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Barely reached Double Commas, and more to do...
Old 12-03-2015, 05:18 PM   #1
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Barely reached Double Commas, and more to do...

My 50th birthday is this month so I decided to finally introduce myself to this valuable forum, even though I’ve enjoyed actively learning from you experienced folks for a couple of years now. Here goes:

Me: 50 y.o. male
DW: 52.5 (lovely lady and a two-time cancer survivor)
No children
We live in a medium-sized upper Midwestern city

Investible Net Worth: $1.2M
1.125M tax-advantaged @ 85/15 allocation, all index funds
$75,000 taxable in 100% Total Stock Mkt Index (for tax-efficiency)
Also: $100,000 home equity on a $400,000 house with 30 year mortgage at 4.1%. No consumer debt.

Current Gross Income of two salaries is $250,000.
Current savings $66,000/year. We are maxing 401Ks + saving $1,500 mo taxable. We are about to start adding two full 401K catch-up provisions for an additional $12,000/year to total $78,000 savings/year starting 2016.

Our Plan for our 50s: reach $2.5M - $3M investible
We obviously need to have health insurance locked down tight, even if it means working longer. DW remains ambitious for her career and makes $100,000 in the federal government. I don't see her stopping until she is at least 59.5, assuming her health holds. We can buy permanently into Fed health insurance starting in 6 years. I am not sure yet whether my driving goal is early retirement, part time work, or just better management so I'll keep working and saving until I decide. Plus we have older parents and, of course, a dark health cloud that hangs over and sends lightning bolts at us periodically. If we both keep working and are fortunate that present health, income and market trends continue (I project 7% long-term growth), we should hit our goals in 7-9 years, when I am 57-59. We’ll adjust spending or retirement dates according to whatever reality flings at us before then.

Plan for our 60s: Retirement
I plan to shift to 60/40 allocation of index funds when we stop working. For 3 years I have tracked all our spending avidly in YNAB and plan for $110,000/year to pay for taxes and spending if we keep our mortgage and make no lifestyle reductions. 4% of $3M is $120,000, so that’s the very high end spend rate and includes a lot of “wants”. There should be lots of ways to cut expenses or earn a little income in our 60s, if needed, or maybe events will transpire that let us step away a couple years earlier.

Thanks for your interest in our plan and for any advice!
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Old 12-03-2015, 05:33 PM   #2
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Great start so far, but a few items...

By the time you work a few more years, your $110K will be closer to $120K+. You need that $120K after tax, not total. So you likely need more than $120K.
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Old 12-03-2015, 10:14 PM   #3
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Nice intro, Markola. You two are certainly doing a great job with saving, and as you know, the more you save now, the more options you have later. Wonderful that your DW is healthy now and we'll all hope she stays that way.

Have you considered refinancing to a 15-year mortgage so you'll be closer to payoff when you are ready to retire and reduce your interest rate and total payments? Just a thought - especially if you could reduce expenses in other areas and keep your savings at the same level.
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Old 12-03-2015, 11:44 PM   #4
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A few suggestions:

Start the move to your retirement AA about 5 years before you retire. That way, a sudden drop in the market doesn't affect your plans.

If you think you're going to live on less than what you're spending now, start living it - and see if you can.

Long term growth is what it turns out to be. Using a number to plan is great, but don't get too invested in it.

Your income tax rate drops a lot when you don't have any income coming in. Use your current dividend/cap gains income to do some rough estimates.

All the best and welcome to the forum.
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Old 12-04-2015, 10:40 PM   #5
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Thanks much for taking the time to comment. A few responses:

Quote:
Originally Posted by Senator View Post
By the time you work a few more years, your $110K will be closer to $120K+. You need that $120K after tax, not total. So you likely need more than $120K.
Senator, Yes, I figure once we have our stash, we'll be doing good to manage it to stay just ahead of SWR+inflation. Our actual spending right now is $88,000, with the mortgage, so my $110,000 (your future $120,000) includes a margin for taxes. If we pay off the house or downsize at ER our spendable would drop by $18,000. Therefore, at current lifestyle, we'd need to generate $70,000 + taxes. I realize there's a significant cushion and margin built in but, as you point out, inflation is real, plus I like a big cushion. We also intend to wait until 70 for SS, so another cushion out there in the future. Should present trends not continue and my wife and I become highly motivated to FIRE, we will certainly make changes so that we do not require $3 million, though it is kind of nice to think about owning that big nut in 10 years as a reward for plugging along just as we are, according to my calculations. All of our current friends and family will likely still be working when we stop at 60 - the most distant scenario - so it will seem like we are ERd. Maybe I can relax and quit much earlier once we have health insurance nailed.


Quote:
Originally Posted by MBAustin View Post
Have you considered refinancing to a 15-year mortgage so you'll be closer to payoff when you are ready to retire and reduce your interest rate and total payments? Just a thought - especially if you could reduce expenses in other areas and keep your savings at the same level.
Thanks for your support MBAustin. I have lost my job twice in my career, which I don't recommend, though both traumatic experiences turned out to be fortuitous since I was fortunate to "fall forward" really well both times and increased my responsibilities and income. Those experiences are what got my butt engaged to plan for FIRE seriously, so another benefit. Both times, I had more of a mortgage straitjacket than was comfortable, so I think I prefer to minimize mortgage and maximize saving liquid assets that I can get to during another crunch. It stinks to be out of a job yet carry debt payments of any kind. It added to a stressful situation. I am also aware that I am turning 50, so maybe I wouldn't be so lucky the next time do to age bias? I know there are lots of good opinions on both sides of this mortgage topic and I have also read that, with our low interest rate, it comes down to personal preference. However, I do see paying it off or downsizing when we stop working as a big way to clear the expense deck to achieve ER.


Quote:
Originally Posted by walkinwood View Post
Start the move to your retirement AA about 5 years before you retire. That way, a sudden drop in the market doesn't affect your plans.

If you think you're going to live on less than what you're spending now, start living it - and see if you can.

Long term growth is what it turns out to be. Using a number to plan is great, but don't get too invested in it.

Your income tax rate drops a lot when you don't have any income coming in. Use your current dividend/cap gains income to do some rough estimates.
Walkinwood, Yes, I am a bit aggressive in AA. The way I justify it to myself is that DW's accounts are invested more conservatively and mine are more aggressive. One reason is because she is less interested in studying investing and yet she has earned about a third of what we have saved. She lets me make the investing choices, so I feel responsible to invest her more conservatively than me. Second, we will possibly tap her accounts 2.5 years before mine when she hits 59.5 and having more bonds in her accounts reduces the risk of being in a downturn at ER. So, you're right, and she is already doing what you suggest. I predict I'll start reducing my own risk a few years out too, though I realize I said otherwise in my intro above.

I don't know if we'll ever have much dividend income from our relatively small taxable account to get much tax advantage. Instead, I expect to mostly pay regular earned income rates from IRA distributions. Am I wrong, though?

I KNOW we can live live just as happily on a lot less spending. Our first place together was a one bedroom rental house with a wood stove as primary heat while we were in grad school when I was 24. I didn't even own a car when we met, just a bike. We were downright Mustachian before Mustachian was cool, and totally in bliss, so I know there is a huge margin in all of these numbers.. We have enjoyed our lifestyle inflation but it is just a choice that we've made and choices can change. Heck, when I think about that romantic university life we enjoyed, it is clear that we could ER now! Options. What a great feeling to have.

Cheers to you and other ER forum readers. Everyone I know in daily life would, by this point, (including DW!) have decided they were getting a call they needed to take in another room, so thanks for hanging in there with me.


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