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Old 08-18-2015, 07:10 PM   #1
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Am I ready?

Longtime lurker, first time poster. Appreciate all the insights that I have gathered from this forum.

Would like to get some feedback if we are FI. Work is ok....not too exciting...and would like to have the option of pulling the plug at any time, if warranted.

We are couple (both 45yrs) with 2 kids (12 & 10). Currently renting and plan to rent for the immediate future. All investment in stocks / bonds. No real estate.

Future Budgeted Spend (annual):
General Expense $50k
Rent $30k
Health Care $20k
Tax $30k

Total $130k

Have set aside $500k for children's education.

Current Investments (70% of it in after tax accounts; 60/40 stock/bond) : $3.5M

Additional $0.5M for children's education set aside.

Pension: None

Estimated Social Security : $30k per year (at 62 assuming no further income)

Question: Ignoring Social Security, are we FI or should we wait till we have $4.5M?

With $3.5M, withdrawal rate would be ~4% and $4.5M would get it down to ~3%.

Appreciate your feedback. Thanks.

F1
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Old 08-18-2015, 07:45 PM   #2
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F1goal congrats on a great position to ask the question. Sure $4.5M would be a lot better, and might help with someone so young to feel safely FI. How long would it take you to add the additional money, 2 years or 5 years? To me your time is the trade you are making, I'd probably pick a point in between but I hate the idea of working longer than needed and recognize the worst case model we plan for is really unlikely, if you retire and the economy turns that bad and your near term sequence of returns crushes you maybe you'll need to go back to work. Accepting that as worst case adjustment is better than working 2 years longer than you needed to hit a 3.0% SWR.


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Old 08-18-2015, 08:20 PM   #3
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Originally Posted by F1goal View Post
Longtime lurker, first time poster. Appreciate all the insights that I have gathered from this forum.


We are couple (both 45yrs) with 2 kids (12 & 10). Currently renting and plan to rent for the immediate future. All investment in stocks / bonds. No real estate.


Have set aside $500k for children's education.

Current Investments (70% of it in after tax accounts; 60/40 stock/bond) : $3.5M

Additional $0.5M for children's education set aside.


Estimated Social Security : $30k per year (at 62 assuming no further income)

Question: Ignoring Social Security, are we FI or should we wait till we have $4.5M?

With $3.5M, withdrawal rate would be ~4% and $4.5M would get it down to ~3%.

F1
I assume the two half mils for children's education is the same half mil?

Have you run the your numbers in firecalc or other monte carlo analysis.

The old rule of thumb for 4% WR is based on a 30 year retirement... I assume you are assuming you are hoping to live beyond 75? But then again, it will just likely give you a bit lower probability of making a 40 or 50 year retirement.

Have you considered how you'll handle LTC?

Good luck
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Old 08-19-2015, 08:35 AM   #4
Confused about dryer sheets
 
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Thanks for the feedback.

Rothman...you are correct, trade-off is between 3-4 years more (depending on how the mkt behaves) vs. feeling more secure. Trepidation is calling it quits when the market is at a high.

Bingybear....The $0.5M for kids education noted in spend & savings is the same. Just wanted to note that it was set aside. As far as LTC, plan would be to fund through savings.

Appreciate the feedback. Thanks.
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Old 08-19-2015, 08:48 AM   #5
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You have an impressive nest egg at 45. Rather than fully pull the plug on w*rk would you consider something PT? That would give you time flexibility, some financial relief, and keep your business skills up-to-date.
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Old 08-19-2015, 08:56 AM   #6
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Thanks Global1. Unfortunately in my line, part-time / consulting options are not too many.....and not something that I would like to pursue either :-) Have lot of other outside interests that we would like to pursue in our free time.
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Old 08-19-2015, 09:10 AM   #7
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I wonder about your expenses.

$30k for taxes seems quite high if you have no earnings. You can get a better idea what your taxes will be by running your situation as if you were retired through TaxCaster or TurboTax. If you are not working wouldn't your income just be dividends and interest on your taxable portfolio... so perhaps $50k a year? If so, your federal taxes would be zero!

Also, health care seems a bit high. You can get a good idea of health insurance costs with healthsherpa.com and then add what you would expect deductibles and co-pays to be.

At your young ages, I would target a 3.0% to 3.5% WR. If I am close to right on the taxes being way high then your WR would be ~3%, so you are in good shape because you have SS on top of that.

Have you run your situation through Quicken's Lifetime Planner or Firecalc?
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Old 08-19-2015, 11:28 AM   #8
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Originally Posted by pb4uski View Post
$30k for taxes seems quite high if you have no earnings. ....so perhaps $50k a year? If so, your federal taxes would be zero!

Also, health care seems a bit high. You can get a good idea of health insurance costs with healthsherpa.com and then add what you would expect deductibles and co=pays to be.
+1 for both.

OP...You can bring your healthcare cost down by staying below 400% FPL and getting subsidy from obamacare..Keep in mind your kids can be on your plans until they're 26.
Taxes can be lot lower as pb4uski mentioned.

Hopefully...that will bring your expense down by 30K...means you need around 100K and 3% WR...You are good to go now..
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Old 08-20-2015, 09:05 AM   #9
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Appreciate the feedback pb4uski & retire2020. Agree on taxes...that was just a swag...need to run it through turbotax as suggested. On healthcare, was being conservative...given the unknowns......wasn't aware of the 400% FPL for obamacare subsidy....good suggestion.
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Old 08-20-2015, 09:28 AM   #10
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I agree that the tax estimate is way high and will make your numbers look better.

Are you really thinking you need to allocate $500k in today's money toward education? We told kids all along we'd pay 100% of state school tuition/R&B. The fact that DW and I went to state school certainly swayed us but there's no way I could justify spending $60k/year for college.

From WSJ article I just read -

From the academics [who have studied this] we know that in terms of future earnings, 1) your choice of field matters more than your choice of college, 2) after controlling for ability, the earnings differences of graduates from elite and nonelite institutions are small at best, and 3) any earnings advantage that may emerge over the long run is difficult to concretely tie back to the effects of one’s college choice.
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Old 08-21-2015, 10:02 AM   #11
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I found that the value of doing Roth conversions and paying ~7% in federal income taxes on amounts converted early in retirement while I am in a low tax bracket, reducing my tax-deferred balances and avoiding paying 15% or 25% on RMDs later in life dwarfed the value to us of constraining our income to get Obamacare subsidies, but it is very situational depending on insurance costs where you live and your personal tax situation, so YMMV.

I agree with Fishingmn that $500k for college is a lot unless both your kids are Ivy League bound, but I assume that whatever isn't spent would just come back into your retirement kitty.
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