How to know when you can retire?

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bg5
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How to know when you can retire?

Post by bg5 »

So this is probably the dumbest question out there :) But how do I know when I can retire? I would like to retire by 55 at the latest and i am eligible to retire at 49 if I choose to. Do most people suggest saving 30 times annual expenses if you are planning on taking social security at age 62? How much expenses do I need to have saved for my money not to run out. With 2 pensions and SS I feel like we already have a nice chunk of money saved and we have a pretty high savings rate as we save about $50,000 annually which still allows us to take 2-3 nice vacations a year with the family. We live in a LCOL area.

Ages I am 41 and my wife is 37 and combined income is around $155,000.

3 kids ages 13,10 and 2. We have about 30K in a 529 and plan to leave that to our youngest so his college will be mostly taken care of. We will cash flow the other two

Only debt is $155,000 on a mortage at 1.99%. This will be paid off when I am 54.

Retirement accounts (403B, 457B, Roth IRA) = $500,000.

Both my wife and I are teachers and both will get pensions with COLA and these pensions will be our highest 3 years of service with 100% survivorship. Our pensions also allow us to collect SS. These pensions will be about 45% of highest 3 years of service. In todays dollars if I was eligible to retire right now I would bring in about $42,000 annually. I can collect pension in 9 years and my wife can collect hers in 16 years.

We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
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martincmartin
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Re: How to know when you can retire?

Post by martincmartin »

bg5 wrote: Wed Jan 19, 2022 4:37 pm So this is probably the dumbest question out there :) But how do I know when I can retire?
Actually, this is the central question of the field. So it's actually a smart question, the key question.
planning on taking social security at age 62?
If you do this, you'll need to save more money, and therefore retire later.

Basically, your choices are:

- Take SS at 62, and get small $$ from social security until you die; your savings need to top up the rest.
- Or, retire at 70, and get big $$ from social security. Your savings need to handle all your expenses for the 8 years from 62 to 70; but then a lot less from 70+.

If you plug in the average life expectancy for someone who has already lived to 62, you'll see that social security pays out more in total if you hold off to age 70, then if you collect at age 62. And since the total amount of savings = total spending - social security, that means you need less savings if you hold off collecting SS until age 70.
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Kenkat
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Re: How to know when you can retire?

Post by Kenkat »

There’s a lot of moving parts here and you are a ways out still, but overall you look to be on a good path.

Assuming that when you retire, your wife will still work until she reaches retirement age, you will not need to draw anything from your investments until you are both retired. Then you need to bridge about a $20k per year gap until social security kicks in. You’ve probably got enough saved already at $500k to cover that. Given that you have another 10 years to keep saving, plus the growth over those 10 years, you seem to be in great shape overall.

Keep doing what you are doing and check progress as you approach that age 50 mark. It will be here before you know it! :D
Last edited by Kenkat on Wed Jan 19, 2022 8:12 pm, edited 1 time in total.
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willthrill81
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Re: How to know when you can retire?

Post by willthrill81 »

bg5 wrote: Wed Jan 19, 2022 4:37 pm We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
Pretty much, yes. You'll need to fund any gap between when you retire and when your SS benefits begin, but at no more than about $18k annually, you should be in great shape to do that.''

Is the COLA on your pensions linked to inflation?
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SafeBonds
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Re: How to know when you can retire?

Post by SafeBonds »

30x yearly expenses and you are good to go.

25x yearly expenses is the standard advice but valuations are high and bond yields are low, so the failure rate would be higher than the 5% that this plan originally had. A greater than 5% failure rate is unacceptable when the consequences are as dire as running out of money in retirement.

