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Hi, new here. 52 year old
Old 05-08-2014, 02:30 PM   #1
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Hi, new here. 52 year old

wondering what my chances are to retire at 55. My financial advisor ran out the cash flows. He says we'll have roughly $2.7mm at 55. 76% of that would be tax deferred, 5% tax free, rest taxable on future returns. Assuming a 5.5% return from 55 on, he says we could afford to spend about $120k per year and have a 95% chance of not running out of money.

Any opinions? I ran ORP and got about the same result assuming the same return (assumed we both live till 90). But I ran the flexible retirement planner and it says I'll run out of money, even when I fix the return at 5.5% with no st deviation.

Just wondering if anybody has run retirement cases similar to the $2.7mm level and what they got?
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Old 05-08-2014, 02:34 PM   #2
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Welcome. Most folks here will tell you to try Firecalc and then come back with questions. I will say assuming 5.5% return is a little more aggressive than most of us here would use.
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Old 05-08-2014, 02:46 PM   #3
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thanks MBAustin. I went and ran FIRECalc. I assumed a 50/50 portfolio, 3% inflation, took SS at age 62. I backed into how much I could spend for a 95% success rate. It gave me $114k/year. That's within range of the $120k my advisor gave me.
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Old 05-08-2014, 02:50 PM   #4
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What are your current expenses?
Mortgage etc, college expenses in the future?
Do you have a pension
There is a sticky with good questions to answer.
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Old 05-08-2014, 02:54 PM   #5
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Here is the sticky...

Some Important Questions to Answer Before Asking - Can I Retire?.

Answering these questions will help the more experienced people here to answer your questions.
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Old 05-08-2014, 02:58 PM   #6
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thanks molof. Yes, I ran all those down with my advisor. Expenses run about $130k/yr in today's dollors over the whole period from 55 on. $70k left on mortgage. Lump sum pension is already baked into the $2.7mm.

Like I said, he ran out all the numbers at a 5.5% fixed return and says we could spend maybe $120k/year in todays dollars and not run out.

I'm just curious if anybody else with assets in that $2.7mm range has evaluated early retirement and what conclusions they came up with.

(*Edit - yes, molof I answered all those questions with my advisor. Got actual SS numbers, actual pension numbers, etc... I'm using the best info I can get.)
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Old 05-08-2014, 03:04 PM   #7
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Ok - not to get too morbid... what timeframe are you looking at? at 55- a 30 year timeframe has your running out of money at age 85. Do you have longevity in your family?

I'm 52 and typically do firecalc runs for both 40 years and 30 years. (The reason I do 30 year runs is that there are some historically bad years that aren't included in the 40 year runs.) For me, 40 years is plenty since my family dies young. My husbands family has longevity -but he's older than me - so it's a wash.
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Old 05-08-2014, 03:05 PM   #8
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Hi rodi. We assumed me and my wife both live to 90 in all our runs on all the calculators and with the advisor.
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Old 05-08-2014, 03:23 PM   #9
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Quote:
Originally Posted by bulbar View Post
I'm just curious if anybody else with assets in that $2.7mm range has evaluated early retirement and what conclusions they came up with.
I'm about to turn 54 am retiring this year and, counting the value of the pension I'll get at 55 (but not counting my paid off house), have assets around $2.5M. I'm assuming a significantly lower withdrawal rate and retirement expenses of around $70K/yr.

Maybe it's just a difference in personal philosophy, but planning for a 40 year retirement I'd feel very uncomfortable with a WR over 3%.
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Old 05-08-2014, 03:33 PM   #10
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thanks stepford. that's what i'm looking for, some other data points. I assume that "WR" is return on investments? yeah, i'm not counting my house either, although i've got a good bit of equity. i think we really need to get our expenses down at least under $100k.
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Old 05-08-2014, 03:41 PM   #11
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Quote:
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thanks molof. Yes, I ran all those down with my advisor. Expenses run about $130k/yr in today's dollors over the whole period from 55 on. $70k left on mortgage. Lump sum pension is already baked into the $2.7mm.

Like I said, he ran out all the numbers at a 5.5% fixed return and says we could spend maybe $120k/year in todays dollars and not run out.

I'm just curious if anybody else with assets in that $2.7mm range has evaluated early retirement and what conclusions they came up with.

(*Edit - yes, molof I answered all those questions with my advisor. Got actual SS numbers, actual pension numbers, etc... I'm using the best info I can get.)
I am 58. Still working. No pension, just SS. I have similar assets like yours, plus $750K equity in 2 homes. I am using 35 years, and $100K / year.

