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Old 01-20-2018, 06:24 PM   #1
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Greetings from the Midwest!

I've enjoyed lurking on this site and decided it was time to introduce myself. I'm in a 54 year old professional working for a MegaCorp Tech company. My DW is a part time Nurse and I have 3 boys (ages: 21 -Jr. College, 19 Frosh College and a 16 year Sophomore HS). I've been a big fan of Dave Ramsey and have followed some / parts of his baby step advice although at times I do feel that I might not be a typically follower.

My wife and I have lived a modest lifestyle relative to our income and we are now setting our sights and goals on a day soon when we can focus on "giving back what has been graciously given to us."

My wife and I do not have the blessings of a pension other than SS. Here's a quick snapshot:

Retirement Cash Flow:
-$1.4M Investment and after tax savings
- $900k pre-tax 401-k

College/ 529: $100k

Home: Zillow Value -$500k
-Outstanding Mortgage: $80k

I've been tracking home expense for over the past 12 months and excluding hard costs associated with the kids, here's the projected retirement costs:

Basic Needs: 65k
Wants (Discretionary): 50k
Wishes (Philanthropy, Generational): 25k

We are working towards paying off 2 car leases (big mistake) this year of which we have 65% of that expenses covered in a cash money market and paying off the mortgage in 2019 or sooner. My plan would be to stockpile cash over the final 2-3 years equal to 2 years of " Basic Needs" and walk away from my career when I turn 59.

I do have a couple of questions:

1. This has been a banner year for investments and because of an IPO and other years at MegaCorp tech companies my post tax investments have a material exposure across 3 companies (35%). My financial advisor has been working over the past 2 years to minimize this exposure through a series of Put/ Calls, Donor Fund (charitable) and other transactions. I've been fortunate to realize a return in the 20%'s in 2017. I'm around 65/35 right now and have a meeting next week to review and adjust my exposure. I still feel bullish in 2018 but am concerned about a hit coming either late 2018 or 2019. Given my plan to cash out of work around 4-5 years from now am I carrying too much risk?

2. Pay off the mortgage or not? As a fan of D Ramsey we've been working hard to pay off all debt of which 2 car leases and the balance of the mortgage are left over. We plan to possibly move to the Denver market over the course of the next 5-8 years and will roll the proceeds of our home sale into something a bit smaller but most likely 200-300k more expensive. Should I plunge more cash into paying off the mortgage or should I just let it ride?

Thanks for thoughts/ feedback.
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Old 01-20-2018, 07:10 PM   #2
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Welcome to the forum and congratulations on your savings achievements. If I am following your projected budget totals correctly, you are at $140K (sounds high)? Many on this forum follow the 4% rule for a safe withdrawal rate. Applying this rule of thumb, you will need investable assets of $3.5M. SS and pensions would lower this amount. If you have not done so, you might want to enter your numbers into Firecalc.

Regarding your questions, 1) Most on this forum are DIY investors or use a fee only advisor and invest in low cost index funds. Which company is managing your account? Yes, IMO you should diversify out of the 3 tech stocks. As far as allocation, it depends on a lot of factors including your tolerance for risk. Nothing is wrong with 65/35. However, most here will recommend ignoring market conditions and staying with your allocations long term. IOW, it does not matter what we think the market will do next year. Forecasts are often wrong. 2) The mortgage is a coin toss. We paid off our mortgage prior to retirement. This reduces your risk in retirement but may not be the best use of funds when mortgage rates are low. You will find folks on this forum that take both approaches.
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Old 01-21-2018, 07:41 AM   #3
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Welcome,

It does not appear that your current investments will not support a 140,000 yearly draw per the prior post. I will also warn about concentrated bets on 3 stocks and would unwind that immediately if in tax deferred. If the 3 stocks are in a taxable account, then a thoughtful process to reduce capital gains would be warranted.

If the interest on the mortgage is over 3%, I would pay it off. Under 3%, let it ride.

Your Asset Allocation is not excessive for your age and timeline to retirement. I would reduce Equities by 2% per year so that at retirement, 55/45 would be more conservative for "sequence of returns risk".

I would lower spending expectations to a more manageable amount given your current assets.

