Hi, I am 54 and want to retire at 55

[Jerry1]

Hello. New member and just starting my quest to determine when to retire. My retirement plan to date has been very simple. I max out my 401k and have paid off all of my debt. At work, I will vest in retirement healthcare at 55. It still requires a payment but it will be great insurance and cost about half the market rate until me and my wife hit 65 and go on Medicare. After that, it will be less and be basically gap insurance.

My question to the group is how did you go about figuring out when you had enough money to retire. My wife and I have saved about $1.3M. Using a 4% rule, that is about $52K. My current gross is substantially more than that and my net and what I spend is probably twice that. While a feel like me and my wife are frugal, it's easy to be frugal when you don't have to worry about your spending. I look at $52K and think a lot of people with house payments and other debt live on that kind of money and so why shouldn't I be able to.

So any help with where I start would be greatly appreciated. I'm sure this will take at least the year I have before I turn 55, but what is the first step or two?

Thanks.

 

[Katsmeow]

Will you and your wife ultimately be eligible for SS?

 

[Jerry1]

yes. I will max out and I think she will also or will be very close to it. And my current very uneducated plan is that I will wait until full retirement benefit kicks in which is about 67 for both me and my wife. Wife is 5 years older than me.

 

[growing_older]

Have you tried tracking spending to see if you can live on 52K? If it's higher do you know how much higher? You can do some detailed projections if you have a good number for expenses.

 

[Sunset]

You do need to truly track your expenses to see how close/far you are from the 52K number.
Also, the 1.3 MM should not be counting your house. Unless its in CA and you are going to sell it and move to a cheap State for housing, then I could see some of it counting.
Did you try the calculators, there are many, which give you an idea once you know how much you will really spend.

 

[pb4uski]

You can use firecalc and put in your SS and assets and see what you could spend each year and still have a good chance of portfolio survivorship. It will likely be more than $52k because of the SS coming on line later in life.

Then the key question becomes whether or not you can live on that amount each year. When deciding that, don't forget to factor in periodic car replacements, periodic home improvements, kid's college and weddings, as applicable.

 

[Jerry1]

To respond - no, the $1.3M does not include my house. That is all 401k/IRA money along with a cash out pension from work. It does not include our general cash account which is currently around $125K.

So it seems like the most important assumption and work to do is figure out my expenses. That will be an interesting exercise. Any directional help with that would be great. I guess you start with what you currently spend and figure out what you won't need to spend any longer and what you're willing to not spend to obtain your new life.

This is not something I'm real good at. I guess I just figured I'd live on what I have which is what I've always done. Just like my retirement planning so far. I just maxed out the 401K. I didn't think about the house, I just got a 15 yr mortgage and paid it off even sooner. So I guess I just figure I can live on less money. Maybe another way to look at this is to start from the bottom and write down the pure essentials. If those are about $25K, then $50K should be doable.

I have no illusion that I will live like I'm living now, but that's the point. I know I'm ready to give that up. Just need to figure out what I get in return.

Thanks!

 

[RetireAge50]

We operate much the same way. We max out 401k, Roth, DCA, etc then live on the rest (without much tracking). However we expect to have much more spending money during retirement as these deferrals, college expenses for kids, mortgage, etc took a major portion of our income.

So we will have about 1/2 our current income but more money to spend for ourselves so feel comfortable.

 

[Walt34]

Just for your own peace of mind you could try tracking all of your spending for at least six months, preferably a couple of years. Then you will have a better grip on what your expenses are, and be in a better position to decide what you must have and what is not hard to give up if you want to retire earlier.

As others suggested keep a set aside for once-in-a-decade type expenses, like new furnace and A/C, new roof, car transmission guts fall out on the pavement, that type of thing.

 

[Rothman]

I agree with others, I am shocked at how much we spend. You really need to track for a time and be sure of what spending you expect. Even though compared to others with similar income we seem like savers the spending is significant and with children college expenses it makes it difficult to hit the number required at a 3% SWR. I think if something happened we'd surely get by without real hardship but now don't see sacrificing in retirement as a good choice since with more time in retirement I expect to do more travel and leisure activities that cost money. The good thing is we are already FI enough to lower any real pressure at work, I'm there at my choice.


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[Huston55]

Jerry-

+1 on the advice to track your expenses for 6+ months minimum; having confidence in how much you will spend is the key to answering your question.

However, there is a quick approximation that will put you in the ball park (not a substitute for tracking actual expenses but, a way to provide some meaningful data).