20x yearly expenses, on the other hand, I believe is sufficient so long as you have a Plan B that you are capable and willing to execute if your investments drop soon after you retire. For retirees with large portfolios and large expenses, their Plan B would be to reduce expenses, perhaps sell a vacation home and reduce international vacations from 4x per year to every other year. Or to decide not to fund a grandchild's college fund. For retirees with smaller portfolios and low expenses, they cannot meaningfully reduce expenses because so much of their expense is needs not wants. So for these people their Plan B would be returning to work or somehow gaining some income. If you are a "lean FIRE" person who tries to retire on less than a million dollars, even a part time job earing $1,000 a month could be enough of a Plan B. Perhaps driving Uber or Lyft. But even better if you think you can make more than that by returning to work after a gap in employment at a time when the stock market crashed which probably is a recession.
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willthrill81
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Re: How to know when you can retire?

Post by willthrill81 »

SafeBonds wrote: Wed Jan 19, 2022 6:38 pm 30x yearly expenses and you are good to go.

25x yearly expenses is the standard advice but valuations are high and bond yields are low, so the failure rate would be higher than the 5% that this plan originally had. A greater than 5% failure rate is unacceptable when the consequences are as dire as running out of money in retirement.

20x yearly expenses, on the other hand, I believe is sufficient so long as you have a Plan B that you are capable and willing to execute if your investments drop soon after you retire. For retirees with large portfolios and large expenses, their Plan B would be to reduce expenses, perhaps sell a vacation home and reduce international vacations from 4x per year to every other year. Or to decide not to fund a grandchild's college fund. For retirees with smaller portfolios and low expenses, they cannot meaningfully reduce expenses because so much of their expense is needs not wants. So for these people their Plan B would be returning to work or somehow gaining some income. If you are a "lean FIRE" person who tries to retire on less than a million dollars, even a part time job earing $1,000 a month could be enough of a Plan B. Perhaps driving Uber or Lyft. But even better if you think you can make more than that by returning to work after a gap in employment at a time when the stock market crashed which probably is a recession.
Little of this is applicable to the OP, whose expenses will eventually be fully funded by pensions and SS benefits.
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bg5
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Re: How to know when you can retire?

Post by bg5 »

willthrill81 wrote: Wed Jan 19, 2022 6:34 pm
bg5 wrote: Wed Jan 19, 2022 4:37 pm We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
Pretty much, yes. You'll need to fund any gap between when you retire and when your SS benefits begin, but at no more than about $18k annually, you should be in great shape to do that.''

Is the COLA on your pensions linked to inflation?

I dont have an exact answer to this but I know that a few of my retired friends get about an extra $1200-$1500 annually the past few years. I think its supposed to be somewhat of a inflation protection but likely will not cover full inflation
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Re: How to know when you can retire?

Post by willthrill81 »

bg5 wrote: Wed Jan 19, 2022 6:55 pm
willthrill81 wrote: Wed Jan 19, 2022 6:34 pm
bg5 wrote: Wed Jan 19, 2022 4:37 pm We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
Pretty much, yes. You'll need to fund any gap between when you retire and when your SS benefits begin, but at no more than about $18k annually, you should be in great shape to do that.''

Is the COLA on your pensions linked to inflation?
I dont have an exact answer to this but I know that a few of my retired friends get about an extra $1200-$1500 annually the past few years. I think its supposed to be somewhat of a inflation protection but likely will not cover full inflation
That's something you need to look into. At a minimum, ask your friends how much of a COLA they got last year when inflation was much higher than it's been in many years.
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Re: How to know when you can retire?

Post by BernardShakey »

bg5 wrote: Wed Jan 19, 2022 4:37 pm So this is probably the dumbest question out there :) But how do I know when I can retire? I would like to retire by 55 at the latest and i am eligible to retire at 49 if I choose to. Do most people suggest saving 30 times annual expenses if you are planning on taking social security at age 62? How much expenses do I need to have saved for my money not to run out. With 2 pensions and SS I feel like we already have a nice chunk of money saved and we have a pretty high savings rate as we save about $50,000 annually which still allows us to take 2-3 nice vacations a year with the family. We live in a LCOL area.

Ages I am 41 and my wife is 37 and combined income is around $155,000.

