I’ve been on my journey to financial independence for 8+ years now. It seems like a long time, but 8 years pales in comparison to the next 25+ years of working ahead of me. Recently, I’ve been thinking about how to model out the future.
I’ve been at my new job for 11 months. That’s nearly a year! One reason I was excited to take this job was the amazing benefits package offered. We have gold-plated Cadillac health insurance, a pension, and the ability to stay on the health insurance plan as a retiree if I stay until the age of 55. Health insurance is such a wild-card variable in the US right now with the Affordable Care Act up in the air and no national health care plan in the future at the moment. The pension is also difficult to turn down. How many Millennials will have pensions in their retirement? Let alone two!! Combined with my existing retirement account balances and I’m going to be doing extremely well for myself in retirement.
I attempted to model it out in OnTrajectory. I modeled it as though I wouldn’t get another raise beyond what I earn now, saving $1,000/mo into my 401k, working until age 55, and taking my pensions at age 55. This is the result I got.
OnTrajectory thinks I’ll retire with $1.25 million at age 55 and will see my net worth grow in retirement to $3.5 million when I’m 90. Obviously, there are a lot of flaws with this model. This assumes my spending won’t change at all, which means it doesn’t account for me potentially buying a house or any other major life changes.
Recently though, I’ve grown concerned that maybe my job won’t always have the cushy amazing benefits we have now. We got a benefits survey from an outside consulting firm Willis Towers Watson. Their website states they are a “leading global advisory, brokering, and solutions company that helps clients around the world turn risk into a path for growth.” A bunch of the questions on the survey asked us various scenarios on which benefits we value more, such as questions like “which do you prefer, having 5 more vacations days or a pension” and “which would you prefer, paying 20% more in health insurance premiums or having the retiree health care option”. Apparently, enough employees questioned the survey that upper management sent out an email that nothing was changing and there was no need to worry.
But I’m not sure I believe it.
Rumor has it that WTW is a firm that helps companies divest their pension liabilities. If the benefits change to more vacation days and not hiking the insurance premiums over a pension and retiree healthcare, I’m not sure how much incentive I have to stay with them. The golden handcuffs are pretty tight right now. The lure of early retirement is still pretty strong for me even after my stint at freelancing didn’t go so well. I have so many things I want to do that are limited by my 40 hours a week at work. If the golden handcuffs disappear, I might not be able to fight the appeal of early retirement until 55.
I first got started saving with the assumption I would retire at 35. That was roughly 13 years to save for retirement. Now that I’m working until 55, I have an extra 20 years of income to work with. At my current salary, that’s an extra $1.5 million that wasn’t in my original plan. Of course, my spending is also higher than I was expecting so it washes out a bit. I decided working a bit longer to be able to spend a bit more was a pretty good tradeoff. I’ve discovered I’m at my best mentally when I spend around $40,000/year, not $26,500 like I thought when I was 22. With the $250,000 I already have saved up, I’m technically already at CoastFI so I’ve loosened the reins on spending a little. But if I don’t get a solid pension and retiree healthcare, should I lighten up on the spending?
Further complicating the whole predicting the future thing (complicating in the best way possible, of course) is my relationship with my boyfriend. Things are turning serious and we’re discussing different paths to move forward. When do we want to move in together? Do we want to buy a house? What will that look like? When do we want to get engaged? What kind of wedding do we want to have? If we buy a house before we get married, how will we draw up legal papers detailing what happens to the house and money if we split up? What will our prenup look like? Do we want to have kids? How many? When do we want to have them? Will we save to pay for their college? When do we want to pay off his student loans?
Whatever the future holds for me and a potential Mr. Gwen, I can sleep soundly at night knowing I’ve got a solid cushion behind me that will lead to a low-stress life.…. at least regarding finances. If anyone’s got a spare crystal ball that lets them see the future, leave a comment below or send me a message! I like mystery just as much as the next person, but I wouldn’t mind knowing what the future holds for me!
Thanks for reading! How much do you bank on future benefits? Are you including or excluding items from your calculations? Sound off in the comments!
