54 and ready - scared... here's my situation

[Yipper]

Hi folks - l found this site recently and fell in love! I stumbled on FIREcalc and ******** (prefer the latter actually) and check on my trajectory monthly.

Here's my situation:

I'm 54 and employed by MegaCorp (21 years w/ $250k annual income). Spouse is 55 and unemployed currently. 3 kids, 2 are out of college and off the payroll - youngest is a freshman in college.

Net worth = ~$2.7M

$1,200k in retirement accounts - 401k & IRA
$550k in taxable brokerage - target date fund 2030
$550k in primary residence (no mortgage)
$375k in vacation residence (50% shared ownership - no mortgage)

I estimate needing about $100k/year for normal living expenses which includes health insurance until Medicare. I've factored in Social Security expected benefits for both myself and spouse... starting at full retirement age and getting ~$31k for me and ~$10k for spouse. Not sure what is best for filing but started with full age.

******** is giving me a 99.06% success rate with variable spending between $75-140k/year (figure we can tighten our belts if needed but spend a bit more when things are going well).

I've had rental property in the past and am thinking about using some of the $550k in the taxable brokerage and perhaps some mortgage on the primary residence to purchase a small multi-unit rental property in my town. I used to like the idea of steady rental income over having everything exposed to the stock market. The idea of some appreciation and reliable cash flow again is attractive. I'm relatively handy and can take care of regular maintenance on a rental property.

I'm curious about what others feel I might be missing. I plan to find something to do with my time - less stressful, part-time, whatever... volunteer work part-time as well. Definitely won't bring in $0 employment income for a while longer but also can't keep doing this job for more than another year or so, tops. Life doesn't go on forever and good health is not guaranteed. I want to take more walks outside, ride my bicycle, hike a bit, enjoy life more than I have the last 20 years.

Scared to pull the trigger.

[DrRoy]

Your initial WR off the investments is 5.7%. That would be too rich for me. Did you include taxes, vehicle replacement, and contingency in your spending? The calculator success rates are based on historical rates of return, which I do not have confidence in over the next couple decades. I would want the WR close to 3%.

[cathy63]

With Firecalc, I put in $1.75M as a portfolio and $100K as the annual spend, plus $31K and $10K incomes starting in 2031 and 2030 respectively, and I got a 59.8% success rate.

Adding another $100K to your stash before you retire in a year gets you to 70.9%. Then adding $24K in net income from your rental scheme starting in 2019 would get you to 96.6%. That seems like a pretty big ask given that you'll have to pay the mortgage on both the rental and your primary home from the rent.

If I were you, I'd try to increase your liquid investments to $2M before retiring if at all possible.

[golfnut]

Not sure how much you save per year but based on your numbers, I would work another couple of years so the investable nest egg grows a bit.

Let's say you can withdraw 3.5 % of your funds or approx. $60,000. Can you find pt work to make up the $40,000 difference (you mentioned you need $100,000) ?

[ivinsfan]

So if by FRA you mean around 66-67 and not 70.. you have your wife's SS on the low side her number should be more like 15K, spousal benefit...


You would want your taxable or after tax money to live on to help you qualify for ACA insurance and greatly reduced HI rates if you are under the subsidy limit on income. You don't want to be pulling from the retirement accounts that's taxable.

But that amount will only get you five years of living expenses, you could do a part time job and still stay under the income limit. I know some posters are going to say that might change but it's the law right now and will take some time to move thru the system.

It's fine for you to list real estate as net worth, but it means nothing when covering your expenses.I suggest a year or two of work putting aside some after tax money and watching to see what happens with the ACA laws. You'd be in a much stronger position then.

[StuckinCT]

I ran the firecalcl with $41k SS and $120k spend, have to include taxes, and I have you at 58%; $100k spend I have you at 82%- still too low. Have you thought about selling the vacation property and using the proceeds to generate rental income? I added $15,000 in pension income in 2019 as rental income and it goes to 100% at $100k spend, 76% at $120k spend including taxes.

[Texas Proud]

My first question would be.... If you are making $250K per year and only need $100K why are your assets so low?

Second, why are you not saving more per year now?


What would be the cash flow of the rental property? Have you done this before? What happens if you find out you are bad at it? It cost a lot of money to get in and out of RE...

[MBAustin]

Welcome Yipper! If you haven't found them already, we have a helpful list of things to think about as you're making the decision to retire:

Some Important Questions to Answer

Having a very solid handle on your actual spending, plus allowances for "spikes" (new roof, new vehicle, insurance deductibles, etc.) is pretty important as you're making the decision, as well as your willingness to be flexible on discretionary spending, particularly in the early years if you end up in a poor sequence of returns situation.