Best wishes for your success,

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Old 01-21-2018, 08:07 AM   #4
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Thank you for the feedback. My assumptions would be 140k at the kickoff of retirement in 5 years with SS kicking in when I turn 67 (8 years into retirement). I am assuming SS at or near the max (have hit max SS over the past 23 years and will have 35 years of professional employment) so approximately 35k per year inclusive of my DW combined so my assets would need to generate approx 105-110k per year. In addition, we are contributing 68k in savings per year over the course of the next 4 years.

The 3 Tech stocks are post tax holdings and therefore are subject to cap gains. Two of the three are Fortune 500 with dividend payments. I am working to pare that down over the next 3-4 years.
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Old 01-21-2018, 08:20 AM   #5
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I agree with others thoughts. Even with more than $50k in social securtiy, a $140k spend level with taxes becomes $155-160k. So you are looking at a 5% withdrawal rate which is a bit too high at age 59 even with two years of expenses in cash. I think at 65 or 70 a 5% withdrawal rate would work but you would likely have to have annuities to guarantee that income stream, which have higher expenses.

Perhaps you could postpone the charitable giving until later in retirement which might make the numbers work at a 4% withdrawal rate. Many people would scoff at a 5% withdrawal rate but I think it is doable later in retirement with guaranteed income sources, but you would likely be eating into any legacy you might want to leave your children. If a legacy is important, I would keep WR below 4%, say 3.5% with taxes. I would also not be in a hurry to pay off mortgage, if the rate is good- a bit of leverage and tax deduction on the interest.
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Old 01-21-2018, 08:21 AM   #6
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Welcome and congrats on a pretty impressive stash.

-You made 20% last year using a FA. Most of the folks on here DO NOT us a FA or if they do they use a fee only adviser. Many on here made much more than 20% last year.
-Car leases? Yes, get rid of them.
-Plan to move to a HCOL area (Denver). Most on here advocate moving to a LCOL area for retirement. Do not ADD a mortgage going into retirement. Bad idea.
-Diversify. 65/35 is not a bad AA but the 65% should be more diverse.

Good luck and keep planning. Seems like you are doing a good job of tracking expenses.
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Old 01-21-2018, 08:50 AM   #7
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Thank you StuckinCT: I agree with your thoughts on postponing our plans around charitable giving until later. I've struggled with leaving a big pot of cash for my kids when I'm gone. They are all tracking well right now and I envision a very solid future of all of them. Maybe giving while they're building their families (homes, once a year family reunions etc.). I could see my DW and me taking the first 12-18 months and roaming around the country but eventually we both will find out way back to some sort of role where we enjoy the work and get paid too. My wife is an Oncology Nurse and loves her work. She can work Flex time and still earn decent money. I will most likely pursue some consulting work with startups etc and work a few months here and there. I project annual income from this sort of gig work around 25-50k per year through until I hit age 67 and start to collect SS.

BigDawg: The 20% was a swag. On those 3 company stocks we got well in excess of 30%. I sit with my FA this week and will get a better feel of my net return last year.

As far as a move to HCOL, our idea is to move from our current residence (Cincinnati which is LCOL), sell the house and move the cash into a safe investment and rent for a few years. I am in a professional executive sales role so a big year could mean 600-900k but on average I earn 450k per year and my wife earns around 45k part time work. As the kids matriculate through college and the cost starts to We easily can stockpile cash to pay any delta between the value of our current home (500k) and the cost of a downgraded home in an HCOL. We will not have a mortgage!
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Old 01-21-2018, 09:02 AM   #8
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Quote:
Originally Posted by Cincyguy63 View Post
Thank you StuckinCT: I agree with your thoughts on postponing our plans around charitable giving until later. I've struggled with leaving a big pot of cash for my kids when I'm gone. They are all tracking well right now and I envision a very solid future of all of them. Maybe giving while they're building their families (homes, once a year family reunions etc.). I could see my DW and me taking the first 12-18 months and roaming around the country but eventually we both will find out way back to some sort of role where we enjoy the work and get paid too. My wife is an Oncology Nurse and loves her work. She can work Flex time and still earn decent money. I will most likely pursue some consulting work with startups etc and work a few months here and there. I project annual income from this sort of gig work around 25-50k per year through until I hit age 67 and start to collect SS.

BigDawg: The 20% was a swag. On those 3 company stocks we got well in excess of 30%. I sit with my FA this week and will get a better feel of my net return last year.

