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Contemplating a "75% retirement". Am I good to go?
Old 03-07-2018, 10:14 PM   #1
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Contemplating a "75% retirement". Am I good to go?

After 35 years of working in media and technology I have come to realize I am burnt out. I am 59 later this year and am seriously contemplating semi-retiring. I am in a business where even 40-year olds can encounter subtle age discrimination. I don’t look my age (or act it) but I am getting older and it is getting harder to avoid the reality I have less and less in common with colleagues in their twenties and thirties. I used to be really well known in my business but a whole new generation has crept in that does not know me! I think I have had a good run and its probably time to call it a day.

I have not been working since November 2017. I am really enjoying my own time and don’t have any fear of not having anything to retire to. I am on the Board of Directors of a major non-profit and one business. I am also a public speaker and get periodic requests to deliver talks in my circles. I have many personal interests I would like to focus more time on.

My thinking is that I am now ready to at least semi-retire for say 75% of my time with just smaller part-time jobs, contracts and speaking engagements to bring in extra $$$ until I hit 66 when Social Security delivers bigger returns. I am on Cobra at the moment but would consider less demanding part time jobs to help with future medical expenses until I qualify for medicare. I don't mind still working a bit, just want to avoid working in a full-time pressured work environment again.

My question of course is if I am in a good financial position? Currently I have $1.65M split 50/50 between non-liquid IRA’s and liquid investments. The asset allocation is highly diversified and geared to a higher risk investment tolerance. (Still heavily in Stocks and REITS etc) A *major* additional factor is that living in the San Francisco Bay Area I have an additional $1M of house equity. (Minus sales and moving expenses) So my net worth is around $2.6M plus another $0.25M in sellable assets like collectables etc.

The social security calculator shows that if I no longer work from age 59, I will still be able to access $1,667/month at age 62, $2,706/month if I wait until age 66 and $3,564/month if I wait until age 70. It seems to make sense to try and live on existing investments until 66 or 70 when social security would majorly kick in.

My wife is 57 this year and being deaf, has never been able to work in a capacity that has bought in significant additional income but she also does some part-time work. I believe she will qualify for some social security at 62 or 66 also. Therefore, all the above will need to support both of us until our 90's.

My wife and I are also dual USA and UK citizens and could explore living part-time overseas and qualifying for (free) UK health services though the USA is our permanent home and where our children live.

My sense is that the key to our retirement situation is to downsize our house in the next year, free up $1M in equity and look at purchasing a house outright in a cheaper location and/or state than the SF Bay Area. (which is getting too busy/intense and expensive) For example, $600,000 would purchase a perfectly decent house in a good location most places outside coastal California (we just need to figure out where) and still leave $400,000 that added to our existing $1.65M would take our portfolio to $2M at age 59/60.

I am not that big a spender and without any monthly mortgage expenses or high Bay Area property taxes could live happily on $80,000/year and that’s before any additional part-time income or receiving social security from 66 onwards. I have tried Firecalc and though I find it a bit confusing, if I enter a spending of $80,000/year on a $2M portfolio over 30-years I get a success rate of 94.9%. That amount is also about 4% of a $2M investment portfolio.

My question is, does my understanding of our current situation make sense for a “75% retirement” scenario now? My sense from reading other posts is that it does but I welcome the experienced perspectives of other members of this forum on aspects I am not thinking of. Good to go?
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Old 03-08-2018, 06:32 AM   #2
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Originally Posted by horfield View Post
After 35 years of working in media and technology I have come to realize I am burnt out. I am 59 later this year and am seriously contemplating semi-retiring. I am in a business where even 40-year olds can encounter subtle age discrimination. I don’t look my age (or act it) but I am getting older and it is getting harder to avoid the reality I have less and less in common with colleagues in their twenties and thirties. I used to be really well known in my business but a whole new generation has crept in that does not know me! I think I have had a good run and its probably time to call it a day.

I have not been working since November 2017. I am really enjoying my own time and don’t have any fear of not having anything to retire to. I am on the Board of Directors of a major non-profit and one business. I am also a public speaker and get periodic requests to deliver talks in my circles. I have many personal interests I would like to focus more time on.

