Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Confused...Starting to get my ducks in a row
Old 05-10-2012, 05:36 PM   #1
Dryer sheet aficionado
 
Join Date: May 2012
Posts: 40
Confused...Starting to get my ducks in a row

First time poster - GREAT site, really appreciate it.

Worked my way up to senior executive management. Way too much stress, too many planes, too many demands. Want to pull the rip cord and live again but not sure I have enough yet.

STATS:

48, married, no kids at all (no college or inheritance to worry about)
$3M in after tax investments in Vanguard (60% bonds, 40% Dividend Stocks)
$500K in my 401K (100% stocks)
Paid off mortgage - house worth about $650K
Paid off mortgage on vacation condo worth $325K

Total net worth, about $4.5M...I can also turn my condo into a rental if needbe for extra income.

I also generate about $500K a year in cash in my current position. I know it sounds amazing, but believe me, it does come with a severe price to health and happiness. I figure I got 1, maybe 2 years left in me before I wear out...hopefully can roll out into retirement before I am 50 and with $6M in total net worth.

What I am confused about is how to invest to get a 5% tax free return on my $3M that is liquid and at $4.5M net worth, how am I doing compared to everybody else? Do I dump my current investment strategy and just go pure tax-free muni's? Just trying to figure out how I put it all together and pull the rip cord...

Any thoughts or recommendations for me? Appreciate any and all advice...

PS. The cost of health care scares the hell out of me too. We are both healthy and I can do a catostrophic health plan with a $10K deductible, but I heard they drop you like a hot rock at the first sign of anything serious...How are the rest of you dealing with that?
__________________

__________________
Seattle is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-10-2012, 05:56 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,370
Welcome. Whether you've saved enough depends on your spending. IMO you are already overweight bonds, so going all-muni would make that worse and the lack of diversification would be risky. We'd all like a 5% tax free (or after tax) return, but it's tough to come by these days; it may be doable if you have a high risk tolerance.
__________________

__________________
GrayHare is offline   Reply With Quote
Old 05-10-2012, 05:59 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,983
Welcome aboard!

Entering your data including projected spending in FIRECalc: A different kind of retirement calculator is probably a very good place to start. From there, you'll be closer to answers and/or specific questions.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Awesome
Old 05-10-2012, 06:03 PM   #4
Dryer sheet aficionado
 
Join Date: May 2012
Posts: 40
Awesome

Thanks for these tips. I will use the calculator and see what it shows me...
__________________
Seattle is offline   Reply With Quote
Old 05-10-2012, 07:01 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
As Gray Hare indicates, whether you "have enough" depends on how much you need to live in retirement. A WR of 3.5% or so would be in the ball park for your age which would be 123k a year and for most of us would be plenty with no mortgage debt.

Is there a particular reason that your 401k is stock rather than bonds? Most of us tend to have our bonds in tax deferred accounts like the 401k rather than in taxable accounts since it is more tax efficient. Assuming you are in a high tax bracket then the remaining bond allocation in the taxable account could be in munis.

I see you have a lot at VG. Have you used their financial planning service? I've used them regularly over the last 5-10 years, more as a comfort check on my own plans than anything else.

A 5% after-tax return is difficult in this environment unless/until things revert to "normal". That said, I'm currently using a 5.5% portfolio earnings rate in my planning which is the 8.4% historical annual return based on my current AA target of 55% stocks, 41% bonds and 4% cash with a 2.9% haircut.

I ER'd a couple months ago and had to purchase health insurance on my own. I was able to get a high-deductible plan for about $550 a month which was better than what i was planning on.

I would not go all tax free munis. It would save on taxes but would be suboptimal overall and high risk of inflation reducing your purchasing power.
__________________
pb4uski is online now   Reply With Quote
Old 05-10-2012, 10:34 PM   #6
Thinks s/he gets paid by the post
Milton's Avatar
 
Join Date: Apr 2007
Posts: 2,079
Quote:
Originally Posted by Seattle View Post
Total net worth, about $4.5M... I also generate about $500K a year in cash in my current position.... I figure I got 1, maybe 2 years left in me before I wear out...hopefully can roll out into retirement before I am 50 and with $6M in net worth
Do you really hope to achieve a 33% / $1.5 million increase on your capital base in less than two years? Seems rather ambitious, unless the $500K annual employment income is net of taxes and all non-discretionary spending (but if that is the case, your current net worth appears relatively low).
__________________
"To know what you prefer, instead of humbly saying Amen to what the world tells you you ought to prefer, is to have kept your soul alive". Robert Louis Stevenson, An Inland Voyage (1878)
Milton is offline   Reply With Quote
Old 05-11-2012, 05:41 AM   #7
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
Hello Seattle and welcome to the forum. Congratulations on your achievements.

