Couple in 40s hoping to FIRE soon

[ZenMaster]

Hi everyone!

I've been reading the forums for a few weeks and decided to sign up/join to participate. After all, there's only so much I can learn from reading only.

I'm 43 and my wife is 47, no children. We both work long hours in stressful jobs and quite simply, we're tired and want to exit as quickly as reasonably possible. Our combined annual income including salary/stock/bonus/profit sharing is ~$450K. We have no debt.

Our current net worth is as follows:
- House paid off, estimated value $550K
- $961K in retirement accounts
- $643K in taxable investment accounts

We initially put together our 10-year plan in 2012 but neither one of us really want to wait until 2022 to walk away. We'd be happy with part-time jobs to stay active and have a more fulfilling life.

Based on our current savings, these are our projected balances at various times:

- March 2018: $1.01million retirement, $747K taxable
- August 2018: $1.05million retirement, $801K taxable
- March 2019: $1.102million retirement, $925K taxable

We've met with a financial advisor and run Monte Carlo simulations assuming $65K/year spending with 3% inflation. Health care inflation was set at 7.5%. We assumed I would live to 93 and my wife to 98 and had a success rate of 62%. Adding one more year of working bumped us up to 78%.

I think from a money standpoint we'll be OK. My wife says I just have to have a job that pays for my golf habit. We are planning to move from Texas when we retire. We're not quite sure where yet but as of today we're leaning towards Florida and will be visiting some friends there at Thanksgiving to look around a bit.

I think our biggest challenge right now is fear of the unknown. We have great-paying jobs right now which certainly relieves one type of stress - but we are trading that for mental stress, and likely physical stress as well.

I've read so many stories of people who say they wished they'd FIRE'd sooner and I'm encouraged by those. We hope to have our own story like that in a few years.

 

[pb4uski]

I think Quicken is a great tool for retirement planning and monitoring. I used the Lifetime Planner in Quicken to create a plan and then used Quicken to monitor my progress and keep the plan up-to-date. Just prior to retiring I also an my numbers through a multitude of different planners and they all gave me one version or another of a green light so I submitted my resignation.

 

[Meadbh]

Welcome. They key is expenses. It would be a great idea to do a detailed analysis of your current expenses for 1-2 years. Then use those data as a baseline to project expenses during retirement. Analyzing the data may provide some surprises (is $65K truly the total?) and may highlight many opportunities to economize (such as the $5000 I have saved since cutting cable some years ago) and will identify expenses that can be eliminated in ER (such as professional fees, business clothing, and savings). Travel costs will probably increase, but can be budgeted for, as can golf.

 

[rodi]

You've done a good job amassing a nice nest egg for folks so young. The only question I have is whether the $65k is realistic. You're currently bringing in $450k - so even if you were spending $100k - you should be saving 350k year?

Does the 65k include taxes?

Have you run firecalc? It operates a bit differently than a monte carlo calculator (although it has that option)... If you run it in the default setting it runs your plan against historical returns/cpi from the past - including the hyper inflation of the 70's and the great depression. Make sure your spending input includes taxes, health insurance, everthing. (Link to firecalc is at the bottom of the page.)

 

[rodi]

Oh - and Welcome!!!

 

[ZenMaster]

Thanks for the welcome and replies so far. We've run Firecalc at 65K for 30 years with 99.1% success. That was just the quick visit to get us to SS age and I haven't done the detailed setup for a more thorough analysis.

Expenses are the most challenging aspect of FIRE planning. Health care is the biggest unknown since neither one of us will be eligible for retirement health care through our current employers. We also don't know what the individual markets are going to be like in a year or two.

We make a lot of money now but we save a lot as well. Our current take-home is a little over $18.5K/month with $11.5K going to savings/investments and $7K used for expenses. We know some expenses will drop in retirement - lawn service and house cleaning are two easy ones along with food since we'll certainly cook more at home.