My thinking is that I am now ready to at least semi-retire for say 75% of my time with just smaller part-time jobs, contracts and speaking engagements to bring in extra $$$ until I hit 66 when Social Security delivers bigger returns. I am on Cobra at the moment but would consider less demanding part time jobs to help with future medical expenses until I qualify for medicare. I don't mind still working a bit, just want to avoid working in a full-time pressured work environment again.

My question of course is if I am in a good financial position? Currently I have $1.65M split 50/50 between non-liquid IRA’s and liquid investments. The asset allocation is highly diversified and geared to a higher risk investment tolerance. (Still heavily in Stocks and REITS etc) A *major* additional factor is that living in the San Francisco Bay Area I have an additional $1M of house equity. (Minus sales and moving expenses) So my net worth is around $2.6M plus another $0.25M in sellable assets like collectables etc.

The social security calculator shows that if I no longer work from age 59, I will still be able to access $1,667/month at age 62, $2,706/month if I wait until age 66 and $3,564/month if I wait until age 70. It seems to make sense to try and live on existing investments until 66 or 70 when social security would majorly kick in.

My wife is 57 this year and being deaf, has never been able to work in a capacity that has bought in significant additional income but she also does some part-time work. I believe she will qualify for some social security at 62 or 66 also. Therefore, all the above will need to support both of us until our 90's.

My wife and I are also dual USA and UK citizens and could explore living part-time overseas and qualifying for (free) UK health services though the USA is our permanent home and where our children live.

My sense is that the key to our retirement situation is to downsize our house in the next year, free up $1M in equity and look at purchasing a house outright in a cheaper location and/or state than the SF Bay Area. (which is getting too busy/intense and expensive) For example, $600,000 would purchase a perfectly decent house in a good location most places outside coastal California (we just need to figure out where) and still leave $400,000 that added to our existing $1.65M would take our portfolio to $2M at age 59/60.

I am not that big a spender and without any monthly mortgage expenses or high Bay Area property taxes could live happily on $80,000/year and that’s before any additional part-time income or receiving social security from 66 onwards. I have tried Firecalc and though I find it a bit confusing, if I enter a spending of $80,000/year on a $2M portfolio over 30-years I get a success rate of 94.9%. That amount is also about 4% of a $2M investment portfolio.

My question is, does my understanding of our current situation make sense for a “75% retirement” scenario now? My sense from reading other posts is that it does but I welcome the experienced perspectives of other members of this forum on aspects I am not thinking of. Good to go?
welcome horfield,

I do have some thoughts on your proposed 75% retirement.

The 80,000 per year living will need to include taxes due on tax deferred accounts. Federal and California taxes can be extensive.

Downsizing is a great idea in theory, but will your children be in the same area you choose?

Can you be more specific on how much part time income you can generate?

Have you considered health care expenses in your budget?

The withdrawal rate at your age should likely be closer to 3% versus the age 65 rate of 4%.

I would suggest that before taxes and taking 3% from investments, you will need to produce an additional 60,000 to reach a living budget of 80,000 per year. Can you work part time and produce 60,000 before taxes?

Delaying SS sounds like the best way for you to increase your guaranteed income in the future. Your plan should include delaying until at least Full Retirement Age. At that time, your wife can draw up to 50% of your benefit depending on when she files.

Your current allocation of investments to Stocks and Fixed income will be important to determine how much you can safely withdraw per year.

One of my favorite retirement calculators-

https://www.newretirement.com/

This is a free resource that you can use to input your information and get a picture of the future success of your plan.

Good luck with your part time retirement and best wishes,

VW
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Old 03-08-2018, 06:33 AM   #3
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You are certainly good to go if you relocate to a low cost of living area. You are in even better shape than you think. You don't even need to work unless you wish to.

As you noted, you are right around the 4% SWR. But you are much better than that - you only need to withdraw ~4% until SS kicks in, then your portfolio withdrawal rate drops below 2%.

You wife will be able to claim spousal benefits on your account, which is 1/2 your full retirement age amount. So together you should be able to claim around $4000 per month when you turn 66.

I entered your data into FIRECalc and you can look at it here: https://www.firecalc.com/index.php?w...lcVersion=3.0&

The trick on FIRECalc is to step through each tab (Start Here, Other Income/Spending, etc.) and think about each data entry box. So for you I entered:

Start Here: 80K, 1.65M, and 35 years
Other Income: your SS and 1/2 again for your wife when you turn 66
Portfolio Changes: +$400K in 2019 from your home equity

Right now, without working at all you are well over 100% in FIRECalc. You can explore further in the Investigate tab, or delay retirement in the Not Retired tab.

