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35, curious about ER
Old 05-01-2013, 12:46 PM   #1
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35, curious about ER

Age - 35
Married - spouse is 35
Jobs - both employed in money management and megacorp, work about 40-50 hours per week
Household Income - variable between $300k-$800k
Tax Rate - about 45%
Children - 1 infant, plan to have 1 more
Location - Manhattan, NY
Savings/cash/liquid investments (10% in stocks) - $2.3 million
Retirement/401k/Pension plan - $250k
No other assets/real estate
Yearly costs (prior to child) - between 90k and 120k per year
Yearly costs (with child, estimated) - between 140k and 160k per year

I've been an occasional lurker over the years. I am intrigued by early retirement, specially semi-retirement where we could work on something part-time to pass the time and pay a few expenses and manage our own money via investments (I am an investment professional). We would also love to move to a low(er) cost area that has good weather, is low-key, avoids the rat race and has good access to good education, some culture and diversity, natural beauty, the outdoors. I've read all the jargon about withdrawal rates and scenario analyses given various market conditions (I am capable of running the numbers and simulations myself) but I'm struggling with coming up with a ballpark figure $5mil? $10mil) and rough age (40? 50? 60?) for when I should be comfortable pulling the plug. Anyone in a similar situation to ours? When did you decide to pull the plug? And how has that worked out for you?
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Old 05-01-2013, 12:58 PM   #2
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Welcome Manny! So, where's the other $2M that is not in stocks?
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Old 05-01-2013, 01:00 PM   #3
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Welcome Manny! So, where's the other $2M that is not in stocks?
Cash (I know, I know!)
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Old 05-01-2013, 01:00 PM   #4
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Manny, Welcome. I'm not in a similar situation as yours, but thought I'd give my two cents. The topic of safe withdrawal rates is discussed a lot here. Generally, for a 30 year retirement, a ballpark figure of between 3 and 4% seems to be the consensus here. But, depending on how soon you ER, you may need to plan for a longer retirement, so your withdrawal rate would need to be lowered. The only question I have is why you have only 10% of your investments in stocks?
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Old 05-01-2013, 01:05 PM   #5
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Welcome, manny. Do your yearly costs include income taxes or is it that only what you need to live on?
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Old 05-01-2013, 01:09 PM   #6
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Manny, Welcome. I'm not in a similar situation as yours, but thought I'd give my two cents. The topic of safe withdrawal rates is discussed a lot here. Generally, for a 30 year retirement, a ballpark figure of between 3 and 4% seems to be the consensus here. But, depending on how soon you ER, you may need to plan for a longer retirement, so your withdrawal rate would need to be lowered. The only question I have is why you have only 10% of your investments in stocks?
I don't buy the default 'stocks for the long run' argument. I invest and allocate assets as necessary and rotate out of them. Most people who made money putting all their money in stocks did that in the 80s/90s and dodged 2001 and 2008. Plus my livelihood is tied to how markets perform, so I don't really want to double down. We could go on about this for hours but for now I'm comfortable with the 10% allocation, that might change any time!
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Old 05-01-2013, 01:10 PM   #7
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Welcome, manny. Do your yearly costs include income taxes or is it that only what you need to live on?
The costs do not include income taxes.
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Old 05-01-2013, 01:41 PM   #8
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The fact that you have a low allocation to stocks definitely throws the typical retirement models out the window. So your withdrawal rate will have to be lower than what is typically recommended.

As a back-of-the-envelop calculation, a young-ish person typically needs about 33 times his costs (including income taxes and asset management fees) in retirement assets (not including your home) in order to be able to retire early. But that assumes a much higher allocation to equities than what you currently have. So, in your case, you may need 40-50 times your costs, or close to $8-10M in order for you to retire before the age of 50. The older you are when you retire and the less you need. So by delaying retirement until your late 50's or early 60's, you might be able to get away with $6-7M. There are ways to tweak those numbers a little bit by changing your asset allocation and spending model, but those would be my ballpark figures.
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Old 05-01-2013, 02:02 PM   #9
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Like I said, the allocation to stocks can change. I might allocate more at different times, and once retired would probably allocate more anyway since my fortunes would be less tied to markets. The expenses can also change and hopefully will dramatically, if I can figure out a low-cost city/region to live in after retirement. Either way, I like to be very conservative and would not want to depend on the stock market for my retirement. One other thing I have not factored in is the cost of health insurance and out of pocket medical expenses, probably will be $10000-$20000 a year I estimate.
Your ballpark figure of $8-10M seems about right though. If we can reduce costs to 100k/year, aim for 50yrs of retirement, invest in stocks some more, perhaps $4-5M is doable.