DW and I are still nervous and still want to work one more year. My main concern is what if market turns around and cut 20%.
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Old 05-08-2014, 04:03 PM   #12
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Return is NOT the same as withdrawal rate. It sounds like the advisor is using a 5.5 percent rate of return to project the growth of the portfolio. $120,000 is 4.44 percent of the $2.7MM, and that would be the implied initial withdrawal rate. In your shoes, I would question the advisor about the assumptions to make sure that's what was meant.
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Old 05-08-2014, 04:13 PM   #13
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Quote:
Originally Posted by bulbar View Post
thanks stepford. that's what i'm looking for, some other data points. I assume that "WR" is return on investments? yeah, i'm not counting my house either, although i've got a good bit of equity. i think we really need to get our expenses down at least under $100k.
WR is withdrawal rate. It's the amount you expect to draw for the first year of retirement (withdrawal/nest egg). So if you had $1M and used a 4% withdrawal rate - you'd withdraw $40k/year.
Subsequent years you increase the initial withdrawal rate by inflation.

There are lots of scholarly article on "safe" withdrawal rates. 4% used to be considered very conservative - but now, especially for retirements longer than 30 years, there are arguments for 3.5-2.5% ranges.

Keep in mind this is just the withdrawal from the nest egg... if you have other income streams (SS, pension, other passive income) you can withdraw less than your spend rate.
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Old 05-08-2014, 04:37 PM   #14
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Congratulations. Also about to turn 55, also about to hit 2.7, also thinking about retiring next year. Our assets are about 50% deferred accounts and a little overweighted on equities. Our plan is for $7K/month (which is more then we spend today) + 1.8K healthcare (which is high in ID) Fidelity Retirement Income Planner (RIP) is a good tool, it says we are good to go. Also worked the numbers with a Fidelity rep and a DADavidson rep who both concur. Maybe I'm more optimistic, but we will vary our spending when necessary. $5K essential so can be pretty flexible if need be.
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Old 05-08-2014, 05:27 PM   #15
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Hi Bulbar; if I understand correctly your planner has said you can withdraw $120,000/yr from a 2.7million dollar portfolio when you hit age 55. That interprets to a WR(withdrawal rate) of 4.44 percent. That is above the 4 percent "safe withdrawal rate", and with a relatively early retirement age of 55, seems a bit aggressive, unless you can drop your withdrawal rate substantially once you start drawing SS. Perhaps that is the reason that your FA went with a higher than average WR initially. If no SS, then a 3.5 WR of $94,500 might give you a near 100 percent rate of success, for a longer than average retirement horizon. Then again, the market is at a high, so 3 percent might be safer. DH and I are 65/67 and will start drawing down in January and will start with a 2.5 percent WR.
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Old 05-08-2014, 05:53 PM   #16
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How much is the adviser charging you? I may have a suggestion on how to increase your withdrawal rate.
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Old 05-08-2014, 06:00 PM   #17
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If it's not hard for you to stay within your $114k firecalc budget I'd say you are good to go.
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Old 05-08-2014, 08:15 PM   #18
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Like I said, he ran out all the numbers at a 5.5% fixed return and says we could spend maybe $120k/year in todays dollars and not run out.
5.5% is a pretty high WR. We were able to ER by cutting our annual expenses significantly without lowering our living standard, allowing us to ER on a low WR that doesn't keep us up at night.

Between having more time to review the budget and being FI, we cut out our disability insurance, life insurance, got rid of the landline, eliminated job and commute costs, did our own taxes, raised our insurance deductibles, switched cell phone plans, reduced our energy bill by 2./3, got rid of cable and probably a 100 other little changes that added up to big annual savings.

At a lower withdrawal rate, you might get ACA subsidies to age 65 to help pay for health insurance as well as not pay any state or federal income taxes.

$120k expenses X 50 years = $6M retirement funding needed

$80K X 50 years = $4M retirement funding needed

$40K X 50 years = $2M retirement funding needed

1% financial adviser fees = $2.7M X 1% X 50 years = $1.35M

If your financial adviser isn't flat fee, there's a great place to start to lower your expenses to make your numbers come out better. Why work longer to support his ER?
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Old 05-08-2014, 08:26 PM   #19
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great messages, thanks! Some replies:

Advisor charging me 1%, but he only manages $500k.

Yes, it appears that at $120k/yr and $2.7mm, my withdrawl rate is 4.4%

Maybe the WR is at 4.4% because we'll be getting SS? He is assuming I take SS beginning at 62, so 10 years from now and that I get $34k per year in those future dollars. I looked up my SS numbers and they say I would get $22k/yr in todays dollars at age 62. Maybe his number is too high? He is assuming my wife starts her SS at 62 and she gets $14/yr in those future dollars. Her SS numbers say she'd get $9k/yr at 62 in today's dollars.

Yeah, we'll have to cut costs. I'd feel better is we could get to under $100k/yr. Good suggestions on cutting cable, disability, etc.
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Old 05-08-2014, 08:54 PM   #20
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I REd at 56. Now 58. You have more than I did when I retired but your spending is higher as well but overall pretty proportional and my WR is similar. My WR will go down once SS and pension come on-line in 2 and 12 years, respectively.

I don't think 5.5% is too aggressive - in fact, I use 5.5% in my deterministic projections (in Quicken Lifetime Planner) and 3% inflation so a real return of 2.5%. The historical return for a 60/40 portfolio is about 8.7% IIRC so I haircut it significantly.

Once you're retired you'll have time to evaluate your ongoing expenses and shop for deals.
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