keeps working and also brings in some number at or greater than $50k. You didn't state it specifically but you comment about needing to pull money from investments implies that her net is somewhere around $50k. That's atleast $100k which covers your expenses and your nearly $1.5M in actual investments at 4% grows your investments for college and cars by $60kish per year.
Am I missing something?

She intends to work until 2036.
I was going to delay my pension 5 years because it ends up being 20k more a year.

[lucenzo11]

Does your wife want to retire early too or is she good sticking it out until 2036?

I'm confused because it seems like you are all set now.
If you retire now you get $50,000 ($70k-5*$4k) from your pension a year. Your wife keeps working and also brings in some number at or greater than $50k. You didn't state it specifically but you comment about needing to pull money from investments implies that her net is somewhere around $50k. That's atleast $100k which covers your expenses and your nearly $1.5M in actual investments at 4% grows your investments for college and cars by $60kish per year.
Am I missing something?

She intends to work until 2036.
I was going to delay my pension 5 years because it ends up being 20k more a year.

Ah okay, so you are really only questioning whether you can retire at 55 and whether you should delay pension or not. Sorry, I missed the line in your first post about needing to provide 4 years notice.

That extra $20k sounds nice, but I personally don't think it's worth the delay and tapping into your investments. Taking the delayed $90k could be the best long term solution, but you wouldn't break even on total pension dollars paid to you until about 23 years into retirement or roughly age 78. That doesn't even account for the surplus you'd be running in the first five years that you could invest and drag out the break even point even more. Your wife's salary plus $70k pension is going to be well north of $100k, you'll be able to cover expenses and more.

So really either option is fine when retiring at 55. I personally would let my investments grow but even if I did have to tap into them for those 5 years, it would be well below a 4% WR, probably even under 2% if you keep your expenses where they are.
Congratulations, you are in a great spot!

[blosky]

Ah okay, so you are really only questioning whether you can retire at 55 and whether you should delay pension or not. Sorry, I missed the line in your first post about needing to provide 4 years notice.

That extra $20k sounds nice, but I personally don't think it's worth the delay and tapping into your investments. Taking the delayed $90k could be the best long term solution, but you wouldn't break even on total pension dollars paid to you until about 23 years into retirement or roughly age 78. That doesn't even account for the surplus you'd be running in the first five years that you could invest and drag out the break even point even more. Your wife's salary plus $70k pension is going to be well north of $100k, you'll be able to cover expenses and more.

So really either option is fine when retiring at 55. I personally would let my investments grow but even if I did have to tap into them for those 5 years, it would be well below a 4% WR, probably even under 2% if you keep your expenses where they are.
Congratulations, you are in a great spot!

Thanks for the response and giving me something to think about. It seems as though my real question should be whether or not I should delay my pension until age 60. The numbers I listed for my pension were pretax so I don't think I would have that much surplus. I thought my break even point would be around age 71 so I'll have to look at that again.

[Shuchong]

Lots of teachers do retire at 55 btw, maybe just not in your school.

They do but they started teaching right out of college. I didn't start until 28. You have to put in 34 years
I am not social security eligible

Is your wife social security eligible?  Or did you get 40 quarters in between ages 18 and 28?  You're set already (congrats!), but that would be a nice extra ... bit of security. 

[blosky]

Is your wife social security eligible?  Or did you get 40 quarters in between ages 18 and 28?  You're set already (congrats!), but that would be a nice extra ... bit of security.

My wife is not social security eligible but I did get 40 quarters in. I started working when I was 13. I'm not entirely sure how much, if any, I will get. I live in Illinois. I paid into social security from 1990-2003. I also paid around $500/yr the last 4 years for a total of 18 years.
Based on what I've read I will get a deduction of $557.50. The benefit estimator at ssa.gov said my monthly benefit at age 67 would be 913 so I think I'll receive around $300? I'm not entirely sure if this is true or not.

[Laura33]

The short version is that you are fine and can give notice today if you want to.  With a 4-year advance notice requirement, you have plenty of time to figure things out. 

If you give notice now and quit at 55, you can either take $70K immediately, or wait 5 years and take $90K.  But in both cases, your wife is still working!  If you take the immediate $70K, her income will cover the delta in your needs until she retires, at which point her pension together with yours will more than amply cover your needs.  If you wait 5 years, then you just need to take $30-40K from your over $1.5M saved to cover the delta between your wife's income and your expenses.  I was an English major, and even I can see that that math is not exactly going to be a problem.

At this point, you are working just to provide additional future cushion that you do not actually need.  If you both retired right now, your retirement savings alone would cover around $60K/yr in expenses.  Throw in $50K in your pension, and you're more than covered -- even moreso once the house is paid off.

The one caveat I'd add:  what are your survivor benefits on both pensions?  It's extremely likely one of you will go before the other, and you don't want the survivor to see the pension income cut to below what the budget requires.  So for ex., if your pension has only a 50% survivor benefit, that might argue for delaying taking the pension a few years, so that your wife gets 50% of a larger number if you die first.  OTOH, if it's 100% survivor benefit, then even the $50K you'd get if you could retire today would be more than enough when combined with her pension.

You've done a great job.  Now it's time to reap the benefits and figure out what's next.

[blosky]

I was an English major, and even I can see that that math is not exactly going to be a problem.

The one caveat I'd add:  what are your survivor benefits on both pensions?  It's extremely likely one of you will go before the other, and you don't want the survivor to see the pension income cut to below what the budget requires.  So for ex., if your pension has only a 50% survivor benefit, that might argue for delaying taking the pension a few years, so that your wife gets 50% of a larger number if you die first.  OTOH, if it's 100% survivor benefit, then even the $50K you'd get if you could retire today would be more than enough when combined with her pension.

I thought the math worked out too but wanted to get some other eyes to see if there was something I was overlooking.

Thanks for mentioning the survivor benefits. I did not think of that. That may be reason enough to start collecting right away in case something were to happen to me in the 5 years I was waiting to collect.