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Retirement planning - where do I stand?

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jollystomper
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Retirement planning - where do I stand?  Reply with quote  

I never thought I would be able to think about retiring, but last year hit the magic anniversary with my company that makes me eligible for a retirement pension. Now retirement is very tempting, but I need some "sanity checks" on my situation from others. I apologize if this is too long.

In a nutshell, my overall situation:

- Family: happily married (we are both 53), 3 children - 26,24, and 17. We wish the 2 older ones were more independent, they are struggling and we are balancing between helping them and not getting them dependent on us. Our major known futre expense for them will be college for the 17 year old. Middle kid has not completed college but has other issues to deal with, not sure if that expense will come back.

- Salary: $175K. I love my work, but it can be wearing to try to keep going at the same pace as my younger, career minded years. I don't really need any more promotions or raises (I am not going to turn down a raise, but that is not what motivates me). Wife works but as an adjunct professor her salary is more sporadic, and we don't count on it. Her max earnings have been around $12K.

- Ongoing savings: I am maxing out at the 22K contribution to my 401(K). I also manage to save/invest an additional 50K or so out of my salary, and save all of whatever my wife earns. After savings and taxes we are able to live comfortably living on 80K-90K a year, but if we had to we could cut back and save more. We have lived below our means for years, and are quite comfortable.

- Pension: will be $65K/year if I retire this year. It will gradually keep going up but at a slower rate. In three years it will be $70K/year.

- Current savings/investments: $650K in my 401K, $40K in IRAs for my wife (she is not covered by a retirement plan at her job), split roughly 55% stock index funds (large/small/international) and 45% stable value funds. Outside of 401Ks and IRAs another $500K in savings: 60% cash, 40% stcok/bond mutual funds and a small ($20K) "play with individual stocks" brokerage account.

- House: worth about $400K in the current housing environment, and owe about $98K on it. $800/month mortgage payment, into third year of 15 year mortgage. It is a large house and we are happy with it. We have not ruled out, depending om market conditions, downsizing in the future, particularly if we can keep our kids out of the house. We might also consider moving to a state with a lower income tax. Any other house we buy we would pay with cash.

- Cars: Three, and have not had a care payment for 3 years. They are all early 2000's models, hoping to get at least 10 years out of each, and replace by paying cash for gently used cars.

- Medical: This is the biggest unknown. Both my wife and are I are in generally good health and stay active. We do have a couple of non-serious chronic conditions that require prescriptions but they are not much. However, if I retire we get a "pot" of money which we can only use for medical premiums to continue our current insurance. From others who have used it the pot seems to last between 3-5 years, once gone we pay premiums out of our pocket. Our two younger kids are on our insurance, so including their issues our total premiums/deducible/copays have been around $10K/year. One child does have a chronic issue (bipolar) so figuring out how to handle that in the long run is on our plate.

- Debt: Just the mortgage balance. Two credit cards which we pay off fully every month. Excellent credit rating in the 750s.

- Expenses: other than taxes we don't think they are too bad, for food (only our youngest kid is currently at home) it is around $400-$500 month, utilities (electric, phone, cable sanitation) another $700 month.

- Hobbies: we have but they are not expensive. Golf, but we don't need first class facilities. Where we live there are lots of places where a round is <$20. I am also very good at finding lost golf balls <grin>. Several date nights a month for dinner/movies/dancing, reasonable gym membership ($90/month), hiking, biking, library and socializing with friends is mostly free. We'd like to take a travel vacation a quarter - it doesn't need to be exotic, we have both traveled enough in our lives already.