One other thing that I'm sure folks here will chime in about, make sure you have a good handle on your expenses and they really are $80K, including allowances for health care and major expenses like replacing a car.

Cheers
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Old 03-08-2018, 06:38 AM   #4
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It looks to me like you didn't include social security for yourself or your spouse when you used FireCalc. Let me walk you through what I did instead:

A. I assumed you take SS at 66 and so does your spouse.
B. I assumed your spouse's SS was just the 1/2 your SS.
C. I put those amounts on the second tab on FireCalc (Other Income/Spending) for SS and entered the years "starting in" based on the assumption in A.
D. I put a spending level of "$80,000" on the first Tab (Start here).
E. I put a portfolio of $1,650,000 on the first tab (start here). This assumes you decide to stay in your current home and/or cash out no equity in a move.
F. I put an assumed 40 years (let's plan on you living a long time).
G. I left the portfolio tab at the default 75/25 asset allocation.
H. I let it give me a result.

The following was the result:
Quote:
FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

FIRECalc looked at the 107 possible 40 year periods in the available data, starting with a portfolio of $1,650,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 107 cycles. The lowest and highest portfolio balance at the end of your retirement was $1,072,131 to $23,091,535, with an average at the end of $6,195,594. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 40 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
When the result is a 100% chance of historic success, I like to see what "could be" to get it to around a 95% chance of success. So I then went for discovering what spending level would get you a 95% chance of success in FireCalc with the above assumptions. FireCalc upped you to $92,821/year for a 95.3% chance of success.

So, I'd say you can both be retired today and not bother with side gigs other than to control your spending. HOWEVER, that assumes medical costs (including health insurance) are part of that $80k spending you stated. If you need to work to get health insurance to keep spending below $92k, then that's what you'd need to do.
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Old 03-08-2018, 09:04 AM   #5
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Since California doesn’t tax Social Security (yet!), that will give you some tax relief when you start to draw SS.

Also, if you downsize in CA, you’ll want to look into those counties (10, last I checked) that allow a transfer of your Bay Area property tax base. You could find tax savings there, too. Google “Propositions 60/90” for California.
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Old 03-08-2018, 12:14 PM   #6
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I am not that big a spender and without any monthly mortgage expenses or high Bay Area property taxes could live happily on $80,000/year and that’s before any additional part-time income or receiving social security from 66 onwards. I have tried Firecalc and though I find it a bit confusing, if I enter a spending of $80,000/year on a $2M portfolio over 30-years I get a success rate of 94.9%. That amount is also about 4% of a $2M investment portfolio.

My question is, does my understanding of our current situation make sense for a “75% retirement” scenario now? My sense from reading other posts is that it does but I welcome the experienced perspectives of other members of this forum on aspects I am not thinking of. Good to go?
Based on your numbers, I see no reason why you can't support $80,000/yr expenses on a portfolio of $1.65M plus social security (whenever you decide to start it). If you decide to work "25%", that would make success even more likely.

I would suggest that you run the numbers to determine when you and your wife should start your Social Security benefits. Part of the consideration could involve the impact of maximum survivor benefits. One or both of you may be advised to start at 70 rather than earlier. You could spend from your portfolio initially, and then at 70 have a higher income.

But either way, it sounds like you have a solid plan. Good luck!
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Old 03-08-2018, 03:59 PM   #7
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If you haven't seen it here is a list of questions that you'll want to have solid answers to:

Some Important Questions to Answer Before Asking - Can I Retire?
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Old 03-09-2018, 12:08 AM   #8
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I would like to thank everyone for the feedback so far - it is greatly appreciated.

I have a retirement investment advisor who has independently calculated I could draw down $8,700/month from a $2M (or just over) portfolio which is equivalent to $104,000/year. That roughly correlates with @USgrants observation that when SS kicks in at 66, my actual withdraw could drop to 2% or just over. Depends on how the numbers are sliced and diced but $80,000/year to $105,000/year appears my income window on current portfolio.