As far as a move to HCOL, our idea is to move from our current residence (Cincinnati which is LCOL), sell the house and move the cash into a safe investment and rent for a few years. I am in a professional executive sales role so a big year could mean 600-900k but on average I earn 450k per year and my wife earns around 45k part time work. As the kids matriculate through college and the cost starts to We easily can stockpile cash to pay any delta between the value of our current home (500k) and the cost of a downgraded home in an HCOL. We will not have a mortgage!
With this additional information, I think you are on track for early retirement nirvana. Don't forget healthcare expenses but you or wife may have coverage that will extend into retirement.

On the charitable side, instead of giving to kids when your gone, start early with education accounts for grandkids(hopefully to come later). Your children will appreciate it while you are alive and you will get satisfaction out of helping them get educated.

Beat to you,

VW
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Old 01-22-2018, 04:51 AM   #9
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Based on your replies so far you need to get a much clearer picture of how you're going to spend money in retirement. This is not a negative judgment on my part - it's an acknowledgement with the kids you have at their ages a lot of things can change between now and when you reach age 59. So I would meet with that advisor, make a "framework plan" with the idea that things may change.


I for one would never want to retire with payments to make, especially a mortgage. A car loan or lease might be acceptable if covered by assets. But I am risk averse, your mileage may vary.
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Old 01-22-2018, 07:47 AM   #10
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Thank you PoorOldCountryBoy - I couldn't agree with you more. I follow the philosophy to NOT carry debt into retirement. If we do decide to move to a HLOC like Denver CO and move into a home that is more money than our current home we would cover the difference with cash. Over the course of the past 18 months, I've been tracking my monthly expenses with Mint and have a clear picture of where my expenses are right now. My biggest costs today are associated with my home (insurance, mortgage, services etc.). My second biggest outlay are support of my 3 boys (school, cars, insurance, food, cell phone, sports etc). I spend roughly 37k per year on education and 48k per year on cost associated with my home. My annual expenses today have a run rate around 220k.

I am right there with you. I also understand that it is possible that when my wife and I retire we will trade in one expense for another. Here's some of my projected retirement monthly expenses I've been working with:

-Auto (Insurance, Service and Gas): $360
-Utilities (G/E, Cell, Cable, Water) : $614
-Entertainment (Movies, Subscription Services, Streaming Services): $155
-Food (Groceries and Dining Out): $1,132
-Health & Fitness (Gym, HI, LTC and Pharma): $1,450 (HI=$900/ LTC=$300)
-Home (if we own a single family/ condo home): $1,364
-Vacation -Lots of movement here! : $2,000-2,500 (most likely the higher side once ER kicks in)
-Gifts/ Charity: $500
-Shopping (clothes/ electronics/ hobbies): $250


Let me know if there's anything that doesn't make sense or something that I"m not thinking about.
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Old 01-22-2018, 08:28 AM   #11
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I really can't tell you that unfortunately. My suggestion is to use your current numbers as a guide-not 80%, use 100% of your current. When you can be concrete about the lower numbers, then begin to use them. I only say that because there is a tremendous inertia about lifestyles, especially with a couple. Usually one is a little better than the other about saving. And there are some identity issues related to going for McDonalds for coffee instead of Starbucks - are you both on board 100%? You'll never know until you start.

example - I go to the store and spend $100, DW can get out for less than half that. Fortunately we are both more thrifty than most.

And have you ever heard of "boomerang kids?"...you just never know.
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Old 01-22-2018, 08:54 AM   #12
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Thanks PoorOldCountry! Well, I've read and heard similar positions on current annual expenses but when I do look at the detail over 18 months, I can clearly see costs that will not be there within the next 5 years. Example, we cash flow my older sons college apartment costs at approx $600 per month. I pay $2,090 per month for a mortgage (80k left) and I pay approximately $1,340 per month on college tuition, books etc. My Auto insurance is roughly $450 per month for 3 teenage drivers and add in golf lessons, MCAT prep classes, cell phones, gas money etc. I find it hard to swallow that I should be managing my expenses for retirement to 100% of what I pay today unless of course there's something that I am missing. Could it be possible that I am way off on my projections for HI? I have heard of BoomerRang kids. I can't tell you 100% for certainty that will not happen but unless there's a health issue or it's temporary agreement won't happen here. My boys know my history about starving and scratching and clawing to make ends meet. They would need to pay/ work if they live with us post college.