I think we're on the right path, just gotta get over the mental hump of the fear of doing it too soon since going back is unlikely to be an option.

Thanks again for all the replies. We still have a lot to learn but the good thing is we have time!

 

[Aerides]

With a current annual income of $450k, and expenses of only $65k, you would expect your nut to grow much more than $400k in the next 3 years just from contributions alone. If you figure that's a take-home of almost $300k, that should be over $200k going into your savings for the next 3 years. If you're not 100% sure on your actual expenses, check to see if that's about how much you've been saving the past couple of years to be clear.

$65k at your ages including HI, Taxes, and some travel, means a reasonably conservative lifestyle overall, or some very cheap greens fees. With the questions around ACA for now, I'm budgeting $20k per year for HI and deductibles, and we're about your ages.

But assuming that's all worked out, the 2019 number is probably good or thereabouts, even better if you can edge up those savings as above.

 

[nash031]

I was going to comment on the expenses. $7K per month right now probably doesn't include taxes or comparable health care given the company probably gives that to you, and that comes to $84K per year. I don't think you can expect to fund health care, and incorporate all of your taxes and still expect to see that drastic a reduction in expenses in retirement, but perhaps you've already accounted for all of it. That'd be my biggest concern with your plan: underestimation of expenses.

 

[Blue Collar Guy]

Hi everyone!

I've been reading the forums for a few weeks and decided to sign up/join to participate. After all, there's only so much I can learn from reading only.


Our current net worth is as follows:
- House paid off, estimated value $550K
- $961K in retirement accounts
- $643K in taxable investment accounts

our current savings, these are our projected balances at various times:

- March 2018: $1.01million retirement, $747K taxable
- August 2018: $1.05million retirement, $801K taxable
- March 2019: $1.102million retirement, $925K taxable

We've met with a financial advisor and run Monte Carlo simulations assuming $65K/year spending with 3% inflation. Health care inflation was set at 7.5%. We assumed I would live to 93 and my wife to 98 and had a success rate of 62%. Adding one more year of working bumped us up to 78%.



I've read so many stories of people who say they wished they'd FIRE'd sooner and I'm encouraged by those. We hope to have our own story like that in a few years.

I encourage early retirement, My only question is, if your above figures include equities and projected growth. If we have another october 2007-march 2009 those numbers are shot. If your just packing in the money to CD's and stable guaranteed type funds then your numbers are good.

 

[ZenMaster]

I encourage early retirement, My only question is, if your above figures include equities and projected growth. If we have another october 2007-march 2009 those numbers are shot. If your just packing in the money to CD's and stable guaranteed type funds then your numbers are good.

For the retirement projections, we assume 1% growth/quarter. For the non-retirement funds, our spreadsheet assumes 0% - I'm just adding in our monthly contribution amount to the total. We wanted to be conservative when estimating how much we'd have in the future. Given the market over the past few years, that's a huge reason why we're 4 years ahead of our initial timeline.

Edit: for future growth after retirement, we're assuming 5% return for both retirement/non-retirement accounts. From what I can calculate, it looks like we'll have about $20K/year in dividends and capital gain distributions from our various investments.

 

[Golden sunsets]

In planning for a 45 to 50 year retirement the 4% withdrawal rate standard goes out the window for most if not all conservative scenarios. Using a more conservative 3.5% SWR, applied to your $2,025,000 highest starting portfolio projection would provide an income of $70,875. To the extent that your expenses including taxes and HI exceed that number you would need to supplement with part time earnings-doable for the next decade or two but eventually you will not want/be able to work any longer. Frankly though, I would not be comfortable drawing down more than 3% per year, or roughly $60,000 per year with the caveat that in any downturn, I would aggressively pull back and in bountiful years, let the gains ratchet up the portfolio. The SWAN factor is priceless.


Sent from my iPad using Early Retirement Forum

 

[joeea]

Our combined annual income including salary/stock/bonus/profit sharing is ~$450K. We have no debt.