Sometimes I think, at this point, that I am no longer working for myself and my wife, but for our kids. If our 2 older ones were more independent, that would help. Our educational "gift" to them has been to fully pay for their undergraduate educations, with no debt on us or them. Before the recession my plan was to retire in 2013, when any future college expenses would be known, but I am not sure if that is still possible. Also, I realize that tomorrow my company could lay me off (they have been doing layoffs pretty much continually in the USA for the last 10 years, shifting work overseas), so I am not expecting to work as long as I choose. But in regards to retirement - maybe I'm there already, or closer than I think? Based on the above, please share your thoughts. Thanks!
Post Sun Jan 30, 2011 3:03 pm
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oldguy
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Looks like a NW of about $1,500,000.

If you work about 3 more yrs, you'll have added about $225,000, +/- market variation on both the investments & the real estate. It will put the youngest kid halfway thru college, and put the pension at $70k/yr. But you will have a healthcare gap between age 60 ('pot 'runs out) and 65 (medicare begins). So that's about a $50,000 to $75,000 cost to self-insure for 5 yrs (unless you believe in obamacare?).

You have a large taxable account for pre-59 1/2 expenses so you can leave the Rollover IRAs until the RMD hits at age 70 1/2 in all retirement what-if scenarios. (you'll love those RMDs, that's where I am, LOL).

If your company downsizes, you may get a 'buy-out' if it is a large Fortune 500 company and you have 20 or 30 yrs of service. (In my case we needed an age + service score of 85). The buy-out could be $100k to $200k, ie it and the pension covers 3 or 4 years for you.

A couple things - I would avoid paying cash for a house if you move, rates are at 40 or 50 yr lows, very inexpensive capital, I would lock in a 30-yr fixed rate loan and use your own cash for better things. And $300k of your $500k taxable account is cash, that's a lot of money to leave sitting idle. You may be more risk averse than I, but I would put that money to work somewhere. Eg, short bond funds or GNMA bonds usually return 5% to 7% and outpace mortgage costs. (I have mortgages on rentals that I have no plans to prepay.) As for 'kid costs' - we have one near age 40 that still needs occasional cash infusions, LOL - so don't count on it stopping upon college graduation.
Post Sun Jan 30, 2011 6:10 pm
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coaster
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It sounds to me like you'd prefer to continue working. You say you love your work; the only caveat being that you feel pressured to keep up with younger employees. Well, let me suggest the following:

You're financially able to retire now; therefore you can do so at any time without serious financial consequences. So....there is now no pressure, financially speaking, that you need to continue working. Any pressure you feel now is strictly self-induced.

Solution: continue working, but work at your own pace, at a pace you feel comfortable with. Don't feel like you're in a competition to produce. If your employer values your institutional wisdom and knowledge, then your employer will accept the production you can deliver, knowing that you are valuable for more than mere production. If they don't understand that, then you'll be given reason to retire; either voluntary or not. But if you want to work and enjoy your work, why bring that on before its time? Allow that time to be out of your control and enjoy the time you have remaining. Continue to do your best, but do it on your terms and at your pace, and allow the retirement to happen .... when it happens.

Best wishes and good luck.
Post Sun Jan 30, 2011 6:46 pm
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jollystomper
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oldguy, thanks very much for your comments!

I guess I was looking at paying cash if we sold and moved house to avoid having to pay a mortgage and be totally debt free... but with rates this low it might make more sense since the interest cost is low.

I would likely get 6 months salary if my company downsizes me out of my job... that is severance they have been paying (2 weeks for each year of service up to 26 weeks, plus any unused vacation). I would still have my pension. If that happened I might look at using thet severance as self-insurance to help stretch that medical pot.

I do need to diverse my bonds more,at least outside of the retirement accounts they are heavy on municipal bonds (intermediate term).

I don't mind helping out my adult kids, I mind when they look at it as an entitlement rather than a gift... One come around more than the other on that. We'll see. Laughing
Post Mon Jan 31, 2011 4:26 am
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jollystomper
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coaster, thanks, you raised some considerations I hadn't thought about.

