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40 now, when should we try to ER?
Old 10-31-2010, 01:21 PM   #1
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40 now, when should we try to ER?

Hi everyone,

My spouse and I are 40. We want to retire as early as possible to have some adventure while physically fit (extensive camping, hiking, sailing, etc.) I especially want to do some serious prospecting in Alaska, and my wife wants to hunt elk or moose (no, she is not Sarah Palin). We do backpacking hikes of 2 or 3 weeks now and would get into shape for longer trips. Eventually we want to sail around the world, as sailing is our other passion.

Ok, so on to finances. We currently gross about $210K (her income, I am finishing up electrical engineering degree now). Maxing out 401K, doing the Roth trick ($5K into IRA then instant rollover into Roth), and saving everything we can (about $70K a year going into non-retirement savings). The balances now are $320K in 401K, 22K in her Roth, 55K in my Roth (I play around with mine in the stock market a bit more), 110K in taxable account (all in stocks), 35K in Vanguard municipal bond fund, and 40K in cash (waiting out elections and QE2 before deciding where to put it). We have no debt other than home, and owe 180K on house probably worth 400K conservatively.

All in all, I would say our net worth if we sold everything is 900K currently, including retirement accounts. I will most likely start working in about a year or two, and will try to hide as much money as possible by maxing 401K and doing everything else possible (our income is getting up there into the very taxable range). We would like to retire in 5 to 7 years, but it could be a partial retirement (maybe do software, hardware contract work for part of each year) if I determine our finances would not allow a complete retirement.

I estimate our total net worth will be 1.5M to 1.7M in 5 years *if* the market returns 8% or so. It will be hard to give up that good income though, knowing that every year we wait would be another 100K or more into the fund. When would you ER?
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Old 10-31-2010, 02:45 PM   #2
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welcome 79,

the size of your living expenses is what drives when you can retire and you have given no info on that. so an answer to your question is, to say the least, difficult.
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Old 10-31-2010, 03:20 PM   #3
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welcome 79,

the size of your living expenses is what drives when you can retire and you have given no info on that. so an answer to your question is, to say the least, difficult.
Well, he says they have a $210K/yr income. Using round numbers to make the math easy, lets say they put $20K in tax-deferred accounts bringing income to $190K. Then figure $50K in taxes. Down to $140K. He said he puts $70K in non-retirement savings so that leaves expenses on $70K/yr. Therefore he needs $1.75M to get $70K/yr at 4% SWR. He may be able to reach that by late 40's but I think the 8% returns that are referred to are overly optimistic. Expect closer to half that.
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Old 10-31-2010, 03:32 PM   #4
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...Using round numbers to make the math easy, lets say they put $20K in tax-deferred accounts bringing income to $190K. Then figure $50K in taxes. Down to $140K. He said he puts $70K in non-retirement savings so that leaves expenses on $70K/yr. ...
assumptions all
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Old 10-31-2010, 03:48 PM   #5
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My spreadsheet says 7 years full time under those circumstances with an appropriate withdrawal rate for your age. That is assuming you are saving 38% of gross, or about $78k this year (this is not much of an assumption, OP has said he is maxing his 401k and putting 70K in taxable, it may be higher if he is not counting mortgage payments). I am not sure how savings could be higher, as taxes would be 62K, and living expenses of 70k, leaving 78k for savings. You need to account for inflation along with market returns, so the total amount is $2.5M, not $1.7M. You could probably do 4.5 full and 4 part time as well, though it would have to be a pretty good part time job, would still need to be netting 100k+. A long bull or bear market right after the target retirement time would decrease it or increase the retirement date by a year, respectively.
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Old 10-31-2010, 03:58 PM   #6
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2. Post as much information as you feel comfortable with, but the more specific the data then the more & better responses you'll get. Especially useful are your age, desired retirement age, assets, asset allocation, income, expenses, spouse, kids, and relevant location. If you say you have $900,000 in assets and you want to know if you can retire, you will not get many good responses. If you explain that you're age 45, would like to retire at 50, you have $900,000 in 50% stocks, 40% bonds, and 10% cash, you earn $55K/year and spend $60k per year, you're married with two teenagers and want to retire in San Antonio, then you will find that our responses are much more helpful.
And once you've looked at that, you could put the numbers through FIRECalc: FIRECalc: A different kind of retirement calculator
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Old 10-31-2010, 04:15 PM   #7
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Hi thanks for the replies. I am sorry I did not give enough information...the post seemed kind of long and I didn't want to scare people off with a wall of text.

