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Hello, self employed and concerned with long term outlook
Old 12-23-2013, 07:53 PM   #1
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Hello, self employed and concerned with long term outlook

Hi everyone,
Just came across this site and may be my only hope at achieving my goals.
I am self employed married, 51 with one preteen child. Sat down recently with my financial planner and ran some hypothetical numbers and was surprised at the outcome.
Our current retirement portfolio is around 450,000 with additional assets valued at 500,000.
Our goal is to retire at 60 to avoid the early withdrawal penalties but when we run the numbers planner says we may need to work until 65 for the money to last. Not an option in the field we currently own a business in nor do I want to.

What suggestion do the gurus here have for us .
Just looking for some guidance on where to start searching.

Thanks again for any help
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Old 12-23-2013, 08:29 PM   #2
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It looks like you might have too high expectation for investment returns. The only way to make it is to cut back on spending, if you would like to retire early.

Some people here draw as little as 2.5% to 3% from their stash. I myself do 3.2 to 3.5%, because I am counting on SS to help out later (we are both 57).
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Old 12-23-2013, 08:31 PM   #3
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There isn't enough information in your post to really know since I don't know (1) how much you plan to add to your portfolio in the next 9 years and (2) how much you want to spend.

Your financial planner may be entirely correct if, for example, you plan to have high spending in retirement and you don't plan to add to your portfolio. You might want to look at some of threads on withdrawal rates (just put withdrawal rate in the search box).

Also, I would suggest that you run firecalc with your numbers and see how that comes out.

http://firecalc.com/index3a.php

On the other hand, some financial planners may have an incentive - or even an unconscious bias - to promote the idea that you need to keep acquiring money so that you have an ongoing "need" for the planner. Also, some financial planners might use rules of thumb - like assuming you need a certain percentage of your pre-retirement income during retirement - rather than looking at your specific situation.

Some of the things that would bear upon your situation and likelihood of success:

1. How much do you plan to add to your portfolio during the next 9 years? How realistic is that plan?

2. How much do you plan to spend annually during the next 9 years? Do you track your spending? If you don't, I suggest doing so since it will help in planning.

3. How will your spending change in retirement? Some people spend the same, or even more in retirement. Others spend much less. This is very specific to the individual.

4. How is your portfolio invested? What kind of fees are you paying the financial planner?

5. What are your other assets? Is that your home or is that income producing property or what?

6. I assume that neither you nor your spouse have a pension. What kind of SS can each of you expect?

7. How do you plan to fund college or other post-high school education for your child?

8. Do you have any debt?

All of that is important to knowing whether you can retire at 60 or not. Someone who has low spending and lots of opportunity to save more and good SS will have much better prospects than, say, someone who wants to spend $100,000+ a year during retirement who isn't planning to save any more money and who doesn't have good SS.
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Old 12-23-2013, 10:40 PM   #4
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Originally Posted by NW-Bound View Post
It looks like you might have too high expectation for investment returns. The only way to make it is to cut back on spending, if you would like to retire early.

Some people here draw as little as 2.5% to 3% from their stash. I myself do 3.2 to 3.5%, because I am counting on SS to help out later (we are both 57).
I figured out my rate today for the first time in a long time-it's a likely safe 2.5%.

I basically like to be drowning in money, not drowning in expenses.

Ha
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Old 12-24-2013, 12:01 AM   #5
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Originally Posted by Aln2202 View Post
Just looking for some guidance on where to start searching.

Thanks again for any help
One day we just figured out what our annual income would be if we just lived off savings, pensions, Social Security and hobby job income and decided to live on that amount or less from that point in time. We made a budget to fit our savings, instead of saving enough to match our peak earning years' incomes.

If you don't want to work longer then you will most likely have to figure out how to live on less. There are many great resources on the web for how to live well without spending a lot of money. If you retire early you may qualify for ACA subsidies for health insurance and financial aid for college.

Also +1 on Katsmeow post.
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Old 12-24-2013, 02:06 AM   #6
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It looks like you might have too high expectation for investment returns. The only way to make it is to cut back on spending, if you would like to retire early.
He didn't post anything about his spending or his investment expectations. He posted about having assets of a certain amount and a financial planner telling him he had to work until 65. It is possible, of course, that he wants to spend more than the portfolio he will have in 9 years will sustain. OTOH, maybe the financial planner is wrong. There just isn't enough info to know.
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Old 12-24-2013, 06:25 AM   #7
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Aln,
From the nature of your question, I believe that you would benefit by reading a book or two on retirement planning. You can learn to do financial planning without an advisor; it's really not that hard. However, if you choose to use an advisor, you want to know what kind of adviser has your interests in mind, not his.