[Yipper]

This is a great forum - thanks to all for input... keep it coming, exactly what I needed.

Some answer/clarifications...

- Making $250k and only need $100k spend so why so little saved? Life happens... ailing/elderly parent expenses, children college expenses, etc. added up to more modest savings until a few years ago. Saving significantly more now.

- Rental experience... been there / done that. Managed single-family rental property for many years. Very comfortable with real estate and understand all costs, liquidity issues, etc.

- Cash flow on rental would be around $1,500 / month after taxes and all costs.

- Vacation property has been in family for over 100 years so tough to just sell and use the funds elsewhere unless my hand if forced by other owner, tragedy or desperation.

- Based on deep analysis of existing spend patterns, $100k/annual in today's dollars is fine... a little more is always welcome but with no debts I could tighten the belt down to $80k and be fine. The extra adds buffer and improved lifestyle options (travel, etc.).

I have an additional $100k in company stock (after tax) and a 'probably' inheritance of around $100k - both of those are not guaranteed / risky so in the "don't count on them" bucket but are in the mix for buffer (roof/car/etc.).

ALSO... I expect to continue working for some time at something less stressful and part-time to just buffer the finances, as does my wife. We're not "sit around" type people so having part-time jobs pulling in $20-30k per year (for both combined) for the next 5-10 years would be fun actually.

Thanks everyone - this is an awesome set of forums to explore the opinions and experience of others... wish I found you all a long time ago.

[Earl E Retyre]

Quote:

Originally Posted by Yipper ... I've factored in Social Security expected benefits for both myself and spouse... starting at full retirement age and getting ~$31k for me and ~$10k for spouse.

My understanding is that your spouse is automatically entitled to receive either a benefit based on her own earnings or a spousal benefit based on 50% of your earnings. Social Security calculates and pays the higher amount.

So, if you receive $31k then she would get $15,500 (not $10k).

Google and you will find a bunch of articles on this. Here is one random one I found: https://www.thebalance.com/how-the-t...-works-2388924

I am not a SS expert and too young to be eligible. But that is what I believe is true. Having said that, I assume only 75% of my SS due to the unknown funding levels.

[CindyBlue]

[QUOTE=cathy63;2002419]With Firecalc, I put in $1.75M as a portfolio and $100K as the annual spend, plus $31K and $10K incomes starting in 2031 and 2030 respectively, and I got a 59.8% success rate.

Hmm...I put into FireCalc the same numbers you did (1.75M as a portfolio and $100K as the annual spend, plus $31K and $10K incomes starting in 2031 and 2030 respectively), and got an 80.3% success rate. Did I do something wrong?

[brucethebroker]

Quote:

Originally Posted by Yipper - Vacation property has been in family for over 100 years so tough to just sell and use the funds elsewhere unless my hand if forced by other owner, tragedy or desperation. ALSO... I expect to continue working for some time at something less stressful and part-time to just buffer the finances, as does my wife. We're not "sit around" type people so having part-time jobs pulling in $20-30k per year (for both combined) for the next 5-10 years would be fun actually.

Welcome. 3 thoughts about the above.

Personally, I would not include the vacation property, nor home net value in your figures. Look at your "invest able assets". (Unless you are planning on selling both properties when FIREING, leave those values on your net worth sheet, but don't put them in your invest able asset category).

Second, IMHO retirement is more about the income, not assets. If you plan on working PT, whatever, that is a huge difference maker. The earned income can allow you to semi-retire on fewer assets than a non working retirement.
(And self employed income has many tax perks)

Third, the rental income is also a difference maker. Since it is not uncommon to make 6-10% net, plus have huge depreciation allowances, again, you can semi-retire on less savings.

(BTW, the new tax plan seems to favor self employment and rental income with additional goodies.)

I personally know people (in low cost of living areas) who have semi-retired (while working PT) on less than $500k savings, and SS. Good luck.

[daylatedollarshort]

We put our expenses in the same categories as the Consumer Expenditure Survey to look for for some areas of opportunity to cut back our fixed expenses. Some like our house we couldn't do much about since we live in a high cost of living area but other items like hair stylists and groceries really jumped out so we learned how to get better value for our money in those categories.

