[USER]

I will have an unusual situation where I have an annuity from a settlement that will pay me $11k/month for 20 years and then go down to $3500/month until I die. Does not adjust for inflation.

Can I go ahead and retire with this arrangement?
Other specs:

– Current household income is about $12k/month
– Current household expenses are about $7k/month, including the insurance i get through work.

– House and other debt will get paid off in about 9 years and will decrease monthly expenses by about $2k.

– Married with two kids.

Youngest kid will graduate high school in 9 years. We aren’t planning for their college.

We are in our mid-30s.

– 401k is about $400k and all in SP500 index fund.

I max out contributions.

Employer contributes about 10% between their base and match.

– HSA has about $20k. I max out contributions , but also use it as needed

– The major unknown is the impact of Healthcare costs.

My insurance through work is pretty good, and having to pay for private insurance seems cost prohibitive.

– We could live off $8k of the $11k monthly annuity (assuming private health/dental/vision will cost about $1500/month) for the 20 years.

For the first 9 years, we would save about $3k/month with $1500 going into savings and $1500 being invested.

After 9 years, the house and debt would be paid off and free up about $2k/month which would all go towards investment.

So after 9 years, we would live off of $6k/month and be investing about $3500/month.

– After 20 years, when the annuity income goes down to $3500/month, the non-retirement investments should be at $960k ($1500/month for 9 years and then $3500/month for 11 years at 5% return to subtract inflation).

If we start drawing 4%, that will result in a $3200/month income for a total of about $6700/month.

We would be in our mid-50s.

– When we turn 60, we’d start drawing from our 401k. Assuming we stopped contributing now at $400k and it continued growing st an average 5% (8% – 3% inflation), then in 20 years that would have turned into about $1M.

At a 4% draw rate, that would add $3200/month income for a total of $9,900/month across all three sources.

So what do you think, does it look like we could retire now? Is there a glaring issue I’m not seeing?

The Healthcare aspect is the most difficult for me to grapple woth, but I’m assuming a $1500/month cost for the insurance, plus a $1500/month emergency fund savings for those 20 years.

[Lori]

You’re going to retire in your 30s and then not contribute to their education?

It’s almost impossible for young people to go to college if they have high earning parents as their aide is based on the parents’ income whether they help or not.

Work a few more years and help your kids get a start in life.

[Aaron]

I’d probably work and continue doing what I was doing before except put the settlement money into paying off the house.

Once the house is paid off (seems like about three years), I would retire.

Then you have a ton of buffer between income and expenses and no debt

[Al]

I wouldn’t retire in my prime working years unless I hated working

[Susan]

Healthcare costs need to be factored in. And chances are young kids may need $ support even if they don’t go to college.

It’s expensive to start out on own these days.

But I also think about what is your plans for mental wellness.

What we do every day reflects human purpose and sense of self worth.

What will be the trade off with your time when not working a 9-5?

[Ann]

Speaking to the healthcare costs only – you’ve got to account for what insurance doesn’t pay – your deductible/out of pocket max.

Since you have an HSA, you must have a HD plan, if you’re contributing to it, do all the costs are on you until you meet the ded/OOP.

Also, depending on where you are, I think you may to increase your $1500 estimate for a health, dental & vision, as the health rates, especially, will only increase as you age.

But what an amazing place to be!! Congrats!

[Jill]

This seems too tight for comfort. Is the 11k after tax? What about property, school, & city tax increases?

Homeowner and car insurance is increasing at a rapid rate and deductibles are going up.

Home maintenance (new roof, tree removal or trimming, driveway replacement) along with general updates really add up (I have owned my house for over 20 years and all of that has been needed).

School fees and needs for your children.

Vehicle maintenance and upgrades.

Vacations. If you can manage it and think you would be happy, that is fantastic.

[Megan]

I would keep working for at least two years. Pay off the house. Fully fund kids college.

Boost savings.

Then I would retire.

Also – you guys are so young, have you run the SSI calculators?

You have to work a minimum number of years to qualify, just make sure you hit your minimums.

[Dawn]

Based off of what you listed, I could. But will you be happy with that lifestyle?

[Sheila]

What about big ticket items like replacing cars or a major home improvement- a new roof etc?

Do you not like your job?

[Jill]

If you aren’t counting on college for your kids, what about cars for them or expenses to help them?

Is this not something you’ll help with at all?

[Sarah]

I’ll be honest, I didn’t read every detail. But my concern would be your expenses creeping up due to a) inflation and b) kids getting older/lifestyle creep, and then you out-spend your annuity.

Either run some detailed inflation projections, or hire a fee-only financial advisor to talk through things with.

Also, find out if the annuity payments is considered earned income or not – if not, healthcare may be quite low as it may be subsidized when purchased through the exchange.

[Gisele]

Also, you would stop contributing to SS because you would no longer have earnings!

Just something you may not have tought of.