I had begun to "slow down", but part of that was due to the economy. My job at times can require close to 50% travel, but when the recession started, to save money my company made business travel a much more stricter requirement. Whereas in the past I would get called into situations and expected to be on a plane, now it is trying to get as much done with conference calls and collaboration software. Last year I only traveled 5 times, the lowest since I joined the company. So I'm working on moving my team processes to more of a "remote support/assistance/consulting" model.

I started working at home more, that helps. The "heads down" work can be easier since I can better control the interruptions. I have been doing 1 or two days a week, I may try upping to 2-3 consistently, and always working at home on Fridays - it seems easier to wind down into the weekend when I do that.

I think I just need to make more of an active effort to reduce my pace but still contribute to my company, and you have given me some ideas. Thanks!
Post Mon Jan 31, 2011 4:37 am
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oldguy
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quote:
paying cash if we sold and moved house to avoid having to pay a mortgage and be totally debt free


'Debt-free' is a great goal for younger folks who seem to forever carry revolving consumer debt (short term, high interest). And 'debt-free' keeps them from getting wrapped around the axle in a layoff (or any number of small emergencies). But, for someone with financial depth, low term, low rate debt is a useful tool, something to be leveraged for wealth building. I actually avoid 'debt-free', especially when I can get long, low capital.

quote:
at it as an entitlement rather than a gift... One come around more than the other on that.


LOL - yeah, I can relate - I know the drill. Very Happy
Post Mon Jan 31, 2011 1:39 pm
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yulianisakov
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some thoughts  Reply with quote  

Worry less about what you can't control like getting laid off from your company. It looks like you are in pretty good financial shape with good liquidity and low debt and great ongoing savings habits. It seems that your major concerns are health coverage for your children and paying for your children's education costs. Unless you really don't want to work anymore, you should consider working the next 3 years, since you are still young, and that would put you in a solid position to take care of your youngest child's education expenses without burdening yourself too much by having to tap into your retirement savings, if say you decided to stop working.

One issue is that a lot of your money is sitting around in cash - not really earning anything these days in a savings account and generally speaking you don't want to have too much lazy money. Typically, your savings account shouldn't have more than 3-6months cash reserve to cover your short-term obligations in case you did lose your job or had some pressing short-term expenses that came about such as paying for your child's wedding. Judging from the way you described your lifestyle, 300-350k is way more than you should have in that position. I would suggest investing that money as well, since you are thinking about retirement and much of your suplemental retirement income may very well be coming from your savings in the future. You should start considering some good stable dividend yielding investments for that money.

Long-term, your greatest threat will be battling inflation since you are still young, and depending on your family's longevity and the fact that you say you guys are in pretty good health, you might want to position your investments so that you are at least outpacing wear and tear due to inflation.
Post Tue Feb 01, 2011 6:02 pm
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jollystomper
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yulianisakov, thanks for you comments! I'm deliberately high on the cash side at the moment as I am investigating higher yielding but stable options. Most of it is in the best yielding savings vehicles I can find (like ING Direct and credit unions). I'll likely start moving some into those options soon, but will likely still stay somewhat high on the cash side with college coming up just around the corner. I tend to have a moderate/conservative approach to risk, I know I could be more aggressive but I l also like to sleep peacefully at night. Smile
Post Sat Feb 05, 2011 10:33 pm
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coaster
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High-yielding Blue-Chip stocks are an excellent source of conservative dividend income, especially when you buy such stocks when their price is depressed. KMB, for example, is quoted a current dividend yield of 4.3%, which is damn good, but if your cost basis was $45, then your yield would be 6.2%. It's nice to see those dividends roll in, and you're just sitting there whistling a happy little tune, needing to do nothing else but sit.
Post Sun Feb 06, 2011 6:34 pm
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MrPolarZero
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Well, I think, with all the figures that you have listed, you will probably be able to go through retirement. But you should probably max out your work period in order to get more.
Post Mon Feb 07, 2011 5:36 am
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yulianisakov
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quote:
Originally posted by coaster
High-yielding Blue-Chip stocks are an excellent source of conservative dividend income


Consider companies like AT&T with a current dividend yield of 6.2%, Intel - 3.6%, Merk - 4.3%, Vodafone - 7%. If you are looking to diversify some of these positions, consider SPDR S&P Divident (SDY) exchange-traded fund. It holds the 50 top-payng U.S. stocks with 25 years of dividend hikes.