Our current net worth is as follows:
- House paid off, estimated value $550K
- $961K in retirement accounts
- $643K in taxable investment accounts

You are making $450k but only have $1.6M saved?

We've met with a financial advisor and run Monte Carlo simulations assuming $65K/year spending with 3% inflation. Health care inflation was set at 7.5%. We assumed I would live to 93 and my wife to 98 and had a success rate of 62%. Adding one more year of working bumped us up to 78%.

Why did you assume only $65k?

I wouldn't feel comfortable at either a 62% or 78% chance of success over such a long retirement period. That tells me that if you aren't successful you could suffer for a long time.

We are planning to move from Texas when we retire. We're not quite sure where yet but as of today we're leaning towards Florida and will be visiting some friends there at Thanksgiving to look around a bit.

I'd want to nail down the "where" part of retirement long before I concluded that I could live on $65k for the rest of my life.

I think our biggest challenge right now is fear of the unknown. We have great-paying jobs right now which certainly relieves one type of stress - but we are trading that for mental stress, and likely physical stress as well.

There are plenty of ways to relieve stress that give you a better chance of long term success.

I think you need to think this through a bit more. Perhaps part-time jobs will suffice, or perhaps you just need to change professions.

 

[ZenMaster]

You are making $450k but only have $1.6M saved?



Why did you assume only $65k?

I wouldn't feel comfortable at either a 62% or 78% chance of success over such a long retirement period. That tells me that if you aren't successful you could suffer for a long time.



I'd want to nail down the "where" part of retirement long before I concluded that I could live on $65k for the rest of my life.



There are plenty of ways to relieve stress that give you a better chance of long term success.

I think you need to think this through a bit more. Perhaps part-time jobs will suffice, or perhaps you just need to change professions.

We haven't been making $450K for more than a few years - my wife had a huge jump in salary about 3 years ago. We also wanted to get our house paid off so that took out $180K over the past 4 years.

Part-time jobs would be fine for us and that's part of our plan. Although we make really good money, we don't really have an extravagant lifestyle and plan to downsize both our house and our lifestyle when we RE. Living conservatively isn't a big concern for us and we're looking forward to simplifying things. We put together a budget and came up with $65K/year which includes $24K/year for HI and $10K/year for travel. We're not going to spend more on a house/condo that we get out of ours and any overage will help with the savings balance. We also know that we're not going to live anywhere that we can't live on $65K/year.

We'd love to change professions but we recognize that can be challenging as we get older since opportunities may be limited. Part-time jobs would keep us active/engaged and bring in a little $$ as well. Most importantly, it would significantly reduce the w*rk stress we both have.

I agree that 62% is far too low of a chance for success. The next time we meet with our FA we're going to look at how things change if our max age decreases by 5 years. Although we want to be conservative with our planning, I'm also reasonably sure that I'm not going to live to be 93 years old.

Thanks for the comments and the questions, it's much appreciated.

 

[Rianne]

Welcome to a fellow newbie.

Our situation is somewhat similar to yours, one difference is we're 60. The Monte Carlo simulations gave us a 99% chance of success for 40+ years on $70K, increasing gradually in yearly income. Our RR is 5-6% as we are 60% in the stock market and plan to stay there for 5 years.

I am also surprised you haven't saved more on that big salary. Ours was half that for approx. 10 years. We are always trying to whittle down the spending every month while living a comfortable retirement with travel and quite frankly, getting to know each other again. Seems like we passed in the night for 20 of our 33 years of marriage trying to reach FIRE.

I'm concerned about catastrophic events and how that could derail our plans. But I realize you can't enjoy life worried about the worst that could happen. Vanguard gave us a detailed long term plan, although about 1/3 is not in Vanguard investments.

