Almost 40 years old and SOOO happy to find this forum!!!

[maldini]

Hi all,

I have been a near maniac in creating excel spread sheets to help me model for retirement. Most times I am happy with what I produce but their are many times where I wish I had someone to look things over and discuss with.

We have a goal to retire at 50. I would appreciate any one who has the time in taking a look at the data below and commenting whether we are in the ball park or have no real hopes and to change our retirement expectations.

If you require more information to help make a judgment, please ask and I will provide

Thank you very much:

Family Info
Married with one child (it will remain 1 child)
Daughter is 8 and in the 3rd grade
I am 39 and wife is 40

Work Salary Info
Combined household income: $231,000

Current Savings:
$1,330,000
This breaks down into the following (all approx)
$70k in cash
$650k in brokerage account (all mutual funds)
$610k in retirement accounts (all mutual funds)

Mutual Fund Break Down (all approx.)
43% Value
35% Growth
14% International
8% Blend

52% Large Cap
24% Mid Cap
24% Small Cap

Asset Allocation of Mutual Funds(approx)
85% Stocks
15% Bonds

529 Plan (this is above and beyond the savings listed above):
$81k

Mortgage
All paid off. Home value ~$525k after expected Realtor fees if we were to sell

Retirement Goal
50 years old

Current Savings Rate/year:
$11k into 529
$30k into 401K's (not including company matching)
$8k into traditional IRA
$50k into brokerage account

Current Expenses/year
$48k

Expected Expenses in retirement (in todays dollars) pre age 75. Note: this amount is what I would need AFTER tax!!
$68k: This accounts for health care and a travel budget

Expected Expenses in retirement (in todays dollars) post age 75. Note: this amount is what I would need AFTER tax!!
$53k: This accounts for lower health care and a small travel budget

Expected Inflation:
I switch between 4 and 4.5% in my models

Growth rate: Pre retirement: Goal
7.5%

Standard Deviation: Pre retirement: Goal
10.5%

Growth rate: Post retirement: Goal
6.5%

Standard Deviation: Post retirement: Goal
9.5%

Pension:
My wife and I will both be getting a tiny pension from an old company we worked for. I expect maybe $800 a month in todays dollars from this.

Social Security:
For now I model $0

Expected Savings Rate per year for retirement: (note this is SIGNIFICANTLY less than we are saving now but I want to be conservative in the model in case one of us loses our job)
$30k

Downsizing in retirement:
We have a big house and would not be adverse to downsizing(and as such lowering retirement expenses). Initial goal though would be to not have to downsize though and stick with the above expense models.

Death Approx.
Shooting for early 90's for both of us

Money Left Over when dead:
The goal is to pass the house on. (ie, the money can run out when we do)

 

[Texas Proud]

Somebody else might do the numbers, but it looks like you have things well in hand...

And welcome aboard.

 

[Gumby]

Wow! You're doing great. In fact, it seems like you could jump earlier if you wanted to.

 

[Charlotte]

Welcome Maldini

Welcome Maldini -

When reading about your age, your income, your accounts, your allocations, and your expenses, I am amazed how closely we mirror each other. I almost could have written your post, except I have 2 kids (and so, double the 529 account amounts). But other than that, we're two peas in a pod.

I'm just guessing about you, but I believe for myself I'm on target to retire in about 5-6 years. Unless anything major happens, I bet you'll make your goal before 50, or perhaps even earlier if the markets are kind to us.

Congrats on having the focus and wherewithall to be where you are before age 40.

Charlotte

 

[maldini]

Wow! You're doing great. In fact, it seems like you could jump earlier if you wanted to.

Thanks thats nice to hear. I have run the numbers numerous times but I am always afraid I am doing something wrong.

The scary thing for me is running the model one time with an inflation rate of 4% and seeing a ton of money left in my 90's and then running it again with an inflation rate of 5% and seeing the money run out in my 80's.

Just makes me a bit scared is all.

I really do appreciate this forum and the feedback I can get.

 

[Fireup2020]

Welcome!

 

[maldini]

Welcome Maldini -

When reading about your age, your income, your accounts, your allocations, and your expenses, I am amazed how closely we mirror each other. I almost could have written your post, except I have 2 kids (and so, double the 529 account amounts). But other than that, we're two peas in a pod.

I'm just guessing about you, but I believe for myself I'm on target to retire in about 5-6 years. Unless anything major happens, I bet you'll make your goal before 50, or perhaps even earlier if the markets are kind to us.

Congrats on having the focus and wherewithall to be where you are before age 40.

Charlotte

Thanks for the response Charlotte!

you guys are making me feel better already!

As finances of this detail are not the type of thing you can discuss with work mates or even friends/family, its sometimes hard to get a read to whether our goals are achievable.

I am keeping my fingers crossed and will keep saving as much as we can until our inevitable drop in salary (we both work for high tech firms that are on semi life support). This is one of the reasons I try and model a much smaller savings rate than we currently achieve.

