FIREing with govt pension. Trying to get plan with other assets

[MrMike]

Okay so I am planning on retiring in 3 years.  It's getting close and I trying to get a plan on what to do with my assets once I pull the trigger.

I'm a govt employee and I have a very good pension.  I'll be making a little over $100k a year with the pension (pre-tax).  In addition to that I have about $300k in a 457b that I am doing the 3 year catch up contributions right now.  I have my money invested in 90% Vanguard Index Funds and 10% in Bonds.  When I retire I can cash out my leave time that will give me about $95k before taxes.

My wife has a traditional job in the private sector.  She currently has about $350k in a traditional 401k and is maxing her contributions.  She's planning on quitting when I retire so we can spend our time traveling.  We will both be 50 yrs old when this happens.

Additional assets:  we have $15k in a small IRA that I put $100 a month into,  $20k in a joint saving account and $7k in my wife's HSA.

We are making double payments on our mortgage and I should only have $10kish remaining on the note when I hit my retirement date.  Both cars are paid off and we don't have any kids.

My plan so far: 

1.  Keep my 457b in Vanguard Funds and use that money if I have any emergency bills or want to make any big purchases since I can withdraw it without penalty (but of course I have to pay taxes).

2.  Move my wife's 401k into a Vanguard managed account.  Still trying to decide how aggressive we want it to be since we don't plan on touching it for a decade.  She wants to put in somewhere "safe" so we are kind of at odds on this.

3.  Use my leave cash out check to pay off my mortgage. 

4.  I'm thinking of taking the remainder of that (maybe $60k?) and do a CD ladder with it so that we have some "safe" assets that we can access if needed.

5.  Basically just live off my pension.  I've run my monthly expenses. After taxes, HOA fees, health insurance and all expenses minus groceries we will still have about $40k to live on.

I guess I am brainstorming here wondering if anyone has any recommendations or advice that I am not thinking of?  I'd considering calling a Vanguard Financial Planner and having consultation with them as I get closer.  Ideally I'd like to live off my pension check and just use those other accounts as a cushion and to account for inevitable inflation.  My pension never gets cost of living increases.

Most retirement plans I come across don't take a solid pension into account since those things are so rare now.

[ROF Expat]

If you have a 457b, I assume you are a State for City government employee.  In that case, I think the big question is how confident you are in your employer's solvency. 

If you are very confident in your employer's solvency, then you are in a great place.  Given that you should be able to live comfortably off of your pension alone,  I think your plan to invest with the idea of covering future losses to inflation and exceptional expenses is wise. And you can afford to invest conservatively if that makes your spouse happy, because you don't have to maximize your income to meet your expenses. 

If you are not entirely confident in your employer's future solvency, I think the situation is a lot trickier.  If your pension were to disappear or be cut substantially, that $650K would suddenly shift from being a nice cushion and a fund for emergencies and luxuries to one of the pillars of your retirement.  You don't mention Social Security, but I think it is still likely to be a useful boost to income, and something to factor (positively) into your equation. 

I retired from the Feds a few years ago (at about the same age you'll be retiring), and I don't think you've missed anything in your plan.  At the risk of derailing your thread by provoking the "don't pay off your mortage folks," I have to say that there's a lot to be said for entering retirement with a paid off mortgage.  In theory, it may be mathematically suboptimal, but your expenses are the part of your retirement that you can control.  Income is a lot tougher.  Personally, I'd try to live off my pension alone for as long as possible and let my investments grow for as long as possible with as aggressive a portfolio as you and your spouse feel comfortable with, given your relatively young age and long retirement horizon.  By the time inflation is taking a serious bite out of your pension, you should qualify for SS. 

[MrMike]

Thank you for your reply.  I'm very confident in my pension lasting the duration.  But as you suggest, I don't want to touch my other funds for as long as possible so I can allow them to grow.

