Constructive assessment please

[Meadbh]

I'm shocked that you consider me a heavy hitter!

You have already received a lot of good advice. Just a couple of thoughts:

You are facing a long retirement without a pension. Cautious people like me would prefer to have a withdrawal rate of 2-3% in such circumstances. Your expenses are high. Reducing them as soon as possible would be a good idea. I recommend a rigorous analysis of all your expenses for at least the past two years. With your family, make a decision on what is truly necessary and what is discretionary. You may be surprised at the opportunities. Maybe the kids don't really want all those expensive extracurricular activities! Reducing expenses that you can control is key, because sometimes there are nasty surprises that you can't control. For example, this year I owed the taxman money and am paying higher income tax installments than I expected, because my investments did so well in 2013 and because I got an unexpected cash bonus from a previous job. While that was all good, it's messing up my cash flow in 2014.

The success of your plan depends on downsizing to the renovated vacation home. It would be a good idea to renovate while you are still working and have income. This will also give you an opportunity to make sure that is where you want to live in ER, that you know the maintenance costs, and that you are ready to pull the plug. Ideally you would have cash in hand for your principal home before ER. If you wait till after ER to renovate and sell, you will be at the whim of the housing market.

Because we only get one chance at this, I agree with rodi that it needs to be analyzed to death. Every calculator examines it from a different angle and none is perfect, but the more the results are aligned around success, the more confident we can be. For expense tracking, I tried Quicken once and did not like it. I use a customized Excel spreadsheet.

Best of luck!
Meadbh

[ivinsfan]

I'm surprised that you say your share of the business is worth only 100K. You are obviously bring home a very large salary.Your family is cash flowing everything from your job, correct?....

You say you are holding 2 homes worth around 1.5 million but don't give any details on those numbers are there mortgages or are they owned free and clear. This is kind of a big detail for a long retirement...perhaps when you retire you might change your mind about which home you really want to live in. Maybe instead of renovating you should sell the vacation home, invest the proceeds and wait until you are ready to move and buy what works for you then. Holding 2 houses is not cheap.

It all depends on how badly you want to retire and how much stuff you need to have, it's that way for everyone. Is your wife willing to work at something until you pull the plug, that would help quite a bit.

You know your details better then we do, the more you share the more specific advise you will get.

[Lance a less]

Thanks Mead and Ivinsfan. Currently going thru the very detailed past 12 months expenses to see what can be trimmed and to divide it into the "absolute necessary" and the "fluff" categories. The number included about 12k of vacation. Both homes are paid for and we currently have zero debt. However, real estate taxes (which we can bunch for alternate years if desired), insurance and utilities do add a lot. The second smaller home is perfect size for retirement and growing old, think ranch style single story. Expenses will really go significantly down after downsizing. We do love the big house while still having kids at home, but my wife is not going to want the upkeep/cleaning of this sucker after the kids are gone. And my equity in the business is probably closer to 150k but I like to keep it conservative on the estimation. Thanks again.

[ivinsfan]

Great to have both homes paid off. I saw in your OP you said no debt , but I know a few people who consider a house payment an investment rather then a debt!

Your net worth is around 5.7 with 1.5 mil of that in non- income producing real estate. What do you think of that number? Just for fun try running a FIRE calc that sells your second home, invests the net proceeds and reduces your annual expenses by what the 2nd home cost you annually, you might be surprised by the result.

You can hire lawn and housecare help for a lot cheaper then the carrying cost of a second home that needs remodeling......eight years is along time to carry an extra house. If the second house is essential to everyone being happy, you could work a little longer, cut back expenses or just decide you are comfortable with whatever portfolio risk you take on. With a large paid off main house you would be in a position to downsize whenever and wherever you want to.

[daylatedollarshort]

Quote:

Originally Posted by ivinsfan Great to have both homes paid off. I saw in your OP you said no debt , but I know a few people who consider a house payment an investment rather then a debt! Your net worth is around 5.7 with 1.5 mil of that in non- income producing real estate. What do you think of that number? Just for fun try running a FIRE calc that sells your second home, invests the net proceeds and reduces your annual expenses by what the 2nd home cost you annually, you might be surprised by the result. You can hire lawn and housecare help for a lot cheaper then the carrying cost of a second home that needs remodeling......eight years is along time to carry an extra house. If the second house is essential to everyone being happy, you could work a little longer, cut back expenses or just decide you are comfortable with whatever portfolio risk you take on. With a large paid off main house you would be in a position to downsize whenever and wherever you want to.

