3 Phases of FI/ER

[TwoWorlds]

So my wife and I sat down for a nice dinner for 2 and went over our plan of the future.  We view 3 phases of life that need to be planned for and saved for to make things work.  Let me run this by you and see what you think.

This is not a case study but more of a conversation about the 3 phases we are looking at.

Details:

We are both 45 years old and I have a super stressful job that I hate (but make very good money) and she has a job that she loves and will not leave until she's 60.

My job/income:  Salary 200,000+ with a 401k.  Like I said my job is very stressful and will end up hurting my health at some point in time (stress already is some).

Wife's Job:  Salary 55,000 + 401k + pension.  She wants/needs to work until 60 to get her full pension.  Loves her job!!!!

Side note:  My wife does not care at all if she continues to work and I don't but I will find a part time gig that helps the family.

Our Finances:

My 401k $325,000
Wife's 401k $145,000
House worth $600,000 with a $250,000 mortgage at 3.25%
No other debt
College for kid #1 pretty much saved for.  $115,000  (age 16)
College for kid #2  $50,000  (age 11)
Savings in investment account $150,000
Emergency Fund/House Main Fund/Other   $25,000

Here is the main focus of this topic.  We view 3 phases of life we must plan for as the following:

Phase #1  age 45-59 1/2.  We need to have enough funds to make sure we can pay all our expenses for 14 1/2 years until we can tap our retirement accounts.  As I said she will continue to work until age 60 (by her choice) that will pay 60% of our bills.  We need to have enough in savings to make up the difference.  This includes college, house payment and general bills.  This will be the hardest for us to complete.  If I get fired then it starts right away or I can work another year or two to help if I can survive this environment.

Phase #2  ages 59 1/2 - 67  My wife will retire and we can use our 401k's and her pension to pay bills.  House will be paid of when we turn 63.  Easy to cover these years including health insurance.

Phase #3 age 67 and beyond.  We will both have social security and my wife's pension that should generate $6,500+ all combined.  Don't want to run out of money with inflation but I hope we can make it on $6,500+.

Do the 3 phases of life make sense?  Wish I would have started saving at a much younger age but we didn't make 25% of the money we make now and my kid had a lot of health issues we had to get through. 

One other note.  Although we are about in the middle in monthly spending (higher then most on this board) we live in a HCOL area and that is not an option to change.  My wife will not move away from family, her job and we bought the house during the downturn and she will not sell this house.

Looking at the 3 phases ok?

[SugarMountain]

I've thought about that some, although more in terms of two phases - pre Social Security and post.  (I'm in a similar situation - highly compensated in a very stressful job, although I'm a bit older and further along in stache situation.)

Can you live on 4% of 625k + wife's salary, so about $70k gross, for the next 15 years?  If she's got a pension, I'm assuming she's also got health insurance for you and the family, which can make a big difference.

You should investigate "Roth Conversion" where you can convert a regular IRA to Roth, which you will likely need to do to get to your 401k money prior to 59 1/2. (Basically, when you quit your job you'd convert your 401k to an IRA and then do a Roth Conversion over time to conver that to a Roth IRA which you can then withdraw from with no penalties.  You do have to pay taxes on the IRA funds when you convert them, but not penalties.)

Also, I assume that the $6500 in SS + Pension is what calculators are saying you'd get in "today's dollars".  If it's in future dollars, that's really probably about half that in 20 years in today's dollars.  I would also not count on SS to keep up with inflation over the next 20+ years and don't be surprised if the eligibility ages move up again in the next 20 years.  Not sure about pensions.

You don't say what your current expenses are.  That's the real key. 

[Mustache ride]

You didn't make any mention of IRA's so I'm going to assume you don't have any. When you leave your company you can roll it over into a traditional/rollover IRA and then set up a conversion ladder to Roth IRA. This will allow you to access your money before 59 1/2.

[Dragonswan]

The 3 phases sound right but a couple of concerns.  Your stache is low and a lot of your plan depends on your wife working for another 15 years and collecting a pension.  A lot can happen in that time and your stache won't cover it if she's unable to work or loses her job.  I wouldn't quit until the mortgage was paid off and child #2's college fund is fully funded.  So another 3 years or so. 

If your job is so stressful you don't think you'd make it out alive if you stay 3 more years, can you look for something at half the pay in a less stressful environment or look for that part time job before you leave your current company to ensure income will cover all your expenses while the stache grows?  Just something to think about.

[dogboyslim]

Rule 72t allows you to access money prior to 59.5 from a traditional IRA, so long as you use substantially similar payments.  You do not "HAVE" to convert the money to Roth to get penalty free access to your IRA funds.

[oldmannickels]

Phase #1  age 45-59 1/2.  We need to have enough funds to make sure we can pay all our expenses for 14 1/2 years until we can tap our retirement accounts.  As I said she will continue to work until age 60 (by her choice) that will pay 60% of our bills.  We need to have enough in savings to make up the difference.  This includes college, house payment and general bills.  This will be the hardest for us to complete.  If I get fired then it starts right away or I can work another year or two to help if I can survive this environment.

If your expenses are really around $90k, you would need $2.2M with a 4% SWD. I think the plan relies too much on you wife's future benefits/pension and spending down your savings during a time when you might really need it.

[Bateaux]

Suck it up buttercup.   You need more savings.  Save your ass off for 3 to 5 years.  Retire at 50 ish.  Wife can work if she chooses.  Cut the spending and ditch the stressful job when your accounts allow.  You've got a high paying firehose of income.  Put it to work.

[2Birds1Stone]

Your net worth is on the lower side given your income/age, but that could be because the $200k/yr is a recent bump.

You CAN tap your 401k's before age 60, through various methods you can research here.

I would take a long hard look at your spending, relying on your wife to be healthy and willing to work another decade and a half is a big assumption.