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I don’t bank at all on future benefits, haha. My dad worked at a company that did almost exactly what you were describing above. The whole “work to a certain age/x years with company and you will get employer-subsidized health insurance as a retiree”. and guess what? The rug was pulled out from under him, because now they will be ending the employer-subsidized health insurance in 2023 for retirees of company.
I’m planning to retire semi early at 55 as well!
To your point, It is tough to model & predict so far into the future with so many unknowns. Big purchases, life events, Kids! I’m not sure what my cost of living will be at 50 (my target retirement age), but I assume whatever I save from having my mortgage paid off will be made up in travel, leisure, and charity… I guess the best fall back plan is a secondary income that doesn’t stop at retirement.
Ooh, predicting company benefits forward is super tough. Even in the case where you think they’re quite protected, things can change.
Pensions go belly up even once in retirement. Health insurance offerings change.
My parents are somewhat dependent on a future where Amtrak’s retirement offerings persist. But, they’re increasingly at risk.
At least for Jenni and I, we’ve planned as if we need to supply health care and retirement funds entirely on our own. No SS, no pensions, no ACA.
It’ll be great if one of those things help us, but we’re avoiding being dependent on them.
Congrats on the progress with the romantic relationship 🙂 I hope it continues to work out and you two plan a bright future together.
Chris@TTL recently posted…The Scary Cost of NOT Taking Risk in Life
I starting working, at age 22, for a company with medical benefits and a pension that would start at age 55. Within ten years of working there they cut both. It was actually freeing when they ended those benefits, because I knew I could leave there if I wanted to and not feel stuck waiting it out year-after-year if the job became miserable. If a job is going really well those benefits can be amazing, but I’ve had a lot of friends get stuck in government jobs they hate as they count down the years until they get to leave.
You are so well prepared for the future with our without those perks!
I wouldn’t count on anything that I don’t fully control. I’d consider them bonus, should they come. The good thing is that you know where you’re going. I’m guessing that while you may target reaching FI at 55, you’ll probably get there a lot sooner. All the very best -
It’s tricky. I mostly save as much as I can because I don’t currently have anything that I want to spend on more. If I’m not going to spend it, I might as well put it in something tax advantaged. At least with the Roth IRA, the contributions can be taken out as desired. In addition, All the Roth conversions I’ve done will be accessible in the next few years.
The reality is that if I stay until 57 for that retiree health insurance, my eventual Social Security alone would be quite a bit higher because of all the extra years of working vs if I had retired at age 40 as I was shooting for maybe five years ago.
And the longer I am willing the work, the pension grows too. And the less savings needed to fund a retired life that is pre pension/SS.
If they decide to get rid of that lifetime health insurance, I have much less of an incentive to stay, but at the same time, within a few years, my wages alone will reach a level I’ve never seen before, so I really see no reason why I’d ever quit since I could try a completely different type of job in the future if I ever get bored with this one, and still be in the same pension. I’m convinced that a generic degree really does go a lot further in the government than the private sector.
For me, the heavy savings now even with the projected pension means that if I get frustrated I can abandon the pension, but also, if my life path should ever change, like I have a kid, everything I do now, makes scaling back in the future matter less, for the math.
I’m jealous that you have all these things you know you would be doing if you weren’t working. That was the problem with my gap year — I had no Plan B after Solo Travel turned to be a failure, and I crashed and burned.
Quite the interesting read — that’s incredible that you guys have pensions!
For me personally, the future is hard to bank on because I am paranoid — I never know when they’ll cut pay or reduce/eliminate benefits so my accounting is generally extremely pessimistic. For example, for some that have a mortgage they’d say it isn’t a ‘liability’ and won’t subtract it from their net worth because they can always sell their house and recover the mortgage cost. For me, I’m the kind to just subtract all the mortgage remaining from my net worth.
Though I might just be causing myself a lot of unnecessary stress of things that might never happen.
This post reminds me that I should probably start doing some kind of monthly spreadsheet to keep track of my assets, as I only glance at my Mint net worth right now and I feel like that’s fairly inaccurate.