Maldini

 

[Meadbh]

Maldini, welcome to the Board! I'm impressed that, unlike many newbies, you present precisely the information necessary to enable old timers to make a good asssessment of your ability to FIRE (which you most certainly can).

Andy, should this be a template for others to use?

 

[maldini]

Maldini, welcome to the Board! I'm impressed that, unlike many newbies, you present precisely the information necessary to enable old timers to make a good asssessment of your ability to FIRE (which you most certainly can).

Thanks! I actually was not sure what to put down, so I simply listed everything that I keep track of in my models.

What is FIRE (sorry as you said I am newbie)...

 

[HobbyDave]

A couple quick things. Your expenses right now are 48k per year, but are expected to go to 68k per year when you retire. Why the 20k jump? I've heard that health care for a family may be around $1k per month right now (which accounts for $12k), but would travel take up the other $8k? Or is that just a conservative number?

You have $1.3M invested + 500k in home value.

Now I know you said you did want to keep your home. But theoretically you could do the following:

Sell your home ($1.3M + $500k = $1.8M)
Buy a new 2.5k square foot home with 3 acres in Kentucky/other lower class place for $200k (actually you could get it for less, but lets just call it $200k) ($1.8M - $200k = $1.6M)
Retire ($1.6M * .04 = $64k)

So with your current funds listed (and I rounded down) you could retire now with $64k per year. It's more than your current expenses in a cheaper area, and you'd have an extra 10 years of retirement.

Personally I'd love to retire 10 years earlier if it meant I just needed a cheaper home?

Anyway, it's certainly your choice, but I thought I'd point it out.

 

[bots2019]

We have a goal to retire at 50. I would appreciate any one who has the time in taking a look at the data below and commenting whether we are in the ball park or have no real hopes and to change our retirement expectations.

Looks like you're definitely on track - and working hard to cover all your bases. Have you run your numbers through firecalc? It has quite a few adherants on this board.

FIRECalc: A different kind of retirement calculator

 

[Dawg52]

Hey man, can you spare a $1 for a cup of coffee? Nice portfolio for your age. You should have plenty to spare when you reach 50. I would do it sooner if I were you.

Best of luck!

 

[bots2019]

What is FIRE (sorry as you said I am newbie)...

Financially Independent / Retire Early

Here's a summary of some of the common slang you'll see here...

http://www.early-retirement.org/forums/f32/acronyms-slang-frequently-used-forum-19058.html

 

[brewer12345]

Personally I'd love to retire 10 years earlier if it meant I just needed a cheaper home?

Anyway, it's certainly your choice, but I thought I'd point it out.

But that would require moving from MA to KY. Um...

I suppose if I were single and had no kids, I would make such a move in a heartbeat (probably to somewhere other tahn KY). But I am married with two kids and have aging parents nearby. No can do, and OP is probably in the same/similar boat.

 

[maldini]

A couple quick things. Your expenses right now are 48k per year, but are expected to go to 68k per year when you retire. Why the 20k jump? I've heard that health care for a family may be around $1k per month right now (which accounts for $12k), but would travel take up the other $8k? Or is that just a conservative number?

The idea is this.

1) To live the exact same life style today in retirement
2) Add $1k a month for health care
3) Add a travel budget (which is the remainder). A single nice cruise could eat that up.

In general though I do think its conservative because it does not take into account the expenses my daughter is using out of the 48k.

You have $1.3M invested + 500k in home value.

Now I know you said you did want to keep your home. But theoretically you could do the following:

Sell your home ($1.3M + $500k = $1.8M)
Buy a new 2.5k square foot home with 3 acres in Kentucky/other lower class place for $200k (actually you could get it for less, but lets just call it $200k) ($1.8M - $200k = $1.6M)
Retire ($1.6M * .04 = $64k)

yes we have briefly considered this but we both have so much family in the area that we are likely to not move.

If we do downsize some day, we figure it will get us ~$150k in todays $'s.

Retire ($1.6M * .04 = $64k)

I am not totally familiar with the 4% rule.

I tend to think of things in terms of growth and inflation.

What does the 4% withdrawal rule use for the difference between the expected growth and expected inflation?

Thank you so much for the help!

Maldini

 

[SecondCor521]

FIRE = Financial Independence / Retire Early

Just looking at your numbers I think you're certainly in the ballpark. Your $1.3M will most likely double over the next decade, so you'll be at $2.6M or so. At 4% inflation for 10 years your $68K retirement budget will grow to just about $100K. $100K on $2.6M is about a 3.85% withdrawal rate, which for 40 years is about 96% successful historically.

One thing you don't mention is your asset allocation. It looks like you are 100% stocks. The 96% success rate is assuming 75% stocks; increasing to 100% decreases the survivability slightly to 95%. For a 40 year period I believe the sweet spot is about 80% stocks / 20% bonds.