A couple of easy books I'd recommend:
The Bogleheads Guide to Retirement Planning, by Taylor Larimore, et al.
Can I Retire, by Mike Piper

These books will cover what everyone here is talking about in an organized, easy to comprehend way. Good luck!
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Old 12-24-2013, 11:44 AM   #8
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Thanks for the replies.
I will try to fill in some more blanks. I just did not want to make my first post too long and boring, but here goes.

Katsmeow

1. We have sep and roth ira which we contribute approx. $18,000/year and will continue until we retire
2.I must confess we do not track all of our spending now but will do so as we get close to the goal.
3. Spending will most definetly change at retirement.We are of the mind set that we live with-in our means. So spending will be less.
4.Mostly invested in mutual funds with 1-2 % in fees 80/20 stocks/bonds
5.Other assets are from equity in real estate both rental and commercial for our business.
6. Yes will receive S.S We both are on a payroll and pay s.s. We plan to start taking it at 62
7. College is the unknown. Would love to pay for childs college but will not base my retirement on child education.
8.Only dept are 2 mortgages but plan to be mortgage free at time of retirement, asset value is based on what properties are worth in todays market minus debt.

Racy, thank you for the book suggestion I will look into them

Thanks again everyone and Merry Christmas to you all
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Old 12-24-2013, 11:56 AM   #9
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As others have stated, without knowing how much you are spending now, and how much you plan to spend in retirement, I don't see how any financial planner can give you any meaningful advice on whether you will need to work until 65 or retire earlier. You will need to get a good grasp of your expenses before you will ever be comfortable answering the question of when you will be ready to retire.

Good luck with it and welcome to the forum.
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Old 12-24-2013, 01:18 PM   #10
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Quote:
Originally Posted by Aln2202 View Post
Hi everyone,
Just came across this site and may be my only hope at achieving my goals.
I am self employed married, 51 with one preteen child. Sat down recently with my financial planner and ran some hypothetical numbers and was surprised at the outcome.
Our current retirement portfolio is around 450,000 with additional assets valued at 500,000.
Our goal is to retire at 60 to avoid the early withdrawal penalties but when we run the numbers planner says we may need to work until 65 for the money to last. Not an option in the field we currently own a business in nor do I want to.

What suggestion do the gurus here have for us .
Just looking for some guidance on where to start searching.

Thanks again for any help
As some of the more established members of this forum have already expressed .... not enough info to comment upon your personal financial situation.

The only recommendations I have are - ditch the financial planners, do your own research, take everything you hear/read with a grain of salt, and formulate your own plan. You & yours are the ones who have to live with the plan's successes & failures ... nobody else.
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Old 12-24-2013, 01:38 PM   #11
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#4 is of concern if you're paying 1-2% for funds, it's probably your FA that's putting you in funds that have a high ER plus 12b1 fees. I assume you care more about your retirement than you do your FA's retirement.
As suggested, do some reading, Millionaire Teacher is one of my favorites.

With your assets you can probably get free planning with Vanguard or Fidelity. Both have low cost index funds with .05- .10 ER. Many ETFs are good too.

You're on the right track, education and tracking your expenses will help. It may seem like a challenge, but you can make it work!
Best wishes,
MRG
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Old 12-24-2013, 01:40 PM   #12
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If you have Quicken, Quicken Lifetime Planner included as part of Quicken deluxe and higher versions is an intuitive easy-to-use retirement planning tool.

Or try Firecalc - (a little less intuitive IMO, but very good as well).
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Old 12-24-2013, 01:51 PM   #13
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We use the retirement planner on the Fidelity web site. I think it is one of the better retirement calculators around. We did have a session with a retirement person at Fidelity, but really all he did was plug the numbers into the calculator, which we realized later we could just do ourselves.

2% in fees X $500K X 9 Years = $90K. Lose the high fees and that will help you retire sooner.
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Old 12-24-2013, 02:19 PM   #14
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2.I must confess we do not track all of our spending now but will do so as we get close to the goal.
Without knowing what you'll spend in retirement, how do you establish an investment goal? You may find by waiting until you "get close to the goal" that you've oversaved/invested (easily solved) or more likely undersaved/invested and are not able to retire as planned.