+1. If you want to increase your retirement cushion and lower your SWR, keeping to just one house you live in most of the time and renting for vacations can be a huge savings.

Here are the the thoughts from one of the Millionaire Next Door's authors on vacation homes:

"Most millionaires can afford to purchase and maintain a vacation home. Yet, as I mentioned in Stop Acting Rich, 64% of the millionaires surveyed never owned a vacation home, beach bungalow or mountain cabin, not even a lean-to or a tree hut in the woods."

"No doubt some second home buyers have enhanced their wealth by having another home. Yet far too often even investment driven buyers of second homes grossly underestimate the real costs in terms of buying, furnishing, maintaining, commuting to, renting and possibly selling a second home."

Second Homes... Part I

[MBAustin]

If you decide to keep and renovate the vacation house as your retirement house, and if your wife is nervous (as one of your posts suggested), I second the recommendation to go ahead and complete the renovation while you are still w*rking.

Completing that project, buying a new car (for cash), and seeing the balance of our investments still healthy was what gave me confidence to pull the plug, although technically we were probably FI several years earlier.

[brewer12345]

I am sorry, but I just cannot wrap my head around the idea that you spend 167k a year. WTF do you spend it on?

Your retirement portfolio is pretty commendable. Get the budget under control and you will have it made in the shade.

[Lance a less]

Great advice and plenty of additional aspects to consider. I'm a fan of the Millionaire Next Door and we conduct our lives in a fiscally sound fashion except for the megapad and vacation home and unfortunately these are big exceptions. The vacation home is actually close by and frequently used and is the most serene place, perfect for retirement. Brewer, I'm actually trying to find out just how we spend so much, going line by line thru the budget. Music lessons and instruments were about 5k alone. Groceries for a family of 4 is coming in at 19k. So we definitely have our work cut out for us. Ideally I would like to start the renovations on the vacation house before retiring and would like to enter retirement with newish cars as well. Thanks again for all the helpful advice.

[ivinsfan]

You are obviously an exceptional earner and hard worker. Many props for that. I think you need to do some hard thinking about labeling yourself as a LYBM type person. Your annual expense, housing costs and 19K for food that's 4750 per person including an 11 year old, these numbers are not in line with a sincere desire for ER....or at least not a stress free ER..

You have lots of options open to you so just be sure you know what works best for you and your family before you pull the plug. You certainly can afford all these things and more while you are still working and more power to you. It's after the earned income stops that problems might start cropping up.

[daylatedollarshort]

Quote:

Originally Posted by Lance a less Great advice and plenty of additional aspects to consider. I'm a fan of the Millionaire Next Door and we conduct our lives in a fiscally sound fashion except for the megapad and vacation home and unfortunately these are big exceptions. The vacation home is actually close by and frequently used and is the most serene place, perfect for retirement. Brewer, I'm actually trying to find out just how we spend so much, going line by line thru the budget. Music lessons and instruments were about 5k alone. Groceries for a family of 4 is coming in at 19k. So we definitely have our work cut out for us. Ideally I would like to start the renovations on the vacation house before retiring and would like to enter retirement with newish cars as well. Thanks again for all the helpful advice.

We cut the grocery bill $10K a year - started buying more whole foods, paying attention to cost per calorie, shopping mostly at warehouse stores, stockpiling meat on sale with a chest freezer, not buying individual packets of anything, no more buying water bottles. I bought BPA free water bottles from Amazon and we fill those with tap water when we go out.

We cut our energy bill by $2.5K a year just switching over to LED bulbs, going around with a Kill a Watt, turning off lights, using drying racks, cooking with small appliances, opening windows in the morning to let cool air in in summer, etc.

With cutting our expenses we were FI, and with FI we could cut out life and disability insurance - $3K a year.

Dropped the landline - $600.

Downgraded cable package and renegotiated bill every year or so - $1.2K.

