Alternatives

[Lagniappe]

Hi All,

I've been lurking for a while, but this is my fisrst post.

I am a 41 year old woman, single, who has been convinced that early retirement was the only option for me for at least 10 years. I am now at a point where it is in the forseeable future. The "when" depends on choices I make about "how". Right now, my assets (which have taken quite a hit in the last month) are as follows:
taxable accounts: $900 K
tax deferred accounts: $365 K
home equity: $265 K (assumes I can sell it for purchase price, appreciated enough to cover fees)

As I see it, I can retire in a style I am comfortable with in as little as 18 months. My budget includes things many of you may be critical of, like 10K/ year for travel, lots on entertainment/ classes and dining out, but hey, it's what makes me happy. To do this, I would have to sell my overpriced San Francisco condo and move elsewhere in the Bay Area, renting a modest apartment or cottage. The downside of course is not owning my home, and being subjected to the whims of my landlord on repairs, rental increases and the length of my tenancy. The upside is not having to do maintenance myself, and no crazy California real estate taxes.

Next option is to downsize the apartment/ house, buying a place further from the city. This would push my retirement date out to end of 2008-mid 2009. BTW, late 2009 is a magic date because at the end of that year I vest in lots of retirement benefits, so in one day I can add 10% to my net worth calculations.

Final option is to stay where I am and work until I can support myself in the lifestyle to which I've become accumstomed. That puts me in/around 2011. That seems a long way off. My job is okay, but I do get stress headaches and wake up in the middle of the night. 5 more years of this?

There are multiple hybrids of course, including sellling the house and just taking a year off at the end of 2007 and deciding later. If I decide to go back to work, I'm pretty employable in the current environment (engineering background, Ivy League MBA). Moving to a lower cost area is something people seem to always suggest on this board, but as a single woman I'm not overly excited about moving someplace completely new, and establishing connections. The wildcard in all of this is healthcare - I'm assuming I can get a policy plus out of pocket expenses for $500/ month - 3 years ago that was a really conservative assumption, today it seems spot on, but tomorrow

I'm interested in your thoughts and opinions on the options laid out, as well as any I haven't thought of.

I keep reminding myself that worst case (assuming moderate market returns for my 80/20 allocation) I'm looking at 5 years. But sooner would be better - I've delayed gratification a lot to save this much, I guess I can do it a little bit longer.

Val

 

[cute fuzzy bunny]

Looks to me like you'd be a little tight on the budget...ok...a LOT tight. Using the good old 4% withdrawal rate, you're looking at something in the 40-45k range after taxes...at best.

Sub 10k for travel, some more money for the other stuff you mentioned...and thats a pretty spartan amount left over to pay for your other needs.

Remember that you're going to need to buy stuff like replacement cars, clothes and other capital goods that can become pretty expensive.

 

[AltaRed]

Think you have answered some of your own questions. Retirement is about enjoying yourself in some reasonable manner that will keep you happy. Sure you can jump off the treadmill prematurely, but then you may pay the price in longer term happiness.

My suggestion would be to work toward those things that are most important to you, e.g. your 10k of vacation/dining out and your friends and network which means living close enough to where you are today. I think I can appreciate how important that is to a single woman.

You say late 2009 makes a big difference with respect to vested retirement benefits. I would suggest you aim towards that date...rather than 2011 or so. Trhree years is more encouraging as a goal than is 5 years. You can then re-visit where you are at when you get vested....and pull the plug then (or not).

Unless your workplace is real bad and your health is going to deteriorate over the next 3 years because of it, I would try to find some ways to reduce the stress levels at work. Perhaps back off a little bit to an average performance level that will keep you employed but at a reasonable balance. You might also find a way to squeeze your budget just a bit to put a few more k's away. Would 8k in vacation/travel/dining out really hurt that much?

 

[Rich_by_the_Bay]

Welcome to the forum. You have sure done well with your savings.

Assuming you have no other income streams after retirement, and that you somehow have addressed your health insurance coverage (you have, right?) you would need -- at your young age -- one of those infinite retirement plans, i.e. 4% SWR at most and that includes taxes.

My guess: if you sell and minimize or eliminate a mortgage payment, you can probably retire comfortably. To maintain your travel and leisure expenses, it feels too tight to me.

BTW, resist the temptation to just use a higher withdrawal rate -- if the market retreats for more than a short time, or even if it advances but very slowly (as some have predicted) you will have to go back to work. Not the worst thing in the world, but not what you are intending.