Consider stable dividend paying sectors also such as telecommunications and utilities.

These are some ideas to get you started.
Post Tue Feb 08, 2011 6:24 pm
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yulianisakov
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quote:
Originally posted by jollystomper
I tend to have a moderate/conservative approach to risk, I know I could be more aggressive but I l also like to sleep peacefully at night. Smile


No need to be aggressive. There are many strong, stable, and quality companies all throughout the S&P 1500 that according to our valuations are undervalued at the moment and present great opportunities for investors. We expect many of these blue-chips to return to fair value soon. Regardless, they are good investments for today and tomorrow.

Just to reiterate, the SPDR S&P Dividend ETF, Utilities Select Sector SPDR, and iShares S&P GLOBAL Telecom ETF would be great investments for you. You should also consider a bond ETF for diversification purposes.

All of the above picks are very conservative.
Post Tue Feb 08, 2011 6:39 pm
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jollystomper
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quote:
Originally posted by MrPolarZero
Well, I think, with all the figures that you have listed, you will probably be able to go through retirement. But you should probably max out your work period in order to get more.


Thanks! If things were totally up to me I would love to work for a few more years, just slowing my pace down but still helping my company. However, I don't want to take for granted that I can do that, I have many friends who were forced into retirement and are struggling. As was suggested earlier I'm moving my focus away from those things I can't control and more to the things I can (like saving and investing).
Post Thu Feb 10, 2011 8:33 pm
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daniel2007
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Need advice on savings  Reply with quote  

Hi,

I needed advice on where to put my money better.

I have 70k in my 401k but I dont work for the company anymore. The money is sitting in a preservation trust fund.

I have 107k in the bank (CD's, savings, checking).

I have 5k in a Vanguard IRA.

I am unemployed for a year now taking care of 2 kids (13 and Cool. My wife works. We dont have debts, credit cards etc., and renting. We are thinking of buying an old house were we can payoff in 15 years. I am 52 and still able to work.

Thanks.
Post Tue Feb 22, 2011 11:14 pm
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yulianisakov
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Well it's hard to tell what your looking to earmark your money for. If you are looking to build a stable retirement nest egg for yourself, then you should consider asking yourself what you want out of your retirement and what would be the best ways to save and allocate your funds to get you there. If you are just looking to put some money into the market and get a decent return, then we can help you here with that also.

The first mistake i see is that you have a substantial amount of money sitting in cash and cash-like investments that are not yielding you anything in this market. You might want to take that money and invest it into the market primarily looking at conservative and good yielding investments. There are a number of trends you can take advantage of now such as investing in real estate through REITs, they are showing great growth and great yields. You should look at certain commodities that are still affordable to get into such as in energy and agriculture. Also, there are a number of very good yielding opportunities overseas with some emerging markets such as Turkey and Signapore among others (at least those that are not experiencing political upheavel these days). Also, there are opportunities in the U.S. with small-caps, they are doing quite well and providing substantial growth relative to large-caps. However, there are decent growth and dividend prospects in the S&P as well.

There are many ways to position your money better. I suggest talking with a financial advisor and having him/her guide you if you want to be more active in taking advantage of market opportunities. If you decide you want to take a more passive approach or a buy and hold strategy, you can put your money into some well known stock market indices, such as the S&P, that will let you ride the market and still be conservative at the same time. Just make sure you diversify your positions across several asset classes such as bonds.

Regardless of your direction, you are making a mistake by keeping your money in cash right now.
Post Wed Feb 23, 2011 1:11 am
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