Current expenses:

Mort. (P&I + taxes/insur): $1500
Cable/phone/internet combo: $170
Electricity: $200
Car gas: $300
Car Insur: $120
Other Insur: $40
Food: $600
Entertainment: $200
Misc: $200

total monthly expenses: $3330

medical currently 100% covered by wife's employer for both of us, although they are switching to a HSA with a employer paid $2500 contribution and a $5000 deductable. I think actually this will make us some cash, since we can contribute an additional $3500 to it pre-tax, and treat it like a 401K (sort of).

I prepay the mortgage an extra $700 a month, so really $2200 there. We have 3 vehicles and a sailboat, all paid for.

I expect our expenses in ER to be about the same? We should have a smaller housing payment because we plan to rent a small place ($900/month) and we will only need 1 vehicle. The electricity and cable/tv/phone will probably go down too. The healthcare will replace these so probably the $3300 a month is a good rule of thumb.
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Old 10-31-2010, 09:19 PM   #8
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Originally Posted by 79protons View Post
I expect our expenses in ER to be about the same? We should have a smaller housing payment because we plan to rent a small place ($900/month) and we will only need 1 vehicle. The electricity and cable/tv/phone will probably go down too. The healthcare will replace these so probably the $3300 a month is a good rule of thumb.
welcome. what kind of boat?

we assume we will need about the same in retirement of what our basic expenses are, i rigorously track how every penny is spent. some areas will go down, and other will go up. it all depends on what you want to do. and with a boat, i would say you need more...
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Old 11-01-2010, 12:12 AM   #9
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sailboat. we have a small sailboat now, but we will eventually sell it and get a 36' to 40' when ready to do blue water. Nothing too fancy, just a older reliable full keel workhorse with good rigging and hull.

One thing I didn't mention about the medical insurance costs. Depending on how the new healthcare laws play out, and how we arrange our withdrawals, it may be that Joe taxpayer ends up funding a large portion of our healthcare for at least some of the years. The way the plan currently is written, very low income households will get a tax credit to assist them in buying health insurance. If there are years where we draw off of our cash savings, or have a small capital loss, it may be that most of our healthcare insurance is paid by the government. Considering all of the tax we pay now, I don't have much of a problem with this.

from http://www.csmonitor.com/USA/Politic...ized-insurance

"
The formula is pretty complicated. Basically, though, people who make three or four times the poverty level would get enough federal money so that they would not have to pay more than about 10 percent of their income for a decent health insurance package.
People who make less would have to pay a smaller slice of their income for coverage. For instance, individuals who make about $14,000, and four-person families with incomes of about $29,000, would not have to pay more than 3 to 4 percent of their incomes for insurance."
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Old 11-01-2010, 06:06 AM   #10
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Car insurance, life insurance expenses now? Clothing now? Travel expenses? Maintanance costs? Walk around money spent now? Annual expenses need to be factored into the budget. Health insurance and taxes will need to be factored in after retirememnt as well. Use Firecalc as nords says. Quicken also helps with expenses.

Kudos if your expenses are really that low with your income. I suspect though that you are missing some things.
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Old 11-01-2010, 08:54 AM   #11
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Car insurance, life insurance expenses now? Clothing now? Travel expenses? Maintanance costs? Walk around money spent now? Annual expenses need to be factored into the budget. Health insurance and taxes will need to be factored in after retirememnt as well. Use Firecalc as nords says. Quicken also helps with expenses.

Kudos if your expenses are really that low with your income. I suspect though that you are missing some things.
I had car insur. on the list. We mostly go backpacking/camping for vacation, so travel expenses are figured into the gas costs of the car to get there. I guess I should add $200 a month for a maintenance figure for the cars. We dont spend that much but eventually could I guess. We rarely buy clothes, and nothing special required by work. Life insur. covered through spouses work (500K each) I used Firecalc and saw that 1.4 million would throw off 50K a year with a 100% success rate. I could live with that.
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