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The fact that you have a low allocation to stocks definitely throws the typical retirement models out the window. So your withdrawal rate will have to be lower than what is typically recommended.

As a back-of-the-envelop calculation, a young-ish person typically needs about 33 times his costs (including income taxes and asset management fees) in retirement assets (not including your home) in order to be able to retire early. But that assumes a much higher allocation to equities than what you currently have. So, in your case, you may need 40-50 times your costs, or close to $8-10M in order for you to retire before the age of 50. The older you are when you retire and the less you need. So by delaying retirement until your late 50's or early 60's, you might be able to get away with $6-7M. There are ways to tweak those numbers a little bit by changing your asset allocation and spending model, but those would be my ballpark figures.
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Old 05-01-2013, 03:54 PM   #10
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Welcome Manny. As a financial professional so you have a lot more professional knowledge of investments than most of us. I completely understand your reason for underweighting equities in your retirement portfolio while working as you need to avoid correlation with employment risk. Moshe Milevsky discusses this in his book "Are you a Stock or a Bond?". You're a stock! I also see why you are not in bonds, as the prognosis for bond yields is not good at present. However, there must be other opportunities out there for some of your cash, e.g. public or private REITs, rental properties, commodities, etc. Do none of them look attractive?

Your income and expenses are both very high but that is a feature of life in Manhattan. In ER you obviously have a lot of opportunity to reduce expenses provided that you move to a lower cost area. Projecting the cost of living in a different environment is challenging unless you document your expenses now and compare options.
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Old 05-01-2013, 05:55 PM   #11
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Welcome to the forum, Manny.
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Old 05-01-2013, 10:50 PM   #12
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Welcome Manny. As a financial professional so you have a lot more professional knowledge of investments than most of us. I completely understand your reason for underweighting equities in your retirement portfolio while working as you need to avoid correlation with employment risk. Moshe Milevsky discusses this in his book "Are you a Stock or a Bond?". You're a stock! I also see why you are not in bonds, as the prognosis for bond yields is not good at present. However, there must be other opportunities out there for some of your cash, e.g. public or private REITs, rental properties, commodities, etc. Do none of them look attractive?
I don't follow your and Manny's logic. It's one thing for him not to want to invest in financial companies and banks. But Manny's job can't be tied to the entire worldwide market. Sure, he would take on the same systematic risk we all do...but the idea of not weighting towards your industry is a concern of unsystematic risk. So, just as I work in the oil industry and don't invest specifically in oil equities, Manny shouldn't weight towards equities in the financial industry.

There's risk in everything we do...and the inflation risk of cash for someone as young is [IMO] greater than the systematic market risk.

We all have our own personal tolerances. If the risk of the market is too much for Manny to stomach, that is one thing. But to shun entire economies across the world solely b/c of one's profession is illogical - as no one works across all industries worldwide.
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Old 05-02-2013, 12:19 AM   #13
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Cash (I know, I know!)
Not doing you any good there. Invest it in something. Not going to get to ER with money sitting under the mattress.
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Old 05-02-2013, 12:49 AM   #14
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Yes, you could set a goal of working another 10 or 20 years to build your savings up to 5 or 6 or 8 or 10 million and then retire. Alternativley you could retire today, adjust your asset allocation to something like 60% equities, move to somewhere with lower cost of living and adjust your lifestyle and spending downwards a bit and live very well. This is the EARLY retirement forum. Most of the people posting and reading here could be pretty happy retiring at age 35 with 2.5 million to live on. Congratulations, you do not have to work another day in your life unless you want to.
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Old 05-02-2013, 01:40 AM   #15
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My situation is similar to yours with a 5 year lead although you have done somewhat better job than us in building wealth up to age 35. I will use your format.