We actually bought newer, nicer cars but with lower maintenance costs and better MPG.

We go out to eat several times a week and take frequent day trips, we just found cheaper ways to do everything including library passes, coupons and annual memberships with reciprocal privileges.

We went through the budget line by line and cut tens of thousands we do not miss. Most posters here seem to be saving for ER but we realized in our fifties we just needed to cut expenses to be FI. I have a spreadsheet of a few hundred or so relatively painless ways to cut expenses I've collected from books and forums. Every month we go through the list and knock off a few of the highest ROI remaining items.

Last month we knocked another $1,141 off our annual expenses, so I figure that is $57,040 less in retirement funding needed over a potential 50 year retirement. If we had focused on saving more instead of spending less there is no way we could have saved an additional $57K in after tax money in one month even with both of us working full time, but the cost cutting items only took about 20 hours of work over the course of the month between us. Lower expenses require a lower drawdown in retirement, which for us means lower taxable income, which in turn lowers our state and federal taxes, increases ACA subsidies, and allows us to be eligible for tax credits and financial aid for college.

[wingfooted]

Many roads lead to ER and this thread demonstrates at least two of them

1. Have a low/moderate investable savings amount upon ER and manage based on low spend.
2. Have a high savings amount upon ER and manage based on high spend.


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[someguy]

I'm not one of the heavy hitters, but I also use and very much like QLP. It is easy to enter almost any kind of adjustment or tweak you can think of. Especially things like selling a property in five years. It also has an easy what-if explorer to compare current plan versus, e.g., what if I work one more or one less year.

Also, your expenses are somewhat high as others have said. But everything is relative and I think wingfooted hit the nail on the head. I've found it easier to hold the line on expenses and grow top line versus ruthlessly cut the bottom line. There seems to be a disproportionate criticism on how much someone spends but I think there could be just as much for how little someone earns. To me, it's as easy to say "I can't believe you only make $50K/year" as it is to say "I can't believe you spend $160K/year".

[karluk]

Quote:

Originally Posted by ivinsfan You are obviously an exceptional earner and hard worker. Many props for that. I think you need to do some hard thinking about labeling yourself as a LYBM type person. Your annual expense, housing costs and 19K for food that's 4750 per person including an 11 year old, these numbers are not in line with a sincere desire for ER....or at least not a stress free ER..

+1 There is no doubt a certain thrifty cachet to labeling yourself as living below your means, especially among the early retirement crowd that frequents this forum. But you come across as being a lot closer to "living within your means" than "living below your means" You have a high income and spend (imho) way too much of it. How exactly do you manage to spend 19k on food each year? That's $13 per day per person. Unless you frequent expensive restaurants, that would be enough for the entire family to eat out every other day or so. Get your budget under control and you could retire tomorrow.

[EastWest Gal]

Quote:

Originally Posted by Lance a less Great advice and plenty of additional aspects to consider. I'm a fan of the Millionaire Next Door and we conduct our lives in a fiscally sound fashion except for the megapad and vacation home and unfortunately these are big exceptions. The vacation home is actually close by and frequently used and is the most serene place, perfect for retirement. Brewer, I'm actually trying to find out just how we spend so much, going line by line thru the budget. Music lessons and instruments were about 5k alone. Groceries for a family of 4 is coming in at 19k. So we definitely have our work cut out for us. Ideally I would like to start the renovations on the vacation house before retiring and would like to enter retirement with newish cars as well. Thanks again for all the helpful advice.

I can't help wondering if there is some overspending here.

For a family if 3 (when DS is at home) we spend max $500/mo on groceries and eating out- we usually eat cheap, but sometimes splurge. You probably can cut that grocery budget easily in half with some planning.

A word on musical instruments. I played in a band concert a few days ago followed by a middle school aged band. Half the 12 year old flute players had high end flutes and they didn't even hold them correctly. You can rent to own a decent instrument for about $30/month unless it's a bassoon or something. Don't buy expensive instruments for the kids until they're ready. There's no need to keep up with the Jones's with any more instruments. I bought my professional model flute used in 1988. $3K. Refurbished once, cleaned and adjusted every couple of years. I know someone who found a wooden professional model flute in a Gettysburg antique store in perfect condition and paid $165 for it.

