Small errors are big dangers to early retirement

Q: I am 52 years old, single, with no debt and no kids. The same company has employed me for 27 years. My current salary is $130,000 a year. I am very conservative with money and have been a strong saver for many years. As a result, I now have $700,000 in savings, $600,000 in our 401(k) plan and $20,000 in an IRA.

I don't own a home and I'm in good health.

So why am I writing? My job security has become unstable. Business has been slow. If things go south, do you think I have enough money to retire early?

My annual living expenses average about $30,000. I am not opposed to finding another job, but being in my 50s, employers will not be rushing to snap me up! - T.D., by email

A: You are probably OK for two reasons. First, you don't live high on the hog. This puts you way ahead of the game. Second, your $700,000 in savings is fairly hefty. It is more than enough to bridge the period until you are eligible for Social Security. You can satisfy yourself that your resources are sufficient with a little homework.

First, take a close look at your annual benefit letter from Social Security. It provides you with an estimate of your Social Security benefit at age 62, if you choose to take the benefit early. Your actual benefit will be lower because you would not have the next 10 years of crediting. As a very rough estimate it would be about $15,000 a year in today's dollars. So reserve $150,000 of your $700,000 as a bridge to Social Security eligibility.

The next question is how much can you safely withdraw from the remaining $550,000? If we assume 4 percent, you'd have additional income of $22,000. That would bring your total income to about $37,000, which is a bit more than you spend. You'd have the $600,000 in the 401(k) account as a hefty cushion against major underestimates in your cost of living.

You have two big worries here. The first is the cost of medical insurance until you are eligible for Medicare. You can check what it would be by using the tools provided by the Affordable Care Act.

The second worry is margin for error. At 52, a small error in spending or earning can put you way off course by the time you are 65 or 70. You don't have much margin if you lose your job and simply stop working. But you can change all that by working a part-time job that pays a lot less, even if it offers no benefits. So your best path may be to consider "repotting" yourself in a new but lower-paying job.

Q: My wife has recently taken a job with our local county government. She has many choices in her self-directed retirement investment account. Most are in expensive managed funds. (I've included the list.)

The good news is that she will put in 5 percent and the county puts in 6.3 percent, for a total of 11.3 percent.

The bad news is that only two funds appear to be index funds, and I suspect they are high-fee funds. I'm certain the insurance company offering the plan will take a cut. It seems we are fighting two battles: the first is managed vs. indexed funds, and the second is high fees vs. low fees.

She's 41, I'm 48. I will have a federal pension and am putting my 5 percent in to capture the full Thrift Savings Plan match. With two kids starting college soon, we're not doing any more than capturing full match.

In the meantime, I plan to lobby our county commissioners to give their employees a real boost (at no cost to the county) by going with different fund choices and a different plan administrator. Your observations? - T.K., Fayetteville, Georgia

A: Let's deal with first things first: It would be cutting off your nose to spite your face if you avoided this plan, and its substantial matching dollars, due to high fees of the mutual funds used.

Also, while 23 of the 25 funds offered are managed funds, most come from very competitive firms such as American Century, American Funds and T. Rowe Price, with expense ratios in the 0.60 percent to 0.70 percent range. Trust me, you could do a lot worse. Without seeing the complete document on the plan, it isn't possible to say what other fees it may include.

There are lower-cost, index-fund-based alternatives out there, so suggesting a change to your county commissioners would be a good idea.

• Scott Burns is a principal of the Plano, Texas-based investment firm AssetBuilder Inc., a registered investment adviser.