Wife and I are frugal. I fight to get the lowest costs on utilities, cars and insurance. We hit local food markets. We do splurge on vacations but shopping is well inline and we both are on the same page.
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Old 01-22-2018, 12:27 PM   #13
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Curious: Why Denver? Family?, Friends?
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Old 01-22-2018, 12:30 PM   #14
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Curious: Why Denver? Family?, Friends?
Oh I know, you started in Albany, moved to Boston and now Cincy. Denver next then maybe Fort Lauderdale.

It is lame humor Monday right?
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Old 01-22-2018, 12:44 PM   #15
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Oh I know, you started in Albany, moved to Boston and now Cincy. Denver next then maybe Fort Lauderdale.

It is lame humor Monday right?
You skipped El Paso..
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Old 01-22-2018, 01:43 PM   #16
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Congrats on a great start! I think you are close to FIRE.
Not trying to be a PITA here, but you make $495+k/year. Take a third off for tax and that leaves $350k. If you spend $220k, why can you only save $68k/year over the next four years? Maybe I missed something.....
I agree that working toward 100% of pre-RE spend is a good practice. I'm out 3 years and spending at 10% greater than pre-RE after adjusting for inflation. (FWIW I plan 3.5% inflation per year). Sure, some expenses will go away (ie college related) but my experience is that those costs are replaced by weddings, travel, hobby costs, etc. It all adds up quickly...
I'd say sock more away now. Look real hard at expenses. And re-consider the donor-advised fund at this point. Get rid of the car leases, keep the mortgage. And please don't rely on SWAGs for your return, or wait for the FA to inform you. You've worked too hard to have what you have. Now comes the hard part -- you have to manage it! Congrats and good luck to you-
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Old 01-22-2018, 06:06 PM   #17
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Love the feedback from the group : ) --> FWIW on how we settled on Denver CO area. DW and I have been vacationing out there for the past 3 years. We've now gone there all 4 seasons and just love the outdoors. I believe CO supports several pieces that are important to me and DW and that's having a strong financial base to cover Needs, Wants and if possible Wishes. Second is to have health which contributes to ones quality of life. Third is to give back in the service of the underserved and finally to find a strong sense of community and connections. You can really have this anywhere but CO and it's sunny days and infinite options to keep healthy and fit seem to be the main draw. Not a big beach couple. Prefer a 4 hour hike to a crystal clear mountain lake instead!
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Old 01-22-2018, 06:11 PM   #18
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@HarveryS- Great catch! Last year we actually put 100k towards the mortgage so of the $350-100k= 250k. We also stock piled 45k of that 250k in a money market to cover our tax bill this April. We typically will pay Uncle Sam (and his cousins State/Local) in April 35-55k per year (includes State and our Locals as well). Also, we are contributing 16k per year into a 529 for my youngest. I don't include that in our savings as for some reason I view that as a "sunk" cost.
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Old 01-22-2018, 06:16 PM   #19
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Just another update. Got back from a meeting with my FA this evening. He manages roughly 1.6M of my total portfolio and charged me 10k last year. We meet 4 times a year, he works with my tax accountant and lawyer that covers my estate. He makes great recommendations and ideas that I most likely would not be able to find on my own. Not sure if that sounds about right but for 10k he's been a great help.
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Old 01-23-2018, 06:21 PM   #20
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Just another update. Got back from a meeting with my FA this evening. He manages roughly 1.6M of my total portfolio and charged me 10k last year. We meet 4 times a year, he works with my tax accountant and lawyer that covers my estate. He makes great recommendations and ideas that I most likely would not be able to find on my own. Not sure if that sounds about right but for 10k he's been a great help.
I have a couple of thoughts.

1) The FA is receiving .6% of the assets under management. If you are planning on a 4% withdrawal during retirement, this must be reduced by the fees. This leaves you with 3.4%. IOW, he is receiving 15% of your annual WR. Also, unless he has you in low cost index funds, there will be trading fees on individual stocks and bonds, and loads or higher expense ratios on funds. These costs also reduce your WR.

2) It sounds like your are very comfortable with his advice. Many on this forum would suggest you have to educate yourself extensively to ensure that your advisors are capable and have your best interest at heart and that their recommendations are sound. And, once you get to this level of knowledge, you can do it yourself. Or at least cut the advisor to a periodic review only role.

I am not trying to talk you out of the advisor. I am just pointing out some items you might want to consider. In some cases, investors are paying FA 1.5% or more when the fees, trading costs and fund fees are combined.
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