3 kids ages 13,10 and 2. We have about 30K in a 529 and plan to leave that to our youngest so his college will be mostly taken care of. We will cash flow the other two

Only debt is $155,000 on a mortage at 1.99%. This will be paid off when I am 54.

Retirement accounts (403B, 457B, Roth IRA) = $500,000.

Both my wife and I are teachers and both will get pensions with COLA and these pensions will be our highest 3 years of service with 100% survivorship. Our pensions also allow us to collect SS. These pensions will be about 45% of highest 3 years of service. In todays dollars if I was eligible to retire right now I would bring in about $42,000 annually. I can collect pension in 9 years and my wife can collect hers in 16 years.

We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
A lot can happen in 15 years, especially with pensions, but so far you are in great shape. Keep doing what you're doing, save aggressively for child #3's college and you should be good to go at 55 or when that last one heads off to college. And seriously think about delaying SS to 70.
An important key to investing is having a well-calibrated sense of your future regret.
heyyou
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Re: How to know when you can retire?

Post by heyyou »

An imprecise view of your current spending amount is: gross income, minus your savings, which are easy to see on your end-of-year financial statements. Taxes are just another expense and would be less on smaller incomes, but for rough estimates, maybe future taxes will be higher, so use today's tax amounts as a future estimate. Your pension incomes would be deducted from your hopeful retirement income amount when calculating how much more you need in future retirement income from your savings.

Planning to be adaptable is very important. The most obvious retirement failures were when theoretical retirees kept spending higher and higher inflation adjusted amounts which became more than what their savings would support in the long run. Moving from a high cost area to a low cost area is good, but you are not likely to move too far from your future grand kids.

Annually fund his and hers IRAs now, and max your 401k. Direct your pay raises into savings. Note how saving more now, is forcing you two to live on less, which long term, helps you to continue to live on similar reduced income, in early retirement.
futurenoodle
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Re: How to know when you can retire?

Post by futurenoodle »

bg5 wrote: Wed Jan 19, 2022 4:37 pm So this is probably the dumbest question out there :) But how do I know when I can retire? I would like to retire by 55 at the latest and i am eligible to retire at 49 if I choose to. Do most people suggest saving 30 times annual expenses if you are planning on taking social security at age 62? How much expenses do I need to have saved for my money not to run out. With 2 pensions and SS I feel like we already have a nice chunk of money saved and we have a pretty high savings rate as we save about $50,000 annually which still allows us to take 2-3 nice vacations a year with the family. We live in a LCOL area.

Ages I am 41 and my wife is 37 and combined income is around $155,000.

3 kids ages 13,10 and 2. We have about 30K in a 529 and plan to leave that to our youngest so his college will be mostly taken care of. We will cash flow the other two

Only debt is $155,000 on a mortage at 1.99%. This will be paid off when I am 54.

Retirement accounts (403B, 457B, Roth IRA) = $500,000.

Both my wife and I are teachers and both will get pensions with COLA and these pensions will be our highest 3 years of service with 100% survivorship. Our pensions also allow us to collect SS. These pensions will be about 45% of highest 3 years of service. In todays dollars if I was eligible to retire right now I would bring in about $42,000 annually. I can collect pension in 9 years and my wife can collect hers in 16 years.

We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
Have you considered how your health insurance costs will differ before you can qualify for Medicare? The gap from retirement-65 (in your case 10 years since you plan to retire at 55) can be costly if your state does not offer a good plan for health insurance. In my state, teachers can retire at 55 and receive a percentage of their income (as you mentioned) in a pension, but they are completely ineligible from drawing SS and have very high costs of health insurance in those "in-between" years from retirement to 65. It's one of the ways the state pressures them to continue working longer.
carolinaman
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Re: How to know when you can retire?

Post by carolinaman »

The COLA question is extremely important. You could live another 30 to 40 years after retirement easily. Without COLAs, the purchase power of your pension in 20 years could easily be less than half of what it is at retirement.