Regarding health, I did include that in the $80,000/year or $6,666/month which I chose as conservative. Currently I have just started on Cobra and combined with Cal Cobra (if I stay in CA) can stay on current plan for next 3-years. That takes me to almost 62 with only 3-years to bridge to Medicare. For my wife and myself that cost is currently $1,500/month for a fully comprehensive plan including full prescriptions, vision and dental with no deductibles. ($18,000/year)

Your feedback highlights that the key is to eliminate my current (mortgage and property tax) expenses in the Bay Area and release a part of the $1M of equity to add to the $1.65M in existing investments and downsize to a smaller house with the rest. Otherwise I have no other debts. I have already purchased outright the cars (and RV) that can be used for the next 10-years.

Also, rather than buying another house outright it seems it might be more tax efficient to still retain a smaller mortgage on a downsized house to deduct against any taxes on investment income, given I stay under the new $750,000 threshold.

Again, many thanks!

Chris
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Old 03-09-2018, 04:33 AM   #9
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horfield,
I live in a high tax state also, and our home value is much less.

You have equity that can be unlocked, but then living expenses or new mortgage come into play. What I've found is that unlocking the value in our RE would mean moving quite a distance away. If we stay in this area and downsize, it is uncanny how the living costs will be very similar.

This article covers the recent Fed tax changes.
https://www.nar.realtor/tax-reform/t...-professionals

I've transitioned to employment from self-employment of many years. You may be able to translate your skills into part-time employment with health care as a benefit. Just throwing it out there, for consideration.
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Old 03-09-2018, 08:51 AM   #10
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Originally Posted by horfield View Post
I would like to thank everyone for the feedback so far - it is greatly appreciated.

I have a retirement investment advisor who has independently calculated I could draw down $8,700/month from a $2M (or just over) portfolio which is equivalent to $104,000/year. That roughly correlates with @USgrants observation that when SS kicks in at 66, my actual withdraw could drop to 2% or just over. Depends on how the numbers are sliced and diced but $80,000/year to $105,000/year appears my income window on current portfolio.

Regarding health, I did include that in the $80,000/year or $6,666/month which I chose as conservative. Currently I have just started on Cobra and combined with Cal Cobra (if I stay in CA) can stay on current plan for next 3-years. That takes me to almost 62 with only 3-years to bridge to Medicare. For my wife and myself that cost is currently $1,500/month for a fully comprehensive plan including full prescriptions, vision and dental with no deductibles. ($18,000/year)

Your feedback highlights that the key is to eliminate my current (mortgage and property tax) expenses in the Bay Area and release a part of the $1M of equity to add to the $1.65M in existing investments and downsize to a smaller house with the rest. Otherwise I have no other debts. I have already purchased outright the cars (and RV) that can be used for the next 10-years.

Also, rather than buying another house outright it seems it might be more tax efficient to still retain a smaller mortgage on a downsized house to deduct against any taxes on investment income, given I stay under the new $750,000 threshold.

Again, many thanks!

Chris
Pay thousands in interest to get a fraction of those costs back in tax savings?? Not sure I understand that logic..
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Old 03-09-2018, 12:07 PM   #11
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Thanks @target2019. We have already accepted we will move to a lower cost area/state. The SF Bay Area is in another universe compared to most places (short of NYC) and we are investigating areas that are much less expensive. (Especially property and local taxes)

@exnavynuke. Actually not thousands in interest. Just a small mortgage (ie we buy a house in a less expensive area 90% cash and 10% mortgage) that is just enough to offset against taxes on income. (According to my accountant)
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Old 03-09-2018, 12:53 PM   #12
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NewHOME (600K + .03% Closing Fees) = 618k - OldHOME (1mil Equity - .03%) closing fees( 30000)) = $48,000 costs in realtors fee's to "downsize".
Sounds like that is roughly 2% hit on your total net worth. Would you be comfortable burning 2pts of NetWorth to reduce overall COL?