You are very close, but concerned about your age and of course, health care. We will go to a catastrophic plan if our premiums jump, will probably hit $24,000/year if we stay on the plan we're on now. Wish you the best and look forward to following your posts.

 

[joeea]

I agree that 62% is far too low of a chance for success. The next time we meet with our FA we're going to look at how things change if our max age decreases by 5 years. Although we want to be conservative with our planning, I'm also reasonably sure that I'm not going to live to be 93 years old.

I don't want to sound harsh here, but it seems you have already made your decision and are just looking for justification.

How do you know how long you will live? Dramatic breakthroughs in healthcare are happening rapidly these days. Planning to die early isn't much of a plan, IMHO.

It looks as if you are going to keep changing the variables (max age decreases by 5 years), until you get numbers that make you happy. That's like changing doctors when you are unhappy with the diagnosis until you get a "you are fine" answer.

Good luck in whatever you do.

If it were me, I'd look for opinions that tell me I am on the wrong path, as well as those that support what I want to do. Your mileage may vary.

 

[exnavynuke]

Thanks for the welcome and replies so far. We've run Firecalc at 65K for 30 years with 99.1% success. That was just the quick visit to get us to SS age and I haven't done the detailed setup for a more thorough analysis.

Expenses are the most challenging aspect of FIRE planning. Health care is the biggest unknown since neither one of us will be eligible for retirement health care through our current employers. We also don't know what the individual markets are going to be like in a year or two.

We make a lot of money now but we save a lot as well. Our current take-home is a little over $18.5K/month with $11.5K going to savings/investments and $7K used for expenses. We know some expenses will drop in retirement - lawn service and house cleaning are two easy ones along with food since we'll certainly cook more at home.

I think we're on the right path, just gotta get over the mental hump of the fear of doing it too soon since going back is unlikely to be an option.

Thanks again for all the replies. We still have a lot to learn but the good thing is we have time!

You're currently spending $84k/year. Yes, some expenses may go down, but I highly doubt your savings from cleaning and mowing the yard etc would outweigh the increases in your health insurance cost along.

I think you likely need to look much more closely at your current and expected expenses and zero in on what "real" numbers you're likely to see. You say your planned $65k "includes $24K/year for HI and $10K/year for travel" which means it has only $31k for the rest of all expenses. That's $24k you're not spending on HI right now (or thereabouts) meaning, if we add that to your current expenses, you'd actually have $108k/year spending including HI at your current spending levels. So you're dropping $43k in spending in retirement relative to now... how?? I'd be very, very surprised if you had $43k worth of expenses now that would completely disappear and not have any corresponding increases. Well, assuming you wanted to maintain your current lifestyle in retirement that is.

 

[someguy]

I think others have honed in on a sense of desperation in your OP and a resulting likely underestimation of expenses. I agree. Can you detail your gross to net a bit more? If you're making $450K and maxing two 401(k)s ($37K), your take-home is ~53% of gross, which implies a pretty high effective tax rate.

Have you considered one or both of you finding new jobs? Even if you both take a 50% pay cut to get easy, low-stress jobs, you'll still be making over $200K and should be able to easily cover all expenses and still save quite a bit. Plus of course your pot grows.

 

[Bigdawg]

We put together a budget and came up with $65K/year which includes $24K/year for HI and $10K/year for travel. We're not going to spend more on a house/condo that we get out of ours and any overage will help with the savings balance. We also know that we're not going to live anywhere that we can't live on $65K/year.

Most folks on here budget but test it against past/current expenses. Usually for a few years. My suggestion is that you track expenses to the penny using Mint or Personal Capital for at least one year if not 2-3. You will be surprised. The you will have a much better idea if that 65K budget is realistic. Still the HI unknown. Welcome and good luck.

 

[Fermion]

You guys don't realize how much they are probably paying in taxes. With no kids we were paying $60k just in federal taxes on a $250k income. They could easily be paying more than twice that especially if their state taxes them too.

