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46 And Planning to Retire in Late 2016 - Am I Ready?
Old 01-13-2016, 07:36 AM   #1
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46 And Planning to Retire in Late 2016 - Am I Ready?

Have been going over my numbers for some time now, and I'm at the place where I believe I'm ready to retire early - sometime in the 2nd half of 2016.
Current state: I'm 46 and my wife is 44. We have 3 kids - aged 21, 19, and 17. Two in college, one heading there in 2017. Then we'll be empty nesters.Live in Wisconsin. Planning to travel much more once the youngest heads off to college (in 2017).



Currently I have about $900K in retirement savings and plan to have $1M by later this year, 80K in education savings (for my kids), and about 50K of cash/other liquid assets. My wife plans to continue working part time - making about 10K/year. I'll do some things on the side once I'm retired that I, conservatively, expect will bring in about $25K/yr. Total net worth is about $1.3M (including home). House is paid for, and I have no money I owe (i.e. no car loans, credit card debt, student loans, etc). Most of my investment money is invested in index stock funds.


Based on estimating expenses, I'm expecting we'll spend about $45K (or less) per year. I do have a decent amount of Roth IRA money I can access, plus I plan to start a Roth IRA conversion ladder to move money to my Roth also.


Based on this - I figure I'll need to take 10K-20K from my Roth (at least initially). Based on the 4% rule, I should be good.


The unknown is health insurance (I'll need to provide this after retirement) and how Obamacare will be going forth (I think that we'd be good to get decent subsidies based on where I project we'll be for income after retirement - given what the current state of US healthcare remains similar to what it is). We are all healthy currently.


Based on how things fluctuate, I'd be willing to pick up something part time (or increase my side business) to help keep us living comfortably.


Would appreciate any thoughts/ideas on how sound this plan seems.


Thanks,

Lance
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Old 01-13-2016, 08:49 AM   #2
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If your assumptions end up all working out, look good to go. However, those are some pretty strong assumptions. I'd play the "what-if" game a bit and make sure I was still comfortable with the results and had appropriate back up plans. For example:

What if one of the two college kids didn't find a job and ended up dependent on you for a few years?
What if the youngest one to go to college got sidetracked and in trouble?
What if any of the family got in a bad car wreck and needed longer term care? Especially the kids who are still young, higher risk than the parents and not yet off your insurance.
What level of confidence do you have that you can pick up added funds $25k after RE if needed?
What if the cost of health keeps rising quickly as many on this board (but not all) have experienced?
What if market drops 20-30% over the next couple years?
What if you got killed in a car wreck?

My own level of conservatism would (and did) lead me to want to have my steady job income until my kids graduated and looked like they would clearly be self sufficient (decent jobs likely with their own health insurance). I look at your numbers and they look good....but make sure you are comfortable with a backup plan in case unexpected things happen. Best of luck to you!
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Old 01-13-2016, 09:05 AM   #3
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Quote:
Originally Posted by lanceman002 View Post
Currently I have about $900K in retirement savings and plan to have $1M by later this year...

Based on estimating expenses, I'm expecting we'll spend about $45K (or less) per year.

Based on this - I figure I'll need to take 10K-20K from my Roth (at least initially). Based on the 4% rule, I should be good.
How are you going to get another $100K by the end of the year? That is a huge sum. Even if you save $100K, it may not increase your portfolio by that much.

Be sure you will be comfortable living on $45K a year. That is not a lot, especially if a $15 minimum wage becomes the norm. You will be living on a minimum wage salary. You may be wanting for more travel and not being able to afford it. What is your current income compared to the $45K you think you need?

The 4% rule was designed for a 30 year retirement, assuming you had proper allocations. Live too long, or have too many bonds, and you are toast.

Healthcare, if you are only making $45K a year could be an issue. It's a large enough amount you will not get too much of a subsidy after the kids are gone. And the premiums and deductibles could run $1K a month.

