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Am I fooling myself about ER?
Old 12-10-2013, 10:13 PM   #1
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Am I fooling myself about ER?

After reading how much a lot of you have accumulated it sounds like I might be fooling myself about retirement.

54 years old

Single, no kids

55 to 57 hopeful early retirement

Will be 57 and home will be paid off July 2016

$80,000 - salary

$440,000 - 401K with 20% of salary yearly contributions
Broad Market Bond Fund 25%
S&P Indexed Equity Fund 15%
US Equity Fund 10% MSCI EAFE Indexed Equity Fund 25%
Small/Mid-Cap Indexed Equity Fund 20%
Emerging Mkts Indexed Equity 5%

$31,000 Ė Roth maxed out each year
FTSE All-World ex-USSmall-Cap100%

$30,000 yr. Ė Pension
$11,000 Ė approx. SS level income (If you donít know what this is, I can try to explain)

$41,000 a year

Any suggestions on how I can make this work?

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Old 12-10-2013, 10:20 PM   #2
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Have you figured out your annual expenses?
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Old 12-10-2013, 10:22 PM   #3
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Any suggestions on how I can make this work?
What are your current and projected no-kidding living expenses?
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Old 12-10-2013, 10:32 PM   #4
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Also, imho, you have a pretty aggressive asset allocation between stocks and bonds given your age. Might want to give some thought to putting more in your bond fund or if your 401k has one, a stable value fund.

Again, just a novice opinion of mine. If the stock market continues to go up and up, your aggressive stock/bond allocation should kick some b*tt. However, if we have a severe downturn, you could be looking at losing up to 50% of your stock portfolio or approx. 35% of your total portfolio.

Regarding your 401k, check the summary of the plan to see if it allows one to take penalty free withdrawls at age 55. Must still be employed as of your 55th b-day to take advantage of this.
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Old 12-11-2013, 06:56 AM   #5
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As others have said, track your expenses, including taxes, religiously. This is so important, it bears harping upon! If you kept receipts and statements, you could go back through 2013 and 2012 to see what your typical expenses have been in various categories (housing, food, utilities, insurance etc.), and then track those categories going forward. I include a "miscellaneous" category for odds and ends that don't seem to fit standard categories, yet suck up money nonetheless.

Then see if there's any difference between expenses and retirement income. Then look into whether a small part-time job might enable you to close that gap.

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Old 12-11-2013, 11:52 AM   #6
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Have you plugged your situation into FireCalc?
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Old 12-11-2013, 02:16 PM   #7
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Quote:
Originally Posted by brownred View Post
...
$440,000 - 401K with 20% of salary yearly contributions [/COLOR]
...
$30,000 yr. – Pension
$11,000 – approx. SS level income (If you don’t know what this is, I can try to explain)
...
Any suggestions on how I can make this work?
With a conservative WR of 3% from your 401k, you are looking at an annual income of ($440K * 0.03) + $30K + $11K = $54.2K.

Without a mortgage, a single person should do fine on that, and many posters here live comfortably on even less. So, forget about people with more money. The real question is how much you are spending, or rather plan to spend in retirement, as earlier posters have suggested.
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Old 12-11-2013, 02:16 PM   #8
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Without fully understanding all your numbers (e.g. is the pension more at 57? and is it COLA'ed), seems like you'll be good in 2 or 3 years when your house is paid off and you have "banked" some more money in your 401K and Roth. Looks like your needed retirement income is not too high (even at 100%) given you are living off a current salary of $80K-$16K(current 401k contributions) - $Roth Contributions?.

But as the previous poster said, plug everything into firecalc and make a ER run for 55, 56, and 57. I would recco leaving some "end of life" margin for LTC (if you haven't already covered that).
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Old 12-11-2013, 09:10 PM   #9
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As others have said, look closely at your expenses including how much health insurance will cost you. Include premiums, deductibles, co-pays in your calculations. Don't forget dental and vision. It's all expensive these days and inflation on health care is typically higher, so add a cushion.
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Old 12-12-2013, 06:58 PM   #10
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Quote:
Originally Posted by brownred View Post
After reading how much a lot of you have accumulated it sounds like I might be fooling myself about retirement.

