Thanks for the update!
For my two cents, most likely you'll see your "purchasing power" decrease over the rest of your life...
Although I would flag that if your income and expenses are what you say they are, I'm still a bit shocked at how little savings you have... Unless this is very recent, and thus you just haven't had enough time to save much, seems like your expenses might be higher than your estimates. Or maybe you just aren't counting "lumpy" expenses like your new cars, toys, etc. - as it seems you have a history of spending whatever money is available...
If I'm following, let's say you die in 1 year (let's hope not!) after having paid off your house and done your upgrades... Your spouse would get:
In other words, I think you need to "stress test" what happens if/when you die, validate if your spouse and kids will have the kind of life you want for them. My quick math above seems like it might work fine - but with too many assumptions for my tastes...
And it's not clear if that's better - or worse - depending on "when" you die. Again, at some point your remaining pension contribution will be $0. How long is your term life insurance go? And is the $500,000 inflation adjusted - or it potentially has far less purchasing power in the future. Does her $2k pension get a COLA, or does it to have far less purchasing power in the future?
Lastly, given that she'd sell and downsize, as others shared - the upgrades to your house likely have a negative return on investment. Again, if you died a year from now, your spouse would be out the money and likely not recoup any of it from the sale. They'd have basically nothing to show for it.
Or whatif she can't downsize - at least initially... Neighbor unexpectedly passed away leaving wife and two teenage kids at home. House was too big and too costly for her, but she didn't want to uproot the kids - and couldn't really downsize until they eventually moved out. When the last kid moved out, she had the house listed and sold - but it took years longer than she wanted (at least financially). But they had the liquid assets to give her that flexibility.
Again - while you are alive - seems like you can afford to spend - more or less - whatever you want. So if you want to continue to spend the money that's available to you (as you've done your entire life), you don't need my permission to do so!![:beer]( "beer")
But for me personally, I wouldn't be comfortable with as many assumptions required for my spouse and children to be OK... And while we will get pensions, and we expect pensions + social security will cover our expenses from age 70+, we don't want to be solely dependent on them - and the assumptions they'll keep up with inflation. But then again, we've made "savings" a much bigger priority in our household - I just can't get my head wrapped around being "OK" with less than $25k in savings for potentially 40+ years...
But I'm not sure what I'd do if I was you... Again probably "stress test" scenarios to understand how your wife and kids would fair... And if/as needed, either save more or maybe add more life insurance as appropriate (given the majority of your current retirement plan is contingent on you being alive and collecting your pension)...
How's your spouse feel about the situation? What's their take on what you should do with the "extra income"?
Candidly, this was my assumption - as I'd assume it's unusual for someone to be retired early with so little savings. Only thing I could figure is you had a history of spending whatever money you had. Which begs the question of how you'll adapt to being on a "fixed income"...9. Just a note about our lack of savings. I was never financially savy and spent my money I made on toys and giving.
To call it out, your COLA isn't "extra money"... It's name is Cost of Living Adjustment, and in theory it helps offset the "extra cost" of inflation. Assuming one of you lives until 95, you have nearly 43 years of inflation... How confident do you feel that the Fed will get inflation under control and hit their "target" of 2% inflation?7. At 59 my pension income alone will be $9114 with the COLA’s. If our expenses remain relatively flat ...
8. At 67 my pension will be ~$10,679 per month + my social security $3775 plus my wife’s social security of $1887 so ~$16,341 per month.
For my two cents, most likely you'll see your "purchasing power" decrease over the rest of your life...
The "good news" is while you are alive you have a very healthy buffer between expenses and income. If you live a long life, looks like you are in a position to afford about whatever you want....
1. Our total expenses are the mortgage, which includes insurance and property tax, and about $2200 per month for everything else. For budgeting I use $3200 to account for discretionary spending($1k fun money). So total monthly expenses are $2451 + 3200 =$5651 total.
...