Just muni bonds are not a reasonable alternative for someone your age. You are young and likely will live another 40+ years, and over that period inflation would ravage your holdings. FIRECalc will confirm this. You need at least 1/3 equities to provide your portfolio with some growth potential. Even 2/3 munis is very concerntrated, you should diversify your fixed income some just to lower risk. The tax impact of some taxable fixed income should be manageable if your equity holdings are managed passively.

Heath care access is a challenge many of us face and there is no easy answer. The PPACA addresses some of your concerns. Fortunately you intend to continue working for the next year or two, and over this period the most important provisions will be implemented, so hopefully these concerns will be addressed.
__________________
MichaelB is offline   Reply With Quote
Old 05-11-2012, 06:41 AM   #8
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
Quote:
Originally Posted by Seattle View Post
What I am confused about is how to invest to get a 5% tax free return on my $3M that is liquid and at $4.5M net worth, how am I doing compared to everybody else? Do I dump my current investment strategy and just go pure tax-free muni's? Just trying to figure out how I put it all together and pull the rip cord...
We would all love to know how to do that but unfortunately it's not realistic. However, as others have said, you can get to 5% with some risk. To answer your "how am I doing" question, with $3.5 million in investment assets and no debt, you are ahead of your peers. However, whether that's enough money to retire on depends on your spending (as others have said). +1 on the Firecalc.
__________________
panacea is offline   Reply With Quote
Old 05-11-2012, 06:57 AM   #9
Recycles dryer sheets
 
Join Date: Apr 2007
Posts: 354
How important is staying in your current house/within Seattle city limits. You could sell the house and take your gains tax free, move into the vacation condo for two years (maybe combined with signficant travel), and then sell that after 2 years and have those gains be tax free as well. Not sure what your cost basis is on the houses, but maybe this strategy would enable you to take the leap a bit earlier.

A lot probably depends on how tied to the house you are, and how important it is for you to stay in the city. There are great deals to be had in East King County and other outlying areas at the moment now due to the property slump (my family lives that way so I keep an eye on house values).

Another really important question is what you are spending and how that might change after you retire. Folks here are pretty good at picking people's budgets apart and finding places to economize, so if you are brave you might want to post the details -- you might find you have more wiggle room than you think and can pull the plug much earlier if you are willing/able to make some different choices about where you money goes now and in the future.

Another option would be to downshift a bit out of the C-Suite and work a less stressful job for a slightly longer time. With your experience some short term consulting gigs might also make a significant difference and allow you to have a bit bigger of a parachute.
__________________
lhamo is offline   Reply With Quote
Old 05-11-2012, 02:11 PM   #10
Recycles dryer sheets
 
Join Date: May 2012
Location: Worthington
Posts: 158
Seattle, I realize we all have different comfort levels, but if your happiness and health are that important to you, I say you can make this work now if you want to. $3 million in investments (I'm assuming you can get at this money now without penalty) and $500,000 in 401k should be enough. I would leave that $500,000 in your 401k until you are 59.5 and start using it then (if you even need to).

I would then either sell the vacation condo or move there and live there if you want to be there full-time. Let's say you sell it. That gives you $3,325,000 to generate income for you now. I agree with GrayHare who said you are overweight in bonds. I would drop that to maybe 30% bonds and 70% stocks (or maybe 40-60). Conservatively you should be able to get 6% on that annually, and likely higher.

Take 4% of your investment the first year. That's $133,000 a year. You have a paid for home and supposedly no other debt. You also have the $500,000 that will continue to grow. If you get a 7% annual return (you might do better), by age 60 that will turn into $1,126,095, so you give yourself more than a $40,000 a year raise in just 12 more years.

Sell you $650,000 home in Seattle and buy a cheaper one somewhere else and you'll have even more to retire on. People retire and have a great life on much less than you would have.

If you don't feel that's enough, then leave your high stress job and take a $40,000 a year job doing something that isn't stressful. Do that for a few years.

I agree with you that the high cost of insurance is a problem, but if you REALLY want to do this, you could make it happen today. There are many areas of the country where $200,000 will buy you a very nice house...you could then bank the $450,000 from the sale of your home and put that in a fund to help you pay for health insurance.

Health and happiness are paramount right? If I were in your position at age 48 (net worth of 4.5 million dollars including two paid for homes and in a job I hated), I would be retired tomorrow.
__________________
LeavingOhio is offline   Reply With Quote
Old 05-11-2012, 09:16 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Group: Does this thread tell you-all something about Seattle?
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 05-11-2012, 11:24 PM   #12
Recycles dryer sheets
 
Join Date: Jan 2012
Posts: 244
Seattle:

Congratulations on doing a terrific job with building your assets!
Most people would be able to retire comfortably given the assets that size, but that doesn't help you. What you must decide is how much do you need to live on comfortably including living expenses, travel/recreation and incidentals.

