2 Years to FIRE (I Hope)

[HI Bill]

Hi, I'm Bill; I live in Hawaii. For the past 19 years, I've been pushing hard to get to a point to where I could FIRE at age 50. Way back in 1998, I was working on Maui and met my 'Maui Multi-Millionaire Friends'...four couples and singles who worked hard, saved, invested, and FIRED on or around age 50, then moved to Maui! Well, the retirement part didn't work out so well for most of them, who have long since gone back to work, and many of which are still working!

Three years ago, I married, and that derailed my original plan. Plan B: work four additional years, through age 53, retire on my birthday in January of my 54th year. I was fortunate enough to have worked for a company with an ESOP (employee stock ownership plan), and this should provide ~20% of my retirement income. I've been maintaining about 5% in cash, with the remaining 75% in equities. Based on a retirement plan created by Vanguard, anticipated use of a HELOC or reverse mortgage, and a little social security, my planned withdrawal rates are 4-5% annually. ~50% of my retirement budgets are discretionary (travel). No debt, home owned outright, plan to sell and buy another at retirement.

 

[cooch96]

Sounds like you’ve done well for yourself. Be proud!

But is the ESOP risky? Will you lose 20% of your FIRE portfolio if the company goes belly up? I guess that would only reduce your travel budget by a bunch. Good thing you already live in paradise!

 

[HI Bill]

The ESOP is in a medium-sized consulting firm with four global business units, spanning much of the world. The company is fairly diversified, but there is always a risk that it may lose value between my retirement age and the year I turn 62, when the ESOP will start to be paid off over a 3-year period. The greatest risk is in share price volatility...hoping for a high share price in 2028!

 

[Golden sunsets]

Sorry HNL Bill; This sounds quite risky to me; ESOP concentrated in stock price subject to volatility, 4-5% withdrawal rate, HELOC or Reverse mortgage to fund retirement, no fixed income component to investments, 75% of investments in equities over and above the 20% concentration in company stock, spending 50% of income on annual travel all sound like risky approaches to an early retirement financial plan.

If I were in your shoes I would consult a fee only planner to get a second opinion on the chances of success.


Sent from my iPad using Early Retirement Forum

 

[slv1]

4-5% WR at 54 yo can be risky. Trinity study was for 30 years and if you look at it out 50 years that WR might be better at 3 to 3.25%

 

[HI Bill]

@Golden Sunsets - thanks for the input! FIRECALC, with my asset allocation input, is showing a 90% chance of success. If I moderate spending in years where the markets are down, we should be ok. We won't need the reverse mortgage until age 62, at earliest, if at all. My company's ESOP only lost 13.5% in 2008, following a 28.8% increase the year prior, so it's much less volatile than the market. The company is so diversified (private clients, government, state, foreign, manufacturing, power, water, pharmaceuticals, etc., that it's unlikely to tank in the next decade).

@SLV1 - acknowledged. If I work another 7 years past 53, I'm giving up the remaining prime years where I am physically fit enough to scuba dive with a heavy camera in difficult conditions, so I'd be safe financially, but likely unable to fulfill my 'professional underwater photographer' dream.

One question for everyone regarding asset allocation...since bonds have not been paying anything near historic returns in the past 10+ years, and since they lost significant amounts of value (bond funds) during the 2008 crisis, does allocating a significant % of your assets to bonds really make sense? Vanguard uses US bond returns from 1960, when bonds were paying 9-10% (or so? - before I was born).

 

[joeea]

Three years ago, I married, and that derailed my original plan.

You had a plan that required being unmarried?

Based on a retirement plan created by Vanguard, anticipated use of a HELOC or reverse mortgage, and a little social security, my planned withdrawal rates are 4-5% annually. ~50% of my retirement budgets are discretionary (travel). No debt, home owned outright, plan to sell and buy another at retirement.

You are planning on a HELOC or reverse mortgage, but are also planning on "no debt"? Don't those two contradict each other?

 

[HI Bill]

You had a plan that required being unmarried?

You are planning on a HELOC or reverse mortgage, but are also planning on "no debt"? Don't those two contradict each other?

The plan to retire assumed originally that I would only be paying dive/travel expenses for one....now it's for two

A reverse mortgage is 'debt' that you'll never pay off...the bank owns your home when you die! A HELOC is debt that I would only incur if markets tanked and I needed cash; to be repaid when the markets recover.

 

[Red Badger]

I think if you're risks are acceptable to you, go for it. We all have different tolerance levels.

While your plan has risk (all do), nothing scares me...

 

[HI Bill]

Red Badger - running out of active years to dive scares me more than running out of money at age 90!

 

[MBAustin]

Welcome, Bill! If you haven't found them already, we have a helpful list of things to think about as you plan for your ER:

Some Important Questions to Answer

When starting out with a potentially high-ish WR, I think it's important to have a good plan/cushion for major items. That would include car replacement, major home maintenance (new roof, etc.), and health expenses (insurance plus deductibles/co-pays for unexpected major injury/illness). If you have that cushion and are willing to cut back on discretionary spending if needed (must have the willpower to actually do it!), that lessens your risk.

 

[HI Bill]

Welcome, Bill! If you haven't found them already, we have a helpful list of things to think about as you plan for your ER:

Some Important Questions to Answer

When starting out with a potentially high-ish WR, I think it's important to have a good plan/cushion for major items. That would include car replacement, major home maintenance (new roof, etc.), and health expenses (insurance plus deductibles/co-pays for unexpected major injury/illness). If you have that cushion and are willing to cut back on discretionary spending if needed (must have the willpower to actually do it!), that lessens your risk.