*That downsize cost estimate rises if your new loan's interest rate is higher rate than old.
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Old 03-09-2018, 02:10 PM   #13
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NewHOME (600K + .03% Closing Fees) = 618k - OldHOME (1mil Equity - .03%) closing fees( 30000)) = $48,000 costs in realtors fee's to "downsize".
Sounds like that is roughly 2% hit on your total net worth. Would you be comfortable burning 2pts of NetWorth to reduce overall COL?
Horfield will probably recoup the $48K in a few years of tax and other savings (both from lower rates and a lower basis). Moving to a measurably lower COL area is a permanent improvement in your cash flow. Anyway, horfield is well above 100% in FIRECalc while a 2% hit is nothing more than a single bad week in the stock market with a balanced portfolio. Why would that be a concern?
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Old 03-09-2018, 02:20 PM   #14
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Horfield will probably recoup the $48K in a few years of tax and other savings (both from lower rates and a lower basis). Moving to a measurably lower COL area is a permanent improvement in your cash flow. Anyway, horfield is well above 100% in FIRECalc while a 2% hit is nothing more than a single bad week in the stock market with a balanced portfolio. Why would that be a concern?
Agreed OP would be fine with current asset value. I couldn't stand living in san Francisco personally with the amount if people there and would downsize if it were me jn their shoes.

That 2pts would be an afterthought in a few years.
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Old 03-10-2018, 08:43 AM   #15
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horfield,
What I've found is that unlocking the value in our RE would mean moving quite a distance away. If we stay in this area and downsize, it is uncanny how the living costs will be very similar.
This really is uncanny, and looks to be tied in to transaction and moving costs (10%+). Looks like, once you have substantial equity, you have to go down about 40% in house price to get a significant cut in housing costs.

Our planned move will reduce our house price by only about 30%, but get us into a more suitable neighborhood and manageable space.
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Old 03-10-2018, 11:03 AM   #16
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OP here. The value of our house is at least $1.8M and we may realize significantly more given the current state of the market here. Looking to downsize to a smaller property in the $600K range so our savings in mortgage, property taxes, utilities etc will be very large. As our children are grown we also don't necessarily need a 3,000+ square foot house either. There are many places in the country we could find somewhere decent though we have not figured out where yet. The consequence of course is that we will not be able to return to the SF Bay Area but we have no local ties and have been there done that.

Another way of looking at our situation is that living anywhere else except where we are now I could afford to retire immediately, but stay in our house and I still need to keep working. Seems a simple choice.
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Old 03-10-2018, 01:17 PM   #17
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welcome horfield,



I do have some thoughts on your proposed 75% retirement.



The 80,000 per year living will need to include taxes due on tax deferred accounts. Federal and California taxes can be extensive.



Downsizing is a great idea in theory, but will your children be in the same area you choose?



Can you be more specific on how much part time income you can generate?



Have you considered health care expenses in your budget?



The withdrawal rate at your age should likely be closer to 3% versus the age 65 rate of 4%.



I would suggest that before taxes and taking 3% from investments, you will need to produce an additional 60,000 to reach a living budget of 80,000 per year. Can you work part time and produce 60,000 before taxes?



Delaying SS sounds like the best way for you to increase your guaranteed income in the future. Your plan should include delaying until at least Full Retirement Age. At that time, your wife can draw up to 50% of your benefit depending on when she files.



Your current allocation of investments to Stocks and Fixed income will be important to determine how much you can safely withdraw per year.



One of my favorite retirement calculators-



https://www.newretirement.com/



This is a free resource that you can use to input your information and get a picture of the future success of your plan.



Good luck with your part time retirement and best wishes,



VW


Hi VW,

Thanks for the free tool recommendation. By the way what are the return rate you recommend to use for optimistic and pessimistic scenarios? How about 5 and 3% respectively?

Thanks in advance,

Wang
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Old 03-13-2018, 07:36 AM   #18
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Thanks @target2019. We have already accepted we will move to a lower cost area/state. The SF Bay Area is in another universe compared to most places (short of NYC) and we are investigating areas that are much less expensive. (Especially property and local taxes)

@exnavynuke. Actually not thousands in interest. Just a small mortgage (ie we buy a house in a less expensive area 90% cash and 10% mortgage) that is just enough to offset against taxes on income. (According to my accountant)
The point is, for every $1 you spend on interest, you only get a fraction of that back in tax deduction (based on your tax rate). The absolute best scenario for a mortgage tax deduction is you pay $1 in interest and get back $0.39 as a tax deduction. It still costs you $0.61 to get that $0.39 though, so you're voluntarily spending more money on interest than you save on your taxes. I'm not aware of any scenario in which you'll save more on taxes than you pay in interest by having a mortgage. If one exists I'd love to hear it, but it makes no sense to me based on the information I have currently.

I'd love to hear your accountant explain how they think spending $1 to save $0.39 is a good idea for you...
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