Pull out your last 3 yrs of tax returns and pay stubs and calculate "spending" for each of those 3 yrs as follows.

1. Find total income.
2. Subtract all income taxes paid (federal, state, local, SS & Medicare)
3. Subtract all "retirement" savings (401k, IRA, after tax, etc.)
4. Make any appropriate special spending adjustments (ie: child's college tuition which will go away, etc.)
5. Based on the remaining total, add back in the income taxes you 'expect' to pay on that income (federal, state & local)
6. The result should be in the ball park of "gross" income you will need during retirement.

Additionally, I ran a quick FIRECalc run using the $1.3M prortfolio, both getting max SS, and age data you provided. The results are:

- With a 60/40 AA (my assumption) and $30k x 2 SS at FRA (my estimate), FIRECalc says you can spend $78k/yr for 35 years beginning at 55 yo with a 100% success rate.

Hope this helps get you started.

 

[Jerry1]

Thanks for the advice. I will sit down with my wife and go over our spending. We actually do keep very good records in Quicken. I've just never gone over them from an expense side of things. Each year, I look at net worth and retirement accounts and have been very happy with those results. I guess the time has come to focus on the expense side.

Just as a side comment, I took my net from my paycheck (which is after all taxes, 401k contribution . . .) and was shocked at the amount of money that is flowing through my hands. I know I haven't been spending all of my net but there is no way I can retire on the level of spending I'm currently doing. Me and my wife are going to have to make some spending decisions. There will be easy ones (the ones that go away with work like my lease car), but I imagine some will be more of a challenge.

 

[sengsational]

Even though you have some spending side work to do, it's never too soon to plug your numbers into a retirement calculator. FIRECalc: A different kind of retirement calculator is one that is very popular here. I sort of like Retirement Calculator - Parameter Form. Take your time with them, study the inputs carefully, run them, and come back if you have questions.

 

[heeyy_joe]

Here is your answer. Yes.

 

[ERsoonihope]

I used Mint.com to get a handle on our spending. You need to be comfortable plugging your bank and cc account passwords in - I was a little nervous, but went ahead and did it a few years ago. Mint captures the ccard and debit card transactions and categorizes using merchant codes.... I spend a half hour a month cleaning up erroneous codes and recategorizing some things every month...but think it's really given us a great handle on where the money goes.

Retired a couple months ago...but likely would not have been able to make that decision without understanding our spend. Which by the way, is way higher than I would have ever guessed - but at least I knew that when we pilled the plug.

 

[daylatedollarshort]

My question to the group is how did you go about figuring out when you had enough money to retire.

We looked at the Consumer Expenditure Survey and compared our spending line by line. We were kind of appalled at how much we were spending. We also asked ourselves would we rather live a more middle class life and never have to work again or keep working to be able to spend much more? We chose to cut our spending and looking back we are sorry we didn't live more frugally years ago and retire, or at least semi-ER, even sooner.

A lot of the stuff we cut like the landline, our energy usage, cell phone contracts, brand name ink cartridges, renting a cable modem (we wised up and bought our own) and the extra cable channels aren't really things we miss. Plus a lot of what we made before when we worked full time went to SS, federal and state income taxes and job costs (commuting, clothes, lunches out, buying back extra vacation). Cutting our expenses meant we were FI on what we had and being FI meant we could cut out disability and life insurance as well as no longer needing to save for retirement. So a lot of the reductions were things that didn't impact our day to day standard of living. It wasn't hard for us to cut our grocery bill by more than half just by being home more and having time to price shop and cook from scratch.

We just made a list of hundreds of cuts we could make, some big and some small, and it all added up to needing tens of thousands a year less in annual retirement income.

 

[pb4uski]

If you have good records in Quicken, then you should be able to run some reports to get a better handle on what you are spending.

Your net earnings is a good place to start, but then you need to adjust that for any after-tax savings you are doing and other special expenses.

 

[MBAustin]

Welcome, Jerry!

You've already received (and taken heed) of some very good advice above. In addition, there is some excellent info in this thread http://www.early-retirement.org/forums/f47/some-important-questions-to-answer-before-asking-can-i-retire-69999.html and generally in the "Early Retirement FAQs" Forum (Early Retirement FAQs - Early Retirement & Financial Independence Community).

Feel free to keep asking questions!

 

[nuke_diver]

Another vote for tracking your expenses

Being ultra conservative (moneywise) I would also suggest running multiple calculators to make sure that you have things covered (different calc use different inputs and no one is perfect). I would also suggest a longer planned retirement. While no one knows when they are going to check out (mostly) given improvements in medical care we are likely to live longer than previous generations especially if you are health conscious

Oh and don't forget to factor taxes into your budget..