I have been thinking about it and I think I will probably split the baby with our investments and put one in aggressive allotments and the other in conservative investments.  Luckily my wife and I both have closely the same amount so if she feels better that "her" 401k is the safe one, even better. 

As for the mortgage, I really want to be debt free when I pull the trigger on retirement.  We have a very low interest rate and I know it makes more financial sense to earn interest instead of paying extra principal.  But I just want to pay the damn thing off.

[seattlecyclone]

Does the pension start right away when you leave at 50? That's an extremely solid income base if so.

Sounds like you plan to spend significantly less than your pension alone. That makes the rest of your savings basically be extra so long as the pension holds up. What are your goals for this money? Do you have any relatives you want to leave a sizable sum to? Charitable aspirations? These goals will inform your withdrawal strategy.

About the $95k leave payout: it sounds like you might not actually need that money. Why not schedule some more vacation time spread out over the next three years and ease into your retirement lifestyle instead of working hard to get a lump sum of cash that you probably won't need anyway?

[Highbeam]

Government pension that is not inflation adjusted? That's weird. Also weird that you could take it at 50. Also, weird that the serious reductions in pension by taking it so young don't severely reduce the payout. Most government pension systems have a "benefit estimator" tool that will calculate the payout. Good for you if you can get 100k per year forever at 50. 

[MrMike]

Does the pension start right away when you leave at 50? That's an extremely solid income base if so.

Sounds like you plan to spend significantly less than your pension alone. That makes the rest of your savings basically be extra so long as the pension holds up. What are your goals for this money? Do you have any relatives you want to leave a sizable sum to? Charitable aspirations? These goals will inform your withdrawal strategy.

About the $95k leave payout: it sounds like you might not actually need that money. Why not schedule some more vacation time spread out over the next three years and ease into your retirement lifestyle instead of working hard to get a lump sum of cash that you probably won't need anyway?

Yes, it starts as soon as I retire.  Well my wife is from Europe and her family is there.  We plan on doing a lot of flying back and forth.  We might....MIGHT....get a flat in her home country but we are waiting to see how our finances look.

The $95K payout is for sick time accumulated.  I actually have more vacation I could sell back but I'm not going to try to save it up. 

[MrMike]

Government pension that is not inflation adjusted? That's weird. Also weird that you could take it at 50. Also, weird that the serious reductions in pension by taking it so young don't severely reduce the payout. Most government pension systems have a "benefit estimator" tool that will calculate the payout. Good for you if you can get 100k per year forever at 50.

It's a public safety employee pension.  I'm not sure how it is weird since I don't have any experience with any other kind.  But yeah, I get around $9100 a month for the rest of my life if I leave at the time I have planned..  Pretty cool deal.

[ItsALongStory]

Interesting to follow along, my wife started drawing her pension at age 45 with 30 years of service working for rural county government. This particular pension fund is one of the most solidly funded ones in the nation.

One thing that was interesting with her situation is that the government allowed people to 'buy' 5 years of service towards their retirement. This essentially boils down to paying for 5 years' worth of pension contributions, based on current salary. It's most beneficial to do so early on in your pubsec career as you make less money. She found a smart way to go about it though, she was working with the budget office and knew there was a desire to save some money so she made the county government a proposal when she realized she didn't want to finish out the final 3 years to reach 30 year tenure.

The government ended up writing a check on her behalf for those remaining 3 years enabling them to save a boatload of money as they would replace her with someone who was making a lot less. She gets an annual 3% COLA, free healthcare premiums for life and stepped away at 45 with 70 or 75% of her top 3 years. She currently has a higher pension than she ever made during her working years.

Perhaps you can make a similar offer where you can bounce early without impacting your projected retirement.

[MrMike]

OP, if it hasn't been mentioned yet don't forget to factor in the Windfall Elimination Provision (WEP) if you didn't pay into SS in your public job but had other jobs where you did pay SS.

We do pay into SS.  There has been some debate on it and we are able to opt out as an agency if it passes a vote but I've been paying the whole time I have been employed here.