Also, if they don't practice, you aren't getting your money 's worth.


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[daylatedollarshort]

On the grocery front, our neighborhood grocery store is often double the prices, sometimes more, than the ethnic markets and warehouse stores just ten minutes away. I just never bothered to keep a price book until DH wanted to ER so I never realized how big a difference there was and what that meant over a year's time, let alone decades. I do get the paying $10K more for groceries over a year. It is easy to do if you don't think to compare prices and maybe shop in a more blue collar city. In three years we have seen neighbors exactly once at the pack it yourself warehouse store under 10 minutes from our house where we do a lot of our weekly shopping now.

[Lance a less]

Thanks for being so generous with your time. Really appreciate all the input and overall a good reality check for where we are. I still like my job, just want to safely land this plane at or before age 55 for all the reasons people list on this site and especially b/c I love being away from work much more than being at work. The grocery bill is kind of ridiculously high and even though we use SAMS and coupons with the local store, we clearly need to look hard at the specifics of this. I brown bag lunch every day and we ditched the land line a few years back, but the cellphone bill is killing us.

Thanks for the good perspective on ER wingfooted! I ate plenty of Top Ramen noodles earlier in life and we took no vacations. Life is fragile and short and after achieving a stable good income, we chose not to eat Ramen noodles and to take a few nice vacations with the family, kind of a balanced approach.

I did not have the opportunity for music lessons as a child to we have tried to expose our kids to music and much to our surprise, they have done well. The oldest plays both piano and flute. We purchase used instruments at first. After years of practice, marching band and local symphony, we bought a very nice but used flute and a dang piccolo (I was not a band nerd so I didn't know a piccolo was also part of the deal).

Someguy, you and PB have me pretty much sold me on trying out QLP.

Thanks again, all of your input is priceless...

[pb4uski]

Just remember that QLP is a really good deterministic planner. You provide it with an investment return assumption and it assumes that your portfolio grows each year by that amount so it gives you a good indication of your financial retirement preparedness ignoring sequence of returns risk.

I used QLP as my base case and I think it does a good job of helping one think through the things you need to consider like retirement planning time horizon, SS, pensions, tax rates, inflation, investment return, changes to your home if any, debt/mortgage repayment if applicable, living expenses, adjustments to living expenses, college expenses, and any special expenses (perhaps a wedding in my case).

I then supplemented QLP with analysis using the same assumptions to the extent practical using Financial Engines, Firecalc and other stochastic type analysis tools to evaluate sequence of returns risk (if investment performance is poor in you early years of retirement how it affects your retirement preparedness).

[wingfooted]

Quote:

Originally Posted by Lance a less Thanks for the good perspective on ER wingfooted! I ate plenty of Top Ramen noodles earlier in life and we took no vacations. Life is fragile and short and after achieving a stable good income, we chose not to eat Ramen noodles and to take a few nice vacations with the family, kind of a balanced approach. :

Believe me, I have taken plenty of criticism on my own ER plans from the LBYM contingent on this board. I agree with your approach based on high savings balance / high spend.


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[RetiringAt55]

I don't consider your grocery spending crazy. We have 2 teens and spend $1100-$1300 a month. We do not eat a lot of fast food or eat out. I have struggled to get the grocery bills down and finally decided that we like to eat protein so it is just going to be high. We don't eat high carb foods like rice and pasta for health reasons.

Our annual budget is slightly less than yours. We have absurd real estate taxes which is part of the reason. We also plan to downsize our home to get costs down.

I think the biggest area of planning for you is SS. If your wife has only 20 years of SS earnings, her expected benefits may not be as large as you think. You should download AnyPIA from the SS web site and put in actual earnings numbers with 0's for those years after retirement. You may find that she is better off taking the spousal benefit than her own. There are many possible strategies to consider in your situation like File and Suspend, if it is still allowed when you get to that point. It is probably best for you to delay your SS to age 70, as you mentioned, to act as longevity insurance. This is the one area you may want to buy software to evaluate. In your case, the different strategies could make a big difference.

[target2019]

Check the big box receipts for non-food items.

It is understandable that 2 teens can eat quite a bit.