If you were to downsize the house that might shave a year or two off, depending on the particulars. Also, depending on how much you spend on your daughter between now and then, college/wedding/launching expenses, could play a minor role.

2Cor521

 

[SecondCor521]

I am not totally familiar with the 4% rule.

I tend to think of things in terms of growth and inflation.

What does the 4% withdrawal rule use for the difference between the expected growth and expected inflation?

Thank you so much for the help!

Maldini

Check out the posts in the Best of the Boards Forum to learn about the 4% rule:

http://www.early-retirement.org/forums/f35/

2Cor521

 

[maldini]

One thing you don't mention is your asset allocation. It looks like you are 100% stocks.

I am not 100% in stocks. I should add that to my original post.

I have some balanced funds in my portfolio which give me some bond exposure. Rough guess would be 15% of total portfolio is in bonds.

 

[tightasadrum]

Welcome Maldini,

You're out of the gate like a race horse! One question:

Where did you come up with the growth and std. dev. numbers?

And I'm just curious: what age did you start saving so aggressively and what convinced you to do it? So many people making high incomes in expensive areas spend a lot on life style, although I suppose $230000 income does give you some flexibility.

 

[maldini]

Your $1.3M will most likely double over the next decade, so you'll be at $2.6M or so. At 4% inflation for 10 years your $68K retirement budget will grow to just about $100K. $100K on $2.6M is about a 3.85% withdrawal rate, which for 40 years is about 96% successful historically.

oh crap, I just realized something.

Now I understand why everyone is coming up with a much smaller portfolio need than I am expecting to need.

When I said $68k for a pre75 retirement expense, that was the number I expect to need AFTER taxes.

Since a good amount of my money is tied up in tax deferred retirement accounts, the money withdrawn will be taxed at income rate.

I will add this information to the first post for clarity.

I am estimating that I will need between $3.5 and $4M when I retire in 10 years to have a shot of making the model work (with out lowering retirement expenses)

 

[Meadbh]

What is FIRE (sorry as you said I am newbie)...

Financially Independent Retire Early!!!

There is a whole thread on Acronyms. Just use the search function to find out who your DW and DD are!

 

[maldini]

Where did you come up with the growth and std. dev. numbers?

My growth number I chose to be somewhat conservative based on my funds. I have been doing typically better than my target 7.5%

The std dev number is simply the running 3 year std dev average of all the mutual funds in my portfolio as tracked by Morningstar

And I'm just curious: what age did you start saving so aggressively and what convinced you to do it? So many people making high incomes in expensive areas spend a lot on life style, although I suppose $230000 income does give you some flexibility.

1) My wife and I both lived at home before we got married.

2) When we first got married 12 years ago, my wife and I made 83k combined. We also bought a house we could easily afford and had a large downpayment thanks to #1

3) Up until we got married we both did the standard 6% in 401k and simply saved the rest away in a normal savings account

4) After we got married, everything changed. Being engineers we both got caught up in severe career acceleration in terms of salary in the late 1990's. One of our companies did well enough that we were able to exercise some options and pay down our small mortgage

5) Once the mortgage was removed, it was coupled with another significant bump in salary (up above 200k). Our savings accelerated full speed from that point on which was about the year 2000. We have been saving on average about $90k a year since then. As mentioned above, we don't expect this to last, but we figure the more we save now, the easier it will be to still retire early but not have to carry a huge paying job to do so.

 

[donheff]

Maldini - you your wife are in great shape. I applaud your plan to wait until 50. There is a good chance that your forties will be even better earnings years. If you keep your current LBYM (live below your means) lifestyle you will have an extra margin of security that will make RE all the more comfortable. I think it is a mistake to push for the earliest practicable escape date - unless work has become extremely toxic. Better to take your time and make sure your ducks are in a row. Sounds like you are doing that.

 

[travelover]

Welcome maldini. Before I jumped out of the plane, so to speak, I used the free comprehensive retirement planner from Fidelity. It gave me confidence that I was going to be OK.

Not to push Fido over anyone else, but I found it to be pretty easy to use and sophisticated. One can also do "what if" scenarios with it.

 

[SecondCor521]

oh crap, I just realized something.

Now I understand why everyone is coming up with a much smaller portfolio need than I am expecting to need.

When I said $68k for a pre75 retirement expense, that was the number I expect to need AFTER taxes.

Since a good amount of my money is tied up in tax deferred retirement accounts, the money withdrawn will be taxed at income rate.

I will add this information to the first post for clarity.

I am estimating that I will need between $3.5 and $4M when I retire in 10 years to have a shot of making the model work (with out lowering retirement expenses)

Have you actually modeled a tax return for retirement? It sounds like you're thorough so I'm guessing you have. MFJ plus exemptions and the standard deduction may mean that you don't owe very much tax on the $68K. Sounds like your in CA though, and I know they have high state income taxes.

2Cor521