We also did things like get rid of the landline, install LED lights, made the house more water and energy efficient, changed our insurance deductibles, started paying all the bills with a 2% cash back credit card and probably a hundred other changes that didn't hurt our lifestyle but really lowered our overhead so we could FIRE. Every $1K you can trim over a 40 year retirement means needing $40K less in total retirement funding. We had part-time income as well but getting a better handle on our expenses is what really made the biggest difference in our FIRE date. Good luck.

[Cayman]

Hi and welcome Yipper. I would caution you not to retire at 54 with a $1.75M portfolio and an annual spend of $100k. As Dr. Roy mentioned, your initial withdrawal rate (WR) is 5.7%. I suggest you consider a 3%-3.5% initial WR.

Do your Fircalc and ******* results include the value of your home and vacation home? If so, I suggest you use only your portfolio value ($1.75M), as your homes won't generate funds for your retirement unless you sell or rent them.

Social security - did you reduce your benefit amount to reflect early retirement and the quarters that you won't be earning wages and contributing to soc. security? You can find more info about how to do this on SSA.gov. Also - I only count 60% of my projected benefit because our benefits may be cut, and I want to avoid a nasty surprise.

[Yipper]

Quote:

Originally Posted by Cayman Do your Fircalc and ******* results include the value of your home and vacation home? If so, I suggest you use only your portfolio value ($1.75M), as your homes won't generate funds for your retirement unless you sell or rent them.

No - I left them off as I don't want to model things as if I never have to use those assets for living expenses.

Quote:

Originally Posted by Cayman Social security - did you reduce your benefit amount to reflect early retirement and the quarters that you won't be earning wages and contributing to soc. security? You can find more info about how to do this on SSA.gov. Also - I only count 60% of my projected benefit because our benefits may be cut, and I want to avoid a nasty surprise.

Good question... yes, I factored in the reduction in contributions and modeled things as if zero income after next year. That said, didn't realize the spousal benefit of 50% - I need to look into that further.

[Yipper]

Quote:

Originally Posted by brucethebroker Welcome. 3 thoughts about the above. Second, IMHO retirement is more about the income, not assets. If you plan on working PT, whatever, that is a huge difference maker. The earned income can allow you to semi-retire on fewer assets than a non working retirement. (And self employed income has many tax perks) Third, the rental income is also a difference maker. Since it is not uncommon to make 6-10% net, plus have huge depreciation allowances, again, you can semi-retire on less savings.

Thanks - that's the plan... supplement existing savings with income. Passive in the form of rental income and active in the form of part-time employment in the early part of retirement. I'm also a believer in retirement spending dropping as we get older but don't believe for a second that it'll be as low as some projection models (aka Bernicke) and not sure how to model that on FIREcalc. I can see a spending model where say retirement spending is grouped in early/middle/late with early and late having the highest spend and middle with a reduction - perhaps 10-20% less.

[cathy63]

[QUOTE=CindyBlue;2002640]

Quote:

Originally Posted by cathy63 With Firecalc, I put in $1.75M as a portfolio and $100K as the annual spend, plus $31K and $10K incomes starting in 2031 and 2030 respectively, and I got a 59.8% success rate. Hmm...I put into FireCalc the same numbers you did (1.75M as a portfolio and $100K as the annual spend, plus $31K and $10K incomes starting in 2031 and 2030 respectively), and got an 80.3% success rate. Did I do something wrong?

Hmm. You're right, I am now getting numbers more like yours. I must have mistyped something when I entered them. I still don't think 80% is high enough though.

[Bigdawg]

Quote:

Originally Posted by Yipper I estimate needing about $100k/year for normal living expenses which includes health insurance until Medicare.

100K seems a bit high with no mortgage. Have you tracked actuals for the past few years? Estimating is alright but try to track actuals to get a better sense of your retirement needs.

Good luck.

[Yipper]

living in New Jersey currently and planning to for maybe 10 more years max... that's the issue - everything is expensive here. 11k property taxes alone and no relief in sight. But you make a good point, I think we can do just fine on $80k/year but I like to be conservative in all numbers. I need to do a better expense analysis on actuals.

What's the best way to analyze spending... look back or go forward in 'practice' mode?

[Ready]

Quote:

Originally Posted by Yipper What's the best way to analyze spending... look back or go forward in 'practice' mode?

Both. Looking back gives you a good historical perspective, but you will have to factor in how your expenses have changed over time. For example, at one point you had a mortgage so your expenses were likely much higher. Once the mortgage was paid off the numbers should have gone down quite a bit. You also had large expenses like a college education which will eventually go away.

But looking forward you will need to think about how your life will change once you stop working. How will you spend your time? Travel more? Take up new hobbies?