Home > Always Making a Plan

Always Making a Plan

May 12th, 2023 at 11:07 pm

So as you know, I have decided I want to retire to the place both of my kids are now living.  Exactly when has been up in the air.  Lately, I have been thinking that at 56.25, I am not so very far away from 59.5, that magic age where carefully following 72t rules will no longer be required.   So, why not try to plan my retirement date around that?  Can I make it work?  I have been crunching numbers, and I think that I can.

If I work from now until age 59.5, I calculate that my monthly CalPers pension will be $946 per month.  Of course, it won't begin until I have reached 62, so that is 2.5 years of living on savings only.   

I have a spreadsheet (I have shared it before) that calculates my tax-deferred balance as I begin taking withdrawals.  My goal is to still have money at age 100.  Of course, I have to assume some rate of return, which may prove to be inaccurate.  I use 5%, which I think is very reasonable.  But still, as there is no guarantee, I like to build in some buffer.  For example, I have built in a 3% annual COLA.  If we hit some years of very bad market returns, I can reduce it or forego it completely for a year or two, which certainly helps prolong the life of my portfolio.  When I calculate, I use the "rounddown" function, which also builds in some buffer.   So if I begin at age 59.5 with a 2k per month withdrawal, increase it at 3% annually, decrease it at age 62 by the amount of my pension (which also has an annual COLA), and project out to age 100, I still have 274k at the end.  I feel pretty safe with that.  I am not calculating in any SS benefits, even though I do expect to receive a small amount.  I intend to enroll when I reach age 65, so that I can have my Medicare premium deducted from it.

So 2k per month is not a fortune to live on, but I feel I can make it work.  And, work well enough to lead a very happy life in the same area where my kids are.  I have some time yet to investigate various costs and play around with that 2k per month budget.  

One thing that would absolutely need to happen is my car loan would need to be paid in full by age 59.5.  So, I have played around with those numbers.  If I continue paying $250 per paycheck for now, then bump it up to $268 per paycheck after I receive my Step raise in September, then bump it up to $296 per paycheck after I receive my Step raise in September 2024, I will pay the loan in full on 7/30/26,  exactly 2 weeks before I turn 59.5.  That is a very doable plan and does not represent a hardship of any kind.  So that piece of the plan is ironed out.

Now there is the small matter of a house.  I want to be realistic about how much I can save.  Things always seem to come up, like needing a crown.  However, if I take the balance I have right now and add $225 to it each and every paycheck between now and the end of July 2026, I will have over 21k.  I think that I can average more than $225 per paycheck.  In fact, I think I can easily break 30k .  However, I do not think I can have 50k saved up in only 3.25 years.  Frankly, I am not too sure that you can buy a 50k house and take a 20k mortgage.  Maybe you can?  I would think that a lender wouldn't want to bother.  Or maybe a HELOC for the 20k would be an option.  Or, I could pull 20k out of my Roth.  My Roth isn't huge, so I don't really like that idea.  And what if the ideal house ends up being 65k?  For sure I would want to look at borrowing some of that; 35k would be too much to pull from my Roth.

So it may be that if I am looking at having to carry a small mortgage, I will decide that 2k is simply not enough and I need to work a bit longer, save a bit more money, and let my pension increase a little bit more. If that is how it goes, then I will have to adjust.   However, I am going to aim for 59.5 and see if I can hit it.

5 Responses to “Always Making a Plan”

  1. Wink Says:

    Looks like a great plan! What will you do for healthcare if you do retire before going on Medicare? It is my biggest monthly expense.

  2. Lots of ideas Says:

    I don’t know where you are planning to move, but $65,000 for a house seems incredibly low to me.
    I’m sure you have done your research

    As far as financing, if the bank won’t finance such a small amount, you could reserve the cash, borrow a larger amount, then use the reserve to pay it down. You would earn interest on the reserve and because the mortgage would be in ‘future’ dollars which will most likely be worth less than ‘current’ dollars, you might save money.

    And I know it is counter intuitive, but taking a long mortgage to lower payments - the bank doesn’t care how old you are - can leverage the ‘future dollar’ strategy so it is worth playing with the numbers.

    The advantage to this is you would start with a substantial emergency fund.

    You could also think about some part time work to supplement your income.

    I retired at 58 but then worked part time for the next three years which helped stretch my money and actually helped fill my days.
    One thing I found about not working was that I had to be disciplined about not doing things like ‘going for coffee’ just because I was lonely.

    You will live near your kids, but will they want to eat out, go to festivals, bowling and you will need to/want to pay? Make sure you factor fun into your budget. Curled up on the couch is less appealing when you aren’t tired from working all day, and Tge little diversions add up fast.

    Retirement is great and I hope you can pull off your plan.

  3. rob62521 Says:

    I retired at 55. The year before I retired, I did a budget of what I projected my pension would be along with DH's, and that's what we lived on. And found it worked, so when I retired, it wasn't a hardship. Of course, I was blessed to have health insurance since that was a benefit of being a teacher in Illinois.

    One thing you might consider if you can is to start selling things you don't need or use now and sock that money away as a bucket fund for retirement, since you will be living on savings. And the less stuff you have to move, the less expense.

    I hope this works out for you!

  4. Petunia 100 Says:

    Hi Wink - I will likely buy my health insurance on the exchange. Illinois is a state which did expand Medicaid. With a taxable income of 2k per month, on the California exchange, a silver plan would cost approximately $100 per month. Playing around with the Illinois exchange website is something I still need to do.

    Lots of Ideas - thank you for the ideas. I had also thought I could put 20% down, then wait for the loan to close and make a large principal payment. Or maybe I might want to take a personal loan for the shortfall, pay a higher interest rate, but not need to pay any mortgage origination fees. And yes, for sure I may take a part-time job. Not only for the money, but also in order to meet some people in my new locale.

    Rob62521 - That is a very good idea to exchange things for dollars and have less to move. Thank you for the good wishes. Smile

  5. GoodLiving Says:

    I love the idea of this. I know that if you're looking at Illinois, there are really inexpensive houses in southeastern ILL. My spouse and I were peeking at the houses there. I didn't know much about that area and the other thing I noticed is that the houses tend to sit on the market a long time so if we ever wanted to sell, it might take a while.

    Looks like you're doing great things!

    Like I mentioned on the post that Starfishy posted, I did take a $20k mortgage on a second property that I bought about 10 years ago. I even did a 30 year mortgage to keep the payments low and then paid it off pretty quickly. I've since sold it but they will do mortgages for that. I think there might have been some kind of "penalty" maybe a little more interest or something, I don't remember. Check with your lenders for possibilities.

Leave a Reply

(Note: If you were logged in, we could automatically fill in these fields for you.)
Will not be published.

* Please spell out the number 4.  [ Why? ]

vB Code: You can use these tags: [b] [i] [u] [url] [email]