Case Study – Married, High Income, Low NW, Good Pension, Kids in College

[BMW Jalopy]

Gross Salary/Wages: $200K combined

Individual amounts of each Pre-tax deductions:  $42K to 401k, HSA, zero to FSA, zero to IRA

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: doubtful

Rental Income, Actual Expenses, and Depreciation: no

Adjusted Gross Income: couldn’t figure out how to calculate

Taxes: $25K fed, 8K fica ($125k income is medicare only, no FICA) No state tax

Current expenses: Rent 1295. Everything else was hard to categorize because we did a lot of cash buying, and BOA website doesn’t break down non-BOA credit cards unless you link to them. If you do link, it counts those credit card expenses twice, once per transaction, and again when you pay the bill. Anyway, total expenses over the last 18 months was $9K per month. This included quite a few large one-time events like college tuition, cars, and a sailboat. Spouse gives a lot of money to charity. I get a lot of student/school massages for my aching skeleton. Lots of takeout food, maid service, car repair by others, etc. due to both of us working long hours professional careers.

Cars: 2008 Xterra, bought new. 2008 BMW Z4 coupe (rare non-convertible & stick) bought for $17K with 40K on the clock from the original owner. 1991 BMW 325i convertible with factory 5-speed, bought for $6400 with 60K on the clock. 2012 Mazda 3 (stick) bought new. 1969 Cal 24 Sailboat in a marina slip. This one has to go despite my deep love for it. The boat is worth $1500 on a good day, however the slip is $262 a month. As much as I love sailing, the monthly vig is too much. The mazda now belongs to offspring, and I will buy an auction ex-cop car or similar for the other offspring @ graduation. Both BMWs are worth more than I paid for them. Next year, both kids will drop off my car insurance.

Expected ER expenses: Thisis where I need to invest a lot of research and put together some solid numbers. The kids will be off the payroll in a year. I want to buy a small house in a LCOL area for a base to store my stuff and sleep when I’m in the USA, and spend some time in the third world eating street food, fishing, and decompressing from 35 years of career stress and unemployment stress. I plan to carry the kids on my health insurance until they are 26 or I quit my job. I have chronic back pain; my choices are to have access to monthly doctor visits and an Rx, or live in SEA where you can get opiates over the counter.

Assets: $722K in mostly tax-deferred accounts. 2 pensions: #1 would be $2500/mo if I took early draw today, $5500/mo if I work for another 5 years to 60, or $3300/mo if I stop working now but wait until 60 to start drawing. Spouse Pension #2 (currently dormant) would pay $1100/mo starting in 2028. My SS at age 62 would be $950/mo, Spouse SS in 2030 would be maybe $800/mo Note that the $722K is now earning 2% and not exposed to the stock market. We were single income and low paid most of our lives – the big paychecks are a very recent change.

Liabilities: No debt of any kind. Also, I’m not on the hook for paying lifestyle expenses for dysfunctional relatives. My kids are well set to take care of themselves starting next year. I will need to spend some time in the USA to take care of my aging parents. They are currently independent, but getting up there pretty seriously, 85 and 82. They have no money, but their $1M house should cover nursing care. Unless Mom dies first; then Dad would sell the house and give the money to charity.

Specific Question(s):

A lovely couple very close to me just Re’d from a salary of $10K/mo to a pension of $1,300/mo and the income from a couple rental houses that comprise most of his NW. I don’t think he’s put pencil to paper once to see if it all is going to work, and they spend like the $10K is still coming in. I don’t want to follow the same path. What I need from you guys is:

1. Tools to track income and spending. I didn’t like Mint due the massive amount of spam. BOA might work as long as I don’t have any non-BOA cc’s. I am trying to set up one-sheet-to-rule-them-all but my ADHD is making that tricky. Might prefer something less granular.

2. Our pensions depend on a state PERS fund that is under-funded and will likely become more so after the next stock/RE crash. Not sure how to depict that in a spreadsheet. Most state PERS beneficiaries will be receiving a haircut at some point.

3. Is there a better tool than firecalc.com to test drawdown scenarios?

4. Clearly putting in another 5 years to age 60 would solidify my position considerably. Being honest though, I’m frequently unsure if I’m going to make it to end of shift today. I’m toying with the idea of Reing to southeast Asia and living on my early draw pension. Leave assets alone until next recession/crash then dive into stocks and RE, move back to USA.

5. Regarding stocks and RE, 2018 feels to me a lot like 2000 and 2008. I know market timing is forbidden in the FIRE community, but my nerves can’t take a 75% drawdown like what happened after those peaks. Do any other FIRE people feel the same?