54 years old

Single, no kids

55 to 57 hopeful early retirement

Will be 57 and home will be paid off July 2016

$80,000 - salary

$440,000 - 401K with 20% of salary yearly contributions
Broad Market Bond Fund 25%
S&P Indexed Equity Fund 15%
US Equity Fund 10% MSCI EAFE Indexed Equity Fund 25%
Small/Mid-Cap Indexed Equity Fund 20%
Emerging Mkts Indexed Equity 5%

$31,000 – Roth maxed out each year
FTSE All-World ex-USSmall-Cap100%

$30,000 yr. – Pension
$11,000 – approx. SS level income (If you don’t know what this is, I can try to explain)

$41,000 a year

Any suggestions on how I can make this work?
Sure you can .... depending on your lifestyle expectations. Lots of people in the USA live on that, some with kids. Hopefully you are in a low cost of living area.

But you might want to try living for a year while still working on only your projected retirement income (be conservative with your income projections & generous with your expense projections) Discount the house payment since that will be paid off. See how that income level feels. Is it comfortable for you --- is it "enough?" Will you be needing money for travel, hobbies, etc? What are your expense expectations for those? One can travel on the cheap or more lavishly. One can buy a big boat or a little boat. etc etc How much value do you place on the freedom of not having to go to work every day? How much do you like or hate your job? Do you plan to relocate at some point. How easy would it be to return to work at your former earnings capacity if you decided your ER income level were not enough for the lifestyle you would prefer?

The biggest thing for us was coming to understand what our lifestyle limitations would be on what for us amounts to a reduced/fixed income when we decided to retire early. We decided it was worth it ... haven't changed our minds yet. Just my 2 cents - others may disagree.

(Do you have health insurance covered ... or are you counting on the ACA?)
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Old 12-12-2013, 10:01 PM   #11
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I still a believer in a minimum of 65 - 75% of income for an active retirement. You will likely need at least 70% if you need to purchase health care.
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Old 12-13-2013, 12:41 AM   #12
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I still a believer in a minimum of 65 - 75% of income for an active retirement. You will likely need at least 70% if you need to purchase health care.
In a word-BULLSPIT!
Percent of income is completely irrelevant. Percent of income as a tool for planning retirement is a tool of the financial industry to confuse and mislead people. As others have said it all boils down to WHAT DO YOU SPEND? That is the key number. Not how much income you make now, not what percent of income is the magic percentage. What is the actual dollar amount? It may be 1% of your income, it may be over 100% of your current income or any number in between. If I make $50,000 a year and spend $50,000 every year I will need 100%. If my income instead is $500,000 a year I only need 10% income replacement. You must have some sense of the actual dollar amount you will need-- need for taxes, need for health care, need for emergencies, and all the rest.
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Old 12-13-2013, 07:33 AM   #13
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I still a believer in a minimum of 65 - 75% of income for an active retirement. You will likely need at least 70% if you need to purchase health care.
There are people on this board who saved 50% of their take home pay and lived on the remaining 50%. Why would they suddenly need more money?
The amount a person needs to budget for spending in retirement has no relationship to their previous earnings. People need to look at what they really spend now and will spend in the future.
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Old 12-13-2013, 07:51 AM   #14
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I still a believer in a minimum of 65 - 75% of income for an active retirement. You will likely need at least 70% if you need to purchase health care.
-3. I'll be more polite, but using any percentage is a bad idea. We know a couple who spend the same as they did while working, and it's closer to 25% of their former income...
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Old 12-13-2013, 08:00 AM   #15
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As others have said, track your expenses and plug your numbers into FireCalc. It looks like your pension and expected SS will be a little more than half of your current income, which is a good start. Is pension COLA'd? What about health expenses?
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Thanks
Old 12-15-2013, 09:40 AM   #16
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Thanks

I havenít figured my exact expenses like I should, I will start that Jan. 1.
I will probably go %30 bonds when I rebalance Jan. 1, Donít know if I can go much more than that. Iím the kind that things will continue to go up.