 

[growing_older]

Oh and don't forget to factor taxes into your budget..

To me this seems like a big problem. I can include all the taxes I know about using current tax law, but politicians are free to change the rules at any time and with a 40-50 year planning horizon, I'm sure they will. I've settled for just including a big contingency factor into my plans. It makes me very susceptible to OMY.

 

[38Chevy454]

Welcome to the forum. You have some good advice about getting a good understanding of your expenses and therefore what is a realistic budget. One thing to keep in mind, as daylatedollarshort suggested, many expenses may be eliminated or reduced once you retire. Another thing is that your taxes will be much less than current, as a percentage.

As for budget, it is a good idea to have two categories of expenses. Mandatory are those that must be paid, such as: medical insurance, prop taxes, utilities, car insurance, rent or mortgage if applicable, groceries, and others that are critical expenses that you must pay each month. Then second category is Discretionary expenses that are not critical, but are the more quality of life expenses, such as: eating meals out, entertainment, travel, newer car purchase, and similar. I view the mandatory expenses as must be covered by your monthly income, no matter what happens to your savings. SS is a great solution for this as it can help cover the minimum and then use your savings for the balance. If you have sufficient savings, then take some extra and use that for the discretionary. Key point is the discretionary can raise or fall depending on the financial health of your savings and returns on those investments. There are alot of withdrawal strategies, the 4% rule is just one of them. Your planning should consider 35-40 years of potential retirement, given your age. Once SS kicks in you have that as a basis to build on, the key for now is to bridge that time between retirement at 55 and SS at 67 (or whenever you decide to take it).

 

[Terryjm51]

Jerry welcome I am new also !!
Dave Ramsey has some really good strategy's on managing money

I am 53 and little behind you on assets. I too plan on 55 to 57 to throw in the towel and live on my nest egg.
I make a whole lot more than we live on but but 50k is a lot lower than I would expect to live on. Thank goodness my wife is 52 and plans on working till 59. She makes right around that number 57 k So the year before I leave we are going to bank my check and live on her income. Should be interesting LOL
Once SS plays in plus her pension we should be good.
I am learning ( reading these forums plus books) on how to managing my money through vanguard. I see that as a huge discount or savings in my spend if I self manage.
Good luck !!


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[Jerry1]

Thanks for all the replies. Things taken to heart to begin working on. The budget. I will do the two prong budget (mandatory and discretionary) as mentioned by 38chevy454. I was coming to that conclusion on my own that the first step in analyzing my current spending is to determine essentials. I'm an accountant so basically my fixed costs.

I also like the idea of trying to live on an expected amount of money (trial year). That will be hard because I would still be going to work and needing to do a lot of things that I won't be doing in retirement. Still, I think the exercise will bring value.

I will also be running calculators and see what assumptions I'm most comfortable with. I like the Bernicke model in FireCalc. I believe and have seen from my father and mother in law that in their late seventies and into their 80's, that you just don't spend as much later in retirement as you do out of the gate. Not sure what percentage reduction to use in the assumption, but I think one is warranted.

Looks like a lot of work to look forward to in the coming year. Thanks for the great start. I'll be doing a lot of reading here and be in touch.

 

[Sunset]

One thing I did to figure out my spending, was since my pay was auto deposited into my bank account, I logged in and could see all the account transactions.
My bank allows me to view the withdrawls (so few lines), and limit the range, so I picked 12 months and copied & pasted the display into a spreadsheet. (or maybe they allowed download I really don't recall).
Point is, since my pay went into this account, and I either took $$ out to spend or paid a credit card or wrote a check, it was an easy way to see exactly how much I had spent in 12 months. (I didn't count moving $ to IRA/ROTH as spending).

Now I make it a point to deposit a check in full, and then withdraw cash, so that later I won't have the inaccuracy caused by taking money out of a check deposit at the time of deposit. Just in case I want to inspect my spending again.

 

[pb4uski]

I did a bottoms up budget based on our spending categories, historical information on spending we had in Quicken and adjustments for changes expected as a result of retiring. If I didn't have the historical Quicken information I just would have done a through analysis of our spending for the last couple years and used that.

One could also do a top down budget based on take home pay and other income less what was saved, assuming that whatever was earned and wasn't saved was spent, and then adjusting the spending for certain one-off items (like kid's college or a wedding or whatever) to see if the bottoms up total is sensible.