I would suggest that you start logging all your expenses for the next 3 to 6 months so that you know how much you spend and on what. You will then be able to figure out how much you will be able to save by not working viz: money spent on business clothes, eating out due to work etc. Once you figure out the bare minimum you need to maintain a decent lifestyle, calculate how much money you need to invest in NO RISK investments (Treasuries, TIPS, Munis etc). Invest that amount so that you can pay for your basic expenses with the interest without touching the principal ensuring that you have a good portion of that in TIPS(inflation protected Bonds). $2M will provide you $80k annually TAX FREE to live on. This would be good enough for most people without any mortgage/college expenses/work related expenses etc.

You may want to be prepared to consult parttime on your terms for a
few years to provide more play money if you so desire.

The rest of the liquid funds ($1M) may be invested in a diversified portfolio of equities with growth, value and small cap growth stocks/mutual funds to provide the growth. This will provide you with growth needed @ 8%-10% annually and grow to approximately $3-$4M by the age 62.

Selling one of the properties will provide you with extra cash to invest into the growth portfolio of stocks/mutual funds.

I would also suggest that you contact Social Security Administartion to find out how much you will receive at age 62, 65 and also at 67.

Seattle, as you probably know and also understand by reading all the posts so far, that it should not very difficult for you financially if you chose to retire early. The question really is how badly you want to relieve yourself of the stress and start living a stressfree lifestyle?

Best Wishes,

Rick
__________________
Rickt is offline   Reply With Quote
Old 05-12-2012, 07:48 AM   #13
Recycles dryer sheets
 
Join Date: Oct 2011
Posts: 406
Quote:
Originally Posted by Rickt View Post
Seattle:

You may want to be prepared to consult parttime on your terms for a
few years to provide more play money if you so desire.
+1

I'm nowhere near where you are Seattle, but I'm starting to look at a similar curve a few years out. Going from 100MPH to zero sounds pretty sweet right now, but you only got where you are b/c at some level you really enjoy working. After a month or two of twiddling your toes, you're going to want to do SOMETHING.

I wouldn't be thinking about how you "pull the rip cord" but rather how you throttle back. Perhaps you can earn $200K per year consulting part-time?

Great job.
__________________
Closet_Gamer is offline   Reply With Quote
Old 05-12-2012, 08:06 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,490
Quote:
Originally Posted by Ed_The_Gypsy View Post
Group: Does this thread tell you-all something about Seattle?
yes, but much less than your post tells us about you.
__________________
pb4uski is online now   Reply With Quote
Old 05-12-2012, 09:19 AM   #15
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
You want to ER on only $6MM? You might want to wait until you've built your nest egg up to $10MM. That's pretty much considered the minimum around here.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 05-12-2012, 10:19 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
Originally Posted by pb4uski View Post
yes, but much less than your post tells us about you.
I am as transparent as a jellyfish on the shore of Whidbey Island.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 05-12-2012, 10:24 AM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
There are several of us once-and-future citizens of the Emerald City here. I wish I could afford to live there again, but it is not in the cards.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 05-12-2012, 10:54 AM   #18
Thinks s/he gets paid by the post
Gotadimple's Avatar
 
Join Date: Feb 2007
Posts: 1,764
Quote:
Originally Posted by Ed_The_Gypsy View Post
Group: Does this thread tell you-all something about Seattle?
I can't help myself . . .

The bluest skies you've ever seen are in Seattle . . .

Every year salmon return to Seattle

Big airplanes are made in Seattle fueled by coffee from Starbucks with cups bought at Costco (whoops! They're based in Issaquah).

HaHa lives right in the middle of it, and many others here live nearby
__________________
Only got A dimple, would have preferred 2!
Gotadimple is offline   Reply With Quote
Old 05-12-2012, 11:00 AM   #19
Dryer sheet aficionado
 
Join Date: Jul 2011
Location: Reading, MA
Posts: 37
One way to conserve MORE of one's assets can be to annuitize a PORTION of one's assets for lifetime income. $1M can provide $63K per year at age 62.5 which is a lot more than one could expect safely to withdraw per year from unannuitized funds.
Unfortunately, starting at the OP's age 50, the amount per year would be considerably less.
__________________
TheWizard is offline   Reply With Quote
Old 05-12-2012, 11:05 AM   #20
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,150
Quote:
Originally Posted by TheWizard View Post
One way to conserve MORE of one's assets can be to annuitize a PORTION of one's assets for lifetime income. $1M can provide $63K per year at age 62.5 which is a lot more than one could expect safely to withdraw per year from unannuitized funds.
But then 3% annual inflation would reduce the purchasing power of that $63K to under $30K by the time the annuitant was 87...

No thanks.
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 09:09 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.