Today we have an update from Adam and Jane. They wrote us about two and a half year ago and detailed their early retirement plan. They wanted to work 5 more years so they can collect their full pension. Their jobs were very stressful and they really wanted to quit, but they planned to stick it out until 2019. Let’s see how Adam and Jane are doing now.
Three More Years of Work for Adam
About a week ago, we were thinking about giving you an update because Jane was forced into retirement. We would love to do an update since there are new decisions that we have to make. Here is a summary of what occurred since our posting in January 2014. It has been a long 2.5 years since our story was posted. We listened to many of the RB40 readers to try to stay until 55 to double our pension and to receive medical benefits.
Jane is 51 and I will be 52 in a couple of months. Although we wanted to quit in 2014, we did not retire as recommended by 50% of the readers that gave us feedback. Medical coverage is very expensive and a huge sticking point. Getting any money from the company for health care will be a big financial help. We continued to save 85% of our income. We still hate our IT jobs but we focused on our health. Jane and I lost 15 and 23 pounds respectively by drastically reducing white starchy carbs. We now eat a lot of vegetables, fruits, and some meat. Our BMIs were 25 and now it is 22.
In April 2014, Jane had enough with stupidity at work! She wrote her resignation letter and was going to hand it in after our Hawaii vacation in May, 2014. Two weeks after we returned, Jane’s manager’s manager was unexpectedly fired and escorted out of the building! Life was immediately better for her and her peers! No more useless reports and meetings to discuss them. At the end of 2014, management announced that the entire IT department is in scope for outsourcing. At this point, there was no need to quit since we were hoping for a severance package.
In 2015, our company spent time researching the outsourcing companies and all employees were on pins and needles waiting for the sky to fall.
In 2016, around 400-500 people were laid off so far and a consulting company in India will replace us. Jane happily made it to her 30 years of service milestone but she and her entire team were recently notified. They will be let go at the end of the year before Christmas. Jane will get a severance package of 230K. She will get 8K yearly for healthcare and her yearly pension will be 50K. Her healthcare will cost 11K thru the company and out of pocket cost is 3K with no dental. She can start collecting in early 2017. If Jane (age 49) left in 2014 then her pension would be 35K starting at age 55 and she would get ZERO money for healthcare. Since Jane wanted to leave so many years ago, her severance package is a blessing!
Adam still has a job
I was told that I am safe because it is company policy to not let go both husband and wife. I am extremely disappointed to put it mildly because I also wanted a package. 5 out of 9 people on our team were let go. I am more stressed now since I am the only one to support my software. I am still on 24×7 tech support. All of my 5 team members have kids and mortgages and they need their jobs whereas I am ready to retire. I really feel bad for them but at least they will each get around a half year salary plus their prorated bonus. Many of them had 10 to 15 years of service. Severance is 2 weeks pay for every year of service and a max of one year salary. They also got a prorated bonus and an additional 2K for every year of service. The package is quite generous.
For 2015, our expenses was 45K and it was 40-42K from 2010-2014. We also budgeted 20K for healthcare. Therefore, our annual expense is projected starting at 65K with 3% yearly inflation. We projected medical expenses starting at 20K with an 8% yearly inflation.
Our passive tax free income from state muni bonds is currently 84K yearly. Some 5% bonds will be callable starting in 2 years and we will get at least 73K yearly for another 10 years. We will continue with muni to generate income even in retirement. In 2009, we first purchased a lot of 5% bonds above PAR and brought more each year until we reached FI in 2014. In 2015, we were only able to buy 4-4.25% bonds at PAR. In 2016, muni bonds for our state are around 3 to 3.5% PAR. 4-5% bonds are very expensive now but we are fortunate that we have enough to cover expenses. We will always look out for bonds if they are priced right.
Our goal is to have passive income triple to what we need because life ALWAYs throw a curve ball. This way if one or two streams of income are gone then we will be still OK. Our 3 streams of income are from municipal bonds, pensions and our 401Ks. We also have 6 years of living expenses in cash just in case. Social Security (SS) is not expected but is listed below. Too many Americans depend on SS so I hope our government will do whatever it takes to save it.
Why So Much Income?
Some may ask why do we need so much income when our yearly expense is 65K? Because it provides us with financial security! It will account for 3% inflation for expenses and 8% inflation for medical expenses. Our parents always worried about money and we hope to NEVER worry about money again. We saved all of our lives and now it time to just relax. Our pipe dream is to live in Hawaii with an ocean view and to take a 3 to 6+ months world cruise. We want to sell our house and maybe get a small condo like in Florida where there is no state taxes. We would lock the door and just travel. We don’t want to maintain a home anymore. We rather just rent a place in Hawaii and then other places so that we are not locked in one location. Plus, we may need to help our family financially and we can continue to give to our charities. Our expenses will increase in retirement. We are planning to spend 3-5K to rent. In retirement, we will transition from saving mode to spending mode. There will be no need to accumulate anymore.
Future maintenance expenses:
- Replace 18 year old car- $35K
- Replace roof- $15K
- Replace water heater -$1.5K
- Insulate attic and drywall -$10-20K?
- Replace exterior retaining wall -$6K
Here are our projected passive incomes:
*All amounts are pretax except for the tax free munis.
*Jane’s pension is 50K at age 51.
*Adam’s pension is 37K if he quits before 55. 70K if he retires at 55.
*401Ks are in fixed interest and rates changes each year. Currently, it is 4.8%. We plan to withdraw only interest depending on future interest as needed or take the Required Min Distribution (RMD) after 70.5.
We are financially conservative. We have no money in the stock market and all of our investments are fixed interest. We rather sleep at nights.
Comments by Jane and Adam on their future decisions:
- Jane was thinking of waiting 4 years to collect her pension at age 55. We estimate that her pension may increase from 50K to 73K and this higher amount needs to be validated by the pension company. I vote to collect ASAP since it will take 11 years to break even.
- I would love to quit but I will try my best to work to 55 which is 3.2 years away. If I quit then my pension would be 37K at age 55. I would not get any money for healthcare and I will need to pay out of pocket a min of 11K per year until 65 for Medicare which is 143K (11K x 13 years). If I retire at 55 then my pension would be 70K and get 8-9K for healthcare yearly. I know that can I walk out now and still be financially OK but that is a lot of money to leave on the table. I hope for a package in 2 years if eligible after the software that I support is rewritten and hosted externally. I also expect to get fired in the future in which there is no severance and I won’t make it to 55. It is possible that the company won’t allow me to reach 55 to double my pension and to get health care. I am a realist pessimist and I am prepared for the worst.
- I work at home. While I am still working, we are thinking of working remotely like in Hawaii, maybe California or Florida for a month or more to minimize my stress. This will also allow us to test a retirement location. One issue would be what if there is a mandatory unexpected meeting at the office? Book a flight or call the boss to immediately resign? Jane said to me “don’t be so dramatic to resign”. I need to focus on the prize – get to 55 to double my pension and to get health care benefits. I need to block out the noise, find and enjoy that ocean view.
Wow, Adam and Jane are set up for life. Adam could quit now and their retirement will be perfectly fine. Congratulations! Also, 3 years isn’t that long. If Adam can stick it out, their healthcare will be taken care of in retirement. I don’t see much that can go wrong in their plan. Their retirement investments are very conservative and they should be very safe. Great job Adam and Jane! You’ve made it. Great job on lowering your BMI. That’s not easy.
Do you have any advice for Adam and Jane?
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