2 Replies Latest reply on Jun 5, 2015 4:19 PM by kymahn214

    Planning for retirement early


      My husband is 52 and I am 47, I would like to work as long as i physically can, however, my husband plans to retire at 62. He has switched jobs a few times and just recently, about a year, found a job that offers a 401k, he now contributes to that. I on the other hand, have worked with the same company for about 15 years and had a 401k and now 403B, i think. My question is, what can I do or how can i prepare for this retirement in 10 years, so that we are still comfortable. We don't own a lot and are just starting to look at home buying. Any help offered would be greatly appreciated. i read a lot of threads but most sound like people who have already retired or about to retire. Also their financial status seems much greater than mine.

        • Re: Planning for retirement early

          1) Discuss with your spouse your goals. Short (within 6 mos), Medium (1-3 yrs), Long-term (5+ yrs). What's achievable? What's a "pipe dream"? What happens if you run into SERIOUS bad luck? How would you recover; e.g.; what would you give up, what could you do to earn extra income? Write them all down. Think about them (yes, argue/debate if you have to). Come to an agreement by compromising. Then remember, these may change....but it gives you a starting point for what you want to achieve.


          2) Discuss what retirement means to you. Travel? That's expensive, so you need to be realistic about how/when/where. Medical costs? Be realistic: if your family genetics are bad, work on your lifestyle discipline. Assume medical costs increase 5%/yr, because they do. What are you going to do about long-term care? Praying and hope don't pay the bills - you should at least know how much it costs in your area, even if it makes you cringe. You need to know, because ignorance isn't bliss.


          3) Do you have a budget? If not, make one. Now, not next year. Always know what your fixed costs are vs your discretionary expenses. Always assume a home needs maintenance or a rental cost will increase over time. A home can be a financial asset but it needs to be maintained and shouldn't be sentimentalized.


          4) Have you done your will and your healthcare power of attorney docs? There are free forms on the web for every state, so do them. Don't forget the POLST form, which is also state-specific. Make copies and keep them handy. Update them when necessary. If there are ANY children involved, get an estate attorney. Get referrals from the state bar association if necessary.


          5) Now you've got all the basics done. Planning can be DIY except that most people fail to "stress test" their assumptions. There are many ways to calculate a retirement budget vs income. I do it very simply. Others here have better, but more complicated formulas. I just work on current costs and amts, because it gives me an idea of where I am right now, since it's very hard to forecast 5 or 10 yrs forward:


          - What amount do you need to live on RIGHT NOW? This is the baseline amt to cover all necessities and fixed costs, along with something extra for savings (even in retirement you need some savings, just for emergencies--like a new roof or a new car) and discretionary "fun" stuff.


          - What will your healthcare cost? If you retire before Medicare age you might be unpleasantly surprised how much it could cost you to pay for healthcare insurance. Go to your state ACA website and get a quote, just so you have some idea of what those costs would be. Remember, that doesn't include dental and vision coverage!


          - Where's the income coming from? It used to be 1/3 SocSec, 1/3 pension, 1/3 savings. Now it's 1/3 SocSec and 2/3 savings, IF you have no pension or company annuity. Did you know that many companies, once you're vested, will buy an insurance annuity in lieu of a pension, that will start payments when you are 65? This is over and above, entirely separate from, your 401k.


          I have yet to be told this by any HR rep, but when I turned 55 I got three letters from past employers announcing I would receive small pension amounts at 65. I was only expecting 1 letter, so the other two were a complete surprise! Not all companies do this, and if you have a 403b they will not - you can often annuitize the 403b to generate a guaranteed income stream for (usually) a 20-yr period. If you live 38 yrs instead of 20 more, though, that may not help much when you really need it!


          - Figure out a rough retirement income amt from the above. You'll have an estimated amt from SocSec. Depending on the distribution percentage you pick - I wouldn't do more than 3%/yr for an early retirement, and preferably 2.5% is better - you can estimate how much total savings you need to generate that annual amount.


          IOW, if I need $30K/yr more to make up a sufficient annual income to handle my current costs, I need $1M in invested funds to generate $30K at a 3% distribution rate. So this tells me that right now, I either have enough $$$ if I retired right now, or if I don't, then I need to save something more. 10 yrs is not a lot of compounding. 15 is better, and 20 is better still.


          I repeat, this is NOT a hard-and-fast financial formula - just the 'quick and dirty' type. But it will get you onto the basics of planning - whether DIY or using a registered fiduciary advisor, these are questions that need to be answered to grasp your holistic financial situation.


          Like anything else, you can spend money or your time. But even if you use an advisor, you still need to spend your time to get the most out of him/her. So take out the paper and pencil, and start sitting down with your spouse on a regular basis. These days, retirement is too important to ignore doing good planning. We started planning right around your age, and now 15 yrs later, all our friends/family are envious that we started when we did. It enabled us to weather the market chaos without any trouble, because planning helps you be flexible. If you know where you are, you can adjust...if you are only guessing, your chances of guessing wrong are probably much greater than 50%.


          Good luck going forward! It's really not that hard - it's just overcoming the inertia and getting yourself into good habits, LOL.

            • Re: Planning for retirement early

              Thank for your response. I am still working on getting him to hold out a few more years beyond that 62. I knew it would be a lot of things to think about, a lot changes needed and a lot of planning. We will have to sit down and decide how we can save more money and what he's willing to give up to get to that early retirement. He actually does have a few health issues so the insurance point is something I don't think either of us really thought about. I also think I need to find out more about my 403b. My company was recently bought out by a large company that did not offer the 401K. I transferred my 401k to my 403b. Several things I will have to inquirer or have him  inquirer about from his company.