I suggest talking to whomever administers the pension. It could be someone in your local HR or it maybe someone at the state. From what you said, it sounds like retirees have been given one time bonuses instead of pension increases. This is a common practice among pensions without a COLA (I belong to one in NC).
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bg5
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Re: How to know when you can retire?

Post by bg5 »

So I did some digging online and found out that the COLA is 3% a year but it is based on your initial pension amount and it does not compound. The information below is directly off the website.


As a member investment plan (MIP) retiree, after you're retired a full year, you'll receive a fixed 3% increase in your monthly pension each October. For example, if your retirement effective date is Dec. 1, 2017, your first increase will be in October 2019.

Your post-retirement increase doesn't compound, but it does accumulate. So, if your first post-retirement increase is $36 per month, every October you can expect to get $36 more per month than you did the previous year.

Example of Post-Retirement Increase (MIP)
Molly retired on Dec. 1, 2017, with a monthly pension payment of $1,200. Beginning October 2019 (the first October after she's been retired a full year) she'll begin receiving an additional 3% of her initial pension, or $36 a month.
The first October, Molly will receive $1,236 ($1,200 + $36).
The next October, Molly will receive $1,272 ($1,200 + $36 + $36).
The third October, Molly will receive $1,308 ($1,200 + $36 + $36 + 36).


The increase is based on your initial pension amount after applying any early reduced or survivor option reduction. If you choose one of the equated options, the advance portion of your pension is not included when the 3% is calculated.
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Re: How to know when you can retire?

Post by A440 »

bg5 wrote: Wed Jan 19, 2022 4:37 pm So this is probably the dumbest question out there :) But how do I know when I can retire? I would like to retire by 55 at the latest and i am eligible to retire at 49 if I choose to. Do most people suggest saving 30 times annual expenses if you are planning on taking social security at age 62? How much expenses do I need to have saved for my money not to run out. With 2 pensions and SS I feel like we already have a nice chunk of money saved and we have a pretty high savings rate as we save about $50,000 annually which still allows us to take 2-3 nice vacations a year with the family. We live in a LCOL area.

Ages I am 41 and my wife is 37 and combined income is around $155,000.

3 kids ages 13,10 and 2. We have about 30K in a 529 and plan to leave that to our youngest so his college will be mostly taken care of. We will cash flow the other two

Only debt is $155,000 on a mortage at 1.99%. This will be paid off when I am 54.

Retirement accounts (403B, 457B, Roth IRA) = $500,000.

Both my wife and I are teachers and both will get pensions with COLA and these pensions will be our highest 3 years of service with 100% survivorship. Our pensions also allow us to collect SS. These pensions will be about 45% of highest 3 years of service. In todays dollars if I was eligible to retire right now I would bring in about $42,000 annually. I can collect pension in 9 years and my wife can collect hers in 16 years.

We estimate to live a great life in retirement we need about 100K a year but our pensions will cover about 82% of that and when SS kicks in then it will totally cover it. So is it safe to say that I should retire as soon as I can collect my pension as long as we have no debt and have our kids college covered?
This is my plan with one teacher pension no COLA and spouse not working. Retire at age 55. Expenses average around $80 including investments that could be curtailed if needed.
-Subsidized healthcare for myself and my family until Medicare at age 65.
-Pension (~46k) + side hustle and withdrawals from taxable and penalty-free 403b(7) from age 55 to 59 1/2 (if needed).
-0% capital gains tax from taxable using available tax space for married joint return. Maybe using some of this to pay for Roth IRA conversions if it isn't needed for income.
-4% from Traditional IRA and Roth (if needed) at 59 1/2 until FRA SS.
-No debt and in-state college for two children, fully funded by 529 plans.
I'm a year away from putting the plan into action. :sharebeer
I don't know what the future holds, but I know who holds my future.
vtsnowdin
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Re: How to know when you can retire?

