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I'd like some feedback on this tentative plan:
-Retiring at around 52 years of age.
-Getting about 65% of pay.
Annuitizing 401K and 457 plans with equal monthly payments over my life time. The combination should give me equivelant to about 100% pre-retirement pay.
-From a well diversified portfolio of quality stocks, each year cash in 10% of the amount by which each has appreciated (leaving the laggards alone)and supplementing income to combat inflation- meanwhile reinvesting all dividends.
-At a leisurely time start drawing on Roth IRAs as further supplement of income.
-At age 62 begin receiving SS (if it's still there).
This should theoratically leave the portfolio of stocks in tact permenantly.
OK- anything wrong with this picture?
Thanks for any feedback.
Eddie
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>>>OK- anything wrong with this picture?

At age 62 begin receiving SS (if it's still there)<<<

You may want to recheck the 65% of pay calculation in regards to SSI. Many times the retirement plans for folks retiring before age 62 1/2 or 65 ETC call for a reduction of retirment payments equal to 1/2 SSI or atleast some part of SSI. This is usually due to the fact that the company paid in 1/2 of the SSI for you. This is sometimes referred to Social Security offset ( if that is helpful).

Your plan does not mention health, or life insurance. I see that as a big retirement issue for early retirement especially if there are "preexisting conditions".

If otherwise, all your other assumptions are good, go for it.

LOL...TTFN. TiggerToo
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Eddie,

I'd like some feedback on this tentative plan:
-Retiring at around 52 years of age.
-Getting about 65% of pay.
Annuitizing 401K and 457 plans with equal monthly payments over my life time. The combination should give me equivelant to about 100% pre-retirement pay.
-From a well diversified portfolio of quality stocks, each year cash in 10% of the amount by which each has appreciated (leaving the laggards alone)and supplementing income to combat inflation- meanwhile reinvesting all dividends.
-At a leisurely time start drawing on Roth IRAs as further supplement of income.
-At age 62 begin receiving SS (if it's still there).
This should theoratically leave the portfolio of stocks in tact permenantly.
OK- anything wrong with this picture?
Thanks for any feedback.


You don't have a defined benefit plan, so a Social Security offset won't apply. Your 401k and 457 plans are contributory, so you get cash instead of an annuity (unless you annuitize them voluntarily). The only drawbacks I see are 10 years of zero wages in calculating your SS benefit, becoming ineligible for SS disability payments after you've been retired for five years, and the need for medical insurance already mentioned by others. If you've run the numbers and have considered these things, then go for it. Otherwise, take a harder look.

Regards….Pixy

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>>Many times the retirement
plans for folks retiring before age 62 1/2 or 65 ETC call for a reduction of retirment payments equal
to 1/2 SSI or atleast some part of SSI.<<

OK- I guess this brings up a couple of points for me to clarify. My retirement is based on 2.25%of current pay times the number of years of service. The rule of eligibility here is that my age plus my years of service must equal 80. Then I'm adding back in the 6% mandatory retirement dues, SS payment, and some other miscellaneous deduction, to come up with my 65% of pay.
My health coverage will be an HMO provided by my employer.
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Eddie,

OK- I guess this brings up a couple of points for me to clarify. My retirement is based on 2.25%of current pay times the number of years of service. The rule of eligibility here is that my age plus my years of service must equal 80. Then I'm adding back in the 6% mandatory retirement dues, SS payment, and some other miscellaneous deduction, to come up with my 65% of pay.

O.K., I'll bite. What am I missing?? You said 401k and 457 plans. Now you're talking a formulaic payout which sounds suspiciously like a defined benefit plan, and that may indeed have a Social Security offset.

It's either too late for me to be responding to queries, or I'm getting too senile at age 29 to decipher the question anymore. Just color me puzzled.

Regards....Pixy
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Hi, middle...

Your plan sounds like a winner to me. I'm working on one almost like it, for me. I have a comment or two:

your plan for using about 10% of the stock appreciation each year amounts to something like annutizing that portion of your assets. Have you run the numbers to see what rate of annual growth that portfolio would need to accomplish, and for how long (you said permanently, but if you're planning on running out of breath and money at the same time you may not need it to last much longer than that!)? You'll need to make sure you're making realistic assumptions about whether the stock portfolio will be likely to throw off that much per year without its having to take on more risk (riskier stocks) than you're comfortable with.

Other than that, it sounds great! I hope you can make it work!
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>>>You don't have a defined benefit plan, so a Social Security offset won't
apply.<<<

Pixy:

Not neant to be critical, but how do you know that this is not a defined benefit plan?

TiggerToo
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TiggerToo,

Not neant to be critical, but how do you know that this is not a defined benefit plan?

Because a defined benefit plan is one qualified under IRS rules for certain tax benefits, and a 457 plan is not. Also, a 401k is a defined contribution plan. A 457 plan is a nonqualified plan. By definition it can't be a defined benefit plan.

Regards....Pixy
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>>your plan for using about 10% of the stock appreciation each year amounts to something like
annutizing that portion of your assets. Have you run the numbers to see what rate of annual growth
that portfolio would need to accomplish, and for how long<<

Tom,
The 10% growth is based on the annual growth of each stock. Not every stock in the portfolio will produce exactly that amount of growth- some more, some less.
The ones that may have produced 30-40% can make up for the laggards. Also, the 10% is a $amount; i.e. if KO has grown from being worth $1000 to $1100, I'll cash in $100 worth out of my DRIP account. This will apply to every stock in the portfolio that shows 10% or more growth over the previous year. Therefore, leaving the original investment intact.
I hope this has cleared things up.
Eddie
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>>a defined benefit plan is one qualified under IRS rules for certain tax benefits, and a 457
plan is not. <<

OK Pixy,
please explain what you mean by "tax benefits." All I know is that this plan DOES lower my taxable income.
And yes, I do plan to voluntarily move all the money in all the accounts in my 457 to one vendor, and annuitize it over my life time.
Thanks,
Eddie
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Eddie,

>>a defined benefit plan is one qualified under IRS rules for certain tax benefits, and a 457 plan is not. <<

OK Pixy,
please explain what you mean by "tax benefits." All I know is that this plan DOES lower my taxable income.
And yes, I do plan to voluntarily move all the money in all the accounts in my 457 to one vendor, and annuitize it over my life time.


The tax benefits are when the employer gets to take a deduction for contributions and when you get to exclude contributions and earnings from taxes. In a 457 plan, you get the exclusion for your contributions when made. The employer does NOT get a tax deduction for any contributions the firm makes until you get the money. You MUST take the money when you leave the firm, and you CANNOT roll it to an IRA to continue any tax deferral. At that time, you get taxed and the employer gets a deduction.

See my Foolish Retirement Plan Primer at http://www.fool.com/retirement for further details.

Regards…..Pixy

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