6. The leanfire folks would totally RE at my numbers. My wife is loyal as a golden lab puppy and would follow me anywhere. Plus her job is no cakewalk either, she could be done whenever I am. Should I just freaking do it and figure out the details later?

7. What am I not asking that I should be? What would you do in my position?

[inline five]

I can't answer the retirement questions but by far the best financial tracker I've used is Personal Capital. BoA is useless and I don't use their spending tracker either. The one down side with PC and most of these trackers if you do a lot of returns, it doesn't reduce dollars spent in that category. They are all pretty much the same in that regard.

[BMW Jalopy]

Thanks for that. My wife is new to the FIRE mindset - she suggested Personal Capital and is willing to set it up, so win.

[Dee18]

You have to figure out where the money is going.  It doesn't matter if you do it electronically or if you keep an old fashioned ledger.  Right now you have a huge gap between your current spending and your resources for retirement.  First, figure out your spending so you can estimate your needs in retirement (no tuition, no boat, but airfares to other countries, likely increased health care costs, etc).  Your stash would yield about 28,000/ year if it's invested in stocks (at least in part), but much less if you only have 2% return.  I know how you feel about the market downturn.  When I found MMM very little of my money was in stocks, but after running scenarios on cfiresim and firecalc I realized I should invest in the stock market and I've been steadily doing that.  Your subject heading says, "Good Pension,"  but your facts say it's underfunded.  Once you figure out your expenses, people here will help you cut them.  Also, I plan to cover my 21 year old's health insurance until I retire, she turns 26, or she gets a job that offers health insurance.  (I'm seriously hoping it's the last of those.) Just because you can keep kids on your insurance doesn't mean you have to.

[fuzzy math]

Sell the cars, sell the boat, invest your assets etc. since you're closer to retirement age (55 and your spouse is how old?) you don't have that long of a window until you can start drawing your pensions and SS.

MY confusion comes from the fact that you just bought the boat in the past year and are collecting cars when your dream is to live overseas. If that's really your dream, even temporarily, you will need to dump all that stuff. In the meantime it would save you on all the car repairs you mention and the extra insurance (any car storage fees you forgot to mention since you're renting??) as well as the boat expenses you are aware are too high.
It would be good for you test the dream of being a nomad by actually seeing how it feels not to have a ton of machine based toys. If you can't bear to part with them now, is your dream really something you'd enjoy some day? Every step you make towards minimizing your expenses is going to get you over that last hurdle sooner into a safe FIRE situation.

My dad is an expat and has chronic pain and has had no issue with getting treatment and meds overseas.

Personal capital does offer draw down scenarios with a variety of life spending options built in, but it's really more for after your $$ is invested. Theoretical asset mix fixed spending scenarios are best in firecalc or cfiresim.

[MarciaB]

You have to figure out where the money is going.  It doesn't matter if you do it electronically or if you keep an old fashioned ledger.  Right now you have a huge gap between your current spending and your resources for retirement.  First, figure out your spending so you can estimate your needs in retirement (no tuition, no boat, but airfares to other countries, likely increased health care costs, etc).  Your stash would yield about 28,000/ year if it's invested in stocks (at least in part), but much less if you only have 2% return.  I know how you feel about the market downturn.  When I found MMM very little of my money was in stocks, but after running scenarios on cfiresim and firecalc I realized I should invest in the stock market and I've been steadily doing that.  Your subject heading says, "Good Pension,"  but your facts say it's underfunded. Once you figure out your expenses, people here will help you cut them.  Also, I plan to cover my 21 year old's health insurance until I retire, she turns 26, or she gets a job that offers health insurance.  (I'm seriously hoping it's the last of those.) Just because you can keep kids on your insurance doesn't mean you have to.

Here's how I would approach the pension - figure out how underfunded your pension is (do a google search on something like "state pension plans funded ratios" and you'll get a number of articles with charts and graphs). Let' say for drill your state has funded their plan at the 70% level, leaving 30% unfunded.

When you do a benefits estimate or ask for an estimate of how much your pension payout will be each month, take that number and subtract the underfunded portion (30%) from it.

Let's say you send in a request to be told how much you'll receive each month at your full retirement age. And let's say that's $1000 per month. Take that number and then subtract the unfunded portion (30% or $300) as a worst-case scenario. That would give you a monthly pension check of $700 per month. You're assuming that your state can fork over that much because they have it in the fund, but may not be able to come up with the remaining $300/month because they just don't have it (and are kicking the can down the road hoping the legislative folks will fund it later).

Use that lower, more conservative number in your calculations of income.