I would wait. Do not forget, you need money for income taxes too.
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Old 01-13-2016, 09:46 AM   #4
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If I were in your situation I would at least keep working and saving until all three of the kids are thru college and on their own. After another five or six years a lot of things will be clearer, especially concerning Obamacare which will be a big key into the success of your planned retirement.
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Old 01-13-2016, 10:27 AM   #5
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Welcome lanceman! If you haven't seen them yet, there are two excellent resources here that might be useful as you plan for your ER:

Some Important Questions to Answer Before Asking - Can I Retire?

and

Early Retirement FAQs - Early Retirement & Financial Independence Community

Personally, we were in a slightly better financial position than you outline above when I was your age (but only 2 kids who were younger than yours), and I wouldn't have considered ER at that point. But YMMV.
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Old 01-13-2016, 11:51 AM   #6
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It's a lot easier to add to your nest egg now than it will be in a few years. There are too many unknowns, especially with health care costs and kids in college. I also don't see how you'd have much of a travel budget. I recommend a few more years saving before pulling the plug.


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Old 01-13-2016, 02:09 PM   #7
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+1 to the advice to be conservative in your assumptions. Have you actually lived on the $45k? Perhaps use what your actual spending has averaged over the past 3-4 yrs?
I am sure someone will mention it, but you may also want to play around a bit with Firecalc (Firecalc.org) and see how various assumptions about spending and returns will influence things.

We RE'd at 48/46 with 2 kids headed to college, but had pre-funded 2x4yrs of private/selective admission school tuition and after that had something like 28x our annual living expenses on hand ...

and I'm still actively trading that pile until the kids are fully launched to avoid touching principal for a few years.

You're close, but maybe too close?
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Old 01-13-2016, 02:24 PM   #8
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I do not see that you have run FIRECALC. That will give you another perspective on how sound your plan is. Firecalc.com
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Old 01-13-2016, 04:27 PM   #9
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Thanks for the feedback - it's all appreciated!

  1. We have savings set aside for our kids education - so I'm in a good place there.
  2. I have run firecalc several times in the past - and feel that if I'm at $1M, I'm good for the long haul
  3. While I would officially "retire" - I'll still be doing some things that will bring in income, plus my wife will continue to work p/t. Estimate at least $30K/yr from all of that.
  4. I have looked at our budget extensively. Figuring on the high-side, and taking out any money I'm currently putting into savings/retirement funds - we use about $50K/yr
  5. The extra $100K to get to $1M by the end of 2016: I work for an employee-owned company - and the last few years I've gotten at least $50K added in company stock. While that's not a given, the year is off to a similar start as last year (we're almost halfway through our year). I am also putting about $30K into retirement/401K funds over the course of 2016. While not quite $100K, it's close - and in reality - my current state is really closer to $925K in retirement savings as of today.
  6. Healthcare: yes - that one is a big unknown for me - even though I've looked into it several times. More work to do here...
Thanks again.
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Old 01-13-2016, 10:26 PM   #10
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My budget for healthcare for two people is $30k per year. I budget not only for the premium but for the out of pocket max. I do not budget for a subsidy. My eye drugs cost $1800 per treatment and I've averaged 6 per year, so for me the out of pocket max is a given. You don't need to be very sick to hit the max.

In ER i would rather err on the sides of caution. In my mind ER is a one way street. Before I actually retired that one way street represented the potential difficulty of reentering the workforce after age 50. Now that I have been ER'd for a few months that one way street represents repulsion at the thought of having to go back to work again.
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Old 01-14-2016, 11:45 AM   #11
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Lance, along with some of the other advice you have gotten, I would consider getting three years of expenses (45K *3 = 135K) and have that put in low risk account of some sort. Others here have recommended that when the market tanks again (and it will), you won't have to siphon your retirement account when it's at it's lowest.
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Old 01-14-2016, 12:04 PM   #12
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Welcome Lanceman002!!