Age - 40
Married - spouse is 37
Jobs - software and investment banking, work about 45-50 hours per week
Household Income - variable between $900K-$1 million
Tax Rate - about 40% of total income
Children - 1 2 year old, no more expected
Location - Scarsdale NY
Savings/cash/liquid investments (10% Cash, 50% Fixed Income, 40% Equity) - $3 million
Retirement/401k/Pension plan - $760k
529 - $40K
House - $680K
Yearly costs - $120K-$130K

Our plan is to work 4 more years, adding about $2.5 to net worth. Then go into semi-retirement where we work less hours to spend time with our child with much lower pay of course. We do this for 3-4 years mostly to still get health insurance. During this time we can cut our yearly costs down to around 80K since we do not have to pay for nusury school (our child would go to our very good public elementary school), no more need for live in nanny, less real estate taxes since our income would be lower and quality for STAR, and we can eat out less which cost less and better for our health. Once we have around $6 million in assets beyond our house there is no reason why we cannot trigger semi-retirement and then retirement.
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Looking to retire or semi-retire by 45 based on our net worth going to $6 million outside our house.
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Old 05-02-2013, 02:32 AM   #16
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Like I said, the allocation to stocks can change. I might allocate more at different times, and once retired would probably allocate more anyway since my fortunes would be less tied to markets. The expenses can also change and hopefully will dramatically, if I can figure out a low-cost city/region to live in after retirement. Either way, I like to be very conservative and would not want to depend on the stock market for my retirement. One other thing I have not factored in is the cost of health insurance and out of pocket medical expenses, probably will be $10000-$20000 a year I estimate.
Your ballpark figure of $8-10M seems about right though. If we can reduce costs to 100k/year, aim for 50yrs of retirement, invest in stocks some more, perhaps $4-5M is doable.
My DW is in investment banking and like you is very conservative. Most of our Fixed Income allocation is because of her and I am much heavier in Equities. One thing that is different between my DW and you is that she does invest a lot in her bank's stock, something I oppose because of correlation risk between employement and investment. I keep on telling her it is a bad idea and it is annoying to me that she keeps on actaully doing very well in her company's stock in terms of ROI which undermines my argument. Sigh.
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Looking to retire or semi-retire by 45 based on our net worth going to $6 million outside our house.
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Old 05-02-2013, 10:00 AM   #17
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I think you've actually done a better job! Our income is very variable (not like banking) and I can only hope to be in your position at 40. You look like you will definitely reach your goal by 45 and that is great.
I know many on this board would disagree with my asset allocation. However, keep in mind please that this is only my current allocation and I actively allocate and de-allocate from asset classes almost on a daily/weekly basis.
This is my profession! I'm not on here to discuss asset allocation and suffice to say I directly help run a very profitable (but very small) investment fund with one of the most envious long-term trading records of all time!
I understand that I need to grow my capital to become FI though and that is a challenge for all of us. My likely allocation would also change drastically once/if I do go into FIRE mode.
I was just looking for similar situations to mine (similar age, location, net worth, income, family, desire to move to a lower cost low-key lifestyle) to figure out a ballpark number I need to shoot for and if/when I could get there. The point about asset allocation is well taken and it is true that people in finance tend to be more conservative and pessimistic. Its truly amazing that many of us with significant wealth accumulated by an early age are still concerned about retirement!

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Originally Posted by kmt1972 View Post
My situation is similar to yours with a 5 year lead although you have done somewhat better job than us in building wealth up to age 35. I will use your format.

Age - 40
Married - spouse is 37
Jobs - software and investment banking, work about 45-50 hours per week
Household Income - variable between $900K-$1 million
Tax Rate - about 40% of total income
Children - 1 2 year old, no more expected
Location - Scarsdale NY
Savings/cash/liquid investments (10% Cash, 50% Fixed Income, 40% Equity) - $3 million
Retirement/401k/Pension plan - $760k
529 - $40K
House - $680K
Yearly costs - $120K-$130K

Our plan is to work 4 more years, adding about $2.5 to net worth. Then go into semi-retirement where we work less hours to spend time with our child with much lower pay of course. We do this for 3-4 years mostly to still get health insurance. During this time we can cut our yearly costs down to around 80K since we do not have to pay for nusury school (our child would go to our very good public elementary school), no more need for live in nanny, less real estate taxes since our income would be lower and quality for STAR, and we can eat out less which cost less and better for our health. Once we have around $6 million in assets beyond our house there is no reason why we cannot trigger semi-retirement and then retirement.
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Old 05-03-2013, 05:23 AM   #18
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Hey Manny...
Congrats on having such a great nest egg at your age. I shall give you my goals as I am 35 as well with a relatively high family income as well, but not quite what you guys have.