Have you considered semi-retirement, a la Bob Clyatt's book? Quit the current job, and take a part time or seasonal job doing something you more or less enjoy? That's what I hope to do, at least for a few years after I FIRE.

Good luck. You are very close.

 

[Lagniappe]

Just to clarify, I will be adding to my assets over the next 18-60 months, I do not in any way expect to retire on what I have accumulated to date, or I would have done it already. I save about $150K per year, including employer matches and such. That combined with 7-10% growth in the market should put me at about $2M at the end of 2007, which would cover expenses associated with apartment life as well as capital accounts for cars, appliances, and emergencies.

 

[Nords]

Welcome to the board, Val.

Maybe you should consider the options in Bob's book as well as the Kaderli's travel style.

 

[Rich_by_the_Bay]

Just to clarify, I will be adding to my assets over the next 18-60 months, I do not in any way expect to retire on what I have accumulated to date, or I would have done it already. I save about $150K per year, including employer matches and such. That combined with 7-10% growth in the market should put me at about $2M at the end of 2007, which would cover expenses associated with apartment life as well as capital accounts for cars, appliances, and emergencies.

Ready, aim, ...

 

[Lagniappe]

Welcome to the board, Val.

Maybe you should consider the options in Bob's book as well as the Kaderli's travel style.

Can you give me some info on who Bob is, and a pointer to his book? Thanks,

 

[Nords]

Can you give me some info on who Bob is, and a pointer to his book?  Thanks,

Bob Clyatt posts here as ESRBob, and has written "Work Less, Live More" about an ER approach that involves a slightly more conservative withdrawal rate as well as an occasional period of work.

You're on the cusp of ER with a few budget options that can put you on either side of the line. Perhaps you wouldn't even be considering it at this point if your body/health wasn't trying to tell you something.

 

[modhatter]

Without any social security or pension, etc., the 2 million figure is probably your best bet if you want to have enough for travel and a lot of eating out. If you were to assume a more frugal retirement, then your current savings would probobly do you just fine.

You mentioned something about additional vested benifits. Do you have any sort of pension plan at work. If you did that would make all the difference, as at your age you can not count on social security at 66 or whatever age upwards they might decide to adjust to. From what I understand anyone under the age of 55 is on shakey grounds with social security.

Of course if you decided to pick up and move to Mexico, or Argentina, or Thialand, you could live it up NOW. (Cheap medical insurance there too)

 

[blanston]

Val-

if yu are saving 150k now, and spending 60 to 80, you must be grossing 300k or more. Will you be happy living on 4% withdrawal rate from your 2 mil for the rest of your life?

This may be a stupid question to ask here on this board, because that is what everyone seems to be planning, including me. It's just, i keep asking myself this question. I thnk the older you are, this becomes a lesser concern. But at your age, you could be a bazillionare if you saved and invested like this for 10 more years.

 

[Brat]

Val, your expectations of 10%/yr are too high. IMHO, you could expect 8% with intermediate risk investments - some years it will be less, others higher. If you earn 10% + compounded for 5 years running count yourself blessed and buy a lottery ticket.

 

[Lagniappe]

Val-

if yu are saving 150k now, and spending 60 to 80, you must be grossing 300k or more. Will you be happy living on 4% withdrawal rate from your 2 mil for the rest of your life?

This may be a stupid question to ask here on this board, because that is what everyone seems to be planning, including me. It's just, i keep asking myself this question. I thnk the older you are, this becomes a lesser concern. But at your age, you could be a bazillionare if you saved and invested like this for 10 more years.

Blanston,

I could also be dead, or miserable and stressed out. More doesn't buy me any additional happiness. I live on this amount now, I just save a lot, and pay a lot in taxes. So for me, its not worth it to become a bazillionaire - I'm very happy with my current life. The tradeoffs between financial security and personal freedom are very individual. Being a bazillionaire, I can buy more stuff, but it won't make me any happier. Everyone makes their own choices, but for me, it's not about having the most I possibly can, it's about figuring about what it will take to keep me happy, living a life I enjoy fully, for as long as I can.

V.

 

[Rich_by_the_Bay]

I could also be dead, or miserable and stressed out. More doesn't buy me any additional happiness. I live on this amount now, I just save a lot, and pay a lot in taxes.

Val's right -- it's not her gross income, but her annual expenses. That changes the analysis greatly.

Amazing how often it all comes back to 25 x expenses at retirement, soundly invested and a 4% SWR.