And if 'your financial planner ran some hypothetical numbers and provided an outcome' without asking what your projected retirement spending would be, your financial planner isn't qualified to give advice.
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4.Mostly invested in mutual funds with 1-2 % in fees 80/20 stocks/bonds.
As others have noted, 1-2% fees are unnecessarily high based on past mutual fund performance. Portfolio fees of 0.2-0.5% are not uncommon among members here. You mention being concerned about the "long term outlook" which implies poor returns - if your chosen funds return 4% before fees, your fund management team will be taking 25-50% of your return off the top - sound reasonable? And during periods when your fund returns are negative, they'll still be taking their 1-2% year in, year out...
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Old 12-24-2013, 02:38 PM   #15
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1. We have sep and roth ira which we contribute approx. $18,000/year and will continue until we retire
So that is another $162,000 in 9 years. Plus, of course, how much your portfolio increases over that time.

Quote:
2.I must confess we do not track all of our spending now but will do so as we get close to the goal.
It is better to do that sooner rather than later. It makes it easier to (1) see where you can make cuts that won't negatively affect your quality of life and (2) plan for how much you need in the future. What if you find out 8 years from now that you needed to be saving an additional $5k a year for the past 8 years?

Quote:
3. Spending will most definetly change at retirement.We are of the mind set that we live with-in our means. So spending will be less.
That is a good thing. That said, it does help to have some sort of idea of how it will change.


Quote:
4.Mostly invested in mutual funds with 1-2 % in fees 80/20 stocks/bonds
Those fees are terrible. We have our money in Vanguard (DH's IRA and our taxable account) and my Fidelity 401k. The lowest cost fund in my 401k has expense of .51%. Even with that (which I think is terrible), our overall cost is .26% per year. We would be well under .20% if it wasn't for the 401k at Fidelity.

Are those the expense ratios on your funds? If so, are you also paying a fee to the financial planner on top of that?

Quote:
6. Yes will receive S.S We both are on a payroll and pay s.s. We plan to start taking it at 62
You might look at whether you would have any advantage with one of you taking at 62 and the other taking spousal at FRA and then taking their own at 70.

Quote:
7. College is the unknown. Would love to pay for childs college but will not base my retirement on child education.
There are many options on this. We found that we've saved a lot by sending our son to CC for his first 2 years of credit then having him transfer it all to a state university.

I second the book suggestions. Racy gave you some and I also like The Millionaire Teacher which is really good in talking about how high expense ratios hurt you.
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Old 12-24-2013, 03:58 PM   #16
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Thanks again for the replies.
Katsmeow, You and I have the same thoughts in regard to college, I have no problem with sending child to CC for 2 years to get the credits than 2 years after.
Our planner is also our CPA for the business so the hypothetical was based on our expenses now which will be lower at time of retirement.
My portfolio has returned a 6-8% return over the 15 years I have been invested with my planner so I am not sure if I should make any changes now.
Will I be able do the same on my own now as well into retirement?

Day late,
I know what you mean about fees. It seams the only person that has made money over the last 5 years was my planner.
How hard is it to manage my retirement portfolio while still running a business and raising a family?
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Old 12-24-2013, 04:25 PM   #17
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Day late,
I know what you mean about fees. It seams the only person that has made money over the last 5 years was my planner.
How hard is it to manage my retirement portfolio while still running a business and raising a family?
I think at minimum just moving to Vanguard or Fidelity funds will save you tens of thousands of dollars in fees and they have advisers there that can help you at no extra charge. After that you can buy some books and tweak your investments more on your own. Once you have an asset allocation decided upon, it doesn't take that much time to implement and maintain, unless you frequently trade individual stocks, something most people here would not recommend.

If you have your own retirement plan through your business you may have more investment choices than most corporate retirement programs. We have a diversified portfolio but one of the things I like to buy are TIPS at auction for our 401Ks with Fidelity. There are no fees to buy or annual fees and the bonds are indexed to inflation.

For books on investing and financial planning my favorites are Risk Less and Prosper by Zvi Bodie and The Millionaire Next Door and other books by Thomas Stanley.
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Old 12-24-2013, 04:43 PM   #18
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7. College is the unknown. Would love to pay for childs college but will not base my retirement on child education.
I hope you can stick to your concept on your kids and finances better than I have.

My kid is in his 5th year of college and won't be done until his 6th. I said something close to what you said about the time he started college. I think I am starting to understand how parents let their kids move back in later and how they help them out financially when needed. It wasn't supposed to work this way in my house!
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