Being from Wisconsin, I can see how $45k is doable, and in many areas if the house is paid off, your actually sitting pretty assuming you dont' live in Madison or Milwaukee as the cost of living in Wisconsin is very very affordable.

I do suggest you look into healthcare very carefully. I doubt you'd qualify for Badgercare and I know they didn't take the expansion, so there is the donut hole there, so you'd want to be sure you have enough income to be on a subsidized plan. I'm never sick but go figure the year I retire I ended up in ER and was almost $4k out of pocket and my honey had to have therapy on his leg from a running injury, add $2k more for that, plus premiums, dental, glasses and it quickly became $10k vs. the premium plan I had at work would have been like $2k. I had budgeted $15k and using a 10% inflation index on that number only. However, budgeted vs ever thought I'd need it is two different things.. Add to it the current stock market and its been a painful first year of retirement. So go through that mental exercise, take that kind of money out of your investments when your no longer contributing and get a sense of how you'd feel, and are you ready for that. If you are, your probably ready... else keep working a few more years.
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Old 01-14-2016, 01:25 PM   #13
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Welcome Lanceman002!!

Being from Wisconsin, I can see how $45k is doable, and in many areas if the house is paid off, your actually sitting pretty assuming you dont' live in Madison or Milwaukee as the cost of living in Wisconsin is very very affordable.

I do suggest you look into healthcare very carefully. I doubt you'd qualify for Badgercare and I know they didn't take the expansion, so there is the donut hole there, so you'd want to be sure you have enough income to be on a subsidized plan. I'm never sick but go figure the year I retire I ended up in ER and was almost $4k out of pocket and my honey had to have therapy on his leg from a running injury, add $2k more for that, plus premiums, dental, glasses and it quickly became $10k vs. the premium plan I had at work would have been like $2k. I had budgeted $15k and using a 10% inflation index on that number only. However, budgeted vs ever thought I'd need it is two different things.. Add to it the current stock market and its been a painful first year of retirement. So go through that mental exercise, take that kind of money out of your investments when your no longer contributing and get a sense of how you'd feel, and are you ready for that. If you are, your probably ready... else keep working a few more years.
Excellent advice. Plan for the worst, hope for the best.
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Old 01-14-2016, 02:17 PM   #14
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Some questions:

- Does your 45k/year include taxes. Remember, you'll be incurring some extra taxes as you do Roth conversions... make sure you model this as accurately as possible.

- Does your 45k/year include healthcare for your kids in college? If not - how will they pay for healthcare (mandated under ACA) while they attend college? I say this as the mother of teens and am looking forward to college expenses - I account for healthcare for them in my planning.

- You mention the 4% rule. The 4% rule assumes a 30 year retirement and still failed in 5% of the cases. You are talking about a longer retirement than 30 years. 3% is probably a safer bet.

All of this isn't meant to be a downer... I went through this exercise (and had my plan picked apart) when I first started posting here. The questions asked made me look at things from different angles, and really firm up my plan. I still recognize I need to be adaptable in case things don't work according to plan.

I strongly recommend running several retirement calculators.

Firecalc - make sure you enter all the tabs and make sure your spending input is inclusive of everything - taxes, health insurance, etc. Back tests your plan against prior market returns. Is less accurate when you get into extra long retirement plans because it limits the market inputs. So check for 30 years, 40 years, etc...

Fidelity retirement planner (used to be retirement income planner) Don't need to have Fidelity accounts - but do need to register on their site.

Quicken Lifetime planner - if you have quicken - this is a pretty good deterministic calculator - considers things like college savings, weddings for daughters, etc.