[Angela]

I would reduce work hours for just the amount that would allow for insurance for a few yrs and invest that money for when you retire altogether or for co-pays and deductibles

[Joe]

Don’t assume on health costs. Go to the website and look it up. Most folks are pleasantly surprised and this is a large expense so you need to know

[Mitch]

Personally, I’d keep working. I’m thinking about how much you could stash by continuing to work and getting the settlement!

This is assuming you enjoy your work.

Maybe drop to party time if able/ can keep the insurance

[Kristin]

First, not knowing what the settlement is for, I’m assuming it’s taxable?

Will it be considered “earned income”?

You should check to see if you’ll qualify for subsidies through the healthcare exchange.

If the reason for the settlement was medically related, you’ll need to be extra careful about your insurance selection, as you’ll want to ensure that you are thinking ahead to potential medical problems that could result from the injury.

You’ll want to make sure your doctors and facilities of choice accept your plan and be prepared for the deductibles and co-pays to the oop max, in addition to your premiums.

Personally, if this is a new arrangement, I wouldn’t change a thing for at least a year.

I would continue to work and spend that time strategizing and throwing every possible penny into debt reduction, savings and investments as I possibly could while enjoying at least another year of insurance coverage and getting mentally adjusted to the idea of retiring.

One of the problems with retiring young is that you’ll have way too much time on your hands at a time in your life where you’ll want to be extra active.

My husband spends thousands of dollars every year on his fishing hobby.

Traveling, eating out, projects around the house… almost everything you do… will cost money.

And you’ll have about 50+ prime hours per week that were previously filled with work and commuting, to do whatever you want! Doing whatever you want isn’t cheap and you’ll have a lot of years to do it!

It also doesn’t sound like your kids have reached an age where their expenses have peaked.

If they get involved in sports, or extra-curricular clubs and activities, take advantage of travel opportunities through school, take AP or Dual Credit classes, etc, you’ll be passing out money like candy.

When they start driving, your insurance will sky-rocket. Will you be buying them cars?

Make sure you are adequately insured and that you have accumulated enough work history to qualify for Medicare someday.

It sounds like you’ve done really well for yourselves to just be in your mid-30’s.

I suspect it may be a little harder than you realize to shift gears from working so hard to accumulate to living on a fairly tight budget with so many years ahead of you.

It sounds like you’ve done a lot of calculations and projections.

I suspect you’ll be fine.

It would just be so much more comfortable to enter retirement with little or no debt and more room in the budget for saving and investing for the future.

Good luck!

[Jill]

With the excess cash, I would think about setting some money aside for your kids be it college or a house down payment.

Full disclosure, interested in FU, but have no desire to retire in the foreseeable future

[Amber]

I definitely would not retire yet. I would work for another 5 to 7 and get my kids college situated as well as pay off the house early, go on some trips and have some fun.

[Lee]

To me there is a huge emotional component. The first thing I thought of is do you have enough money to live the next 60 to 70 years without anxiety?

A lot of things can happen in that amount of time to you, your family and the economy.

Do you think you can fill that time with things you will enjoy with the budget you have given yourself.

Travel is not cheap.

Have you thought about All the expenses that you can have on top of inflation.

I know everyone is different but would you spend all your time worrying if you had enough and can you ride the risks.

The flip side is you can always go back to work.

[Elizabeth]

I would use the $11k a month to become debt free much sooner and then retire.

But, I am also one that for my own comfort level, we needed to be debt free before we retired.

I wanted to know that we could take any type of job to cover expenses if necessary.

It wasn’t necessary but that was my comfort level and I handle all of the finances so my husband was on board with whatever I suggested.

[Kaley]

I would remember that costs in every area will increase over time, so assuming you can live on the same amount per year as you do now for the next 20+ years is failing to plan for inflation and unexpected expenses.

Even once your mortgage is paid off, property taxes will continue to increase each year, as will utility costs and general cost of living.

You may also want to travel and stuff which will take extra money!

In my mid-30s, I wouldn’t quite take that jump yet- but, I would be actively planning for that leap in whatever timeframe feels right for your family, and building up other streams of income in the meantime!

[Aaron]

Does your 8k/ mo expenses include all the larger, infrequency things that will come up in life?

Replacing all the big ticket items in your house and normal maintenance?

Buying replacement cars and car maintenance?

Out of pocket healthcare expenses that go beyond what insurance will cover?

Braces, glasses…etc.

When budgeting people often forget these things because they’re not frequent.

You could certainly make that amount of money work if you retired to a lower cost of living country.

Not a lot of buffer in your current plan.

I’d considering hiring a fee only advisor to analyze things.

Personally I’d keep working for 4-5 more years, pay off your debts, increase your savings rate and then re-evaluate.

[Michelle]

Could you work for another year or 2 with that high extra monthly income and throw all of the extra at your debt to pay it off a couple years sooner?

If so, I might consider that…

then retire and live it up!

[Scott]

Main question is whether you WANT to keep working. My job is a passion for me and I have no plans to retire even when I hit FI.

Maybe this is an opportunity to start a business doing something you love.

Hire the kids to fund their Roth IRA’s.

[Author]

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