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  • Please critique my retirement expenses work-around

    I am planning to either retire or significantly cut back in two to three years at age 64 or 65, and relocate to a lower cost of living area in PA from NYC metro. I want to anticipate expenses, and figure out whether I’m in the ballpark of what’s necessary to accumulate in order to carry out the plan. An actually exact reckoning of spending has so far felt like more than I’m prepared to take on, so here’s my workaround. Any comments appreciated!

    I took 2019 as the index year.
    Taxable income (after 401K contributions deducted) minus Federal and State taxes paid minus additional savings invested. This is an approximation of spending.

    Then I took away my $23,000/year of health insurance premiums, and substituted $12,000 for the two us for Medicare premiums (which is what my 80+ parents living there were recently paying), reduced property taxes from current $27,000/yr to $12,000, got rid of mortgage as will buy paid off home, eliminated life and disability insurance, eliminated help for children who will be adults by them, eliminated savings, added a premium of $27,000 for extra health related costs, travel, and a cushion.

    Then I multiplied by 0.85 as the approximate cost of living difference between the two locations. I debated whether I should have done that at a different point in the calculation, but that’s where I ended up.

    The final figure for expenses came in at just under $157,000.

    Here is the major unknown: I have to add in taxes. This is where it gets too tricky for me. After 72, it will be taxes on RMDs plus 85% of SS. Before then, I may or may not be able to survive on after tax money, depending on future events. Minimum I should be able to do a few years without tapping investments.
    There is no State tax on retirement distributions in PA.


    Without Social Security, and ignoring taxes for the moment, using 25x rule, $157K requires $3.9 million
    Assuming Social Security at 70, receiving $3750/m x 2 people, which is $7500/month = $90,000/year
    After 70, 157,000 - 90,000 from SS = $67,000/year needed to fund
    67,000/year requires nest egg of 67K x 25 = 1.675 million after age 70
    Based on that, I’m at well more than twice 25x expenses after 70, and the problem becomes getting from here to there. Which also looks doable, especially if we continue very part time remote work to avoid excessively tapping savings, and add an expected several hundred K in savings plus investment returns over the next 2-3 years.
    So the cushion here seems enough to cover taxes, even though I’ve not calculated them for now.
    Have I gone wrong somewhere? Does this look as doable as I think?













    My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

  • #2
    Looks ok to me, I didn't realize that social security could be that much for a couple. If you were further away from retirement, I might tell you not to count on that amount but being so close right now, I can't see that amount changing for you. You might consider a long term care insurance policy as well in case one of you becomes ill so that it will not wipe out the nest egg for the other one. With your savings though, it sounds like you have enough to pay for that contingency so it may not be as important.

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    • #3
      The other good news is that your marginal tax rate will probably be much lower than it is now, both due to the lower income and, probably, some of the sources of that income (Roth, LTCGs, tax-exempt bond funds, qualified dividends, etc.).

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      • #4
        Depending on your lifestyle and preferences/travel/etc and where you are living in PA the .85 conversion factor may be too high. It’s hard to say. But overall looks reasonable. You could start tracking your spending month by month for the next year or so in rough categories to get a better idea.

        You are probably already aware but wanted to make sure you knew about the PA inheritance tax.

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        • #5
          A few things:
          1. If only planning modest earned income after you retire, you can also pull SS and Medicare taxes out of the income number after retirement
          2. Does your spouse have her own SS, or did you multiply yours by 150%? I think your max at 70 likely to be ~45k. So sure $90 if she also maxed at 70. But if she is taking spousal 50% of yours, that is based on your PIA at 67 (implying your total more like $65k, not $90k).
          3. Have you tried taxcaster? Just rule of thumb I would plan to pay 15% in taxes on total earned income.
          4. Probably doesn’t matter a lot, but I’d apply the 0.85 COL differential after your first approximation.

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          • #6
            Originally posted by Anne View Post
            Depending on your lifestyle and preferences/travel/etc and where you are living in PA the .85 conversion factor may be too high. It’s hard to say. But overall looks reasonable. You could start tracking your spending month by month for the next year or so in rough categories to get a better idea.

            You are probably already aware but wanted to make sure you knew about the PA inheritance tax.
            Thanks Anne. I'm looking at an area that straddles the suburbs/exurbs of Philly where I have ties, so its not like I'm going into central PA which I agree would maybe merit less than 0.85.
            Re: inheritance tax -- Yes, PA has tax advantages, but the maxim has always been "just don't die there"!
            My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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            • #7
              Originally posted by Larry Ragman View Post
              A few things:
              1. If only planning modest earned income after you retire, you can also pull SS and Medicare taxes out of the income number after retirement
              2. Does your spouse have her own SS, or did you multiply yours by 150%? I think your max at 70 likely to be ~45k. So sure $90 if she also maxed at 70. But if she is taking spousal 50% of yours, that is based on your PIA at 67 (implying your total more like $65k, not $90k).
              3. Have you tried taxcaster? Just rule of thumb I would plan to pay 15% in taxes on total earned income.
              4. Probably doesn’t matter a lot, but I’d apply the 0.85 COL differential after your first approximation.
              1. Thanks, good point.
              2. Yes, she's a physician with her own SS
              3. No, haven't seen that. I'll check that out. And good to have a rule of thumb.
              4. Thanks, will recalculate!
              Appreciate your thoughts
              My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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              • #8
                Two methods of forecasting:
                A. Tops down/transition
                B. Bottoms Up

                You chose A. Using 2019 as your index year. I
                would take that and put it into a line item detail budget spreadsheet by category. You already have your retirement budget for A.
                Now do B. Pick a house and build your budget.
                Now do a bottoms up.
                • Housing - insurance, tax, operating, maintenance
                - Health Insurance/Cobra -Medicare(A,B,D supplement) copays.
                - Vehicles ( Insurance, operating, maintenance)
                - Food (not working can change this)
                - Travel/leisure
                ​​​​​​- Taxes
                - Cable/ phone/internet
                ​​​​​​- Other
                - Relo expenses
                Do not know if your 2019 has child related expenses (clothing, college,spending, insurance etc).
                You have retirement, relocation, and family changes.