I think Val is very close and if willing to work part-time, it's here and now.

 

[Brat]

I can understand Val's situation. S/he may be working for a firm that has gone through the venture phase and now can exercise stock options. Many of those employees have been sprinting on a very long track. Go for it!!

Not many grab a brass ring that can be held for 20 more years.

The next step is to develop a spending plan (aka budget) and invest your resources wisely.

 

[Coach]

Val, you seem to be doing great to me. To me, 2009 seems to be where you're aiming. The big question I see outstanding is health insurance. It's essential, a potential budget buster, and upredictable. If you can find some way to nail it down in a worst case way (state high-risk pool, perhaps -- I don't know CA) I think you can get a much firmer handle on your expense budget. And a firm handle on that is key to deciding when you can pull the trigger.

Coach

 

[donheff]

if yu are saving 150k now, and spending 60 to 80, you must be grossing 300k or more. Will you be happy living on 4% withdrawal rate from your 2 mil for the rest of your life?

But this is the standard error of the TV retirement crisis counselors - 70% - 80% of current earnings. The reality is you need to calculate your expenses. At 4% SWR she is looking at $1.5M for $60K or $2M for $80K. So her expectation of $2M is right on the mark for the upper end.

On the other hand Val, you could wait for the 10% boost from vesting and kick yourself up a notch. Then you would have more breathing room if the market goes really south or the option of profligate spending or helping some worthy cause if history turns out to be a good guide.

 

[bow-tie]

...I save about $150K per year, including employer matches and such. ...

Good heavens... ... that is awesome.  Good for you.

If you know what it takes for you to live per year, and can make some judgments on how that may/may not change in the future, I think you are almost there.  Compare that to a 4%-ish withdrawl rate and see how things stack up.

 

[virginia]

Val - Is there any way that you could take months,or even a year off, and then go back and get your vested benefits later?
This could give you a break that you really need now, but allow you to have the benefits of a more secure retirement. Also, you wouldn't have to feel later like you were constrained by having less saved. Personally, if I could save that much per year, I would want to work a couple more years to have that additional safety net, mostly because you have many more years to rely on this money.
Also, it's a shame not to get the benefits that you have worked so hard for.
Good luck
Michelle

 

[Lagniappe]

Thanks for all of the thoughtful input and encouragement. I have worked out my expenses seven ways to Sunday, and as everyone mentions, healthcare is the biggest uncertainty. I am going to rejoin IEEE; to qualify for their group health insurance you must be an active member for 2 years, so joining now means I'll have coverage at a not completely over the top price regardless of which date I choose. As far as a date goes, when I hit the $2M mark (the way this market is going, that could be never), I'll take a nice long vacation and then decide.

 

[Brat]

You also could COBRA to bridge the gap on health care.

 

[jclarksnakes]

Val,
....I salute you. You are among the few people who know how to live on LOTS less than what they make. This has the double benifit of building up your portfolio and also needing to use much less of it when the time to retire does come. You could retire now but probably not live the life you want and you might also have that problem with waking up at night. It seems to me that you should set your sights on 2009 as your retirement year and then adjust as it gets closer. Make the final decision when you know you will be able to sleep all night with the decision.
jc

 

[Green Jeans]

Without any social security or pension, etc., the 2 million figure is probably your best bet if you want to have enough for travel and a lot of eating out.

I like to travel and eat too too, don't have social security to look forward to but do have some investments and a pension to factor in. This brings up a question I've had on my mind for a while - I'm 50 and if I were to retire today would have a pension of about 72K a year (full cola and subsidized health coverage included). What does that translate to in FIRE talk so far as what it's worth? Like how much real $ would a person have to invest to yield that kind of return? (Actually, judging by the way my other investments perform, other than the real estate, it's a good thing I got that job with the pension at the end of the line.)

 

[Green Jeans]

sorry, didn't mean to put words in modhotter's mouth. Only the first few lines of the post above were from his post. The rest was mine.

zaniew
confused about dryer sheets
quoting
and investments

 

[REWahoo]

sorry, didn't mean to put words in modhotter's mouth. Only the first few lines of the post above were from his post. The rest was mine.

zaniew
confused about dryer sheets
quoting
and investments

I can help on the quoting issue.

When you click on the quote button, you will see a [(slash)quote] following the quoted material. Scroll down and place your cursor below that symbol to begin your comment. That should separate what you want to say from what you are quoting.