Age: 35, 35
Jobs: full time physician, 2/3 time physician (DW)
Household income: mid 6 figures
Tax rate: highest
Children: 2 little ladies (2 and 3 yo)
Location: Maryland
Savings (pre and post tax): little over 7 figures
529: 190k
House: 260k mortgage left on 760k house
Expenses: around 100k (incl mortgage)

I can let you know our plan, whether it is advisable or not is another question entirely (as everyone knows, docs are renowned for their financial ineptness). We are aggressively paying down our mortgage to be debt free as we feel this will help us get a better sense of our true income/expenses once we have no further debt. This will be done within 3-5 years. We max out all tax deferred space. Will contribute another 10k to 529 to have 100k per child to grow for 15 years. Pay off 45k student debt immediately after house paid off.

After that point we will double our taxable investments each month. Bonuses will go to savings/schooling instead of the mortgage. I am targeting 5 million at age 50. If that happens, extreme part time work (ie 1-2 locums days a week/1-2 shifts a week for myself and dw). Age 55 when kids are finished college, retire.

If everything goes perfectly, that's our scenario. Life doesn't always work out that way, so there is no rigidity in this plan, but it would be nice. Retirement should be relatively cheap for us and we can hopefully leave most of our finances to our ladies.

Good luck with your plan. You should easily be able to attain all of your goals!

GD
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Old 05-03-2013, 11:43 AM   #19
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I hear you! I agree most people would and should be happy with that situation. The fact is though that I don't feel comfortable hanging out in stocks or solely relying on investments for the rest of my life and so need a larger margin of safety. I also do want to continue working - for now I think another 5 years, maybe 10 max - that would be ideal.

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Originally Posted by jclarksnakes View Post
Yes, you could set a goal of working another 10 or 20 years to build your savings up to 5 or 6 or 8 or 10 million and then retire. Alternativley you could retire today, adjust your asset allocation to something like 60% equities, move to somewhere with lower cost of living and adjust your lifestyle and spending downwards a bit and live very well. This is the EARLY retirement forum. Most of the people posting and reading here could be pretty happy retiring at age 35 with 2.5 million to live on. Congratulations, you do not have to work another day in your life unless you want to.
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Old 05-03-2013, 11:45 AM   #20
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Thanks for sharing. I think you are doing really well! The fact that you are both physicians is definitely a huge plus as you can dial up/down your work schedule and will always be employable in some capacity in the medical field at any point in your lives. I think you will easily get to your plan by 50/55. Good luck!

Quote:
Originally Posted by Gasdoc View Post
Hey Manny...
Congrats on having such a great nest egg at your age. I shall give you my goals as I am 35 as well with a relatively high family income as well, but not quite what you guys have.

Age: 35, 35
Jobs: full time physician, 2/3 time physician (DW)
Household income: mid 6 figures
Tax rate: highest
Children: 2 little ladies (2 and 3 yo)
Location: Maryland
Savings (pre and post tax): little over 7 figures
529: 190k
House: 260k mortgage left on 760k house
Expenses: around 100k (incl mortgage)

I can let you know our plan, whether it is advisable or not is another question entirely (as everyone knows, docs are renowned for their financial ineptness). We are aggressively paying down our mortgage to be debt free as we feel this will help us get a better sense of our true income/expenses once we have no further debt. This will be done within 3-5 years. We max out all tax deferred space. Will contribute another 10k to 529 to have 100k per child to grow for 15 years. Pay off 45k student debt immediately after house paid off.

After that point we will double our taxable investments each month. Bonuses will go to savings/schooling instead of the mortgage. I am targeting 5 million at age 50. If that happens, extreme part time work (ie 1-2 locums days a week/1-2 shifts a week for myself and dw). Age 55 when kids are finished college, retire.

If everything goes perfectly, that's our scenario. Life doesn't always work out that way, so there is no rigidity in this plan, but it would be nice. Retirement should be relatively cheap for us and we can hopefully leave most of our finances to our ladies.

Good luck with your plan. You should easily be able to attain all of your goals!

GD
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