Lifestyle

Retirement Planning With Empower

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Millions of Americans aren’t ready for retirement. According to the U.S. Census Bureau, about 50% of adults ages 55 to 66 have no personal retirement savings. That’s not good. With no retirement savings, many of them will have to keep working. Even people with Social Security benefits probably will have to work or downgrade their lifestyle significantly. Social Security benefits won’t be enough to replace your income.

I’m sure you aren’t in that position. People who read personal finance blogs are much more financially savvy than the average American. We know it is crucial to save and invest for retirement. Mrs. RB40 and I saved for many years and we’re ready for retirement. However, our plan has changed a lot recently. It’s time to run the numbers again to see if our retirement will be successful.

Plan changed

I retired from my engineering career in 2012. Life has been fantastic over the last 11 years, but my income decreased tremendously. I still make money from blogging and various odd jobs so I have a little income. Fortunately, our passive income improved tremendously. Our passive income is enough to cover our cost of living now. We can save and invest most of Mrs. RB40’s income. Mrs. RB40’s income also increased quite a bit since I retired.

Previously, Mrs. RB40 thought she might retire in 2022. She took a long sabbatical and had a great time. However, she decided to go back to work afterward. Now, she plans to retire when our son goes to college in 2029. I’ll probably stop working completely around that time as well. Anyway, this should improve our retirement planning. We both should have some income until we’re 55. Our portfolio will have 6 more years to grow.

Lastly, we plan to move to California to be closer to families. We’ll do this when our son goes off to college. This way, we can establish a California residence and avoid the out-of-state fee. That’s an extra $30,000 per year. Mrs. RB40 also needs to help her parents as they get older. Anyway, living in California is more expensive than in Oregon. We’ll increase our retirement budget to $72,000 per year. I’ll also add $30,000 per year for travel. We want to travel extensively for 10 to 15 years.

So the numbers are more dynamic than I thought. Let’s plug them in and see if we’ll be okay.

Retirement planner

I’ll use the Retirement Planner from Empower (formerly Personal Capital) to run the numbers. It’s a pretty flexible tool. I have been using Empower for many years and it’s great for DIY investors. I updated all my accounts and they were able to connect without any problem. This is also useful for a quick net worth check. I log in a few times per week to see how my investments are doing.  

The Retirement Planner pulls in the numbers so I can start calculating pretty easily.

Assumptions

Income events

  • Savings. These numbers are pulled from my accounts.
  • Social Security benefits: These are the estimates from Social Security. They should have all the updated info there. I manually added these estimates to the Retirement planner.
  • Real Estate Crowdfunding: This is my estimate from our real estate crowdfunding investment. You can see how our projects are doing.
  • Dividend Income: Our dividend portfolio is doing pretty well. It paid out stable dividends during the pandemic and should continue.
  • Odd jobs: This is my income from blogging and various odd jobs. I’ll keep this up until Mrs. RB40 retires. After she retires, I’ll probably stop working as well.
  • Joe Pension Income: Surprisingly, I have a small pension from my old engineering career.  
  • Mrs. RB40 Pension Income: Mrs. RB40 should have a pretty good pension income when she turns 65. We don’t know how much, but I’m pretty sure it’ll be more than $30,000 per year.

Spending goals

  • Retirement spending: I increased our retirement spending to $72,000 per year. Currently, we spend about $50,000 per year, but this will increase after we move to California. Actually, this estimate is probably a bit low. We’ll have to see how it goes.
  • College: This is the big hammer. My estimate here is $100,000 per year. It seems a bit high, but who knows where he’ll go. If he can get into a UC, we’ll have to pay the out-of-state tuition for one year. After that it should be closer to $50,000 per year.
  • Healthcare: We’ll use the ACA marketplace after Mrs. RB40 retires. Our income will be lower so we should qualify for some subsidy. Last I checked, healthcare will cost around $6,000 per year. We’ll have to run the numbers again when we’re closer. Healthcare spending probably will increase as we get older. Hopefully, we won’t need long term care.   
  • International travel: We plan to travel extensively after Mrs. RB40 retires for about 15 years. After that, we’ll settle down somewhere.

Result

You’re in very good shape for retirement. We forecast a 96% chance your portfolio will support your goals.

Retirement planner

It looks pretty good. Even the 10th percentile case seems okay for now. The crucial years will be 2029 to 2033. RB40Jr will be in college and our spending will increase. Mrs. RB40 and I won’t have much active income after she retires. I might continue with some odd jobs if we need some extra cash. We’ll have to keep a close eye on our finance during those crucial years.

After college, our finance should stabilize for a while. Then it should improve again when we turn 65 and 67. Our Social Security benefits and pensions will kick in and things should be pretty good after that. If our investments perform well over the next 10 years, we will be increase our retirement budget and live a bit more extravagantly.  

Life keeps changing so I plan to run this every year. Actually, it’s pretty easy to crank the numbers after the initial setup. I can update the assumptions and quickly run the calculation. This is a nice tool for DIY investors.

Tax categories

The Retirement planner can also show the tax categories.

  • Education: This one will be gone by the time RB40Jr finishes college.
  • Taxable: The Retirement planner assumes we’ll use this account first.
  • Tax-deferred: Mrs. RB40 should be able to withdraw from her 401k without any penalty if she retires when she’s 55. The Retirement planner doesn’t take that into account. We’ll probably need to rerun the numbers yearly to see how it goes. From this chart, it looks like the Retirement planner assumes we’ll start withdrawing from the tax-deferred accounts when we turn 59 /12.
  • Tax-free: Our Roth IRAs are pretty small. We probably will leave them alone to let them grow. If we don’t use it up, this might be a good inheritance for RB40Jr. The income will be tax-free so it won’t impact his taxes.

Our retirement

Overall, our retirement is looking good. If we can keep our spending under control, RB40Jr could even inherit some money. Life can change pretty quickly, though. Our expenses could increase more than expected after we move to California. Also, healthcare could become a lot more expensive as we age. Inflation might improve in a few years. College could be cheaper. Who knows what life will be like in 2030? We’ll have to keep an eye on it and rerun the calculation every year. It looks good for now.

Have you tried the Retirement planner? Are you ready for retirement? Life changes so you need to be flexible and react accordingly.

Sign up for a free account at Empower to help manage your net worth and investment accounts. I log in a few days per week to check our net worth. It’s a great site for DIY investors.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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