                The goal is to find you new monthly run rates and compare to your tops down index approach.
                If they don’t match up, dig in.

                Plug your numbers into Fidelity’s and Vanguard’s Retirement planners and see what they say! If need be, spend a little for the planning tool, https://maxifiplanner.com/households

                Your health insurance gap is pretty short. Your question is just “What’s my number?” or “Do I have enough?”
                The simply answer is probably.

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                • #9
                  Originally posted by Antares View Post

                  1. Thanks, good point.
                  2. Yes, she's a physician with her own SS
                  3. No, haven't seen that. I'll check that out. And good to have a rule of thumb.
                  4. Thanks, will recalculate!
                  Appreciate your thoughts
                  I’m close to the retirement window myself, so I appreciate you laying out your approach.

                  One last point on social security to build on the fact that you and spouse both max. You might take a look at Mike Piper’s super easy SS calculator at https://opensocialsecurity.com. I ran a test case for you with both spouses’ PIA at $3000. Looks like you may max lifetime SS as a couple if one of you claims earlier, say 67, and one at 70. Of course, results will be different with real amounts and ages, but the key point is that defaulting to both claim at 70 may not be optimal.

                  Comment


                  • #10
                    You hear all of these doomsday scenarios with regards to SS......

                    - it will run out of money by the time you get there, so don’t count on it

                    - if you are a high income retiree, you will be means tested out of receiving SS.....so don’t count on it


                    To me, it seems SS is something most politicians will fall on the sword for, even for higher income retirees (since the “elderly” are a reliable voting block).

                    It seems we should all consider SS as an essential part of our retirement money. Just as the OP did, he/she included SS and then calculated how much nest egg is needed to make up the difference.

                    Bad part is SS will most likely not keep up with inflation over a retirement lifespan of 30-40 years

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                    • #11
                      Originally posted by Eye3md View Post
                      You hear all of these doomsday scenarios with regards to SS......
                      yes you hear about this but when you look under the hood you realize this doomsday scenario isn't true at all. first, it's never been means tested. Second, it's not going to run out of money but there might be a haircut. That's the current factual evidence today. Those who think it will be means tested have no evidence to back up their thinking. Those who say it will run out also have no evidence. Personally, since the evidence is that one might need to take a haircut, I usually estimate our benefit and then take 20-25% off that. Don't depend on it but don't ignore it either

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                      • #12
                        Social Security will stay. Virtually every scenario is focused on fixing the funding.
                        At this point, all ideas are on the table to resolve Social Security's funding shortfall. But the brass tacks is that a Social Security fix involves either raising additional revenue, reducing expenditures, or instituting some combination of the two.

                        It is very possible that the eligibility, cost of living or less likely reduction of benefits could occur. But the impact would extremely widespread.
                        Tweaking at most.

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                        • #13
                          "relocate to a lower cost of living area in PA from NYC metro"

                          PA has some high cost of living areas, especially in regards to school tax, probably not as high as NYC, but it can be substantial , so you need to pick your place of residence and school district appropriately at least to minimize taxes.

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                          • #14
                            Some thoughts. I am glad Larry R brought up open social security. I would put your exact numbers in there for a precise claiming strategy.
                            If changes are made to social security I expect those of us above a certain age will be grandfathered in. I think the haircut will be to the cost of living increases.
                            The real wild card is medicare premiums. These are already means tested. It will be easy to have to pay IRMAA tax especially after RMDs. Antares you need to consider this in your calculations.
                            Antares did you factor out FICA and medicare taxes when calculating your yearly expenses? It was not clear to me.
                            Since this is important I would encourage you to really look at credit card statements and bank account statements and more precisely figure out your spending. If your mortgage is paid off your spending seems high to me.
                            I think it would help you to get a better idea.
                            I track my spending closely. I think this gave me confidence to retire and helps me not to panic with market downturns. It does not mean I am leading a spartan existence. I simply know what I spend.
                            For comparison my spending in the last 12 months is 54K not including taxes. No travel due to COVID. This does include a housekeeper and lawn care company.

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                            • #15
                              Great suggestions above and sounds like you are making fairly reasonable assumptions. Also consider retirement goals, such as extra/less travel, change in charitable contributions, vehicle use (go from 2 to 1? How often will you repeat?), order of withdrawal from retirement accounts (when the time comes), etc. What will you fill your extra free time doing? Those are goals I wouldn't necessarily include in the rough budget calculation b/c they may not repeat (studies, lifetime trip, funding grandkids' 529s) and (impo) s/b considered separately.

                              Moving from f.t. to semi-retired to retired can be challenging if you want to optimize but most doctor families (at least, participants here and other physician financial sites) don't have to worry much about optimizing.
                              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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