Thanks! I have 5 budgets set up for retirement (retired overseas while renting; retired with a condo; retired with a house; retired with a house (no-go years); and retired, DW only (after I die). The monthly budgets include 'save backs' for major car repairs and eventual replacement every 7 years. The monthly budgets also include a modest home repair 'save-back' if I buy a house, mostly for roof replacement; if I buy a condo, the association covers most external large ticket item repairs.

 

[Cassius King]

Is there a way to take a year or so hiatus to take care of the "professional underwater photographer" dream? Or find a way to make money doing it?

 

[HI Bill]

Is there a way to take a year or so hiatus to take care of the "professional underwater photographer" dream? Or find a way to make money doing it?

It would take several years to increase my publication rate (currently at 1 to 3 photos per year); according to one professional underwater photographer, a good goal is to 'break even'....so, it might eventually pay for up to about $10K in annual dive travel, but won't ever make much more than that....unless I go with underwater weddings, which I'm not sure I want to do after my first experience!

 

[socca]

... if I buy a condo, the association covers most external large ticket item repairs.

The owners in my Dad's condo association got hit with a $17k/unit assessment for a new barrel-tile roof. The owners in his GF's condo association need to collectively pay $500k to fix construction errors made back in the '70s when the buildings were built. Moral: condo owners need to budget for the occasional special assessment.

 

[HI Bill]

4-5% WR at 54 yo can be risky. Trinity study was for 30 years and if you look at it out 50 years that WR might be better at 3 to 3.25%

Ah, I should have clarified...the WR starts at 5%, drops to 4% at age 67 (14 years in), and then to 2.3% at age 70 (17 years in) as other income sources kick in....assuming SS doesn't lower the payments. [This all assumes that growth of investments = inflation]. I wish it were the other way around (lower WR first), but ER doesn't allow this, in my case!

 

[Red Badger]

Red Badger - running out of active years to dive scares me more than running out of money at age 90!

I understand that in spades. DW had a couple of health scares in 2015/16. They passed, but I decided if I had to go to Home Depot and hand out 9/16 inch wrenches, I would gladly do that before another year of road warrior nonsense.

Every day in retirement has been awesome.

Signed - a (measured) risk taker.

 

[pb4uski]

Ah, I should have clarified...the WR starts at 5%, drops to 4% at age 67 (14 years in), and then to 2.3% at age 70 (17 years in) as other income sources kick in....assuming SS doesn't lower the payments. [This all assumes that growth of investments = inflation]. I wish it were the other way around (lower WR first), but ER doesn't allow this, in my case!

That sounds better... but I still don't get the need for the HELOC or reverse mortgage but the HELOC sounds like the better of the two... at least you still have control.

I would look for 95% of better with FIRECalc.

 

[cnocmmz]

HNL Bill....WOW Hawaii. I was stationed there on and off for 7 years during my military career. I could not retire there with the prices of homes these days lol.
Overall good job in your preps for 53 retirement. Always remember to review FIRECalc often and make sure you are inputting the numbers correctly

 

[HI Bill]

That sounds better... but I still don't get the need for the HELOC or reverse mortgage but the HELOC sounds like the better of the two... at least you still have control.

I would look for 95% of better with FIRECalc.

The HELOC is a way to avoid distributions on investments during down times. I don't ever intend to do this; it is solely a backup plan; the reverse mortgage can provide steady income for up to 30 years. Since I'll have about $450-500K 'locked up' / invested in a house that I can't live in after we die and have no heirs, taking a reverse mortgage makes sense to me. There's no sense in having a paid-off house when you're dead unless you want to leave it to charity; this is also a back-up plan, in case SS is cut 25%, sequence of return risks are realized, etc.

95% FIRECALC would obviously be better, but I'd have to give up 5 of my prime diving years to obtain that, or to cut dive travel by 50%. Right now, I'm projecting dive travel from 54 to age 80, but who knows if my health will hold out that long, or my left eye (which has a vision problem already) gets far worse.

 

[Golden sunsets]

You seem ready to take additional risk that others would not feel comfortable with. Good luck!!


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[HI Bill]

Thanks, yes, I look at this as calculated risk. I do not look at the entire bond market history, when there's nothing to indicate that bond returns will ever increase to levels we saw in the 1970s. As a geologist, I'm used to looking forward far into the future, and backward, to learn lessons from history. With $2M in invested assets, using a variable spending rate, adjusted as necessary when markets are low, ought to get us through.

 

[HI Bill]

Am receiving a modest inheritance now. Just ran FIRECALC yesterday, and it came out to 100%! January 2019, here I come!

 

[HI Bill]

Updated Status

Our updated status:

Age 52 (married)
Retirement FIRE age goal: 53

Current Retirement Investable Assets $2.1MM, including:

IRA Mutual Funds: $900K
Taxable Mutual Funds: $600K
ESOP (pays out at age 62): $500K
Cash: $100K

Allocation:
65% equities (90% large cap, 10% international)
23% ESOP (diversified company, equivalent to mid-cap mutual fund, IMHO)
7% bonds
5% cash


Non-Retirement Assets:
House equity: $441K ($0 morgtage)
Car: $15K (paid off)
Debt: None

Goal: $50K in annual expenses +$50K in travel expenses (we plan to reduce travel and expenses during multi-year down markets). We are expecting $57K in annual SS payments at 70 if payments are not reduced. Withdrawal strategy has us only paying $10K total (over 7 years) in Federal income taxes from 53-59 if the current tax structure holds, allowing us to take advantage of the 0% long-term capital gains tax rate (~18% of taxable accounts are subject to long-term capital gain taxes; the rest is return of capital), and the new $24K exemptions for two annually.

Are we ready yet? Thanks!