Post by vtsnowdin »

willthrill81 wrote: Wed Jan 19, 2022 6:34 pm

Is the COLA on your pensions linked to inflation?
What else could it be linked to? :happy
OK that was a bit snarky but COLA does stand for Cost Of Living Adjustment.
I just started receiving a 5.9% increase in my monthly SS deposit. I expect a bigger one next year based on current inflation figures.
Besides all the very good advice above you may come to a time or day when you hate to open the car door to begin another days grind and that is the day you need to retire or change jobs.
One of my daughters was a high school teacher for ten years and came to that moment after going though a lockdown with a deranged student roaming the halls with a baseball bat trying to bash the head of a principle.
She works for the USPS now. :)
It sounds like you are on a good path but I would not think of retiring before the youngest was off to college unless the job became untenable.
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Re: How to know when you can retire?

Post by willthrill81 »

vtsnowdin wrote: Thu Jan 20, 2022 12:29 pm
willthrill81 wrote: Wed Jan 19, 2022 6:34 pm Is the COLA on your pensions linked to inflation?
What else could it be linked to? :happy
OK that was a bit snarky but COLA does stand for Cost Of Living Adjustment.
Many pensions and annuities have fixed COLAs (e.g., 2%, 3%) that are not linked to inflation. Annuities linked to CPI are no longer available.

The OP has since confirmed that the COLA is indeed a fixed 3% that does not compound.
vtsnowdin wrote: Thu Jan 20, 2022 12:29 pm I just started receiving a 5.9% increase in my monthly SS deposit. I expect a bigger one next year based on current inflation figures.
SS benefits are indeed indexed to inflation, but they are very uncommon in that regard. Virtually no pensions are anymore, if they ever were.
Last edited by willthrill81 on Thu Jan 20, 2022 1:02 pm, edited 1 time in total.
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Re: How to know when you can retire?

Post by willthrill81 »

bg5 wrote: Thu Jan 20, 2022 7:10 am So I did some digging online and found out that the COLA is 3% a year but it is based on your initial pension amount and it does not compound. The information below is directly off the website.
Interesting. I've not heard of a non-compounding fixed COLA on a pension or annuity. The lack of compounding is unfortunate, but as long as inflation averages no more than about 2%, your payouts should still maintain their buying power well.
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vtsnowdin
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Re: How to know when you can retire?

Post by vtsnowdin »

willthrill81 wrote: Thu Jan 20, 2022 12:55 pm
vtsnowdin wrote: Thu Jan 20, 2022 12:29 pm
willthrill81 wrote: Wed Jan 19, 2022 6:34 pm Is the COLA on your pensions linked to inflation?
What else could it be linked to? :happy
OK that was a bit snarky but COLA does stand for Cost Of Living Adjustment.
Many pensions and annuities have fixed COLAs (e.g., 2%, 3%) that are not linked to inflation. Annuities linked to CPI are no longer available.

The OP has since confirmed that the COLA is indeed a fixed 3% that does not compound.
OK but the managers have just assumed a 3% inflation figure to make their calculations and planing simple. It still is a cost of living adjustment but perhaps should be renamed.
jharkin
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Re: How to know when you can retire?

Post by jharkin »

Rules of thumb and swags are one thing but this is the kind of question that retirement plan modelling tools where made for. Start with something like FireCALC, plug all your info including current portfolio, savings rate, pension and SS estimates and projected expenses and it will give you a ballpark idea how soon you can retire.

Cheers....
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Re: How to know when you can retire?

Post by Jack FFR1846 »

I can give you an answer as a simple math equation.

N = amount of $ you will need annually in retirement
AN = actual need, as in what you need after taking account of your incomes mentioned here.
P1 = your pension
P2 = her pension
SS1 = your social security when you retire
SS2 = her social security when she retires

Before SS kicks in.

AN=N-P1-P2 So this is the annual income you'll need. Multiply this by 30. Do you have that saved? If yes, you're fine.

AN2 = need once you are both ready to take SS

AN2=AN1-SS1-SS2

I suspect AN2 is going to be negative for you, meaning you have more than you need forever. Time to look into European delivery for a new Porsche. I suggest taking delivery at Leipzig. They let you drive the same model you're buying out on the track.
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