Although I would flag that if your income and expenses are what you say they are, I'm still a bit shocked at how little savings you have... Unless this is very recent, and thus you just haven't had enough time to save much, seems like your expenses might be higher than your estimates. Or maybe you just aren't counting "lumpy" expenses like your new cars, toys, etc. - as it seems you have a history of spending whatever money is available...
To me, this is your - or maybe more accurately your spouses - risk point.5. If I died tomorrow, my wife would get the balance of my pension contribution (currently $324k), plus $500k from my term life insurance, plus $2k per month for life from my pension. She said she would sell the house and get something smaller somewhere else so that’s another ~$700k making total cash around $1.5million. She would then be able to take my social security at full retirement age.
...
If I'm following, let's say you die in 1 year (let's hope not!) after having paid off your house and done your upgrades... Your spouse would get:
- $2,000 a month from pension (no more side gig income)
- Leaving a gap of maybe $2,500 a month to maintain current lifestyle (unclear how much of mortgage payment was tax - insurance vs. principal and interest).
- Your $24k cash buffer might end up being spent on funeral arrangements...
- Unclear how long it would take her to get $500k life insurance policy or whatever balance is left of your pension contribution (which implies at some point that will be $0).
- So she might not have enough to cover things initially - having to use credit cards/debt/etc...
- But let's say she gets $750k after a few months (with maybe $10k already spent with debt service)...
- In 14 years, she would get $3,775 a month in social security, so might be fine from then on...
- But for the next 14 years, she's short $30,000k/year - and that's assuming:
- Her $2,000 pension gets a COLA as well
- Inflation doesn't rise faster than the COLA
- She (or kids) don't have any medical, legal, or other issues that would increase expenses
- Assuming the life insurance and pension payout are invested and at least keep up with inflation - and the assumptions above hold true, they should cover the costs to bridge until social security
- Hopefully the kids either have fully funded college and/or "launch" funds - or have minimal expectations on your spouse being able to help with college, weddings, house down payments, etc.
In other words, I think you need to "stress test" what happens if/when you die, validate if your spouse and kids will have the kind of life you want for them. My quick math above seems like it might work fine - but with too many assumptions for my tastes...
And it's not clear if that's better - or worse - depending on "when" you die. Again, at some point your remaining pension contribution will be $0. How long is your term life insurance go? And is the $500,000 inflation adjusted - or it potentially has far less purchasing power in the future. Does her $2k pension get a COLA, or does it to have far less purchasing power in the future?
Lastly, given that she'd sell and downsize, as others shared - the upgrades to your house likely have a negative return on investment. Again, if you died a year from now, your spouse would be out the money and likely not recoup any of it from the sale. They'd have basically nothing to show for it.
Or whatif she can't downsize - at least initially... Neighbor unexpectedly passed away leaving wife and two teenage kids at home. House was too big and too costly for her, but she didn't want to uproot the kids - and couldn't really downsize until they eventually moved out. When the last kid moved out, she had the house listed and sold - but it took years longer than she wanted (at least financially). But they had the liquid assets to give her that flexibility.
Again - while you are alive - seems like you can afford to spend - more or less - whatever you want. So if you want to continue to spend the money that's available to you (as you've done your entire life), you don't need my permission to do so!
But for me personally, I wouldn't be comfortable with as many assumptions required for my spouse and children to be OK... And while we will get pensions, and we expect pensions + social security will cover our expenses from age 70+, we don't want to be solely dependent on them - and the assumptions they'll keep up with inflation. But then again, we've made "savings" a much bigger priority in our household - I just can't get my head wrapped around being "OK" with less than $25k in savings for potentially 40+ years...
But I'm not sure what I'd do if I was you... Again probably "stress test" scenarios to understand how your wife and kids would fair... And if/as needed, either save more or maybe add more life insurance as appropriate (given the majority of your current retirement plan is contingent on you being alive and collecting your pension)...
How's your spouse feel about the situation? What's their take on what you should do with the "extra income"?
Statistics: Posted by SnowBog — Sun Jul 21, 2024 12:54 am