$450k - $150k (fed, state, SS and medicare tax) = $300k which is still a big nut but does not really allow you to sock away more than $200k per year if you have the commute and expenses of working two jobs in a high cost of living area.

 

[exnavynuke]

You guys don't realize how much they are probably paying in taxes. With no kids we were paying $60k just in federal taxes on a $250k income. They could easily be paying more than twice that especially if their state taxes them too.

$450k - $150k (fed, state, SS and medicare tax) = $300k which is still a big nut but does not really allow you to sock away more than $200k per year if you have the commute and expenses of working two jobs in a high cost of living area.

They still stated that their current expenses are $7k/month, or $84k/year, and they estimate needing $24k/year in medical in retirement. Those data points alone make a $65k/year spending in retirement look very unrealistic to me.

 

[ZenMaster]

I don't want to sound harsh here, but it seems you have already made your decision and are just looking for justification.

How do you know how long you will live? Dramatic breakthroughs in healthcare are happening rapidly these days. Planning to die early isn't much of a plan, IMHO.

It looks as if you are going to keep changing the variables (max age decreases by 5 years), until you get numbers that make you happy. That's like changing doctors when you are unhappy with the diagnosis until you get a "you are fine" answer.

Good luck in whatever you do.

If it were me, I'd look for opinions that tell me I am on the wrong path, as well as those that support what I want to do. Your mileage may vary.

You're not being harsh - and no, we haven't made up our minds, we're just trying to figure out how early we can realistically walk away from our current jobs. We want out but we certainly don't want to get 2-3 years down the road and come to the realization we made a mistake with no real good options for going back.

My comment about the -5 year life expectancy was one more of curiosity to see the impact on the % success. I had one grandparent live to 82 and the others died in their 60s/70s. Both my parents are still alive but there's not a long family history of longevity. We know the highest expense years are at the end due to medical costs.

We have no expectation of keeping our current lifestyle when we retire. I should have made that clear in my OP to avoid confusion.

I appreciate the comments, thanks. I get more value out of questions/challenges because it helps me consider things we hadn't thought about. Keep 'em coming!

 

[ZenMaster]

I think others have honed in on a sense of desperation in your OP and a resulting likely underestimation of expenses. I agree. Can you detail your gross to net a bit more? If you're making $450K and maxing two 401(k)s ($37K), your take-home is ~53% of gross, which implies a pretty high effective tax rate.

Have you considered one or both of you finding new jobs? Even if you both take a 50% pay cut to get easy, low-stress jobs, you'll still be making over $200K and should be able to easily cover all expenses and still save quite a bit. Plus of course your pot grows.

We probably are a bit desperate to get out of our jobs. I think some of that may be the dream of FIRE and wanting to get there. We're both far too rational to do anything impulsive despite our hope and desire to walk away.

We're open to switching jobs. My wife would like to stay in her same industry (benefits/insurance). I'm an engineer in semiconductor manufacturing and would prefer to change industries if I change jobs. We could downsize our house but we'd prefer to move out of Texas when we sell.

Regarding finances:
- Last year our adjusted gross was $441K
- Itemized deductions were $17K for a taxable income of $424K
- Tax was $115K for a net of $309K, about $26K/month.
- The monthly average is a bit skewed because a huge chunk of that comes at the beginning of the year when bonuses/stock options cash. It goes into savings or home improvement.

I looked up our paystubs for our salary for our monthly income:
- Salary: $29,744
- Pre-tax: $3,526
- Tax: $7,994
- After-tax deductions: $1,472 (most of this is ESPP)
- Net: $16,724 (56% of gross)

Net income breakdown:
- $1,350 to my savings acct.
- $1,350 to my wife's savings acct.
- $2,540 to joint savings acct. (property taxes, insurance)
- $9,050 to investment acct.
- $2,430 to checking acct. (household expenses)

Profit sharing/bonuses in the spring goes to savings/home improvement/vacations. It's about $60K net after taxes.