Yes, my plan allows penalty free withdraws if you retire early.
I have Co. healthcare now but I assume I and everyone else will eventually end up with ACA.


FierCalc? I went there and donít understand some of what itís asking me. Example: On the pension page, Iím lost. I donít know what it means by, off chart spending reduction, off chart spending.

Thanks everyone
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Old 12-15-2013, 09:55 AM   #17
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FierCalc? I went there and donít understand some of what itís asking me. Example: On the pension page, Iím lost. I donít know what it means by, off chart spending reduction, off chart spending.
Pension Income (or off chart spending reduction) = income from a pension or reduced annual expenses at a future date (such as paying off the mortgage)

The explanation is shown in detail just above the selections:

Quote:
Pensions, "Off Chart" Spending Changes, etc.

If you expect a pension in the future, enter the information here. You can also use this section to enter "off chart" spending (or spending reductions). These entries are for changes to your yearly income or outflow that affect how much you will need to withdraw from your portfolio each year, but do not impact your spending on your ordinary lifestyle. For example, you might enter an inflation-adjusted pension in the first line, future annual contributions/spending for the grandkids' college fund in line two, and a non-inflation-adjusted spending reduction once your mortgage is paid off in the third line.

These changes are termed "off chart" because, as with Social Security, they will affect how much you need to take from your nest egg each year, but will not be shown in the annual spending chart that will be shown in the results. In addition, the spending changes are not used in the calculation of the phased reductions in spending in the "Bernicke" model, nor the minimum spending level in the model that uses a fixed percentage of your remaining portfolio.
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Old 12-15-2013, 10:37 AM   #18
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I still a believer in a minimum of 65 - 75% of income for an active retirement. You will likely need at least 70% if you need to purchase health care.
-4 Percentage of income is totally irrelevant. What is relevant is what you need for the lifestyle you want in retirement. In my case it happened to be pretty close to our spending prior to retirement with a few adjustments, which by the way, was only about 40% of our pre-retirement income.

If one spends all their take-home pay and lives paycheck to paycheck, then 65-75% might be about right, but there will be too many instances where it won't be right to even suggest it as a valid rule of thumb.
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Old 12-15-2013, 11:29 AM   #19
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-4 Percentage of income is totally irrelevant. What is relevant is what you need for the lifestyle you want in retirement. In my case it happened to be pretty close to our spending prior to retirement with a few adjustments, which by the way, was only about 40% of our pre-retirement income.

If one spends all their take-home pay and lives paycheck to paycheck, then 65-75% might be about right, but there will be too many instances where it won't be right to even suggest it as a valid rule of thumb.
(Forget to mention in earlier post). And I'd add that once you track your spending and estimate a retirement spending budget - if all possible, you should actually try to live on the amount you're projecting for a year or more before you actually retire to make sure you can really do it. Some people can indeed curb spending in retirement, others can't and conclude they're better off continuing to work to accumulate a larger nest egg.
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Old 12-15-2013, 11:44 AM   #20
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-4 Percentage of income is totally irrelevant. What is relevant is what you need for the lifestyle you want in retirement. In my case it happened to be pretty close to our spending prior to retirement with a few adjustments, which by the way, was only about 40% of our pre-retirement income.

If one spends all their take-home pay and lives paycheck to paycheck, then 65-75% might be about right, but there will be too many instances where it won't be right to even suggest it as a valid rule of thumb.
+1

Out of our gross income, we save 50% for retirement, we give 30% to Uncle Sam, and we spend 20% on ourselves. Once DW retires, we won't need to save for retirement anymore, Uncle Sam's bill will fall near $0, so we only need to replace 20% of our income to maintain our pre-retirement lifestyle - and even less if we move out of the Bay Area..
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