Running my plan through each of these calculators strengthened my plan - they each pointed out different things I'd overlooked. Once I had success in all of them, plus a bit of a padding... I felt confident to pull the plug. I managed to do it 2 years prior to my original plan.
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Old 01-14-2016, 02:56 PM   #15
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It seems a bit tight - especially with 3 kids.
My biggest concerns are large 1 time items that may not be considered in your budget.
Out of pocket medical, dental bills, car repairs, etc. Our house is also paid off, we have lived in it 20+ years. But now maintenance is higher because of age of home.
New roof this year ($9k), update of appliances, bathroom, etc. Just a few things to consider.
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Old 01-14-2016, 04:14 PM   #16
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I would spend a year living on 45k to make sure it works. I have lived in wis for a long time in the past so agree the cost of living is fairly low. Also being the mother of 3 adult kids and 2 step kids let me mention that those kids tend to boomerang home for a while. College breaks, after college until they get job, etc. This will raise your grocery bill, utilities, etc. Healthcare premiums for us cost $10k/year alone. Cars will need to be replaced, home repairs, property taxes, etc.
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Old 01-15-2016, 05:40 AM   #17
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I would echo all that has been said so far. I dipped my toes into the early retirement waters a couple years ago in my early 50"s in a similar situation to yours. Family of 4, house paid off, college funds in place and a solid Net worth. What I found after being in the shallow end of the pool was the following:
  • I want to live in the lifestyle I have become accustomed to living, so while I could survive on 50K a year, I like the lifestyle that 75K a year provides. Mind you, at that number I don't pay a mortgage, save for retirement or have to put additional money in college funds. So, it's living a middle to upper middle class lifestyle.
  • While I was very versed in healthcare costs, it still is shocking what it costs, the ACA could go away so you can not count on that long term. We do not qualify for the ACA now, maybe later if it is still in place. Thus, I would see that as a bonus.
  • I have felt asset values were at their peak in this cycle so I have been cautious in my allocation and am concerned that we could see returns over the next several years be flat or down.
  • I an underwriting SS as a bonus in my later years and I have estimated my future payments, but I have used 75% as I believe there will have to be some adjustments to keep it going at least for my lifetime.
  • Lastly, I want to try and leave a legacy for my kids, so that adds an additional level of difficulty in navigating a 30+ year retirement.
As such, my wife and I established part-time consulting work that, as of now, covers 100% of our annual needs which frankly, when the market drops 10+% in a month, let's me sleep soundly. So, as others have said, you need to be honest about the 45k annual costs including healthcare. I think it would be wise to either extend your career a couple years while things are volatile or be sure you can cover your annual budget with the part-time work.



Sorry, if this not as optimistic as you might want to hear, but my parents were of the greatest generation and grew up in the depression so I am predisposed to be conservative.
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Old 01-15-2016, 07:39 AM   #18
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lanceman, it sounds possible but not without a significant amount of risk. You and I are in about the same boat in many ways. Could probably swing it with a very early retirement, but we've decided to get our children through college and fully launched first which will also allow us to save more than we need and reduce the uncertainty for health care. Target is age 55 for us with all that taken into account. Good luck!
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Old 01-15-2016, 07:48 AM   #19
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Your age and plan is similar to mine, but we're nervous even though we have no kids, about double your assets/expenses, and a 3 year cash reserve.

I also agree to get a bit more in that big egg before you go. I know how hard it is once you think you are in OMY but many of us have been there done that and added on the extra Y or a bit - it goes a lot faster than it seems!
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Old 01-15-2016, 10:07 AM   #20
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Very similar to you. A bit older, a bit more assets, only two children. I waited until one was in college and the other demonstrated that he is on track to get good scholarships when he hits college. (We also had education accounts set up to help a good bit even if it wouldn't cover everything.) I'm still a bit nervous after pulling the plug last year. People on this list are usually very conservative and higher income/expense types so take that into consideration. I live in a lower cost of living state with modest expenses and continue to work on rental property for income. I ran all sorts of numbers before pulling the plug. Sounds like you are doing the same. Its really a question of how and where you want to live and what is your comfort level based on the numbers.
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