This is definitely a first-world problem. We're lucky to be where we can even think about FIRE at 43/47 years old - and the worst thing is that we have to work a couple years more than we'd like. The horror!

 

[someguy]

I highly recommend considering options in between sticking out the current and both quitting immediately. I think it's a bit early to pull the trigger and both quit but life's too short to hate your job. That said, you've got a solid enough base (plus a working spouse) so you have a lot of room to maneuver.

I went out on my own because I was so tired of the corporate world. I was also getting tired of my field but stayed in it for financial reasons. Even so, I expected and was happy to trade a significant pay cut (probably permanent) in exchange for more time and less stress.

Turns out the first part was only temporary and I ended up significantly surpassing my corporate income. On a time&stress vs pay, I vastly surpassed it. I also came to realize I still really like my field, I just don't like all the horsesh*t that goes along with it in most companies. When people are paying a pretty penny per hour, they think twice about dragging you into the office, into stupid meetings, assigning menial tasks, etc. I think really enjoying what I do also positively affected my income. And being on your own allows a lot of ability to move into more interesting related areas.

We probably are a bit desperate to get out of our jobs. I think some of that may be the dream of FIRE and wanting to get there. We're both far too rational to do anything impulsive despite our hope and desire to walk away.

We're open to switching jobs. My wife would like to stay in her same industry (benefits/insurance). I'm an engineer in semiconductor manufacturing and would prefer to change industries if I change jobs. We could downsize our house but we'd prefer to move out of Texas when we sell.


This is definitely a first-world problem. We're lucky to be where we can even think about FIRE at 43/47 years old - and the worst thing is that we have to work a couple years more than we'd like. The horror!

 

[ZenMaster]

I highly recommend considering options in between sticking out the current and both quitting immediately. I think it's a bit early to pull the trigger and both quit but life's too short to hate your job. That said, you've got a solid enough base (plus a working spouse) so you have a lot of room to maneuver.

I agree with this - too early to quit but we're not in terrible shape if we can find something else to do.

I ran FireCalc simulations today assuming retirement in 2019 and a total of 53 years (2 non-retirement, 51 retirement) starting with our current balance of $1.54MM and adding $170K/year until retirement. I added in Social Security at age 70 for both of us for $65,940 annually in today's dollars. FireCalc says 98.9% at $85K/year. Taking Social Security at 62 with the lower payout only drops it to 97.9%. Inflation at 3% with constant spending power.

 

[someguy]

I agree with this - too early to quit but we're not in terrible shape if we can find something else to do.

I ran FireCalc simulations today assuming retirement in 2019 and a total of 53 years (2 non-retirement, 51 retirement) starting with our current balance of $1.54MM and adding $170K/year until retirement. I added in Social Security at age 70 for both of us for $65,940 annually in today's dollars. FireCalc says 98.9% at $85K/year. Taking Social Security at 62 with the lower payout only drops it to 97.9%. Inflation at 3% with constant spending power.

Keep in mind many early retirees will not receive a full/normal amount of SS. It looks like you're assuming you and your spouse will both receive the max benefit. I admittedly didn't model your situation on the SSA website, but I'd be expecting more like $1500/mo each in today's dollars assuming you retire soon. Especially since you said your high combined income is a recent thing.
Check it out here: https://www.ssa.gov/retire/estimator.html

One other item to keep in mind is that extremely long timeframes on FireCalc can give unusually positive results because they miss some key big downturns. I think it's generally recommended to go ahead and try the actual (eg 53 total) but also try a couple shorter total periods (eg 2 more working then only 20 or 25 in retirement).

I like to use the SWR method to double check. For a long early retirement, many of us prefer 3% SWR (or less). If you go two more years and save $170K each year and get a real 5% return, you'll be at roughly $2.05MM. At 3% SWR that is $61,500/year which I think is definitely not enough based on the info you've supplied.